ANNUAL REPORT 2013 ...keeps getting better. Connecting people and places. Ensuring clean and safe water. Powering commerce and households. Making excellent health care available to everyone. As we continue to invest in critical infrastructure, we also anchor our eforts on inclusive growth: that what we build benefts all stakeholders – from consumers with better basic services, employees in an inclusive and merit based organization, to shareholders with reasonable returns.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 1 Mission We are the leading Philippine infrastructure investment firm. We manage, transform and grow our companies while continuously seeking investment opportunities to create long-term value for our shareholders.
Vision We have a stellar portfolio of infrastructure assets, each being the dominant player in its feld. We are admired globally for excellence in investing in and transforming infrastructure. We attract, retain and develop world-class talent. Through our companies and foundation, we signifcantly contribute to the economic development of the Philippines and thereby uplift the quality of life of every Filipino.
Values TEAMWORK AND EMPOWERMENT We recognize the diverse strengths and abilities within the team. We enable and inspire people to achieve superior results.
INTEGRITY AND TRANSPARENCY We adhere to the highest ethical and corporate governance standards.
ENTREPRENEURSHIP We innovate, take risks, act quickly and decisively, and are customer focused.
FINANCIAL DISCIPLINE AND ACCOUNTABILITY We employ rigorous fnancial analysis to arrive at sound business decisions. We are results-driven and meet our commitments.
Contents 2 Mission, Vision, and Values 40 Advanced and World-Class Hospitals 3 Financial Highlights 46 Meaningful and Life-Changing 4 Key Metrics Corporate Social Responsibility 6 Corporate Structure 66 Board of Directors 7 Signifcant Events 72 Senior Executives 8 Milestones 76 Key Ofcers 10 Message from the Chairman 79 Corporate Governance 14 Message from the President and 82 Whistle-blowing Policy Chief Executive Ofcer 84 Risk Management 18 Message from the Chief Financial Ofcer 86 Audit and Risk Management 22 Safe and Sustainable Water Committee Report 28 Efcient and Sufcient Energy 87 Statement of Management’s Responsibility 34 First-Class and Accessible Toll Roads 88 Financial Statements*
*Digital document fle of detailed Financial Statements are attached.
2 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Financial Highlights
TOTAL INVESTMENT TOTAL PARENT EQUITY 77,863 (IN PESO MILLIONS) (IN PESO MILLIONS) 73,625 78,063
58,906 60,198 63,602 64,579 50,981
47,395 47,899
2009 2010 2011 2012 2013 2009 2010 2011* 2012* 2013
TOTAL CONSOLIDATED REVENUES TOTAL CONSOLIDATED CORE INCOME (IN PESO MILLIONS) (IN PESO MILLIONS) 30,877 7,229 27,807 6,564
22,070 5,102
18,564 16,108 3,856
2,047
2009 2010 2011 2012 2013 2009 2010 2011* 2012* 2013
* Restated
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 3 P3.8BN 444MCM 38.7% CONTRIBUTION TO MPIC BILLED VOLUME NON-REVENUE WATER (AVERAGE)
P5.6BN 1.1MN 35.4% CAPITAL EXPENDITURES BILLED CUSTOMERS NON-REVENUE WATER WATER (PERIOD END) KEY METRICS
REVENUES 2013 16,895 (In Peso Millions) 2012 15,883 2011 13,769
CORE INCOME 2013 7,530 (In Peso Millions) 2012* 6,800
2011* 5,974
• EXCLUSIVE WATER CONCESSION FOR THE WEST ZONE OF GREATER MANILA AREA UNTIL 2037 • 9.7M POPULATION, 8.4M SERVED, COVERING 540 KM2, 14 CITIES, 3 MUNICIPALITIES • DISTRIBUTION NETWORK TOTALING 7,306KM
P1.9BN 173.1K 102.3K CONTRIBUTION TO MPIC AVERAGE DAILY AVERAGE DAILY VEHICLE ENTRIES (NLEX) VEHICLE ENTRIES (CAVITEX)
3.3MN P401MN AVERAGE KM CAPITAL EXPENDITURES TOLL ROADS TRAVELLED (NLEX) KEY METRICS
REVENUES 2013 8,154 (In Peso Millions) 2012* 6,784 2011* 6,465
CORE INCOME 2013 1,963 (In Peso Millions) 2012* 1,575 2011* 1,480
• OPERATES 63% OF THE TOTAL KILOMETERS OF TOLL ROADS IN THE PHILIPPINES • CONCESSION FOR NLEX UNTIL 2037, FOR CAVITEX R1 UNTIL 2033 AND CAVITEX R1 EXTENSION UNTIL 2046
* Restated
4 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 P2.3BN 34.1k GWh P10.2BN CONTRIBUTION TO MPIC POWER SALES CAPITAL EXPENDITURES
5.4MN 6.92% 97.7mins 3.4times NUMBER OF CUSTOMERS SYSTEM LOSS CUSTOMER AVERAGE SYSTEM AVERAGE POWER INTERRUPTION INTERRUPTION KEY METRICS DURATION INDEX FREQUENCY INDEX
REVENUES 2013 298,636 (In Peso Millions) 2012 285,270 2011 256,808
CORE INCOME 2013 17,023 (In Peso Millions) 2012* 16,265 2011* 14,887
• LARGEST ELECTRIC DISTRIBUTION UTILITY WITH FRANCHISE UNTIL 2028 • COVERS 9,337KM2, HOME TO APPROXIMATELY 25% OF PHILIPPINE POPULATION • DISTRIBUTES 55% OF TOTAL ELECTRICITY CONSUMED IN THE PHILIPPINES
P581MN 2,021 1.7MN CONTRIBUTION TO MPIC NUMBER OF BEDS NUMBER OF PATIENTS SERVED
P1.8BN 5,418 CAPITAL EXPENDITURES NUMBER OF HOSPITALS ACCREDITED DOCTORS KEY METRICS
REVENUES 2013 12,493 (In Peso Millions) 2012 11,329 2011 8,485
CORE INCOME 2013 879 (In Peso Millions) 2012* 720 2011* 559
• OPERATES THE LARGEST PRIVATE HOSPITAL NETWORK IN THE PHILIPPINES • NATIONWIDE PRESENCE ACROSS EIGHT HOSPITALS AND ONE MALL-BASED DIAGNOSTIC CENTER
* Restated
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 5 Corporate Structure as of 31 March 2014
Maynilad Water 52.8% Services, Inc. 25.0% Manila Water Manila Electric Company 39.0% Consortium, Inc. (MERALCO)
Makati Medical Center Colinas Verdes Hospital Managers Corp. (Cardinal Santos Medical Center) Davao Doctors Hospital Manila North Riverside Medical Center 71.0% Tollways Corporation East Manila Hospital Tollways Management Managers Corp. Corporation (Our Lady of Lourdes Hospital) 46.0% Cavitex Infrastructure Asian Hospital Inc. 100.0% Corporation* De Los Santos Medical Don Muang Tollway Center 7.4% Public Company, Ltd.
Megaclinic
Central Luzon Doctors’ *By virtue of a Hospital Management Letter Agreement
6 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Significant Events 2013 January September • Metro Pacifc Investments Corporation (MPIC) placed 1,330 million shares • Metropolitan Waterworks and Sewerage System (MWSS) released a at P4.60 each, raising P6.1 billion in new equity – This brought public foat resolution reducing Maynilad’s 2012 average basic water charge by 4.8% to 43.8% or P1.46/cu.m. This translates to a P0.29/cu.m. reduction in the basic water • Maynilad was declared as the winning bidder for the sale of Olongapo charge every year for the next fve years City’s 10.0% stake in Subic Water and Sewerage Co., Inc. for a total purchase price of P210.6 million October • Metro Pacifc Tollways Corporation (MPTC) secured 100% control of CAVITEX • Maynilad fled a Rebasing Dispute notice against MWSS’ tarif resolution Infrastructure Corporation by virtue of a Management Letter Agreement • MPIC acquired 51.0% of Central Luzon Doctors’ Hospital (CLDH) in Tarlac City. CLDH is MPIC’s eighth hospital in its growing nationwide chain of February private hospitals of now 2,021 beds • Beacon entered into a P17.0 billion ten-year Corporate Notes Facility with FMIC and PNB Capital as joint lead arrangers and various local fnancial November institutions as noteholders. The proceeds were used to refnance the • First Pacifc and MPIC formed a joint venture to acquire a 29.4% stake in P18.0 billion ten-year Corporate Notes Facility dated 22 March 2010 a Thai toll road operator, Don Muang Tollway Public Company Ltd. • Marubeni purchased 20.0% of Maynilad reducing MPIC’s economic interest from 56.8% to 52.8% December • MPIC declared fnal dividends of P0.020 • Ayala-First Pacifc Consortium (AF Consortium) was declared as the winning payable to stockholders as of record bidder of the P1.7 billion Automated Fare Collection System Project date of 18 March 2013 bringing the total dividend declaration out of 2012 2014 earnings to P0.032 per common share January • MPTC purchased an additional 3.9% of Manila North Tollways Corporation March (MNTC) from Egis Projects SA, for an aggregate purchase price of P1.4 • MERALCO, through a joint venture with First Pacifc Company Limited billion. This brought MPTC’s ownership in MNTC to 71.0% (First Pacifc), acquired 70.0% of PacifcLight Power Co. Ltd. - formerly GMR Energy (Singapore) Pte. Ltd. At acquisition, PacifcLight was fnishing • MPTC and Philippine National construction of a 2x400MW Liquefed Natural Gas Combined Cycle Construction Corporation executed a Combustion Turbine Power Plant located in Jurong Island, Singapore joint venture agreement with respect to the implementation of Segment 10.2 (Connector Road) under MNTC’s North April Luzon Expressway Concession • MPIC was included in the Morgan Stanley Capital International Index
March May • MPIC declared fnal dividends of P0.022 per common share, payable • MPIC acquired 51.0% of De Los Santos Medical Center, a Level 3 teaching to stockholders as of the record date of 8 April 2014 with payment and training hospital in Quezon City date of 30 April 2014 bringing the total dividend declaration out of • MPIC secured a ten-year loan of P6.5 billion from BDO Unibank, Inc. to 2013 earnings to P0.037 per common share refnance existing debt • AF consortium signed a ten-year concession agreement to build and implement the Automated Fare Collection System project for June the LRT and MRT lines in Metro Manila • MPIC declared cash dividends of P0.015 per common share, payable to stockholders as of the record date of 28 August 2013 with payment date of 20 September 2013
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 7 8 Milestones 2009 2008 2007 2006 • MPIC establishes Colinas Verdes Hospital Managers Corp. under March • MPIC directly acquires additional 5.9% of Maynilad bringing its December • MPICalsoincreases ownershipto inDMWC 55.4%bringing its • MPIC completes purchase of 99.8% of Metro Pacifc Tollways November MPIC acquires Hospital(DDH) 34.0% ofDavao Doctors May administered exitsfrom• Maynilad rehabilitation court February • MPIC acquires 33.0% of MDI with the conversion of the notes January • MPIC subscribes to P750 million of convertible notes of Medical May • MPIC acquires 42.0% efective ownership of Maynilad through January • MPIC e fectively lists with the Philippine Stock Exchange (PSE) December • MPIC establishes DMCI-MPIC Water Company (DMWC) as a November andregisters• MPICisincorporated and withtheSecurities March Cardinal Santos Medical Center Medical Santos Cardinal MDI andenters into to a20year manageandoperate contract ef ownershipective to 56.8% ef ownership toective inMaynilad 50.9% Corporation in2007 subscribed the Company to interest upto 33.0%ofequity inMDI Doctors, Inc. (MDI) – Makati Medical Center – which entitles DMWC introduction of way by Joint Venture to acquire interest in Maynilad Exchange Commission METRO PACIFICMETRO INVESTMENTS CORPORATION ANNUAL 2013 REPORT
2010 2009 • Manila North Tollway Corporation’s income tax holiday is July • MPIC divests 17.0% of its interest in LandCo. bringing its efective June • MPICacquires 14.7%of October • MPIC international roadshow sets record equity placing for 2009 September • MPICdivests itsentire interest inMNHPI ofNLEX,commencesoperations • Segment 8.1,anextension June Center• MPICacquires Medical 51.0%ofRiverside Inc. May • Maynilad’s concession term is extended by an additional 15 years April • Establishes Beacon Electric Asset Holdings Inc. (Beacon), a Joint March isgranted• Maynilad asix-year incometaxholiday January • MPIC acquires additional DDH shares increasing its efective December • MPICwinsbid, Centre together withHarbour Port Terminal, to • MPIC issues additional 6.9% of its outstanding capital stock to extended until December 2010 untilDecember extended 34.0% to down ownership with issuesize ofUS$300million to 2037 to their respective holdingsin Venture between MPIC and PCEV, for the sole purpose of holding 34.9% to ownership (MNHPI) Port,Inc. Harbour North develop, manage and operate the North Harbour under Manila Metro Pacifc Holdings, Inc. in exchange for MPIC shares by the PLDT Benef cial Trust Fund and was paid for using 16.8% of MERALCO MERALCO - 10.2% of which was owned -10.2%ofwhichwasowned , totalling 34.8% MERALCO shares 2011 2010 • MPIC acquires 1.09 billion common shares of Asian Hospital, Inc. December • MPIC acquires 100% of Colinas Verdes Hospital Managers November • Beacon acquires 68.8 million shares from PCEV comprising October • MPICplaces2,400millionshares atP3.60each,raisingP8.6billion July increases• Beacon ownership ofMERALCO to 38.9% May • Formal unveiling ofMaynilad’s Putatan Water Treatment Plant February Corp. HospitalManagers • MPICestablishesEastManila andenters November • MPIC declares its f rst dividend of P0.010 per common share to • MPIC divests an additional 15.0% of LandCo. bringing its efective August • Maynilad’s Putatan Water Treatment Facility begins operations - July capital stock which represent approximately 56.5%ofitstotal outstanding Inc. Doctors associate Medical its from Center) Medical Santos Cardinal of (operator Corporation billion. Beacon’sThis brings shareholdings to 45.4% inMeralco 1.20 billionpreferred shares for ofBeacon anissuevalueofP15.1 approximately 6.1%,of –bringing publicfoatto 40.8% equity in new Hospital Lourdes into a 20 year contract to manage and operate Our Lady of ofrecordstockholders asof19August 2010 19.0% to down ownership now at100MLD initial 25MLDcapacity MERALCO . In addition, PCEV subscribes to to subscribes addition,PCEV . In METRO PACIFICMETRO INVESTMENTS CORPORATION
2012 • MPIC and PCEV purchases• MPICandPCEV anadditional2.7%of January • MPIClaunchesitstender ofer to theshareholders ofAsian March • MPIC establishes presence in the southern tollroad system December • MPIC announces its tender ofer for the common shares of MPTC October • Maynilad signs a Share Purchase Agreement for the acquisition of launches • MPIC,through itsappointed Bank, depositary, Deutsche August • MPIC purchases from PCEV 282 million preferred shares of stock June • MPIC forms a joint venture corporation with Ayala Corporation for May Hospital, atapurchase Inc. ofP1.39pertender of price er share 48.0% to through Beacon. Beacon’sThis brings shareholdings in Agreement with Cavitex Holdings Cavitex with Agreement by entering into a P6.8 billion Financing and Cooperation PSE the from MPTC of delisting voluntary to comply with the requirements and conditions of the proposed 100% of Philippine Hydro Inc. Level Receipts 1Program Depositary its American common andpreferred shares to 50.0%inBeacon price of P3.6 billion. This brings MPIC ownership of both in Beacon Electric Asset Holdings, Inc. for an aggregate purchase 1ExpansionProject ofpursuingtheLRT the purpose ANNUAL 2013 REPORT MERALCO MERALCO
9
Message from the Chairman
On Course to Making Lives Better
My fellow shareholders, We had a record year in 2013. Core Income was up 10% with the Toll Road and Hospitals businesses showing strong growth in proftability of 19% and 15%, respectively. These results were achieved in the face of regulatory headwinds in our regulated businesses – which eventually fltered through our share price. The Philippine equity market was fattish for the year, up by 1%, driven by projected tighter global liquidity as a result of stimulus reduction by the US Federal Reserve. Our share price outperformed the Philippine market for the frst three quarters of the year. However, we started underperforming upon the release of the water tarif determination in September by Maynilad’s regulator. This determination covered the variables driving the tarif award for Maynilad for the period 2013 to 2017. The Arbitration that we have since entered into with Maynilad’s regulator to contest the determination is one of several issues we face in each of our regulated businesses. The details of each of our businesses will be described in the relevant sections of this report. These difculties and the resulting uncertainties support our policy of keeping our investments and the parent company less leveraged than what might be regarded as normal in the ordinary course of business.
10 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 “Our success will be driven by taking advantage of our expertise in understanding complex structures, leveraging our existing businesses and using timely acquisitions to pursue growth.”
STRATEGY FUNDING Regulatory friction drives not just our conservative funding Our funding will be discussed in more detail by our Chief but also our growth strategy. Despite the issues our portfolio Financial Ofcer, David Nicol. To summarize, we continue to faces, we continue to bid for the Government’s Public-Private- grow our cash fows to fund the on-going expansion of each Partnership (PPP) projects. While we may not be successful in all of our investee companies out of internally available resources. the bids on ofer by the Government, our success will be driven While there is still space to increase leverage, we may look to by taking advantage of our expertise in understanding complex augment that, if needed, by recycling capital via the sell-down structures, leveraging our existing businesses and using timely of stakes in our Hospital and Toll Road businesses. Diluting our acquisitions to pursue growth. Our ability to work with complex stake in existing businesses will avoid having to issue equity at structures placed us in a good position to win the bid for the MPIC at a steep discount to Net Asset Value. More importantly, Automated Fare Collection System – a project to streamline any sell-down will underline the value we have created in these the experience of commuters on the Light Rail System in Metro investments by setting a benchmark for the price of these assets. Manila which could be expanded into an alternative payment system for other goods and services (similar to the Octopus card OUTLOOK of Hong Kong). Winning the bid hinged on our ability to submit Our short-term outlook is shaped in part by tarif adjustments a positive net present value to the Government using future for the toll roads, the on-going arbitration by Maynilad and the payments linked to passenger trafc. Our ability to leverage rate rebasing for MERALCO, which will happen in 2015. existing concessions is seen in extensions we have proposed Longer term, we believe Revenues and Income for each to our existing North Luzon Expressway – the toll road projects company will be driven by raising operating efciencies, keeping Harbour Link and Connector Road, and the plans for the vertical control of cash costs and by new investments. Maynilad will integration of MERALCO – represented by its entry into power connect a total of 1.3 million people over the next few years; the generation and retail electricity supply. Finally, we have made toll roads will expand their existing road network, MERALCO will opportunistic acquisitions in less competitive environments, integrate vertically into power generation and retail electricity represented by our investments in provincial water distributors supply; and the Hospital Group will add more to their portfolio and hospitals. throughout the country. Additional growth could come from This same approach has been taken in our regional winning one or two bids from the PPP, acquisitions in the expansion. We acquired a stake in a toll road in Thailand - one Philippines outside of the PPP, and further investments where we were able to acquire a proftably operating asset at in ASEAN. a reasonable price. MERALCO purchased a stake in a 2x400MW liquefed natural gas plant in Singapore from a motivated seller. Both of these were investments were made in partnership with First Pacifc Company Limited. This partnership allows us MANUEL V. PANGILINAN to participate in interesting opportunities across the region Chairman while keeping the majority of our investment portfolio in the Board of Directors Philippines.
11 MAYNILAD will connect a total of 1.3 million people over the next few years;
the TOLL ROADS will expand their existing road network,
MERALCO will integrate vertically into power generation and retail electricity supply;
and the HOSPITAL GROUP will add more to their portfolio throughout the country.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 12 “Each of our business lines is committed to doing its part to improve the everyday lives of our people.”
- MANUEL V. PANGILINAN Chairman Board of Directors
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 13 14 Message from the President and Chief Executive Officer
Riding the Growth Wave
My fellow shareholders, 2013 was a year of hard work. Thankfully, the pay-of was a 10% increase in Core Income despite challenges to our three biggest businesses. Each of our businesses concentrated on improving delivery of service while maximizing efciencies – driving record results at MPIC for another year. Maynilad remains the largest contributor with our share of its Core Income up by 7% to P3.8 billion. MERALCO follows with our attributable share rising by 5% to P2.3 billion. The Toll Roads business outperformed this year with a 19% increase in contribution to P1.9 billion. Finally, our hospital business continued its strong growth with our share coming in higher by 15% to P0.6 billion.
OPERATING RESULTS Maynilad’s higher Core Income of P7.5 billion, an 11% year-over-year increase, contributed P3.8 billion to MPIC as our share. Increased Revenue from growing billed volume of 4% and an efective tarif increase of 3% together with a smaller and more efective workforce are the primary reasons for the improved performance. This was further helped by lower interest costs from refnancing debt and rationalizing the amortization of concession assets by shifting to units of production methodology. MERALCO likewise beneftted from consumption growth of 4% and a 6% increase in the average distribution rate. Additional revenues helped to support service improvements and intensify eforts to educate consumers about their bill, the electricity industry and electricity conservation options. Ofsetting these increased expenditures was a reduction in employee expenses that allowed the company to report a Core Income 5% higher to P17.0 billion. This translated to P2.3 billion in contributions to MPIC. Metro Pacifc Tollways Corporation’s (MPTC) results primarily refected the efcient integration of Cavite Expressway (CAVITEX) into the network in tandem with tax optimization. Vehicle entries and kilometres travelled grew by 6% and 5%, respectively, at the North Luzon Expressway (NLEX) but the integration of CAVITEX was the main driver of growth, adding 15% year- over-year to revenues. Operating and maintenance costs increased by 14% while operating expenses increased by only 5%, proportionately refecting the management team’s focus on cost. Aggregating expense management
14 “2013 was a year of hard work. Thankfully, the pay-off was a 10% increase in Core Income despite challenges to our three biggest businesses.”
with the impact of tax optimization resulted in a 25% jump in Core Power – MERALCO was served with a Temporary Restraining Order Income. After accounting for non-cash consolidation adjustments, MPTC (TRO) from the Supreme Court. The TRO prevents the company from was the fastest growing business line with a jump in contributions by passing through increased electricity charges for the month of December 19% to P1.9 billion. 2013. Although the TRO does not impact MERALCO’s earnings, it does The Hospital Group increased its contribution by 15% to P581 impact MERALCO’s public image, as consumers mistakenly blame the million, primarily through increased proftability of existing hospitals. company for their higher bill. Public opinion has moderated as a result of All hospitals saw increased proftability except for Davao Doctors, due hearings in the legislative bodies and the Supreme Court – wherein the to ongoing facility renovations that required the hospital to increase high costs have been pinned to the actions of generating companies in the operating expenses to maintain service levels in spite of the reduced electricity spot market in 2014. However, the attention of the public on the number of available patient rooms resulting from the construction. industry is likely to increase scrutiny of the regulatory body’s actions in 2014, when the rate rebasing process for the fourth regulatory period will start. PROSPECTS For the distribution utility, while the Supreme Court has yet to Water – There are 1.3 million people still to be connected to decide on the case against the tarif adjustment at MERALCO, the Energy Maynilad. These customers will drive billed volume higher over the Regulatory Commission has already decided to re-compute prices on the medium term. However, growth in profts will hinge on the decision of Wholesale Electricity Spot Market for the rest of Luzon. The regulator has an arbitration panel. identifed irregularities in the generating companies’ participation in the At Maynilad, a delay in the rate rebasing process due to a spot market as the source of the spike in power prices. It is gratifying as fundamental change in government’s interpretation of the Concession the regulator has found MERALCO to be without culpability. For the rate Agreement has eventually led to an arbitration that is still in its rebasing, the regulatory framework under which the company operates preliminary stage. The arbitration panel will choose between our has been tested several times all the way to the Supreme Court. The position and the regulator’s, with no middle ground. The bulk of our company believe it will withstand any challenges and guide the regulator argument is related to the recovery of income tax – comprising more to a determination that will beneft all parties. than 60% of the diference between our proposed tarif and the With the Distribution Utility recovering at a rate consistent with its regulator’s. We hope to expedite the process by focusing the arbitration regulatory framework, we can expect earnings from that business to panel on this clearly defned single issue. stabilize going forward. Given that, growth for our electricity business The arbitration panel will be chaired by an independent party, an will come from power generation and retail electricity supply. MERALCO appointee of the President of the International Chamber of Commerce. is making progress with the plan to put up a 460MW coal fred base Maynilad’s position is that income tax recovery is contractual in nature. load plant by 2017 through the previously announced partnership with The company signed an agreement that allowed it to recover income Electricity Generating Public Co., Ltd. (EGCO) of Thailand. Regretably, the taxes and this has been followed in all rebasings save this one. The 600MW coal fred plant in partnership with Aboitiz Power and Taiwan company believes that the government’s position is unsustainable and Cogeneration is still being held up by litigation. The aim of the litigants the panel will decide in favor of Maynilad. The impact of the arbitral is to halt the project using environmental protection as the argument. decision will be signifcant to the value of the business - a swing of P20 The Company believes that the project will likely prosper with a favorable billion in the value of our stake in the business. court ruling - but timing is not certain. Mid-merit plants using Liquefed Outside the West Zone of the Greater Manila Area, the investments Natural Gas are still being studied. If they prove viable, MERALCO will in Subic Water and PhilHydro are both operating proftably while Carmen consider 1,500MW up to 2,000MW for commissioning by around 2020. Water will soon start to supply water to Cebu. Take note that it is still Open Access and Retail Competition (OARC) has been partially and early days and we do not expect them to contribute signifcantly to successfully implemented by the government starting 26 June 2013. proftability over the medium term. However, we do believe the promise Initially, customers consuming one megawatt or more of electricity are of supplying and distributing water outside Metro Manila has massive allowed to voluntarily participate in OARC. Of those customers, 60% have potential – there are 85 million people living outside of the MWSS participated, and as we expected, Meralco was able to secure a dominant franchise area. market share. Full implementation may wait until there is excess supply of
15 electricity in the market, to be consistent with the government’s Hospitals – The group has added an additional two desire to foster competition, but this is expected to be a hospitals to their portfolio in 2013, De Los Santos Medical and signifcant driver of profts for Meralco when it happens. Central Luzon Doctors Hospital. This has increased the bed count Toll Roads – Our Toll Roads business has faced set- to 2,021 and extended the group’s reach in Metro Manila and backs, as has the entire sector, by the continued delay in the Luzon. The group remains committed to their goal of 3,000 beds implementation of tarif increases on all toll roads. The delay has through acquisitions in three to four years with an additional been in excess of a year for the NLEX and two years for CAVITEX. 600 to 800 beds through organic growth at existing hospitals. This is concerning given the signifcant amount of capital we Currently, the focus is in the regions of Southern Luzon and will be contributing towards the build out of extensions to Mindanao. our roads. It is notable that this is the frst time a delay of such New Ventures – MERALCO has invested in a Singapore magnitude has occurred for tarif adjustments at the Toll Roads. power plant. We have also directly invested in a toll road While unfortunate, we in MPIC, have dealt with delays in other in Thailand which we intend to consolidate under the toll infrastructure projects and, in the end, have always been made roads holding company. MPIC shall continue to look for other whole through an additional adjustment in the tarif increase, a investments outside the Philippines – both to leverage our concession extension or a combination of both. expertise and address the measured roll out of PPP projects in As proof of the Company’s belief in the system, it the Country. has made good progress in connecting the Northern and The Light Rail Transit 1 expansion project is up for rebid on Southern toll road systems. MPTC will be opening the frst 28 May 2014. The terms of the concession have been improved, segment of Harbour Link, the extension of NLEX reaching making it a more attractive entry point into what could be a to the Port Area of Manila, by the third quarter of 2014. sizeable project to privatize and enlarge the rest of the light rail Construction has started on the second segment and a system in Metro Manila. fully operational Harbour Link is expected by the end of Our share price has followed, in reverse trajectory, the 2015. Extending the NLEX further and connecting to the number of regulatory issues we face. In each business, we believe Southern toll road network will be the Metro Expressway we can come to a resolution that serves the consumer, preserves Link (Connector Road). A joint venture was signed with the shareholder value and gives us a solid base to pursue growth. Philippine National Construction Corporation on 29 November Having identifed the experience and the tools to manage 2013 to undertake the project through the existing NLEX the issues confronting our businesses, we believe the share concession. MPTC is waiting for the tarif structure to be price severely undervalues our portfolio. We expect this to approved by the Toll Regulatory Body, the regulator for toll be addressed as we deliver on solutions. In terms of income roads, and expect the project to be completed by 2016. progression, the timing of the resolution will be signifcant The Company is also working with the Government on for our performance in 2014. However, even without tarif an expansion of CAVITEX, the road we control that extends adjustments at either Maynilad or the toll roads, we still expect to the South of Metro Manila, and a further extension of the growth in Core Income. NLEX system to the East of Metro Manila via the Citilink to We thank you, our shareholders, for your continued support complement our roads. Another priority is bidding for the and encouragement through the turmoil. We believe your Cavite-Laguna Expressway, a PPP project extending from patience shall be rewarded and life will get better as we deliver the end of CAVITEX that will link up with the Southern Luzon on our solutions. Expressway which is scheduled for bidding on 21 May 2014. We have completed our frst acquisition outside the Philippines in November 2013, an efective 7.4% stake in Don Muang Tollroad, through a partnership between MPIC and First JOSE MA. K. LIM Pacifc Corporation. The road is located in Thailand and serves President and Chief Executive Ofcer trafc to and from the Don Muang Airport, an international terminal that serves as the de-facto low cost airline hub. It is still early but trafc growth has been higher than expected, 12% in 2013. A 17% - 20% toll rate increase is due by the end of 2014.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 16 “We thank you, our shareholders, for your continued support and encouragement through the turmoil. We believe your patience shall be rewarded and life will get better as we deliver on our solutions.”
- JOSE MA. K. LIM President and Chief Executive Ofcer
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 17 18 Message from the Chief Financial Officer
Exploring New Avenues
To my fellow shareholders The majority of this Annual Report deals with the Audited Consolidated Financial Statements of the Group and the interpretation of these statements for our shareholders in terms of its contribution to Core Income. There is no value to repeating this analysis here, except to note that the focus on Core Income is our attempt to communicate with our shareholders what we consider to be the true and fair underlying earnings of the Group, stripped of one-of gains and losses, including the efect of foreign exchange fuctuations. Without doing this, it is difcult for our shareholders to form a view on which to base our future earnings outlook. All numbers presented are in Peso Millions, except as otherwise stated.
MPIC Consolidated Net Income (In Peso Millions) 2013 2012* Variance Core Income 7,229 6,564 10% Non-core Expense (20) (657) -97% Net Income 7,209 5,907 22% *Restated due to adoption of PAS 19R
Consolidated Core Income for 2013 increased by 10% to P7.2 billion driven by a 9% increase in contribution from operations to P8.6 billion. The increase in operating contribution refects strong performances from all our business with the Hospital group and Metro Pacifc Tollways Corporation also beneftting from acquisitions. In both 2013 and 2012 non-core expense consisted primarily of refnancing charges on some of the Group’s fxed interest rate borrowings. Feedback on our fnancial statements from our investors is that: (i) in many cases they fnd the audited fnancial statements rather impenetrable; and (ii) they would like to understand more about the fnancial position and cash fow of the Company itself.
18 AUDITED FINANCIAL STATEMENTS on acquisition by MPIC of the concession holding The Company holds less than 100% of its principal company, and to then amortize this valuation over the operating subsidiaries, Maynilad and Manila North Tollways life of the concession. Corporation both of which it consolidates in its fnancial statements. The Company equity accounts for its largest The Company maintains a careful calibration of the single investment, Beacon Electric of which it holds 50.0% consolidated fnancial statements but manages each and which in turn owns 50.0% of Meralco, and some of investment individually by reference to its particular its hospital investments where its shareholding is below cashfow. The holding company’s fnancial position and 50.0%. The fnancial statements are further complicated leverage capacity is then set by reference to the ability of by the concession accounting and acquisition accounting each investment to remit dividends to it. There are no cross standards attributable to our water and toll roads businesses default provisions in the portfolio from one investment which some investors fnd to be counter intuitive. to another and it is the policy of the Company not to guarantee the borrowings of its investments. This is due to: Tracking the cash fows for the Company itself and how (i) capital expenditures being mainly added, when complete, we expect these to evolve in the future is the information to “concession assets” rather than fxed assets; and most of our investors seek and this we provide in the (ii) the requirement to fair value the entire concession, following tables.
Parent Cash Flow Information (In Peso Millions) 2013 2012 Directional Commentaries Dividends from Investments Maynilad 1,764 1,182 Increase in dividends declared as a result of revenue growth driven by increased volume of water sold MPTC 1,138 1,111 Beacon / MERALCO 405 561 Six months preferred dividends in 2013 on an increased shareholding compared with 12 months preferred dividends in 2012 Hospitals 130 85 Increase includes beneft of direct investment in Cardinal Santos Sub-total 3,437 2,939
Interest and Operating Expenses Bank debt interest (776) (621) Higher interest expense due to debt drawn to fund the CAVITEX investment and costs of loan refnancing Interest received 100 215 Decrease in interest income resulting from lower interest rates Operating expenses and others (1,016) (655) Taxes and public relations expenses Sub-total (1,692) (1,061)
Before investments, capital raising and dividend 1,745 1,878 payments Dividends paid (916) (669) P0.020 fnal 2012 dividend per common share declared 28 February 2013. Interim 2013 dividend of P0.015 per common share declared 8 August 2013 Cash fow excluding capital raising 829 1,209 and net debt movement
Net Debt Position (In Peso Millions) 2013 2012 Directional Commentaries Bank debt 6,448 11,209 Debt drawn in 2012 to fund CAVITEX investment, paid-of in 2013 Cash (4,529) (1,255) Proceeds from capital raising (P6.0 billion) and entry of Marubeni as investor in DMWC (P3.5 billion) less payment of debt drawn to fund CAVITEX investment Net debt 1,919 9,954
19 Parent Company Statement of Financial Position (In Peso Millions) 2013 2012 Directional Commentaries Investments Power 38,159 38,159 Water 14,553 11,977 Additional investment in DMWC to achieve an efective ownership in Maynilad at 52.8% from 56.8% as part of the overall sell-down to Marubeni Toll Roads 20,606 19,135 Investment in Don Muang Tollway Public Company Ltd (Thailand) through MPIC Infrastructure Holdings Inc (P1.5 billion) Hospitals 4,283 4,049 Investment in De Los Santos Medical Center and Central Luzon Doctors Hospital Total 77,601 73,320 Cash and other assets 7,719 4,340 Proceeds from capital raising (P6.0 billion) and entry of Marubeni as investor in DMWC (P3.5 billion) less payment of debt drawn to fund CAVITEX investment Total Assets 85,320 77,660 Debt and other liabilities (7,524) (13,083) Net Assets 77,796 64,577 Increase due to capital raising and gain on sale of shares in Maynilad
CAPITAL RAISING The issues outlined above have resulted in our revising In January 2013, the Company raised P6.1 billion gross downwards, at least temporarily, our views on the leverage capacity of additional equity via an overnight private placement. The of MPIC itself as well as the operating companies in question. A very placement was executed at P4.60 per share representing a 3% strong balance sheet is needed to withstand current uncertainties. discount to the 30-day VWAP. The primary purpose of this capital At the same time we have to acknowledge the currently increased raising was to boost the Company’s future investment ability after regulatory risk environment as we look at what constitutes a majority of our spare debt capacity was used in investing in the acceptable return rates on new projects. CAVITEX and for the follow-on funding needed to expand this road. DIVIDEND POLICY It is pleasing that trafc growth on the CAVITEX of 9% for 2013 was The interim and fnal dividends for 2013 were increased by signifcantly ahead of our investment case. 25% and 10%, respectively, as the Company continued its policy of REGULATORY RISK gradually increasing its dividend payout ratio. For the foreseeable In 2013 we saw an unexpected increase in regulatory risk in future, the Company will be seeking new investments on its own our business. account in areas such as Light Rail and supporting the expansion plans of its subsidiaries, in particular Metro Pacifc Tollways At the time of preparing this report: Corporation, and the Hospitals Group. (i) MPTC is experiencing delays (with no basis we are aware of) The Maynilad concession is still cash absorbing; although in toll rate increases due on the NLEX and CAVITEX of 12% Maynilad is able to achieve an accounting proft, the sum of its due January 2013 and 20% due January 2012, respectively; capital expenditures, concession fees and debt-service still exceeds (ii) MPTC has still yet to take up the SCTEX concession which its earnings before interest, tax and depreciation. The exact profle of we signed with Bases Conversion and Development prospective cash absorption depends on resolution of the current Authority in 2010; dispute over tarif setting, pending which limited dividend cash out (iii) our Maynilad business is in arbitration regarding the tarif take will be possible. Until such time as the Maynilad concession to be charged to the public including, to the surprise of becomes net cash fow positive, and the funding need of our Toll our management and investors, a dispute on recovery of Roads and Hospital Groups from MPIC is less than their dividend to Corporate Income Taxes; and the Company, our own dividends to shareholders will remain modest. (iv) MERALCO is the subject of a Supreme Court issued However, the direction of our policy is to gradually increase our Temporary Restraining Order prohibiting it from passing on dividend pay-out-ratio as a proportion of Core Income albeit we are to the public an increase in power charges levied on it by the now hampered by the various regulatory issues I mentioned above. generators serving the Luzon grid at the end of 2013.
DAVID J. NICOL Chief Financial Ofcer
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 20 “Consolidated Core Income for 2013 increased by 10% to P7.2 billion driven by a 9% increase in contribution from operations to P8.6 billion. The increase in operating contribution reflects strong performances from all our business with the Hospital group and Metro Pacific Tollways Corporation also benefitting from acquisitions.”
- DAVID J. NICOL Chief Financial Ofcer
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 21 22 Safe and Sustainable Water
22 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 In recent years, we encountered operating conditions and setbacks that challenged our ability to deliver safe, reliable water to our customers. From deteriorated water pipes to high water losses to right-of-way issues, we overcame these hardships because of our unwavering desire to make millions of lives better. Through the support and hard work of our shareholders and employees, we transformed an aging water system into a world-class water distribution network. We plugged numerous leaks to recover more water for our customers. And we laid new pipes even in the most hostile expansion areas. As a result, urban poor communities and deep well-dependent enclaves in the West Zone now have access to afordable drinking water. Following decades of water shortage and expensive water deliveries, uninterrupted water supply and strong water pressure have fnally become the norm in Caloocan, Malabon, Navotas, Valenzuela, Paranaque, Muntinlupa and Las Pinas. We are pleased to note that because of these dramatic water service improvements, other benefts are now accruing to our customers---better sanitation, higher land valuation, increased economic activity and more local jobs, to name a few. We are proud of what we have accomplished, and look forward to improving the lives of even more people.
VICTORICO P. VARGAS President and Chief Executive Ofcer
LEAKS VOLUME OF REPAIRED* RECOVERED WATER* 184,929 680MLD
VOLUME OF TREATED SERVICE WASTEWATER* COVERAGE
1,365,474 ML 96.0%
*Over a fve-year period from 2009 to 2013
23 NUMBER OF WASH AND DRINK STATIONS SEPTIC TANKS INSTALLED CLEANED* 180 209,905
SAPLINGS PLANTED JOBS GENERATED* 282,800 120,210
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 24 WATER Maynilad actively partners with the public sector to provide even more Filipinos with water solutions that will spur national development and secure the environment.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 25 Safe and Sustainable Water
Maynilad, the largest contributor to MPIC, increased its Core recovering corporate income taxes (the return rate is post tax). Net Income by 11% with our share of this growing by 7% to Accordingly, Maynilad’s arbitration strategy is to focus the panel P3.8 billion. The slower growth at our level refects our reduced on this issue in order to avoid a lengthy process and secure a ownership following the sale of 4% of Maynilad, at a strong favorable decision within 2014. valuation, to Marubeni in February 2013. We believe Maynilad’s current regulatory difculties to be Maynilad’s most signifcant and immediate challenge is to transitory. We anticipate a more constructive regulatory relationship deal with the position adopted by its regulator, the Metropolitan in the future, one where we can re-engage in the critical need for Water and Sewerage System (MWSS) in the (delayed) fve yearly developing more clean water sources to serve the citizens of Metro rate rebasing process. Maynilad believes the MWSS has adopted Manila and de-risk the current dependence on one dam. unsustainable and unacceptable positions on: the appropriate Maynilad still has 1.3 million people to connect to its network, level of return (determined on a post-tax basis); recognition which will be the primary source of volume growth in the coming of past expenditures; future capital expenditure plans to meet years, with new connections expected to grow at around 5% a service levels specifed by the regulator; and disallowing recovery year as they did in 2013. Faster growth is unlikely given difculties of corporate income taxes. Having exhausted eforts to reach a Maynilad is facing in securing permits to lay down pipes and compromise Maynilad is now in a formal dispute with the MWSS extend its water distribution network to the Southern part of the to be settled via a binding arbitration. concession to service more customers and grow billed volume. The fnal decision in the arbitration is either a 6% increase Revenue growth at Maynilad will be a function of the in tarif over the current all-in tarif or an 11% reduction; the growth in billed volume - itself a result of the number of new concession provides for an award of one or other position but not customers connected - compounded by the result of the a mid-point compromise through the arbitration. The majority arbitration and infation adjustments (none expected while the of the diference in tarifs, over 60%, is due to the matter of arbitration is in progress).
FINANCIAL HIGHLIGHTS (In Peso Millions)
2009 2010 2011* 2012* 2013 Revenues 10,619 12,050 13,769 15,883 16,895 Core EBITDA 6,970 7,907 9,361 10,456 11,083 Core Income 3,328 4,835 5,974 6,800 7,530 Reported Income 2,825 4,780 5,833 6,380 6,936
Assets 38,179 42,590 55,366 61,467 68,730 Total Debt 16,305 16,091 22,538 21,655 25,342 Equity 3,762 7,944 12,311 16,718 20,693 Contribution to MPIC 1,540 2,394 3,082 3,548 3,789
* Restated
26 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Core Net Income progression will be depend on revenue A successful resolution of the Maynilad arbitration will do growth outpacing rising operating costs associated with opening much to clarify the prospects for the business and establish a new sewage treatment plants and increasing amortization of stronger base from which to continue our expansion. At the concession assets refecting Maynilad’s sizable capital expenditures. MPIC level, while fully expecting a favorable outcome to the The income tax holiday for Maynilad expires at the end of 2015 and Maynilad arbitration, we are taking a cautious view on its ability it is unlikely that growth in 2016 will be sufcient to fully ofset the to pay dividends until the dispute is resolved. For now we plan efect of this. on lower dividends than in previous years until the regulatory Beyond Metro Manila, Maynilad and MPIC continue to position is decided. An unexpected loss in the arbitration would examine how to serve, on a commercial basis, the 85 million curtail Maynilad’s dividend payment ability for many years. Filipinos living in fragmented water districts. Numerous projects have been evaluated and a general pattern has emerged of these projects needing a long time to seed and even longer to generate acceptable return rates. To date we have invested in three projects: PhilHydro, which is beneftting from an unexpected new city development in Bulacan; Carmen Bulk Water in Cebu which is proving more difcult than we had hoped; and Subic Water in which we would like to deepen our investment if an acceptable entry price can be achieved. Outside the Philippines, our search continues in the countries in ASEAN. We believe Maynilad has valuable skills in leak detection and repair that we can leverage into proftable investments in the region.
OPERATIONAL HIGHLIGHTS
2009 2010 2011 2012 2013 Billed volume (in MCM) 350 374 405 428 444 Billed customers 814,645 903,682 1,005,350 1,073,508 1,129,497 Non-revenue water Average 59.7% 53.4% 47.8% 43.4% 38.7% Period end 56.8% 51.0% 42.2% 41.0% 35.4%
Service levels 24-hour coverage 65.0% 71.0% 84.0% 96.0% 97.8% Over 7 psi 79.0% 86.0% 96.0% 99.8% 99.9%
Pipes laid (in kms) During the period 441 456 375 234 221 Total network 6,020 6,476 6,851 7,085 7,306
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 27 Efficient and Sufficient Energy
28 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 111 years have proven MERALCO’s resilience and unwavering resolve to serve. Year 2013 was our best thus far, but our commitment to sustain the growth and proftability of Meralco, and to render excellent service persists. We will continue to deliver the best value to our over 5.4 million customers, help uplift their lives and the fortunes of their businesses, and contribute our share to sustain national progress. These we will do by strengthening our core distribution business, building our power generation portfolio, providing competitive power supply to contestable customers, expanding our power distribution footprint and growing the businesses of our subsidiaries and afliates. Quoting our Chairman, Manuel V. Pangilinan - “Determined to serve as always, we are MERALCO.”
