Meralco Financial Analysis

INTRODUCTION MERALCO is the Philippines largest electric provide statistical distribution phoner, with claim value of process eye socket c everywhereing 9,337 square kilometres. It provides power to 4. 8 one thousand one trillion jillion customers in 31 cities and 80 municipalities, which include the whole of Metro Manila, the provinces of Rizal, Cavite and Bulacan, and separate of Pampanga, Batangas, lagune and Quezon. Business establishments in the franchise orbit account for al closely 46% of the countrys Gross Domestic Product or GDP.Through Clark galvanic Distribution Corpo dimensionn or CEDC, a 65%-subsidiary, it holds the power distribution franchise for Clark Special Economic Zone in Clark, Pampanga. CEDC franchise area c all overs 32 square kilometres and 1,611 customers. The association is organized into three study in ope dimensionn(p) segments, namely, power distribution, real republic and contracts, go and former(a)s. In 2010, MERALCO PowerGen Corpo sy mmetryn or MPG (formerly Asian Center for Energy Management), a wholly owned subsidiary, was organize as the partys vehicle for potential entry into power gene ration. follow PROFILEMERALCO marches on to its 108th year of value in 2011. consistently in the list of the Philippines cover five corporations and cited among Asias finest, MERALCO today armed services over 4. 8 million residential, commercial and industrial customers. It is strategically located to serve the countrys center of commerce and industry and its hub of government services and infrastructures. It services about 30 manufacturing economic zones, which also compete in the global market. Likewise, the Company caters to providers of outsourced calling process, both domestic and outside(a). MERALCOs 9,337 sq. km. ranchise area overs 31 cities and 80 municipalities including Metro Manila, the entire provinces of Bulacan, Rizal and Cavite parts of the provinces of Laguna, Quezon, Batangas and Pampanga. Electrifi cation train in the franchise area is 99%. MISSION to provide our customers the best look on in cleverness, products and services. VISSION to be a world-class fraternity and the service provider of choice. OBJECTIVES To protect and enhance the refer of its stakeholders by committing itself to the following principles. 1. The Customers are its fence for being, and therefore, they should al counsels be treated with dignity.The Company mustiness be richly responsive to their needs. The Company has the obligation to * leave behind the customers with the mellowedest quality products and services, consistent with their requirements and with international standards * Treat the customers fairly, courteously and with integrity in all of its business proceeding * Act promptly on their immediate concerns and be receptive to their long-run needs and interest and * Make every effort to ensure that the health, caoutchouc and general well-being of its customers are enhanced by its pro ducts and services. 2.The Employees are its most pass judgmentd addition, and therefore, they should always be treated with dignity and with full contemplation of their interest. The Company has the responsibility to * Provide its employees with incentives and opportunities for professional growth and advancement * Provide its employees with just and competitive wages, and benefits that improve their living conditions and incentives * Guarantee fairness, equal handling and opportunity and avoid discriminatory practices and * Provide suitable and safe functional conditions to protect employees from avoidable injury and illness in the workplace. . Its Investors are its principals, and therefore, the corporate trust they have placed in the fraternity must be honoured. The alliance has the responsibility to * Apply professional and diligent management to ensure the mo winary viability of the companion and maintain a fair and competitive growth for its investors and * conserve and enhance its investors assets, and fulfil and safeguard their interest. 