MORE THAN JUST WATER A N N U A L R E P O R T

Transcription

1 MORE JUST THAN WATER A N N U A L R E P O R T

2 Maynilad supplies more than just water. We provide services and opportunities for a better life. Contents 04 The Year at a Glance 04 Company Highlights 06 Message from the Chairman 08 Report from the President 11 Maynilad Three-Year Highlights 13 Being More, Doing More 18 Giving More 20 Setting the Standard 21 More Than Expected 22 In the Pipeline 24 Board of Directors 26 Management Team 28 Audited Financial Statements

3 The Quick Read Company Profile Maynilad Water Services, Inc. (Maynilad) is the water and wastewater services provider for the West Zone of the greater Metro Manila area. We are the largest water concessionaire in terms of customer base in the Philippines. 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 took control of Maynilad on January 24, Our Coverage The West Zone covers an area of square kilometers, and includes the municipalities of Bacoor, Imus, Kawit, Noveleta and Rosario in Cavite province and 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, Malabon and Cavite. Key Priorities 1. Improve network and operational efficiency 2. Improve organizational efficiency 3. Ensure financial viability 4. Upgrade customer services 5. Improve corporate image

4 The Year at a Glance - 4% Average Non- Revenue Water +7% Customers with 24-hour water supply +11% Billed Volume +12% Customers with 7 psi. water pressure Company Highlights January MWSS suspends implementation of water rate adjustment for 2009 February Groundbreaking of water treatment plant in Putatan, Muntinlupa, the first large-scale membrane filtration and reverse osmosis plant in the Philippines MWSS allows implementation of CPI adjustment in tariff March Potable water finally flows to BF Homes-Parañaque after nearly 25 years of severe water shortage Maynilad partners with international water loss management company Miya Dagat-dagatan treatment plant becomes the first IMS-certified sewage and septage treatment facility in the Asia Pacific Region April Maynilad renews its partnership with customer contact center specialist epldt Ventus to maintain the 24/7 operations of its Maynilad Hotline MWSS partially implements basic rate adjustment May Brgy. 123 in Tondo, Manila becomes first Samahang Tubig Maynilad June Successful public consultations strengthen Maynilad bid for 15-year Concession Agreement Term Extension 4 MAYNILAD

5 Comparative Results (P billion) Net Income Core Net Income EBITDA +29% Revenue from Operations +52% Income from Operations July Maynilad supports multi-sectoral effort led by Kabit Bisig para sa Ilog Pasig to revive the Pasig River August Cashless Business Area system established Maynilad employees and representatives of the National Commission on Indigenous People, PLDT-Smart, DENR, MWSS and the Bulacan local government plant 2,500 saplings on the Ipo Dam watershed September SSS proclaims Maynilad as 2009 Top Employer MWSS Board of Trustees approves Maynilad 15-year term extension application Maynilad begins providing water and wastewater services to Ayala Alabang Village, Ayala Southvale, Madrigal Business Park and Alabang Town Center October Dumadaloy ang Ginhawa media campaign wins Philippine Quill Award November WHO adopts Maynilad Water Safety Plan Tondo Sewerage Pumping Plant gets IMS certified December La Mesa Treatment plants receive IMS certification Water quality monitoring yields 100% satisfactory compliance from January to December 2009 Maynilad receives six-year income tax holiday Laguna Lake Development Authority grants Dagat-Dagatan Sewage and Septage Treatment Plants Blue Rating 2009 ANNUAL REPORT 5

6 Message from the Chairman To drive shareholder value and elevate the quality of our services, we will persist in challenging our systems and procedures. We will also strengthen our social and environmental programs so we can nurture more vulnerable communities and continue protecting our natural resources. DEAR STAKEHOLDERS, I am pleased to report that for the second straight year, Maynilad Water Services, Inc. (Maynilad) delivered a solid performance despite challenging economic and operating conditions. Transformational management, aggressive execution of key projects and the partial implementation of our rate rebasing enabled us to surpass the key milestones we set in the previous year. Results and More From over 760,000 water service connections in 2008, our customer base increased by nearly 7.2% to 814,645 in Billed volume also reached an all-time high of MCM (million cubic meters). During the year, we were able to obtain approval of the MWSS Board of Trustees for the extension of our concession term by fifteen (15) years to We also received the Board of Investments approval for a new sixyear income tax holiday (ITH). Reported net income in 2009 significantly increased by nearly 41.6% to P2.82 billion. The increase was primarily driven by higher revenues arising from billed volume growth and the partial implementation of the new rebased tariff, both of which grew by double digits. Core net income, which excludes the effect of extraordinary gains and charges as well as non-recurring foreign exchange gains or losses, grew by over 48.2% to P3.44 billion in Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) rose to P8.05 billion in 2009, a 73.1% improvement from the previous year. Excluding extraordinary gains and foreign exchange gains or losses, EBITDA margin stood at 65.7% up by over 5% from last year s figure. Improving, Expanding Given the pace that we have set and the changes we have instituted, I am confident that we can sustain our solid performance in the coming years. 6 MAYNILAD