OSCAR S. REYES President and Chief Executive Ofcer
THROUGH THE ONE MERALCO FOUNDATION: 33,396 3,079 FAMILIES DIRECTLY BENEFITED HOUSEHOLDS FROM OUR VARIOUS SOCIAL ENERGIZED DEVELOPMENT PROGRAMS
40 24,808 COMMUNITY FAMILIES BENEFITING RELATIONS FROM DISASTER PROJECTS RESPONSE
29 2,724 25,584 EMPLOYEE VOLUNTEER HOURS VOLUNTEERS
24 5,330 PUBLIC SCHOOLS STUDENTS IMPROVED ENERGIZED LEARNING EXPERIENCE
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 30 POWER MERALCO is committed to making a positive impact in the lives of the Filipino people by doing its share in the interest of nation-building. We will contribute to high-impact initiatives that support the economic and social development of the country.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 31 32 Efficient and Sufficient Energy
Meralco’s Distribution Revenues grew by 10%, but due to the December 2013 although theoretically MERALCO shouldn’t be out-of- recovery of local franchise taxes in 2012, year over year growth in pocket. MPIC expects a satisfactory outcome, and takes some guidance Core Income was lower at 5% - excluding this factor, growth would from the resolution of the higher charges for the billing month of have been at 15%. Contributions of the entry into Open Access and January 2014. The Energy Regulatory Commission (ERC) resolved to Retail Competition (OARC) and Power Generation were minimal with have energy prices in the Wholesale Electricity Spot Market recalculated. the proftability at OARC ofset by start-up costs at the generation This will afect the level of proftability at some of the generating business. Contribution to MPIC grew at 5% to P2.3 billion after companies but should have no efect on MERALCO, given the pass accounting for an increase in average attributable ownership in through nature of electricity charges. MERALCO from 23.9% to 24.5% and the borrowing at Beacon Electric The wider impact of the outcry over higher power prices to to support the purchase of more shares. MERALCO may be felt in the form of higher public scrutiny in the rate MERALCO is addressing a number of regulatory matters afecting rebasing process that will start in 2014 and be implemented on the its distribution utility. The Supreme Court issued a Temporary 1st of July 2015. The variables that would have the largest immediate Restraining Order (TRO) on MERALCO, and subsequently certain impact to the tarif and returns would be the revaluation of the assets generation companies, with respect to a case fled to contest the MERALCO uses to distribute electricity, or the Regulatory Asset Base increased power rate being charged to consumers for the billing period (RAB), and the fnancial return it will be allowed on those assets. of December 2013, covering consumption during the previous month. For the rate rebasing, the revaluation to replacement cost of As the billing entity, MERALCO bore the initial brunt of the public outcry the RAB has strong historical and judicial precedent. The revaluation but attention has now been defected to the generation sector. methodology has been in use for over a century and is based on the There is no certainty in how the Supreme Court will decide on principle that the use of market value allows for the necessary and the case concerning the electricity charge for the billing month of timely replacement of assets given that MERALCO is capital intensive,
FINANCIAL HIGHLIGHTS (In Peso Millions)
2009 2010 2011* 2012* 2013 Revenues 180,758 240,933 256,808 285,270 298,636 Core EBITDA 16,008 25,089 26,824 26,846 30,845 Core Income 7,003 12,155 14,887 16,265 17,023 Reported Income 6,005 9,685 13,260 17,117 17,211
Assets 172,129 178,968 211,088 216,891 264,004 Total Debt 21,816 21,221 24,443 24,613 33,591 Equity 61,146 63,196 66,869 68,150 75,335 Contribution to MPIC 212 1,486 1,711 2,213 2,333
* Restated
32 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 sources most of its equipment overseas and is thus subject to the and Construction contractor should be out by the second or third vagaries of foreign exchange and commodity price fuctuation. The quarter of 2014. fnancial return on the RAB will likely moderate given the drop in Outside Luzon, MERALCO has acquired a 20% stake in Global rates for borrowing and equity with the upgrade of the Country to Business Power Corporation (GBC), a generating company focused investment grade. The details of the formula used may change but it in the Visayas region of the Philippines, and a 28% benefcial stake should result in a rate that is acceptable to all parties. in PacifcLight Power Co. Ltd., which operates a 2x400MW Liquefed The Company has been pleased with the result of the initial roll- Natural Gas (LNG) facility in Singapore. GBC continues to expand out of OARC. It holds a market share of over 50% of the major customers its portfolio and PacifcLight Power Co. Ltd. started full commercial in the contestable market. There are delays however, which are not operations in February 2014. While we continue to investigate entirely unexpected given the lack of excess generating capacity in opportunities outside the Philippines, the focus for expansion will be the system, but it does postpone what could be a reasonable source in the Country and Luzon in particular. of proft growth to a time when the regulator sees more competition It is anticipated that MERALCO will receive extensive press in the generating space. MERALCO continues to position its service coverage during the rate rebasing process but we in MPIC, ofering to be ready for this. believe the end result will prove satisfactory given the strength Unlocking the potential of OARC will require more generating of the regulatory framework. That should provide a stable base of capacity and this supports our entry into that area in Luzon. The delay proftability and cash fow while we ramp up our forays into power we are facing in our joint venture with Aboitiz Power and Taiwan generation and OARC. Co-generation is balanced by the progress we are making in the partnership with EGCO of Thailand for a 455MW (net) coal fred project also in Luzon – an announcement for the Engineering, Procurement
OPERATIONAL HIGHLIGHTS
2009 2010 2011 2012 2013 Energy sales (in gWh) Residential 8,904 9,540 9,344 9,779 10,235 Commercial 10,922 11,830 12,027 12,749 13,302 Industrial 7,548 8,734 9,080 10,111 10,417 Streetlights 142 143 141 132 130 Total 27,516 30,247 30,592 32,771 34,084
Number of customers (in thousands) Residential 4,277 4,412 4,580 4,735 4,901 Commercial 410 421 433 440 453 Industrial 10 10 10 10 10 Streetlights 4 4 4 4 4 Total 4,701 4,847 5,027 5,189 5,368
System loss performance 8.61% 7.94% 7.35% 7.04% 6.92% System average interruption frequency index 7.28 6.52 4.80 3.90 3.36 (number of times) Customer average interruption frequency 144.6 141.3 116.7 103.3 97.7 index (number of minutes)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 33 First-Class and Accessible Tollroads
34 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 For us at MPTC, optimism drives our people to continually challenge the status quo, born of the culture of excellence of the bigger and broader MVP Group which is driven by the non-negotiable thrust for continuing improvements and customer- centered metrics. In 2013, we have begun to realize our vision to expand our network of tollways through various urban centers with the following projects: The ongoing NLEX Harbour Link composed of Segments 9 and 10; the signing of the joint venture agreement between MNTC and PNCC for the implementation of Metro Link Expressway; and a trafc study being undertaken on Segment 8.2 or the Citi Link. MPTC, through its subsidiary CIC, has also started the feasibility study to link C5 with Cavitex. The road, called the C5 Link, will allow motorists coming from Quezon City to have direct access to Cavitex without passing EDSA. The road has an estimated project cost of P8 billion and is part of the concession of CIC. A new type of speed radar detector called the Prolaser Video was introduced in 2013 enabling our patrols to monitor motorists safety even in the dark, a ftting complement to the recently modernized Trafc Control Room. Convenience is also a key consideration. A new Toll Collection System will be launched in 2014. It will allow us to develop and ofer new toll products that will make lane transactions faster. In this age of social media, we have developed new tools to better communicate with our customers. The NLigtas app and the Twitter account help motorists plan their trips with real time trafc updates. Customers can post feedback on our Facebook account “Travel on great roads” where they are addressed by dedicated staf whose primary concern is the safety of all motorists. We ensure that everything in our expressways are efciently maintained. Patrol ofcers respond promptly to accidents and other emergencies within 20 minutes. Toll tellers complete a transaction within 10 seconds or less and enough toll booths are open to maintain at most a queue of 10 vehicles per lane at any one time. RAMONCITO S. FERNANDEZ President and Chief Executive Ofcer
26% 21% DROP IN INCIDENTS PER DROP IN ACCIDENTS LANE KILOMETERS* PER LANE KILOMETER
6 sets 14,596 IMPACT ATTENUATORS TREES Impact attenuators, the only one of their kind in PLANTED the Philippines, have been installed at the NLEX’s Balintawak and Bocaue Toll Plazas to protect both crew and equipment from errant vehicles *Over the fve-year period from 2009 to 2013
35 86 27 CCTV VARIABLE CAMERAS MESSAGE SIGNS 48 CCTV cameras strategically Variable Message Signs fash safety positioned along the NLEX to monitor reminders and trafc updates daily trafc and 38 CCTV cameras to check goings-on inside the toll booths
SPEED RUMBLE RADAR GUNS STRIPS Speed radars are installed Thermoplastic lane markings painted to detect vehicles going over the across some choice spots alert inattentive speed limit of 100 kph or drowsy drivers
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 36 TOLL ROADS Metro Pacifc Tollways Corporation makes sure help is available to motorists at the time they need it. Apart from standard safety amenities, well-trained trafc management teams equipped with cameras, radio and speed radars are constantly on patrol. There are also emergency bays and 100 call boxes that connect to the Trafc Control Room. The Control Room operates round-the-clock to provide customer assistance at any given time through patrol teams, frst aid vehicle and tow trucks.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 37 38 First-Class and Accessible Tollroads
MPTC acquired the Cavite Expressway (CAVITEX) at the start of 2013 concessions, our experience in our other regulated businesses and and through enhanced trafc management achieved a 9% growth the importance of improving the road networks for which the private in trafc during the year. The CAVITEX acquisition, 6% trafc growth sector will need fair reward for its investment. on the North Luzon Expressway (NLEX) and optimizing taxes enabled Construction continues on the frst stage of the NLEX Harbour MPTC to report a 20% increase in Revenues and 25% growth in Core Link. The 8-kilometer road linking NLEX to the North Manila Port Income for the year. Contributions to MPIC improved by 19%, lower (Segments 9 and 10) is expected to have its frst stage open from than stand alone income, due to fair value adjustments. The growth MacArthur highway by the third quarter of 2014. achieved was in spite of delays in tarif adjustments owed to both Manila North Tollways Corporation (MNTC) has now signed a NLEX and CAVITEX. Joint Venture Agreement with PNCC to build an elevated expressway Tarif adjustments have been delayed since 1 January 2012 in to connect the Northern and Southern toll road systems. The Metro the case of CAVITEX and 1 January 2013 in the case of NLEX. These Expressway Link project will connect the Harbour Link to Southern adjustments are intended to keep the returns whole for the efects of Luzon via a four-lane elevated expressway across Central Manila. MPTC infation and are critical parts of the concession agreements for both expects the Metro Expressway Link to increase trafc on the existing roads. The impact on profts is signifcant as lost revenue in 2013 for Northern and Southern toll road systems by enabling commercial both roads in aggregate was P1 billion. vehicles to traverse Metro Manila without violating a daytime truck ban We at MPIC believe that the tarif will eventually be adjusted as and by slashing travel time between the two road systems to as little as called for in the concession agreement together with compensation 20 minutes from over an hour or more today. for delays. This compensation can come in the form of a government These projects will be transformative, unlocking activity that was subsidy, a higher tarif adjustment or an extension of the concession. previously constrained by the journey time through the metropolis. Our confdence in this stems from the wording of the road MPTC’s confdence, and that of its creditors, in backing these projects is
FINANCIAL HIGHLIGHTS (In Peso Millions)
2009 2010 2011* 2012* 2013 Revenues 5,489 5,858 6,465 6,784 8,154 Core EBITDA 3,313 3,692 4,144 4,438 5,540 Core Income 1,220 1,465 1,480 1,575 1,963 Reported Income 582 996 1,258 1,474 2,001
Assets 18,342 19,329 19,484 27,592 38,736 Total Debt 8,367 9,354 9,051 8,906 17,744 Equity 8,325 8,101 8,179 8,440 15,893 Contribution to MPIC 1,279 1,434 1,456 1,570 1,874
* Restated
38 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 in direct proportion to the sanctity of the agreements that cover how in order to provide a better idea of the value of its expansion investments are recovered. As MPTC is opening road extensions to the plans, analysts have been invited to presentations by the NLEX over the next few years (Harbour Link, Citilink and Connector Senior Management of the toll road businesses. Finally, MPIC is Road), we believe that we will get the adjustments to the NLEX tarif exploring the possibility of selling up to a 20% stake in MPTC – that will recover the investments in these projects and these will also at or near the same valuation we ascribe to the operation. This serve as good pretexts for the grant of the infation adjustments owed would provide MPTC with enough funds to pursue projects to the business. both here and abroad without the need for more equity from A possible of-shoot of the delay in tarif adjustments is the big MPIC. MPTC is looking at projects in the country like the Cavite discrepancy between our internal valuation of the toll road business Laguna Expressway, a P35 billion PPP project to be bid out by the and that of equity analysts. We ascribe a value to the business that Government on 21 May 2014, and investments abroad like the is almost double that of the consensus estimate. We include in our Don Muang Tollroad, a toll road servicing the Don Muang airport valuation the approved expansion projects to the NLEX. These include in Thailand where MPIC and First Pacifc jointly invested for a 28% the Harbour Link, Citilink and the Metro Expressway Link (Connector stake. An additional beneft to the capital raising would be the Road) projects. All of which have no bid risk, have set return rates and, benchmarking of the value of the business and a re-rating of the with the exception of the Connector Road, recovery of investment value of MPIC as well. will be through a tarif applied along the length of NLEX. Being able to As we continue to ease travel for motorists and consumers recover investments using trafc along the length of NLEX reduces risk and secure the tarifs owed to us for new and existing builds, life as demand on the road is fairly inelastic to price. should get better for all our stakeholders. Appropriate tarifs would do much to increase the confdence of analysts and investors in the Company’s valuations. Additionally,
OPERATIONAL HIGHLIGHTS
NORTH LUZON EXPRESSWAY 2009 2010 2011 2012 2013 Open and Closed System (in vehicle entries) Class 1 114,749 121,583 119,890 121,686 129,484 Class 2 24,308 26,055 26,122 27,550 28,773 Class 3 11,338 12,244 12,330 14,126 14,810 Total 150,395 159,882 158,342 163,362 173,067
Closed System (in vehicle-kilometers travelled) - in thousands Class 1 2,145 2,246 2,160 2,192 2,305 Class 2 502 544 549 582 608 Class 3 299 326 305 351 360 Total 2,946 3,116 3,013 3,125 3,273
CAVITEX EXPRESSWAY (in vehicle entries) 2012 2013 Class 1 80,579 88,774 Class 2 9,912 9,859 Class 3 3,209 3,647 Total 93,700 102,280
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 39 Advanced and World-Class Hospitals
40 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Each of our hospitals already have long years of experience and the reputation for curing our patients. Our focus on quality is further evidenced by Asian Hospital recently obtaining the JCI accreditation, the highly coveted international gold standard in quality healthcare, joining Makati Medical Center as our second JCI-accredited institution. But in addition to the medical expertise, and mindful that our patients are already concerned and their family members possibly already stressed upon entering our hospital doors, we are also working hard to provide them an excellent customer experience. It’s simply about the smile from our staf that greets you as you enter, the soothing wisdom articulated by our doctors, the clean air you breathe, the minimal waiting times, the efcient shuttling of patients from one section to another, the reasonable prices, the complete set of amenities available for the convenience of the families, and the hassle-free procedures when it is time to check-out. Facilities and processes are continuously being improved across all hospitals in the group in order to truly make life better for our patients and their families.
AUGUSTO P. PALISOC, JR. President and Chief Executive Ofcer
ACCREDITED REGISTERED DCOTORS NURSES EMPLOYEES 5,418 2,891 7,343 As of 31 December 2013
PATIENTS ADMITTED OUT-PATIENTS VISITS BABIES DELIVERED 656 7.4 Thousand Million Thousand44
Total number of patients from 2009 to 2013
41 MEDICAL CENTERS ACCREDITATION AND ACCOLADES 9 2 1 1 JCI ISO IIP Accreditation Accreditation Accreditation
PHIC8 PHIC2 Mother Baby Friendly6 Centers of Excellence Accreditation Certifed and Quality
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 42 HOSPITALS We take compassionate care very seriously. Our Hospitals believe that true, holistic healing requires medical personnel to serve and care for patients in a comforting, reassuring manner flled with warmth and genuine empathy. Our doctors, nurses and paramedical staf are renowned for their excellent bedside manner. When interacting and dealing with patients, they are friendly, kind, always ready to listen and address questions or concerns, never judgemental, tactful, discreet, and maintain patient dignity at all times.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 43 Advanced and World-Class Hospitals
The Hospital Group was our second fastest growing business line may be increasingly challenging as it will require acquiring in terms of Net Income. Contribution to MPIC improved by 15% many smaller hospitals. Management will continue to pursue to P581 million. The improvements that have been implemented mergers and acquisitions, while devoting an increased amount in the existing hospitals over the past few years have begun of resources to administration and oversight of the existing to bear fruit as the Group also continues to add more to the portfolio. network. Economies of scale have been realized, with group While the ideal scenario is to have a hospital holding purchasing and sharing of best practices improving the bottom company that will own 100% of all the hospitals, this will require line by more than twice the improvement of Revenues. that the various partners agree to swap their local hospital’s The management team has excelled thus far – acquiring shares into shares in the hospital holding company, something stellar assets at reasonable prices, installing professional which not all partners may wish to do. management to complement the medical expertise of doctors Advances in felds such as tele-presence and in-home drug and nurses, and efectively deploying capital to improve the delivery systems will only serve to accelerate the trend towards facilities and equipment. The remaining opportunity is sizeable, out-patient treatment solutions, already a rapidly expanding part underlined by improving demographics and a still fragmented of the business. The Group is actively examining how best to industry, albeit that fnding hospitals of a scale and quality to engage with these developments. match those in our current portfolio is becoming more difcult. The Group’s challenge continues to be to make itself a The portfolio now has 2,021 beds in eight hospitals, and it more meaningful part of MPIC, given its much larger and more is close to achieving the short-term goal of 3,000 beds in two established sister companies. This could be achieved via organic to three years. Going beyond this goal to 5,000 beds, however, growth, acquisitions, and investments in other health-related
FINANCIAL HIGHLIGHTS (In Peso Millions)
2009 2010 2011* 2012* 2013 Revenues 5,959 6,991 8,485 11,329 12,493 Core EBITDA 1,136 1,274 1,626 2,328 2,656 Core Income 528 480 559 720 879 Reported Income 543 386 674 713 886
Assets 8,467 10,018 15,633 16,464 18,527 Total Debt 933 921 2,569 2,209 2,233 Equity 5,312 5,840 9,200 9,740 10,912 Contribution to MPIC 174 172 242 507 581
* Restated
44 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 businesses. The various hospital investments will be centralized into one hospital holding company, which will create a larger consolidated holding company (versus many small hospital companies), and will also prepare for discussions with third parties who have been increasingly expressing interest to invest in our Hospital Group. A strategic partner would crystallize values that have been created over the past few years, provide independent expansion fnancing for the business, and obtain synergies that could further improve medical and management expertise in our group of hospitals. Revenue and income growth for the business will be healthy over the next fve years – given almost 50% growth in bed count from acquisitions to 3,000 beds and the potential to expand organically by another 600 beds.
OPERATIONAL HIGHLIGHTS
2009 2010 2011 2012 2013 Total beds available 987 1,599 1,812 1,806 2,021
Number of patients Out-patient 825,978 905,884 1,198,658 1,500,274 1,606,458 In-patient 60,260 78,330 95,056 112,060 115,615
Number of doctors 2,433 2,390 4,333 4,546 5,418 Number of nurses 1,518 1,523 2,412 2,483 2,891
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 45 Meaningful and Life-Changing CSR
46 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Life, it keeps getting better. We believe it does because of all the work people put into it. Our Corporate Social Responsibility eforts remain geared towards providing less fortunate individuals the ability (Education), tools (Empowerment) and Environment to succeed. For Education, MPIC has harnessed its ability to raise funds to help Mano Amiga, a primary school that caters to indigent families in the Southern section of Metro Manila, to purchase land that will eventually accommodate 1,000 children. On the other hand, our portfolio companies focus their educational eforts on spreading the benefts of conservation, water for Maynilad and electricity for MERALCO, driving safely for the toll roads business and the importance of prevention, versus the treatment of illnesses for the Hospital Group. Empowerment has been a big focus of Maynilad, MERALCO and the Hospital Group. All have extended access to free water, electricity, and medical services, to poor or remote communities. They have also extended signifcant support to the people afected by Typhoon Yolanda by rehabilitating destroyed infrastructure and providing interim solutions for the delivery of potable water and electricity, along with medicine and medical treatment. For MPIC, the Environment has taken centre stage. Our eforts on the clean-up and sustainable development of the Country’s coastal areas leverage our ability to think big and handle complexity. It has received multi-lateral support from local government units, surrounding communities and the private sector.
JOSE MA. K. LIM President and Chief Executive Ofcer
SHORE IT UP2013 SHORE IT UP2013 5TH YEAR ANNIVERSARY Destinations 37,058 5 Anilao, Puerto Galera, VOLUNTEERS Lingayen, Zambales Volunteered for Underwater Cleanup, and Siargao Giant Clam Rescue, and Artifcal Reef Placement eforts
MANO AMIGA: ANNUAL EXCELLENCE FUND 10 1.5 Million Million Granted to fnance the acquisition Granted by MPIF to help of the new campus the teachers and students of Mano Amiga
47 USAPANG DRAYBER HOUSEHOLD CAMPAIGN ELECTRIFICATION 1,500 PROGRAM Drivers 3,079 Participated in the Exchange of Safety Ideas Households Energized in 2013
LINGKOD MEDICAL AND RELIEF ESKWELA EFFORTS REACHED
180Schools 27,000Families recipient of drink-wash area who were Yolanda Survivors through the MVP Group Tulong Kapatid
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 48 CORPORATE SOCIAL RESPONSIBILITY
The MPIC Group goes beyond just the interests of its frms by integrating CSR into its business model and by embracing responsibility for its companies’ actions, thereby creating a positive impact through its activities on the environment, employees, communities and stakeholders.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 49 50 Meaningful and Life-Changing CSR
massive information and publicity campaigns, environmental awareness seminars, coastal and underwater cleanups, mangrove and tree planting and replanting, giant clam rescue and artifcial reef placements, and others that continue to be added as the needs arise.
BULL’S EYE: AT THE CENTER OF THE CENTER OF GLOBAL MARINE BIODIVERSITY The Philippines owns the distinction of being the “center of the MPIC: LIFE KEEPS GETTING BETTER IN PHILIPPINE center of marine biodiversity” in the world, placing our country at the METRO AREAS AND IN THE ENTIRE PACIFIC BASIN apex of the six countries in the so-called Coral Triangle, which include The name of our organization, Metro Pacifc Investments Indonesia and Malaysia. We also rank 5th among the top 10 countries Corporation, was chosen primarily because of its broad base and with the longest and most varied coastlines. Recent research, however, area of operations. But perhaps it was serendipitous that it is also has unveiled the dramatic decline in species in the country due to the combination of two key words: metro which is the sufx of overexploitation, pollution of all kinds, wildlife habitat destruction, and metropolis or urban center, and pacifc which means peaceful and climate change. It is time for all Filipinos to become aware that these is also the name of the largest body of water in this globe the Pacifc threats to marine biodiversity are real and have widespread social, Ocean. All the MPIC companies have worked to make lives better in economic, and biological consequences. the vast metropolises of the country, primarily in the Metro Manila Broadening its market, while at the same time focusing on its area, distributing electrical power and potable water to households, target on its 5th year, MPIC’s Shore it Up program challenged itself to giving its citizens convenient access north and south, and east and further amplify and deepen the environmental commitments of its west through toll roads, and providing healthcare through a chain earlier project areas and destinations such as Anilao, Puerto Galera, of tertiary hospitals. All these have benefted the country as a whole, Lingayen Gulf and Hundred Islands, and Zambales. Varied engagements but have also paid of handsomely in terms of proftability. have been embarked on and valued resources have begun to be shared Thus, it is but ftting that the MPIC Foundation chose as its among the communities touched by the program such that they have primary corporate social responsibility thrust, an environmental seen its genuine and concrete benefts in terms of enhanced revenues program designed to educate, equip, empower, and employ our and livelihood, not to mention the restoration of their surrounding’s people to preserve and protect our vast coastlines and aquatic scenic natural beauty. resources, and also to cooperate and complement global eforts to contain the efects of climate change and global warming. The name THE EYE OF THE BEHOLDERS: SEEING EVERYBODY’S STAKE IN of the program, which has been running for fve years, is fttingly “SHORE IT UP” BUSINESS enough “Shore It Up,” a modest claim to support and strengthen all Caring for the environment during a Shore it Up weekend eforts to make our part of the world more livable, and life itself as a becomes everybody’s business. The schedule has been thoughtfully whole more sustainable. arranged for certifed divers, elementary school children, volunteers and The verb “shore up” means to support, strengthen, prop, local government units to fully participate in various aspects and phases brace, underpin, augment, and buttress. ‘Shore It Up!’ (SIU) is the of the program. response of the private sector, particularly MPIC, in partnership With a memorandum of agreement executed by top ranking MPIC with local government units and agencies, towards the sustainable ofcers namely Chairman Manuel V. Pangilinan, President Jose Ma. K. development, preservation and conservation of our country’s diverse Lim, together with the presidents of the various foundations of the MVP and rich marine resources, in order to help mitigate the increasingly group of companies, the governors and mayors and other LGU ofcials destructive efects of climate change. We have adopted the slogan: of the various host provinces, ciries, and barangays, a number of local ‘Rescue, Restore, Revive,’ to capture the essence of the program and national media partners, local schools and civic groups, the number designed to address the needs of various coastal communities of program volunteers have grown considerably over the years. throughout the country. These eforts under the program include
50 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Coastal Coastal THE LONG LOOK AHEAD: A BROAD NATIONAL EFFORT TO RENEW Location / year JES LGUs Clean-up Planting THE ECOLOGICAL BALANCE Anilao 2009 13 0 0 none The long-term goal of Shore It Up is to become nationwide by Puerto Galera 2010 45 0 50 Barangay Captain 2015 primarily with the help of the Department of Environment and Hundred Islands 2011 120 0 100 Mayor Natural Resources, as well as other concerned departments. This will Subic 2012 13,000 200 200 SBMA director also pave the way in devoting a government-declared “Shore it Up” For 2013, government agencies who have partnered with Day scheduled to happen every summer, so as not to solely rely on Shore it Up are the Department of Science and Technology, the the International Coastal Cleanup Day happening every 3rd Saturday Department of Environment and Natural Resources, and the of the year – a time wherein tropical cyclones and low pressure areas Department of Tourism, and to a limited extent the Department reach a spike in activity in our tropical country. of Education, Culture and Sports. A total of fve invitation As Shore It Up addresses the various environmental issues of the letters from various coastal areas and schools were received. coastal communities, it is also our goal to provide alternative sources The University of the Philippines Eco-tourism department has of income that will help augment the livelihood of their citizens and also signifed their interest to conduct learning sessions for the constituents. Intital discussions have already taken place during the communities covered and the participating volunteers. last Shore It Up weekend in Puerto Galera with a number of volunteers from the MVP group of companies tapping into their existing livelihood and economic empowerment programs. Coastal Coastal 2013 JES LGUs Clean-up Planting THE 3RS OF SHORE IT UP: LEARNING TO RESCUE, RESTORE AND Anilao 13 100 0 Mayor REVIVE THE ENVIRONMENT Puerto Galera 45 100 50 Mayor Hence, for the year 2013 to 2014, Shore it Up continues to run its Lingayen Gulf *22,000 200 100 Governor & Mayor theme to Rescue, Restore and Revive the environment endeavors to: Zambales *15,000 200 200 Governor & Mayor • Increase environmental awareness by intensifying media, digital and * estimates were based on the number of coastal municipalities television exposure through media conferences, press and photo and barangays releases, news coverages, daily television pluggings, billboards, banners, signages, Facebook, Youtube, Twitter, and other social media and website updates, including other branding collaterals;
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 51 Meaningful and Life-Changing CSR
• Increase number of volunteers through the participation and safety ofcer. McGilton is an American aerospace engineer (retired) and sponsorship of all MVP group of companies, academic institutions Master Diver who handled all aspects of underwater activity including such as the University of the Philippines, environmentalists, scientists deployment and data logging to ensure reef restoration and rehabilitation and researchers. are efectively accomplished. This was done in collaboration with the • Persevere in seeking counsel and working hand in hand with local government unit of Mabini led by Mayor Nilo Villanueva, a team of government agencies through the Department of Science and marine biologists from the Department of Science and Technology, and Technology, Department of Environment and Natural Resources and Mike Custodio of Deep Outdoors dive shop in Bambu Villa Resort as the the Department of Tourism appointed steward of the site. • Encourage and educate students on how to proactively care for the KEEPING A LEG UP: THE RACE AGAINST ENVIRONMENTAL environment through the Junior Environmental Scouts (JES) seminar DEGRADATION which is integral in every Shore it Up activities and to start doing it The next leg happened in July 20-21 at La Laguna Beach Club and on a programmed and organized basis. Dive Center in Puerto Galera. Named by the UNESCO as a “Man and • Develop a program wherein communities may have the opportunity Biosphere Reserve” in 1973, the town is also referred to as the world’s to choose from the existing and ongoing livelihood and economic “Center of the Center” of biodiversity. The underwater clean up raked in empowerment programs within the MVP group of companies. 710 kilos of garbage and was participated in by around 60 divers. Shore It Up was requested by the Barangay captain to provide and install along THE DEEP END: IMPLEMENTING, SUSTAINING, AND DEEPENING the beachfront, 100 small garbage receptacles in order to maintain the PROGRAM COMMITMENTS cleanliness of the island. MPIC, as the lead company within the MVP group running Shore As Shore It Up was already on full steam at Lingayen Gulf and It Up, started the ball rolling by sending a letter of invitation to all the Hundred Islands in Pangasinan, inclement weather brought about by governors, mayors, and tourism ofcers of the fve destinations where typhoon Maring prompted a rescheduling of the activities to October SIU had been and would be held again, in order to provide the plans of the year so that the province could assess the scope of the damage and tentative dates of the activities. Soon after, a Memorandum of to those afected by the typhoon. Come September, the 4th leg Agreement forged between all participating parties helped to reinforce incorporated the whole province of Zambales mainly involving coastal commitments and to manage expectations and deliverables. cleanup due to the tie-up made with Ocean Conservancy’s observance of Last May 2013 was the launch of the 5-leg series for Shore it Up’s the International Coastal Cleanup Day. 5th year anniversary which was held in Anilao, Batangas. The standard The fnal leg of this year’s series was held in October at Del Carmen underwater, educational and Junior Environmental Scout sessions were town in Siargao Island, Surigao Del Norte, where the frst-ever Mangrove held, followed by a briefng through an audio-video presentation and Marathon was held. Moreover, Philex Mining Corporation, the country’s documentary on Shore it Up was presented to the paticipants. leading mining frm, and Shore It Up presentor and sponsor for the True to Shore It Up’s meaningful commitments, an underwater coral Siargao leg, provided seedlings to the municipal government of Mabini in nursery using a new artifcial technology was donated by Eco-Corals its tree-planting efort to help restore its forest cover. Corporation led Bill McGilton, Shore It Up’s underwater consultant and
AWARDS RECEIVED 9th - Best Corporate Social Responsibility 2013 Finance Asia Best Environmental Responsibility 2013 Corporate Governance Asia Best CSR 2013 Corporate Governance Asia Platinum Award for Environmental Excellence: Shore It Up 2013 2013 Global CSR Awards Anvil Award of Excellence for sustained PR Program for the 2013 Public Relations Society of the Philippines Environment : Shore it Up 2013: Rescue, Restore, Revive
52 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 MPIC: LIFE KEEPS GETTING BETTER THROUGH QUALITY Enter the Metro Pacifc Investments Corp., whose president Jose EDUCATION FOR INDIGENTS’ CHILDREN Ma. Lim has long been a supporter of Mano Amiga. The infrastructure Still one more thrust of the MPIC Foundation in making life better, frm recently donated P10 million to the school for it to fnance the this time in the Metropolis, is education. Many provincial families acquisition of the property where its future campus is to rise. At full migrate to the city in the hopes of fnding such life, but fnd themselves capacity, the new campus is envisioned to be able to accommodate disappointed. almost 1,000 students in a full K-12 educational system. And so MPIC has set its sights on children from indigent families by giving them quality education and equipping them for college A WORTHY INVESTMENT: BELIEVING THAT EDUCATION IS and eventually employment or entrepreneurship. Then and only then CONTINUING EMPOWERMENT are they truly helped in being able to live the lives they have hoped “MPIC a big believer in education as a tool for moving for in the frst place. MPIC has gone about its education program very this country forward,” Lim says, having chosen the school as a deliberately to be able to create the optimum impact, albeit on a benefciary of its corporate social responsibility program. “With limited scale. This is through its very selective support for an educational Mano Amiga, we are actually investing in the future of the institution that has been proven to work in Latin America. Philippines by helping empower people through education.” MPIC supports a wide range of CSR activities and social enterprises MANO AMIGA: POINTING THE WAY TO ranging from those involved in environmental advocacies to ACADEMIC ACHIEVEMENT AND SUCCESS disaster relief. But education has a special place in the company’s One could say that Mano Amiga Academy—a primary school good corporate citizenship activities. that caters to an indigent community in Taguig City—is the epitome “The benefts [of supporting education] to us and the country of success. Starting with only 60 scholars in 2008, the educational are concrete,” says MPIC’s communications head Melody del institution’s population has since grown to 110 students as it adds an Rosario. “You help secure the future of the community and the academic level each year and accepts more applicants from the ranks of country, and we as employees are genuinely uplifted when we see indigent families living in the FTI complex. “There are about fve students the students while interacting with them.” competing for every slot we make available in the school,” says 28-year Previous to this fnancial grant, Mano Amiga has also been old Lynn Pinugu, the school’s executive director. receiving donations from MPIC annually which help cover the cost And it is easy to see why. The school was conceptualized with the of its operations, not least of which is the salaries of 10 stafers goal of providing international school-quality education to children that include eight highly-trained teachers. “We pay our staf well from underprivileged families, some of whom could not even spare the because we want the students to receive the best education resources necessary to send them to public schools. possible,” Pinugu says. This is made possible by MPIC’s grant Mano Amiga Philippines, the local afliate of a chain that runs of P500,000 for the Teachers’ Excellence Fund, that helps in the similar schools in Latin America, opened its doors for kindergarten continuing education and training of the educators themselves. In students in 2008. “We grow internally as the students progress through addition, the Foundation funds the scholarship of one class from the program but we also have transferees from outside.” K-12.
MPIC’S TIMELY ASSIST: FINDING A NEW CAMPUS PROGRESS REPORT: GOING BEYOND THE BASIC LEARNING SKILLS FOR A GROWING STUDENT BODY The Mano Amiga students continue to show signifcant progress And that’s where Mano Amiga’s challenge begins. Its present in their academic performance. When the children were frst accepted campus—a two-story building on a 300-square meter property within into the program, most of the students were non-readers. a Habitat for Humanity housing project—is packed to the brim. Pinugu At present, all of them are capable of reading. Their reading skills says the school needs space to grow by one batch of approximately 35 vary however, with some students more advanced than others. Those students each year. The search for a new campus led her to a 2,350- identifed by the teachers as slow readers are constantly given extra sqm property in Better Living Subdivision in Parañaque City which was help and attention, and will have access to intensive remedial classes available for sale. It is an ideal site to relocate the school as it is only 15 during the summer break. minutes away from the present campus.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 53 Meaningful and Life-Changing CSR
Another progress shown by the class is the significant A CONCRETE EXAMPLE: BUILDING A BETTER LIFE FOR improvement in the children’s self-confidence in expressing ONE MORE FAMILY themselves and their ideas. This is most evident when the students are Letty Diocos mother of Mark Lesther – one of the children who asked to do group activities, poem reading and declamation speeches, benefted from the development of the school made possible by and dance presentations. the Metro Pacifc Investment Corporation donation. The testimonial The teacher is currently focused on developing the class’ critical was translated from Tagalog (the original language in which it was thinking skills. At present, the students are able to diferentiate written). and defne concepts, but their reasoning skills still needs a lot of “When I learned about Mano Amiga, I was so thankful because refnement. Their language skills have also greatly improved but the with our state of life, I wouldn’t be able to send my children to school needs to increase enrichment activities that would help the school. My husband used to work as a carwash boy. We had to children practice and be more familiar with speaking the English wait for a week so he could bring home Php1,000 and I had to stay language. They tend to forget what they learn because the school home to take care of our children. We could barely aford a meal for is the only venue for them to speak in English; and this becomes a one day. Often, there isn’t enough to last a month. Everyday was a barrier in teaching. struggle to make ends meet. I have fve children and three of them are lucky to be chosen as TRUE PARTNERSHIP: LETTING GO OF THE HAND TO STAND ON scholars for Mano Amiga because we can see the quality education ONE’S OWN FEET that the school provides. Mark Lesther is currently a grade 2 student. “MPIC is an amazing partner. They’ve been very supportive,” The school helps to mould not only the children but their families Pinugu says, but quickly adds that she wants Mano Amiga to move as well by providing us with medical, livelihood programs and even away from being donor-dependent to being able to stand on its parenting seminars to help us better take care of our children. The own two feet. As the school’s chief fundraiser, she is all too aware school also taught us to be a God-fearing family. that relying too much on the generosity of others can lead to “donor We are grateful to the school and to all the sponsors especially fatigue” no matter how afuent its benefactors are. to the Metro Pacifc Investment Corporation because without their It has already begun to make inroads, recently putting up help our children will not have the opportunity to have a quality “Bistro 3846” which is a cafeteria in Everest Academy in Taguig education. Thank you for investing in the potential of our children stafed by parents of Mano Amiga students. It had also recently and for letting them have a better future.” branched out into catering services, and Pinugu wants to increase the scale of the business whose profts return to the cofers of the school. This adds to the modest revenues the school gets from tuition fees paid by the students’ parents pro rated according to each family’s capacity to pay. “Eventually, the goal is to become a fully self-sustaining social enterprise,” she says. “This is the best way to repay our stakeholders and supporters and make them proud of what we’ve achieved together.”
54 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 LIFE KEEPS GETTING BETTER FOR THOSE EMPOWERED TO HELP THEMSELVES MPIC turned over tools and equipment for plumbing Members who took the short course on plumbing have and masonry to its assisted manpower group in Ana Maria recently passed their assessment and are due to be given with Homeowners Association, Brgy. Calamansian, Caloocan City. TESDA NC II document. Those who took Masonry are also due for The provision of tools is part of the ManPower for Infrastructure TESDA certifcation. Cooperative (MPIC) Development Project which is targeted For 2014, some of the members will undertake painting in to assist at least 25 households by organizing a community- construction work and electrical skills trainings. Tools related to based cooperative for livelihood, particularly by engaging these practice will also be provided by the project grant. the skills trainees in the construction industry. Handing over Continuous interventions on organizational development has the tools to the group’s president, Mr. Johnny Araza, is MPIC also been provided including that of assisting the group in their President and CEO Mr. Jose Ma. K. Lim. registration to the Cooperative Development Authority. Currently, the group, with their new tools and skills on masonry, With the increasing rate of unemployment in Metro Manila, is assisting in the construction of the 2nd Floor of the Ana Maria the project somehow helps alleviate this concern for the members HOAs’ multi-purpose cooperative building. The organizational policy of the Ana Maria community. on the utilization and maintenance of the donated tools has also been drafted for the members’ guidance.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 55 Meaningful and Life-Changing CSR
DALOY DUNONG: A PIPELINE TO PERSONAL HYGIENCE AND COMMUNITY HEALTH Maynilad’s water education drive visited 52 public schools to enlighten 11,565 students about the role of clean water in personal hygiene and community health, as well as the need to care for our water resources. Daloy Dunong was also conducted for education eforts outside of the school tour, including outreaches to less fortunate children MAYNILAD: LIFE KEEPS GETTING BETTER and watershed visits by youth-oriented groups. We also celebrated UPSTREAM AND DOWNSTREAM Global Handwashing Day 2013 last October in partnership with TV5, Maynilad has been expanding its franchise coverage in the past DepEd and DOH, in Silangan Elementary School, Caloocan City by fve years providing hundreds of thousands more households access demonstrating proper hand washing and giving away handcare kits for potable water. The frst corporate social responsibility of any to kids. company is to provide its service to its customers easily, efciently, Daloy Dunong won an Anvil Award for Merit in 2014 and forms and economically. In addition, Maynilad has worked to tap new part of Maynilad’s advocacy campaigns which won frst runner up sources of the in-demand commodity in environmentally-friendly and in the Integrated Communication Strategy category of the Asean ecologically sound ways. Corporate Sustainability Summit and Awards 2014. But Maynilad is not content with simply doing things right, but also in doing the right things. That is why it has sought to extend AN ARMY OF WATER WARRIORS: its good work further downstream, by engaging in programs and CHAMPIONING HEALTH, HYGIENE, AND THE ENVIRONMENT projects within and even beyond the call of duty. Some of these The benefciaries of Maynilad’s youth-targeted outreach engagements were called for by exigencies, but many others were programs joined the over 37,000 people who took the oath as Water pursued because of their capacity to transform the lives of people. Warriors, promising to be champions for safe water, health and the environment. New Water Warriors include ofcials of government LINGKOD ESKWELA: BEYOND QUENCHING STUDENTS’ THIRST agencies such as the MWSS, DENR and NWRB; groups such as Lingkod Eskwela is the physical infrastructure component of the Metro Manila Drinking Water Quality Monitoring Committee Maynilad’s initiative to reinforce positive hygienic behaviors and (MMDWQMC); private businesses and celebrities like the 90 candidates provide the youth greater access to clean water and proper sanitation. of Ms. Earth International 2013. The campaign also sought advocacy We built Lingkod Eskwela drink-wash areas in 54 of the most ambassadors such as Ms. Jillian Kristine Deveza, who received the populous and resource-defcient public schools in the concession Maynilad Water Warrior Award during the Ms. Earth Philippines 2013 area. This brings the total number of drink-wash area recipients to 180 pageant. Ms. Deveza has since recruited more Water Warriors. schools. We also returned to 129 past benefciaries of our Lingkod Maynilad also supported Commonwealth Elementary School’s Eskwela program to refurbish their water and sanitation facilities, eco-friendly initiatives by giving the parents a short lecture on water, including the installation of pipe urinals in restrooms. wastewater and the environment, and donating waste segregation bins Maynilad also mounted its biggest Brigada Eskwela efort yet by and gardening tools to the students. Under a partnership agreement for adopting 6 schools for DepEd’s volunteer program. Employees from water education, we also established a Water Education Corner in the the diferent Business Areas and the Head Ofce restored the science premises of Commonwealth Elementary School, Muntinlupa Elementary laboratories of Muntinlupa Elementary School and the Philippine School and Philippine National School for the Blind. National School for the Blind in Pasay; set up a 10-unit computer corner DepEd has cited Maynilad for the “delivery of substantial and for the Tunasan High School Annex in Muntinlupa; cleaned up the meaningful programs of intervention to our public schools” on 18 Kindergarten room of Rene Cayetano Elementary School in Caloocan December 2013, with Secretary Armin Luistro personally handing the City; fxed the water facilities of Manuel Roxas High School in Manila. award to Maynilad.