4. The Suppliers and Creditors are its business partners and, therefore, the relationship with them must be based on mutual respect and benefit.The company has the responsibility to * Foster long-term stability, direct relation and continuous training with suppliers to polish off quality, competitiveness, process efficiency and exercise reliability * Seek fairness, truthfulness, integrity and transparence in all of its business dealings with them and * Seek encourage and pick out suppliers whose business practices respect human dignity and the environment. . The Competitors are its catalyst toward go along service excellence and, therefore, the competition with them should be fair and honest, a fundamental requirement for national development in the distribution of products and services to the community. The Company has the responsibility to * Promote behaviour that demonstrates mutual respect among c ompetitors and * Maintain the highest level of business ethics and integrity. . The Community is its business environment and the society it serves. The Company has the responsibility to * Uphold and maintain at all time the highest standards of business ethics * Fulfil with dedication and commitment its social responsibilities * Undertake activities that nurture and contribute to the economic and social development of the country 7.Employ proactive measures and work with the government and non-government institutions in activities to serve society towards a hoard upive benefit. * friend the government in its efforts and programs in its efforts and programs towards raising investor confidence, developing the capital market, and ensuring high fuck offed economic growth by means of broad(a) corporate governance. look on and comply at all clock with the orders, rules and regulations of the government, its agencies and instrumentalities, in the pursuit of its hit objectives and otherwise corporate endeavors * Institutionalize sound environmental practices in coaction with the concerned government agencies and encourage other corporations/organizations to support all programs for an in force(p) environmental management system. SUBSIDIARIES AND AFFILIATES * Meralco Powergen Corporation (MPG) * Clark Electric Distribution Corporation (CEDC) * r Telecoms, Inc. * Meralco Financial Services Corporation (FINSERVE) Lighthouse Overseas Insurance hold in (LOIL) * Meralco Energy, Inc. (MEI) * Rockwell Land Corporation (ROCKWELL) * Republic Surety and Insurance Company, Inc. (RSIC) CONSOLIDATED mo plunderary STATEMENTS MANILA ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION celestial latitude 31 2010 2009 (amounts in millions) plusS Current Assets hard currency and Cash equivalents Php 24,370. 00 Php 17,068. 00 Trade and other collectibles gelt 25,609. 00 21,600. 0 Inventories at cut back salute or terminate manageable value 2,043. 00 1,857. 00 Land and development be at lower of cost or cabbage realizable value 1,708. 00 1,191. 00 Other ac acknowledgemented assets 2,027. 00 2,969. 00 pith CURRENT ASSETS 55,757. 00 44,685. 00 Non legitimate Assets Utility plant and others plunder 101,009. 00 98,231. 0 Construction in maturate 2,241. 00 3,627. 00 Investments in associates and a joint pretend 321. 00 1,203. 00 Investments properties net 8,037. 00 8,021. 00 Deferred pass through fuel costs 1,222. 00 3,161. 00 Deferred tax assets net 42. 00 17. 00 Other obsolescent assets net 10,339. 0 13,184. 00 TOTAL NONCURRENT ASSETS 123,211. 00 127,444. 00 Php 178,968. 00 Php 172,129. 00 LIABILITIES AND blondness Current Liabilities Notes Payable Php 149. 00 Php 513. 00 Trade standables and accrued disbursals 31,138. 00 28,261. 00 Income tax payable 413. 00 133. 00 Customers pay back 7,131. 0 9,147. 00 Current portion of in terest bearing long-term pecuniary liabilities 5,574. 00 4,069. 00 TOTAL CURRENT LIABILITIES 44,405. 00 42,123. 00 Noncurrent Liabilities Interest-bearing long-term fiscal liabilities net of current portion 15,498. 00 17,234. 00 Customers deposits net of current portion 23,761. 00 25,063. 0 Deposits from pre-selling of condominium units 741. 00 343. 00 Deferred tax liabilities net 3,322. 00 4,230. 00 Long-term employee benefits 9,547. 00 10,987. 00 supplys 12,875. 00 7,492. 00 Advances for construction net of current portion 3,271. 00 2,989. 00 Other noncurrent liabilities 2,352. 0 522. 00 TOTAL NONCURRENT LIABILITIES 71,367. 00 68,860. 00 TOTAL LIABILITIES 115,772. 00 110,983. 00 Equity ascribable to Equity Holders of the Parent Common Stock 11,273. 00 11,273. 00 Subscriptions receivable (738. 00) (960. 00) Additional paid-in capital 4,111. 0 4,112. 00 Excess of Acquisition cost over carrying value of non-controlling interest acquir ed (328. 00) (328. 00) Employee shared-based payment plan 743. 00 569. 