The following management’s discussion and analysis (“MD&A”) of Manila Water Company Inc. and subsidiaries’ (“Group”) financial condition and results of operations should be read in conjunction with the Group’s audited financial statements, including related notes. This report may contain forward-looking statements that involve risks and uncertainties. The actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to, economic, regulatory, socio-political, financial and other risk factors.

Any references in this MD&A to “our”, “us”, “we”, “MWCI” or the “Group” shall refer to Manila Water Company, Inc., including its subsidiaries. Any reference to “Manila Water Company”, “Manila Water”, “MWC” or the “Company” shall refer to the parent company only.

Additional information about the Group, including recent disclosures of material events and annual/ quarterly reports, are available at our corporate website at


Manila Water Company holds the exclusive right to provide water and used water services to the eastern side (“East Zone”) of Metro Manila under a Concession Agreement (“CA”) entered into between the Company and Metropolitan Waterworks and Sewerage System (“MWSS”) in August 1997. The original term of the concession was for a period of 25 years to expire in 2022. The Company’s concession was extended by another 15 years by MWSS and the Philippine Government in 2009, thereby extending the term from May 2022 to May 2037.

The Company provides water treatment, water distribution, sewerage and sanitation services to more than six million people in the East Zone, comprising a broad range of residential, commercial and industrial customers. The East Zone encompasses 23 cities and municipalities spanning a 1,400-square kilometer area that includes Makati, Mandaluyong, Pasig, Pateros, San Juan, Taguig, Marikina, most parts of Quezon City, portions of Manila, as well as the following towns of Rizal: Angono, Antipolo, Baras, Binangonan, Cainta, Cardona, Jala-Jala, Morong, Pililia, Rodriguez, San Mateo, Tanay, Taytay and Teresa.

Under the terms of the CA, the Company has the right to the use of land and operational fixed assets, and the exclusive right, as agent of MWSS, to extract and treat raw water, distribute and sell water, and collect, transport, treat and dispose used water, including reusable industrial effluent discharged by the sewerage system in the East Zone. The Company is entitled to recover over the concession period its operating, capital maintenance and investment expenditures, business taxes, and concession fee payments, and to earn a rate of return on these expenditures for the remaining term of the concession.

Aside from the East Zone, the Group has a holding company for all its domestic operating subsidiaries through Manila Water Philippine Ventures, Inc. (“MWPV”). Currently under MWPV are LagunaAAA Water Corporation (“Laguna Water”), Boracay Island Water Company (“Boracay Water”), Clark Water Corporation (“Clark Water”), and Manila Water Consortium (“MW Consortium”). Cebu Manila Water Development (“CMWD”), a subsidiary of MW Consortium that provides bulk water in the province of Cebu, commenced operations on January 5, 2015. In 2015, the Group added two new projects to its portfolio, namely the Zamboanga City performance-based nonrevenue water reduction project, and the Tagum City bulk water supply project.

The Group also has a holding company for its international ventures through Manila Water Asia Pacific Pte. Ltd. (“MWAP”). Included under MWAP are two affiliated companies in Vietnam, namely Thu Duc Water B.O.O Corporation (“Thu Duc Water”) and Kenh Dong Water Supply Joint Stock Company (“Kenh Dong Water”), both supplying treated water to Saigon Water Company (SAWACO) under a take-or-pay arrangement. Also under MWAP are Saigon Water Infrastructure Corporation (“Saigon Water”), a holding company listed in the Ho Chi Minh City Stock Exchange, Cu Chi Water Supply Sewerage Company, Ltd. (“Cu Chi Water”) and another company tasked to pursue non-revenue water reduction projects in Vietnam called Asia Water Network Solutions. Meanwhile, the Company’s pilot leakage reduction project in Ho Chi Minh City which started in 2008 was completed in August 2014.

Lastly, the Group has Manila Water Total Solutions Corporation (“MWTS”), a wholly-owned subsidiary that handles after-the-meter products and services. Among its products is Healthy Family Purified Drinking Water which sells five-gallon packaged water in pilot areas in Metro Manila.