7 Customers with 24-hour water service (in %) 75 In 2010, we will carry forward our commitment to deliver more than just water by aligning our initiatives and capital expenditures with our brand promise of making a better life flow for our customers and for future generations To drive shareholder value and elevate the quality of our services, we will persist in challenging our systems and procedures. We will also strengthen our social and environmental programs so we can nurture more vulnerable communities and continue protecting our natural resources. Board Changes Dr. Fiorello R. Estuar, Atty. Noel A. Laman, Engr. Leovigildo S. Veroy and Mr. Andrew G. Shepherd stepped down as Directors of our Board with effect March My sincerest gratitude goes out to these gentlemen for their priceless contribution to Maynilad. I wish them well in their current and future ventures. In 2009, around 65.0% of our customers enjoyed 24-hour service while those who receive their water supply at a pressure of at least 7 psi (pounds per square inch) increased to 79.0%. With the completion of our Putatan Water Treatment Plant, Villamor and Pagcor Pumping Stations and pipe replacement projects in 2010, we expect to further improve and expand our service delivery capabilities across the West Zone. We have also required our accredited contractors to undergo training and development to raise the level of workmanship, quality and safety standards of our service improvement projects. In closing, I would like to thank the men and women of Maynilad for meeting the challenges of 2009 with determination and aggressiveness. We started the year on a somewhat unsteady footing but we managed to accomplish significant goals for our company and our customers. Your efforts and dedication are deeply appreciated. Sincerely, Manuel V. Pangilinan Chairman More Than Just Water I believe that Maynilad delivers more than just water. We provide services and opportunities to our customers for a better life. This year, we were able to follow through on these commitments by continuously investing in our facilities, equipment and people. We generated growth and livelihood prospects for our stakeholders even with the delayed and partial implementation of our rate rebasing. For example, despite the legal and technical complications that confronted us, we succeeded in providing poor residents in Tondo and waterless villages in Parañaque, in particular BF Homes, with clean, reliable and affordable water. We have taken a more aggressive stance in cleaning the environment through our sewerage and sanitation projects, reforestation activities and waterway clean-up drives ANNUAL REPORT 7

8 Report from the President After hurdling the initial challenges that come with management transitions and infrastructure modernization, we are now prepared to go for excellence in our operations and customer service. We will continue to seek ways of engaging our customers for excellent service. DEAR STAKEHOLDERS, The year 2009 was a period of solid gains for Maynilad Water Services, Inc. (Maynilad), as sound and well-executed strategies effectively placed us on the path to sustainable growth. Despite the financial, regulatory and environmental challenges that confronted us, we succeeded in significantly improving our operations, service levels and financial performance. Capital Expenditures To enhance our service delivery capabilities, we budgeted over P6.5 billion for our 2009 capital expenditure projects. Of the 185 projects for implementation, we completed 182. We spent close to P800 million to expand our distribution network in unserved areas in North Caloocan, Valenzuela, Novaliches, Parañaque and Cavite. We also invested over P2.4 billion to upgrade our treatment plants, pumping stations, reservoirs and primary distribution lines. To improve and expand our services in the Southern part of our concession area, we also began the construction of our Villamor pumping station and reservoir in Pasay City. Another key project that we started in 2009 is our state-ofthe-art water treatment plant in Putatan, Muntinlupa. The P1.3-billion facility is scheduled to supply 100 million liters per day (MLD) of potable water to Muntinlupa and Las Piñas by year Water Loss Reduction Shortly after our reprivatization in 2007, we launched one of the largest and most ambitious Non-Revenue Water (NRW) reduction programs in Asia. In 2009, we managed to bring down our average NRW level to 59.7%. Our goal is to bring down our water losses to at least 40.0% by Towards this end, we made a number of system improvements and strategic moves in We continued establishing more District Metered Areas (DMA) and 8 MAYNILAD

9 gauging points in our distribution network. We also completed total pipe rehabilitation in Sampaloc, South Manila, Pasay and Makati, where much of our supply allocation for the South is lost because of leakage and illegal connections. To further streamline our operations in reducing water losses, we centralized all leak repair activities from Business Area Operations to Central NRW. We then increased our leak detection teams, trained our young engineers in water loss management, and acquired state-of-the-art leak detection equipment to boost our operations. Given these initiatives and our formalized Technical Services Advisory (TSA) agreement with Miya, we expect to further strengthen our expertise and accomplishments in water loss management. Service Coverage 14.4% Served Customers Remaining Market 85.6% In 2009, we managed to bring down our average NRW level to 59.7%. Our goal is to bring down our water losses to at least 40.0% by New technologies such as the Sahara Leak Detection System are valuable innovations for Maynilad s campaign of addressing and managing NRW. Service Expansion and Improvement Around 52,000 water service connections were added to our distribution network in This expanded our customer base to around 7.2 million people, or 85.6% of the total population in the West Zone. Our entry into BF Homes in Parañaque and takeover of the water and wastewater operations in Ayala Alabang Village, Ayala Southvale, Madrigal Business Park and Alabang Town Center also strengthened our presence in the southern portion of our concession area. In addition to our expanded coverage, we made significant enhancements in our service levels. By the end of 2009, 24- hour availability and water pressure improved significantly. These were more pronounced in Roosevelt and Quirino in Quezon City, Sampaloc and South Manila in the City of Manila, South Caloocan, Parañaque and Muntinlupa. We received consistently high ratings for our water quality from the Metro Manila Drinking Water Quality Monitoring Committee. And even at the height of Typhoons Ondoy and Pepeng, we were able to maintain the safety and quality of the water in our distribution system. Our Call Center operations also continued to improve in 2009 as 94.0% of all incoming calls to our Hotline were handled within 30 seconds, compared to only 69.0% the previous year. More Ahead After hurdling the initial challenges that come with management transitions and infrastructure modernization, we are now prepared to go for excellence in our operations and customer service. We will continue to seek ways of engaging our customers for excellent service ANNUAL REPORT 9

