Meralco Financial Analysis

INTRODUCTION MERALCO is the Philippines largest electric big businessman distribution come with, with franchise service field of study covering 9,337 agora kilometres. It provides power to 4. 8 one million million customers in 31 cities and 80 municipalities, which include the whole of Metro Manila, the provinces of Rizal, Cavite and Bula backside, and parts of Pampanga, Batangas, Laguna and Quezon. Business establishments in the franchise argona account for almost 46% of the countrys Gross Domestic Product or GDP.Through Clark Electric Distribution Corpo balancen or CEDC, a 65%-subsidiary, it time lags the power distribution franchise for Clark Special Economic Zone in Clark, Pampanga. CEDC franchise field covers 32 square(a) kilometres and 1,611 customers. The Company is organized into three study in operation(p) segments, namely, power distribution, real state and contracts, serve and other(a)s. In 2010, MERALCO PowerGen Corporation or MPG (formerly Asian Center for En ergy Management), a wholly owned subsidiary, was shake up as the Companys vehicle for potential entry into power generation. COMPANY PROFILEMERALCO marches on to its 108th yr of service in 2011. Consistently in the list of the Philippines top five corporations and cited among Asias finest, MERALCO today serves 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 bloodline process, both domestic and international. 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. Electrification level in the franchise area is 99%. accusatio n to provide our customers the best value in energy, products and services. VISSION to be a world-class company and the service provider of choice. OBJECTIVES To protect and enhance the amuse of its stakeholders by committing itself to the succeeding(a) principles. 1. The Customers are its reason for being, and therefore, they should always be treated with dignity.The Company must be fully responsive to their needs. The Company has the responsibility to * Provide the customers with the highest quality products and services, lucid with their demands and with international standards * Treat the customers fairly, courteously and with integrity in all of its pipeline transactions * Act promptly on their immediate concerns and be receptive to their long needs and interest and * Make every effort to ensure that the health, safety and general well-being of its customers are enhanced by its products and services. 2.The Employees are its most treasured summation, and therefore, they s hould always be treated with dignity and with full consideration 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 dear and competitory compensation, and benefits that improve their living conditions and incentives * Guarantee fairness, equal treatment and opportunity and avoid discriminatory practices and * Provide suitable and safe working conditions to protect employees from avoidable damage and illness in the workplace. . Its Investors are its principals, and therefore, the trust they have placed in the company must be honoured. The company has the responsibility to * Apply professional and persevering management to ensure the financial viability of the company and maintain a fair and competitive egest for its investors and * Conserve and enhance its investors pluss, 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-run stability, direct relation and continuous culture with suppliers to attain quality, competitiveness, process efficiency and performance reliability * Seek fairness, truthfulness, integrity and transparency in all of its business dealings with them and * Seek encourage and like suppliers whose business practices respect human dignity and the environment. . The Competitors are its catalyst toward continuing service excellence and, therefore, the competition with them should be fair and honest, a basic 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 competitors and * Maintain the highest level of business ethical motive and integrity. . The Community is its business environm ent and the fiat it serves. The Company has the responsibility to * Uphold and maintain at all metres the highest standards of business ethics * Fulfil with commitment and commitment its social responsibilities * Undertake activities that support and contribute to the economic and social development of the country 7.Employ proactive measures and cooperate with the government and non-government institutions in activities to serve society towards a collective benefit. * Help the government in its efforts and programs in its efforts and programs towards raising investor confidence, developing the capital market, and ensuring high sustained economic growth through legal corporate governance. Observe and comply at all times with the orders, rules and regulations of the government, its agencies and instrumentalities, in the pursuit of its utility objectives and other corporate endeavors * Institutionalize sound environmental practices in collaboration with the concerned government agen cies and encourage other corporations/organizations to support all programs for an effective environmental management system. SUBSIDIARIES AND AFFILIATES * Meralco Powergen Corporation (MPG) * Clark Electric Distribution Corporation (CEDC) * radius Telecoms, Inc. * Meralco Financial Services Corporation (FINSERVE) Lighthouse Overseas Insurance Limited (LOIL) * Meralco Energy, Inc. (MEI) * Rockwell Land Corporation (ROCKWELL) * Republic Surety and Insurance Company, Inc. (RSIC) CONSOLIDATED FINANCIAL STATEMENTS manilla paper ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION declination 31 2010 2009 (amounts in millions) ASSETS oc oc rate of flow Assets Cash and Cash equivalents Php 24,370. 00 Php 17,068. 00 Trade and other receivables clams 25,609. 00 21,600. 0 Inventories at lower cost or sort out realizable value 2,043. 00 1,857. 00 Land and development costs at lower of cost or net realizable value 1,708. 00 1,191. 00 Other occurrent assets 2,027. 00 2,969. 00 sum bestow CURRENT ASSETS 55,757. 00 44,685. 00 Noncurrent Assets Utility plant and others net 101,009. 00 98,231. 0 Construction in progress 2,241. 00 3,627. 00 Investments in associates and a joint run a risk 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 dead assets net 10,339. 0 13,184. 00 gibe NONCURRENT ASSETS 123,211. 00 127,444. 00 Php 178,968. 00 Php 172,129. 00 LIABILITIES AND EQUITY Current Liabilities Notes Payable Php 149. 00 Php 513. 00 Trade payables and accrued put downs 31,138. 00 28,261. 00 Income tax payable 413. 00 133. 00 Customers refund 7,131. 0 9,147. 00 Current portion of interest bearing long-term financial liabilities 5,574. 00 4,069. 00 TOTAL CURRENT LIABILITIES 44,405. 00 42,123. 00 Noncurrent Liabilities Interest-bearing long-term financial 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 Provisions 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 impartiality Attributable 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 acquired (328. 00) (328. 00) Employee shared-based payment plan 743. 00 569. 00 Unrealized fair value gains on available-for-sale enthronements 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 December 31 2010 2009 (amounts in millions, except 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 trading operations and maintenance 15,711. 