00 Unrealized fair value bring ins on available-for-sale investments 96. 00 71. 00 Share in cumulative translation adjustment of a subsidiary and an associate 12. 00 684. 0 Retained earnings Appropriated 6,000. 00 4,198. 00 Unappropriated 37,800. 00 37,750. 00 Equity Attributable to Equity Holders of the Parent 58,969. 00 57,369. 00 Non-controlling interests 4,227. 00 3,777. 00 TOTAL EQUITY 63,196. 00 61,146. 00 Php 178,968. 00 Php 172,129. 00 MANILA ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended celestial latitude 31 2010 2009 (amounts in millions, leave out per share data) REVENUES Sale of electricity 239,077. 00 178,686. 00 Sale or real state 3,375. 00 2,877. 00 Sale of contracts, services and others 3,009. 00 2,987. 00 245,461. 0 184,550. 00 EXPENSES (INCOME) Purchased power 200,916. 00 150,928. 00 Operations and maintenance 15,711. 00 13,611. 00 derogation and amortization 6,219. 00 5,064. 00 Provision for presumable charges and expenses from claims 5,750. 00 3,351. 00 Cost of real estate sell 2,640. 00 2,230. 0 Interest and other financial income (2,690. 00) (4,246. 00) Cost of services 1,996. 00 1,803. 00 Provision (reversal of provision) for probable losses from refund net (1,632. 00) (1,179. 00) Interest and other financial charges 493. 00 3,328. 00 Equity in net earnings of associates and a joint dissemble (283. 00) (245. 0) Accretion of present value jounce on customers refund 225. 00 555. 00 unknown exchange losses (gains) net 51. 00 (266. 00) Taxes, fees and permits 974. 00 421. 00 Others 654. 00 216. 00 231,024. 00 175,571. 00 INCOME BEFORE INCOME task 14,437. 00 ,979. 00 PROVISION FOR (BENEFIT FROM) INCOME TAX Current 5,233. 00 3,218. 00 Deffered (913. 00) (595. 00) 4,320. 00 2,623. 00 NET INCOME Php 10,117. 00 Php 6,356. 00 MA NILA ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF notes FLOW 2010 2009 (Amounts in Millions) CASH FLOW FROM OPERATING ACTIVITIES Php 14,437. 0 Php 8,979. 00 Income forrader income tax Adjustments for Depreciation and amortization 6,219. 00 5,064. 00 Provision for probable charges and expenses from claims 5,750. 00 3,351. 00 Interest and other financial income (2,690. 00) (4,246. 00) Interest and other financial charges 493. 0 3,328. 00 Provision (reversal of provision) for probable losses from refund net (1,632. 00) (1,179. 00) Loss on disposal of utility-grade plant and others net 1,033. 00 Provision for in question(predicate) accounts, net of recoveries 982. 00 886. 00 Cost of guaranteed service levels pay-out 388. 00 216. 0 Loss from disposal of investment 46. 00 Equity in net earnings of associates and a joint venture (283. 00) (245. 00) Present value impact on customers refund 225. 00 555. 00 Employee share-based payments 174. 00 301. 00 Reversal of write-down of neckcloth to net realizable value (3. 0) (41. 00) Gain on disposal of investment property (4. 00) benefaction of investment property 2. 00 Foreign exchange loss (gain) 51. 00 (266. 00) Operating income befor work capital changes 25,412. 00 16,749. 00 Decrease ( maturation) in Trade and other receivables (10. 0) 15,601. 00 Inventories (130. 00) (168. 00) Land and development costs (517. 00) (531. 00) Deferred pass-through fuel costs 1,939. 00 631. 00 Other current assets 955. 00 (1,854. 00) Increase (decrease) in Trade payables and accrued expenses 41. 0 8,798. 00 Customers refund (2,241. 00) (2,889. 00) Customers deposits 1,298. 00 2,913. 00 Deposits from pre-selling of condominium units 398. 00 307. 00 Long-term employee benefits (1,424. 00) (1,555. 00) purvey (140. 0) (4,935. 00) loot bills generated from operations 25,311. 00 33,067. 00 Income tax paid (4,953. 00) (3,797. 00) Net c ash flows generated from operating activities 20,358. 00 29,270. 00 CASH FLOW FROM INVESTING ACTIVITIES Additions to Construction in progress (5,769. 00) (7,914. 0) Utility plant and others (2,741. 00) (187. 00) Intangibles (300. 00) (127. 00) Investments properties (110. 00) (662. 00) Interest and other financial income acquire 1,058. 00 1,332. 00 yield from Return of investment 752. 0 administration of utility plant and others 82. 00 Disposal of investment property 28. 00 Settlement of deliverable currency forwards 5. 00 Dividends stock from associates 96. 00 445. 00 Dividends paid by subsidiaries attributable to non-controlling interests (15. 00) Decrease ( summation) in Other noncurrent assets 622. 0 (1,657. 00) Other receivables Net cash used in invest activities (6,292. 