10 Report from the President We will do this by challenging long-standing systems and innovating in our policies and procedures. Among our main initiatives is the reconfiguration of our network into water districts and the realignment of Business Areas to make our service delivery more efficient. We have completely overhauled our network operations and meter management functions. To lower the costs and improve the quality of our CAPEX projects, we will strengthen our construction supervision and execution capabilities. We will also adopt and continue to seek the latest technologies so we can be more effective in addressing water losses in our mainlines. Equally important, we will accelerate our sewerage and sanitation projects so we can expand our sanitation services in areas that need it most. We are committed to doing our part to clear the waterways and protect the environment, and we hope to encourage more Maynilad customers to do the same by connecting to our sewerage system. As we strive to outdo our past achievements, we will rally our workforce to ensure that Maynilad employees and business partners are aligned to the dual mission of the organization of providing public service and achieving our business goals. Let us strive for excellence in everything that we do so we can deliver the best possible services to our customers. Together, let us look forward and work even harder for another successful year in spite of the challenges brought about by an El Niño year. Sincerely, Rogelio L. Singson President and CEO 10 MAYNILAD

11 Maynilad Three-Year Highlights FINANCIALS (IN P MILLIONS) Compound Annual Growth Rate Revenue* 7,377 8,245 10, % Income from Operations 3,389 3,713 5, % Net Income 1,666 1,994 2, % Core Net Income 1,678 2,323 3, % Core EBITDA 4,156 4,981 6, % Core EBITDA Margin 56.3% 60.4% 65.7% 8.0% Assets 24,458 34,752 38, % Liability 27,700 33,815 34, % Equity (3,242) 937 3,761 OPERATING HIGHLIGHTS Billed Volume (in MCM) % NRW 66.0% 63.8% 59.7% -4.9% Connections (in '00) % Pipes Laid during year (in km) % Pipes Laid-to-date (in km) 4,893 5,578 6, % Capex Committed (in P millions) 4,985 7,499 6, % Capex Spent (In P millions) 3,085 6,629 4, % % 24-Hour Coverage 46.0% 58.0% 65.0% 18.9% % over 7psi 53.0% 67.0% 79.0% 22.1% *Excluding the impact of extraordinary gains and charges, as well as non-recurring foreign exchange gains or losses ANNUAL REPORT 11

12 More Than Just Water We deliver world-class services Our La Mesa Treatment Plants 1 and 2, Tondo Sewerage Pumping Station, and Dagat-Dagatan Sewage and Septage Treatment Plant are all Integrated Management System (IMS) certified, proving that our systems and procedures meet stringent, international standards for Quality, Environmental, and Occupational Safety and Health Management. 12 MAYNILAD

13 Being More, Doing More The year 2009 was a banner year for Maynilad, attaining all-time highs in both operating and financial performances as a result of our continued expansion and service level improvements throughout our concession area. The partial implementation of our rate rebasing increase in 2009, the six-year income tax holiday granted by the Board of Investments, and the MWSS Board of Trustee approval of our concession agreement term extension also enhanced the sustainability of our business and operations. Combined revenues from water and sewer services grew 30.6% to P10.20 billion from P7.81 billion in the same period last year. The increase was due to the 11.3% increase in billed volume coupled with an average effective tariff increase of around 17.4%. The approved tariff increase for the year was composed of a 12.2% Consumer Price Index (CPI) or inflationary increase implemented on February 20, 2009, and a rate rebasing increase of 22.6% effective May 4, The effective increase, however, was moderated by higher billed volume growth coming from domestic consumption whose rates are subsidized. As a percentage of billed volume, domestic customers accounted for 76.0% of total compared to 74.4% in the same period last year. The growth rate was also tempered by the 20.0% discount to lifeline customers (those consuming less than 10 cubic meters per month), which took effect in April Combined revenues from water and sewer services (P billion) Including other contracts and services, total revenue from operations grew at a slightly lower rate of 28.8% to P10.62 billion from P8.24 billion last year. Income from operations grew a robust 52.4% to P5.64 billion from P3.70 billion last year with operating expenses growing lower than revenues. Net income increased at a relatively slower pace of 41.6% to P2.82 billion from P1.99 billion last year, primarily due to the impact of the write-off of approximately P1.70 billion in deferred tax assets following the approval of Maynilad s new six-year income tax holiday (ITH). The impact of the write-off, however, was mitigated by the extraordinary gain recognized upon the approval of the rebased rate this year. Incorporated in the approval of the rebasing increase was the final determination on the treatment of certain collections that until recently had been classified as deferred credits pending their resolution. The net effect of the resolution of these issues is an extraordinary gain of P1.16 billion. Excluding the impact of these extraordinary gains and charges, as well as non-recurring foreign exchange gains or losses, core net income amounted to P3.44 billion, an increase of 48.2% versus P2.32 billion last year. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) amounted to P8.05 billion, an increase of 73.1% versus P4.65 billion last year. The increase was similarly driven by the extraordinary gain from the resolution of rate rebasing issues, as compared to the foreign exchange loss recorded on shareholder advances last year. Excluding the impact of the extraordinary gain, as well as forex gains or losses, EBITDA would have been P6.97 billion, a 40.0% increase versus P4.98 billion last year. EBITDA margin excluding extraordinary gains and forex gains or losses was at 65.7%, up from last year s 60.4% ANNUAL REPORT 13

