02
Report of the President

SPEARHEADING THE STRATEGY

Dear Shareholders,

As I look back on the past year since taking the helm of the Manila Water enterprise, I am pleased to report that your company continued to deliver solid results on sound fundamentals, and generate a robust pipeline of prospects in the Philippines and in the ASEAN Region. Our aspiration to double our business continues to drive our strategy to build a strong portfolio of businesses, and sustain our position as a partner of choice of the many stakeholders we serve.

Your company posted robust core income growth in 2017 that reached P6.5 billion, rising by seven percent. Despite a series of tariff clawbacks, the Manila Concession delivered a six percent net income growth, and notably, the highest capital expenditure performance in our 20-year history at more than P10.6 billion. Manila Water Philippine Ventures posted strong revenue growth of 27 percent reaching P3.1 billion, and a core net income growth of 13 percent at P640 million, underscoring our continued expansion momentum in the country. Outside the Philippines, Manila Water Asia Pacific registered 19 percent in net income growth in 2017 at P332 million on higher contribution of our foreign associates. Meanwhile, our innovation vehicle, Manila Water Total Solutions continued to gain foothold in our new business venture, Healthy Family Purified Water. Bottle sales grew by 28 percent in 2017 to six million bottles sold, and we successfully launched a small bottled variant to complement the original five-gallon product.

New Picture (15)

Operationally, I am likewise pleased to report that all operating units posted notable growth in treated water production in 2017. Our enterprise billed volume reached close to 739 million cubic meters , serving a population of more than 17 million customers in various geographies. Our total billed connections breached the one million mark in 2017, with our Manila Concession business now serving over 6.7 million people in eastern Metro Manila. Meanwhile, subsidiaries of Manila Water Philippine Ventures consisting of operations in Boracay, Cebu, Clark, and Laguna, and with the addition of Estate Water, all posted double-digit billed volume improvements. In Vietnam, with the operation of our Tan Hiep water treatment plant in 2017, Manila Water Asia Pacific now treats half of the bulk water requirements of Ho Chi Minh City.

For used water, our sewage and septage treatment plants processed an enterprise-wide total of 56.4 million cubic meters of used water, effectively removing organic pollution load equivalent to 9,087 tons of BOD (biochemical oxygen demand) and avoiding close to 57,249 tons of equivalent carbon dioxide.

Your company’s commitment to the Triple Bottomline has never been stronger. Guided by the United Nations Sustainable Development Goals, we make every effort to align and integrate our sustainability framework into our corporate strategies. The five focus areas we have identified – (1) helping build communities; (2) safeguarding health and safety; (3) protecting the environment; (4) developing our employees; and (5) contributing to local and national economies – guide us as we pursue our business goals, and deliver at scale.

With the pressing risks posed by climate change, we have focused on disaster risk reduction and infrastructure management programs to mitigate and adapt to these challenges. We continue to update our Business Continuity Plan – retrofitting our assets to become disaster resilient, and taking a proactive approach in the development and management of water resources.

We remain true to our role in protecting the environment by treating used water before returning it to the water bodies. We have established environmental advocacies such as Lakbayan and Toka Toka, aimed at raising stakeholder awareness of the water and used water cycle. We also ensure water supply sustainability by protecting watersheds.

Supported by 20 years of solid experience in the water and sanitation space, we have developed dynamic talent development programs for the professional and personal development of our employees. We build on the technical and business capabilities of our talent base to strengthen our market presence across ASEAN. Slowly but steadily, your company is evolving into a multi-service, multi-national and multi-cultural organization.

As we look to our mission ahead, the addressable markets in the water, sanitation and environmental services spaces remain attractive. Our resolve to double our earnings and significantly increase the contribution of our non-Manila Concession businesses to the enterprise burns strongly. Since the time we began this journey, the path to achieve our goals has become much clearer for us. At the same time, with this heightened clarity, we have also come to realize that the road to attaining our growth aspirations will not be an easy one. Despite these challenges, we remain steadfast in our journey, reinventing and better equipping ourselves to face market uncertainties and growing competition.

We are encouraged by key business development milestones in 2017 and in the early parts of 2018. Manila Water Philippine Ventures established and started commercial operations of its Bulacan Water businesses. It closed 25-year concession agreements with the Obando Water District in Bulacan and the Municipality of Calasiao in Pangasinan, as well as a lease agreement with the Philippine Economic Zone Authority for Estate Water. Laguna Water expanded its territorial scope with the inclusion of the municipalities of Calauan and Victoria. Further significant wins were the Notices of Award by Leyte Metropolitan Water District, and the City of Ilagan.

Early in 2018, our ASEAN dreams were boosted by the acquisition of an 18.72 percent stake of East Water, a major publicly listed water company in Thailand; and a 20 percent stake in PT Sarana Tirta Ungaran, a bulk water company in Central Java, Indonesia. We are active in scanning for water, sanitation and waste-to-energy opportunities in the region – to parlay our experience and resources towards building new growth platforms for Manila Water Asia Pacific and Manila Water Total Solutions.

The Rate Rebasing results this year will be crucial to defining the way forward for our Manila Concession business. Our submitted Business Plan has been carefully developed and well masterplanned – responsibly anchored on water security, resilience, reliability, and environmental sustainability. In the meantime, we continue to intensify our efforts to increase our productivity and operating efficiency.

At the enterprise level, we are transforming our business and operating model; leveraging on our size and scale, while streamlining the way we work as a portfolio of businesses. We are institutionalizing our service franchises to deliver consistent and cost-efficient worldclass services, rightly supported by proven best practices. We have re-organized the enterprise to promote both stability and dynamism at all levels, with equal focus on operating subsidiaries and new business development initiatives.

With a firm resolve and a highly engaged team to achieve our growth commitments, I envision a much larger Manila Water enterprise – making waves in new markets and sectors while creating shared value. Our sense of mission inspires us not only in attaining our ambitious targets, but more importantly, in improving, serving and protecting the growing communities we serve. I wish to thank our Board for its guidance and insight, and my colleagues in the enterprise for their untiring efforts to turn our vision into reality.

Aerial view of East La Mesa Water Treatment Plant