00 13,611. 00 derogation and amortization 6,219. 00 5,064. 00 Provision for probable charges and expenses from claims 5,750. 00 3,351. 00 Cos t of real estate sold 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 venture (283. 00) (245. 0) Accretion of present value impact on customers refund 225. 00 555. 00 Foreign 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 TAX 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 crystalise INCOME Php 10,117. 00 Php 6,356. 00 MANILA ELECTRIC COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW 2010 2009 (Amounts in Millions) CASH FLOW FROM OPERATING ACTIVITIES Php 14,437. 0 Php 8 ,979. 00 Income before 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 plant and others net 1,033. 00 Provision for doubtful accounts, net of recoveries 982. 00 886. 00 Cost of guaranteed service levels pay-out 388. 00 216. 0 Loss from disposal of coronation 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 livestock to net realizable value (3. 0) (41. 00) Gain on disposal of investment property (4. 00) Donation of investment property 2. 00 Foreign exchange loss (gain) 51. 00 (266. 00) run income befor working capital changes 25,412. 00 16,749. 00 Decrease ( addition) 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) Provisions (140. 0) (4,935. 00) acquit cash generated from operations 25,311. 00 33,067. 00 Income tax paid (4,953. 00) (3,797. 00) winnings cash 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 received 1,058. 00 1,332. 00 government issue from Return of investment 752. 0 Disposal of utility plant and others 82. 00 Disposal of investment property 28. 00 Settlement of deliverable currency forwards 5. 00 Dividends received from associates 96. 00 445. 00 Dividends paid by subsidiaries attributable to non-controlling interests (15. 00) Decrease ( change magnitude) in Other noncurrent assets 622. 0 (1,657. 00) Other receivables Net cash used in investing 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 Notes 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) Div idends (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 INCREASE IN CASH AND CASH EQUIVALENTS 7,302. 00 11,666. 00 CASH AND CASH EQUIVALENTS AT BEGINNING 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 RATIO psychoanalysis 2010 2009 TEST OF LIQUIDITY 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 investments +receivables (net) Current Liabilities = 49979. 00 3048. 00 44405. 00 17234. 00 = 1. 13 0. 18 C. Receivables turnover = Net credit sales Average net receivables = 245461. 00 184550. 00 36409 . 00 36409. 00 = 6. 74 5. 07 Average Collection period = 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 sum assets ratio = wide-cut debt total assets = 115772. 00 110,983. 00 178968. 00 172,129. 00 = 0. 65 0. 64 B. Times interest earned = Income before 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 sales = 10,117. 00 6356. 00 245,461. 00 184550. 00 = 4% 3% B. Asset Turnover = Net Sales Average assets = 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 common shareholders equity = Net income Average c ommon stockholders equity = 10,117. 00 11,273. 00 = 90% E. Earnings per share = Net Income Weighted average common shares outstanding = 10,117. 00 1,127. 00 = 8. 98 F. Price-earnings ratio = Market toll 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 VERTICAL ANALYSIS REVENUES For the year end December 31, 2010 MERALCO procured a Php245, 461 million revenues, 33. 0% higher than previous year revenues worth Php184, 550 million. Sales from the three major operating segments increase during the year 2010 with the power distribution as the top performing operating segments. Php178,686 million 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% imputable to higher purchased power that was increased by 33. 12%. In support to this, purchased power got 86. 97% of the total 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 total sales the company still achieved its higher net income compare to 2009. CURRENT ASSETS As of December 31, 2010, the Companys unify 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 collection period from 29 days to 24 days.Other increase in current assets may be due to higher sales for the year 2010. CURRENT LIABILITIES Current liabilities had increased by 5. 42% or Php2,282 million by the year ended December 31, 20 10 with mete out 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 near 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 shared-based payment plan had increased by 31% as of December 31, 2010. This is due to perception of the provisions of PFRS2, Shared-based Payments related to Employee Stock Puchase Plan. And a decrease of 98. 5% of the share in cumulative translation a djustment of a subsidiary and an associate was resulted from the return of capital related to the Companys investment in FPPC. RATIO ANALYSIS CURRENT RATIO A total of Php55,757 million worth of current assets definitely meat a capability of the Company to pay its current liabilities worth Php44,045. This nub 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 liquid 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 deuce months collection period. This situation is favourable 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 too 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 profit margin of 3%, the company got 4% profit margin which indicates that the revenue earned, Php245, 461million by the company was effectively converted into genuine profit, Php10,117 million, despite of Php231, 024 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 favourable 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 throw off its money 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 SHARE 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. PRICE-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 will 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 almost 46% of the countrys Gross Domestic Product or GDP.The Company registered consolidated revenues for the year ended 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 across all customer classes, (ii) growth in various industries as restocking activities resume afterwards 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. Consolidated 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 hypothesize higher recurring net income compared with 2009 mainly as a result of increased volume of energy sold.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 compa red 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 15%, 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 remote 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 cast investors. RECOMMENDATION MERALCOs total performance could be the basis of prospective investors to invest and it could be the reason why present stockholders will continue 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 better as well. Customers refund should be minimized as well as the receivables.The company should think of a better way of decrease refunds and receivables without sacrificing 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 suffer in paying its unwanted debts. Continuous improvement and i nnovation 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.