14 Being More, Doing More Billed Volume and Customer Base Billed volume increased by 11.3% to million cubic meters from the previous year. The increase was due to improved service levels and broadening customer base. The replacement of almost 300 kilometers of old and leaky pipes improved water service levels in some 29,000 households. From 58.0% in 2008, 24-hour water service coverage increased by 7.0% to 65.0%. In 2009, 79.0% of Maynilad customers also received their water supply at over 7 pounds per square inch (psi) pressure, which is a 12.0% increase from the previous year. Maynilad spent nearly P800 million to lay 70 kilometers of new water lines in North Caloocan, Valenzuela, Novaliches, Parañaque and Cavite. The expanded coverage increased new water service connections (WSCs) in these areas to 34,000. In all, water service connections rose by nearly 7.0% from 762,319 in 2008 to 814,645 the succeeding year. Majority of the new connections were under the residential classification, followed by Commercial and Semi-Business. Number of Water Service Connections Customers by Classification Industrial Commercial Semi-Business Residential Water Losses Reduction Non-Revenue Water (NRW) level decreased by 4.2% from 63.8% in 2008 to 59.7% the following year. In effect, Maynilad reduced water losses by 80 million liters of water a day (MLD) from its NRW reduction drive. From four Leak Detection Teams (LDTs) the previous year, Maynilad increased its LDTs to 20. These LDTs undertake active leak detection activities in the entire concession. In 2009, we were able to resolve 34,888 leaks an increase of 11,792 or nearly 51.1% from the previous year. Maynilad continued establishing District Metered Areas (DMAs) across its delivery network for better supply management. A total of 582 DMAs were established at the end of 2009 a growth of 47.3% compared to 2008 figures. DMAs with low NRW levels, called Green DMAs, also increased from only 298 last year to 455 in 2009, suggesting that previous DMAs with good NRW levels were sustained while improvements were made in areas that previously had high NRW New sewer connections reached 51 in 2009, up from only 37 the previous year. Maynilad also took over the operations of the Alabang Sewage Treatment Plant, increasing by another 4,326 accounts its total number of billed sewer services. This brought Maynilad s total number of sewer services to 54,383 as of the end of December Maynilad offered sanitation services to 492,000 households or 33.0% of all customers, with 2007 as base year. Free cleaning of 55,576 septic tanks, representing 58,108 customers (a subdivision or multiple dwelling structure is equivalent to one customer having several septic tanks), was also conducted. 14 MAYNILAD

15 Summary of Statement of Financial Position (In Million Pesos) ASSETS As of Dec. 09 % to Total As of Dec. 08 % to Total Increase Unit Increase % Cash Short-Term Investments Accounts Receivable Other Current Assets TOTAL CURRENT ASSETS Service Concession Assets Property and Equipment Deferred Tax Assets Other Noncurrent TOTAL ASSETS 1,887 5% 1,363 4% % 2,433 6% 5,575 16% (3,142) -56.4% 1,536 4% 1,450 4% % 1,442 4% 733 2% % 7,298 19% 9,121 26% (1,823) -20.0% 29,062 76% 22,237 64% 6, % 334 1% 330 1% 4-1.2% 1,427 4% 2,996 9% (1,569) -52.4% 58 0% 68 0% % 38, % 34, % 3, % LIABILITIES & EQUITY Trade and other payables 5,576 15% 5,656 16% (80) -1.4% Payable to MWSS (Current) 2,116 6% 2,743 8% (627) -22.8% Payables arising from rate rebasing 942 2% - 0% SUB-TOTAL: CURRENT LIABILITIES 8,634 23% 8,398 24% % Interest-bearing loans 16,305 43% 16,456 47% (151) -0.9% Deferred Credits 521 1% 2,810 8% (2,289) -81.5% Pension liability 238 1% 331 1% (93) -28.1% Payable to MWSS (net of current) 8,576 22% 5,742 17% 2, % Other noncurrent 143 0% 78 0% % TOTAL LIABILITIES 34,418 90% 33,815 97% % STOCKHOLDERS EQUITY 3,761 10% 937 3% 2, % TOTAL LIABILITIES & EQUITY 38, % 34, % 3, % 2009 ANNUAL REPORT 15