56 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 SINING IPO: A WATERSHED PROGRAM FOR INDIGENOUS PEOPLES Typhoon Yolanda (November) – The record devastation brought by Maynilad launched the Sining Ipo livelihood program for the Typhoon Yolanda prompted Maynilad to rally employee volunteers beneft of the Dumagats living in Ipo Watershed. The initiative aims and come to the aid of the survivors. is to inspire stronger involvement among the indigenous people in the company’s eforts to protect this vital water resource, while giving Maynilad provided more than 152,000 liters of drinking water in them a means to better provide for the families. containers of various sizes to the survivors in 20 municipalities/cities in Dumagat chieftains who were trained by renowned sculptor Rey Leyte, Samar, Cebu, Iloilo and Palawan. Contreras shared their skill to their tribesmen in shaping driftwood Four 10-cu.m. tankers were deployed to Tacloban along with into exquisite pieces of art. Each sculpture refected their pride and drivers and mechanics for more than 50 days to help transport values as a people, as well as need to preserve their sanctuary. drinking water from a treatment plant to the afected barangays. Respect to nature is further stressed in the use of driftwood, In partnership with UNICEF, a 650kva generator was sent to which is considered as forest debris, thus eliminating the need to cut power up the Metro Leyte Water District water treatment facility, and down or damage trees for raw material. The retrieval of driftwood is water quality testing kits were deployed. also benefcial to the operation of Ipo Dam as this helps unclog the Maynilad also partnered with the WASH Cluster of the UN for fow of the raw water going to the facility. Yolanda response eforts. Four portable treatment machines, with a The frst of a series of Sining Ipo auctions was also mounted in combined treatment capacity of around 25,000 gallons per day, were December 2013, with proceeds going to the education and healthcare stationed in Tapas (Capiz), Tacloban (Leyte), Hernani (Leyte) and Basey needs of Dumagat children. and Marabut (Samar) in coordination with DPWH, DILG, and other The initiative reinforces Maynilad’s massive program to reforest national and international agencies. Ipo Watershed by planting 300,000 trees over the next fve years. Mission Ginhawa - With money raised from employees and other CALAMITY AID: KEEPING VICTIMS’ HEADS ABOVE THE WATER donors, Maynilad has so far turned over 1,696 water fltration systems Maynilad embarked on an extensive relief and rehabilitation efort to some of Typhoon Yolanda’s hardest-hit areas, beneftting some to reach out to the victims of Typhoon Yolanda and the 7.2 magnitude 33,920 families. earthquake that hit the Visayas, aside from responding to food and fre This helped survivors in the provinces of Cebu, Leyte, Samar and tragedies within our service area. IloIlo transition into rehabilitation phase by providing them a more sustainable way to obtain clean water, especially since freshwater Typhoon Maring and Habagat foods (August) – We provided more sources in these areas were contaminated by food and saltwater. than 30,100 liters of water in jugs and bottles and around 25 cubic meter of tankered water to various typhoon-hit areas, in coordination with government agencies and private groups including the Tulong Kapatid Foundation. An estimated 4,227 families beneftted from our relief operations in Cavite, Marikina, Laguna, Manila, Mandaluyong, QC, Muntinlupa, Valenzuela, Malabon, Paranaque, Pampanga and Bataan.
Earthquake (October) – We distributed more than 25,500 liters of water in containers to afected areas in Cebu and Bohol in coordination with DSWD and TV5 Alagang Kapatid. A donation drive was organized to solicit goods from employees. We also deployed personnel and a water treatment machine to the Bohol town of Tubigon. The machine produced up to 3,000 gallons of drinking per day for refugees in Barangays Clarin and Calape.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 57 Meaningful and Life-Changing CSR
School (El Nido, Palawan); Bulawit National High School (Linapacan Island, Palawan); Cagbalete National High School (Mauban, Quezon); Cagsiay III National High School (Mauban, Quezon); Pandanon National High School (Jetafe, Bohol); Cabul-An National High School (Buenavista, Bohol); Rizal National High School (Basilisa, Dinagat Islands); Cab-Ilan National High School (Dinagat, Dinagat Islands); Cab-Ilan Elementary School (Dinagat, Dinagat Islands); and Casili Elementary School (Casili, Rodriguez, Rizal). MERALCO: LIFE KEEPS GETTING BETTER THROUGH Meralco employees also took part in helping these newly- ENLIGHTENMENT AND EMPOWERMENT energized schools cope with the latest in technology. The Meralco Meralco, as the leading power distribution company in the Employees’ Foundation for Charity, Inc. (MEFCI), a socio-civic country, has long engaged in what may be called missionary organization composed of employees of Meralco, donated a engagements. It has empowered its populace literally and multimedia package to each school energized by OMF. OMF plans to fguratively by fring up the machines in their workplaces, running energize at least 35 more public schools in 2014. the appliances in their homes, connecting them to business and entertainment hubs, brightening up their social gatherings, and on ELECTRIFYING TIMES: BLAZING NEW TRAILS the whole, making their lives much more comfortable and enjoyable. EVEN IN THE INNER CITY Through a number of corporate initiatives, One Meralco Having been in the business of providing safe and reliable Foundation follows through many of its business thrusts, aware that electricity to homes and industries in the country’s political and the services the company provides are even much more needed by commercial hub for more than 100 years, Meralco has lasted long those who have less in life, or who have lost much in the wake of enough to see how its core service helped propel the country’s natural calamities. Many activities and facilities cannot be available development. In today’s technologically advanced era, electricity to these communities in the absence of this utility which has truly powers almost everything. Bearing this in mind, One Meralco become a necessity. Foundation constantly looks for ways to make sure that even the marginalized sectors of society are not left behind in the ENERGIZING SCHOOLS: CHANGING THE POWER EQUATION journey towards development. And so, it launched the Household IN FAR-FLUNG AREAS Electrifcation Program to provide marginalized but organized Aware of the important contribution of electrifcation in shaping communities with safe and afordable access to electricity and, the future generation, One Meralco Foundation beefed up its School at the same time, device a socialized payment scheme so that Electrifcation Program in 2013 with the goal of providing better low-income families could sustain their connection to Meralco’s opportunities for public school students especially in far-fung and electricity service. hard to reach villages. Under the program, remote public schools In cooperation with Meralco’s business centers, the local which do not have access to electricity due to their location are government units and community leaders, OMF’s Household provided with a 1-kW Solar Photovoltaic (PV) System which may be Electrifcation Program has energized in 2013 a total of 3,079 used to power light bulbs and ceiling fans installed in classrooms, households in 22 communities within the Meralco franchise area. and laptop computers and multimedia systems which teachers These communities are located in Pasig, Valenzuela, Mandaluyong, could use in their instructions. By the end of the year, the program Taguig, Quezon, Rizal, Manila, Quezon City and Novaliches. has energized 11 public schools located in Palawan, Quezon, Bohol, Dinagat Islands and Rizal, bringing the total to 17 since the program’s BACK TO THE 3 RS: RELIEF, RESTORATION OF POWER, launch in 2011. REHABILITATION AFTER YOLANDA The schools that were energized in 2013 are San Fernando In the aftermath of typhoon Yolanda, which hit Visayas in National High School (El Nido, Palawan); Teneguiban National High November 2013 with record-breaking intensity, Meralco and One
58 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Meralco Foundation wasted no time in responding to the immediate many electrical posts and substations in Leyte and on Panay Island, needs of the victims and assisted the local electric cooperatives in which resulted in widespread blackouts. To expedite the restoration of restoring power in areas worst hit by the typhoon. power in the afected areas, Meralco sent four contingents of linemen and power restoration equipment to aid Leyte Electric Cooperatives Immediate Relief 2 and 5 (Leyte), Iloilo Electric Cooperative 3 (Iloilo), Aklan Electric To address the victims’ need for basic sustenance, OMF Cooperative (Aklan), and Capiz Electric Cooperative (Capiz). distributed bags of relief goods to a total of 12,538 families in various A total of 218 Meralco personnel were deployed for the project, municipalities in Leyte, Iloilo, Palawan, Aklan, Samar and Capiz. Each of which 157 were deployed in Leyte and 61 in Iloilo, Aklan and Capiz. bag contained 2 kilos of rice, 6 pieces of packed bread or 1 pack of The estimated cost incurred by Meralco for the Leyte and biscuits, 4 canned goods, 4 cup noodles, and 1-liter bottled water. Panay Island power restoration project is P21 million, of which P15 Four hundred sixteen (416) employee-volunteers took turns in million was spent for Leyte and P4 million was spent for Capiz, Iloilo repacking the relief goods at the Meralco headquarters in Ortigas, Pasig. and Aklan. In the spirit of Christmas, 92 Meralco employee-volunteers went As of 23 February 2014 LeyECo 2 has reported to have energized to Pontevedra, Panitan and Roxas City in Capiz; New Washington in 115 out of the 138 barangays, the equivalent of 18,350 out of the Aklan; Ajuy and Sara in Iloilo; and Palo, Isabel and Ormoc City in Leyte 35,937 households in Tacloban City. In the town of Palo, 16 out of to sponsor the celebration of dawn masses in the said areas and a the 33 barangays or 2,193 out of the 11,140 households have been breakfast salo-salo for churchgoers. There, the Meralco employees energized and in Babatngon, 21 out of the 25 barangays or 3,591 out turned over to each parish a cash donation worth P30,000 for of the 3,988 households now have access to electricity. the repair of damaged church buildings and echoed Meralco’s Meanwhile, as of February 28 LeyECo 5 has reportedly energized commitment to rehabilitate damaged public school buildings in the 827 out of the 976 households in Isabel, and 523 out of the 759 said municipalities. households in Merida.
Restoration of Power Long-Term Rehabilitation One of the prevailing problems that continued to plague the Feeling the need to help in the rehabilitation of classrooms victims of the typhoon even months after it wreaked havoc was the which were damaged during the typhoon, Meralco launched in lack of electricity. Strong winds and a storm surge knocked down December an internal fund-raising campaign dubbed
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 59 Meaningful and Life-Changing CSR
“One Day to Give” with the intention of raising funds for One Meralco to serve their fellow, especially those who are underprivileged and Foundation’s School Rehabilitation Project. The campaign urged marginalized, through the foundation’s social development projects. employees to donate at least the equivalent of their one day salary In 2013, 2,724 Meralco employee-volunteers have logged to the cause. The campaign ultimately raised P7 million. Nine public an accumulated 25,584 volunteer-hours in 15 Makabayan events schools in Capiz, Aklan, Iloilo and Leyte -- the areas where Meralco throughout the year. These events included relief operations, power helped restore power -- will beneft from the project. restoration, household and school electrifcation, coastal clean-up, In January 2014, OMF together with MIESCOR began site tree planting, brigada eskwela, energy education, sports and youth- inspection of the recipient-schools to assess the extent of damage, oriented advocacies, among others. the cost of rehabilitation and the availability of manpower, When Typhoon Yolanda hit Leyte in November 2013 with construction equipment and materials in the localities. The school unforgivingly strong winds and brought a deadly storm surge, Meralco rehabilitation completes Meralco’s holistic approach in helping these through One Meralco Foundation immediately activated its pool of communities get back on their feet. volunteers through the Makabayan Volunteering Program for the In addition to the above, OMF is partnering with the various stages of relief and rehabilitation operations. In total, 508 Department of Education for a feeding program which will beneft Meralco volunteers logged 2,984 hours of service. 1,000 public school students in Leyte. Additionally, four contingents composed of 218 competency- In support of the initiatives of the local government of based volunteers (linemen, etc.) were deployed to the afected Ormoc City, Leyte, OMF will be donating 10 motorboats to fshing areas to help the local electric cooperatives restore power in their communities in the city which were afected by the typhoon. This respective franchise areas. As of February 2014, the contingents were will help resuscitate their livelihood and make them less dependent able to replace/correct a total of 1,270 electrical poles, reconnect on external relief. Each motorboat costs around P25,000. 1,639 spans of wires, install 46 distribution transformers and donate 41 generator sets to temporarily provide power. “MAKABAYAN” VOLUNTEERS: Undeniably, Meralco employees have the kind of passion, A BEACON OF HOPE FOR THE NATION commitment and heart for communities and country they have the Meralco’s commitment to deliver excellent service to its privilege to serve. As Filipinos go through the long but inspiring journey stakeholders goes beyond its core business of electrifcation. towards building the nation, Meralco and One Meralco Foundation Through One Meralco Foundation’s Makabayan employee hope that the employees continue to become bearers of light to these volunteering program, Meralco employees are provided the chance communities and give a deeper meaning to the word “makabayan.”
60 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 services that allow its customer to experience the joy of safe travel and the beneft of convenient transport. The program has the twin targets of promoting customer equity, meaning MNTC respects the rights of the customer, and considers him or her as a key stakeholder who thus has “equity” in the present and future viability of the organization, and of maintaining roadway quality to assure road safety. Through this, MNTC allows its customers — the motorists as well as the communities surrounding the NLEX --- to have a MPIC: LIFE KEEPS GETTING BETTER voice in the policy and operational directions of the company. THROUGH SAFER AND EASIER TRAVEL AND TRANSPORT MPIC has always seen the vital role roadways play in providing THE GKLT WORKSHOPS: EDUCATION BEGINS ON THE ROAD better access to economic, educational, employment, entertainment, GKLT stands for “Gusto Ko Ligtas Tayo!”, a road safety program and and other opportunities. That is why the building of road infrastructure part of the overall thrust of TMC to promote its advocacy on road safety has been at the forefront of its expansion plans from the very beginning. and drivers’ education. The program targets children below 18 years old Through the MNTC, MPIC has been efciently managing the North and who are either residents in the communities or students in schools Luzon Expressway (NLEX) and the Subic-Clark Expressway (SCTEX), and located along the North Luzon Expressway (NLEX). It primarily involves continues to be on the lookout for other roadways project to improve employee-volunteers from the diferent disciplines of the company access to all parts of Luzon from Metro Manila. It has recently acquired facilitating workshops and orientation activities to children on road equity in the Cavite Expressway (CAVITEX) and a new elevated roadway safety practices. to connect NLEX with the South Luzon Expressway. Moreover, it has The workshops, conducted at the school grounds and barangay been improving access to NLEX itself through new connector segment halls of the host communities, are likewise opportunities by which our roads from the port area and Commonwealth Avenue. employees engage and interface with the ofcials and residents of And all these are to make travel and leisure, and trade and the host communities. These are interactions by which the role of the commerce not just faster and better, but also safer and more communities in maintaining the safety of their respective localities is convenient. The maintenance of the roadways, its structures and emphasized and at the same time underscore their contribution to the facilities, its lighting features and signages, its support businesses such overall safety of the carriageway. as gasoline stations, restaurants, and comfort rooms, and its services Now on its 4th year, GKLT has reached out to 308 elementary and trafc enforcement staf, are all carefully planned, integrated, and students, 69 high school students, 301 barangay council members, and orchestrated in a master plan designed to make the country a traveler’s 21 other civic-organized groups in the diferent communities along and trader’s haven. NLEX. The program continues to be promoted and expanded – an But this singled-minded business thrust, must be complemented integral pillar in our eforts to promote road safety. by another in the social sphere, a corporate program by the company tasked to maintain these roadways. And logically, the approach they USAPANG DRAYBER: LAYING DOWN have taken is in the area of education and empowerment in road safety THE CORNERSTONE OF ROAD SAFETY and trafc regulation consciousness. USAPANG DRAYBER” has been a cornerstone program of TMC’s advocacy on road safety and drivers’ education since 2008. The MNTC ROAD SIGNS: DOING GOOD AND DOING WELL program was crafted to target drivers and their afliate groups NLEX Customer Equity and Road Safety is a signature program of plying our operated expressways (NLEX, SCTEX, and SFEX). It aims to the Manila North Tollways Corporation (MNTC) merging its CSR program provide the drivers a safety orientation on the use of the carriageway (“doing good” dimension) with the company’s core business (“doing where key data and causes of road accidents are shared. Likewise, well” dimension). the pertinent trafc rules and regulation being strictly implemented MNTC strongly advocates road safety and trafc regulation by our trafc patrol crew are further explained. The last portion is consciousness. As the builder and concessionaire of NLEX, MNTC is also the highlight of the 1-day program where we get to engage the committed to build and provide quality transport infrastructure and drivers in a forum and solicit their ideas and inputs (including their
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 61 Meaningful and Life-Changing CSR
support) on how to further improve the overall safety of the carriageways. The program is facilitated by a cross functional team composed of organic ofcers and staf of the company representing trafc operations, toll collection, safety and security, and community relations. They directly conduct the orientation sessions but more importantly interact with the drivers during the forum. These interactions with the drivers are critical to the success of every run – they provide the opportunities by which our drivers can connect with us, as the operators in an environment where exchanges of safety ideas are conducive and encouraged. Since its initial run, close to 1,500 drivers coming from major MAKATI MEDICAL CENTER bus and truck companies, transport groups, and other afliated MAKATIMED REACHES OUT TO TACLOBAN organizations have already participated. With the provision of immediate medical relief being a primary concern for fellow Filipinos afected by supertyphoon Yolanda, Makati “BIYAHE” SHORT FILM CONTEST: Medical Center, and Strategic Hospital Alliance Program (SHAP) TRIPPING THE LIGHT FANTASTIC partner Tacloban Doctors Medical Center (TDMC), in collaboration with “BIYAHE” (Journey) was a short flm competition held the Philippine National Red Cross (PRC), joined forces to launch medical in the 4th quarter of 2013. This is the very frst of its kind in missions in Tacloban – one of the worst-hit areas in Eastern Visayas. the country to be organized by a toll road company (TMC). “Our medical relief missions are about doing our share in the aid Anchored on the theme “…having a trip, a journey…particularly of our own people and our own country during a time of extreme a safe journey”, the competition was opened to college need,” says MakatiMed President & CEO Rosalie R. Montenegro. “The students who would have to make a 5-minute video on road hospital lives up to its commitment to be a ‘Hospital with a Heart’, safety and emphasize the use and safety features of NLEX. ofering the best of our services with utmost malasakit for our Filipino A total of 11 entries were submitted from colleges and brothers and sisters.” universities located in Manila, Bulacan, and Pampanga. At With TDMC serving as the prime base of operations, MakatiMed stake were cash moneys for the winners and consolation gift has set up an ER on-ground and sent over composite medical teams certifcates for participating entries. The project was ably to provide aid and medical assistance to Yolanda survivors. Also sponsored by Philex Mining Corporation, Rizal Commercial transported were medical supplies and food, which was sent over Banking Corporation (RCBC), Easytrip Services Corporation, via C130. Additionally, through the assistance of AFP Chief of Staf Jollibee, and Dental Gallery. Our concessionaire, Manila North General Emmanuel Bautista and his team, MakatiMed has released Tollways Corporation (MNTC) provided support and partnered and distributed 1,000 emergency family health kits through the MMC with us in promoting the program. Foundation in coordination with the PRC. The broadcast-journalism team from Holy Angel University To date, MakatiMed has served close to 4,000 patients in in Pampanga won the grand prize with their entry titled “U-Turn”. Tacloban. Two more composite medical teams have also been Bulacan State University’s entry titled “Dapat Sana” garnered second dispatched to the Yolanda-stricken city to continue and sustain place while “Mulat” by Altura placed 3rd overall. ongoing eforts during the holidays. More than providing the prize money, the competition aimed According to Medical Director Benjamin Alimurung, M.D., the at getting the message across on road safety delivered through a MakatiMed organization has deployed several composite24-member powerful medium using “flm”. With the project being able to reach teams of experienced physicians and specialists in Internal Medicine, out to students from the diferent universities, the objective of Pediatrics, Emergency Medicine OB-Gynecology, Anesthesiology, educating the “would-be” future drivers on the importance of and General and Orthopedic Surgery along with clinical nurses, and their responsibility on road safety has likewise been met. medical and radiology technicians.
62 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The outreach medical service to the communities in extreme medical missions in Metro Manila and nearby provinces. Led by the need has been ongoing since late November in the aftermath of Health Service Department, these medical missions helped more than super typhoon “Yolanda” which caused an unprecedented number 15,000 patients, who received medical, dental and surgical services. of deaths and widespread destruction to heavily populated areas The biggest of these missions include the 21 September 2013 that even now, a month later, struggle to rebuild their lives and mission to Sta. Rita, Pampanga sponsored by the Dra. Josephine restore even basic community services, like water and electricity. Carlos Raboca Foundation, which benefted 4,000 patients. ARMSCOR “Many of the cases treated were the expected febrile sponsored the mission on 4 May 2013 in Marikina that benefted 2000 illnesses, upper respiratory tract infections with coughs and colds, patients. The Toyota Foundation sponsored the mission in Sta. Rosa, and gastrointestinal disorders brought about by the constant Laguna on August 13, 2013, which served more than 1,500 patients. exposure to the elements and very challenging living conditions Other sponsors include Assumpta Tech, Makati Shangri-La, among an increasingly vulnerable population of the very young and Forbes Park Brgy. Council, Catholic Women’s League, and private elderly” said Dr. Alimurung. The teams also administered 247 anti- sponsors. tetanus vaccinations to prevent more serious health complications following a wide range of traumatic injuries from the powerful winds CARDINAL SANTOS MEDICAL CENTER and typhoon ocean surge that reached heights of several meters. STRENGTHENING COMMUNITY PARTNERSHIPS: The hospital has also been assisting the National Resource 2013 CSMC CSR FOCUS Operations Center (NROC) in developing a system to increase the Cardinal Santos Medical Center (CSMC) with the Cardinal Medical production of relief goods and ensure its immediate dispatch to Charities Foundation Inc. (CMCFI) continues to work for the interests designated ports, airports, and land locations. Presently, the efort of the underprivileged community. As evidenced by the Center’s has yielded a signifcantly increased production of goods, from mission, vision and core values, CSMC instituted major Corporate 20,000 packs to 75,000 packs daily. Social Responsibility (CSR) undertakings to provide expert healthcare Led by Montenegro, MakatiMed has also been able to raise services to the most needy and also to provide venue for training of its a total donation amount of nearly P10 million, with the help of resident physicians. its employees, its Medical Staf Association (MSA), doctors led by NeuroSciences Department Chairman Regina Macalintal-Canlas, Subsidized Patient Program M.D., the Philippine Disaster Recovery Foundation (PDRF), and other A total of 11, 748 charity patients served through free medical partners, with the number still increasing as the hospital continues consultation at the Outpatient Department and 3,191 hospitalized its eforts to encourage contributions from donors. patients were given fnancial grant amounting to P 8.5 million under Building on its present initiatives, MakatiMed will continue to the Subsidized Patient Program for the year 2013. work with TDMC to closely monitor its operations in Tacloban and coordinate with NROC for the consistent production, release, and Healthy Community Program for Brgy. Corazon De Jesus, (CDJ) tracking of relief goods; as well as assist in the creation of a long- and Pinaglabanan Elementary School (PES) San Juan City term disaster emergency contingency plan. The Healthy Community Program is a two-year comm “As true, caring Filipinos who love our country, we at partnership with the City Government of San Juan; this is envisioned MakatiMed are committed to invest every efort to help rebuild to be a collaborative undertaking that will maximize presence of and restore lives,” Montenegro says. “As we are a nation that has health care professionals in the area to initiate conduct of relevant found solidarity in the face of such a tragedy, we intend to continue health programs that focuses on ensuring health literacy and working with our partners to ensure that help is provided to those sustainable community involvement towards better health outcomes. who need it.” In 2013, the frst cycle of the 6 months Supplemental Feeding Program (SFP) was implemented benefting 60 severely wasted MEDICAL MISSIONS children from Brgy. Corazon De Jesus and Pinaglabanan Elementary Aside from the Tacloban mission, from January to November School. The CSMC CMCFI SFP is distinctly diferent from other feeding 2013, MakatiMed physicians and medical staf took part in various program because aside from providing full meal for six months,
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 63 Meaningful and Life-Changing CSR
children are also being monitored by the CSMC Medical Team ensuring Riverside College, Inc., conducted medical and relief operations to proper health intervention for each child. Photo shows Health Education Manapla, Cadiz, and Sagay among others, helping more than 2,000 session among SFP benefciaries and the culminating activity of the typhoon survivors. six months program with the Vice Mayor of San Juan Hon. Francisco J. In line with a world-wide initiative to manage drug-resistant Zamora during the graduation ceremony. tuberculosis, the RMCI is currently the site for the Programmatic Management of Drug-Resistant Tuberculosis (PMDT) Treatment Center Cataract Surgical Mission and Laboratory in Negros Occidental. Funded by the Global Fund, The CSMC Department of Ophthalmology conducted 4 Cataract through the Philippine Business for Social Progress (PBSP) chaired by Mr. Missions last 2013, a total of 69 patients were saved from blindness Manuel V. Pangilinan, the basic TB services of the Program has treated through the free mission. CMCFI provided the medical supplies and 422 patients for 2013 and 192 patients so far for 2014. 800 PMDT operating room charges of all patients. patients have been screened, 95 of which are currently enrolled in 18 to 24 month treatments and 10 being ofcially declared as cured. Disaster Relief and Response Program The Medical Services division of the Hospital regularly holds Joining the whole nation in disaster response, the CSMC community numerous blood-letting activities, feeding programs, and medical provided medical assistance to Yolanda survivors at the Villamor Airbase missions serving various barangays in Negros Occidental throughout Pasay City last 21 November 2014. CSMC Volunteer Medical Professionals the year. consisting of Doctors, Nurses and Therapist ofered their services. RMCI also helps improve the lives of impoverished Negrenses Continuous donation of in kind goods were also facilitated through the through the Dr. Pablo O. Torre Foundation, Inc. through free clinics, following partners, Caritas Manila Damayan, SanJose Seminary, Ateneo De medical missions, community welfare services, scholarship programs, Manila and San Joaquin Parish in Palo Leyte. establishment of clinics and birthing homes - as well as housing projects with the help of Riverside College, Inc., and Gawad Kalinga. DAVAO DOCTORS HOSPITAL OUR CORPORATE SOCIAL RESPONSIBILITY INITIATIVES OUR LADY OF LOURDES HOSPITAL ARE OUR WAY OF GIVING BACK TO THE COMMUNITY 2013 MEDICAL MISSIONS FOR EMHMC-OLLH. THROUGH OUR BALIK ALAY FOUNDATION. Our Lady of Lourdes Hospital continues its tradition as a Christ- Davao Doctors Hospital’s CSR activities for 2013 have benefted a centered hospital through its various medical missions. The six medical total of 1,100 families. Our monthly activities includes: missions treated 811 patients, out of the total 2,699 patients (for the • Free surgery clinic (circumcision) for May 6 missions). The medical/surgical mission at Quezon included minor • Blood letting activities with Davao City Blood Bank for and major medical procedures. Six (6) of the patients were operated at July and November EMHMC-OLLH because cases required confnement in the hospital. • Annual Free Clinics for DDH Anniversary (July) and DDH Dumoy (October) ASIAN HOSPITAL INC. • Disaster and Rescue initiatives with the MPIC Mindanao LEYTE PROVINCIAL HOSPITAL SEEKS HELP TO RESTORE Core Group for August EQUIPMENT, SERVICES • Gift-giving for indigent families with TV 5 Davao for December After the onslaught of Typhoon Yolanda last November 2013, the Leyte Provincial Hospital (LPH) was one of the hospitals in Visayas left RIVERSIDE MEDICAL CENTER with destroyed facilities, fooded building and damaged equipment. CSR PROGRAMS OF THE RIVERSIDE MEDICAL CENTER, INC. Located at the municipality of Palo, LPH has low budget like FOR 2013-2014 other provincial government-run hospitals. Big damages like what Shortly after Typhoon Yolanda struck areas in and around Negros happened last year have been tough for them, especially bringing Occidental in December 2013, the Riverside Medical Center, Inc., back their operations to help the typhoon victims. (RMCI) owner and operator of the Dr. Pablo O. Torre Memorial Hospital According to Dr. Ofelia Absin, Medical Director of LPH, the (DPOTMH) in coordination with the Medical Services division and the hospital was forced to hold of their admissions and stop all
64 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 their operations because of the damages. “It was frustrating and The objective of this program is to educate adults and school saddening. We are a hospital; we wanted to help our constituents. Yet, children on good nutrition and proper hand hygiene. There were seven with the damages brought by Typhoon Yolanda, we cannot address Asian Hospital staf volunteers who demonstrated the proper hand the medical needs of the victims immediately,” she said. hygiene, had some show cooking using organic ingredients from their “There were a lot of mud and debris. Help can’t reach us. But own back yards, and gave away school supplies to their children. after I attended an operation center in Leyte, met Dr. Carlos Ejercito of There were about 55 benefciaries of this program. Asian Hospital and Medical Center and shared to him our situation, he For two consecutive years now, Asian Hospital Charities, Inc. (AHCI) immediately visited LPH. There he saw the eforts of our doctors and have partnered with Tuloy sa Don Bosco Foundation for “Oplan: Tuli, A staf cleaning the area, despite being victims themselves who lost their Surgical Medical Outreach Program.” houses or some, even family members. We were surprised when he A team of Asian Hospital surgeons, nurses, and clinical staf have promised that Asian Hospital will help us,” said Dr. Absin. volunteered to assist Mr. Neil Jaymalin, a registered nurse himself and “Leyte has received many help from diferent international and local concurrent Executive Director of AHCI to perform the operation to the organizations. There are enough goods, essentials and even doctors in select Don Bosco students, and benefciaries. the area. What Leyte actually needs now is to rebuild its communities. Each year, AHCI have helped 25-30 benefciaries, with age ranging After seeing the condition of LPH, we at Asian Hospital realized that what from 12-19 years old. we can do best for Leyte is to help rebuild LPH and address their lack of needed medical equipment,” Dr. Ejercito said. DE LOS SANTOS MEDICAL CENTER AHMC, with the aid of Air21, has shipped 50 of 150 beds with CORPORATE SOCIAL RESPONSIBILITY IS A COMMITMENT mosquito nets for LPH. It will also donate medicines and extra equipment De Los Santos Medical Center (DLSMC), consistent with its like drop lights, infusion pumps, anesthesia machine, ultrasound machine, mission of serving the “health and wellness needs of the community, ECGs, laboratory refrigerator, operating room equipment, defbrillators and and the society as a whole”, is actively involved in corporate social laboratory equipment. responsibility (CSR) activities, such as medical missions, tree-planting, AHMC is also organizing a ‘Toy Drive’ for children living in Leyte and the like, which highlight its commitment to bring its quality care to uplift their spirits and help cease their trauma from the typhoon and expertise to the underprivileged in the society. devastation along with psychological and psychiatric assistance project. Aside from its strong CSR culture, DLSMC has also been “We think that the essence of rebuilding LPH is to make them self- consistently tapped to become a partner by prominent companies sustaining. AHMC wants to make this rebuilding LPH continuous. We’ll be and institutions in their respective CSR activities and medical missions. forming a partnership with LPH, visiting them quarterly or semi-annually DLSMC banks on its untarnished reputation of giving holistic, quality to support them and check if everything is still working,” Dr. Ejercito added. and safe care, as well as value-for-money services. Now, LPH is back in operations and accepts patient admissions. In a few weeks, they are also expecting to open their operating MEGACLINIC theater. “In behalf of Leyte, LPH and its staf, I thank Asian Hospital for MEGACLINIC HEALTHCARE ACCESS CARD PROGRAM all their help to us. Words are not enough to express our gratitude MegaClinic believes that everyone should have access to quality especially now that we are once again able to serve people. This healthcare. MegaClinic has started embedding the values of CSR into experience from Typhoon Yolanda taught us how we should prepare the core business of providing healthcare services. By addressing the ourselves on disasters, and also, the dangers of foods and storm needs of below the line employees (i.e. contractual employees) through surges,” said Dr. Absin. the MegaClinic Partner’s Card, win-win outcomes are created to ensure that the people who are more vulnerable in the event of a sickness OTHER CSR PROGRAMS OF ASIAN HOSPITAL INC. THROUGH would be able to seek proper medical attention. Through this initiative, ASIAN CHARITIES, INC. MegaClinic also encourages more companies to take care of the health Asian Hospital Charities , Inc. partnered with the Nagcarlan of their employees. Councilor, Mrs Amelia Malabag-Hernandez to have the 2013 Health Education Outreach Program.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 65 Board of Directors
MANUEL V. PANGILINAN the Year (Philippines) and Best Executive (Philippines) at the 2007 and 2008 Manuel V. Pangilinan, 67 years old, assumed chairmanship of the Board Best-Managed Companies and Corporate Governance Polls conducted by of Metro Pacifc Investments Corporation in March 2006 and remain as such Asia Money. Mr. Pangilinan received the Best CEO award from Finance Asia up to the present. He was appointed as Chairman of the Board of Philippine Magazine (June 2012) and most recently, the Executive of the Year award from Long Distance Telephone Company (PLDT) after serving as its President and the Philippine Sportswriters Association (January 2014). He graduated cum Chief Executive Ofcer from November 1998 to February 2004 and became laude from the Ateneo de Manila University, with a Bachelor of Arts Degree Chairman of the Board of PLDT Communications and Energy Ventures Inc. in Economics and received his Master’s degree in Business Administration (PCEV, formerly Piltel) on 3 November 2004. He also holds chairmanship in from Wharton School of Finance and Commerce, University of Pennsylvania, Manila Electric Company (MERALCO), Smart Communications, Inc., ePLDT, Philadelphia. Inc., Landco Pacifc Corporation, Maynilad Water Services Corporation, Philex Mining Corporation, Metro Pacifc Tollways Corporation, Manila North Tollways JOSE MA. K. LIM Corporation, Medical Doctors, Inc. (Makati Medical Center), Colinas Verdes, Born in the Philippines in April 1952, Mr. Lim graduated from the Ateneo Inc. (Cardinal Santos Medical Center) and Davao Doctors, Inc. Mr. Pangilinan de Manila University, with a Bachelor of Arts degree in Philosophy. He received founded First Pacifc Company, Limited in 1981 and served as its Managing his MBA degree in 1978 from the Asian Institute of Management. Director until 1999. He was appointed as Executive Chairman until June 2003, After graduating from the Asian Institute of Management in Manila, he when he was named CEO and Managing Director. He also holds the position managed a family-owned steel fabrication business until 1987 when he joined of President Commissioner of P.T. Indofood Sukses Makmur Tbk, the largest the National Development Company as a Manager in the Privatization Unit, a food company in Indonesia. Outside the First Pacifc Group, Mr. Pangilinan task force created by and reporting to the Department of Trade and Industry. was a member of the Board of Overseers of the Wharton School of Finance Mr. Lim then worked as a senior ofcer for various local and foreign & Commerce, University of Pennsylvania. He is Chairman of the Board of banking institutions from 1988 to 1995. He was Director for Investment Trustees of San Beda College. He also serves as Chairman of PLDT-Smart Banking of the First National Bank of Boston from 1994 to 1995, and prior to Foundation, Inc. and the Philippine Business for Social Progress. He also that, Vice President of Equitable Banking Corporation. In 1995, Mr Lim joined serves as Vice Chairman of the Foundation for Crime Prevention, a private Fort Bonifacio Development Corporation (FBDC) as Treasury Vice President sector group organized to assist the government with crime prevention, and eventually was appointed Chief Finance Ofcer in 2000. With the onset and a member of the Board of Trustees of Caritas Manila and Radio Veritas of the Asian fnancial crisis and the subsequent divestment of controlling Global Broadcasting Systems, Inc. In February 2007, he was named the interest in FBDC, Mr. Lim assumed the position of Group Vice President and President of the Samahang Basketball ng Pilipinas, a newly formed national Chief Finance Ofcer of FBDC’s parent company, Metro Pacifc Corporation sport association for basketball, and efective January 2009, he assumed (MPC) on a concurrent basis from 2001 to 2003. He was then elected President the chairmanship of the Amateur Boxing Association of the Philippines, the & CEO of MPC in June 2003. In 2006, MPC was reorganized into Metro Pacifc governing body of the amateur boxers in the country. In December 2013, Investments Corporation (MPIC), where he continues to serve as President Roxas Holdings, Incorporated, the largest sugar producer in the Philippines, & CEO. Aside from MPIC he is also currently a Director in the following MPIC announced the election of Mr Pangilinan as Vice Chairman of its Board of subsidiary and afliate companies: Beacon Electric Asset Holdings Inc.; Manila Directors. Mr. Pangilinan has received numerous prestigious awards including Electric Company Metro Pacifc Tollways Corporation; Manila North Tollways the Ten Outstanding Young Men of the Philippines Award for International Corporation, Tollways Management Corporation, Maynilad Water Services, Finance (1983), the Presidential Pamana ng Pilipino Award by the Ofce of the Inc., Indra Philippines Inc. Medical Doctors, Inc. (owner and operator of Makati President of the Philippines (1996), Honorary Doctorate in Humanities by the Medical Center), Cardinal Santos Medical Center (Colinas Verdes Hospital San Beda College (2002), Best CEO in the Philippines by Institutional Investor Managers Corporation) Our Lady of Lourdes Hospital. He serves as Chairman (2004), CEO of the Year (Philippines) by Biz News Asia (2004), People of the of Davao Doctors Hospital (Clinica Hilario) Inc., Asian Hospital and Riverside Year by People Asia Magazine (2004), Distinguished World Class Businessman Medical Center in Bacolod. Mr. Lim is also President of the Metro Strategic Award by the Association of Makati Industries, Inc. (2005), Management Infrastructure Holdings, Inc. (MSIHI) which holds a minority ownership in Man of the Year by the Management Association of the Philippines (2005), Citra Metro Manila Tollways Corp. (Skyway). He is active in the Management Order of Lakandula (Rank of a Komandante) by the Ofce of the President Association of the Philippines and has served as Vice-Chair of the Good of the Philippines (2006), and Honorary Doctorate in Humanities by the Governance Committee from 2007 to 2009. He is a founding member and Xavier University (2007). He was voted as Corporate Executive Ofcer of Treasurer of the Shareholders Association of the Philippines.
66 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 This page, front row, from left to right: JOSE MA. K. LIM - President and Chief Executive Ofcer, MANUEL V. PANGILINAN - Chairman of the Board, DAVID J. NICOL - Chief Financial Ofcer. Second row, from left to right: VICTORICO P. VARGAS - Executive Director, RAMONCITO S. FERNANDEZ - Executive Director, AUGUSTO P. PALISOC, JR. - Executive Director, EDWARD A. TORTORICI - Executive Director and Executive Advisor, ROBERT C. NICHOLSON - Executive Director.
67 This page, front row, from left to right: WASHINGTON Z. SYCIP - Independent Director, LYDIA BALATBAT-ECHAUZ - Independent Director, EDWARD S. GO - Independent Director. Second row, from left to right: ANTONIO A. PICAZO - Director and Corporate Secretary, ALBERTO G. ROMULO - Board Advisor, ARTEMIO V. PANGANIBAN - Independent Director, RAY C. ESPINOSA - Director, ALFRED A. XEREZ BURGOS, JR. Board Advisor, AMADO R. SANTIAGO III - Director.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 68 DAVID J. NICOL ROBERT C. NICHOLSON Accomplished and versatile business leader having successfully Mr. Nicholson is a graduate of the University of Kent, qualifed as held CEO and CFO positions in a wide range of industries in Europe a solicitor in England and Wales and in Hong Kong. He is an Executive and Asia. Voted by Institutional Investor as the top Conglomerate CFO Chairman of Forum Energy Plc, a Commissioner of PT Indofood Sukses all Asia in 2012 and 2013. Makmur Tbk and a Director of Metro Pacifc Investments Corporation, Mr. Nicol began his career with PricewaterhouseCoopers where Philex Mining Corporation and Philex Petroleum Corporation. Mr. he served for 10 years in London, New York and Hongkong. He joined Nicholson is also an Independent Non- Executive Director of Pacifc First Pacifc Company Limited in 1991 and in 1994 moved to their Thai Basin Shipping Limited and Lifestyle Properties Development Limited. afliate Berli Jucker PCL where he served as CFO until 1998 and then Previously, he was a senior partner of Reed Smith Richards Butler from as Group CEO until 2002 when First Pacifc exited Thailand. 1985 to 2001 where he established the corporate and commercial From 2002 until 2010 when Mr. Nicol joined MPIC, he held department, and was also a senior advisor to the board of directors positions as CEO Europe and Asia for SIRVA, Inc., CEO of Pinnacle of PCCW Limited between August 2001 and September 2003. Mr. Regeneration group and as a director of Reconomy Limited in the Nicholson has wide experience in corporate fnance and cross- UK’s waste and recycling sector. He has a consistent record of building border transactions, including mergers and acquisitions, regional shareholder value through operational improvement, restructuring, telecommunications, debt and equity capital markets, corporate mergers and acquisitions and entering new markets. reorganizations and privatization in China. Mr. Nicholson joined First Pacifc’s Board in 2003. EDWARD A. TORTORICI Age 74, born in the United States. Mr. Tortorici received a Bachelor AUGUSTO P. PALISOC JR. of Science from New York University and a Master of Science from Augusto P. Palisoc Jr. has been with the First Pacifc group of Fairfeld University. Mr. Tortorici has served in a variety of senior and companies for over 30 years. He is currently an Executive Director of executive management positions, including Corporate Vice President for Metro Pacifc Investments Corporation (MPIC) and is the President & Crocker Bank and Managing Director positions at Olivetti Corporation of Chief Executive Ofcer of the MPIC Hospital Group. He is a Director America and Fairchild Semiconductor Corporation. of Medical Doctors, Inc. (owner and operator of the Makati Medical Mr. Tortorici subsequently founded EA Edwards Associates, an Center), Colinas Verdes Hospital Managers Corporation (operator of international management and consulting frm specializing in strategy the Cardinal Santos Medical Center), East Manila Hospital Managers formulation and productivity improvement with ofces in USA, Corporation (operator of the Our Lady of Lourdes Hospital), Asian Europe and Middle East. In 1987, Mr. Tortorici joined First Pacifc as an Hospital Inc., De los Santos Medical Center, MegaClinic Inc., Riverside Executive Director for strategic planning and corporate restructuring, Medical Center Inc. and Riverside College Inc. in Bacolod, Davao and launched the Group’s entry into the telecommunications and Doctors Hospital (Clinica Hilario) Inc. and Davao Doctors College, Inc., technology sectors. Presently, he oversees corporate strategy for and Central Luzon Doctors Hospital in Tarlac. Prior to joining MPIC, First Pacifc and guides the Group’s strategic planning and corporate he was the Executive Vice President of Berli Jucker Public Company development activities. Mr. Tortorici serves as a Commissioner of Limited in Thailand from 1998 to 2001. Mr. Palisoc served as President PT Indofood Sukses Makmur Tbk and as Director of Metro Pacifc and CEO of Steniel Manufacturing Corporation in the Philippines from Investments Corporation, Philex Mining Corporation, Maynilad Water 1997 to 1998. He has held various positions within the First Pacifc Services, Inc., FEC Resources Inc. of Canada and AIM-listed Forum group as Group Vice President for Corporate Development of First Energy Plc. Pacifc Company Limited in Hong Kong, and Group Managing Director Mr. Tortorici serves as a Trustee of the Asia Society Philippines and of FP Marketing (Malaysia) Sdn. Bhd. in Malaysia. Before he joined First is on the Board of Advisors of the Southeast Asia Division of the Center Pacifc in 1983, he was Vice President of Monte Real Investors, Inc. in for Strategic and International Studies, a Washington D.C. non-partisan the Philippines. Mr. Palisoc earned his Bachelor of Arts Degree, Major in think tank. He also served as a Commissioner of the U.S. ASEAN Economics (with Honors) from De La Salle University, and his Master’s Strategy Commission. in Business Management (MBM) Degree from the Asian Institute of Management. Mr. Palisoc was born in January 1958.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 69 70 RAMONCITO S. FERNANDEZ In the feld of sports, he currently holds the position of President for the Ramoncito S. Fernandez is the President & Chief Executive Ofcer of Metro Amateur Boxing Association of the Philippines. He was elected Vice-Chairman Pacifc Tollways Corp. (MPTC) and Tollways Management Corporation (TMC) for the Samahang Basketbol ng Pilipinas, Inc., the national sports association under Metro Pacifc Investments Corporation (MPIC). He holds directorships in for the Philippine Basketball, a member of the Philippine Olympic Commission Metro Pacifc Investments Corporation (MPIC), Metro Pacifc Tollways Corporation and international Basketball Federation. He holds the position of Alternate (MPTC), Manila North Tollways Corporation (MNTC), Tollways Management Governor of the Philippine Basketball Association, the nation’s professional Corporation (TMC), Cavitex Infrastructure Corp., PEA Tollway Corp., and some basketball league. subsidiaries of PLDT including PLDT Subic Telecom, Inc., PLDT Clark Telecom, Inc., TAHANAN and Pacifc Global One Aviation Company, Inc.. ANTONIO A. PICAZO He is the 2009 PISM GAWAD SINOP Awardee, the highest award conferred Antonio A. Picazo is currently the Senior Partner of Picazo Buyco Tan Fider & by the Foundation of the Society of Fellows in Supply Management and the Santos Law Ofces. He serves as a Director and/or Corporate Secretary of several Philippine Institute for Supply Management to outstanding achievers in the large Philippine corporations, including Metro Pacifc Investments Corporation, a feld of supply management Mr. Fernandez has varied experiences in logistics, position he has held since 2006. Mr. Picazo was born in Manila in August of 1941 materials management, international carrier business, administration and and obtained his Bachelor of Laws degree from the University of the Philippines. materials management, industrial marketing and sales. He was the Head of He passed the 1964 Philippine Bar Examinations with the 5th highest rating. In International and Carrier Business of PLDT and Smart and Global Access Group 1967, he obtained a Master of Laws degree, Major in Taxation from the University of Smart from 2007 until 31 December 2008. He was the Administration and of Pennsylvania. In 1976, he also completed the Management Development Materials Management Head of Smart from 2000, and of PLDT from 2004, until 31 Program course at the Asian Institute of Management. He is currently also a December 2007. He was the Executive Vice President in charge of marketing, sales member of the Board of the PGH Medical Foundation, Haribon Foundation and and logistics of Starpack Philippines, Inc. until June 2000. Mr. Fernandez obtained the Gerry Roxas Foundation. his Bachelor of Science Degree in Industrial Management Engineering from the De La Salle University and Master’s Degree in Business Management from the RAY C. ESPINOSA Asian Institute of Management. Age 59, born in the Philippines. Mr. Espinosa has a Master of Laws degree from the University of Michigan Law School and is a member of the Integrated VICTORICO P. VARGAS Bar of the Philippines. He was a partner of SyCip Salazar Hernandez & Gatmaitan Mr. Victorico P. Vargas is the President and CEO of Maynilad. He formally took from 1982 to 2000, a foreign associate at Covington and Burling (Washington, over the position in August 2010. He is a director of Metro Pacifc Investments D.C., USA) from 1987 to 1988, and a law lecturer at the Ateneo de Manila Corporation, Metropac Water Investments Corporation, and director and School of Law from 1983 to 1985 and 1989. He is a Director of Philippine Long Chairman of Philippine Hydro, Inc., member of the Executive Committee of the Distance Telephone Company (“PLDT”), Meralco PowerGen Corporation, Manila First Pacifc Leadership Academy, trustee of the MVP Sports Foundation, Inc. and Electric Company (“MERALCO”), and Metro Pacifc Investment, Corporation, trustee of IdeaSpace Foundation, Inc. Prior to his appointment, Mr. Vargas was the Mediaquest Holdings, Inc., ABC Development Corporation (“TV5”), Mediascape, Senior Vice President for the Human Resources Group and Head of the Business Inc. (“Cignal”), an Independent Director and Chairman of the Audit Committee Transformation Ofce of the Philippine Long Distance Telephone Company of Lepanto Consolidated Mining Company and a Director and the Vice (PLDT), the nation’s no. 1 telecommunications entity. Chairman of Philweb Corporation. He is the General Counsel of MERALCO and Mr. Vargas was also designated to head the International & Carrier Business Head of PLDT’s Regulatory Afairs and Policy Ofce. He is also a trustee of the Group (ICBG) of PLDT in 2007, managing the business relations with foreign and Benefcial Trust Fund of PLDT. Mr. Espinosa joined First Pacifc in June 2013. He domestic carriers and other telecom entities. He was responsible for reviewing is First Pacifc Group’s Head of Government and Regulatory Afairs and Head of the overall business environment in foreign and domestic telecom markets and Communications Bureau for the Philippines. determining strategic areas and initiatives to optimize business potentials. He managed the formulation, development, alignment and implementation of the AMADO R. SANTIAGO III company’s strategies to address customer requirements of international and Amado R. Santiago III is the Managing Partner of the Santiago & Santiago domestic carriers. Law Ofces and is engaged in the general practice of law. He specializes in In 2003, he was also appointed supervision over Asset Protection and corporate litigation, which includes corporate rehabilitation proceedings under Management Group responsible for Property Management, Risk Management the Securities and Exchange Commission Rules on Corporate Recovery, Interim (Insurance) and Facilities Management. Before joining PLDT in 2000, he had Rules of Procedure on Corporate Rehabilitation and the Rules of Procedure on 12 years of experience in the banking industry – Citibank; 13 years in other Corporate Rehabilitation, as well as taxation law. He acts as director, corporate consumer multinational companies, notably Colgate- Palmolive Philippines, secretary, and/or corporate counsel of various corporate clients. He graduated Union Carbide and Pepsi Cola. from the Ateneo de Manila School of Law in 1992 and passed the Philippines
70 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Bar Examinations given in the same year. He received his degree of Bachelor of School of Business, Associate Director of the MBA program of the Ateneo de Science in Legal Management in 1988 from the Ateneo de Manila University. Manila University Graduate School of Business, and Associate Professor of the University of the East, College of Business Administration. She is currently a EDWARD S. GO (INDEPENDENT DIRECTOR) member of the Board of a few organizations, member and former governor Edward S. Go currently serves as Chairman of the Board of Hyundai Asia of the Management Association of the Philippines, and past President of the Resources, Inc. and of ASA Philippines Foundation. He is an Independent Director Association of Southeast Asian Institutions of Higher Learning, RP Council. of Metro Pacifc Investments Corporation, PLDT Communications and Energy She has been awarded most outstanding Filipino and also most distinguished Ventures, Inc. (PCEV) and Filipino Fund Inc. He is also Chairman of the PLDT alumna of ADMU, DLSU, and St. Theresa’s College. Benefcial Trust Fund and member of the Board of BTF Holdings Inc, Mediaquest Holdings, Inc., TV5 Network, Inc. (formerly ABC Development Corporation), WASHINGTON Z. SYCIP (INDEPENDENT DIRECTOR) Cignal TV, Inc. (formerly Mediascape Inc.), BusinessWorld Publishing Corporation, Mr. Washington SyCip is the founder of the SGV Group. He is the AB Capital Investment Corporation, Vicsal Investment Corporation and Union Chairman Emeritus of the Board of Trustees and Board of Governors of the Galvasteel Corporation. He has over 40 years of management experience in Asian Institute of Management, Philippines and a member of the Board of banking and fnance, starting as Executive Trainee with Citibank N.A. and became Overseers of the Columbia University Graduate School of Business, New York. President of Philippine Bank of Communications in 1974 and Chairman and Chief He is a counselor in the Conference Board, a member of the International Executive Ofcer of Chinabank in 1985. Mr. Go is also Chairman of the Audit Advisory Board, Council on Foreign Relations (1995-2010) and an Honorary Committee of MPIC and PCEV. He obtained his Bachelor of Arts Degree, magna Life Trustee of The Asia Society-all in New York. He is a member of the Board of cum laude, and underwent postgraduate studies at the Ateneo de Manila Directors of a number of major corporations in the Philippines and other parts University, where he currently serves as Chairman of the Board of Trustees. of the world.
