Maynilad and Manila Water Financial Analysis
BRIEF BACKGROUND Manila Water Company Inc - Maynilad and Manila Water Financial Analysis introduction. is a Philippines-based company engaged in the engaged in providing water, sewerage and sanitation services. It serves a total estimated population of over six million people in the East Zone, which encompasses 23 cities and municipalities that include business districts and residential areas in the eastern part of Metro Manila and the adjacent Rizal Province. The Company also manages and operates the sewerage system that covers a portion of its service area, as well as provides sanitation services to its customers in the East Zone.
The Companies subsidiaries include Manila Water Total Solutions, Corporation, Northern Waterworks & Rivers of Cebu, Inc. , AAA Water Corporation and others. In 2011, the Company acquired 100% ownership of Clark Water Corporation. [i] Maynilad Water Services, Inc. is the water and wastewater services provider for the 17 cities and municipalities that comprise the West Zone of the greater Metro Manila area.
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In 1997, the company was granted a 25-year exclusive concession by the Philippine Government, through the Metropolitan Waterworks and Sewerage System (MWSS), to operate, maintain and invest in the water and sewerage system in Caloocan, Las Pinas, Malabon, Manila, Muntinlupa, Navotas, Pasay, Paranaque, Valenzuela, parts of Quezon City, a part of Makati, Cavite City, and the municipalities of Rosario, Imus, Noveleta, Bacoor, and Kawit in Cavite. [ii] ii. EXECUTIVE SUMMARY
This comparative study between Maynilad and Manila Water is an overview of both performance and to not directly compare them in terms of profitability as both cater to different consumers in terms of geographical location and socio-economic classes. Based on the numbers presented and computed, Manila Water is more liquid has the higher ability to pay its short term obligations. In terms of efficiency in utilizing its assets to revenue, both have been efficient based on the terms set which is 60 days for Maynilad and 30 days for Manila.
Profitability Ratio indicates assesses a business’s ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.  Maynilad provides higher return to its shareholders than Manila Water since Maynilad’s operations are funded mostly through debt than from stockholders’ investments which is evident on its balance sheet on Interest bearing loans. In terms of sales generation, Manila Water is also efficient in sales generation as both companies doesn’t handle so much inventory.
By this, Manila water presents a more stable income for the past 3 years but Maynilad continues to grow by 16% from 2009-2011. Maynilad has higher ROA than Manila Water from 2009-2011. As stated in our ratio analysis, both companies have increased their assets but in terms of efficient utilization of assets, Maynilad has better percentage of 11% for 2011 compared to 9%. As seen in both of their Statement of Financial Position, Maynilad has Maynilad relies more in financing while Manila Water relies with their stockholders with a ration of 78% and 63% respectively. iii. BALANCE SHEET Maynilad Water Services, Inc. Vertical Analysis | |(Amount in Thousands) |AMOUNT |% | |AMO|% | | | | | | |UNT| | |ASS| | | | | | | |ETS| | | | | | |
OPERATING REVENUE | | | | | | | | | | |Water Services |8,575,507 |80. 76% | |9,904,395 |82. 20% | | 11,152,074 |80. 99% | | |Sewer Services |1,623,595 |15. 29% | |1,738,898 |14. 43% | | 2,171,743 |15. 77% | | |Others |419,442 |3. 95% | |406,231 |3. 37% | | 445,663 |3. 24% | | | |10,618,544 |100. 00% | |12,049,524 |100. 00% | |13,769,480 |100. 00% | |COSTS AND EXPENSES | | | | | | | | | | |Salaries, wages and benefits |1,350,749 |12. 72% | |1,284,093 |10. 66% | | 1,549,963 |11. 6% | | |Amortization of service concession assets |1,322,615 |12. 46% | |1,059,235 |8. 79% | | 1,428,501 |10. 37% | | |Contracted services |461,793 |4. 35% | |598,617 |4. 97% | | 539,072 |3. 91% | | |Utilities |417,089 |3. 93% | |565,153 |4. 69% | | 621,830 |4. 52% | | |Materials and supplies |247,084 |2. 33% | |367,240 |3. 05% | | 245,331 |1. 78% | | |Provision for doubtful accounts |226,266 |2. 13% | |0 |0. 00% | | 154,917 |1. 