16 Being More, Doing More Expansion and Modernization Maynilad spent more than P4.5 billion to expand and modernize its water distribution network. Three major pipe-laying projects initiated in 2008 the P1.3 billion 2,000-mm steel pipe dedicated line to Pasay Pumping Station, P300 million 600-mm primary line along Gen. Tirona Highway, and P350 million 900-mm pipe along South Luzon Expressway were completed in Almost 440 kilometers of pipelines, including secondary and tertiary pipelines, were also laid, bringing to over 6,000 kilometers the total number of new pipes laid since our re-privatization in To address water losses due to old, leaking pipes in Sampaloc, South Manila and Pasay/Makati, the three Business Areas (BAs) underwent total pipe rehabilitation for P2.8 billion. Cubic Meter per Day (CMD) improvement projects short pipe-laying activities that involve either mainline extensions or pipe replacements also enhanced service levels in some areas. Maynilad spent almost P1.90 billion to upgrade treatment plants, pumping stations, reservoirs and other key facilities. Construction of the Villamor Pumping Station and Reservoir began in June Upon completion, the P500-million facility is designed to provide 136 MLD of water for Maynilad customers in the South. The P700-million Pagcor Pumping Station and Reservoir also broke ground in the last quarter of The facility is expected to produce an additional 211 MLD of water for over 30,000 households in Muntinlupa and Las Piñas. A state-of-the-art water treatment plant is also scheduled to be completed in Putatan, Muntinlupa by The P1.3-billion facility will source raw water from Laguna Lake and treat the supply using microfiltration and reverse osmosis technology. It will initially serve the areas of Muntinlupa and Las Piñas. Sewerage and Sanitation Maynilad took over the operation of the Alabang Sewage Treatment Plant in August 2009, thus increasing its total number of billed services by 4,326. Over 50 new sewer services were also connected to our sewer network in 2009 compared to 37 in The number of sewer applications completed increased by 5% from 110 in 2008 to 116 in These applications include new sewer service connections, repair, change pipe, separation and relocation of tapping. Customer Service Enhancement In April, we continued subsidizing our lifeline customers by providing them with a 20.0% discount on their water bill. We also implemented certain tariff policies that would lower charges to certain sectors. These include: The application of the residential rate for semi-business customers for the first 10 cu.m. of water consumption. The application of the semi-business rate to selected government accounts such as public schools, government hospitals, barangay health centers, and jails. The application of reduced connection charges for additional meters and clustered connections of lowincome and depressed communities. Under this policy, customers availing of additional meters could save up to P2,500, while clustered connections could save as much as P4,000. To make payments easier and more convenient for our customers and enable our Business Area offices to focus on their account management and customer service initiatives, we started implementing a cashless system in Under the new cashless system, customers are no longer required to visit the BA offices to pay service installation and reopening fees, guaranty deposits, and meter replacement fees. Instead, customers can pay at any of Maynilad s accredited payment centers or use various payment facilities such as online banking and mobile phone fund transfer. 16 MAYNILAD

17 More Than Just Water We generate jobs Through our aggressive investments, we are able to generate employment opportunities for thousands of Filipinos. About 10,000 jobs are provided for every P1 billion worth of Maynilad projects ANNUAL REPORT 17

18 Giving More We are fortunate to be in the business of improving living conditions. Our services allow us to develop communities, protect the environment and nurture the health of future generations. In 2009, we were able to extend our role as a responsible corporate citizen by giving more to those who had less. And when devastation hit many areas outside our concession coverage, we went beyond our geographic boundaries to provide some needed assistance. Samahang Tubig Maynilad (STM) 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. We piloted the program in Barangay 123 in Tondo, Manila where over 1,000 households benefited from the bulk water system installed in their community. Six other STMs in Pasay City, Caloocan City and Quezon City soon followed. Lingkod Eskuwela was initiated to solve the problem of poor and inadequate water supply in West Zone public schools. Beneficiaries were provided with water drinking stations, as well as technical assistance and desludging services to improve their plumbing and internal water network. Thirty schools and over 146,000 students in Manila, Quezon City, Makati, Parañaque, and Cavite benefited from our Lingkod Eskuwela program. Ipo watershed reforestation We partnered with the National Commission on Indigenous People, PLDT-Smart, DENR, MWSS, and the Bulacan local government to plant 2,500 saplings on a portion of the Ipo Dam watershed. Together with PLDT-Smart and NCIP, we also conducted trainings with the Dumagats for setting up cooperatives, livelihood programs and stewardship of the planted trees. We were also recognized by NCIP for being the first program proponent to include the indigenous peoples in the reforestation program. Relief Missions At the height of Typhoons Ondoy and Pepeng, we distributed over 10,000 pieces of 5-gallon containers containing potable water to a number of affected areas in Luzon. We worked with the National Disaster Coordinating Council, Local Government Units, foundations, nongovernment organizations and private companies in order to reach typhoon victims in Valenzuela, Rizal, Laguna, and other areas. We also sent our water tankers to Lingayen, Pangasinan, so displaced families in the area could have potable water. To ensure that deepwell water could be made safe for affected residents, we deployed our Mobile Water Treatment Plant to Bayambang, Pangasinan, shortly after Typhoon Pepeng pummeled the province. To assist in the cleanup of Metro Manila, we authorized the government s fire trucks to draw water from fire hydrants located throughout the West Zone. We also deployed our vacuum tankers to assist in the dewatering of major thoroughfares and submerged communities. In the coming years, we will continue to align our business, operations and other initiatives to uphold the safety, wellbeing and development of the people we serve. 18 MAYNILAD

19 More Than Just Water We improve living conditions From the poorest communities in Tondo to the water-deprived villages in Parañaque, we deliver clean, reliable and affordable water so residents can lead healthier lives ANNUAL REPORT 19

20 Setting the Standard We are committed to delivering safe drinking water to our customers. Since 2007, we have done our best to exceed customer and regulatory expectations in terms of water quality and safety. In 2009, the Maynilad Water Safety Plan (WSP) was adopted by the World Health Organization as a model in over 30 countries in the Western Pacific Region. The DOH has also started using our Water Safety Plan as a reference for over 120 local water districts in the Philippines. Lauded as one of the most comprehensive in the world by the Australian Agency for International Development and the World Bank, the Maynilad WSP details our programs and procedures in ensuring the safety of water supplied to our customers and corrective actions in case of water contamination. The Maynilad WSP also contains hazard analysis, risk assessment, and control measures in containing or removing water contamination brought by landslides, clogging of tunnels, El Niño, chemical forest fire, illegal logging, and security threats such as terrorist sabotage. 20 MAYNILAD