CHIEF JUSTICE ARTEMIO V. PANGANIBAN (INDEPENDENT DIRECTOR) ALFRED A. XEREZ-BURGOS, JR. A consistent scholar, retired Chief Justice Panganiban obtained his Alfred A. Xerez-Burgos, Jr. is presently Vice-Chairman and Executive Associate in Arts “With Highest Honors” and later his Bachelor of Laws with “Cum Director of Landco Pacifc Corporation, a position he assumed as of March 2009. Laude” and “Most Outstanding Student” honors. He placed sixth among 4,200 He was previously President, CEO and Chairman of the Executive Committee of candidates who took the 1960 bar examinations. A well-known campus leader, the corporation starting 1990, after previously working with a major property he founded and headed the National Union of Students of the Philippines. He is company for nearly 20 years. He is also the President of Club Punta Fuego, also the recipient of several honorary doctoral degrees. Inc., a world class development in Nasugbu, Batangas, as well as the President In 1995, he was appointed Justice of the Supreme Court, and in 2005, Chief of Forest Lake Development Inc., a national provider of frst-class memorial Justice of the Philippines. Aside from being a prodigious decision writer, he also parks. Mr. Xerez- Burgos also serves as Chairman of the Philippine Red Cross authored eleven books while serving on the highest court of the land. His judicial Rizal Chapter, the largest Red Cross chapter in the country, and as a Board philosophy is “Liberty and Prosperity Under the Rule of Law.” He believes that Member of the Muntinlupa Development Foundation that has been helping the legal profession and the judiciary must not only safeguard the liberty of our the underprivileged of Muntinlupa for over two decades. He earned a Masteral people but must also nurture their prosperity and economic well-being. To him, Degree in Business Management with Distinction from the Asian Institute of justice and jobs, ethics and economics, democracy and development, nay, liberty Management in 1971. Prior to this, he graduated among the top 25% of his and prosperity must always go together; one is useless without the other. On his class from the De La Salle University in 1969 (Bachelor of Science in Mechanical retirement on 7 December 2006, his colleagues acclaimed him unanimously as Engineering). the “Renaissance Jurist of the 21st Century.” Prior to entering public service, Chief Justice Panganiban was a prominent practicing lawyer, law professor, business ALBERTO G. ROMULO entrepreneur, civic leader and Catholic lay worker. He was the only Filipino Alberto G. Romulo, presently Advisor to the Board and Vice Chairman of appointed by the late Pope John Paul II to be a member of the Vatican-based Manila Bulletin. Served government almost 30 years, as among others, Senator Pontifcal Council for the Laity for the 1996-2001 term. At present, he is a much and Majority Leader, Executive Secretary, Secretary of Finance, Budget Minister, sought-after independent director and adviser of business frms, and writes a Secretary of Foreign Afairs, Member Batasan Pambansa. Authored, among column in the Philippine Daily Inquirer. others, New Central Bank Act (RA 7653), Social Security Act (RA 8282) Veterans Pension (RA 6948), Philippine Veterans Bank (RA7169), Military Benefts (RA LYDIA BALATBAT-ECHAUZ (INDEPENDENT DIRECTOR) 7696). He also introduced the DFA E-Passport. Lydia Echauz is recently retired from academe. She was for ten years President of Far Eastern University and its three other afliate schools. Prior to joining FEU in 2002, she served as Dean of De La Salle University Graduate
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 71 Senior Executives
MAIDA B. BRUCE REYMUNDO S. COCHANGCO JOSE NOEL C. DE LA PAZ MELODY M. DEL ROSARIO Vice President Chief Financial Ofcer Director for Business Vice President Group Controller Hospital Group Development Hospital Group Public Relations and Corporate Communications
MABINI F. PABLO ALBERT W. L. PULIDO ROBIN MICHAEL L. VELASCO SANTHEA V. DELOS SANTOS Vice President Vice President Vice President Assistant Vice President Government Relations Investor Relations Human Resources Finance
72 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 MAIDA B. BRUCE Ms. Bruce joined MPIC in November 2009 and is responsible for strengthening and overseeing the Financial Reporting, Budgeting & Forecasting and System enhancements processes. Prior to joining MPIC, Maida held a CFO role with Ayala Land Inc. (ALI) and was responsible for overseeing the fnancials of ALI’s Strategic Landbank Management Group including its other subsidiaries. She has more than 13 years of extensive experience in the banking industry under Citigroup Australia and Manila. She was VP for Special Purpose Vehicles under the Financial Control Department of Citigroup Australia and has handled several roles and responsibilities also in Citibank Manila. She was part of a pioneer team that implemented, supported and continuously upgraded a proprietary global fnancial reporting system to multiple countries in the Asia-Pacifc region.
REYMUNDO S. COCHANGCO Mr. Cochangco has over 20 years of experience in fnance, treasury, controllership, audit and business operations and held various senior FERDINAND G. INACAY ATTY. JOSE JESUS G. LAUREL Vice President Vice President positions within the Metro Pacifc and PLDT Groups such as CFO of Colinas Business Development Legal Verdes Hospital Managers Corporation, VP for Corporate Development of Fort Bonifacio Development Corporation, CFO of SPI Technologies, Inc., President and CFO of Stradcom Corporation, and Comptroller & Treasurer of Philippine Cocoa Corporation. He also worked at SGV & Co. He holds a Bachelor of Science degree in Business Administration and is a Certifed Public Accountant.
JOSE NOEL C. DE LA PAZ Mr. de la Paz joined MPIC in 2007 and is responsible for the investment initiatives of MPIC for its healthcare portfolio, starting from origination, deal structuring and negotiation, and all the way to due diligence and deal completion through documentation. He deal managed 7 of the 8 hospitals currently invested in by MPIC, and post-deal, assists in overseeing the management of the hospitals. He has over 20 years of investment banking experience, arranging debt and equity fnancings and rendering fnancial advisory services. Prior to joining MPIC, he was the Philippine Deputy Country Head for New York-based Bankers Trust Company that originated and lead managed global bond oferings and bank loan syndications, and worked on advisory engagements for major project fnancings in the country. He brings this Corporate Finance experience in setting up bank working capital lines, syndicating term loan OSLEC G. LOPEZ LOUDETTE M. ZOILO Assistant Vice President Assistant Vice President facilities and managing equity rights oferings of the hospitals. Corporate Planning Head Human Resources & Chief of Staf
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 73 Senior Executives
MELODY M. DEL ROSARIO MABINI F. PABLO Ms. Del Rosario has been with the Metro Pacifc Group since EQ Pablo’s role at MPIC involves initiating critical liaising initiatives 1993, and has over 21 years of experience in the feld of public and that allows the Company and its government partners to meet shared media relations, corporate communications, advertising and corporate objectives in increasingly meaningful ways. His tasks involve providing social responsibility. Ms. del Rosario is in charge of strengthening strategic input to MPIC on government’s national goals in diverse the credibility and corporate public image of MPIC by planning and sectors, securing government approval for new projects as well as for overseeing the implementation of strategic corporate communication operational matters, expanding MPIC’s network of partner agencies, programs, reputation and crisis management as well as working obtaining government counterpart funding, guiding responses to closely with the corporate communication teams of the group. Ms. new legislative developments, negotiating with national and local del Rosario is also the Corporate Information Ofcer of MPIC for the government units, and leading problem-solving eforts for diferent Philippine Stock Exchange and is a Trustee of the MPIC Foundation operational issues concerning government. Prior to joining MPIC, where she actively implements programs on education, economic Mr. Pablo supported Metro Pacifc Tollways Corporation as Senior empowerment and environmental awareness. Advisor for similar government relations undertakings. He was also the Undersecretary for Administration and Finance, Department of Public FERDINAND G. INACAY Works and Highways (DPWH) from1994 to 2003. He was a career public Mr. Inacay joined MPIC in July 2010 and his focus is to pursue servant, having served under 10 DPWH Secretaries and 5 Presidents in the various transport infrastructure related projects. He liaises with positions including Special Assistant to the Minister, Assistant Secretary, project proponents from the government‘s implementing agencies of and Undersecretary of the DPWH. Mr Pablo’s extended membership projects rolled-out under the PPP program. He undertakes operations in the DPWH Executive Committee as well as in the boards of major evaluation and analysis. His work involves bid development and bid government infrastructure corporations such as the Philippine Ports strategy development, enterprise and operational review, developing Authority, Philippine National Railways, Light Rail Transit Authority, Toll project contacts in the diferent levels of the project organization Regulatory Board, and the Cabinet Assistance System has led to his and identifying and establishing working relationships with potential direct and intense involvement in diverse policymaking issues, and has partners for the venture. Prior to MPIC, he worked for 14 years with helped him develop the strategic perspective that he holds today. He Asian Terminals, Incorporated. He is a transport professional with over was recently elected as Governor of the Philippine Red Cross, where 20 years of collective experience in the management and operations of he explores how businesses can contribute to national well-being not the various modes of transport and transport facilities. He was a former through limited notions of community service but through private Director of the Philippine Corn Board, an organization established companies’ utilization of their core strengths and assets in assisting in under the ofce of the President of the Philippines. Mr. Inacay is also major humanitarian eforts. a member of the Cold Chain Association of the Philippines. In 2013, Mr. Inacay is currently taking-up Corporate Finance with the New York ALBERT W. L. PULIDO Institute of Finance. Albert has managed the Investor Relations function at Metro Pacifc Investments Corporation since the middle of 2009. In that span of time ATTY. JOSE JESUS G. LAUREL he and his team have managed the transition - from an IR perspective Prior to joining MPIC, Atty. Laurel was Vice President, General Counsel - to a truly public company via a public share re-launch in September and Corporate Secretary for Petron Corporation. Before working for Petron, 2009, increased the number of analysts covering the stock from 3 to 16, he was Vice President for Corporate Services of Energy Development managed updates to investors on a primary share issuance of US$200 Corporation where he headed Legal, HR, Purchasing, Planning and million in July 2011 and US$150 million in January 2013, and coordinated Finance. He graduated from Ateneo de Manila with degrees in A.B. over 500 investor meetings over the past two years. Prior to MPIC, Albert Economics and Law. He also has a Masters of Laws from Yale University. was with the NY ofces of Lehman Brothers (now Barclays Capital) from 2003 to 2008 in various capacities including: Creditor Relations, Financial Planning & Analysis, Rating Agency Relationships and Consumer Deposit
74 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Platform Development. Before this, he served as a business development OSLEC G. LOPEZ ofcer for a couple of Philippine banks originating corporate clients. He Mr. Lopez joined MPIC in June 2012. His responsibilities include has an MBA from Erasmus University and is a graduate of De La Salle Business Development and Project Management for the MPIC Hospital University with a Bachelor of Science degree. Group. Prior to this he also did Project Management for Special Projects under the Ofce of the President & CEO and was involved in strategic ROBIN MICHAEL L. VELASCO planning by driving the implementation and monitoring of corporate Mr. Velasco joined the company in July 2009 and is responsible for strategies. He coordinated with the various Operating Companies to ensuring that MPIC and all its subsidiaries and future acquisitions have monitor for the CEO their alignment with agreed key action plans and the right People Strategies to support the growth required to achieve monitored their performance versus set metrics. Mr. Lopez had 16 business plans. He has also improved the Performance Management and years of banking experience before joining MPIC. Up to June 2010 he Rewards system to ensure a culture of performance driven meritocracy. He was Executive Vice President of EastWest Banking Corporation. Prior to led the creation of an HR Council which is an organization of all HR Heads that he spent 7 years in Security Bank Corporation and was First Vice in the First Pacifc Group. He brings with him 24 years of management President in charge of setting up the Fixed Income Securities Division. experience garnered from Global Multinationals such as Procter & Gamble, In 2003, he completed his Executive MBA from the Asian Institute of Johnson & Johnson and Synovate. He has been exposed to various facets Management and graduated with Distinction. of management which includes Finance, Supply Chain, Manufacturing, Research & Development, Technical Services, Market Research, Quality LOUDETTE M. ZOILO Assurance and HR Management. He spent the last 5 years of his Ms. Maliksi-Zoilo joined MPIC in September 2009. She provides career prior to MPIC in Singapore as HR Director for Asia Pacifc, Talent substantial support to the Head of MPIC HR in managing MPIC and its Management for Johnson & Johnson, and then as HR Director for Asia for subsidiaries’ People Strategies. She has been instrumental in managing Synovate, leading 12 Asian countries in all HR aspects. He has also spent and improving the MPIC organization as well as in setting up the HR 6 years of his career as a Professor of the Graduate School of Business and Council Team, composed of HR Heads of all MVP group of companies. the Business Management Dept. of La Salle where he taught Strategic She brings with her 15 years of Human Resources experience, gained Management, Ethics, Stock Market Trading, Production Management and from PricewaterhouseCoopers where she was a Manager of the Global HR Management. Human Resources Solutions team, an HR Consulting team of the frm which services a vast array of industries including but not limited SANTHEA V. DELOS SANTOS to, Utilities, Consumer, Banking, Government, NGOs and others. Her Ms. Delos Santos joined the Company in February 2007 and has project exposure included HR Consulting, Risk Management and performed functions like fnancial and management reporting, planning, Process Improvement projects. She was also part of the management analysis and budget. She has over 13 years of experience in fnance and team of Corporate Human Resources Group of Philamlife who oversaw audit where she was exposed to diverse industries including utilities, HR functions of almost 21 afliates where she instituted improvements telecommunication, media, power and shared services. She was part in policies and procedures of the group. Prior to joining MPIC, she of a team who successfully shadowed and backflled one of the most was the HR Head of Jollibee Worldwide Services, a shared-service critical reporting processes in an integrated power company in North organization of the Jollibee Group of Companies. America and migrated these processes to the Philippines. She worked as well with a group of companies where she implemented process improvements in its consolidation and reporting system, migrated their accounting system and helped in getting ISO certifcation for processes of a holding company. She also worked with SGV and Co. where she gained her audit experience. With her diverse and extensive experience in Finance, she has been involved in helping senior management craft investment and funding strategies for the Company. She holds a Bachelor of Science with a degree in Accountancy and is a Certifed Public Accountant
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 75 KEY OFFICERS
MAYNILAD TOLLROADS
VICTORICO V. VARGAS RANDOLPH T. ESTRELLADO RAMONCITO S. FERNANDEZ RODRIGO E. FRANCO President and Chief Executive Chief Financial Ofcer President and Chief Executive President Ofcers Ofcer MNTC MPTC, TMC
MERALCO HOSPITAL GROUP
OSCAR S. REYES BETTY C. SIY-YAP AUGUSTO P. PALISOC, JR. JOSE NOEL C. DE LA PAZ President and Chief Chief Financial Ofcer President and Chief Executive Director for Business Executive Ofcer Ofcer Development
76 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 HOSPITAL KEY OFFICERS
MAKATI MEDICAL CENTER
ROSALIE RONALD BASAS BENJAMIN MONTENEGRO Chief Financial Ofcer* ALIMURUNG President and Chief Medical Director Executive Ofcer DAVAO DOCTORS HOSPITAL
CHRISTOPHER C. LIZO Chief Financial Ofcer MPTC
RAYMUND DEL VAL MA. LUZ BUENO NOEL VILLANUEVA President and Chief Chief Financial Ofcer Medical Director Executive Ofcer
RIVERSIDE MEDICAL CENTER
REYMUNDO S. COCHANGCO Chief Financial Ofcer GENESIS GOLDI SOCCORO VICTORIA JOSE MARIA CORUÑA GOLINGAN DE LEON Medical Director President and Chief Chief Financial Ofcer Executive Ofcer
*Until August 2013
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 77 HOSPITAL KEY OFFICERS
CARDINAL SANTOS MEDICAL CENTER OUR LADY OF LOURDES HOSPITAL
PILAR NENUCA ELIZABETH DANTES ZENAIDA UY LEILA HERNANDEZ EMELITA LIGAN JOSE CHRISTOPHER ALMIRA Chief Financial Ofcer Medical Director President and Chief Chief Financial Ofcer SANCHEZ President and Chief Executive Ofcer Medical Director Executive Ofcer ASIAN HOSPITAL DE LOS SANTOS MEDICAL CENTER
ANDRES LICAROS GRACE ABA JUAN LUCAS ROSAS RAUL PAGDANGANAN AUGUSTO CARASIG NICO DE LOS SANTOS President and Chief Chief Financial Ofcer Medical Director President and Chief Chief Financial Ofcer Medical Director Executive Ofcer Executive Ofcer
CENTRAL LUZON DOCTORS HOSPITAL MEGACLINIC
FERDINAND FRANCIS ORNIDA CALMA GODOFREDO JOSE NOEL DE LA PAZ MARITESS BO-OT MARILEN GONZALES MA. DL. CID Chief Financial Ofcer DUNGCA, III President General Manager Finance Manager President and Chief Medical Director Executive Ofcer
78 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Corporate Governance
Corporate Governance at MPIC is defned as the framework we use FOR SHAREHOLDERS to ensure the following: We keep a running two-way dialogue with shareholders. We keep minority shareholders abreast of developments and any changes Internal Standards to strategy. From the over 300 meetings we have had with them 1. Long-term strategy is for the beneft of all stakeholders – in 2013, we aggregate their concerns and bring those up to Senior with shareholders at the forefront Management and our Board for review. Although we do not run 2. Align the interests of management with shareholders our company via focus group discussions, these concerns are taken into consideration when we implement our strategy. In the process, 3. Sufcient Board oversight of management’s tactical management is given aggressive targets and is required to provide implementation constant updates in order to measure progress and quickly address any concerns. They are evaluated against those targets and compensation External Evaluation is driven by a mixture of core income progression and share price 1. Clearly communicate strategy and business drivers to equity performance. analysts and shareholders 2. Join organizations to benchmark versus best practices and peers FOR MANAGEMENT Having clear moral guidelines, aggressive targets and a Our commitment to Corporate Governance is borne out transparent culture make for a fertile ground to nurture and sustain of our belief in its importance to our success. We invest in and talent. Cream rises to the top and self-policing becomes the norm manage companies that provide basic services and are, to one as everyone is incentivized to push the company forward and keep extent or another, regulated by Government. Because of this, we stakeholders happy. and our investee companies operate under intense government We have continuously done several initiatives to improve access and public scrutiny. In addition, our situation is diferent to most to information and strengthen processes for our shareholders. To companies listed in developed markets. We have a majority improve access to information, we have consistently updated our shareholder who is well represented on our Board of Directors website. Statistics on fnancial and operating information is now more and we therefore put a higher priority on minority shareholder easily viewable for each of our investee companies and we have rights than principal-agent issues between equity holders and included the ability to download historical information. Our Board has management. always reviewed the Risk profle of the Company as well as its portfolio As a result, we have focused on putting together a framework investments. that emphasizes transparency, accountability and integrity. BOARD OF DIRECTORS FOR THE GOVERNMENT AND THE PUBLIC Our Board sets strategy, oversees implementation by All our dealings with Government are in the public domain management and ensures the Company implements a robust and we provide consumers with enough information for them governance framework. It is made up of ffteen members, four of to determine our performance versus service standards. Our whom are independent directors. They represent a wide spectrum companies stand behind their products and take pro-active steps of skills at the highest level (descriptions of each Board member are to rectify any service issues. In addition, we are invested in the included in pages 66 to 71 of this report) and include leaders of each of Country just as much as our companies and we are always pushing our business lines to ensure the Board is in tune with developments in ourselves to take positions that beneft everyone and not just our our portfolio. bottom line.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 79 Corporate Governance
BOARD ATTENDANCE independence. The ARMC also approves the Internal Audit function Director Special Regular Organizational Total and its scope of work. Director (6) (4) (1) (11) The ARMC reviews and pre-approves all audit services of our Manuel V. Pangilinan 2 4 1 7 Jose Ma. K. Lim 5 4 1 10 independent and external auditor, Sycip Gorres Velayo & Co. (SGV) David J. Nicol 5 4 1 10 before these services are performed. In connection with this, the Edward A. Tortorici 2 3 1 6 Committee approved the audit and related fees of P23.1 million for Augusto P. Palisoc, Jr. 6 4 1 11 Ramoncito S. Fernandez 4 4 1 9 2013 and P21.6 million in 2012. Victorico P. Vargas 5 4 1 10 The audit fees include the year-end audit and quarterly review Robert C. Nicholson 3 4 0 7 of the Company’s fnancial statements, and other services that are Antonio A. Picazo 6 4 1 11 Ray C. Espinosa 5 4 1 10 normally provided by the independent auditor in connection with Amado R. Santiago III 6 4 1 11 statutory and regulatory flings or engagements. This category Edwardo S. Go 6 4 1 11 also includes advice on audit and accounting matters that arose Artemio V. Panganiban 6 4 1 11 during, or as a result of, the audit or the review of interim fnancial Lydia B. Echauz 6 4 1 11 Washington Z. Sycip 5 3 1 9 statements. It is important to note that during the Company’s recent Several committees have been set-up to help the Board calendar years or any subsequent interim periods, there was no oversee and evaluate the performance of the Company and instance when the Company’s public accountants have resigned management. Each committee is chaired by an Independent or have indicated that they decline to stand for re-election or have Director to ensure impartial execution of each committee’s been dismissed or where the Company had any disagreement with function. its public accountants on fnancial disclosure issues. The ARMC has outsourced its Internal Audit function Corporate Governance Committee – ensures overall governance to Punongbayan and Araullo, who will report directly to the framework is robust and compares favorably with best in class Committee on the soundness and adequacy of the Company’s practices. An integral part of that is the annual review of the internal control processes and procedures. Company’s Manual on Corporate Governance and sponsorship of As part of their oversight of Risk Management, the Committee any improvements for the Board of Directors’ approval. recently appointed Santhea Delos Santos as Chief Risk Ofcer (CRO). For Risk Management, the goal is to identify risk exposures Members Attendance and the steps that need to be undertaken to monitor and Artemio V. Panganiban - Chairman 2/2 mitigate them. The CRO is now conducting a company-wide risk Amado R. Santiago III - Member 2/2 Edward S. Go - Member 2/2 assessment for evaluation by the ARMC in 2014.
Audit and Risk Management Committee (ARMC) – has oversight Members Attendance Edward S. Go - Chairman 4/4 of fnancial reporting, internal controls and risk management of the Lydia B. Echauz - Member 4/4 Company. It is responsible for recommending the external auditor Amado R. Santiago III - Member 4/4 and ensuring that non audit work does not compromise their
80 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Compensation Committee – directly oversees compensation and 2. Finance Asia (April 2014) – 10th Best Managed Companies in the bonus of senior executives and overall compensation framework for Philippines, 6th Best in Corporate Governance and 2nd Best in all employees. They ensure bonus targets are set aggressively and Investor Relations management is motivated for the long term. 3. IR Magazine (December 2013) - 2nd Place for Grand Prix for Best Overall Investor Relations – Small or Mid-cap; 2nd Place for Best Members Attendance Investor Relations by a Philippine Company; 2nd Place for Best Lydia B. Echauz - Chairman 2/2 Edward S. Go - Member 2/2 Investor Relations by a CFO; 3rd Place for Best Investor Relations for Manuel V. Pangilinan - Member 2/2 Diversifed Industrials / Conglomerates
4. The Asset (November 2013) – Gold Award for Excellence in Nomination Committee – responsible for vetting and Management and Corporate Governance recommending members for nomination to the Board of Directors, including membership in the various Board Committees. 5. Institutional Investor (July 2013) - All Asia Executive Team: Conglomerates Sector 1st place for Best CFO Members Attendance 6. Corporate Governance Asia (December 2012) – Asia’s Best CEO; Edward S. Go - Chairman 1/1 Asia’s Best CFO; and Best Investor Relations Website Lydia B. Echauz - Member 1/1 Robert C. Nicholson - Member 1/1 7. Institutional Investor (June 2012) – All Asia Executive Team: Jose Ma. K. Lim - Non Voting Member 1/1 Conglomerates Sector 1st place for Best CFO and IR Professional; 2nd place for Best Investor Relations As we implement our governance framework, we continuously test against best practices and peers by joining organizations 8. Asia Money (January 2012) - #1 for Investor Relations in the focused on Corporate Governance and submitting to outside Philippines and #2 for disclosure and transparency in the Philippines evaluation against our peers and recognized standards. To date we have joined, through our Corporate Governance These citations are an indication that we are following the right Ofcer, the Institute of Corporate Directors (ICD) and the Ethics and path. Rest assured that we are aiming for better performance in the Compliance Ofcers Association (ECOA). These institutions regularly years ahead. meet to discuss current best practices and conduct seminars on developments in Corporate Governance. In addition, our employees have attended various seminars on governance throughout the year in order to expand their knowledge of past misdeeds and potential pitfalls in order to better prepare for any eventuality.
Recent accolades received are: 1. Corporate Governance Asia (April 2014) – Asia’s Best CEO; Asia’s Best CFO; Best Investor Relations Company; and Best Investor Relations Professional
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 81 Whistle-blowing Policy
MPIC is committed to achieving and maintaining the highest 3. Improper conduct or unethical behavior likely to prejudice the standards of openness, probity and accountability. Employees standing of the Corporation
at all levels are expected to conduct themselves with integrity, 4. Breach of legal or regulatory requirements impartiality and honesty. It is every employee’s responsibility and 5. Criminal ofences, breach of civil law and miscarriage of justice in the interest of the Corporation to ensure that any inappropriate behavior that compromise the interest of the shareholders, 6. Endangerment of the health and safety of an individual investors, customers and the wider public does not occur. It is also 7. Damage caused to the environment critical to maintain a good corporate image and raise the standard 8. Deliberate concealment of any of the above of corporate governance of the Corporation. To this end, the Corporation has devised a whistle-blowing policy (the “Policy”). PROTECTION AND CONFIDENTIALITY PURPOSE It is the Corporation’s policy to make every efort treating all The purpose of formulating the Policy is to increase the awareness disclosures in a confdential and sensitive manner after employee of maintaining internal corporate justice and regard this as a kind reports concern about any of the above matters. The individual of internal control mechanism. It provides the employees of the employee making genuine and appropriate allegation under this Corporation with reporting channels and guidance on whistle- Policy is assured of fair treatment. In addition, employees are also blowing. assured of protection against unfair dismissal, victimization or The term “whistle-blowing” refers to a situation where an unwarranted disciplinary action, even if the concerns raised turned employee decides to report serious concerns about any suspected out to be unsubstantiated. misconduct, malpractice or irregularity which he has become Corporation reserves the right to take appropriate actions aware of or genuinely suspects that the Corporation has been or against anyone who initiates or threatens to initiate retaliation may become involved in. This Policy is designed to encourage against those who have raised concerns under this Policy. In employees to raise serious concerns internally, in a responsible and particular, employees who initiate or threaten retaliation will efective manner, rather than overlooking a problem or blowing be subject to disciplinary actions, which may include summary the whistle outside. The content of this Policy is applicable to all dismissal. employees of the Corporation and its subsidiaries in Philippines or Management will support all employees and encourage them outside the Philippines. to raise concerns without fear of reprisals.
POLICY PROCEDURE This Policy is intended to assist individual employees 1. Reporting Channel for the Corporation (permanent or temporary employees) to disclose information An employee who has a legitimate malpractice concern can raise relevant to suspected misconduct, malpractice or irregularity the matter directly with the ofcer of the Corporate Governance through a confdential reporting channel. It is not designed to Committee. The ofcer will review the complaint and decide further any personal disputes, question fnancial or business how the investigation should proceed. Depending on the decisions taken by the Corporation nor should it be used to circumstances, the Corporate Governance Committee may reconsider any staf matters which have been addressed under the consider nominating an appropriate investigating ofcer or set up grievance procedure already in place. Whistle-blowing matters may a special committee to investigate the matter independently. include but are not confned to:– 1. Malpractice, impropriety or fraud relating to internal controls, 2. Reporting Format and Supporting Documentation accounting, auditing and fnancial matters Disclosures can be made in writing or by using the standard form that can be downloaded from the MPIC website. While 2. Violation of the rules and regulations of the Corporation or the the Corporation does not expect the employee to have Code of Business Conduct and Ethics of the Corporation absolute proof or evidence of the misconducts, malpractices
82 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 or irregularities reported, the report should show reasons for right to take appropriate actions against the employee to recover the concerns and full disclosure of any relevant details and any loss or damage as a result of the false report. In particular, the supporting documentation. employee may face disciplinary action, including dismissal, where appropriate. The disclosure should be sent to the Chairman of the Corporate Governance Committee at 10/F MGO Building Legaspi cor Dela ANONYMOUS REPORTS Rosa Streets Makati City, 0721 Philippines in a sealed envelope As the Corporation takes reporting of misconducts, clearly marked “Strictly Private and Confdential – to be opened malpractices, and irregularities seriously and wants to conduct by Addressee Only” to ensure confdentiality, or through sending warranted investigations of both potential and actual violations, emails to [email protected]. Employees it is preferred that these reports are not made anonymously. should ensure all the attachments to the emails should have However, it is recognized that for any number of reasons, passwords in order to ensure confdentiality. Employees are employees may not feel comfortable reporting potential violations required to put their name to any disclosures they make. directly to the Chairman of the Corporate Governance Committee. Anonymous complaints are usually not considered. In these cases, anonymous reports may be submitted to the HR Department. The Company will hold it a serious disciplinary ofence for any person who seeks to prevent a communication of malpractice APPROVAL, IMPLEMENTATION AND REVIEW OF POLICY concerned reaching to the designated person, or to impede any This policy has been approved and adopted by the Board investigation which he or anyone on his behalf may make. of the Corporation. The Corporate Governance Committee has the overall responsibility for implementation, monitoring and 3. Investigation Procedure periodic review of this Policy. In addition, the Audit Committee has The format and length of an investigation will vary depending delegated the day-to-day responsibility for administration of the upon the nature and particular circumstances of each complaint Policy to the Chairman of the Corporate Governance Committee. made. The matters raised may: If you wish to make a written report, please use the report i. be investigated internally; form which is downloadable from the MPIC website. Once ii. be referred to the External Auditor; and/or completed, this report becomes confdential. You may send the iii. form the subject of an independent inquiry report, marked “Strictly Private and Confdential – to be opened by Addressee Only” and addressed to the Chairman of the Corporate The Chairman of the Corporate Governance Committee or the Governance Committee, by post to the relevant address below or person designated to investigate the complaint will write to the by email to “[email protected].” complainant whenever reasonably practicable of the concern being received: To: Chairman of Corporate Governance Committee i. acknowledging that the concern has been received; Metro Pacifc Investments Corporation ii. advising whether or not the matter is to be investigated 10/F MGO Building Legaspi cor. Dela Rosa Streets Makati City, further and if so what the nature of the investigation will be; 0721 Philippines iii. giving an estimate of how long the investigation will take to provide a fnal response telling the complainant whether Your Name/Contact Telephone Number and Email any initial inquiries have been made, and whether further investigation will take place, and if not, why not.
FALSE REPORTS If an employee makes a false report maliciously, with an ulterior motive, or for personal gain, the Corporation reserves the
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 83 Risk Management
As an investment and management company, Metro Pacifc The Company sets the level of debt on its own balance sheet Investments Corporation (MPIC) undertakes risk management at a so as to withstand variability of dividend receipts from its operating number of distinct levels: companies associated with regulatory and other risks described below. 1. on entering new investments; 2. ongoing management of the fnancial stability of the holding 3. RISK MANAGEMENT WITHIN THE OPERATING COMPANIES company itself; and 3. within the operating company investments. Operational Risks Each of the operating companies has a full management team which is responsible for having their own plan to manage risk which 1. ON ENTERING NEW INVESTMENTS is reviewed annually by the MPIC Audit and Risk Management MPIC’s geographic focus is predominantly the Philippines within Committee, together with MPIC’s designated Chief Risk Ofcer, and which its management team has extensive experience. each of the respective operating companies’ board of directors. Prior to making a new investment, any business to be acquired is subject to an extensive due diligence including fnancial, operational, regulatory and risk management. Risks to investment returns are Regulatory then calibrated and specifc measures to manage these risks are The majority of our invested capital is deployed into businesses determined. The Company is highly selective in the investment which are directly regulated by arms of the state: electricity opportunities it examines. Due diligence is conducted on a phased distribution; water supply and distribution along with sewage basis to minimize costs of evaluating opportunities that may ultimately treatment; and tollroads. Each of these businesses has concession not be pursued. or franchise agreements which involve a degree of operating MPIC’s investments involve - to varying degrees - a partnership performance obligation in order to retain our rights and earn our approach with MPIC taking a controlling position and key operating expected returns. In some cases, these agreements provide for partners providing operational and technological input and thereby retrospective assessment of the extent of our overall operational and mitigating risks associated with investing in new business areas. fnancial performance sometimes over a period of years. These partners are equity partners - and having co-invested with the Risks arising from these types of businesses include the potential Company in a particular opportunity, they will participate in the risks for diferences with regulators involving interpretation of the relevant and rewards of the business alongside MPIC. agreements – either during the period in question or in retrospect. Financing for new investments is through a combination of debt To manage these risks, the investee companies have established and/or equity by reference to the underlying strength of the cashfow dedicated regulatory management groups with experienced of the target business and the overall fnancing position of MPIC itself. personnel. Their duty is to manage the relationship with regulators, keep management up-to-date on the status of the relationship and 2. ONGOING MANAGEMENT OF THE FINANCIAL STABILITY OF THE ensure companies are well prepared for any forthcoming regulatory HOLDING COMPANY changes or challenges. MPIC does not guarantee the borrowings of its investee companies and there are no cross default provisions from one Competition and Market investee company to another. Financial stability of the holding Competitive and market-driven demand risks are most company, including its dividend commitment to shareholders, is pronounced in Meralco, MPTC and the Healthcare group. managed by reference to the ability of the investee companies Meralco carries a degree of market risk and its returns in the short to remit dividends to MPIC to cover operating costs and service term may be impacted by consumers who elect to self-generate and borrowings. We avoid currency and investment cycle mismatches by disconnect from the distribution grid. We are mitigating that risk by borrowing only in Pesos using primarily long term instruments with improving efciencies to the point that makes it largely uneconomic to fxed rates. self-generate.
84 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 With the move to Open Access from June 2013, Meralco will Financial take on new risks associated with buying and selling power on its MPIC’s investee companies’ fnancial risks are primarily: interest rate own account instead of on a pass through basis. Meralco has long risk, foreign currency risk, liquidity risk, credit risk and equity price risk. The prepared for this and has an experienced management team already Board of Directors of each company reviews and approves policies for in place to lead this new business. managing each of these risks as follows. Meralco is now also invested in power generation with attendant demand volume and price risks and fuel source price Interest Rate Risk and supply risks. The primary mitigants are contracting to match Interest rate exposure is managed by using a mix of fxed and demand and supply side volumes where possible and employing variable rate debt. higly experienced power market professionals to manage any open positions by trading in the market. Foreign Currency Risk At MPTC we set tarifs on new road projects based on trafc In general the investee companies will place some degree of projections agreed with the regulator. Rising fuel prices, alternative reliance on their regulated return mechanisms to pass through foreign means of transport and existing or prospective alternative routes are currency risk. The current liquidity and depth of the Philippine credit all factors that can afect the number of vehicles that use our roads. market is such that there should be little need for raising new borrowings We alleviate this risk by choosing our projects carefully. in foreign currency. Existing high trafc density, difculty in securing competing routes, Maynilad has some foreign currency borrowing but there is a a high potential for growth given demographic changes and mechanism in place wherein it can recover currency fuctuations as conservative growth estimates, even with the prior factors included approved by its Regulator. in the assessment, are the important variables we consider when Asian Hospital Inc. (AHI) has foreign currency risk arising from its cash committing to trafc projections with the regulator. and cash equivalents; receivables from international insurance companies; For the Hospitals group, investment is taking place to enable and dollar loans. AHI is unable to take on any derivative transaction to more qualifed personnel to better serve patients more efciently hedge these exposures as its loan covenants do not allow it. AHI regularly and efectively in upgraded facilities and with better equipment. reviews and manages its ability to generate dollar-based revenue from its The primary risk is that investment runs ahead of demand and foreign patients to mitigate this risk. patient ability or willingness to pay. We mitigate this risk by ensuring we know our target market and scale our improvements to their Liquidity Risk ability to pay. The pace of medical innovation is accelerating. This Each business monitors its cash position using a cash forecasting requires increased management of the risks that costly equipment system wherein all expected collections, disbursements and other may become out of date before its cost is fully recovered and payments are determined in detail. traditional healthcare delivery models may be disrupted. The water company has some supply side risk in that: (i) Credit Risk it secures almost all of its supply from a single source – the Credit risk is managed by setting limits on the amount of risk Angat dam; and (ii) this water source is shared by another water a business is willing to accept for individual counterparties and by concessionaire, a hydroelectric plant, and the needs of farmers monitoring exposures in relation to such limits. for irrigation. A water usage protocol is in place to ensure all users receive water as expected within the constraints of available Equity Price Risk supply. Following signifcant water supply disruptions in the past Our investee companies are generally not faced with equity price arising indirectly from typhoons, the business has experienced risk beyond that normal for any listed company, where relevant. MPIC’s periods of lower water supply than allowed for in its concession. investment in Meralco, through Beacon Electric, is partly fnanced by We have worked to moderate our reliance on Angat by developing borrowings which require a certain security cover based on the price of the Putatan Water Treatment Plant. However, our regulator does Meralco’s shares on the PSE on a volume weighted 30 trading day average not now wish us to invest further in alternative water sources and calculation. Meralco’s share price would have to decline by 57% from its this means the logical way to mitigate our supply side risk is now price as at 31 December 2013 before Beacon Electric would be required largely prohibited to us. to contribute more collateral with cash or pay-down debt.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 85 Audit and Risk Management Committee Report
The Board of Directors Metro Pacifc Investments Corporation
Further to our compliance with applicable corporate governance laws and rules, we confrm for 2013 that:
• The Audit and Risk Management Committee (ARMC) is composed of three directors, two (2) of whom are independent, as determined by the Board of Directors;
• We had four (4) regular meetings;
• We have reviewed and approved all audit and review services provided by SGV & Co. to MPIC, and the related fees for such services;
• We have discussed with SGV & Co. the matters required to be discussed by the prevailing applicable Auditing Standard, and we have received written disclosures and the letter from SGV & Co. as required by the prevailing applicable Independence Standards (Statement as to Independence) and have discussed with SGV & Co. its independence from the MPIC Group and MPIC Group’s management;
• We have conducted a review of the efectiveness of the Company’s internal control systems. Based on our review and in reliance of our Internal Auditors’ report, we have confrmed that the internal controls of MPIC are adequate and efective.
• In the performance of our oversight responsibilities, we have reviewed and discussed the audited fnancial statements of MPIC Group as of and for the year ended December 31, 2013 with the MPIC Group’s management, which has the primary responsibility for the fnancial statements, and with SGV & Co., the MPIC Group’s independent auditor, who is responsible for expressing an opinion on the conformity of the MPIC Group’s audited fnancial statements with Philippine Financial Reporting Standards (PFRS);
• Based on the reviews and discussions referred to above, in reliance on the MPIC Group’s management and SGV & Co., and subject to the limitations of our role, we recommended to the Board of Directors and the Board has approved, the inclusion of the MPIC Group’s audited fnancial statements as of and for the year ended December 31, 2013 in the MPIC Group’s Annual Report to the Stockholders and to the Philippine Securities and Exchange Commission (SEC) on Form 17-A; and
• Based on a review of SGV & Co.’s performance and qualifcations, including consideration of management’s endorsement, we recommended the re-appointment of SGV & Co. for approval of the Board of Directors and then the shareholders of MPIC.