13% | | |Repairs and maintenance |220,725 |2. 08% | |320,547 |2. 6% | | 281,537 |2. 04% | | |Depreciation and amortization |119,078 |1. 12% | |135,276 |1. 12% | | 217,518 |1. 58% | | |Regulatory costs |97,676 |0. 92% | |13,025 |0. 11% | | 28,543 |0. 21% | | |Collection charges |96,143 |0. 91% | |103,217 |0. 86% | | 91,474 |0. 66% | | |Taxes and licenses |90,318 |0. 85% | |82,529 |0. 68% | | 117,895 |0. 86% | | |Rental |77,215 |0. 73% | |160,382 |1. 33% | | 208,203 |1. 51% | | |Business meetings and representations |63,805 |0. 0% | |30,537 |0. 25% | | 77,034 |0. 56% | | |Transportation and travel |59,061 |0. 56% | |80,660 |0. 67% | | 139,200 |1. 01% | | |Insurance |23,000 |0. 22% | |28,087 |0. 23% | | 28,309 |0. 21% | | |Advertising and promotion |21,456 |0. 20% | |18,122 |0. 15% | | 42,401 |0. 31% | | |Others |79,620 |0. 75% | |85,157 |0. 71% | | 61,001 |0. 44% | | | |4,973,693 |46. 84% | |4,931,877 |40. 93% | |5,832,729 |42. 36% | |INCOME BEFORE OTHER INCOME (EXPENSES) |5,644,851 |53. 16% | |7,117,647 |59. 7% | |7,936,751 |57. 64% | |OTHER INCOME (EXPENSES) | | | | | | | | | | |Revenue from rehabilitation works |4,376,346 |41. 21% | |7,678,858 |63. 73% | | 8,770,141 |63. 69% | | |Cost of rehabilitation works |(4,268,315) |-40. 20% | |(7,605,554) |-63. 12% | | (8,605,052) |-62. 49% | | |Interest expense |(2,370,067) |-22. 32% | |(2,162,845) |-17. 95% | | (2,051,722) |-14. 90% | | |Interest income |153,443 |1. 45% | |70,294 |0. 58% | | 121,751 |0. 88% | | |Foreign exchange gains (losses)-net |(1,326,146) |-12. 9% | |1,216,711 |10. 10% | | 1,295,188 |9. 41% | | |Foreign currency differential adjustments (FCDA) |1,243,286 |11. 71% | |(1,271,411) |-10. 55% | | (1,337,601) |-9. 71% | | |Other income from rate basing resolutions |1,404,059 |13. 22% | |0 |0. 00% | | – |0. 00% | | |Others-net |(463,798) |-4. 37% | |(478,670) |-3. 97% | | (453,193) |-3. 29% | | | |(1,251,192) |-11. 78% | |(2,552,617) |-21. 18% | |(2,260,488) |-16. 42% | |INCOME BEFORE INCOME TAX |4,393,659 |41. 38% | |4,565,030 |37. 89% | | 5,676,263 |41. 2% | |PROVISION FOR (BENEFIT FROM) INCOME TAX | | | | | | | | | | |CURRENT |0 |0. 00% | |17,771 |0. 15% | | 13,339 |0. 11% | | |DEFERRED |1,569,033 |14. 78% | |(232,717) |-1. 93% | | (201,926) |-1. 47% | |NET INCOME |2,824,626 |26. 60% | |4,779,976 |39. 67% | |5,864,850 |42. 59% | |Income before Other Income and Expenses The increase in percentage of 5. 91% of income before other income and expenses to total operating revenue from 2009 to 2010 was due to the 1. 44% increase in revenue of water services and the decrease in costs and expenses of 2. 6% and 3. 67% of salaries, wages and benefits and amortization of service concession assets, respectively. While a decrease of 1. 43% of income before other income and expenses to total operating revenue from 2010 to 2011 was due to a decrease in revenue of 1. 21% of water services and increase in costs and expenses of 0. 60% and 1. 58% of salaries, wages and benefits and amortization of service concession assets, respectively. The other components of operating revenue and costs and expenses remained at the same percentages (+/-) of total operating revenue for the 3-year period. . Net Income The annual increase in percentage of net income to total operating revenue from 2009 to 2011 was due to the annual decrease of interest expense and annual increase in foreign exchange gains over the 3-year period. Both interest expense and foreign exchange gains are part of the other income and expenses section of the income statement. [pic] Horizontal Analysis [pic] Increase in net income for Maynilad is due to the increase of Water Services, this can be attributed to the additional customers being catered by Maynilad.
A decrease of interest expense is also seen in the income statement with -13% Manila Water Company Vertical Analysis [pic] 1. Increased revenue in the East Zone due to expansion to areas in Rizal, Antipolo, Taguig and Marikina. Acquisition of Clark water and a stake in Thu Duc Water Boo also lead to an increased revenue outside of the East Zone. 2. There was a large increase in the revenue obtained from environmental changes due to the 2 percent adjustment (16% – 18%) of the basic water charge for its East Zone Customers and 0. 5% increase in billed volume. 3.