00) (8,770. 00) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from Interest-bearing long-term financial liabilities, net of issue costs 10,528. 00 12,398. 00 Not es payable 380. 00 2,936. 00 Collection of subscriptions receivable 222. 0 445. 00 Payments of Interest-bearing long-term financial liabilities (10,748. 00) (8,295. 00) Dividends (6,187. 00) (2,820. 00) Interest and other financial charges (2,044. 00) (1,524. 00) Notes payable (744. 00) (12,251. 00) Stock transaction costs (1. 0) Increase(decrease) in other noncurrent liabilities 1,830. 00 277. 00 Net cash flow used in financing activities (6,764. 00) (8,834. 00) NET development IN CASH AND CASH EQUIVALENTS 7,302. 00 11,666. 00 CASH AND CASH EQUIVALENTS AT commencement OF YEAR 17,068. 00 5,402. 00 CASH AND CASH EQUIVALENTS AT END OF YEAR Php 24,370. 0 Php 17,068. 00 MANILA ELECTRIC COMPANY AND SUBSIDIARIES symmetry ANALYSIS 2010 2009 TEST OF fluidity A. Current Ratio = Current Assets Current Liabilities = 55757. 00 44685. 00 44405. 00 17234. 00 = 1. 26 1. 06 B. Acid-test Ratio = Cash + Short-term investments +receivables (net) Curren t Liabilities = 49979. 00 3048. 00 44405. 00 17234. 00 = 1. 13 0. 18 C. Receivables turnover = Net credit gross revenue medium net receivables = 245461. 00 184550. 00 36409. 00 36409. 00 = 6. 74 5. 07 clean Collection detail = 365 days receivable turnover = 365 days 365 days 6. 74 5. 07 = 54. 15 days 72. 01 D. Inventory turnover = COGS Average inventory = 221263. 00 168572. 00 2971. 50 2971. 50 = 74. 46 times 56. 73 TEST OF SOLVENCY A. Debt to radical assets ratio = add up debt core assets = 115772. 00 110,983. 00 178968. 00 172,129. 00 = 0. 65 0. 64 B. Times interest earned = Income sooner income taxes and interest expense interest expense = 14,437. 0 8979. 00 493. 00 3328. 00 = 29. 28 2. 70 TEST OF PROFITABILITY A. Profit Margin = Net income Net gross revenue = 10,117. 00 6356. 00 245,461. 00 184550. 00 = 4% 3% B. Asset Turnover = Net gross sales Average as sets = 245,461. 00 175,548. 50 = 1. 40 C. Return on assets = Net Income Average Assets = 10,117. 00 175,548. 50 = 6% D. Return on reciprocal shareowners equity = Net income Average common stockholders equity = 10,117. 00 11,273. 00 = 90% E. Earnings per share = Net Income plodding middling common shares outstanding = 10,117. 00 1,127. 00 = 8. 98 F. Price-earnings ratio = Market harm per share of stock earnings per share = 10 8. 62 = 1. 16 G. Pay-out Ratio = Cash Dividends Net income = 7,834. 00 10,117. 00 = 77. 43 ANALYSIS HORIZONTAL AND steep ANALYSIS REVENUES For the year end December 31, 2010 MERALCO procured a Php245, 461 million revenues, 33. 0% high than previous year revenues worth(predicate) Php184, 550 million. Sales from the three major operating segments growing during the year 2010 with the power distribution as the top performing operating segments. Php178,686 mi llion sales from electricity was a 96. 82% of Php184,550 million. EXPENSES Expenses for the year 2010 amounted to Php231,024 million was change magnitude by Php55,453 million or 31. 58% cod to higher purchased power that was change magnitude by 33. 12%. In support to this, purchased power got 86. 97% of the issue forth Php231,024 worth of expenses. NET INCOME Php10,117 million net worth of income of 2010 was 59. 7% higher than 2009 its because of the higher sales of electricity for the year 2010. Eventhough the net income for the year 2010 is just a 4. 12% of the quantity sales the company still achieved its higher net income comparison to 2009. CURRENT ASSETS As of December 31, 2010, the Companys consolidated cash and cash equivalents amounted to Php24,370 million, Php7,302 million or 42. 78% higher compared with the balance of Php17,068 million of December 31, 2009. In addition, cash and cash equivalents achieved 13. 62% of its Php178,968 million total assets. This is due to a higher average army period from 29 days to 24 days.Other increase in current assets whitethorn be due to higher sales for the year 2010. CURRENT LIABILITIES Current liabilities had increase by 5. 42% or Php2,282 million by the year stop December 31, 2010 with trade payables and accrued expenses having the highest increase worth Php2,877 million, achieving 20. 