EDWARD S. GO LYDIA B. ECHAUZ AMADO R. SANTIAGO III Chairman Member Member
86 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Statement of Management’s Responsibility
The Management of Metro Pacifc Investments Corporation and Subsidiaries (the Company) is responsible for the preparation and fair presentation of the consolidated fnancial statements as at December 31, 2013 and 2012 and January 1, 2012 and for the three years in the period ended December 31, 2013, including the additional components attached therein, in accordance with Philippine Financial Reporting Standards. This responsibility includes designing and implementing sound internal controls relevant to the preparation and fair presentation of fnancial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.
The Board of Directors reviews and approves the consolidated fnancial statements and submits the same to the stockholders.
SyCip Gorres Velayo & Co., the independent auditors, appointed by the stockholders has examined the consolidated fnancial statements of the Company in accordance with Philippine Standards on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such examination.
Signed under oath by the following:
MANUEL V. PANGILINAN Chairman of the Board JOSE MA. K. LIM DAVID J. NICOL President and CEO Chief Financial Ofcer
Signed this 19th day of March 2014
SUBSCRIBED and SWORN to before me this afant(s) exhibiting to me his/their Residence Certifcates, as follows: NAMES PASSPORT NO. DATE OF ISSUE PLACE OF ISSUE Manuel V. Pangilinan EB0160000 April 28, 2010 Manila Jose Ma. K. Lim EB5936209 July 16, 2012 Manila David J. Nicol E4115548 October 22, 2013 Australia
Doc. No. 31 Page No. 08 Book No. 2 Series of 2014
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 87 Financial Statements
Contents 89 Management Discussion and Analysis of Financial Condition and Results of Operation 112 Independent Auditors’ Report 113 Consolidated Statements of Financial Position 115 Consolidated Statements of Comprehensive Income 116 Consolidated Statements of Changes in Equity 118 Consolidated Statements of Cash Flows
88 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Management Discussion and Analysis of Financial Condition and Results of Operation
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 89
90 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 91 92 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 93
94 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 95 96 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 97 98 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 99
100 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 101
102 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 103 104 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 105 106 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 107 108 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 109 110 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 111 Independent Auditors’ Report
The Stockholders and the Board of Directors Metro Pacific Investments Corporation
We have audited the accompanying consolidated financial statements of Metro Pacific Investments Corporation and Subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2013 and 2012, and the consolidated statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2013, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Metro Pacific Investments Corporation and Subsidiaries as at December 31, 2013 and 2012, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2013 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Wilson P. Tan Partner CPA Certificate No. 76737 SEC Accreditation No. 0100-AR-3 (Group A), January 18, 2013, valid until January 17, 2016 Tax Identification No. 102-098-469 BIR Accreditation No. 08-001998-39-2012, April 11, 2012, valid until April 10, 2015 PTR No. 4225223, January 2, 2014, Makati City
March 19, 2014
112 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Metro Pacific Investments Corporation and Subsidiaries Consolidated Statements of Financial Position (Amounts in Millions)
December 31 January 1 2012 2012 (Restated - (Restated - 2013 Note 2) Note 2) ASSETS Current Assets Cash and cash equivalents and short-term deposits (Notes 7, 35 and 36) P=15,263 =9,119P =15,125P Restricted cash (Notes 7, 35 and 36) 1,827 1,359 1,915 Receivables (Notes 8, 35 and 36) 3,749 3,608 2,949 Due from related parties (Notes 21, 35 and 36) 229 146 373 Other current assets (Notes 9, 35 and 36) 3,821 1,793 2,357 Total Current Assets 24,889 16,025 22,719 Noncurrent Assets Receivables (Notes 8, 35 and 36) 593 7,332 957 Due from related parties (Notes 21, 35 and 36) 65 65 65 Available-for-sale (AFS) financial assets (Notes 10, 35 and 36) 2,770 1,403 1,386 Investments and advances (Notes 11, 35 and 36) 48,854 45,084 36,738 Goodwill (Note 12) 18,308 13,155 13,069 Service concession assets (Note 13) 94,540 81,870 76,824 Property and equipment (Note 14) 6,859 6,049 5,863 Property use rights (Note 14) 649 689 765 Other noncurrent assets (Notes 15, 35 and 36) 3,057 1,808 1,787 Total Noncurrent Assets 175,695 157,455 137,454 P= 2 0 0 , 5 8 4 =173,480P =160,173P LIABILITIES AND EQUITY Current Liabilities Note payable (Notes 19, 35 and 36) P=– =4,700P P= – Accounts payable and other current liabilities (Notes 16, 35 and 36) 13,476 13,712 11,677 Income tax payable 260 183 76 Due to related parties (Notes 21, 35 and 36) 93 97 122 Payable to non-controlling interest – – 1,299 Current portion of: Provisions (Note 17) 4,677 3,670 2,989 Service concession fees payable (Notes 18, 35 and 36) 603 688 792 Long-term debt (Notes 19, 35 and 36) 3,512 1,847 1,594 Total Current Liabilities 22,621 24,897 18,549 Noncurrent Liabilities Noncurrent portion of: Provisions (Note 17) P=312 =252P =P190 Service concession fees payable (Notes 18, 35 and 36) 7,909 8,026 8,033 Long-term debt (Notes 19, 35 and 36) 47,536 37,068 38,429 Deferred credits and other long-term liabilities (Notes 20, 35 and 36) 5,152 5,397 5,553 Deferred tax liabilities (Note 29) 3,774 3,450 2,989 Total Noncurrent Liabilities 64,683 54,193 55,194 Total Liabilities 87,304 79,090 73,743 (Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 113 Metro Pacific Investments Corporation and Subsidiaries Consolidated Statements of Financial Position (Amounts in Millions)
December 31 January 1 2012 2012 (Restated - (Restated - 2013 Note 2) Note 2) Equity (Note 22) Owners of the Parent Company: Capital stock P=26,076 =24,664P =P24,643 Additional paid-in capital 42,933 38,097 38,056 Equity reserves 2,643 707 706 Retained earnings 21,882 15,688 10,449 Other comprehensive income reserve 927 487 (91) Total equity attributable to owners of the Parent Company 94,461 79,643 73,763 Non-controlling interest 18,819 14,747 12,667 Total Equity 113,280 94,390 86,430 P= 2 0 0 , 5 8 4 =173,480P =160,173P
See accompanying Notes to Consolidated Financial Statements.
114 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Metro Pacific Investments Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Amounts in Millions, Except Earnings Per Share Figures)
Years Ended December 31 2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) OPERATING REVENUES Water and sewerage services revenue P=16,895 =15,883P =13,769P Toll fees 8,154 6,784 6,465 Hospital revenue 5,700 5,034 1,740 School revenue 128 106 96 30,877 27,807 22,070 COST OF SALES AND SERVICES (Note 23) (11,845) (11,168) (8,399) GROSS PROFIT 19,032 16,639 13,671 General and administrative expenses (Note 24) (6,261) (5,384) (4,216) Interest expense (Note 26) (4,001) (3,679) (3,977) Share in net earnings of equity method investees (Note 11) 2,286 1,765 1,355 Interest income (Note 26) 462 652 743 Other income (Note 27) 8,113 10,115 11,423 Other expenses (Note 27) (7,559) (9,239) (11,308) INCOME BEFORE INCOME TAX 12,072 10,869 7,691 PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 29) Current 1,061 1,097 712 Deferred (468) 565 (237) 593 1,662 475 NET INCOME 11,479 9,207 7,216 OTHER COMPREHENSIVE INCOME (OCI) (Note 28) Net OCI to be reclassified to profit or loss in subsequent periods (14) 21 (19) Net OCI not being reclassified to profit or loss in subsequent periods 398 581 (52) 384 602 (71) TOTAL COMPREHENSIVE INCOME P= 1 1 , 8 6 3 =9,809P =7,145P Net income attributable to: Owners of the Parent Company P=7,209 =5,907P =4,382P Non-controlling interest 4,270 3,300 2,834 P=11,479 =9,207P =7,216P Total comprehensive income attributable to: Owners of the Parent Company P=7,550 =6,485P =4,381P Non-controlling interest 4,313 3,324 2,764 P=11,863 =9,809P =7,145P EARNINGS PER SHARE (Note 30) Basic Earnings Per Common Share, Attributable to Owners of the Parent Company P=0.278 =0.240P =0.195P Diluted Earnings Per Common Share, Attributable to Owners of the Parent Company P=0.277 =0.239P =0.191P
See accompanying Notes to Consolidated Financial Statements.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 115 8 4 – 2 31 18 50 13 30 90 384 224 11 542 283 280 60 226 , (668) (140) (915) 9,207 6 3, (2,107) 86,4 86,430 94,3 94,359 94,390 11,479 P P = = 113, P = P = Total Equity Total Total Equity – – – – – 4 – – – – 7 15 43 24 47 283 226 4,270 1,579 3,300 (1,470) (1,470) (2,107) 12,66 12,667 14,7 14,732 14,747 18,819 Interest Interest P P (Note 22) (Note = = P = P = (Note 22) (Note Non-controlling Non-controlling – – – 8 – – – 16 18 50 13 341 224 11 963 461 578 , (140) (915) (668) Total Total 7,209 6 1, 5,907 79,627 79,643 94, 73,763 73,763 79,643 P = P = P P = = ) – – – – – – – – – – – – – – – 1 11 (91) 2 99 102) 578 487 508 487 341 927 P = Other P = P = ( Other ( P = (Note 22) (Note (Note 22) (Note Comprehensive Reserve Income Comprehensive Reserve Income ) – – – – – 8 – – – – – – – – 8 80 (11) 460 6 882 492 (668) , ( (100) (915) 5,907 7,209 10, 10,449 15, 16,1 15,688 21 P P = = (Note 22) (Note Earnings (Note 22) (Note Retained P = P = Earnings Retained – – – – – – – – – – – – – – – 13 18 (12) (46) 706 706 707 707 707 P P = = P = 1,964 2,643 Equity Equity P = (Note 22) (Note (Note 22) (Note Reserves Reserves Year Ended December 31, 2012 31, December Ended Year Year Ended December 31, 2013 31, December Year Ended – – – – – – – – – 8 – – – – – – – 41 188 78 Attributable to Owners of the Parent Company the Parent of Owners to Attributable Attributable to Owners of the Parent Company Parent the of Owners to Attributable (140) 4, 38,056 38,056 38,097 Paid-in Capital 38,097 38,097 42,933 Paid-in Capital P = P = (Note 22) (Note P = P = (Note 22) (Note Additional Additional – – – – – – – – – – 4 4 – – – – – – – 4 6 6 82 21 1,330 24,643 24,643 24,66 24,6 24,6 26,076 (Note 22) (Note P P = = P = P = (Note 22) (Note Capital Stock Capital Capital Stock Capital ) 22 ): 1 ) 8 ) 2 controlling stockholders controlling - controlling interest (Note interest controlling , as restated as , - to non to , as previously reported previously as , eclared Net income Net 2 (Note income comprehensive Other Exercise of stock option stock of Exercise ESOP of Cost 6) (Note December 31, 2012 Other comprehensive income (Note 28) (Note income option stock of comprehensive ESOP income reported previously as 2013, 1, January At (Note 2) of PAS19R ofEffect adoption restated as 2013, 1, January At of period: the for income comprehensive Total Net Other 31): (Note (ESOP) Plan Option Stock Executive Exercise Cost 22) (Note raising Equity costs Transaction 22) (Note others and transfer equity on Gain 22) (Note declared dividends Cash 6) (Note stockholders to non-controlling declared Dividends 4) (Note combination business in a interest Non-controlling 22) (Note interest non-controlling in changes Other 2013 31, At December At January 1, 2012 (Note 2) of PAS19R ofEffect adoption restated as 2012, 1, January At period: the for income comprehensive Total 3 (Note (ESOP) Plan Option Stock Executive 2 (Note declared dividends Cash d Dividends non in changes Other At Metro Pacific Investments Corporation and Subsidiaries Consolidated Statements of Changes in Equity FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 (Amounts in Millions)
116 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 6 (6) 38 42 30 (71) 666 (116) (553) 7,216 8,640 6,448 65,279 65,945 86,4 P P = = Total Equity Total ) 7 – – – – – – – 7 (6) 70 ( 834 2, (1,159) (1,159) 11,061 11,061 12,66 Interest P P = = (Note 22) (Note Non-controlling 6 – – (1) 42 31 666 884 (116) (553) Total 4,382 8,640 6,448 54,218 54, 73,763 P P = = ) – – – – – – – – – – – (1) 90 90) 91) ( P P = = ( ( Other (Note 22) (Note Comprehensive Reserve Income – – – – – – – – – 666 (553) 5,954 6,620 4,382 10,449 P = P = (Note 22) (Note Earnings Retained ) – – – – 1 – – – – (1) 31 42 915 915 706 (28 P P = = Equity (Note 22) (Note Reserves Year Ended December 31, 2011 31, December Ended Year – – – – 5 – – – – Attributable to Owners of the Parent Company the Parent of Owners to Attributable (116) 6,240 4,698 27,229 27,229 38,056 Paid-in Capital P P = = (Note 22) (Note Additional – – – – – 2 – – – – 1 2,400 2,03 20,210 20,210 24,643 P P = = (Note 22) (Note Capital Stock Capital ) ): 22 1 ) 8 ) 2 ) 2 purchase price purchase controlling stockholders controlling - ) 2 , as restated as , to non to as restated , as previously reported previously as , declared Net income Net 2 (Note income comprehensive Other 2 (Note Subscription (Note bonds convertible of Conversion Exercise of stock option stock of Exercise ESOP of Cost 6) (Note
At January 1, 2011 (Note 2) of PAS19R ofEffect adoption At January 1, 2011, period: the for income comprehensive Total shares: new of Issuance costs Transaction 3 (Note (ESOP) Plan Option Stock Executive of completion from Adjustment allocation 2 (Note shares ESOPof Acquisition 2 (Note declared dividends Cash Dividends At December 31, 2011 Statements. Financial Consolidated to Notes See accompanying Metro Pacific Investments Corporation and Subsidiaries Consolidated Statements of Changes in Equity FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011 (Amounts in Millions)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 117 Metro Pacific Investments Corporation and Subsidiaries Consolidated Statements of Cash Flows (Amounts in Millions)
Years Ended December 31 2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=12,072 =10,869P =7,691P Adjustments for: Interest expense (Note 26) 4,001 3,679 3,977 Amortization of service concession assets (Note 23) 2,818 3,073 2,679 Depreciation and amortization (Notes 23 and 24) 947 772 447 Unrealized foreign exchange loss - net 159 201 409 Share in net earnings of equity method investees (Note 11) (2,286) (1,765) (1,355) Interest income (Note 26) (462) (652) (743) Dividend income (Note 27) (405) (561) (280) Gain on bargain purchase (Notes 4 and 27) (22) – (88) Reversal of contingent liabilities (Note 27) – (687) – Reversal of accrued interest payable to MWSS (Note 27) – (378) – Adjustment to amortized cost due to change in expected cash flows (Note 27) – 374 – Reversal of allowance for potential losses on input VAT (Note 27) – – (288) Refinancing costs and others (Note 38) 569 522 94 Operating income before working capital changes 17,391 15,447 12,543 Decrease (increase) in: Restricted cash (467) 556 (1,072) Receivables 359 (598) (638) Due from related parties (83) 93 (83) Other current assets (257) 267 287 Increase (decrease) in: Accounts payable and other current liabilities (1,375) 587 2,420 Provisions 833 477 914 Accrued retirement cost 121 27 (3) Net cash generated from operations 16,522 16,856 14,368 Income taxes paid (984) (990) (667) Interest received 333 561 571 Net cash from operating activities 15,871 16,427 14,272 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiaries, net of cash acquired (Note 4) 808 (208) – Dividends received from investment in Beacon Electric’s preferred shares (Note 11) 405 561 280 Dividends received from equity method investees (Note 11) 327 276 242 Decrease (increase) in short-term deposits (3,613) 9 (17) Increase in other noncurrent assets (311) (64) (306) Collection of or proceeds from sale/disposal of: Available-for-sale financial assets (Note 10) 1,151 – 50 Property and equipment (Note 14) 20 12 54 Notes receivable (Notes 8) – 954 116 (Forward)
118 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Metro Pacific Investments Corporation and Subsidiaries Consolidated Statements of Cash Flows (Amounts in Millions)
Years Ended December 31 2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) Acquisition/issuance of: Service concession assets (Note 13) (P=5,780) (P=6,752) (P=8,892) Available-for-sale financial assets (Note 10) (4,238) (50) (244) Investments in equity method investees (Note 11) (1,846) (6,262) (1,132) Property and equipment (Note 14) (1,343) (825) (618) Notes receivable (Note 8) (101) (6,797) – Net cash used in investing activities (14,521) (19,146) (10,467) CASH FLOWS FROM FINANCING ACTIVITIES Receipt of or proceeds from: Notes payable and long-term debt (Note 19) 41,254 5,030 14,210 Issuance of shares (Notes 22 and 31) 6,343 49 8,646 Sale to non-controlling stockholders (Note 22) 3,533 – – Reissuance of treasury shares 4 – – Due to related parties – 6 1 Payments of/for: Interest and other financing charges (4,871) (3,059) (3,413) Notes payable and long-term debt (Note 19) (40,573) (1,588) (8,126) Service concession fees payable (Note 18) (1,266) (1,116) (2,368) Due to related parties (4) (5) (348) Acquisition of non-controlling interests – (696) (7) Transaction costs on issuance of shares (140) – (116) Debt issuance cost (199) – (269) Dividends paid to owners of the Parent Company (Note 22) (915) (668) (553) Dividends paid to non-controlling stockholders (Notes 6 and 22) (1,985) (1,231) (1,302) Net cash from (used in) financing activities 1,181 (3,278) 6,355
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 2,531 (5,997) 10,160
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,105 15,102 4,942
CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 7) P= 1 1 , 6 3 6 =9,105P =15,102P
See accompanying Notes to Consolidated Financial Statements.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 119 Metro Pacific Investments Corporation and Subsidiaries Notes to Consolidated Financial Statements
1. Corporate Information
Metro Pacific Investments Corporation (the Parent Company or MPIC) was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on March 20, 2006 as an investment holding company. MPIC’s common shares of stock are listed in and traded through the Philippine Stock Exchange (PSE). On August 6, 2012, MPIC launched Sponsored Level 1 American Depositary Receipt (ADR) Program with Deutsche Bank as the appointed depositary bank in line with the Parent Company’s thrust to widen the availability of its shares to investors in the United States.
The principal activities of the Parent Company’s subsidiaries and equity method investees are described in Notes 2 and 11, respectively.
MPIC is 55.8% and 59.0% owned by Metro Pacific Holdings, Inc. (MPHI) as at December 31, 2013 and 2012, respectively. The reduction of MPHI’s ownership in MPIC resulted from an equity and fund raising exercise on January 22, 2013, to which MPHI did not subscribe for additional shares (see Note 22). MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH; 60.0%), Intalink B.V. (26.7%) and First Pacific International Limited (FPIL; 13.3% interest). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, Intalink B.V. and FPIL, holds 40.0% equity interest in EIH and investment financing which under Hong Kong Generally Accepted Accounting Principles, require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as part of FPC group of companies in Hong Kong.
The registered office address of the Parent Company is 10th Floor, MGO Building, Legaspi corner Dela Rosa Streets, Legaspi Village, Makati City.
The accompanying consolidated financial statements as at December 31, 2013 and 2012 and for each of the three years in the period ended December 31, 2013 were approved and authorized for issuance by the Board of Directors (BOD) on March 19, 2014.
2. Summary of Significant Accounting Policies
Basis of Preparation The consolidated financial statements are prepared on a historical cost basis, except for derivatives and certain available-for-sale (AFS) financial assets that are measured at fair value. The consolidated financial statements are presented in Philippine Peso, which is MPIC’s and its subsidiaries’ (henceforth together referred to as the Company) functional and presentation currency, and all values are rounded to the nearest million peso (P=000’000) except when otherwise indicated.
The consolidated financial statements provide comparative information with respect to the previous period. In addition, the Company presents an additional consolidated statement of financial position at the beginning of the earliest period presented when there is a retrospective application of an accounting policy, a retrospective restatement, or a reclassification of items in the financial statements. An additional consolidated statement of financial position as at January 1, 2012 is presented in these consolidated financial statements due to retrospective application of Philippine Accounting Standard (PAS) 19, Employee Benefits (Revised) (see Note 2 – Changes in Accounting Policies). Statement of Compliance The consolidated financial statements are prepared in compliance with Philippine Financial Reporting Standards (PFRS).
34 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Basis of Consolidation The consolidated financial statements of the Company include the accounts of the Parent Company and its subsidiaries. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has:
§ Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee); § Exposure, or rights, to variable returns from its involvement with the investee; and § The ability to use its power over the investee to affect its returns.
When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
§ The contractual arrangement with the other vote holders of the investee § Rights arising from other contractual arrangements § The Company’s voting rights and potential voting rights
The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control.
Subsidiaries of the Company also included structured entities that were set-up for the benefit of the Company. Based on contractual terms, the Company assessed that the voting rights in these structured entities are not the dominant factor in deciding who controls these structured entities. Thus, these entities were assessed to be structured entities and controlled by the Company under PFRS 10, Consolidated Financial Statements. The voting shares of the third-party stockholders in these structured entities are accounted for as non-controlling interest. The Company does not have interests in unconsolidated structured entities.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Company gains control until the date the Company ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the Parent Company and to the non-controlling interests (NCIs), even if this results in the NCIs having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Company’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Company are eliminated in full on consolidation.
NCI represents the portion of profit or loss and the net assets not held by owners of the Parent Company and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from total equity attributable to owners of the Parent Company.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it:
· Derecognizes the assets (including goodwill) and liabilities of the subsidiary · Derecognizes the carrying amount of any NCI · Derecognizes the related OCI · Recognizes the fair value of the consideration received · Recognizes the fair value of any investment retained · Recognizes any surplus or deficit in profit or loss · Reclassifies the Parent Company’s share of components previously recognized in OCI to profit or loss or retained earnings, as appropriate, as would be required if the Company had directly disposed of the related assets or liabilities
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 35 Notes to Financial Statements
The consolidated subsidiaries of MPIC are as follows:
December 31, 2013 December 31, 2012 MPIC Direct MPIC MPIC Direct MPIC Place of Direct Interest of Effective Direct Interest of Effective Name of Subsidiary Incorporation Principal Activity Interest Subsidiary Interest Interest Subsidiary Interest (In %) (In %) MPIC Subsidiaries Metro Pacific Tollways Corporation (MPTC) Philippines Investment holding 99.88 – 99.88 99.88 – 99.88 DMCI-MPIC Water Company, Inc. (DMWC) (a) Philippines Investment holding 51.27 – 51.27 55.41 – 55.41 Riverside Medical Center, Inc (RMCI) Philippines Hospital operation 51.00 – 51.00 51.00 – 51.00 East Manila Hospital Managers Corp. (EMHMC) Philippines Hospital operation 100.00 – 100.00 100.00 – 100.00 Asian Hospital Inc. (AHI) Philippines Hospital operation 5.66 79.90 85.56 5.66 79.90 85.56 Colinas Verdes Hospital Managers Corp. (CVHMC) Philippines Hospital operation 100.00 – 100.00 100.00 – 100.00 Metro Pacific Light Rail Corp. (MPLRC) Philippines Investment holding 100.00 – 100.00 100.00 – 100.00 Light Rail Manila Corporation Philippines Investment holding 50.00 50.00 100.00 – – – MetroPac Water Investments Corporation (MPWIC) Philippines Investment holding 100.00 – 100.00 100.00 – 100.00 Bumrungrad International Philippines Inc. (BIPI) Philippines Investment holding 100.00 – 100.00 100.00 – 100.00 Neptune Stroika Holdings, Inc. (NSHI) Philippines Investment holding 100.00 – 100.00 100.00 – 100.00 MPIC-JGS Airport Holdings, Inc. (MPIC-JGS) (b) Philippines Investment holding 58.75 – 58.75 – – – MPIC Infrastructure Holdings Limited(c) Philippines Investment holding 100.00 – 100.00 – – – Fragrant Cedar Holdings, Inc. (FCHI) Philippines Real Estate 100.00 – 100.00 100.00 – 100.00 Neo Oracle Holdings, Inc (NOHI) (d) Philippines Investment holding and Real estate 96.60 – 96.60 96.60 – 96.60 MPTC Subsidiaries Operating Subsidiaries Metro Pacific Tollways Development Corporation (MPTDC) Philippines Investment holding – 100.00 99.88 – 100.00 99.88 Manila North Tollways Corporation (MNTC) Philippines Tollway operations – 67.10 67.00 – 67.10 67.00 Cavitex Infrastructure Corporation (CIC) and subsidiaries (e) Philippines Tollway operations – 100.00 100.00 – – – Metro Strategic Infrastructure Holdings, Inc. (MSIHI) Philippines Investment holding – 57.00 95.55 – 57.00 95.55 Dormant Subsidiary Luzon Tollways Corporation (LTC) Philippines Tollway operations – 100.00 99.85 – 100.00 99.85 MPTDC Subsidiaries Collared Wren Holdings, Inc. (CWHI) (f) Philippines Investment holding – 99.99 99.97 – – – Larkwing Holdings, Inc. (LHI) (f) Philippines Investment holding – 99.99 99.97 – – – MPCALA Holdings, Inc. (MHI) (f) Philippines Investment holding – 51.00 99.97 – – – DMWC Subsidiary (a) Maynilad Water Services, Inc. (Maynilad) Philippines Water and sewerage services 5.19 92.85 52.80 5.88 91.91 56.81 Maynilad Subsidiaries Amayi Water Solutions, Inc. (AWSI) Philippines Water and sewerage services – 100.00 52.80 – 100.00 56.81 Philippine Hydro, Inc. (PHI) Philippines Water and sewerage services – 100.00 52.80 – 100.00 56.81 RMCI Subsidiary Riverside College, Inc. (RCI) Philippines School operations – 100.00 51.00 – 100.00 51.00
CVHMC Subsidiary Colinas Healthcare, Inc. Philippines Clinic Management – 100.00 100.00 – 100.00 100.00 NSHI Subsidiary De Los Santos Medical Center Inc. (DLSMC) Philippines Hospital operation – 51.00 51.00 – – – DLS-STI Megaclinic, Inc. (Megaclinic) Philippines Clinic Management – 51.00 51.00 – – – Central Luzon Doctors’ Hospital, Inc. Philippines Hospital operation – 51.00 51.00 – – – NOHI Subsidiaries Operating Subsidiaries First Pacific Bancshares Philippines, Inc. Philippines Investment holding – 100.00 96.60 – 100.00 96.60 Metro Pacific Management Services, Inc. Philippines Management services – 100.00 96.60 – 100.00 96.60 First Pacific Realty Partners Corporation (FPRPC) Philippines Investment holding – 50.00 48.30 – 50.00 48.30
(Forward)
36 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Preoperating Subsidiaries Metro Tagaytay Land Co., Inc. (MTLCI) (g) Philippines Real estate – 100.00 96.60 – 66.00 63.76 Lucena Commercial Land Corporation (h) Philippines Real estate – – – – 65.00 62.79 Dormant Subsidiaries Pacific Plaza Towers Management Services, Inc. Philippines Management services – 100.00 96.60 – 100.00 96.60 Philippine International Paper Corporation Philippines Investment holding – 100.00 96.60 – 100.00 96.60 Pollux Realty Development Corporation Philippines Investment holding – 100.00 96.60 – 100.00 96.60 Metro Asia Link Holdings, Inc. (MALHI) Philippines Investment holding – 60.00 57.96 – 60.00 57.96 Metro Capital Corporation (i) Cayman Islands Investment holding – – – – 100.00 96.60 Metro Pacific Capital Ltd. (i) Cayman Islands Investment holding – – – – 100.00 96.60 Uptime Limited (i) Cayman Islands Investment holding – – – – 100.00 96.60 (a)On February 13, 2013, MCNK JV Corporation (MCNK) acquired 20% effective ownership in Maynilad through a Subscription Agreement between MCNK and DMWC (see Note 22). (b) On March 11, 2013, the Company and JG Summit Holdings, Inc. (JG Summit) formed MPIC-JGS to bid for the P=17.5 billion Mactan Cebu International Airport Passenger Terminal Project (MCIA Project). However, while MPIC-JGS was not declared as the winning bidder for the MCIA Project, it may also explore other airport projects that will be rolled out by the government in the future. (c) Holds 25% in FPM Infrastructure Holdings Limited (see Note 11). (d) Formerly Metro Pacific Corporation (MPC). (e By virtue of the Management Letter-Agreement, MPTC acquired control over CIC effective January 2, 2013 (see Note 4). (f) These companies were incorporated in September 2013 to facilitate the bidding of Cavite-Laguna Expressway. MHI is owned by MPTDC at 51% and the remaining 49% owned equally by CWHI and LHI. (g)The increase in ownership in MTLCI resulted from NOHI’s acceptance of the assignment of Landco Pacific Corporation of the latter’s subscription rights to its investment in MTLCI. (h)See Note 11. (i)These dormant companies were stricken off from their respective foreign government registers and are therefore, considered dissolved.
Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except for the following voluntary changes in accounting policies and adoption of new and amended PFRS and Philippine interpretations effective January 1, 2013.
Voluntary changes in accounting policies
§ Change in amortization method of Maynilad’s service concession asset — At the end of the year 2012, Maynilad has determined that it is more appropriate to use the units of production (UOP) method for amortizing the service concession asset as the economic benefit of this asset is more closely aligned with the billed volume. Beginning January 1, 2013, the service concession asset is amortized on a UOP basis. This change in the amortization method is a change in accounting estimate and is applied on a prospective basis. The financial effect of this change decreased the consolidated amortization expense in 2013 by =628.8P million. The change in amortization method also resulted in the write-off of portion of deferred tax asset amounting to =592.0P million for the year ended December 31, 2012. Under the UOP basis, the amortization expense is expected to decrease in the earlier period and increase in the later period of the concession term compared to straight-line method of amortization. Quantitative disclosure on future impact is not provided as it is impractical to estimate the difference in future amortization. The calculation of the UOP amortization is subject to other variables such as additional capital expenditures and concession fees paid every year, re- estimation of projected billable volume and actual billed volume during the year. All of these variables are subject to changes on an annual basis.
§ Presentation of items of income and expense — Prior to 2013, the Company presented items of income and expense in two separate statements: (1) the consolidated statement of income; and (2) the consolidated statement of comprehensive income beginning with net income and followed by components of OCI. Beginning 2013, the Company changed its presentation of items of income and expenses to a single statement of profit or loss and OCI referred to as the consolidated statement of comprehensive income. Such simplified format aims to assist users in an enhanced understanding of the financial performance achieved by the Company. The change in presentation is restrospectively applied to 2012 and 2011.
Adoption of new and amended standards and interpretations
§ PAS 1, Presentation of Items of Other Comprehensive Income – Amendments to PAS 1 — The amendments to PAS 1 introduce a grouping of items presented in OCI. Items that could be reclassified (or recycled) to profit or loss at a future point in time (e.g., net gain on hedge of net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges and net loss or gain on AFS financial assets) now have to be presented separately from items that will never be reclassified (e.g., actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendments affected presentation only and had no impact on the Company’s financial position or performance. Details of other comprehensive income are provided in Note 28.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 37 Notes to Financial Statements
§ PAS 1, Clarification of the requirement for comparative information (Amendment) — The amendment to PAS 1 clarifies the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The amendment clarifies that the opening statement of financial position (as at January 1, 2012 in the case of the Company), presented as a result of retrospective restatement or reclassification of items in financial statements, does not have to be accompanied by comparative information in the related notes. As a result, the Company has not included comparative information in respect of the opening statement of financial position as at January 1, 2012. The amendment affects presentation only and had no impact on the Company’s financial position or performance.
§ PAS 19, Employee Benefits (Revised) (PAS 19R) — PAS 19R includes a number of amendments to the accounting for defined benefit plans, including actuarial gains and losses that are now recognized in OCI and permanently excluded from profit or loss; expected returns on plan assets that are no longer recognized in profit or loss, instead, there is a requirement to recognize interest on the net defined benefit liability (asset) in profit or loss, calculated using the discount rate used to measure the defined benefit obligation as at the beginning of annual period, and; unvested past service costs are now recognized in profit or loss at the earlier of when the amendment occurs or when the related restructuring or termination costs are recognized. Other amendments include new disclosures, such as, quantitative sensitivity disclosures.
In the case of the Company, the transition to PAS 19R had no material impact on the net defined benefit plan obligations or on total equity as the Company’s previous accounting policy is to recognize actuarial gains and losses as income or expense immediately in the year when these are incurred. However, there is impact as to recognition of actuarial gains and losses from profit or loss to OCI.
The Company also concurrently adopted Philippine Interpretation Committee (PIC) Question and Answer (Q&A) No. 2013-03, Accounting for Employee Benefits under a Defined Contribution Plan subject to the Requirements of Republic Act (RA) 7641, The Philippine Retirement Law. Under this Q&A, the benefits mandated under RA 7641 are considered as a minimum benefit guarantee for qualified private sector employees in the Philippines. Hence, for an entity that provides a defined contribution plan as its only post-employment benefit plan, its obligation for post-employment benefits is not limited to the amount it agrees to contribute to the fund. Thus, the Company’s contributory retirement plan is now accounted for as a defined benefit plan.
The Company applied PAS19R and PIC Q&A 2013-03 retrospectively in accordance with the standard’s transitional provisions with the permitted exception of non-disclosure of the sensitivity information for the defined benefit obligation for comparative period December 31, 2012. The opening consolidated statement of financial position as at January 1, 2012 and the comparative figures have been accordingly restated.
Impact on the consolidated financial statements as follows:
December 31, January 1, 2012 2012 (In Millions except Earnings per share figures) Consolidated statements of financial position: Increase (decrease) in: Pension asset (=P25) =P– Accrued retirement cost (68) – Deferred tax liabilities 13 – Equity – Owners of the Parent Company: Retained earnings (492) (11) Other comprehensive income reserve 508 11 Non-controlling interest 15 – (Forward)
38 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 2012 2011 Consolidated statements of comprehensive income: Increase (decrease) in: Net income (=P486) (=P614) Other comprehensive income (loss) 516 (52)
Earnings per share: Increase (decrease) in: Basic Earnings Per Common Share, Attributable to Owners of the Parent Company (P=0.020) (P=0.030) Diluted Earnings Per Common Share, Attributable to Owners of the Parent Company (0.020) (0.030)
The adoption did not have an impact on the consolidated statements of cash flows. The remeasurements in 2013 for the revised PAS 19 is included in OCI (see Note 25). It is not practicable to quantify the impact of PAS 19R in 2013 for the other accounts shown above. Likewise, the impact of Philippine Interpretations Committee Q&A No. 2013-03 on PAS 19 is not material.
§ PFRS 10, Consolidated Financial Statements — PFRS 10 replaces the portion of PAS 27 that addresses the accounting for consolidated financial statements. It also includes the issues raised in Standards Interpretation Committee (SIC)-12, Consolidation – Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. The Company reassessed its portfolio of investments under PFRS 10 and concluded that it has properly identified those investees that it controls and has no control. Adoption of PFRS 10 also did not result in the creation of a new operating segment. This standard had no impact on both the Company’s parent and consolidated financial statements.
§ PFRS 12, Disclosure of Interest in Other Entities — PFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. The requirements in PFRS 12 are more comprehensive than the previously existing disclosure requirements for subsidiaries (e.g., where a subsidiary is controlled with less than a majority of voting rights). While the Company has subsidiaries with material non-controlling interests, there are no unconsolidated structured entities. PFRS 12 disclosures are provided in Notes 6 and 11.
§ PFRS 13, Fair Value Measurement — PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS.
PFRS 13 defines fair value as an exit price. As a result of the guidance in PFRS 13, the Company reassessed its policies for measuring fair values, in particular, its valuation inputs such as non-performance risk for fair value measurement of liabilities. PFRS 13 also requires additional disclosures. Application of PFRS 13 has not materially impacted the fair value measurements of the Company. Additional disclosures where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in Note 37.
§ Amendments to PAS 36, Recoverable Amount Disclosures for Non-Financial Assets — These amendments remove the unintended consequences of PFRS 13 on the disclosures required under PAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or CGUs for which impairment loss has been recognized or reversed during the period. These amendments are effective retrospectively for annual periods beginning on or after January 1, 2014 with earlier application permitted, provided PFRS 13 is also applied. The Company has early adopted these amendments to PAS 36 in the current period since the amended/additional disclosures provide useful information. Accordingly, these amendments have been considered while making disclosures for impairment of non-financial assets. These amendments would continue to be considered for future disclosures.
The following standards were also adopted but did not have any impact on the Company’s consolidated financial statements:
§ PAS 12, Income Taxes – Deferred Tax: Recovery of Underlying Assets (Amendments) — This clarifies the determination of deferred tax on investment property measured at fair value. The amendments introduce a rebuttable presumption that the carrying amount of investment property measured using the fair value model in PAS 40, Investment Property, will be recovered through sale and, accordingly, requires that any related deferred tax should be measured on a ‘sale’ basis. The presumption is rebutted if
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 39 Notes to Financial Statements
the investment property is depreciable and it is held within a business model whose objective is to consume substantially all of the economic benefits in the investment property over time (‘use’ basis), rather than through sale. Furthermore, the amendments introduce the requirement that deferred tax on non-depreciable assets measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset.
§ PAS 27, Separate Financial Statements — As a consequence of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements.
§ PAS 28, Investments in Associates and Joint Ventures — As a consequence of the new PFRS 11 and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates.
§ PFRS 1, First-time Adoption of International Financial Reporting Standards - Government Loans Amendments to PFRS 1
§ PFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments) — These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set-off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or “similar agreement”, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, certain minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period. As the Company is not setting off financial instruments in accordance with PAS 32 and does not have relevant offsetting arrangements, the amendment does not have an impact on the Company.
§ PFRS 11, Joint Arrangements — PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities – Non- monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.
§ Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
§ Improvements to PFRSs 2009-2011 Cycle: a. PFRS 1 – Borrowing Costs b. PAS 16 – Classification of servicing equipment c. PAS 32 – Tax effects of distributions to holders of equity instruments d. PAS 34 – Interim financial reporting and segment information for total assets and liabilities
The principal accounting and financial reporting policies adopted in preparing the Company’s consolidated financial statements are as follows:
Business Combinations and Goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any NCI in the acquiree. For each business combination, the Company elects whether to measure the NCIs in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in general and administrative expenses.
When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as of the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss. It is then considered in the determination of goodwill.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of PAS 39, Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognized either in profit or loss or as a change to
40 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 OCI. If the contingent consideration is not within the scope of PAS 39, it is measured in accordance with the appropriate PFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for NCI, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Company re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized immediately in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units (CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained.
If the initial accounting for business combination can be determined only provisionally by the end of the period by which the combination is effected because the fair values to be assigned to the acquiree’s identifiable assets and liabilities can be determined only provisionally, the Company accounts for the combination using provisional values. Adjustments to those provisional values as a result of completing the initial accounting shall be made within twelve (12) months from the acquisition date. The carrying amount of an identifiable asset, liability or contingent liability that is recognized as a result of completing the initial accounting shall be calculated as if its fair value at the acquisition date had been recognized from that date. Goodwill or any gain recognized shall be adjusted from the acquisition date by an amount equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted.
Equity method investees Equity method investees consist of the Company’s investments in associate and joint venture.
An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.
The Company’s investments in its associate and joint venture are accounted for using the equity method.
Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Company’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.
The Company’s share of the results of operations of the associate or joint venture is included in profit or loss. Any change in OCI of those investees is presented as part of the Company’s OCI. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Company recognizes its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Company and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 41 Notes to Financial Statements
The aggregate of the Company’s share of profit or loss of an associate and a joint venture is shown on the face of the consolidated statement of comprehensive income outside operating profit and represents profit or loss after tax and NCI in the subsidiaries of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company.
After application of the equity method, the Company determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Company determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognizes the loss as ‘Share in net earnings of equity method investees’ in the consolidated statement of comprehensive income.
Upon loss of significant influence over the associate or joint control over the joint venture, the Company measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.
Current Versus Non-current Classification The Company presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification. An asset is current when it is:
§ Expected to be realized or intended to be sold or consumed in the normal operating cycle § Held primarily for the purpose of trading § Expected to be realized within twelve months after the reporting period, or § Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current. A liability is current when:
§ It is expected to be settled in the normal operating cycle § It is held primarily for the purpose of trading § It is due to be settled within twelve months after the reporting period, or § There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.
The Company classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities, respectively.
Fair Value Measurement The Company measures derivatives at fair value at each reporting date and, for the purposes of impairment testing, uses fair value less costs of disposal to determine the recoverable amount of some of its non-financial assets. Also, fair values of financial instruments measured at amortized cost are disclosed in Note 37.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
§ In the principal market for the asset or liability; or § In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
42 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The fair value for financial instruments traded in active markets at the reporting date is based on their quoted price or binding dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. Securities defined in these accounts as ‘listed’ are traded in an active market. Where the Company has financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk, it has elected to use the measurement exception to measure the fair value of its net risk exposure by applying the bid or ask price to the net open position as appropriate. For all other financial instruments not traded in an active market, the fair value is determined by using valuation techniques deemed to be appropriate in the circumstances. Valuation techniques include the market approach (i.e., using recent arm’s length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (i.e., discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible).
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy described as follows based on the lowest-level input that is significant to the fair value measurement as a whole:
§ Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities § Level 2 — Valuation techniques for which the lowest-level input that is significant to the fair value measurement is directly or indirectly observable § Level 3 — Valuation techniques for which the lowest-level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest-level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company determines the policies and procedures for both recurring fair value measurement, such as derivatives, and non- recurring measurement, such as impairment tests. At each reporting date, the finance team, with the assistance of the respective finance teams of the Parent Company’s subsidiaries, analyzes the movements in the values of assets and liabilities which are required to be re-measured or reassessed as per the Company’s accounting policies. For this analysis, the finance team verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts, counterparty assessment and other relevant documents.
The finance team also compares the changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. On an interim basis, the finance team presents the valuation results to the Company’s top management for review. This includes a discussion of the major assumptions used in the valuations.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from acquisition date and that are subject to an insignificant risk of changes in value.
Restricted Cash and Short-term Deposits Restricted cash represents cash in banks earmarked for long-term debt principal and interest repayment maintained in compliance with the loan agreement. Short-term deposits are highly liquid money market placements with maturities of more than three months but less than one year from dates of acquisition.
Financial Instruments The Company recognizes a financial asset or a financial liability in the consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial assets are recognized on the settlement date. Regular way purchases and sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Derivatives are recognized on a trade date basis.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 43 Notes to Financial Statements
Initial Recognition. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market interest rates for similar instruments with similar maturities. The initial measurement of financial instruments, except for financial instruments at fair value through profit or loss (FVPL), includes transaction costs.
The Company classifies its financial instruments in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, loans and receivables, AFS financial assets, financial liabilities at FVPL and other financial liabilities.
The classification depends on the purpose for which the financial instruments were acquired or liabilities were incurred and whether they are quoted in an active market. Management determines the classification of its instruments at initial recognition and, where allowed and appropriate, re-evaluates such classification at every reporting date.
Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividend, gains and losses relating to a financial liability or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of related income tax benefits.
‘Day 1’ Profit or Loss Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless it qualifies for recognition as some other type of asset or liability. In cases where the data is not observable, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the ‘Day 1’ profit or loss amount.
Subsequent Measurement. The subsequent measurement of financial assets and financial liabilities depends on their classification discussed as follows:
Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL include financial assets and liabilities held for trading and those designated upon initial recognition as at FVPL. Financial assets and liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets and liabilities classified as at FPVL are carried at fair value in the consolidated statement of financial position, with any gains or losses being recognized in the profit or loss. Interests earned on holding financial assets at FVPL are reported as interest income using the effective interest rate. Dividends earned on holding financial assets at FVPL are recognized in profit or loss when the right to payment had been established.
Financial assets and liabilities may be designated at initial recognition as at FVPL if any of the following criteria are met:
§ The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the financial assets or liabilities or recognizing gains or losses on them on different bases; or
§ The assets are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or
§ The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.
The Company accounts for its derivatives (including embedded derivatives) under this category with fair value changes being reported directly in profit or loss, except when the derivative is designated in an effective hedging relationship. In that case, the fair value change is either reported in profit or loss with the corresponding adjustment to the hedged item (fair value hedge) or deferred in equity (cash flow hedge) presented as “Fair value changes on cash flow hedges” under “Other comprehensive income reserve” account.
The Company’s financial asset at FVPL as at December 31, 2013 and 2012 consists of bifurcated derivatives only (see Note 36).