The decline in the revenue from sewerage revenue was due to the decrease in the sewer charges for customers in the East Zone from 20% to 10% of the basic water charge for residential and semi business customers and from 35% to 30% for commercial and industrial customers. 4. A significant increase in the depreciation and amortization was due to the addition of office furniture and equipment, land and leasehold improvement and plant and technical equipment by Manila Water. 5. The decrease in income was due to the fact that lesser inventories were sold in 2011. Thus contributing to the total revenues of the company. . The increase in salaries, wages and employee benefits, light and water, repair and maintenance, waste treatment chemicals and other expenses can be attributed to the acquisition of Laguna Water and Clark Water and the expansion projects of the company. These expenses were partially offset by decrease in the management, technical and professional fees. 7. Revenue from rehabilitation works and the cost of rehabilitation works are directly proportional throughout the years are almost the same, which in turn offsets each other in terms of their effect on the total income (expenses). . An increase in the foreign currency differential income and foreign exchange losses resulted from appreciation of the Philippine peso in the past years. 9. Interest income also significantly increased in 2011 due to the interest income earned from cash in banks which amounted to 457. 79 million pesos. 10. Increase in interest income was due largely to the increase coupon interest expense which amounted to 1. 157 billion pesos. 11. The loss on derivative assets was due to its derecognition which amounted to 229. 61 million pesos. Horizontal Analysis [pic] v. RATIOS [Comparison of both companies] LIQUIDITY RATIOS [pic] Current Ratio: Manila Water is more liquid than Maynilad in terms of paying its short term liabilities to suppliers. Quick Ratio: Manila Water has higher ability to pay its short term liabilities compared to Maynilad. ASSET TURNOVER RATIO [pic] Days’ Receivable: Based on the terms set by both companies, Maynilad has a 60 day collection period as opposed to Manila Water’s 30 days. Both have been efficient in collection on their stated terms. However, in 2011 Manila Water increased to 29. 58.
Although, much lower receivables to sales ratio can indicate a much better policy in terms of converting its receivables to cash. We must take into consideration the geographical and socio-economic class of these two companies. As Manila water caters more on the business districts, residential and more developed areas of NCR as opposed to Maynilad which supply is concentrated in Greater Manila Area Summary: Manila Water with 29 days can convert its receivables faster as Maynilad takes 53 days which means Manila Water has better ability in meeting its short-term iabilities. Therefore, Manila Water has better policies in receiving collection. Although, we can assume that Maynilad is a little lenient in terms of this as they cater to a different socio-economic class and geographical locations as compared to the customers that Manila Water is handling. PROFITABILITY RATIOS [pic] Return on Equity: Maynilad provides higher return to its shareholders than Manila Water since Maynilad’s operations are funded mostly through debt than from stockholders’ investments.
Asset Turnover: The ability of Manila Water in efficiently generating sales through its assets is more efficient as compared to Maynilad with 0. 25 compared to a 0. 33 for 2011 Since both companies doesn’t handle so much inventory, the problem might be Maynilad’s policy of 60-day collection period or credit accounts that are on the book for too long as stated in their income statement in allowance for doubtful actions in which Manila Water has none. Profit Margin on Sales: Manila water presents a more stable income for the past 3 years.
However, Maynilad continues to grow by 16% from 2009-2011. In their 2011 income statement, it can be seen that there is also an increase in expenses compared to 2009-2010, it may mean that Maynilad is spending too much and this limits their profit. Return on Assets: Maynilad has higher ROA than Manila Water from 2009-2011. This means that Maynilad generates more income from its assets compared to Manila Water. Both companies have increased their assets by 45% and 40% respectively in 2009-2011.
But in terms of ROA ratio, Maynilad is more profitable in utilizing their assets. One cause can also be Manila Water’s higher cost and expenses than Maynilad. SOLVENCY RATIO [pic] Total Debt to Total Assets: In terms of Total Debt to Total Asset ratio concept wherein a company’s assets have been financed by debt, Maynilad has higher percentage compared to Manila Water with 59-63% for 2009-2011. Maynilad acquired mostly through borrowings as seen in their Statement of Financial Position compared with Manila Water who relies more on their stockholders.
Industry Average Comparison [pic][pic] Conclusion and Recommendation ———————– ———————– References [i] http://www. reuters. com/finance/stocks/companyProfile? symbol=MWC. PS [ii] http://www. mayniladwater. com. ph/about01. php iii. http://www. investopedia. com/terms/p/profitabilityratios. asp#ixzz1zpGihjWg ———————– Maynilad in Red. Manila Water in Blue. Source: Inq7. net Manila Water Maynilad Year Manila Water Maynilad Year Year Manila Water Maynilad ———————– Manila Water and Maynilad 2009-2011 12