52% of its total liabilities. Decreases in the current liabilities was due to payments of some payables and some customers refund. NONCURRENT ASSETS Most of the noncurrent assets had decreased by the year 2010, this is due completion of major electric projects and due to consumption of fuel gas.NONCURRENT LIABILITIES A total of Php4,789 million increase in noncurrent liabilities of the company may due to issuance of long term obligations that could result in an increase in working capital. This increase was due to pre-termination of some loan deposits received from units sold on instalment contracts. EQUITY The employee sh ared-based payment plan had increased by 31% as of December 31, 2010. This is due to recognition of the commissariat of PFRS2, Shared-based Payments related to Employee Stock Puchase Plan. And a decrease of 98. 5% of the share in cumulative translation adjustment of a subsidiary and an associate was resulted from the feed of capital related to the Companys investment in FPPC. RATIO ANALYSIS CURRENT RATIO A total of Php55,757 million worth of current assets definitely means a capability of the Company to pay its current liabilities worth Php44,045. This means a 1. 26 current ratio is an indicator of a slightly strong financial position. ACID-TEST RATIO A 1. 131 acid-test ratio of the company simply portrays that its most suave assets can settle its current liabilities. RECEIVABLE TURNOVERThe Company can collect its receivables 6. 74 times in a year with an average of 54. 15 days or less than two months collection period. This situation is booming to the companys present position. INVENTORY TURNOVER As inventory is being concern, the company is efficient in managing its inventories. A 74. 46 times inventory turnover is a proof of the latter statement. It is not excessively high nor too low indicating a better liquidity. DEBT TO TOTAL ASSET RATIO More than half of the companys assets are financed through the companys debts. This is proven by a 0. 65 ratio of debt to total asset.TIMES INTEREST EARNED Since the earnings of the company, Php14,437, is higher than its total interest expense, Php493, the company has the capability to settle its debts. Getting a 30. 28 ratio means that the company is able to meet its interest obligations because its earnings is significantly greater than its annual interest obligations. PROFIT MARGIN Compare to 2009 avail margin of 3%, the company got 4% profit margin which indicates that the revenue earned, Php245, 461million by the company was effectively born-again into actual profit, Php10,117 million, despite of Php231, 02 4 total expenses .ASSET TURNOVER The 1. 4 asset turnover ratio of 2010 is relatively higher than 2009 meaning despite of Php178,968 million total assets the company still gained a total revenue of Php245,461 million with a total net profit of Php10,117 million meaning the company is efficiently utilizing its assets to produce a prosperous profit. RETURN ON ASSETS The company has a total 6% return on assets of 2010 which is 2% higher than 4% return on assets of 2009 indicates that the company can make an intelligent choice on how to spend its coin on new assets. RETURN ON COMMON STOCKHOLDERS EQUITYA 6% increase in return on common stockholders equity simply indicates that the company is generating profits on its common stock investment meaning it is generating an income for the benefit of common stockholders. EARNINGS PER dower With an 8. 62 earnings per share which is higher than the 2009 EPS, 5. 74, the company is getting a higher earnings, meaning a strong financial position. P RICE-EARNINGS RATIO The 1. 16 price-earnings mean that investors are ready to pay 10 times earnings. The company has a chance in getting numerous investors. PAY-OUT RATIO A 77. 3% of the total Php7834 can be paid back to shareholders. Investors depart increase its confidence to the company. CONCLUSION MERALCO is the Philippines largest electric power distribution company, with franchise service area covering 9,337 square kilometers. It provides power to 4. 