The Group’s key financial performance indicators are discussed below:

  For the years ended December 31
(in thousand Pesos)
2015 2014 Increase/
Total operating revenues 16,935,883 16,357,145 578,738 4%
Total cost and expenses (excluding depreciation and amortization) 5,848,990 5,087,759 761,231 15%
Other income (expense) - net 582,872 291,349 291,523 100%
Equity share in net income of associates 403,515 357,298 46,216 13%
Others 179,360 (65,949) 245,309 -372%
EBITDA 11,669,765 11,560,736 109,029 1%
Depreciation and amortization 2,600,213 2,443,987 156,226 6%
Income before other income/expenses 9,069,554 9,116,748 (47,194) -1%
Interest income (expense) - net (1,140,591) (1,450,501) 309,910 -21%
Income before income tax 7,928,963 7,666,247 262,716 3%
Provision for income tax 1,794,924 1,836,298 (41,374) -2%
Net income 6,134,039 5,829,949 304,090 5%
Non-controlling interest 176,260 16,860 159,400 945%
Net income atttributable to MWC 5,957,780 5,813,089 144,690 2%

Consolidated net income grew by 2% to P5,958 million in 2015 from P5,813 million the previous year on the back of a 4% growth to P16,936 million in consolidated operating revenues. The growth in revenues was driven by the continued expansion in the East Zone, with its billed volume rising by 3%. Furthermore, the domestic operating subsidiaries and MWTS contributed P2,067 million in revenues, higher by 43% year-on-year.

A breakdown of the revenue drivers is shown below:

  For the years ended December 31
2015 2014 Increase/
Water 13,220,230 12,847,210 373,020 3%
Environmental charges 2,374,388 2,303,873 70,515 3%
Sewer 434,749 419,720 15,030 4%
Revenue from management contracts - 25,488 (25,488) -100%
Other operating income 906,515 760,853 145,662 19%
Total operating revenues 16,935,883 16,357,145 578,737 4%

The Group derived 78% of its operating revenues from the sale of water, while 17% came from environmental and sewer charges. Other revenues, which accounted for the balance of 5%, were from after-the-meter services, connection fees and septic sludge disposal, among others.

On the other hand, consolidated operating costs and expenses (excluding depreciation and amortization) rose by 15% to P5,849 million in 2015. Non-personnel costs led the growth with an increase of 15%, primarily because of higher direct costs, materials and supplies. The biggest contributors to the increase in direct costs include the start-up expenses of the packaged water business under MWTS, increased contractual services due to the expansion of water and used water facilities as well as IT maintenance. Higher premises cost, due to the payment of back rentals of the San Juan stock yard in the second quarter which resolved a long outstanding matter with MWSS relating to turned over assets, also contributed to the increase. For salaries, wages and employee benefits, the increase was due to the reclassification of department-related personnel costs from capital expenditures to operating expenses, and additional manpower for the new subsidiaries.

Below is a summary of the operating expenses incurred during the period:

  For the years ended December 31
2015 2014 Increase/
Salaries, wages and employee benefits 1,639,183 1,377,649 261,534 19%
Non-personnel costs 3,793,147 3,286,172 506,975 15%
Power, light and water 989,603 1,051,434 (61,831) -6%
Other direct costs, materials and supplies 1,430,263 1,145,261 285,002 25%
Overhead 983,928 905,395 78,533 9%
Premises 389,352 184,082 205,270 112%
Other expenses 416,660 423,938 (7,278) -2%
Total operating expenses 5,848,990 5,087,759 761,231 15%

Meanwhile, other income (net of expense) rose by 100% to P583 million in 2015 from P291 million in 2014 due to the reversal of contingent liability of a subsidiary. The two bulk water companies in Vietnam, Thu Duc Water and Kenh Dong Water, with the addition of SII, contributed P404 million in net income, growing by 13% from the previous year.

The movements in operating revenues and expenses, as well as other income that increased by 100%, resulted in a consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) of P11,670 million in 2015, growing by 1% from the previous year. EBITDA margin, however, slightly declined to 69% from 71%.

Results of operations detailed as to business segment are shown below:

  For the years ended December 31
(in thousand Pesos)
East Zone
Head office
Revenue 14,910,074 2,025,809 - 16,935,883
Operating expenses (including depreciation and amortization) 7,066,555 1,330,752 51,893 8,449,200
Operating income 7,843,519 695,057 (51,893) 8,486,683
Revenue from rehabilitation works 3,834,841 1,384,517 - 5,219,358
Cost of rehabilitation works (3,834,841) (1,384,517) - (5,219,358)
Interest income 100,468 216,476 - 316,944
Interest expense (1,311,938) (145,597) - (1,457,535)
Share in equity income of associates - 403,515 - 403,515
Others 24,325 155,032 - 179,357
Income before income tax 6,656,374 1,324,483 (51,893) 7,928,964
Provision for tax 1,693,184 101,740 - 1,794,924
Net income (loss) 4,963,190 1,222,743 (51,893) 6,134,040
Other comprehensive income        
Actuarial gain (loss) on pension liabilities - net (36,907) 16,179 - (20,728)
Income tax effect - 285 - 285
Cumulative translation adjustment - 278,620 - 278,620
Total comprehensive income 4,926,283 1,517,827 (51,893) 6,392,217
Total comprehensive net income attributable to:        
Equity holders of MWCI 4,926,283 1,341,567 (51,893) 6,215,957
Noncontrolling interest - 176,260 - 176,260
  4,926,283 1,517,827 (51,893) 6,392,217
Segment assets, exclusive of deferred assets 63,278,437 10,526,958 155,055 73,960,450
Investments in asociates - 5,723,534 - 5,723,534
Deferred tax assets 853,139 71,363 - 924,502
  64,131,576 16,321,855 155,055 80,608,486
Segment liabilities, exclusive of deferred liabilities 34,653,561 6,120,466 43,554 40,817,581
Deferred tax liabilities - 71,912 - 71,912
  34,653,561 6,192,378 43,554 40,889,493
Segment additions to equipment and SCA 4,156,950 1,789,508 - 5,946,458
Depreciation and amortization 2,331,131 269,079 - 2,600,210
Noncash expenses other than depreciation and amortization (20,453) 33,734 - 13,281