21 More Than Expected We monitor and regularly draw samples from 878 sampling points from North Caloocan to Cavite City. This is 186 or 27% more than the required sampling points of the Philippine Department of Health. From January to December 2009, we maintained a 100% satisfactory compliance rating from the Metro Manila Drinking Water Quality Monitoring Committee. The committee conducts monthly water sampling in over 800 points in Maynilad s concession area. The samples undergo strict bacteriological, physical and chemical examination to ensure that the water meets the Philippine National Standards for Drinking Water of the Department of Health (DOH). Based on the survey conducted by the Public Assessment of Water Services (PAWS) in 2009, nearly 99% of the respondents rated the quality of Maynilad s water as Very Good. PAWS was created to assist the MWSS-RO in the performance monitoring and evaluation of the East and West Zone concessionaires. MAP OF MAYNILAD WATER SAMPLING POINTS 2009 ANNUAL REPORT 21

22 In the Pipeline For the past three years under new management, we have been laying the groundwork for a new Maynilad where customer focus, operational efficiency and modernized systems form part of our service delivery. Service Delivery Improvements In the coming year, we plan to reconfigure our network into water districts and realign our Business Areas to enhance our water delivery capabilities. We will also source and apply the latest technology for our leak detection operations so we can recover more water for distribution to our customers. The year 2010 will also see the completion and full operation of our Villamor and Pagcor Pumping Stations and Reservoirs in Pasay and state-of-the-art water treatment plant in Putatan, Muntinlupa. These new facilities will provide surface water to more customers in the southern part of our concession. We will also continue delighting our customers by initiating projects that will facilitate quicker response to complaints, reduction in billing errors, and better management of water supply in the pipe network. Among these projects is Maynilad Text Tubig (INFOBOARD), a joint project with Smart Telecommunications, Inc., that will allow us to provide real-time information to our customers. By using Maynilad Text Tubig SIM cards, customers can receive messages, advisories and other information directly from Maynilad. They can also send suggestions, queries and complaints through text messaging. Another customer service improvement project that we will be launching is the Read and Bill system, where Statements of Account can be printed immediately after meter reading. With this innovation, late receipt of Maynilad billings may be prevented. Sustaining the Environment and our Operations We are committed to accelerate our sewerage and sanitation targets and implement pioneer projects such as the San Juan River Basin to showcase real improvements in the environment. New wastewater treatment plants will also be developed in key areas of our concession to boost multi-sectoral efforts to revive Pasig River and Manila Bay. The benefits to be gained from these new facilities will be complemented by continued enhancements in the treatment capability of our Central Manila Sewerage System, as well as the rehabilitation of the newly acquired Alabang Sewerage Treatment Plant and installation of additional sewer service connections in order to maximize the use of our existing network. Also among our long-term environmental conservation efforts are moves to measure the company s carbon footprint. A core team will be formed to do an inventory of the company s carbon dioxide emissions in order to establish our greenhouse gases baseline, identify measures to reduce emissions, and come up with a project proposal for carbon credits. The end in mind is the continuous reduction of emissions not only by Maynilad but also our suppliers, contractors, and other stakeholders. Pro-poor initiatives Maynilad continues to extend social services to the marginalized sector through our Samahang Tubig Maynilad program, which was developed to address the problems of water inaccessibility in informal settler communities in the West Zone. Under the project, residents are organized and trained to manage the water supply and delivery system we establish in their communities. After piloting the program in Tondo, Manila in 2009, we have been able to form six other STM communities in Pasay, Quezon City, and Caloocan. We hope to serve more urban poor communities in our concession area through this innovative CSR program. By striving for excellence in all aspects of our business and operations, we hope to make our organization a more effective and responsive service provider, corporate citizen and growth partner. Because we provide more than just water. 22 MAYNILAD

23 Maynilad s State-of-the-Art Water Treatment Plant The Putatan plant uses microfiltration and reverse osmosis to treat raw water from Laguna Lake. It has 14 units of microfiltration assemblies and six reverse osmosis assemblies. The plant can produce 50 million liters of water per day (MLD) and another 50 MLD by the end of Communities in Muntinlupa, Las Piñas and portions of Cavite are expected to benefit from the additional water supply. The treatment plant in Putatan is in line with Maynilad s plan to develop alternative sources of water to ensure long-term water security for its customers ANNUAL REPORT 23