44 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Most of the Company’s derivatives which are in the nature of swaps were preterminated in 2011. The remaining interest rate swap entered in 2011 constituting the Company’s financial liability at FVPL as at December 31, 2011 was likewise preterminated on December 15, 2012 (see Note 19).
Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL, HTM investments or AFS financial assets. After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less any impairment. The amortization is included as part of interest income in profit or loss. Losses arising from impairment are recognized in profit or loss. Loans and receivables are included in current assets if maturity is within 12 months after the end of reporting period, otherwise these are classified as noncurrent assets.
Loans and receivables include cash and cash equivalents, short-term and long-term deposits, receivables, investments in preferred shares with mandatory redemption feature, restricted cash and other deposits, and due from related parties (see Notes 7, 8, 9, and 21).
HTM Investments. HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Company’s management has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. When the Company sells or reclassifies other than an insignificant amount of HTM investments, the entire category would be tainted for 2 years and reclassified as AFS financial assets.
After initial measurement, these investments are subsequently measured at amortized cost. The amortization is included as part of interest income in profit or loss. Gains and losses are recognized in the consolidated statement of income when the HTM investments are derecognized and impaired, as well as through the amortization process. The losses arising from impairment of such investments and the effects of restatement on foreign currency denominated HTM investments are also recognized in profit or loss. Assets under this category are classified as current assets if maturity is within 12 months from the reporting date and as noncurrent assets if maturity is more than a year from the reporting date.
The Company has investments in fixed rate retail treasury bonds of the Republic of the Philippines (ROP) that were previously classified as HTM investments prior to 2010. In view of the pretermination of the HTM investments in 2010, the fixed rate retail treasury bonds were reclassified to AFS financial assets and continues to be presented as such as at December 31, 2013 and 2012 (see Notes 10 and 36).
AFS Financial Assets. AFS financial assets are non-derivative financial assets that are designated as such or not classified in any of the other categories. AFS financial assets include equity and debt securities. They are purchased and held indefinitely and may be sold in response to liquidity requirements or changes in market conditions.
After initial measurement, AFS financial assets that are quoted are subsequently measured at fair value. The unrealized gains and losses arising from the change in fair value of AFS financial assets are recognized and included in the “Other comprehensive income” until the investment is derecognized or determined to be impaired, at which time the cumulative gains or losses are reclassified to the consolidated statement of income. When the Company holds more than one investment in the same security, these are deemed to be disposed of on a first-in, first-out basis. Interest earned on holding AFS debt financial assets are reported as interest income using the effective interest rate method. Dividends earned on holding AFS equity financial assets are recognized in profit or loss when the right of payment has been established. AFS equity financial assets that are unquoted and for which fair values cannot be reliably determined are carried at cost less any impairment in value.
As at December 31, 2013 and 2012, this category includes investments in quoted and unquoted common shares and preferred shares, investments in golf shares and investments in bonds previously classified as HTM investments (see Notes 10 and 11).
Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations and borrowings.
Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction cost. Any effect of restatement of foreign currency-denominated liabilities are recognized in profit or loss.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 45 Notes to Financial Statements
All of the Company’s financial liabilities, except for derivative liabilities, are classified as other financial liabilities which include the following, among others:
a. Loans and Borrowings
All loans and borrowings are initially recognized at fair value of the consideration received less directly attributable transaction costs (referred to as “debt issue costs”). Debt issue costs are amortized over the life of the debt instrument using the effective interest method. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are recognized in profit or loss when the liabilities are derecognized, as well as through the amortization process. This category generally includes short-term and long-term debt.
b. Financial Guarantee Contracts
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognized initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the end of reporting period and the amount recognized less cumulative amortization. This category generally includes financial guarantee obligation.
Derivatives and Hedge Accounting Freestanding and separated embedded derivatives are classified as financial assets or financial liabilities at FVPL unless they are designated as effective hedging instruments. The Company uses derivative financial instruments, such as cross-currency swaps and interest rate swaps, to hedge its foreign currency risks and interest rate risks, respectively. Derivative instruments are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Consequently, gains and losses from changes in fair value of derivatives not designated as effective accounting hedges are recognized immediately in profit or loss.
For the purpose of hedge accounting, hedges are classified primarily as: (a) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment except for foreign currency risk (fair value hedge); or (b) a hedge of the exposure to variability in cash flows attributable to a recognized asset or liability or a highly probable forecasted transaction or foreign currency risk in an unrecognized firm commitment (cash flow hedge); or (c) hedge of a net investment in a foreign operation. The Company did not designate any of its derivatives as fair value hedges or hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identifying the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
In cash flow hedges, changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in equity, net of related deferred tax, and presented as “Fair value changes on cash flow hedges” under “Other comprehensive income reserve” account in the consolidated statement of financial position. The ineffective portion is immediately recognized in profit or loss.
If the hedged cash flow results in the recognition of an asset or a liability, gains and losses initially recognized in equity are transferred from equity to net income in the same period during which the hedged forecasted transaction or recognized asset or liability affects profit or loss.
When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that had been recognized in other comprehensive income reserve is retained as such until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in other comprehensive income reserve is credited or charged immediately to profit or loss.
46 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 For derivatives that are not designated as effective accounting hedges, any gains or losses arising from changes in fair value are recognized directly in profit or loss.
Embedded Derivatives. An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met:
§ The economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; § A separate instrument with the same terms as the embedded derivative would meet the definition of the derivative; and § The hybrid or combined instrument is not recognized as at FVPL.
Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets or liabilities at FVPL. Changes in fair values are recognized in profit or loss. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
The Company assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The Company determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract.
Current Versus Noncurrent Classification of Derivatives Derivative instruments that are not designated and considered as effective hedging instruments are classified as current or noncurrent or separated into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).
§ If the Company holds a derivative for trading purposes, irrespective of the timing of future cash flows, it is classified as current. § Where the Company holds a derivative as an economic hedge (and does not apply hedge accounting), for period beyond 12 months after the end of reporting period, the derivative is classified as noncurrent (or separated into current and noncurrent portions) consistent with the classification of the underlying item. § Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.
Derivative instruments that are designated as, and are considered effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and noncurrent portion only if a reliable allocation can be made.
Classification of Financial Instruments Between Liability and Equity A financial instrument is classified as a liability if it provides for a contractual obligation to:
§ Deliver cash or another financial asset to another entity; or § Exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company; or § Satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.
If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 47 Notes to Financial Statements
Amortized Cost Amortized cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are integral part of the effective interest rate.
Impairment of Financial Assets The Company assesses at each end of reporting period whether a financial asset or group of financial assets is impaired. If any such evidence exists, the Company applies the relevant impairment policies by measurement type of financial asset to determine the amount of any impairment loss. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Assets Carried at Amortized Cost. The Company first assesses whether objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss on assets carried at amortized cost had been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. The assets and the associated allowance are written off when there is no realistic prospect of future recovery, and all collateral had been realized or had been transferred to the Company. If a write-off is later recovered, the recovery is credited to profit or loss.
If, in a subsequent year, the amount of the impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized at the date impairment is reversed. The amount of the reversal shall be recognized in profit or loss.
Assets Carried at Cost. If there is objective evidence that an impairment loss had been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of income. The asset together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral had been realized or had been transferred to the Company.
AFS Financial Assets. For AFS financial assets, the Company assesses at each end of reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired.
In the case of equity investments classified as AFS financial assets, this would include a significant or prolonged decline in the fair value of the investments below their cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss, is removed from other comprehensive income reserve and recognized in profit or loss. Impairment losses on equity investments are not
48 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 reversed through profit or loss. Increases in fair value after impairment are recognized directly in other comprehensive income reserve.
In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount future cash flows for the purpose of measuring the impairment loss. Such accrual is recorded as part of “Interest income” in profit or loss. If, in subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss. Derecognition of Financial Instruments Financial Asset. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:
§ The Company’s rights to receive cash flows from the asset have expired; § The Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or § The Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
Where the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts and any costs or fees incurred are recognized in the profit or loss. Offsetting of Financial Instruments Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable right to offset the recognized amounts and there is intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented at gross amounts in the consolidated statement of financial position. Inventories Inventories, which are included as part of “Other current assets” in the consolidated statement of financial position, are valued at the lower of cost and net realizable value (NRV).
Cost includes purchase price and import duties incurred in bringing each item of inventory to its present location and condition. Cost is determined using the moving average method for the healthcare segment; weighted average method for the tollways and the water segment. Inventories and NRV basis for each of the segment are enumerated below: Segment Inventories NRV basis Water & Spare parts, materials and supplies Current replacement cost Tollways Transponders and magnetic cards Estimated selling price in the ordinary course of business less estimated costs necessary to make the sale Healthcare Medicines and hospital supplies Estimated selling price in the ordinary course of business less direct cost to sell
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 49 Notes to Financial Statements
Prior to April 2013, MNTC of the tollways segment used the first-in, first-out method of determining costs of its inventory. However, beginning April 2013, MNTC changed its accounting policy for determining the costs of its inventory from first-in, first-out method to weighted average method. MNTC takes the view that this policy provides reliable and more relevant information. The policy has been applied prospectively from April 2013 as it was not practicable to estimate the effects of applying the policy either retrospectively, or prospectively from any earlier date.
Real Estate for Sale Real estate for sale, which is included as part of “Other current assets” in the consolidated statement of financial position, is carried at the lower of cost and NRV. Cost includes the acquisition cost of the land plus all costs directly attributable to the acquisition for projects where the Company is the landowner, and includes actual development costs incurred up to end of reporting period for projects where the Company is both the landowner and developer. Where the Company is only a developer, the cost of real estate for sale pertains only to the actual development costs. NRV is the selling price in the ordinary course of business less estimated costs to complete and make the sale.
Advances to Contractors and Consultants Advances to contractors and consultants which is included as part of “Other current assets” in the consolidated statement of financial position, represent advance payments for mobilization of the contractors and consultants. These are stated at costs less any impairment in value. These amounts are reduced upon receipt of the equivalent amount of services rendered by the contractors and consultants.
Service Concession Arrangements The Company accounts for its service concession arrangements in accordance with Philippine Interpretation IFRIC 12 under the intangible asset model as it receives the right (license) to charge users of public service (see Note 13).
Revenue and Cost Recognition. The Company recognizes and measures revenue and cost in accordance with PAS 11, Construction Contracts and PAS 18, Revenue for the services it performs. When the Company provides construction or upgrade services, the consideration received or receivable by the Company is recognized at its fair value. The revenue and cost from these services are recognized based on the percentage of completion measured principally on the basis of estimated completion of a physical proportion of the contract works, and by reference to the actual costs incurred to date over the estimated total cost of the project.
Contractual Obligations. The Company recognizes its contractual obligations to restore the toll roads to a specified level of serviceability in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, as the obligations arises which is as a consequence of the use of the toll roads and is proportional to the number of vehicles using the toll roads and increasing in measurable annual increments (see Notes 17 and 32).
Service Concession Assets. The service concession assets acquired through business combinations are recognized initially at the fair value of the concession agreement using multi-period excess earnings method. Additions subsequent to business combinations are initially measured at present value of any additional estimated future concession fee payments pursuant to the concession agreement (see Notes 13 and 18) and/or the costs of rehabilitation works incurred or additional constructions. Following initial recognition, the service concession assets are carried at cost less accumulated amortization and any impairment losses.
Following are the methods used to amortize the service concession assets:
Method Company UOP Maynilad(a) and CIC Straight-line MNTC and PHI (a) Prior to 2013, Maynilad used the straight-line method of amortization (see Note 2 – Changes in Accounting Policies)
The amortization period and method for an intangible asset with a finite useful life is reviewed at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the service concession asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense is recognized under the “Cost of sales and services” account in the consolidated statement of comprehensive income.
50 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The service concession assets will be derecognized upon turnover to the Grantor. There will be no gain or loss upon derecognition as the service concession assets, which is expected to be fully amortized by then, will be handed over to the Grantor with no consideration.
Property and Equipment Property and equipment, except land, are carried at cost, excluding day-to-day servicing, less accumulated depreciation and any impairment loss. The initial cost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property and equipment to its working condition and location for its intended use. Such cost includes the cost of replacing part of such property and equipment and borrowing costs for long-term construction projects when the recognition criteria are met. When significant parts of property and equipment are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciation. Likewise, when major repairs are performed, its cost is recognized in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied. Land is stated at cost less any impairment loss.
Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally recognized as expense in the period such costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of the property and equipment.
Depreciation commences once the property and equipment are available for use and is computed on a straight-line basis over the estimated useful lives of the assets:
Leasehold improvements 2–5 years or lease term whichever is shorter Building and building improvements 5–30 years Office and other equipment, furniture and fixtures 2–5 years Transportation equipment 2–5 years Instruments, tools and other equipment 2–5 years Library books 3–5 years
The assets’ residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each reporting date.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the year the asset is derecognized.
Construction in progress is stated at cost less any impairment in value. This includes cost of construction and other direct costs. Construction in progress is not depreciated until such time that the relevant assets are completed and available for its intended use.
Intangible Assets Intangible assets, other than concession assets, acquired separately are measured on initial recognition at cost. The costs of intangible assets acquired in a business combination are their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over their estimated useful lives and assessed for impairment whenever there is an indication that an intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in profit or loss in the expense category consistent with the function of the intangible assets.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 51 Notes to Financial Statements
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If no longer supportable, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset is derecognized.
Property Use Rights. Property use rights are made up of land and building use rights that arose from transactions that qualified as business combinations, for which contracts are originally and legally in the form of lease. Property use rights are initially recognized at fair value at the date of business combination and subsequently amortized on a straight-line basis over the term of the lease (see Notes 14 and 33) and assessed for impairment whenever there is an indication that these are impaired.
Software Cost. Software cost (included as part of “Other noncurrent assets” account in the consolidated statement of financial position) includes the cost of software purchased from a third party, and other direct costs incurred in the software configuration and interface, coding and installation to hardware, including parallel processing and data conversion. Software cost is amortized on a straight-line basis over the estimated useful life of five years. The carrying cost is reviewed for impairment whenever there is an indication that software cost may be impaired.
Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use (VIU) and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses are recognized in profit or loss.
The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budgets and forecast calculations are generally covering a period of five years. For longer periods, a long term growth rate is calculated and applied to project future cash flows after the fifth year.
Impairment losses, including impairment on inventories, are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.
For nonfinancial assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. After such a reversal, the depreciation (in case of property and equipment) and amortization (in case of property use rights, service concession assets and software cost) charges are adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Goodwill. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the CGU, or group of CGUs, to which the goodwill relates. Where the recoverable amount of the CGU, or group of CGUs, is less than the carrying amount of the CGU or group of CGUs, to which goodwill had been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
52 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Customers’ Guaranty Deposits Customers’ guaranty deposits (included as part of “Deferred credits and other long-term liabilities” account in the consolidated statement of financial position) are initially measured at fair value. After initial recognition, these deposits are subsequently measured at amortized cost using the effective interest method. The discount is amortized over the remaining concession period using the effective interest method.
Assets Held in Trust Assets that are owned by Metropolitan Waterworks and Sewerage System (MWSS) but are used in the operations of Maynilad under the Concession Agreement, are not reflected in the consolidated statement of financial position but treated as Assets Held in Trust, except for certain assets transferred to Maynilad as mentioned in Note 34.
Convertible Bonds Convertible bonds are separated into liability and equity components based on the terms of the contract. On issuance of the convertible bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond. This amount is classified as a financial liability measured at amortized cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognized and included in equity. Transaction costs are apportioned between the liability and equity components of the convertible bonds based on the allocation of proceeds to the liability and equity components when the instruments are initially recognized. The carrying amount of the conversion option is not remeasured in subsequent years.
On conversion of a convertible bond, the carrying amount of the liability component is transferred to equity without affecting profit or loss. The amount transferred to equity is the amortized cost at the date of conversion, as originally calculated on initial recognition, based on management’s best estimate of the timing of conversion.
Equity Attributable to Owners of the Parent Company
Common Stocks. Common stocks are classified as equity and are measured at par value for all shares issued. Proceeds and/or fair value of consideration received in excess of par value are recognized as additional paid-in capital. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.
Preferred Shares. Preferred share is classified as equity if it is non-redeemable, or redeemable only at the Company’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Company’s BOD.
Preferred share is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as accrued.
Retained Earnings. Retained earnings represent accumulated earnings net of cumulative dividends declared, adjusted for the effects of equity restructuring and transactions with NCI and the effects of changes in accounting policies as may be required by the standards’ transitional provisions.
Cash Dividend. The Company recognizes a liability to distribute cash to equity holders of the Parent Company when the distribution is authorized and the distribution is no longer at the discretion of the Company. As per the corporate laws in the Philippines, a distribution is authorized when it is approved by the Board of Directors. A corresponding amount is recognized directly in equity.
Equity Reserves. Equity reserves are made up of equity transactions other than capital contributions such as equity component of a convertible financial instrument, transactions with NCI and share-based payment transactions or Executive Stock Option Plan (ESOP).
Other Comprehensive Income Reserve. OCI reserve comprises items of income and expenses that are recognized directly in equity. Certain OCI items are to be reclassified to profit and loss in subsequent periods.
Borrowing Costs Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset shall be determined as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that funds are borrowed generally, the
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 53 Notes to Financial Statements
amount of borrowing costs eligible for capitalization shall be determined by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period shall not exceed the amount of borrowing costs incurred during that period.
Capitalization of borrowing costs commences when the activities necessary to prepare the asset for intended use are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the asset is available for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, as well as exchange differences arising from foreign currency borrowings used to finance these projects, to the extent that they are regarded as an adjustment to interest costs.
All other borrowing costs are expensed as incurred.
Provisions and Contingencies
General. Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.
Warranties and Guarantees. Provision relates to estimated expenses of concluded and ongoing debt settlement negotiations and certain warranties extended in relation to debt for asset swap arrangements entered in prior years. The amount of provision is recognized upon entering into such arrangement and is based on historical experience or best estimate as a result of ongoing negotiations.
Provision for Heavy Maintenance. Provision for heavy maintenance pertains to the present value of the estimated contractual obligations of the Company to restore the service concession assets or toll roads to a specified level of serviceability during the service concession term and to maintain the same assets in good condition prior to turnover of the assets to the Philippine Government. The amount of provision is accrued every year and presented in profit or loss and is reduced by the actual obligations paid for heavy maintenance of the service concession.
Contingent Liabilities. Contingent liabilities are not recognized in the consolidated financial statements but are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable.
Contingent Liabilities Recognized in a Business Combination. A contingent liability recognized in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of the amount that would be recognized in accordance with the requirements for provisions above or the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with the requirements for revenue recognition.
Revenue and Income Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment, excluding discounts, rebates and sales taxes or duty. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:
54 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Revenue and income stream recognized under “Operating Revenues”:
§ Water and Sewerage Services Revenue. Revenues from water and sewerage services are recognized upon supply of water to the customers. Billings to customers consist of water, environmental and sewerage charges.
§ Toll Fees. Revenue from toll fees is recognized upon sale of toll tickets. Toll fees received in advance, through transponders or magnetic cards, is recognized as income upon the holders’ availment of the toll road services, net of sales discounts. The unused portion of toll fees received in advance is reflected in “Unearned revenue and other deposits” under “Accounts payable and other current liabilities” account in the consolidated statement of financial position.
§ Hospital Revenue. Revenue is recognized upon rendering of medical services and sale of medicines and other pharmaceutical products.
§ School Revenue - Tuition and Other School Fees. Tuition and other school fees are recognized as income over the corresponding school term. Tuition and other school fees related to the succeeding school term which are collected in advance are presented in “Unearned revenue and other deposits” under “Accounts payable and other current liabilities” in the consolidated statement of financial position.
Other revenue and income stream recognized under “Other income and expenses”:
§ Construction Revenue. See accounting policy under “Service Concession Arrangements: Revenue and cost recognition”.
§ Interest Income. Interest income is recognized as it accrues, using the effective interest method.
§ Dividend Income. Revenue is recognized when the right to receive the payment is established which is upon the declaration date.
§ Guarantee Fees. Guarantee fees are recognized in accordance with the terms of the agreement.
§ Sale of Investments. Gain or loss is recognized when risk and rewards of ownership had been transferred to the buyer.
§ Management Fees. Fees are recognized when services are rendered.
§ Other Income. Other income is recognized when there are incidental economic benefits, other than the usual business operations, that will flow to the Company and can be measured reliably.
Cost and Expenses Recognition Cost and expenses are recognized in profit or loss when a decrease in future economic benefit related to a decrease of an asset or an increase of a liability has arisen that can be measured reliably. Cost and expenses are recognized in profit or loss on the basis of systematic and rational allocation procedures when economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined; or immediately when expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify or cease to qualify, for recognition in the Company’s consolidated statement of financial position as an asset.
Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the agreement; b. A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; c. There is a change in the determination of whether the fulfillment is dependent on a specified asset; or d. There is a substantial change to the asset.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 55 Notes to Financial Statements
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and the date of renewal or extension period for scenario (b).
Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Operating lease payments, net of aggregate of benefit of lease incentives, are recognized as income in profit or loss on a straight-line basis over the lease term.
Retirement Benefits
Defined Contribution Plan. The Parent Company and MPTC each maintain a defined contribution plan that covers all regular full-time employees. Under the defined contribution plan, fixed contributions by the employer are based on the employees’ monthly salaries. However, the Parent Company, MPTC and MPTDC, being entities operating in the Philippines, are covered under Republic Act (RA) No. 7641, The Philippine Retirement Law, which provides for qualified employees a defined benefit minimum guarantee. The defined benefit minimum guarantee is equivalent to a certain percentage of the monthly salary payable to an employee at normal retirement age with the required credited years of service based on the provisions of RA 7641.
Accordingly, the Parent Company, MPTC and MPTDC account for the retirement obligation under the higher of the defined benefit obligation relating to the minimum guarantee and the obligation arising from the defined contribution plan.
For the defined benefit minimum guarantee plan, the liability is determined based on the present value of the excess of the projected defined benefit obligation over the projected defined contribution plan obligation at the end of the reporting period. The defined benefit obligation is calculated annually by a qualified independent actuary using the projected unit credit method. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to the defined benefit plan are recognized in profit or loss.
The defined contribution liability, on the other hand, is measured at the fair value of the defined contribution assets upon which the defined contribution benefits depend, with an adjustment for margin on asset returns, if any, where this is reflected in the defined contribution benefits.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains or losses on the settlement of a defined benefit plan when the settlement occurs.
Defined Benefit Plan. MPIC’s subsidiaries have funded, noncontributory retirement benefit plans covering all their eligible regular employees. The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method.
Defined benefit costs comprise the following: (a) service cost; (b) net interest on the net defined benefit liability or asset; and (c) remeasurements of net defined benefit liability or asset.
Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries.
56 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss.
Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other comprehensive income in the period in which they arise. These remeasurements are not reclassified to profit or loss in subsequent periods.
Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Company, nor can they be paid directly to the Company. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
The Company’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain.
Termination benefit. Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either an entity’s decision to terminate an employee’s employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment.
A liability and expense for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of those benefits and when the entity recognizes related restructuring costs. Initial recognition and subsequent changes to termination benefits are measured in accordance with the nature of the employee benefit, as either post-employment benefits, short-term employee benefits, or other long-term employee benefits.
Employee leave entitlement. Employee entitlements to annual leave are recognized as a liability when they are accrued to the employees. This is measured based on undiscounted amount of liability for leave expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees rendered the related services.
Share-based Payment The Company has an ESOP for eligible executives to receive remuneration in the form of share-based payment transactions, whereby executives render services in exchange for the share option.
The cost of equity-settled transactions with employees is measured by reference to the fair value of the stock options at the date at which they are granted. Fair value is determined using an option-pricing model, further details of which are set forth in Note 31. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the share price of the Parent Company (“market conditions”).
The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognized for equity-settled transactions at each end of reporting period until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate at that date of the number of awards that will ultimately vest. The profit or loss credit or expense for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized as employee benefits.
No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Where the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. If the modification increases the fair value of the equity instruments granted,
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 57 Notes to Financial Statements
as measured immediately before and after the modification, the entity shall include the incremental fair value granted in the measurement of the amount recognized for services received as consideration for the equity instruments granted. The incremental fair value granted is the difference between the fair value of the modified equity instrument and that of the original equity instrument, both estimated as at the date of the modification. If the modification occurs during the vesting period, the incremental fair value granted is included in the measurement of the amount recognized for services received over the period from the modification date until the date when the modified equity instruments vest, in addition to the amount based on the grant date fair value of the original equity instruments, which is recognized over the remainder of the original vesting period. If the modification occurs after vesting date, the incremental fair value granted is recognized immediately, or over the vesting period if the employee is required to complete an additional period of service before becoming unconditionally entitled to those modified equity instruments.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the counterparty are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were modifications of the original award, as described in the previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.
Long-term Employee Benefits The Company’s Long-Term Incentives Plan (LTIP) grants cash incentives to eligible key executives of the Parent Company and certain subsidiaries. Liability under the LTIP is determined using the projected unit credit method. Employee benefit costs include current service costs, interest cost, actuarial gains and losses, and past service costs. Past service costs and actuarial gains and losses are recognized immediately in profit or loss.
Foreign Currency-Denominated Transactions and Translations The consolidated financial statements are presented in Philippine Peso, which is the Parent Company’s functional and presentation currency. All subsidiaries and associates evaluate their primary economic and operating environment and determine their functional currency. Items included in the consolidated financial statements of each entity are initially measured using that functional currency. Transactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end of reporting period. All differences are taken to profit or loss except when qualified as adjustment to borrowing costs, and as discussed below for Maynilad.
Foreign exchange differentials relating to the restatement of concession fees payable are deferred in view of the automatic reimbursement mechanism as approved by the MWSS Board of Trustees under Amendment No. 1 of the Concession Agreement of Maynilad. Net foreign exchange losses are recognized as deferred Foreign Currency Differential Adjustments (FCDA) and net foreign exchange gains are recognized as deferred credits in the consolidated statement of financial position. The write-off of the deferred FCDA or reversal of deferred credits will be made upon determination of the new base foreign exchange rate as approved by the Regulatory Office during every Rate Rebasing exercise, unless indication of impairment of the deferred FCDA would be evident at an earlier date.
Foreign exchange differentials arising from other foreign currency-denominated transactions are credited or charged to operations.
Income Taxes Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date where the Company operates and generates taxable income.
Current income tax relating to items recognized directly in equity is recognized in equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred Tax. Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
58 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Deferred tax liabilities are recognized for all taxable temporary differences, except (a) where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income; and (b) in respect of taxable temporary differences associated with investments in subsidiaries, associates and interest in a joint venture, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable income will be available against which the deductible temporary differences and carryforward benefits of unused tax credits from MCIT and NOLCO can be utilized. Deferred tax, however, is not recognized when (a) it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss; and (b) in respect of deductible temporary differences associated with investments in subsidiaries, associates and interest in a joint venture, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable income will be available against which the temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each end of reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each end of reporting period and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in profit or loss.
Sales Tax Revenues, expenses and assets are recognized net of the amount of sales tax (commonly referred to as value-added tax), except:
§ Where the sales tax incurred on a purchase of assets or services is not recoverable from the tax authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable § Receivables and payables that are stated with the amount of sales tax included
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of other current assets and accounts payable and other current liabilities in the consolidated statement of financial position.
Earnings Per Share Basic earnings per share is calculated by dividing the net income for the year attributable to the owners of the Parent Company by the weighted average number of common shares outstanding during the year, after considering the retroactive effect of stock dividend declaration, if any.
Diluted earnings per share attributable to owners of the Parent Company is calculated in the same manner assuming that, the weighted average number of common shares outstanding is adjusted for potential common shares from the assumed exercise of convertible stock options and stock warrants, and issuance of common shares representing deposit for future stock subscription. Outstanding convertible stock options and stock warrants will have a dilutive effect only when the average market price of the underlying common shares during the year exceeds the exercise price of the option. Where the outstanding convertible stock options
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 59 Notes to Financial Statements
and stock warrants have no dilutive effect, diluted earnings per share is the same as basic earnings per share attributable to owners of the Parent Company.
Events after the Reporting Period Post year-end events that provide additional information about the Company’s financial position at the reporting date (adjusting events), if any, are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.
3. Management’s Use of Judgments and Estimates
The preparation of the consolidated financial statements in compliance with PFRS requires management to make judgments and estimates that affect the reported amounts of revenues, expenses, assets and liabilities, the disclosure of contingent liabilities and other significant disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
Judgments In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements.
Determination of Functional Currency. Based on the economic substance of the underlying circumstances relevant to the Parent Company and its subsidiaries, the functional currency of the Parent Company and its subsidiaries have been determined to be the Philippine Peso. The Philippine Peso is the currency of the primary economic environment in which the Parent Company and its subsidiaries operate. It is the currency that mainly influences revenue and expenses.
Consolidation of CIC. While presently not owning any of CIC’s common voting shares, the Company, through MPTC, considers that it controls CIC by virtue of the Management Letter-Agreement (MLA) (see Note 4). Under the MLA, MPTC has the power to solely direct the entire operations, including the capital expenditure and expansion plans of CIC. MPTC shall then receive all the financial benefits from CIC’s operations and all losses incurred by CIC are to be borne by MPTC.
Consolidation of structured entities. Subsidiaries included structured entities that were set-up for the benefit of the Company. Based on contractual terms, the Company assessed that the voting rights in these structured entities are not the dominant factor in deciding who controls these structured entities. Thus, these entities were assessed to be structured entities under PFRS 10 and, that the Company controls these structured entities. The voting shares of the third-party stockholders in these structured entities are accounted for as non-controlling interest in the consolidated financial statements.
Power to exercise significant influence. Where the Company holds less than 20% of voting rights in an investment but the Company has the power to exercise significant influence, such an investment is treated as an associate. In the opposite situation, where the Company holds over 20% of voting rights (but not over 50%) and the Company does not exercise significant influence, the investment is treated as an AFS investment. However, for the following entities, the Company applied the following judgment to determine proper investment classification:
§ Costa de Madera Corporation (Costa de Madera). Despite ownership interest of 62%, accounted for as an associate as control and management rest with the other shareholders (see Note 11).
§ Landco Pacific Corporation (Landco) and NE Pacific Shopping Center Corporation (NEPSCC). Despite the Company having representation in the board of directors, interests in these entities are classified as AFS financial assets consistent with management intention to sell these investments in line with strategic business review and decision to focus on infrastructure since 2008. MPIC subsequently sold all of its shares in NEPSCC on February 28, 2014 (see Notes 10 and 39).
§ Pacific Global One Aviation Company, Inc. (PGOACI). Despite having representation in the board of directors, the interest in this entity is classified as AFS financial asset because management and operations are accorded to the other incorporators. Interest in this entity is solely to have ready access to aircraft transportation services which is necessary for aerial surveys and other related emergencies and uses (see Note 10).
60 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Investment in Beacon Electric Asset Holdings, Inc. (Beacon Electric). The Company has investments in Beacon Electric’s common shares and preferred shares and made the following judgments with respect to these investments:
§ Investments in Beacon Electric’s common shares. For all joint arrangements structured in separate vehicles, the Company must assess the substance of the joint arrangement in determining whether it is classified as a joint venture or joint operation. This assessment requires the Company to consider whether it has rights to the joint arrangement’s net assets (in which case it is classified as a joint venture), or rights to and obligations for specific assets, liabilities, expenses, and revenues (in which case it is classified as a joint operation). Factors the Company considers include: structure, legal form, contractual agreement, and other facts and circumstances. Upon consideration of these factors, the Company has determined that its joint arrangement, structured through Beacon Electric as a separate vehicle, gives it rights to the net assets of Beacon Electric, and therefore classified its investment in Beacon Electric’s common shares, as a joint venture. The Company has 50% ownership interest in Beacon Electric through the common shares. The other 50% is held by PLDT Communications and Energy Ventures, Inc. (PCEV).
§ Investment in Beacon Electric’s preferred shares. In determining the appropriate accounting policy for the Company’s investment in financial instruments, factors that the Company consider included the following: contractual characteristics of the financial instrument; the purpose for which the instrument is held, for example, trading or long-term investment; and the accounting policy choice of the reporting entity. In applying the factors, the Company has made a judgment that PAS 39 is the appropriate accounting for its investment in preferred shares of Beacon Electric because: the preferred shares are non-voting and as such, would not provide the Company with control, joint control or significant influence over Beacon; the Company intends to hold the investment indefinitely; and the Company may decide to sell the instruments anytime at its discretion.
§ Investment in Meralco through Beacon Electric. Beacon Electric has 49.96% and 48.83% interest in Meralco as at December 31, 2013 and 2012, respectively. In applying PFRS 10, the Company has made a judgment that the decision making power of Beacon Electric over the Meralco shares is effectively delegated to the shareholders, PCEV and MPIC, and that Beacon Electric does not exercise any discretion over the vote to be taken in respect of the Meralco shares but is obligated to vote the Meralco shares strictly in accordance with the instructions of the two shareholders (see Note 11). Equity method of accounting remains to be the appropriate method of accounting for the Company’s interests in Beacon Electric and Meralco.
Service Concession Arrangements. In applying Philippine Interpretation IFRIC 12, the Company has made a judgment that the service concession arrangements of the Company’s water (Maynilad and PHI) and tollway (MNTC and CIC) businesses qualify under the intangible asset model as these companies receive the right to charge users of public service. Details of the Company’s accounting policy in respect of the service concession arrangement are set out in Note 2 to the consolidated financial statements. Other significant judgments made:
§ Service Concession Assets. The methods of amortization that the Company use depends on which method best reflect the pattern of consumption of the concession assets. For the water business, beginning January 1, 2013, Maynilad uses the UOP method for amortizing its service concession assets as it determined that the economic benefit of these assets are more closely aligned with billed volume (see Note 2).
The total carrying values of service concession assets amounted to =94,539.9P million and P=81,869.8 million as at December 31, 2013 and 2012, respectively (see Note 13).
§ Construction revenue and costs. The Company recognizes construction revenues and costs in accordance with PAS 11 (see Note 2). No profit margin is recognized given that the construction is usually subcontracted to third party contractors. Construction revenue recognized in the consolidated statements of comprehensive income amounted to =5,557.0P million, =6,730.7P million and =8,865.7P million for the years ended December 31, 2013, 2012 and 2011, respectively. Construction costs recognized in the consolidated statements of comprehensive income amounted to P=5,432.0 million, =6,608.0P million and =8,700.6P million for the years ended December 31, 2013, 2012 and 2011, respectively (see Note 27).
§ Provision for heavy maintenance. The Company also recognizes its contractual obligations to restore the toll roads to a specified level of serviceability. MNTC and CIC recognize provision following PAS 37 as the obligation arises which is a consequence of the use of the toll roads and therefore it is proportional to the number of vehicles using the roads and increasing in measurable annual increments. Provision for heavy maintenance amounted to P=433.0 million and =336.0P million as at December 31, 2013 and 2012, respectively, and these are presented under “Provisions” account in the consolidated statements of financial position (see Note 17).
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 61 Notes to Financial Statements
Lease Agreement Qualifying as Business Combination. CVHMC and EMHMC entered into lease agreements with the Roman Catholic Archbishop of Manila (RCAM), and Our Lady of Lourdes Hospital, Inc. (OLLHI) and Servants of the Holy Spirit, Inc. (SSps), respectively. The Company has assessed that the lease agreements meet the definition of a business combination, particularly since EMHMC and CVHMC have obtained control over the operations and management of hospitals. Hence, both lease agreements qualify as acquisitions of businesses and were accounted for in accordance with PFRS 3, resulting to the recognition of property use rights (see Note 14).
Transitional and Clarificatory Agreement (TCA). On August 9, 2007, Maynilad entered into a TCA with MWSS to prescribe the procedures for the resolution of their dispute (see Note 32). Pending resolution of the dispute, the disputed amounts of =4.9P billion and =4.5P billion as at December 31, 2013 and 2012, respectively, are considered contingent liabilities. However, with the prescription of the TCA and in light of Maynilad’s current negotiations and outstanding offer of US$14 million to fully settle the claim of MWSS, Maynilad reversed the balance of =378.1P million of accrued interest payable to other income in 2012. Likewise, the Company reassessed and derecognized the recorded contingent liability amounting to =686.6P million recognized in the Company’s financial statements as a result of the application of the accounting for business combinations when the Company acquired control of Maynilad (see Note 27).
Estimates The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.
Determination of Fair Value of Financial Instruments. The Company initially records all financial instruments at fair value and subsequently carries certain financial assets and financial liabilities at fair value, which requires extensive use of accounting estimates and judgment. Valuation techniques are used particularly for financial assets and financial liabilities that are not quoted in an active market. Where valuation techniques are used to determine fair values (e.g., discounted cash flow and option pricing models), they are periodically reviewed by qualified personnel who are independent of the persons that initiated the transactions. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data as valuation inputs. However, other inputs such as credit risk (whether that of the Company or the counterparties), forward prices, volatilities and correlations, require management to develop estimates or make adjustments to observable data of comparable instruments. The amount of changes in fair values would differ if the Company uses different valuation assumptions or other acceptable methodologies. Any change in fair value of these financial instruments would affect either the consolidated statement of comprehensive income or consolidated statement of changes in equity.
Fair values of financial assets and financial liabilities are presented in Note 37.
Purchase Price Allocation in Business Combinations, Goodwill and Gain on Bargain Purchase. The Company accounts for the acquired businesses using the acquisition method which require extensive use of accounting judgments and estimates to allocate the purchase price to the fair market values of the acquiree’s identifiable assets and liabilities and contingent liabilities, if any, at the acquisition date. Any difference in the purchase price and the fair values of the net assets acquired is recorded as either goodwill in the consolidated statement of financial position or gain on bargain purchase in profit or loss. Thus, the numerous judgments made in estimating the fair value to be assigned to the acquiree’s assets and liabilities can materially affect the Company’s financial position and performance.
The Company’s acquisitions of certain subsidiaries have resulted in recognition of goodwill. The carrying values of goodwill as at December 31, 2013 and 2012 amounted to P=18,308.2 million and =13,155.2P million, respectively (see Note 12). The acquisitions of MSIHI and OLLH have resulted into a gain on bargain purchase of =57.3P million and =30.8P million, respectively, and were presented under “Other income” account in the 2011 consolidated statement of comprehensive income (see Note 27). The acquisition of CLDH in 2013 also resulted in a gain on bargain purchase of P=22.1 million based on the provisional purchase price allocation (see Notes 4 and 27).
Impairment of Loans and Receivables. The Company estimates the allowance for doubtful accounts related to receivables using a combination of specific and collective assessments. The amounts calculated in each level of impairment assessment are combined to determine the total amount of allowance for doubtful accounts. First, the Company evaluates specific accounts that are considered individually significant for any objective evidence that certain customers are unable to meet their financial obligations. In these cases, the Company uses judgment, based on the best available facts and circumstances, including but not limited to, the length of its relationship with the customer and the customer’s current credit status based on third party credit reports and known market factors. The allowance
62 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 provided is based on the difference between the present value of cash flows of the receivable that the Company expects to collect, discounted at the receivables’ original effective interest rate, and the carrying amount of the receivable. These specific allowances are re- evaluated and adjusted as additional information received affects the amounts estimated. If no impairment loss is determined for an individually assessed receivable, the receivable is included in a group of receivables with similar credit risk characteristics and is collectively assessed for impairment. The provision under collective assessment is based on historical collection and write-off experience and change in customer payment terms. Impairment assessment is performed on a continuous basis throughout the year.
The carrying values of receivables, net of allowance for doubtful accounts, amounted to =4,342.0P million and P=10,939.8 million as at December 31, 2013 and 2012, respectively. Allowance for doubtful accounts amounted to =866.7P million and =746.5P million as at December 31, 2013 and 2012, respectively (see Notes 8 and 36).
Impairment of AFS Financial Assets. The Company treats an AFS equity financial asset as impaired when there had been a significant or prolonged decline in the fair value below its acquisition cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Company treats “significant” generally as 20.0% or more and “prolonged” as greater than 12 months for quoted equity securities. In addition, the Company evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and the discount factors for unquoted equities.
For debt instruments classified as AFS financial assets, the Company considers loss events that has an impact on the estimated future cash flows of the financial asset, among others, the issuer is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization. Other observable data may indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
No impairment loss was recognized for AFS financial assets for the years ended December 31, 2013, 2012 and 2011. The carrying value of AFS financial assets, including investments in Beacon Electric preferred shares, amounted to =16,385.3P million and P=13,085.0 million as at December 31, 2013 and 2012, respectively (see Notes 9, 10, 11 and 36).
Impairment of Goodwill. Goodwill is subject to annual impairment test. This requires an estimation of the value in use of CGUs to which the goodwill is allocated. Estimating the value in use requires the Company to estimate the expected future cash flows from the CGU and to choose a suitable discount rate in order to calculate the present value of those cash flows. No impairment of goodwill was recognized in 2013, 2012 and 2011. The carrying value of goodwill amounted to =18,308.2P million and P=13,155.2 million as at December 31, 2013 and 2012, respectively (see Note 12).
Impairment of Nonfinancial Assets. Impairment review is performed when certain impairment indicators are present. Determining the fair value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations.
The carrying values of non-financial assets subject to impairment review when impairment indicators are present are as follows:
2013 2012 (In Millions) Service concession assets (see Note 13) P=94,540 =81,870P Equity method investees (see Note 11) 36,525 32,755 Property and equipment (see Note 14) 6,859 6,049 Property use rights (see Note 14) 649 689 Software costs (see Note 15) 73 86
Other than the impairment losses on property and equipment of P=22.6 million for the year ended December 31, 2011, there were no impairment losses recognized on other non-financial assets for each of the three years in the period ended December 31, 2013.
Estimated Useful Lives of Property and Equipment, Property Use Rights and Software Costs. The useful lives of each of the item of the Company’s service concession assets, property and equipment, property use rights, and software costs, are estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of similar businesses, internal
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 63 Notes to Financial Statements
technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed at each financial year-end and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any item of property and equipment, property use rights and software costs would increase the recorded depreciation and amortization expense and decrease the carrying values of service concession assets, property and equipment and software costs.
There was no change in the estimated useful lives of the property use rights, property and equipment, and software costs for all the periods presented.
Taxes. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the diversity of the Company’s businesses and the long-term nature and complexity of existing contractual agreements or the nature of the business itself, changes in differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities in which the Company operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective domicile or to the operations of the Company.
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The carrying amount of deferred tax assets is reviewed at each end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. The Company performs an annual evaluation of the realizability of deferred income tax assets in determining the portion of deferred tax assets which should be recognized. The Company’s assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the forecasted taxable income of the following period. This forecast is based on the Company’s past results and future expectations on revenue and expenses.
Maynilad and CIC recognize deferred tax assets on deductible temporary differences expected to reverse after the income tax holiday period, while deferred taxes on deductible temporary differences expected to reverse during the income tax holiday and to items where doubt exists as to the tax benefits they will bring in the future, are not recognized (see Note 29).
Net recognized deferred tax assets amounted to =1,218.2P million and =529.7P million as at December 31, 2013 and 2012, respectively. The Company’s deductible temporary difference, unused NOLCO and MCIT for which no deferred tax assets have been recognized amounted to =5,181.9P million and =6,537.0P million as at December 31, 2013 and 2012, respectively (see Notes 15 and 29).
The change in amortization method starting January 1, 2013 for the concession assets relating to the water business (Maynilad’s concession assets) from straight-line to UOP resulted in deferred tax asset write-off amounting to =592.0P million in 2012 (see Note 2).
Deferred FCDA and Deferred Credits. Maynilad is entitled to recover (refund) foreign exchange losses (gains) arising from restatement and payments of concession fees payable. For the unrealized foreign exchange losses, Maynilad recognized deferred FCDA as an asset since this is a resource controlled by Maynilad as a result of past events and from which future economic benefits are expected to flow to Maynilad. Unrealized foreign exchange gains, however, which will be refunded to the customers, are presented as deferred credits.
In accordance with MWSS-RO Resolution No. 2009-069, the new base foreign exchange rate was changed from =51.86P to =48.04P effective May 4, 2009.
Net deferred credits pertaining to these foreign exchange gains amounted to =478.2P million and P=2,529.0 million as at December 31, 2013 and 2012, respectively (see Note 20).
Retirement Costs. The cost of the defined benefit pension plan and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the
64 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions, described in Note 25, are reviewed at each reporting date.
Accrued retirement liability under the defined benefit plan amounted to P=333.2 million and =327.1P million as at December 31, 2013 and 2012, respectively (see Notes 20 and 25).
Share-based Payments. The Company measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payments requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. This also requires determining the most appropriate inputs to the valuation model including the expected life of the option, volatility and dividend yield, and making assumptions about them. The assumptions and models used for estimating fair value for share-based payments are disclosed in Note 31. The Company recognizes expenses based on the estimated number of grants that will ultimately vest and will require settlement. The Company’s average turnover rate over the past few years is used to determine the attrition rate in computing the benefit expense and the estimated liability.