8 million customers in 31 cities and 80 municipalities, which include the whole of Metro Manila, the provinces of Rizal, Cavite and Bulacan, and parts of Pampanga, Batangas, Laguna and Quezon. Business establishments in the franchise area account for closely 46% of the countrys Gross Domestic Product or GDP.The Company registered consolidated revenues for the year cease December 31, 2010 amounted to P=245,461 million, 33% higher compared with the P=184,550 million for the same period last year. Sales from all operating segments increased during the year with the highest registered by power distribution. The increase in electricity spending is attributable to (i) increased number of customers crossways all customer classes, (ii) growth in various industries as restocking activities cartoon after the global economic crisis, (iii) unusually warmer temperature during the first half of the year and, (iv) election spendings.Sales from electricity amounted to P=239,077 million, an increase of P=60,391 million, or 34%, from P=178,686 million for the year ended December 31, 2009. fused costs and expenses amounted to P=231,024 million for the year ended December 31,2010, P=55,453 million higher than the P=175,571 million last year, primarily due to higher purchased power costs, increased provision for doubtful accounts, accrual for compensation and employee benefits. The 2010 consolidated full year results reflect higher recurring net income compared with 2009 mainly as a result of increased volume of energy sol d.Revenues generated from power distribution amounted to P=239,164 million for the year ended December 31, 2010, higher by 34% compared with P=178,752 million in 2009. Pass-through charges increased by P=48,442 million, or 33% to P=195,435 million compared with P=146,993 million in 2009, as a result of higher average generation charge during the year, partially offset by the decrease in the average recoverable system loss charge to P=11,567 million from P=16,108 million. Costs and expenses of the power distribution segment increased by P=55,211 million, or 32%, to P=225,905 million in 2010 compared with P=170,694 million in 2009.For the year ended December 31, 2010, purchased power costs amounted to P=200,916 million, an increase of 33% from P=150,928 million in 2009 brought about by the higher electricity consumption particularly from the industrial customers and increased in average purchased power cost per kWh. Operations and maintenance expense increased by P=2,100 million, or 1 5%, to P=15,711 million for the year ended December 31, 2010 compared with P=13,611 million for the year ended December 31, 2009 brought about by the increases in salaries and wages and provision for doubtful accounts.MERALCOs liquidity increased as the current and quick ratio rose in 2010. On the other hand, the companys collection of receivables had dropped down from 72 days of 2009 to 54 days of 2010. This means the company is having a good turnover when it comes to it receivables. in this connection, the company achieved the 74. 46 times of inventory turnover that resulted to a higher sales. 0. 65 debt to total asset ratio and 30. 28 times interest earned proved that the company is solvent and able to meet its interest obligations.Revenue earned was effectively converted into actual profit despite of a higher total cost of expenses still the company gained a 59% increase in net income. As far as asset is concern, the company is efficiently utilizing its asset that resulted to a favourable profit. And because of the increase, we can say that the company is profitable and this could gain the trust of shareholders and may attract investors. RECOMMENDATION MERALCOs total performance could be the basis of prospective investors to invest and it could be the reason why present stockholders will stretch forth to do business with the company.A favourable increase in sales as well as the increase in net income may not be an indicator of a total good performance of a company. The management should still preserve its good turnover on assets and inventories to preserve its stockholders and the legacy that MERALCO had started ever since. The company should sustain its good performance since its the number one electricity supplier here in the Philippines. The service should be enhanced and be ameliorate as well. Customers refund should be minimized as well as the receivables.The company should think of a better way of reducing refunds and receivables without sacrificin g its service and trust of the customers. Assets should continue to increase and be utilized in the right manner. Acquiring of assets should be done in the right time so that the company will not run into in paying its unwanted debts. Continuous improvement and innovation when it comes to service is highly recommended for the company to hold its present position in the market. MERALCO should continue to give light and power to the entire archipelago.