24 Board of Directors Manuel V. Pangilinan Chairman Maynilad chairman since January 2007, Mr. Pangilinan founded the First Pacific in 1981 and served as Managing Director until He was appointed as Executive Chairman until June 2003, when he was named as CEO and Managing Director. Within the First Pacific Group, he holds the position of president commissioner of P.T. Indofood Sukses Makmur Tbk, the largest food company in Indonesia. In the Philippines, he was named Chairman of PLDT after serving as its President and CEO until February He also serves as Chairman of Smart Communications Inc., Pilipino Telephone Corp., Metro Pacific Investments Corp., Landco Pacific Corp., Manila North Harbor Port Inc., Medical Doctors Inc., Colinas Verdes Corp., Davao Doctors Inc., Mediaquest Inc., Associated Broadcasting Corp., Philex Mining Corp., and Manila North Tollways Corp. He became a member of the Board of Directors of the Manila Electric Company in May Mr. Pangilinan graduated cum laude from the Ateneo de Manila University with a Bachelor of Arts degree in Economics. He received his MBA from the Wharton School of Finance and Commerce, University of Pennsylvania, where he was a Procter and Gamble Fellow. Isidro A. Consunji Vice Chairman Vice Chairman of the Maynilad Board since January 2007, Mr. Consunji is the Chairman of the Board of DMCI Project Developers Inc. and DMCI-Homes. He is President of DMCI Holdings, Inc., Dacon Corp., and Beta Electric Corp. He is a member of the Board of Directors of D.M. Consunji, Inc. (DMCI), Semirara Mining Corp., and Crown Equities, Inc. Mr. Consunji served as President of the Philippine Constructors Association from 1999 to 2000, and the Philippine Chamber of Coal Mines, Inc. from May 1999 to January He is currently a Member of the Philippine Overseas Construction Board (POCB), and 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. Mr. Consunji graduated from the University of the Philippines in Diliman with a Bachelor of Science degree in Engineering. He obtained his Master of Business Economics from the Center for Research and Communication and Master of Business Management from the Asian Institute of Management. At present, he is taking up Advanced Management Program at IESE School in Barcelona, Spain. 24 MAYNILAD

25 Rogelio L. Singson Member Concurrently the President and CEO of Maynilad, Mr. Singson was former Chairman and President of the Bases Conversion Development Authority (BCDA) of the Philippines, Senior VP of Citadel Holdings Inc., and Board Chairman of John Hay Poro Point Development Corp., BCDA Management Holdings Inc., and North Luzon Railways Corp. He was likewise a Board Member of Clark Development Corp., Clark International Airport Corp. and Fort Bonifacio Development Corp. Herbert M. Consunji Member Concurrently the Chief Operating Officer and Director of Maynilad, Mr. Consunji is a Director of DMCI Project Developers, Inc. and DMCI Power Corp. He is Chairman and Director of Subic Water & Sewerage Corp.; VP, CFO and Director of DMCI Holdings, Inc.; and Director of Semirara Mining Corp. and DMCI Mining Corp. Randolph T. Estrellado Member Concurrently the Chief Finance Officer of Maynilad, Mr. Estrellado was Director and CFO of Metro Pacific Investments Corp. He served in various positions of senior responsibility with the Lopez Group of Companies including that of Vice President and CFO of ABS-CBN Broadcasting Corp. He also served in financial positions at Phinma and P.T. Dwi Satrya Utama in Indonesia. Jorge A. Consunji Member Mr. Consunji is a Board Member of DMCI Holdings Inc., DMCI Power Corp., DMCI Mining Corp., DMCI-PDI, Dacon Corp., M&S Company Inc., Semirara-Calaca Power Corp., Manila Herbal & Essential Oils Co., Bachy Soletanche Phils., and Beta Electric Corp. He also serves as Board Chairman of Wire Rope Corp., President and COO of DM Consunji Inc., and VP of Sirawai Plywood & Lumber Corp. Jose Ma. K. Lim Member Mr. Lim is currently President and CEO of MPIC; Director of Landco Inc., Medical Doctors Inc. (Makati Medical Center), Davao Doctors Hospital, Davao Doctors College, Manila North Tollways Corp., Metro Pacific Tollways Corp., Tollways Management Corp., and Bonifacio Land Corp.; and President of the Metro Strategic Infrastructure Holdings, Inc., which holds a minority ownership in the Citra Metro Manila Tollways Corp. where he serves as Director. Edward A. Tortorici Member Mr. Tortorici is Director of Metro Pacific Investments Corp. and Landco Pacific Corp.; Commissioner of PT Indofood Sukses Makmur Tbk, which is based in Indonesia; and Executive Advisor of MPIC companies located in the Philippines. He also serves as a Trustee of the Asia Society and the Metropolitan Museum of Manila ANNUAL REPORT 25

26 Management Team Rogelio L. Singson President and CEO Herbert M. Consunji Chief Operating Officer Randolph T. Estrellado Chief Finance Officer Roy Agustin K. Evalle Head, Corporate Human Capital and Organization Development Eric H. Dumancas Head, Corporate Logistics Manuel R. Galang Head, Information Technology Services Atty. Lourdes Marivic P. Espiritu Head, Legal and Regulatory Affairs Antonio F. Garcia Head, Sewerage and Sanitation 26 MAYNILAD

27 Irineo M. Gonzales Head, Technical Operations and Program Management Christopher J. Lichauco Head, Business Area Operations Irineo L. Dimaano Head, Central Non-Revenue Water 2009 ANNUAL REPORT 27

28 Independent Auditors Report The Stockholders and the Board of Directors Maynilad Water Services, Inc. MWSS Compound, Katipunan Road Balara, Quezon City We have audited the accompanying financial statements of Maynilad Water Services, Inc., (a subsidiary of DMCI-MPIC Water Company, Inc.) which comprise the statements of financial position as at December 31, 2009 and 2008, and the 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, 2009, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these 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 whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Maynilad Water Services, Inc. as of December 31, 2009 and 2008, and its financial performance and its cash flows for each of the three years in the period ended December 31, 2009 in accordance with Philippine Financial Reporting Standards. Without qualifying our opinion, we draw attention to Note 12 of the financial statements. The Company has disputed claims of Metropolitan Waterworks and Sewerage System (MWSS) substantially pertaining to additional Tranche B Concession Fees and interest penalties amounting to P3.8 billion as of December 31, 2009 and P3.5 billion as of December 31, The Company has entered into a Transitional and Clarificatory Agreement with MWSS which prescribes the procedures for the resolution of these disputes. The ultimate outcome of the matter cannot be presently determined, and no provision for any liability that may result has been made in the financial statements. SYCIP GORRES VELAYO & CO. Maria Vivian C. Ruiz Partner CPA Certificate No SEC Accreditation No AR-2 Tax Identification No PTR No , January 4, 2010, Makati City February 22, MAYNILAD