Equity-based compensation expense recognized in 2013, 2012 and 2011 amounted to =18.2P million, =13.4P million and =42.0P million, respectively (see Notes 25 and 31).
Long-Term Incentives Plan (LTIP). The LTIP for key executives of MPIC and certain subsidiaries was approved by the Compensation Committee and the BOD and is based on profit targets for the covered performance cycle. The cost of LTIP is determined using the projected unit credit method based on prevailing discount rates and profit targets. While management’s assumptions are believed to be reasonable and appropriate, significant differences in actual results or changes in assumptions may materially affect the Company’s other long-term incentive benefits.
LTIP expense for the years ended December 31, 2013, 2012 and 2011 amounted to =411.0P million, =164.9P million and P=147.5 million, respectively, and presented as “Personnel costs” under “General and administrative expenses” in the consolidated statements of comprehensive income. LTIP liability as at December 31, 2013 and 2012 amounted to P=455.2 million and =445.5P million, respectively, and is presented under “Accounts payable and other current liabilities” and “Deferred credits and other long-term liabilities” account in the consolidated statements of financial position (see Notes 16, 20 and 25).
Provisions. The Company recognizes provisions based on estimates of whether it is probable that an outflow of resources will be required to settle an obligation. Where the final outcome of these matters is different from the amounts that were initially recognized, such differences will impact the financial performance in the current period in which such determination is made.
Provisions mainly consist of provision for estimated expenses related to the concluded and ongoing debt settlement negotiations and certain warranties and guarantees, claims and potential claims against the Company, and provision for heavy maintenance. The provisions for the heavy maintenance requires an estimation of the periodic cost, generally estimated to be every five to seven years or the expected heavy maintenance dates, to restore the assets to a level of serviceability during the concession term and in good condition before turnover to the Grantor. This is based on the best estimate of management to be the amount expected to be incurred to settle the obligation at every heavy maintenance dates discounted using a pre-tax rate that reflects the current market assessment of the time value of money and the risk specific to the liability.
Additional provisions for the years ended December 31, 2013, 2012 and 2011 amounted to =1,467.7P million, P=982.1 million and P=856.5 million, respectively. Cumulative provisions amounted to =4,988.7P million and =3,922.3P million as at December 31, 2013 and 2012, respectively (see Note 17).
Contingencies. Certain subsidiaries of the Company are parties to certain lawsuits or claims arising from the ordinary course of business. However, the Company’s management and legal counsel believe that the eventual liabilities under these lawsuits or claims, if any, will not have a material effect on the consolidated financial statements (see Note 32).
4. Business Combinations and Acquisition of Non-controlling Interests
The Company’s intention is to maintain and continue to develop a diverse set of infrastructure assets through its investments in water utilities, toll roads, power distribution and health care services. The Company is therefore committed to investing through acquisitions
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 65 Notes to Financial Statements
and strategic partnerships in prime infrastructure assets with the potential to provide synergies with its existing operations. Accordingly, the following acquisitions were made in 2013 and 2012.
With the exception of the acquisition of NCI in Megaclinic, the acquisitions below were accounted for as business combinations using the acquisition method:
Acquisitions in 2013
Acquisition of CIC
In relation to the Convertible Note Agreement executed by and between MPTC and Cavitex Holdings Inc.(CHI) as discussed in Note 8, MPTC, CHI with the conformity of its then subsidiary CIC, executed a Management Letter-Agreement dated December 27, 2012, for the management of CIC by MPTC. Under the Management Letter-Agreement, management of CIC by MPTC commenced on January 2, 2013 and will continue until the issuance of the New CIC Shares in favor of MPTC as a result of the conversion into or exchange of the CHI Preferred Shares for the said New CIC Shares (“Management Period”). Also under the Management-Letter Agreement, MPTC shall receive all the financial benefits from CIC’s operations and all losses incurred by CIC shall be borne by MPTC. Thus, by virtue of the Management Letter-Agreement, MPTC acquired control over CIC effective January 2, 2013.
CIC holds the concession for the operation and maintenance of the Manila-Cavite Toll Expressway (“CAVITEX”). The CAVITEX is a 14-km long toll road built in two segments running from Parañaque to Cavite. The concession period extends to 2033 for the originally built road and to 2046 for a subsequent extension.
The allocation of the total cost of acquisition to identifiable assets, liabilities and contingent liabilities using fair values as at January 2, 2013 is shown below:
Final Fair Values Recognized on Acquisition (In Millions) Assets Cash and cash equivalents =P746 Receivables and other current assets 3 Concession asset (see Note 13) 9,614 Advances to contractors 73 Property and equipment (see Note 14) 25 Other noncurrent assets 664 11,125 Liabilities Accrued expenses and other current liabilities 367 Due to a related party 420 Long-term debt 7,005 Provision for heavy maintenance (see Note 17) 228 Contingent liability (see Note 20) 1,100 Deferred tax liability – net 163 Other noncurrent liabilities 6 9,289 Total identifiable net assets at fair value 1,836 Goodwill arising on acquisition (see Note 12) 4,966 Consideration transferred =P6,802
Total consideration transferred consists of the fair values of the Convertible Note and the related derivative asset arising from the conversion feature amounting to =6.6P billion and =0.2P billion, respectively (see Notes 8 and 36). No transaction costs were incurred for the business combination.
The fair value and gross amount of the receivables amounted to P=3.0 million. None of the receivables have been impaired and it is expected that the full contractual amounts will be collected.
66 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 A contingent liability at a fair value of =1,100.1P million was recognized at the acquisition date arising from probable claim from a third party. As at December 31, 2013, the contingent liability amounted to P=1,142.2 million with the increase arising from the passage of time. An indemnification asset (included in “Other noncurrent assets”) amounting to =513.4P million as of acquisition date, was recognized in relation to such probable claim. As at December 31, 2013, the indemnification asset increased to P=533.0 million with the increase arising from passage of time (see Note 15). No further disclosures regarding the contingent liability arising from the probable claim are made by MPTC at this time as MPTC believes that such further disclosures might be prejudicial to its position.
The goodwill of =4,966P million that arose on the acquisition can be attributed to the synergies expected to be derived from the business combination, particularly in connection with MPTC’s other existing and planned tollroad projects. None of the goodwill is expected to be deductible for tax purposes.
Net cash outflow on acquisition is as follows:
Amount (In Millions) Total cash paid on acquisition(a) =P6,772 Cash acquired with the subsidiary(b) (746) Net cash outflow =P6,026 (a)Cash paid on acquisition represents the cash consideration for the Convertible Notes Receivable (see Note 8). (b)Cash acquired with the subsidiary is included in cash flows from investing activities.
From January 2, 2013 (the date of acquisition) to December 31, 2013, CIC contributed P=1,052.2 million and =251.8P million to the Company’s consolidated revenue and consolidated net income, respectively.
Acquisition of DLSMC and CLDH
On June 3, 2013, the Company, through NSHI, acquired 51% of the voting equity interest in DLSMC, a tertiary teaching and training hospital, by subscribing to 401,942 common shares. Total cash paid as consideration for the acquisition amounted to =132.9P million. Megaclinic, an ambulatory care center in SM Megamall, is a subsidiary of DLSMC as at acquisition date, and the Company’s first investment in a non-hospital-based diagnostic center.
On October 24, 2013, the Company completed the acquisition of 51% equity ownership in Central Luzon Doctors’ Hospital, Tarlac’s largest private hospital, for a total nominal consideration of P=188.8 million to be paid on a deferred arrangement. The fair value of the consideration is at =149.6P million, of which P=52.1 million remains outstanding as at December 31, 2013. The funding will go towards the purchase of major medical equipment and the implementation of an infrastructure development plan highlighted by the construction of a new building to house new operating rooms, as well as additional patient beds and doctors’ clinics.
The Company acquired DLSMC and CLDH as part of its strategy to grow its portfolio and increase the Company’s total bed capacity and to be the largest private hospital group in the Philippines.
The provisional fair values of the identifiable assets and liabilities of DLSMC and CLDH as at the date of acquisition:
DLSMC CLDH (In Millions) Assets Cash and cash equivalents =P164 =P128 Receivables 95 36 Other current assets 43 19 Property and equipment (see Note 14) 178 217 Other noncurrent assets 26 52 506 452 (Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 67 Notes to Financial Statements
Liabilities Accounts payable and accrued expenses =P160 =P70 Other current liabilities 11 – Long term debt 64 – Deferred tax liability – net – 25 Other noncurrent liabilities 23 24 258 119 Total identifiable net assets at fair value 248 333 Non-controlling interest (122) (161) Provisional goodwill arising on acquisition (see Note 12) 7 – Bargain purchase – (22) Consideration transferred =P133 =P150
Net cash inflow on acquisition is as follows:
DLSMC CLDH (In Millions) Cash acquired with the subsidiary(a) =P164 =P128 Total cash paid on acquisition (133) (97) Net cash inflow =P31 =P31 (a)Cash acquired with the subsidiary is included in cash flows from investing activities.
The fair value of the property and equipment is provisional pending receipt of the final valuations for those assets. The fair value and gross amount of DLSMC’s trade receivables amounted to =95.0P million and =154.0P million, respectively. The fair value and gross amount of CLDH’s trade receivables amounted to =36.0P million and =56.1P million, respectively. The difference between the fair value and the gross amount of the receivables represents the portion expected to be uncollectible.
The goodwill arising from the acquisition of DLSMC is primarily attributed to the expected synergies and other benefits from combining the assets and activities of DLSMC with those of the hospitals of the Company. The goodwill is not deductible for income tax purposes. Bargain purchase resulting from the acquisition of CLDH is included in the “Other income” in the statement of comprehensive income.
The non-controlling interests were recognized as a proportion of net assets acquired.
From the date of acquisition, DLSMC and CLDH have contributed P=250.4 million and =61.4P million, respectively, to the consolidated revenue and =24.9P million of net profit and P=0.4 million of net loss, respectively, to the consolidated net income of the Company. If the combination had taken place at the beginning of the year, contributions to the consolidated revenue and consolidated net income would have been P=388.4 million of revenue and P=16.9 million of net profit for DLSMC and P=356.0 million of revenue and =5.8P million of net loss for CLDH, respectively, for the year ended December 31, 2013.
Total transaction costs of P=5.3 million have been expensed. Of the total transaction costs, P=2.1 million was included in “General and administrative expenses” in the consolidated statement of comprehensive income and are part of operating cash flows for the year ended December 31, 2013. The remaining P=3.2 million portion of the transaction costs were recognized in the latter part of 2012.
Acquisition of NCI in Megaclinic As at June 3, 2013, DLSMC had a 77.24% direct ownership interest in Megaclinic. On August 16, 2013, DLSMC sold its entire ownership in Megaclinic to its shareholders, resulting in the sale of 51% of its direct ownership interest in Megaclinic to NSHI for a cash consideration of =17.3P million. The 11.61% increase in effective ownership in Megaclinic is accounted for as an equity transaction for the acquisition of non-controlling interest with the consideration paid of =17.3P million equal to the provisional carrying value of additional interest acquired.
68 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Acquisition in 2012
Acquisition of PHI
On August 3, 2012, Maynilad acquired 100% of the voting shares of PHI, a company engaged in waterworks construction, engineering and consulting services and holds Bulk Water Supply Agreements in Central Luzon. Maynilad acquired PHI to expand its water business outside its existing concession area, as well as gain a foothold in the underserved growth area of the Province of Bulacan. Total consideration amounted to P=526.9 million (net of the negotiated discount of =68.0P million), payable in tranches and upon fulfillment and completion of certain conditions precedent. The negotiated discount resulted from PHI’s failure to deliver certain documents and fulfill certain conditions precedent.
Unpaid portion of the acquisition cost as at December 31, 2013 amounting to =121.6P million remains unsettled pending satisfaction of all the conditions precedent. The conditions precedent (mostly consisting of certain documentary requirements) are expected to be substantially fulfilled in 2014.
Amount (In Millions) Cash paid in 2012 =P210 Cash paid in 2013 195 Liability as at December 31, 2013 122 Consideration transferred =P527
The net assets recognized in the December 31, 2012 financial statements were based on a provisional assessment of fair value while Maynilad sought an independent valuation for the intangible assets owned by PHI. The valuation had not been completed by the date the 2012 consolidated financial statements were approved for issue by the BOD.
In August 2013, the valuation was completed and the acquisition date fair values of the service concession assets and other noncurrent assets were =394.1P million (an increase of =101.5P million over the provisional value) and P=2.9 million (a decrease of =359.2P million over the provisional value), respectively. Goodwill and deferred tax liability have been adjusted accordingly. However, since the effect of the adjustments is not material to the 2012 comparative information, the previous year financial statements were no longer restated and the adjustments were made in 2013.
The provisional and final fair values of the identifiable assets and liabilities of PHI as at the date of acquisition are as follows:
Provisional Final Fair Fair Values Values Recognized on Recognized on Acquisition Acquisition (In Millions) Assets Cash and cash equivalents =P3 =P3 Receivables and other current assets 40 40 Service concession assets (see Note 13) 293 394 Other noncurrent assets 362 3 698 440 Liabilities Accounts payable and other current liabilities 105 13 Notes payable 66 66 Deferred tax liabilities 108 30 Other noncurrent liabilities – 92 279 201 Total net identifiable assets 419 239 Goodwill arising on acquisition (see Note 12) 108 288 Consideration transferred =P527 =P527
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 69 Notes to Financial Statements
Net cash outflow on acquisition for the years ended December 31, 2013 and 2012 are as follows:
2013 2012 (In Millions) Total cash paid =P195 =P210 Transaction costs(a) – 1 Cash acquired with the subsidiary(b) – (3) Net cash outflow =P195 =P208 (a)Transaction costs amounting to =1.3.P million was included in the “General and administrative expenses” in the consolidated statement of comprehensive income and included in the operating cash flow. (b)Cash acquired with the subsidiary is included in cash flows from investing activities.
None of the goodwill is expected to be deductible for tax purposes. The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of PHI with those of Maynilad. The fair value and gross amount of the receivables amounted to P=19.6 million. None of the receivables have been impaired and it is expected that the full contractual amounts can be collected.
From the date of acquisition to December 31, 2012, PHI contributed =7.4P million to the consolidated net income of the Company. If the combination had taken place as at January 1, 2012, PHI’s contribution to the Company’s consolidated net income for the year ended December 31, 2012 would have been P=10.7 million and its contribution to the Company’s consolidated revenues would have been =48.5P million.
5. Operating Segment Information
An operating segment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses, whose operating results are regularly reviewed by the Company’s chief operating decision maker who makes decisions about how resources are to be allocated to the segment and assesses its performance, and for which discrete financial information is available.
For management purposes, the Company is organized into the following segments based on services and products:
§ Water utilities, which relate to the provision of water and sewerage services by DMWC and its subsidiaries Maynilad and PHI.
§ Toll operations, which primarily relate to operations and maintenance of toll facilities by MPTC and its subsidiaries MNTC and CIC, and an associate, Tollways Management Corporation (TMC).
§ Power distribution, which primarily relates to the operations of Manila Electric Company (Meralco) in relation to the distribution and supply of electricity.
§ Healthcare, which primarily relates to operations and management of hospitals, nursing and medical school and such other enterprises that have similar undertakings.
§ Others, which represent holding companies and operations of subsidiaries involved in real estate and provision of services. Real estate primarily relates to the operations of NOHI.
Customer Tariffs. The Company’s results of operations are highly dependent on ability to set and collect adequate tariffs for its Water Utilities, Toll Operations and Power segments:
Maynilad Under Maynilad’s concession agreement with the Philippine government (see Note 13), Maynilad may request tariff rate adjustments based on movements in the Philippine consumer price index, foreign exchange currency differentials, a rate rebasing process scheduled to be conducted every five years (‘‘Rate Rebasing’’) and certain extraordinary events. Any rate adjustment requires approval by MWSS and the Regulatory Office. Any tariff adjustments that are not granted, in a timely manner, in full or at all, could have a material adverse effect on the Company’s results of operations and financial condition.
70 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 For the Fourth Rate Rebasing Period, Maynilad submitted the business plan for the determination of the Rates Adjustment Limit to be applied to the standard rates for the period 2013 to 2017. MWSS released Board of Trustees Resolution No. 2013-100-RO dated September 12, 2013 and Regulatory Office (RO or Regulatory Office) Resolution No. 13-010-CA dated September 10, 2013 on the rate rebasing adjustment for the rate rebasing period 2013 to 2017 reducing Maynilad’s 2012 average all-in basic water charge by 4.82% or P=1.46 per cubic meter (cu.m) or P=0.29 per cubic meter (cu.m) per year over the next five years. Maynilad has formally notified its objection and initiated arbitration proceedings. On October 4, 2013, Maynilad filed its Dispute Notice before the Appeals Panel. On December 17, 2013, the Regulatory Office released Resolution No. 13-011-CA regarding the implementation of a status quo for Maynilad’s Standard Rates and Foreign Currency Differential Adjustment (FCDA) for any and all its scheduled adjustments until such time that the Appeals Panel has issued the Final Award. Hearings are expected to commence once the rest of the panel is formed, which panel has not been completed as at March 19, 2014.
MNTC and CIC MNTC and CIC derive substantially all of their revenues from toll collections from the users of the toll roads. The concession agreements establish a toll rate formula and adjustment procedure for setting the appropriate toll rate. As at March 19, 2014, MPTC continues to await approval by the government of toll rate adjustments for R1 of CAVITEX and NLEX, which should have been effective from January 1, 2012 and January 1, 2013, respectively.
Meralco Meralco was among the first entrants to the Performance-Based Regulation (PBR). Rate-setting under PBR is governed by the Rules for Setting Distribution Wheeling Rates (RDWR). The PBR scheme sets tariffs based on the regulated asset base of the Distribution Utility (DU), and the required operating and capital expenditures once every regulatory period (RP), to meet operational performance and service level requirements responsive to the need for adequate, reliable and quality power, efficient service, growth of all customer classes in the in the franchise area as approved by the Energy Regulatory Commission (ERC). PBR also employs a mechanism that penalizes or rewards a DU depending on its network and service performance. Rate filings and setting are done every regulatory period (RP) where one RP consists of four regulatory years. A regulatory year (RY) begins on July 1 and ends on June 30 of the following year. As at December 31, 2013, Meralco is operating in the second half of the third RY of the third RP. The third RP is from July 1, 2011 to June 30, 2015.
Meralco also files with the ERC its applications for recoveries of advances for pass-through costs. These advances consist mainly of unrecovered or differential generation and transmission charges technically referred to as under-recoveries, which are recoverable from the customers, as allowed by law.
Segment performance and monitoring. The Company’s chief operating decision maker is the BOD. The BOD monitors the operating results of each business unit separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on: consolidated net income for the year; earnings before interest, taxes and depreciation and amortization, or Core EBITDA; Core EBITDA margin; and core income. Net income for the year is measured consistent with consolidated net income in the consolidated financial statements.
Core EBITDA is measured as net income excluding depreciation and amortization of property and equipment and intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity in net earnings (losses) of associates and joint ventures, net foreign exchange gains (losses), net gains (losses) on derivative financial instruments, provision for (benefit from) income tax and other non-recurring gains (losses). Core EBITDA margin pertains to Core EBITDA divided by service revenues. Performance of the operating segments is also assessed based on a measure of recurring profit or core income. Core income is measured as net income attributable to owners of the Company excluding the effects of foreign exchange and derivative gains or losses and non-recurring items (NRI), net of tax effect of aforementioned. NRI represent gains or losses that, through occurrence or size, are not considered usual operating items. Segment expenses and segment results exclude transfers or charges between business segments. These transfers are also eliminated for purposes of the consolidated financial statements. For the years ended December 31, 2013, 2012 and 2011, no revenue transactions with a single customer accounted for 10% or more of the Company’s consolidated revenues. Segment capital expenditure is the total cost incurred during the period to acquire property and equipment, and intangible assets other than goodwill.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 71 Notes to Financial Statements
The following table shows the reconciliations of the Company’s consolidated Core EBITDA to consolidated net income for the years ended December 31, 2013, 2012 and 2011. 2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Consolidated Core EBITDA P=17,264 =15,644P =12,945P Depreciation and amortization (3,766) (3,845) (3,126) Consolidated EBIT 13,498 11,799 9,819 Adjustments to reconcile with consolidated net income: Interest income 462 651 695 Share in net earnings of equity method investees 2,294 1,993 1,751 Interest expense (3,990) (3,668) (3,647) Non-recurring gains (losses) - net (192) 94 (927) Benefit from income tax (593) (1,662) (475) Consolidated net income for the year P=11,479 =9,207P =7,216P
The following table shows the reconciliations of Company’s consolidated core income to the Company’s consolidated net income for the years ended December 31, 2013, 2012 and 2011. 2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Consolidated core income for the year P=7,229 =6,564P =5,102P Foreign exchange gains (losses) - net 70 885 (250) Other non-recurring losses (340) (855) (545) Net tax effect of aforementioned adjustments 250 (687) 75 Net income for the year attributable to owners of the Parent Company 7,209 5,907 4,382 Net income for the year attributable to non-controlling interest 4,270 3,300 2,834 Consolidated net income for the year P=11,479 =9,207P =7,216P
Difference between the combined segment assets and the consolidated assets consist of adjustments and eliminations comprising of goodwill, deferred tax and derivative assets. Difference between the combined segment liabilities and the consolidated liabilities largely consist of deferred tax and derivative liabilities.
The segment revenues, net income for the year, assets, liabilities, and other segment information of the Company’s reportable operating segments as at and for the years ended December 31, 2013, 2012 and 2011 are detailed in the succeeding tables.
72 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 ) ) ) ) ) ) ) ) ) 8 6 5 6 7 2 7 8 3 56% 48 9 56% (20) (70) (20) 657 30 300 970 242 854 123 766 834 528 835 (77 ( , , , ( 8,783 4,572 1,9 6,565 9, 4,935 2,294 7,229 7,209 7 3 (5,1 (3,01 (3,43 (P=192) 27,80 16,639 11,799 P (5, (3, (4,200) =5,908 30,87 19,03 13,498 48 (11,16 P = P = P P =15,644 (11,845) = 151,730 200,584 P = P= 1 7 , 2 6 4 P= 8 7 , 3 0 4 P = – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – % P P P =– =– P= – P = P = P = = P= – –% – 19,558 19,558 P = Eliminations Eliminations Consolidated Eliminations Consolidated Adjustments/ ) ) ) ) ) – – – – – – – – 2 – 3 – 6 – 7 % (8) 41 29 P P = = 61 3 44 –% (4 – (28) 198 P = (901) (94 (3 (21 (986) (925) (395) (164) (164) =303) (P 6,859 7,057 1,512 (1,230) (1,273) (1,273) (P=880) =1,489) (1,320) (1,348) (1,348) P= 7 , 4 3 8 P= 3 , 7 7 4 P = P = (P (
(In Millions) (In 3 – – – – – – – – – – – – – – – – – – – 1 (9) % (9) P P =– P= – P = P = = –% – (P=9) (P=156) 561 561 561 561 405 405 405 405 (226) P= 4 0 5 1,65 2,212 1,928 2,333 2,324 P Power =1,986 44,087 44,087 P = P = Distribution Distribution Businesses Other Distribution Businesses Other ) ) ) ) ) ) ) 6 7 5 8 6 3 4 ( (3) (1) 26% 77 40 28 28 27% (5 (96) 154 13 846 606 373 507 149 990 758 442 139 581 609 84 588 645 232 220 P= 3 2 (240) (17 ( ( P =502 P = P = 2,163 5,1 5,82 2,48 9,379 2,310 (2,9 (1,471) P (3,342) (1, P =1,350 = 11,689 P = P = Year Ended December 31, 201 31, December Year Ended ) ) ) ) ) ) 6 4 9 8 1 4 7 8 9 61% 37 37 62% 101 15 20 200 227 134 47 862 (66 (54 (68 (86 ( (775) (944) (782) (848) P = 3,968 3,461 2,912 1,363 1,571 6,784 8,154 4,796 4,221 3,277 1,647 1,874 1,911 2,125 (2,81 (P=106) P P (3,358) P =4,145 =1,470 = 35,368 37,493 P = P = P = ) ) ) – 5 1 – 09 66% 88 88 66% (78) 305 261 119 134 P= 4 7 (605) (1 (515) 7,832 5,934 3,548 3,548 8,807 6,850 3,789 3,789 3,877 5,769 2,272 (5,37 (2,07 (1,898) (2,691) 15,883 10,508 (5,145) (2,428) (1,957) (3,322) P =3,439 16,895 11,750 80,566 80,700 P = P = P P =10,452 = P = P = P= 1 1 , 0 7 8 P= 5 , 0 8 3P= 4 8 , 5 P= 4 1 7 , 5 7 8 P= 2 2 , 3 6 2 P= 5 , 1 8 3 Water Utilities Utilities Water Operations Toll Healthcare Utilities Water Operations Toll Healthcare Core Income Core Income - - net equity method investees method equity – Operations controlling Interest and Income Tax net - – controlling Interest and Income Tax - recurring Income (Charges) - before Financing Charges Financing before recurring charges controlling interest controlling - - Service concession assets and property and equipment and and property assets Service concession Provision for (benefit from) income tax income from) (benefit for Provision The following table presents consolidated information on core income and certain assets and liabilities regarding business segments for the years ended years the for segments business regarding liabilities and assets certain and income core on information consolidated presents table following The December 31, 2013, 2012 and 2011: sales external from revenue Total of sales Cost Gross Margin expenses Operating - net (charges) income Other Profit - net expense Interest interest Non-controlling tax income from) (benefit for Provision Subsidiaries from Contribution investees method equity of earnings net in Share from Contribution (charges) income Non-recurring (Loss) Income Segment EBITDA Core Margin EBITDA Core Non-recurring Income (Charges) interest Non-controlling Net Non Liabilities and Assets assets Segment and advances Investments Assets Total Consolidated Liabilities Segment Information Segment Other - expenditures Capital amortization and Depreciation sales external from revenue Total of sales Cost Gross Margin expenses Operating (charges) income Other Charges Financing before Profit expense Interest Non before Profit Non tax income from) (benefit for Provision Subsidiaries from Contribution of earnings Share in net Operations from Contribution Non (Loss) Income Segment EBITDA Core Margin EBITDA Core Profit before Non before Profit
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 73 Notes to Financial Statements ) ) ) ) ) ) ) 5 8 3 3 8 4 9 6 8 39 2 3 8 99 ( 184 720 13 845 751 1 134 P 57% =94 (8 (4 ( =720) =927) =657) 4,0 6,867 3,351 9,049 3, 1, 3,12 9,819 5,102 (P (P (8, ( (2,952) (3,0 (P 13,886 45,084 22,070 23,435 36,73 P P P =4,382 =9,741 = 128,396 1 P P P P =79,090 =12,945 =73,743 = P P P =160,174 = = – – – – – – – – – – – – – – – – – – – – – – – – P P P = =– =– – P P P P P P =– =– =– =– = =– 13,717 =3,450 P 13,884 =3,119 P P =13,717 P=173,480 = P P =13,884 = P – – ) ) ) ) 76 37 – – – 8 6 – 4 – 4 – – 3 1 184 P = 33 2 –% P = =216) =216) (4 (2 3,498 11 P (P (P =24) =77 =24) (701) (22 (41 (929) P P =3,682 = =909) (P (P 1,617 P =15,469 (1,345) (1,389) (1,389) (P 1 =1,413) (P P P P =11,650 =10,124 = – – – – – P P P =– = = ) – – – – – – – – – – – – =226) =226) 84 –% P P P P =– = = =– (P (P Power 280 280 280 (In Millions; Restated – Note 2) Note – Restated Millions; (In 41,973 280 (3 P P =384) =384) =41,973 =280 1,431 1,711 (P (P 33,820 P =1,349 P =33,820 Distribution Distribution Businesses Other Eliminations Consolidated ) – 1 ( =4) =5) (P (P 643 504 ) ) ) ) ) P = 1 3 9 7 1 6 1 3 6 8,015 2,259 ( 87 26 3 1 2 55 =6 P P =2,749 = P (5 (2 (3 153 206 242 1 141 19% =11) P =10,274 (8 (835) (P P P P =253 =346 =254 1,83 7,542 2,226 1,010 P P P P =9,768 =4,555 = = Year Ended December 31, 2012 31, December Ended Year 26 52 668 254 685 ) ) ) ) ) =179) P =101) = (P 5 6 5 – – 5 1 5 (P 28,903 60 86 93 P P P =11,986 =29,571 = 18 16 660 680 60% (69 (649) (6 (57 (1 =279) =186) P =378 2,526 3,175 1,291 1,456 6,46 3,690 (2,77 (P (P 20,677 P P P =1,272 =3,858 = P P P =21,337 =10,842 = ) 3 – 11 8 (9 P =109) =719 8,076 2,619 (P ) ) ) ) ) 74,263 P = 7 2 – 2 – – 3 P P P =45,436 =74,263 = 7 07 583 80 344 137 1 1 68% (29 ( =246) =137) 9,186 5,253 7,087 3,082 3,082 2,282 (4, (1, (1,834) (2, (P (P 13,769 69,715 P P P =2,945 =9,370 =9,032 P P P P =69,715 = = Water Utilities Utilities Water Toll Operations Healthcare =45,103 and Core Income - and property and property and income tax income s net – harges - - C controlling Interest - net - charges (benefit from) s and advances recurring Charges recurring - - on EBITDA Margin recurring controlling interest controlling interest controlling interest controlling N - - - - Service concession assets and property and equipment and and property assets Service concession Tax Income asset concession Service Non-recurring Income (Charges) for Provision Non Net Non Liabilities and Assets assets Segment and advances Investments Assets Total Consolidated Liabilities Segment Information Segment Other expenditures Capital amortization and Depreciation sales external from revenue Total of sales Cost Gross Margin expenses Operating (charges) income Other Charges Financing before Profit expense Interest Non before Profit Non tax income from) (benefit for Provision Subsidiaries from Contribution investees method equity of earnings net in Share Operations from Contribution Non (Loss) Income Segment EBITDA Core Core Non-recurring Income (Charges) tax income for Provision Non Net Liabilities and Assets assets Segment Investment Assets Total Consolidated Liabilities Segment Information Segment Other expenditures Capital equipment amortization and Depreciation of assets in value decline Provision for
74 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 96 712 475 743 115 (237) 6,465 1,355 2,834 1,740 7,691 (3,977) (8,399) (4,216) 13,671 22,070 P= 7 , 2 1 6 P= 4 , 3 8 2 P= 7 , 2 1 6 – – – – – – – – – – – – – – – – – P= – P= 1 3 , 7 6 9 P= P= P= 280 (280) – – – – (8) 14 48 P= – (22) NRI Reclassification Consolidated 143 2011 (Restated - Note 2) Note - (Restated2011 (330) (215) (177) (215) (396) (199) (927) =919) =720) =919) (P (P (P 96 698 695 483 (215) (308) Core 6,465 2,031 3,033 1,740 8,618 (8,184) 565 651 106 877 1,097 6,784 1,765 3,300 5,034 1,662 (3,679) (3,647) (5,384) (4,039) 16,639 13,886 27,807 22,070 10,869 P= 9 , 2 0 7P= 5 , 9 0 7 P= 8 , 1 3 5 P= 5 , 1 0 2 P= 9 , 2 0 7 P= 8 , 1 3 5 (11,168) – – – – – – – – – – – – – – P= – P= 1 5 , 8 8 3 P= 1 3 , 7 6 9 P= – P= – P= – 561 (561) – – – – – – (In Millions) (In – (2) 94 P= – (11) NRI Reclassification Consolidated 888 886 569 2012 (Restated - Note 2) Note - (Restated2012 (236) (228) (135) =792) =657) =792) (P (P (P 651 776 106 (323) (253) Core 6,784 1,099 2,554 3,435 5,034 (3,668) (5,148) 16,639 27,807 10,775 P= 9 , 9 9 9 P= 6 , 5 6 4 P= 9 , 9 9 9 (11,168) P= 1 5 , 8 8 3 462 593 128 554 (468) 8,154 1,061 2,286 4,270 5,700 (4,001) (6,261) P= 7 , 2 0 9 19,032 30,877 12,072 (11,845) P= 1 6 , 8 9 5 P= 1 1 , 4 7 9 P= 1 1 , 4 7 9 Consolidated – – – – – – – – – – – – – – P= – P= – P= – P= – 405 (405) 2013 – – – – – – – – (8) 11 70 (11) 254 NRI Reclassification P= 5 0 =20) P= 5 0 (427) (253) (242) (192) (P 462 835 128 (215) (105) Core 8,154 1,050 2,699 4,200 5,700 (5,834) (3,990) P= 7 , 2 2 9 19,032 30,877 12,264 (11,845) P= 1 6 , 8 9 5 P= 1 1 , 4 2 9 P= 1 1 , 4 2 9 INCOME TAX INCOME The following table shows the analysis and allocation of the consolidated results of operations of the Company to core and NRI, the manner by which the Company reports and assesses its performance, its assesses and reports Company the which by manner the NRI, and core to Company the of operations of results consolidated the of allocation and analysis the shows table following The with balances and amounts information, segment consolidated preceding the reconcile to provided is and 2011, and 2012 2013, 31, December ended years the for resources, allocates and decision makes of income: statements consolidated the REVENUES OPERATING revenue services sewerage and Water Toll fees COST OFSALES ANDSERVICES expenses administrative and General expense Interest PROVISION FOR (BENEFIT FROM) Current INCOME NET to: Attributable Income Net Ownersof the Parent Company Share innet earningsof equity method investees Deferred Non-controllinginterest Hospitalrevenue PROFIT GROSS Interestincome School revenue School Otherincome expensesand INCOME BEFORE INCOME TAX
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 75 Notes to Financial Statements
6. Material partly-owned subsidiaries
In determining whether an NCI is material to the Company, management employs both quantitative and qualitative factors to evaluate the nature of, and risks associated with, the Company’s interests in these entities; and the effects of those interests on the Company’s financial position. Factors considered include, but not limited to, carrying value of the subsidiary’s NCI relative to the NCI recognized in the Company’s consolidated financial statements, the subsidiary’s contribution to the Company’s consolidated revenues and net income, and other relevant qualitative risks associated with the subsidiary’s nature, purpose and size of activities. Based on management’s assessment, the Company has concluded that DMWC and MNTC are the only subsidiaries with NCI that are material to the Company.
The summarized financial information are presented before inter-company eliminations but after consolidation adjustments for goodwill, other fair value adjustments on acquisition and adjustments required to apply uniform accounting policies at group level.
December 31, 2013 December 31, 2012 DMWC MNTC DMWC MNTC Equity share held by NCI 47.20% 33.00% 43.19% 33.00% (In Millions) Summarized statements of financial position: Current assets P=10,785 P=4,152 =8,110P =3,076P Non-current assets* 77,491 23,639 73,348 23,015 Current liabilities 15,035 3,164 13,540 2,722 Non-current liabilities 35,298 10,801 34,309 9,814 Total equity 37,943 13,826 33,609 13,555 attributable to: Equity holders of MPIC 23,334 11,162 21,719 10,981 NCI 14,609 2,664 11,891 2,574 *Includes goodwill recognized as at acquisition date (see Note 12)
2013 2012 2011 DMWC MNTC DMWC MNTC DMWC MNTC (In Millions) Summarized statements of comprehensive income: Revenues P=16,895 P=7,101 =15,882P P=6,784 =P13,769 =P6,465 Net income 7,277 2,341 6,305 1,922 5,154 1,544 Total comprehensive income 7,392 2,329 6,053 1,960 5,054 1,512
Net income attributable to NCI 3,434 772 2,608 634 2,224 509 Dividends declared to NCI 1,407 680 897 563 655 501 Dividends paid to NCI 1,405 546 897 325 655 641 Summarized statements of cash flows: Operating 11,073 3,433 12,045 3,474 10,385 3,548 Investing (9,626) (3,192) (7,060) (189) (9,067) (156) Financing (2,474) (1,417) (5,293) (1,728) 1,571 (3,418) Net increase (decrease) in cash and cash equivalents (1,027) (1,176) (308) 1,557 2,889 (26) Cash and cash equivalents at beginning of the year 3,932 2,678 4,240 1,121 1,351 1,147 Cash and cash equivalents at end of the year P=2,905 P=1,502 =3,932P P=2,678 =4,240P =1,121P
76 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The ability of these subsidiaries to pay dividends or make other distributions or payments to their shareholders (including the Company) is subject to applicable laws and other restrictions contained in financing agreements, shareholder agreements and other agreements that prohibit or limit the payment of dividends or other transfers of funds. Such applicable restrictions are as follows:
§ Under the financing agreements as disclosed in Note 19, which include satisfying certain financial ratios in order to be able to declare or pay cash dividends; § Under Philippine law, a corporation is permitted to declare dividends only to the extent that it has unrestricted retained earnings that represent the undistributed earnings of the corporation which have not been allocated for any managerial, contractual or legal purposes and which are free for distribution to the shareholders as dividends; and § Under MNTC’s shareholders’ agreement, unless otherwise agreed upon by the shareholders, no amounts shall be distributed by way of dividends until PNCC’s share in the project revenue collection has been repaid in full.
Total dividends declared to NCI amounted to =2,107.4P million, =1,469.8P million and =1,158.5P million for the years ended December 31, 2013, 2012 and 2011. Of the total dividends declared to NCI, =2,087.1P million, =1,460.0P million and =1,155.8P million were allocable to the NCI of DMWC and MNTC in 2013, 2012 and 2011, respectively. As at December 31, 2013 and 2012, MNTC has unpaid dividends to non-controlling shareholders amounting to =409.0P million and =274.6P million, respectively (see Note 16).
7. Cash and Cash Equivalents, Short-term Deposits and Restricted Cash
Cash and Cash Equivalents and Short-term Deposits. This account consists of:
2013 2012 (In Millions) Cash and cash equivalents P=11,636 =9,105P Short-term deposits 3,627 14 P=15,263 =9,119P
Cash and cash equivalents include cash in banks and temporary placements that are made for varying periods of up to three months depending on the immediate cash requirements of the Company. Cash in banks and temporary placements earn interest at the prevailing bank and temporary placements rates, respectively.
Short-term deposits are deposits with original maturities of more than three months to one year from dates of acquisition and earn interest at the prevailing short-term deposits rates.
For the purpose of the consolidated statements of cash flows, cash and cash equivalents comprise of the following as at December 31:
2013 2012 2011 (In Millions) Cash on hand and in banks P=2,556 =1,528P =952P Short-term deposits that qualify as cash equivalents 9,080 7,577 14,150 P=11,636 =9,105P =15,102P
Restricted Cash. Sinking fund or debt service account (DSA) represents amounts set aside for semi-annual principal and interest payments of certain long-term debt. This DSA is maintained and replenished in accordance with the provision of the loan agreements. Interest income from this DSA is for the account of the Company (see Notes 19 and 26). Interest earned from cash and cash equivalents, short-term deposits and restricted cash amounted to =295.0P million, =504.6P million and =529.6P million for the years ended December 31, 2013, 2012 and 2011, respectively (see Note 26).
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 77 Notes to Financial Statements
8. Receivables
This account consists of:
2013 2012 (In Millions) Notes receivable (see Notes 4 and 21) P=1,033 =7,508P Trade receivables (see Note 21) 2,780 2,930 Advances to customers 441 500 Accrued interest receivables 285 179 Advances to other affiliates 102 104 Advances to officers and employees 80 74 Dividends receivable (see Note 11) 28 25 Others 460 366 5,209 11,686 Less allowance for doubtful accounts 867 746 4,342 10,940 Less current portion 3,749 3,608 Noncurrent portion P=593 =7,332P
Notes Receivable. Notes receivable as at December 31, 2013 and 2012 consist of the following:
Description Terms Maturity 2013 2012 (in Millions) =P6,771.6 million Note issued by CHI (a) Convertible to CHI June 27, 2013 P= =P6,578 preferred shares =P164.1 million loan to Landco (b) 12% interest rate per December 31, 2014 164 164 annum =P133.4 million loan to AB Holding 10% interest rate per August 30, 2015 133 133 Corporation (ABHC) (b) annum =P100.0 million loan to Landco Pacific 10% interest per March 15, 2017 100 100 Corporation (Landco) (b) annum Preferred Shares issued by Landco (c) With mandatory August 2020 355 353 redemption feature =P101.4 million loan by MetroPac Water 7% interest per Payable within one 101 Investments Corp. (MPWIC) to Manilaannum year from issuance Water Consortium, Inc. (MWCI)(d) Others (e) Various Various 180 180 Total notes receivable P=1,033 =7,508P
Additional information on the notes receivable as follows:
a. On December 26, 2012, CHI and MPTC entered into a Convertible Note Agreement for the issuance of a Convertible Note (“Note”) to MPTC with a principal amount or face value of =6,771.6P million consisting of 67,716,000 units valued at P=100 per unit. The Note is convertible into CHI Preferred Shares by maturity date. Upon conversion to CHI Preferred Shares, CHI shall also cause CIC to grant MPTC the option to exchange the CHI Preferred Shares to new common shares of CIC, subject to CIC securing certain regulatory approvals. As at December 31, 2012, the Convertible Note was classified as noncurrent asset since this is to be convertible to a noncurrent asset (CHI equity preferred shares). The Convertible Note also has embedded derivatives (see Notes 36 and 37).
The Convertible Note was converted into CHI Preferred Shares on June 25, 2013. But with MPTC acquiring control of CIC on January 2, 2013, the investment in CHI Preferred Shares is eliminated upon consolidation of CIC (see Note 4).
78 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 b. The loans to ABHC and Landco are secured by a pledge of Landco shares owned by ABHC. c. In view of the mandatory redemption feature of the preferred shares of Landco, the Company recognized an assigned value of =31.7P million for the conversion option feature presented as “Derivative asset” under “Other noncurrent assets” in the consolidated statements of financial position as at December 31, 2013 and 2012 (see Note 15 and 36). d. In May 2013, MPWIC and MWCI entered into a loan agreement in relation to the project with Cebu Manila Water Development, Inc. (CMWD) amounting to =70.2P million payable within one year from issuance (see Note 21). An additional loan of =31.2P million was made in September 2013. These loans were fully settled in January 2014. e. Other notes receivable aggregating =180.0P million comprising of defaulted loans are fully provided with allowance as at December 31, 2013 and 2012. f. On February 15, 2012, the Company granted MediaQuest Holdings, Inc. (MediaQuest) a P=500.0 million loan due on May 17, 2012. The loan bears interest of 4.75% per annum payable every 17th of the month up to maturity. On the date of scheduled payment, the principal and the related interest were fully collected. g. In 2010, NOHI granted a third party a P=500.0 million, 5% interest-bearing loan due in five years. The loan was discounted using market interest rate of 6.3%, and NOHI recognized a Day-1 loss of P=20.1 million included under “Other expense” in the consolidated statement of income for the year ended December 31, 2010. The loan was initially recognized at present value of =479.9P million. On December 31, 2011, NOHI through a deed of assignment transferred its rights and interest in the notes receivable to MPIC. The carrying value of this loan amounted to =381.3P million as at December 31, 2011.
Under the loan agreement, the borrower has the option to prepay the loan in full or in part, prior to the expiration of the term, together with the interest accrued on the date of the loan prepayment. In such case, the interest on the loan shall be computed based on the outstanding balance thereof. The borrower fully settled the outstanding balance of the receivable including the related interest in 2012.
Principal repayment amounted to P=384.3 million and P=90.6 million and interest accretion amounted to =5.8P million and =5.0P million for the years ended December 31, 2012 and 2011, respectively.
Trade Receivables. Trade receivables mainly include receivables from customers arising from:
§ Water, sewerage services and bulk water supply, which receivables are non-interest bearing and generally have 60-day term;
§ Health care services, which the Company generally provides a 30-day credit term to its self-pay, HMO, international insurance, PhilHealth and corporate accounts. Advances and Other Receivables. Advances include advances to customers, affiliates and officers and employees and generally collectible within a year. Other receivables mainly represent advances to former subsidiaries and related parties (see Note 21). Certain of these advances to former subsidiaries and affiliates of the Company are fully provided with allowance. Movements in the allowance of individually and collectively assessed impaired receivables in 2013 and 2012 are as follows:
2013 Balance at Balance at January 1, Provisions (Write-off)/ December 31, 2013 (see Note 24) Reclassification 2013 (In Millions) Individually impaired: Trade receivables P=2 P=5 (P=2) P=5 Notes receivable 180 – – 180 Others(a) 16 – (8) 8 198 5 (10) 193 (Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 79 Notes to Financial Statements
Collectively impaired: Trade receivables P=536 P=155 (P=29) P=662 Advances to other affiliates 12 – – 12 548 155 (29) 674 P=746 P=160 (P=39) P=867
2012 Balance at Balance at January 1, Provisions (Write-off)/ December 31, 2012 (see Note 24) Reclassification 2012 (In Millions) Individually impaired: Trade receivables =P2 =P– =P– =P2 Notes receivable 180 – – 180 Others(a) 16 – – 16 198 – – 198 Collectively impaired: Trade receivables 448 158 (70) 536 Advances to other affiliates 12 – – 12 460 158 (70) 548 =P658 =P158 (=P70) =P746 (a)Includes ‘advances to other affiliates at P=0.1 million and ‘advances to officers and employees’ at =0.6P million as at December 31, 2013 and 2012.
