Manila Water posts lower net income in 1H2019
Manila Water earnings for the first half of 2019 stood at ₱2.9 billion, 18 percent lower than the previous year. This decline is still driven by the impact of the water supply shortage which hit its Manila Concession business early this year. Outside the East Zone, domestic business operations saw higher earnings contribution while foreign operations held steady. On the other hand, new business developments continue to provide market expansion and new sector opportunities.
Consolidated revenues improved 7 percent to ₱10.5 billion, driven by increased billed volume and higher average effective tariff in several key business units. This growth, however was still weighed down by the impact of the one-time Bill Waiver Program implemented in the Manila Concession during the first quarter of 2019 to assist affected customers.
Consolidated costs and expenses similarly reflected the challenges experienced in the Manila Concession, increasing 22 percent from the previous year to ₱4.5 billion. Overhead costs were the main contributor, doubling from the previous year to ₱1.2 billion due to the penalty imposed by the Metropolitan Waterworks and Sewerage System (MWSS). Without the penalty, increase in overhead costs would be at 14 percent.
As a result, Manila Water consolidated net income declined from the same period last year. Excluding one-offs, core net income improved by 8 percent to ₱3.8 billion.
For the Manila Concession, results still reflect the adverse effects of the water supply shortage in March. Billed volume declined by 2 percent, directly driven by lower water supply and service availability during the period. The one-time Bill Waiver Program also affected topline growth, with the company recognizing a revenue reduction of ₱353 million. Revenues for the period stood a ₱8.1 billion, as cost and expenses rose 6 percent to ₱2.3 billion driven primarily by the penalty imposed by MWSS during first quarter of 2019. With these, net income for the Manila Concession was at ₱2.5 billion for the first half of the year, a decline of 25 percent.
From the water supply challenges early this year, Manila Water successfully restored water availability to its customers in the Manila Concession. While the shortage stemmed from the inadequacy of allocated raw water supply, Manila Water addressed prevailing challenges and restored water service to affected areas. Firstly, the company implemented network management and efficiency programs, bringing Non-revenue Water (NRW) down to an all-time low of 7.5%. Reinforced by a more deliberate network management and optimization program, 24/7 water availability at sufficient pressure has been successfully restored to 99 percent of Manila Concession customers. This has been achieved even in the face of a still significantly reduced raw water supply allocation from Angat Dam – now at only 36 cubic meters per second (cms) from the normal 46 cms. These efforts have become the catalyst for equitable water distribution – Manila Water is now working with MWSS and other key government agencies to launch a demand management and water conservation campaign.
Furthermore, Manila Water undertook its own supply augmentation efforts, with its Cardona Plant now producing 62 million liters per day (MLD); well over the 50 MLD committed capacity. The recommissioning and development of new deep wells continues, with a current total yield of over 50 MLD. Looking to the future, Manila Water works closely with MWSS on key components of the Water Supply Master Plan for the East Zone. To date, the MWSS Board of Trustees has approved four new water source project proposals which are now under review by the MWSS Regulatory Office.
Domestic operations under Manila Water Philippine Ventures (MWPV) posted significant growth, with earnings for the period up 31 percent from the previous year to ₱303 million. This growth was led by key subsidiaries Laguna Water and Estate Water. Laguna Water grew its earnings by 20 percent from the previous year to ₱200 million, driven mainly by additional billed connections and higher average tariff with the implementation of its new sanitation charge. For Estate Water, positive performance was bolstered by higher supervision fees, as well as an increase in billed volume through the takeover of new residential and mixed-use estates. As a result, Estate Water more than doubled its net income to reach ₱186 million for the first half of 2019. These gains have been partially offset by market challenges experienced in other subsidiaries such as Boracay Water and Clark Water, both registering lower earnings for the period. For Boracay Water, billed volume declined by 10 percent due to the permanent closure of several commercial accounts in line with clearing operations last year, as well as market share considerations due to increased competition. For Clark Water, billed volume declined to 7.1 million cubic meters for the period, as key locators reduced production driven by the uncertain global trade environment. Clark Water’s capital expenditures are confined to repairs and maintenance activities as it awaits the regulatory decision on its Rate Rebasing adjustment.
International operations under Manila Water Asia Pacific saw an 11 percent increase in earnings to ₱376 million, mainly driven by the equity share of East Water in Thailand. This is despite challenges encountered by subsidiary operations in Vietnam, which posted lower income contribution for the period due to higher costs in operations, lower billed volume and delays in regulatory tariff increases.
New business development efforts have made headway both in the areas of geographic expansion and new sectors. For Manila Water Philippine Ventures, new water concessions have recently been obtained for the municipalities of Lambunao, Iloilo and Calbayog, Samar. For Manila Water Total Solutions, the push towards the environmental solutions space has gained traction with the granting of Original Proponent Status by the City of Marikina to build and operate an Integrated Waste Management Facility for the city.
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