East Zone Head Office

  For the years ended December 31
2015 2014 Increase/
Operating Highlights        
Billed volume
(in million cubic
461.4 449.0 12.4 3%
    Domestic 301.7 292.9 8.8 3%
    Semi-Commercial 50.6 47.3 3.3 7%
    Commercial 89.7 91.0 -1.3 1%
    Industrial 19.4 17.7 1.7 10%
Number of water
976,321 949,230 27,091 3%
11% 11% 0% pts  
Financial Highlights (in thousand Pesos)        
Revenues 14,910,074 14,882,023 28,051 0%
Cost and expenses 4,711,099 4,428,431 282,668 6%
EBITDA 10,198,975 10,453,592 (254,617) -2%
Net income 4,963,190 5,148,502 (185,312) -4%

East Zone’s billed volume, reported in millions of cubic meters (“mcm”), increased by 3% in 2015. The number of water connections grew by 3% to 976,321 customers at the end of the period, mostly from the expansion areas of Pasig, Marikina and Taguig. Average consumption was maintained 43.2 cubic meters per connection while average effective tariff dropped slightly by 1% due to implementation of the arbitral ruling reducing the basic water charge beginning June 1, 2015.

Aside from the continued growth in residential customers, billed volume growth was also driven by the improvement in semi-commercial accounts by 7% with the completion of new residential buildings and the conversion of deep well users in the areas of Pasig and Marikina, as well as the 10% growth of industrial customers. Billed volume from commercial accounts saw a decline of 1% year-on-year due to the reclassification of some commercial accounts to semi-commercial.

The level of system losses, as measured by the nonrevenue water (“NRW”) ratio, was recorded at 11.2% at the end of 2015, which was almost the same level at the end of 2014 at 11.3%. The maintenance of NRW at this level is a result of continuous repair works done at the distribution lines.

Collection efficiency in 2015 was strong at 100%. Meanwhile, average accounts receivable days was at 19 days which was the same number of days registered in the previous year.

Manila Water received on April 21, 2015 the decisionof the Appeals Panel in the arbitration proceedings between the Company and MWSS. The decision concluded a three-year rate rebasing process that began in March 2012 with the submission of a business plan by Manila Water to MWSS and which subsequently resulted in arbitration. The final award of the Appeals Panel resulted in the setting of the rate rebasing adjustment for the period 2013 to 2017 at a negative 11.05% from Manila Water’s 2012 average basic water charge of P25.07 per cubic meter. This translates to a decrease of P2.77 per cubic meter in the basic water charge for implementation in the following manner: (a) negative P1.66 per cubic meter in 2015, (b) negative P0.55 per cubic meter in 2016, and (c) negative P0.55 per cubic meter in 2017.

The negative P1.66 per cubic meter adjustment was implemented on June 1, 2015 together with a CPI adjustment of 4.19% on top of the basic water charge equivalent to P1.08 per cubic meter.

Boracay Island Water Company (Boracay Water)

  For the years ended December 31
2015 2014 Increase/
Operating Highlights        
Billed volume (in
million cubic meters)
4.3 4.0 0.3 8%
Number of water
6,379 6,125 254 4%
Non-revenue water 21% 17% (4% pts)  
Financial Highlights (in thousand Pesos)        
Revenues 401,304 327,270 74,034 23%
Cost and expenses 206,548 140,068 66,480 47%
EBITDA 194,755 187,202 7,553 4%
Net income 69,855 96,059 (26,204) -27%

Boracay Water posted a billed volume growth of 8% in 2015 to 4.3 mcm from 4.0 mcm in 2014. The growth was driven by a 4% expansion in water service connections and 6% growth in tourist arrivals that reached almost 1.6 million during the year. NRW, however, increased to 21% at the end of December 2015 from 17% at the end of 2014 due to leaks in the main line and defective meters that are due for replacement. Boracay Water spent P399 million in capital expenditures in 2015 mostly for the expansion of used water services, growing by 385% year-on-year.