29 Maynilad Water Services, Inc. (A Subsidiary of DMCI-MPIC Water Company, Inc.) STATEMENTS OF FINANCIAL POSITION (Amounts in Thousands) December ASSETS Current Assets Cash and cash equivalents (Notes 4, 24 and 25) P1,886,923 P1,363,240 Short-term investments (Notes 4, 24 and 25) 2,433,418 5,575,108 Trade and other receivables - net (Notes 5, 24 and 25) 1,536,093 1,449,576 Other current assets (Notes 6, 22, 24 and 25) 1,442, ,637 Total Current Assets 7,298,511 9,120,561 Noncurrent Assets Service concession assets - net (Notes 8, 12, 14 and 22) 29,062,512 22,236,673 Deferred tax assets - net (Notes 15 and 20) 1,426,630 2,995,663 Property and equipment - net (Note 7) 333, ,268 Other noncurrent assets - net (Notes 9, 24 and 25) 57,934 68,527 Total Noncurrent Assets 30,880,900 25,631,131 P38,179,411 P34,751,692 LIABILITIES AND EQUITY Current Liabilities Trade and other payables (Notes 1, 10, 11, 14, 22, 23, 24 and 25) P5,575,612 P5,655,616 Current portion of service concession obligation payable to MWSS (Notes 8, 12, 24 and 25) 2,116,063 2,742,680 Payables arising from rate rebasing (Note 1) 942,279 Total Current Liabilities 8,633,954 8,398,296 Noncurrent Liabilities Interest-bearing loans (Notes 10, 24 and 25) 16,305,076 16,455,834 Service concession obligation payable to MWSS - net of current portion (Notes 8, 12, 24 and 25) 8,576,461 5,741,796 Pension liability (Note 16) 238, ,870 Deferred credits and other noncurrent liabilities (Notes 1, 24 and 25) 664,161 2,887,828 Total Noncurrent Liabilities 25,783,763 25,416,328 Equity Capital stock (Notes 1 and 13) 4,010,893 4,010,893 Additional paid-in capital (Note 1) 775, ,796 Equity from redemption of preferred shares (Note 13) (351,014) (351,014) Deficit (673,981) (3,498,607) Net Equity 3,761, ,068 P38,179,411 P34,751,692 See accompanying Notes to Financial Statements ANNUAL REPORT 29

30 Maynilad Water Services, Inc. (A Subsidiary of DMCI-MPIC Water Company, Inc.) STATEMENTS OF INCOME (Amounts in Thousands) Years Ended December OPERATING REVENUE Water services P8,575,507 P6,419,678 P5,613,361 Sewer services 1,623,595 1,386,955 1,297,705 Others 419, , ,976 10,618,544 8,244,860 7,377,042 COSTS AND EXPENSES Salaries, wages and benefits (Notes 14 and 16) 1,350,749 1,233,934 1,224,844 Amortization of service concession assets (Note 8) 1,322,615 1,283,455 1,123,748 Contracted services 461, , ,839 Utilities 417, , ,499 Materials and supplies 247, , ,845 Provision for doubtful accounts (Note 5) 226, , ,687 Repairs and maintenance 220, , ,586 Depreciation and amortization (Notes 7 and 9) 119, ,028 57,409 Regulatory costs 97,676 81,022 76,263 Collection charges 96,143 87,431 80,177 Taxes and licenses 90,318 85,262 46,281 Rental (Note 22) 77,215 66,721 90,113 Business meetings and representations 63,805 66,805 31,046 Transportation and travel 59, ,366 73,669 Insurance 23,000 18,146 22,597 Advertising and promotion 21,456 11,754 8,289 Others 79,620 66,413 23,447 4,973,693 4,532,283 3,988,339 INCOME BEFORE OTHER INCOME (EXPENSES) 5,644,851 3,712,577 3,388,703 OTHER INCOME (EXPENSES) Revenue from rehabilitation works (Note 8) 4,376,346 6,375,495 2,948,238 Cost of rehabilitation works (4,268,315) (6,236,962) (2,948,238) Interest expense (Note 17) (2,370,067) (1,544,410) (1,917,334) Interest income (Note 17) 153, , ,587 Foreign exchange gains (losses) - net (Note 1) (1,326,146) (878,495) 2,536,399 Foreign currency differential adjustments (FCDA) (Note 1) 1,243, ,186 (2,529,657) Other income from rate rebasing resolutions (Note 1) 1,404,059 Others - net (463,798) (125,066) (496,975) (1,251,192) (1,736,928) (2,289,980) INCOME BEFORE INCOME TAX 4,393,659 1,975,649 1,098,723 PROVISION FOR (BENEFIT FROM) DEFERRED INCOME TAX (Notes 15 and 20) 1,569,033 (18,491) (567,628) NET INCOME P2,824,626 P1,994,140 P1,666,351 EARNINGS PER SHARE (Note 18) P P1, P1, See accompanying Notes to Financial Statements. 30 MAYNILAD