9. Other Current Assets
Other current assets consist of the following:
2013 2012 (In Millions) AFS financial assets (see Note 10) P=2,042 =109P Advances to contractors and consultants 507 236 Creditable withholding tax (CWT) 504 442 Inventories - at cost 426 336 Prepaid expenses 223 186 Real estate for sale - at lower of cost or NRV 151 152 Input VAT (see Note 32) 137 96 Miscellaneous deposits and others 187 143 Derivative asset (see Notes 36 and 37) – 225 Deposits – 224 4,177 2,149 Less allowance for decline in value 356 356 P=3,821 =1,793P
Advances to Contractors and Consultants. Advances to contractors and consultants represent the advance payments for mobilization of the contractors and consultants for various contracts relating to the tollways and water operations. These are progressively reduced upon receipt of the equivalent amount of services rendered by the contractors and consultants.
CWT. This represents amount withheld by counterparty for services rendered by the Company which can be claimed as tax credits. Management provided allowance for decline in value in the amount of =356.4P million as at December 31, 2013 and 2012, representing CWT recognized in prior years that the Company may no longer be able to utilize.
80 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Inventories. Cost of inventories charged to “Cost of sales and services” account in the consolidated statements of comprehensive income amounted to =2,033.0P million, =1,839.0P million and =789.9P million for the years ended December 31, 2013, 2012 and 2011, respectively (see Note 23).
Prepaid expenses. Prepaid expenses mainly pertains to insurance, premium bond, taxes and licenses and prepaid loan transaction cost.
Real Estate for Sale. This account consists of the following as at December 31, 2013 and 2012:
2013 2012 (In Millions) Land P=50 =50P Development costs: Residential resort community and Central Business District 47 47 Condominium units, including parking lots 54 55 P=151 =152P
Certain condominium units and parking slots were carried at NRV, the cost of which amounted to =23.8P million and =25.8P million as at December 31, 2013 and 2012. Allowance for impairment loss amounted to =2.3P million and =3.6P million as at December 31, 2013 and 2012.
In 2013 and 2012, 5 and 182 parking slots were sold, respectively. In 2013 and 2012, 3 and 35 parking slots, were transferred, respectively, in payment for some of the Company’s expenses. The parking slots were fully provided with an allowance for impairment loss which was reversed as a result of the sales and transfer made. Total amount of gain from reversal of allowance for impairment loss recognized under “Other income” in the 2013 and 2012 consolidated statements of income amounted to =1.3P million and =58.7P million, respectively.
Miscellaneous deposits and others. This account mainly consists of advances to suppliers and other miscellaneous deposits.
Deposits. As at December 31, 2012, deposits substantially consist of the current portion of the LTIP fund representing the amount subsequently paid in 2013 following the LTIP program 3-year performance cycle which ended in 2012. The LTIP fund was covered by an Investment Management Agreement (IMA) entered into with a Trustee Bank on October 7, 2011 (see Note 25).
10. Available-for-Sale Financial Assets
This account consists of:
2013 2012 (In Millions)
Shares of stock in: Listed P=15 =24P Unlisted 1,280 848 Unit Investment Trust Fund (UITF) 1,995 – Investment in bonds and treasury notes 1,522 640 4,812 1,512 Less current portion (see Note 9) 2,042 109 Noncurrent portion P=2,770 =1,403P
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 81 Notes to Financial Statements
The movements in the AFS financial assets are as follows:
2013 2012 (In Millions) Balance at beginning of year P=1,512 =1,433P Additions 4,238 59 Disposal and maturity (1,137) – Change in fair value (see Note 28) 199 17 Reclassification – 3 Balance at end of year P=4,812 =1,512P
Listed shares of stock represent investments in golf clubs and Philippine Long Distance Telephone Company common shares stated at their fair values.
Unlisted shares of stock represent the Company’s investment in the entities (all incorporated in the Philippines) enumerated below. These investments in equity instruments are stated at cost, except for NEPSCC shares, as there are no reliable sources and bases for subsequent fair value determination. Management believes that these investments are not impaired since the investee companies continue to report income and show stable financial conditions.
Ownership Interest Amounts Principal Activities 2013 2012 2013 2012 (In %) (In Millions) Citra Metro Manila Tollways Design, construction and 2.0 2.0 P=316 =P316 Corporation financing of the Metro Manila Skyway
NE Pacific Shopping Center Leasing properties in mall 36.9 36.9 459 236 Corporation (NEPSCC; spaces see Note 3)
Subic Water Sewerage Co., Inc. Sewerage services 10.0 – 211 – (Subic Water)
Landco Pacific Corporation Real estate 19.0 19.0 212 212 (see Note 3)
Bonifacio Land Corporation (BLC) Real estate Less than 1% 47 47
Pacific Global One Aviation Aircraft transportation 15.0 15.0 37 37 Company, Inc. services Total P=1,282 =848P
The increase in the unlisted shares of stock included the change in the fair value of the investment in NEPSCC (with fair value referenced on recent transaction; see Notes 28 and 39) and investment in Subic Water. On January 18, 2013, Maynilad was declared as the winning bidder for the sale of Olongapo City’s 915,580 common “A” shares, representing 10% of the outstanding capital stock of Subic Water for a bid price of =230P per share, or a total purchase price of =210.6P million. The award and sale of Olongapo City’s shares in Subic Water to Maynilad is subject to the right of first refusal of the existing shareholders of Subic Water. On March 15, 2013, Maynilad entered into a Deed of Sale with Olongapo City for the purchase of the latter’s shares of stock in Subic Water after the lapse of the period for the exercise by the existing shareholders of their right of first refusal.
Investment in UITF. UITFs are ready-made investments that allow the pooling of funds from different investors with similar investment objectives. These UITFs are managed by professional fund managers and are invested in various financial instruments such as money market securities, bonds and equities, which are normally available to bigger investors only. A UITF uses the mark to
82 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 market method in valuing the fund’s securities. It is a valuation method which calculates the Net Asset Value (NAV) based on the estimated fair market value of the assets of the fund based on prices supplied by independent sources.
Investment in bonds and treasury notes. As at December 31, 2012, this account consists of investment in retail treasury bond of the Republic of the Philippines (ROP retail treasury bonds) while as at December 31, 2013, this account consists of investments in fixed rate retail treasury bonds of the ROP retail treasury bonds, fixed rate treasury notes and corporate bonds of Meralco, stated at fair value. The quoted ROP retail treasury bonds and corporate bonds of Meralco, which bear fixed interest rates ranging from 2.1% to 6.0% are payable quarterly while the quoted fixed rate treasury notes which bear fixed interest rate of 4.4% is payable semi-annually. Gain on changes in fair value of investment in bonds are recognized in OCI (see Note 28). Interest earned on and maturity profile of these investments are disclosed in Notes 26 and 35, respectively.
Investments in bonds were previously classified as HTM investments and carried at amortized cost. In 2010, prior to the bonds maturity MNTC sold a portion of its investments in bonds. The pretermination of the bonds precluded MNTC from classifying any existing and new investments as HTM investments until 2012. Starting 2013, MNTC may classify an investment as HTM investments but MNTC opted to continue to classify its investments in bonds, together with the treasury notes and corporate bonds, as AFS financial assets.
The movements in the fair value changes of AFS financial assets are as follows:
2013 2012 (In Millions) Balance at beginning of year P=44 =27P Change in fair value during the year (see Note 28) 213 17 Reclassification to profit and loss (see Note 28) (14) – Balance at end of year P=243 =44P
11. Investments and Advances
The account “Investment and advances” consist of the following components:
2012 (Restated - 2013 Note 2) (In Millions) Equity method investees: Associates P=4,767 =3,112P Joint venture 31,758 29,643 36,525 32,755 Investment in Beacon Electric’s preferred shares classified as AFS investments 11,573 11,573 Advances to Beacon Electric 756 756 P=48,854 =45,084P
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 83 Notes to Financial Statements
Movements in the “Equity method investees”:
2012 (Restated - 2013 Note 2) (In Millions) Acquisition costs Balance at beginning of year P=31,196 =28,496P Additions during the period 1,846 2,700 Disposal and others (2,473) – Balance at end of year 30,569 31,196 Accumulated equity in net earnings Balance at beginning of year, as previously reported 2,869 935 Adoption of PAS19R (see Note 2) (558) (88) Balance at beginning of year, as restated 2,311 847 Share in net earnings 2,286 1,765 Disposal and others 1,640 – Dividends (332) (301) Balance at end of year, as restated 5,905 2,311 Accumulated share in the investees’ other comprehensive income Balance at beginning of year, as previously reported – – Adoption of PAS19R (see Note 2) 558 89 Balance at beginning of year, as restated 558 89 Share in investees’ other comprehensive income (see Note 28) 167 469 Total 725 558 Less allowance for impairment loss Balance at beginning of year 1,310 1,460 Additions 164 – Disposal and others (800) – Reversal – (150) Total 674 1,310 P=36,525 =32,755P
Equity Method Investees
Investments in Equity Method Investees pertain to the Company’s investments in associates (as disclosed below under “Individually immaterial associates”) and a joint venture, Beacon Electric.
In determining whether an equity method investee is material to the Company, management employs both quantitative and qualitative factors to evaluate the nature of, and risks associated with, the Company’s interests in these entities; and the effects of those interest on the Company’s financial position. Factors considered include, but not limited to, carrying value of the investee relative to the total equity method investments recognized in the Company’s consolidated financial statements, the equity investee’s contribution to the Company’s consolidated net income, and other relevant qualitative risks associated with the equity investee’s nature, purpose and size of activities. Based on assessment, as at December 31, 2013 and 2012, all of the associates are individually immaterial to the Company’s consolidated financial statements while the investment in joint venture is considered to be significant.
84 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Individually immaterial associates. The Company has interests in the following individually immaterial associates:
Place of Ownership Interest in % Incorporation Principal Activities 2013 2012 TMC(a) Philippines Tollways 46.00 46.00 First Gen Northern Energy Corp. (FGNEC) Philippines Power generation 33.33 33.33 Davao Doctors Hospital, Inc. (DDH) Philippines Hospital 34.85 34.85 Medical Doctors Inc. Philippines Hospital 33.28 33.72 Manila Water Consortium Inc. (MWCI)(b) Philippines Investment holding 39.00 – FPM Infrastructure Holdings Limited(c) BVI Investment holding 25.00 – Prime Media Holdings, Inc. (PMHI) (d) Philippines Media holding 44.60 49.00 company Costa De Madera (see Note 3) Philippines Real estate 62.00 62.00 Metro Pacific Land Holdings, Inc. Philippines Real estate 49.00 49.00 Landco NE Resources Ventures, Inc. (LNERVI)(e) Philippines Real estate – 24.95 a. Pursuant to the Operation and Maintenance Agreement with MNTC, TMC is responsible for the operation and maintenance of both the North Luzon Expressway Project and Segment 7. TMC also operates and manages the Subic-Clark-Tarlac Expressway, a 94-km tollroad, pursuant to its agreement with the Bases Conversion and Development Authority (BCDA) (see Note 21). b. MPWIC, the Company’s wholly-owned subsidiary, acquired an effective ownership interest of 20% in CMWD through a 39% direct ownership interest in MWCI. Cost of the Company’s investment in MWCI is at =133.8P million. On December 13, 2013, CMWD received a Notice of Award for the bulk supply of water to the Metropolitan Cebu Water District (MCWD). CMWD and MCWD signed a 20-year Water Purchase Agreement (WPA) for the supply of 18 million liters per day for the first year and 35 million liters per day of water for the second to 20th year. Initial delivery of water is expected six months from the signing of WPA. c. FPM Infrastructure Holdings Limited (FPM Infrastructure) holds 29.45% stake in a Thai toll road operator, Don Muang Tollway Public Company Ltd. (DMT). FPC holds 75% of FPM Infrastructure. Working under a 27-year concession ending in 2034, DMT operates a 21.9-kilometer six-lane elevated toll road stretching from Din Daeng in central Bangkok past Don Muang Airport and on to the National Monument in the north of the capital. Carrying value of investment in FPM Infrastructure amounted to =1,455.5P million as at December 31, 2013. d. As at December 31, 2012, investment in PMHI (held through NOHI), has been fully provided with valuation allowance. The last trade value registered in the PSE was P=1.52 per share or an aggregate market value amounting to P=426.6 million as at December 27, 2013. In 2013, NOHI converted its P=119.7 million advances to PMHI into equity and subscribed to additional PMHI shares for P=114.6 million with an outstanding subscription payable of =69.8P million. The subscription was funded by a loan from a third party and the loan was secured by a pledge over the existing shares owned by NOHI excluding the newly subscribed shares. On the same year, the third party lender sent a notice to NOHI that it will foreclose on the pledged PMHI shares due to the default in payment of the loan. In connection with the foreclosure proceedings, the Company took out the cost of the shares subject to the foreclosure and the related accumulated equity in net loss and allowance for impairment loss included as “disposal and others” in the table above. The Company’s investment in PMHI after effecting the foreclosure is at 44.60%, wherein its book value of =234.2P million were provided for impairment loss amounting to =164.5P million netting to its carrying value of =69.8P million. e. In 2013, NOHI entered into an assignment agreement with Landco involving its investments in Lucena Commercial Land Corporation, LNERVI and First Cebu Pacific Land Co., Inc.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 85 Notes to Financial Statements
The following table analyzes, in aggregate, the Company’s share in the net income and other comprehensive income of these associates:
2012 (Restated - 2013 Note 2) (In Millions) Carrying amount of interests in associates P=4,767 =3,112P Share in: Net income P=367 =340P Other comprehensive income (loss) (22) 3 Total comprehensive income P=345 =343P
The following table summarizes, in aggregate, the assets and liabilities of these associates:
2012 (Restated - 2013 Note 2) (In Millions) Current assets P=2,976 =2,317P Noncurrent assets 14,881 7,893 Current liabilities 5,523 2,009 Noncurrent liabilities 2,090 1,448
Dividend income from these associates amounted to P=332.0 million and =301.1P million in 2013 and 2012, respectively. Cumulative unrecognized share in net losses of associates amounted to =411.4P million, =411.5P million and =419.1P million as at December 31, 2013, 2012 and 2011, respectively.
Other transactions with these associates are disclosed in Note 21.
Material Joint Venture. The Company has 50% ownership interest in Beacon Electric. Beacon Electric was organized with the sole purpose of holding the respective shareholdings in Meralco of PLDT Communications and Energy Ventures (PCEV) and the Parent Company and for subsequent acquisitions of Meralco shares.
Beacon Electric, PCEV and MPIC have agreed, under the Omnibus Investment Agreement, on certain corporate governance matters, including Board composition, election of officers, shareholders' action, representation to the Meralco Board, nomination of the Meralco Board Committees, and nomination of Meralco officers. In substance, Beacon Electric is a special purpose vehicle which PCEV and MPIC created for the main purpose of holding and investing in Meralco using the same Meralco shares as collateral for funding such investment. It is management’s view that the Omnibus Investment Agreement effectively delegates the decision making power of Beacon over the Meralco shares to PCEV and MPIC and that Beacon Electric does not exercise any discretion over the vote to be taken in respect of the Meralco shares but is obligated to vote the Meralco shares strictly in accordance with the instructions of the two shareholders.
Meralco is a Philippine corporation with its shares listed on the PSE. It is the largest distributor of electricity in the Philippines with its franchise valid until June 2028.
Property Dividends. With respect to the approximately 317.8 million Meralco shares transferred under the OA entered into in 2010 wherein MPIC was a party to the OA, the 68.8 million Meralco common shares previously held by PCEV and the 74.7 million Meralco Option Shares transferred by FPHC to Beacon Electric pursuant to a Call Option, FPHC has the benefit of being assigned, or retaining in the case of the Option Shares, certain property dividends that may be declared on such shares.
On February 27, 2012, Meralco declared property dividend equivalent to its 51% equity participation in the outstanding issued common stock of Rockwell Land Corporation (RLC) in favor of common stockholders of record as at March 23, 2012, which dividend was paid days after approval of the property dividend by the SEC and the registration of the RLC shares under the Securities Regulation Code and the listing thereof with the PSE. Consequently, Beacon Electric’s related liability for contingent consideration amounted to =2,133.8P million has been derecognized upon transfer of the property dividend.
86 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Acquisition of Additional Beacon Electric’s Shares. On January 20, 2012, in support for the purchase of additional Meralco shares, MPIC and PCEV each subscribed for additional 135.0 million Beacon Electric common shares at P=20 per share or an aggregate subscription price of P=2,700.0 million each. MPIC subscribed and paid in full the P=2,700.0 million in 2012 raising its total cost of investments in Beacon Electric common shares to P=25,830.0 million as at December 31, 2012.
Beacon Electric’s Additonal Acquisitions of Meralco Shares. As at December 31, 2013 and 2012, Beacon Electric’s interest in Meralco is at 49.96% and 48.33%, respectively. The increase in ownership interest in Meralco for 2013 resulted from acquisitions of Meralco shares of 10 million (or 0.89%) on July 19, 2013 and an additional 8.3 million (or 0.74%) on July 30, 2013 for a total acquisition cost of =5.9P billion, inclusive of transaction costs.
On January 31, 2012, Beacon Electric acquired 30.0 million Meralco shares from First Philippine Utilities Corporation at an aggregate cost of =9,103.8P million (including recognized contingent consideration amounting to P=180.9 million). The acquisition was funded through an equity infusion with an aggregate amount of =5,400.0P million from MPIC and PCEV equally, and through loan availment.
On November 29, 2012, Beacon Electric acquired additional 3.2 million Meralco shares from the market at an aggregate cost of =841.7P million. On December 21, 2012, Beacon Electric acquired additional 0.3 million Meralco shares from the market at an aggregate cost of =89.5P million.
The carrying value of Beacon Electric’s investment in Meralco accounted for under the equity method amounted to =124.2P billion and =115.1P billion as at December 31, 2013 and 2012, respectively. Fair value of Beacon Electric’s investment in Meralco, based on the quoted price as of December 31, 2013 and 2012 amounted to P=141.3 billion and =142.3P billion, respectively.
Summarized financial information of Beacon Electric. The summarized financial information is presented after fair value adjustments on acquisitions and adjustments required to apply uniform accounting policies at group level.
2013 2012* 2011* (In Millions) Consolidated statement of comprehensive income Equity in net earnings in Meralco P=8,017 =7,408P =5,028P Interest expense (2,459) (2,986) (1,932) Interest income 29 94 37 Income tax expense – – – Net income 5,451 4,452 2,869 Total comprehensive income 5,840 5,391 2,829 Dividends received by MPIC from Beacon Electric’s common shares – – –
2013 2012* (In Millions) Statements of financial position – Beacon Electric Current assets P=686 =2,149P Noncurrent assets 124,189 115,118 Current liabilities 1,206 1,293 Noncurrent liabilities 36,533 33,869 Net assets 87,136 82,105 Less: Equity attributable to preferred shareholders (including dividends in arrears) 24,766 23,956 Net assets attributable to common shareholders of Beacon Electric 62,370 58,149 MPIC’s ownership interest in Beacon Electric 50% 50% MPIC’s share in net assets of Beacon Electric 31,185 29,075 (Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 87 Notes to Financial Statements
Unification of accounting policies P=431 =431P Fair value adjustments and others** 142 137 Carrying amount of MPIC’s investment in Beacon Electric P=31,758 =29,643P
The above amounts of Beacon Electric’s assets and liabilities include the following: Cash and cash equivalents P=683 =2,146P Current financial liabilities*** 936 374 Non-current financial liabilities*** 35,195 32,896 *Restated for adoption of PAS19R. **Includes equity in net earnings in Meralco prior to the transfer of investment in Meralco to Beacon Electric. ***Excluding trade and other payables and provisions
The following facilities entered into by Beacon Electric are secured by a pledge over Meralco shares held by it and are not guaranteed by the Company. As Beacon Electric is accounted for using the equity method, these facilities are not included in Company’s consolidated debt. Neither MPIC nor PCEV guarantees Beacon Electric’s debt.
Interest Rate Description (per annum) Terms 2013 2012 (In Millions) =17,000.0P Million Corporate Notes: · =2,285.0P million (Tranche A) 10-yr PDST-F + 2% Availed of in 2013; 10 years P=2,268 !P or floor with semi-annual interest · =1P 4,715.0 million (Tranche B) 5-yr PDST-F + 2% and principal repayments 14,605 or floor; subject to with final repayment in repricing on the 5th March 2023 year =P11,000.0 Million Fixed Corporate 10-year PDST-F rate Availed of in 2011; 10 years 10,780 11,000 Notes + 1.5% payable in semi-annual interest and principal repayments and with final repayment in May 2021
=9,000.0P Million Corporate Notes: · =2,950.0P million (Tranche A) 10-yr PDST-F + Availed of in 2013; 10 years 2,928 1.5% or floor payable with semi-annual · =6P ,050.0 million (Tranche B) 5-yr PDST-F + interest and principal 6,004 1.25% or floor; repayments with final subject to repricing repayment in July 2023 on the 5th year
=18,000.0P Million Corporate Notes: · =11,800.0P million Fixed Rate 10-year PDST-F rate P= =11,446P Tranche + 2.5% Availed of in 2010 and 2011; 10 years payable with semi- 6-month PDST-F annual interest payments rate + 2.75% and principal repayments with final repayment in · P=6,200.0 million Floating Rate March 2020 6,014 Tranche (Forward)
88 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 =5,000.0P Million Corporate Notes · =550P million Fixed Rate 10-year PDST-F rate Availed of in 2012; 10 years P= =P550 (Tranche A) + 1.5% payable in semi-annual 5-year PDST-F rate fixed interest payments and · =3,450.0P million Fixed Rate + 1.5% principal repayments with 3,450 (Tranche B) final repayment in February 2022 · =1,000.0P million Floating Rate 6-month PDST-F 1,000 rate + 2.25%
Total 36,585 33,460 Less unamortized debt issue cost 454 190
36,131 33,270 Less current portion (net of unamortized debt issue cost of =58.7P million in 2013 and =65.8P million in 2012) 936 374
Noncurrent portion P=35,195 =32,896P
The proceeds of the =9,000.0P Million Corporate Notes were used to prepay the =5,000.0P Million Corporate Notes and partially finance the acquisition of additional Meralco shares purchased in July 2013. The proceeds of the =17,000.0P Million Corporate Notes Facility were used to partially finance the prepayment of the =18,000.0P Million Corporate Notes Facility in March 2013. As at December 31, 2013 and 2012, Beacon is in compliance with all the requirements stipulated in the loan agreements.
Derivative Liability On May 27, 2013, Beacon Electric entered into a Forward Starting Interest Rate Swap (Forward Starting IRS) to hedge the interest repricing risk on the outstanding balance of the Tranche B (P=14,715 million) of the =17,000.0P Million Corporate Notes Facility by the end of the fifth year. The Forward Starting IRS will have a receive leg based on a rate which will be determined on March 26, 2018 and pay leg of 6.98% fixed rate that virtually matches the debt’s critical terms (i.e, benchmark rate and fixing date). The hedge is expected to be highly effective and as such Beacon designates the Forward Starting IRS as a cash flow hedge. The changes in fair value of the Forward Starting IRS will be deferred in equity under Beacon’s Other Comprehensive Income (Loss) Reserve account. As at December 31, 2013, the Company’s share in the Beacon Electric’s other comprehensive loss from the Forward Starting IRS is at =180.6P million recognized as “share in the fair value changes in cash flow hedges of equity method investees” in the Company’s consolidated statement of comprehensive income (see Note 28).
Loan Security Beacon Electric’s loans are secured by a pledge on Meralco shares owned by Beacon Electric and shall, from the date of the pledge over the Meralco shares, maintain the loan to value ratio at 50%. The loan agreements also contain certain provisions which include the maintenance of a Debt Service Account to be used by Beacon Electric to service interest payments and principal repayments and maintenance of financial ratios such as debt to equity ratio, debt service coverage ratio and loan to value ratio.
As at December 31, 2013 and 2012, Beacon Electric is in compliance with all the requirements stipulated in the loan agreements.
Investment in Beacon Electric’s preferred shares classified as AFS investments The Company owns 50% of the Beacon Electric’s issued preferred shares as at December 31, 2013 and 2012. The preferred shares of Beacon Electric are non-voting, non-convertible to common shares or any shares of any class of Beacon, have no pre-emptive rights to subscribe to any share or convertible debt securities or warrants issued or sold by Beacon Electric. The preference shareholder is entitled to liquidation preference and yearly cumulative dividend at the rate of 7% of the issue value subject to (a) availability of unrestricted retained earnings; and (b) dividend payment restrictions imposed by Beacon Electric’s bank creditors. For the years ended December 31, 2013, 2012 and 2011, the Parent Company received dividends from Beacon Electric’s preferred shares amounting to =405.1P million, =561.4P million and P=280.4 million (see Note 27). As at December 31, 2013 and 2012, total cumulative dividends on preferred shares not yet declared by Beacon Electric amounted to P=1,620.3 million and =810.1P million, respectively.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 89 Notes to Financial Statements
With the objective of equalizing MPIC and PCEV’s interest in preferred shares of Beacon Electric, MPIC and PCEV entered into a Deed of Absolute Sale of Shares on June 6, 2012 wherein PCEV sold 282.2 million preferred shares to MPIC for a total consideration =3,562.8P million bringing MPIC’s total investments in preferred shares of Beacon Electric to =11,573.2P million as at December 31, 2013 and 2012.
Advances to Beacon Electric Advances to Beacon Electric are non-interest bearing with no fixed repayment terms. The Company views such advances as part of its long-term investment in Beacon Electric as evidence by its inclusion in its interest in equity method investees.
12. Goodwill
The movements in the goodwill account as follows:
2013 2012 (In Millions) Balance at beginning of year P=13,155 =13,069P Additions from: Acquisitions (see Note 4) 4,973 108 Finalization of purchase price allocation (see Note 4) 180 (22) P=18,308 =13,155P
The carrying amount of goodwill allocated to each of the CGU (determined to be at the subsidiary level):
2013 2012 (In Millions) Water utilities: DMWC/Maynilad P=6,803 =6,803P PHI (see Note 4) 288 108 Toll operations: MPTC 5,749 5,749 CIC (see Note 4) 4,966 – Healthcare: CVHMC 234 234 AHI 192 192 RMCI 69 69 DLSMC (see Note 4) 7 – P=18,308 =13,155P
The Company performs its annual impairment test close to year-end, after finalizing the annual financial budgets and forecasts. The impairment test of goodwill is based on VIU calculations that use the discounted cash flow model. Cash flow projections are based on most recent financial budgets and forecast. Discount rates applied are based on market weighted average cost of capital with estimated premium over cost of equity. The key assumptions used to determine the recoverable amount for the different CGUs are discussed below.
Based on the impairment tests performed for each of the CGUs, management did not identify impairment losses for these CGUs. Management also believes that no reasonably possible change in any of the key assumptions would cause the carrying values of the CGUs to materially exceed their respective recoverable amounts.
90 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 CGUs of the water utilities segment
December 31, 2013 December 31, 2012 Maynilad PHI Maynilad PHI(a) Volume growth rate 3% 3% 3.00% Average forecast period 24 years 22 years 25 years Discount rate 8.62% 9.25% 10.17% (a) No impairment testing conducted in the year of acquisition as goodwill attributable to PHI was determined provisionally.
The forecasted period is greater than five (5) years as management can reliably estimate the cash flow for the entire duration of Maynilad’s and PHI’s concession period. The average forecast period is consistent with the period covered by the concession agreements (see Note 13).
CGUs of the toll operations segment
December 31, 2013 December 31, 2012 MPTC CIC(a) MPTC CIC(a) Average growth: Open system – traffic volume 1.6% 3% up to 2033 1.5% and 4.9% afterwards Closed system – journey 1.6% 1.6% Average forecast period 24 years 20 and 32 years 25 years Discount rate 7.32% 7.32% 8.06% (a) CIC was acquired in 2013 by virtue of the Management Letter Agreement (see Note 4)
MPTC’s cash flows reflect average traffic volume growth for the North Luzon Expressway (NLEX) open system and average journeys growth for the NLEX closed system. CIC’s cash flows reflect average traffic volume growth for the CAVITEX open system. Toll rate assumptions were determined based on the parametric formula provided for in the concession agreement. The forecasted period is greater than five (5) years as management can reliably estimate the cash flow for the entire duration of MNTC’s and CIC’s respective concession periods. The average forecast periods are consistent with the terms of the concession agreements of MNTC and CIC (see Note 13).
CGUs of the healthcare segment
December 31, 2013 December 31, 2012 RMCI CVHMC AHI RMCI CVHMC AHI Average occupancy rate 87.00% 77.00% 56.00% 84.00% 68.00% 62.00%
Average forecast period 5 years 15 years 5 years 5 years 16 years 5 years with with with with terminal terminal terminal terminal value value value value Discount rate 11.25% 11.25% 11.25% 11.28% 11.28% 11.28%
Average forecast period for purposes of goodwill impairment testing for RMCI and AHI is at 5 years with terminal value computed based on a zero-growth assumption for forecasts beyond the 5 year period. The length of the projection for CVHMC is consistent with the remaining lease term of its agreement with RCAM (see Note 33). The occupancy rates assumed in the forecast were consistent with the historical experience of these hospitals.
Goodwill acquired from the Company’s acquisition of DLSMC in 2013 is based on provisional values (see Note 4) and therefore the amount of goodwill has yet to be allocated to specific CGUs. Impairment testing will commence on the period the initial accounting will be finalized, which should not be more than 12 months from date of acquisition. No impairment indicators exist as at December 31, 2013 for this acquisition.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 91 Notes to Financial Statements
13. Service Concession Assets
The movements in the service concession assets follow:
2013 Toll operations Water utilities Total (In Millions) Cost: Balance at beginning of year P=19,046 P=75,243 P=94,289 From business combinations (see Note 4) 9,614 101 9,715 Additions and reclassifications 411 5,369 5,780 Balance at end of year 29,071 80,713 109,784 Accumulated amortization: Balance at beginning of year 2,561 9,858 12,419 Additions and reclassifications (see Note 23) 808 2,017 2,825 Balance at end of year 3,369 11,875 15,244 P=25,702 P=68,838 P=94,540
2012 Toll operations Water utilities Total (In Millions) Cost: Balance at beginning of year =P18,821 =P67,349 =P86,170 From business combinations (see Note 4) – 293 293 Additions 225 7,601 7,826 Balance at end of year 19,046 75,243 94,289 Accumulated amortization: Balance at beginning of year 1,911 7,435 9,346 Additions (see Note 23) 650 2,423 3,073 Balance at end of year 2,561 9,858 12,419 =P16,485 =P65,385 =P81,870
Service Concession Assets – Toll Operations. This represents MNTC’s and CIC’s concession comprising the rights, interests and privileges to finance, design, construct, operate and maintain toll roads, toll facilities and other facilities generating toll-related and non-toll related income.
§ MNTC. In August 1995, First Philippine Infrastructure Development Corporation (FPIDC), the then parent company of MNTC, entered into a joint venture agreement with Philippine National Construction Corporation (PNCC), in which PNCC assigned its rights, interests and privileges under its franchise to construct, operate and maintain toll facilities in the NLEX and its extensions, stretches, linkages and diversions in favor of MNTC, including the design, funding, construction, rehabilitation, refurbishing and modernization and selection and installation of an appropriate toll collection system therein during the concession period subject to prior approval by the President of the Philippines. In April 1998, the Philippine government, acting by and through the Toll Regulatory Board (TRB) as the grantor, PNCC as the franchisee and MNTC as the concessionaire executed a Supplemental Toll Operation Agreement (STOA) whereby the Philippine government recognized and accepted the assignment by PNCC of its usufructuary rights, interests and privileges under its franchise in favor of MNTC as approved by the President of the Philippines and granted MNTC concession rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the NLEX project roads as toll roads commencing upon the date the STOA comes into effect until December 31, 2030 or 30 years after the issuance of the Toll Operation Permit for the last completed phase, whichever is earlier. In October 2008, the concession agreement was extended for another seven years to 2037. Pursuant to the STOA, MNTC is required to pay franchise fees to PNCC and to pay for the government’s project overhead expenses based on certain percentages of construction costs and
92 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 maintenance works on the project roads. Upon expiry of the concession period, MNTC shall hand over the project roads to the Philippine government without cost, free from any and all liens and encumbrances and fully operational and in good working condition, including any and all existing land required, works, toll road facilities and equipment found therein directly related to and in connection with the operation of the toll road facilities.
The Manila-North Expressway Project consists of three phases as follows:
Status / Date of Phase Description Operation
Phase I Expansion and rehabilitation i. 84 kilometers (km) of the existing NLEX February 5, 2005 (Segments 1, 2, 3 and 7) ii. 8.8-km stretch of a Greenfield expressway
Phase II Construction i. 17-km circumferential road C-5 which connects Segment 8.1 – June 5, (Segments 8.1, the current C-5 expressway to the NLEX 2010 8.2, 9 and 10) ii. 5.85-km road from McArthur to Letre Segment 9 – Ongoing construction
Others – Pre construction
Phase III Construction i. 57-km Subic arm of the NLEX to Subic Expressway Not started (Segments 4, 5 and 6)
§ CIC. CIC is exclusively responsible for the design, financing and construction of the CAVITEX, pursuant to a toll operation agreement dated July 26, 1996 entered into with the Philippine Reclamation Authority (PRA) and the Government, acting through the TRB. Responsibility for the supervision of the operation and maintenance of the toll road, initially undertaken by the PRA, was also transferred to the CIC pursuant to an operations and maintenance agreement dated November 14, 2006 and a voting trust agreement dated November 16, 2006. The concession for CAVITEX extends to 2033 for the originally built road and to 2046 for a subsequent extension. Upon expiry of the concession period, CIC shall hand over the project to the Philippine government.
Under the amended Joint Venture Agreement with PRA, each of the following expressways shall be constructed in segments:
Phase Description Status / Date of Operation
Phase I Design and improvement i. 6.5 km R-1 Expressway which connects the May 1998 Airport Road to Zapote ii. Extension of the 7 km R-1 Expressway which connects the existing R-1 Expressway at Zapote May 2011 to Noveleta
Phase II Design and construction i. Extension of the C-5 Link Expressway which Not started connects the R-1 Expressway to the South Luzon Expressway (SLEX)
Additions to the service concession assets for the toll operations in 2012 pertain to cost of supply, installation, test and commissioning of fixed and operating equipment for the interchange and interchange toll facility of the part of the Phase I of the NLEX. Aside from the acquisition of CIC, additions in 2013 to the service concession asset included MNTC’s civil works construction on Segment 9 and fixed operating equipment design, supply and installation for the toll collection system migration. On June 14, 2013, MNTC entered into an agreement with Egis Projects, Phils. and Indra Philippines, Inc. for the front end and design works for the toll collection system migration. Total project cost is €6.2 million (P=365.3 million), of which, =144.3P million was capitalized to service concession asset in 2013.
Borrowing costs capitalized amounted to =11.4P million and nil in 2013 and 2012, respectively.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 93 Notes to Financial Statements
Service Concession Assets – Water Utilities. This represents the exclusive right granted to Maynilad and PHI to provide water distribution and sewerage services and charge users for these services during the concession period.
§ Maynilad. In February 1997, Maynilad entered into a concession agreement with MWSS, with respect to the MWSS West Service Area. Under the concession agreement, MWSS grants Maynilad, the sole right to manage, operate, repair, decommission and refurbish all fixed and movable assets required to provide water and sewerage services in the West Service Area for 25 years ending in 2022. In September 2009, MWSS approved an extension of its concession agreement with Maynilad for another 15 years to 2037. The legal title to all property, plant and equipment contributed to the existing MWSS system by Maynilad during the concession period remains with Maynilad until the expiration date at which time, all rights, titles and interests in such assets will automatically vest to MWSS. Under the concession agreement, Maynilad is entitled to (a) an annual standard rate adjustment to compensate for increases in the consumer price index subject to a rate adjustment limit; (b) an extraordinary price adjustment to account for the financial consequences of the occurrence of certain unforeseen events subject to grounds stipulated in the concession agreement; and (c) a rate rebasing mechanism which allows rates to be adjusted every five years to enable Maynilad to efficiently and prudently recover expenditures incurred, Philippine business taxes and payments corresponding to debt service on concession fees and Maynilad loans incurred to finance such expenditure. In accordance with the concession agreement, Maynilad posted a performance bond in the amount of US$80.0 million to secure the performance of its obligations under certain provisions of its concession agreement (see Note 33).
§ PHI. In August 2012, Maynilad acquired a 100% interest in PHI (see Note 4), which engages in water distribution business in certain areas in central and southern Luzon. PHI is granted the sole right to distribute water in these areas under certain concession agreements granted by the Philippine government for 25 years to 2035.
Additions to the service concession assets for the water utilities in 2013 and 2012 substantially relate to the additional concession fees (see Note 18) pertaining to the drawn portion of the MWSS loans relating to new projects and cost of rehabilitation works and additional constructions.
14. Property and Equipment and Property Use Rights
Property and Equipment. This account consists of:
Purchase Price December 31, Allocation* Disposals/December 31, 2012 (Note 4) AdditionsReclassifications 2013 (In Millions)
Cost Land and land improvements P=1,044 P=140 P=62 (P=94) P=1,152 Leasehold improvements 165 – 32 – 197 Building and building improvements 3,272 88 41 229 3,630 Office and other equipment, furniture and fixtures 786 29 221 (16) 1,020 Transportation equipment 335 8 115 (46) 412 Instruments, tools and other equipment 2,146 146 401 (4) 2,689 Library books 17 – 2 – 19 7,765 411 874 69 9,119 Accumulated Depreciation Leasehold and land improvements 27 – 23 – 50 Building and building improvements 240 – 193 – 434 (Forward)
94 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Office and other equipment, furniture and fixtures P= 4 9 4 P= – P= 9 1 ( P= 2 6 ) P= 5 5 9 Transportation equipment 211 – 122 (35) 298 Instruments, tools and other – equipment 752 435 (29) 1,158 Library books 9 – 3 – 12 1,733 – 867 (90) 2,511 6,028 411 7 159 6,608 Allowance for impairment loss (23) – – – (23) Construction-in-progress 44 7 469 (243) 274 P=6,049 P=418 P=476 (P=84) P=6,859 *Includes both acquisitions through business combination and completion of purchase price allocation.
Purchase Price December 31, Allocation* Disposals/December 31, 2011 (Note 4) AdditionsReclassifications 2012 (In Millions)
Cost Leasehold and land improvements =P957 =P– =P94 (=P7) =P1,044 Leasehold improvements 111 – 54 – 165 Building and building improvements 3,119 – 168 (15) 3,272 Office and other equipment, furniture and fixtures 726 – 96 (36) 786 Transportation equipment 307 – 44 (16) 335 Instruments, tools and other equipment 1,746 (11) 424 (13) 2,146 Library books 15 – 2 – 17 6,981 (11) 882 (87) 7,765 Accumulated Depreciation Land and leasehold improvements 9 – 18 – 27 Building and building improvements 69 – 171 – 240 Office and other equipment, furniture and fixtures 413 – 135 (54) 494 Transportation equipment 175 – 48 (12) 211 Instruments, tools and other equipment 439 – 327 (14) 752 Library books 6 – 3 – 9 1,111 – 702 (80) 1,733 5,866 (11) 180 (7) 6,028 Allowance for impairment loss (23) – – – (23) Construction-in-progress 21 – 37 (14) 44 =P5,864 (=P11) =P217 (=P21) =P6,049 *Includes both acquisitions through business combination and completion of purchase price allocation.
Land and certain property and equipment were pledged as security for certain of the Company’s interest-bearing loans (see Note 19).
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 95 Notes to Financial Statements
Property Use Rights. This account consists of:
Adjustment from Completion of December 31, Purchase Price December 31, 2012 Allocation Amortizations 2013 (In Millions) Cost Land use rights =208P P=– P=– P=208 Building use rights 540 – – 540 748 – – 748 Accumulated Amortization Land use rights 15 – P=11 P=26 Building use rights 44 – 29 73 59 – 40 99 =689P – (P=40) P=649
Adjustment from Completion of December 31, Purchase Price December 31, 2011 Allocation Amortizations 2012 (In Millions) Cost Land use rights =P71 =P137 =P– =P208 Building use rights 713 (173) – 540 784 (36) – 748 Accumulated Amortization Land use rights 2 – 13 15 Building use rights 17 – 27 44 19 – 40 59 =P765 (=P36) (=P40) =P689
The Company entered into lease agreements for the operation and management of hospitals, OLLH and CSMC (see Note 33). The lease agreements qualified as business combinations where the identifiable assets consist of property use rights for the use of existing land and building over the term of the lease of twenty (20) years.
15. Other Noncurrent Assets
This account consists of:
2013 2012 (In Millions) Deferred tax assets (see Note 29) P= 1 , 2 1 8 =530P Indemnification asset (see Note 4) 533 – Deposits 462 462 Long-term cash and miscellaneous deposits 313 100 Deposits for LTIP (see Note 25) 131 – (Forward)
96 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Software costs P= 7 3 =86P Pension asset (see Note 25) 24 49 Derivative asset (see Notes 8 and 36) 32 32 Others 271 549 P= 3 , 0 5 7 =1,808P
Deposits. Deposits substantially relate to the various with agreements entered into with Fil-Estate Corporation and its affiliated companies, and with Anglo Philippines Holdings Corporation and DBH Incorporated. The agreements relate to the options to acquire certain rights and interests in the MRT 3 companies consisting of Metro Rail Transit Holdings, Inc. (MRTH), Metro Rail Transit Holdings II, Inc. (MRTH-II), Metro Rail Transit Corporation (MRTC) and Monumento Rail Transit Corporation (MNRTC) subject to the condition that the necessary consents and waivers from relevant parties are obtained. Should the acquisition push through, these deposits will form part of the acquisition price. Otherwise, these will be forfeited and charged to expense.
Long-term Cash and Miscellaneous Deposits. Long-term cash investments represent time deposits with maturities of more than one year and earn interest at the respective long-term cash deposit rates. Miscellaneous deposits consist of rental deposits and deposits for restoration works.
Deposit for LTIP. This account consist of the noncurrent portion of the LTIP fund representing the amount expected to be paid in 2016 following the LTIP program 3-year performance cycle ending in 2015. The LTIP fund is covered by an IMA entered into with a Trustee Bank (see Note 25).
Software Costs. Software cost represents costs of the Company’s developed and implemented accounting and reporting system with estimated useful life of five years.
Others. This account includes advances to contractors and consultants.
16. Accounts Payable and Other Current Liabilities
This account consists of:
2013 2012 (In Millions) Trade and accounts payable P=4,496 =3,475P Accrued construction costs (see Note 21) 4,655 5,114 Accrued personnel costs 1,034 888 Accrued expenses 662 840 Interest and other financing charges (see Note 19) 620 737 Dividends payable (see Notes 6 and 22) 425 303 Accrued outside services 421 295 Retention payable 218 67 Withholding taxes payable 169 124 Payable to CHI (see Note 8) 163 575 Output taxes payable 138 112 Unearned revenue and other deposits 96 82 Lease payable - current portion (see Note 20) 55 108 Accrued PNCC fees (see Note 33) 42 41 Pretermination fees and transaction cost (see Note 19) 30 530 LTIP payable (see Note 25) 46 407 Others 206 14 P=13,476 =13,712P
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 97 Notes to Financial Statements
Trade and accounts payable. This account includes unpaid billings of creditors, suppliers and contractors. It also includes liabilities relating to assets held in trust used in Maynilad’s operations amounting to =97.3P million as at December 31, 2013 and 2012 (see Note 34). Trade and accounts payables are non-interest bearing and are normally settled on 30 to 60 day terms.
Accrued construction costs. This represents unbilled construction costs from contractors and normally settled upon receipt of billings (see Note 21).
Accrued expenses. This account includes accrued professional fees, utilities and repairs and maintenance charges. This account also included accruals in relation to the cases pending before the courts or quasi-judicial bodies. Detailed disclosure of which are not provided as allowed under PAS 37, as this may prejudice the Company’s positions in relation to these cases.
Pretermination fees and transaction cost. As at December 31, 2012, accrued pretermination fees amounted to =502.6P million in connection with the Parent Company’s early redemption of its long-term debt and MNTC’s termination of its interest rate swap agreement with PNB (see Note 19). This account also includes accrued transaction costs amounting to =27.6P million relating to the CHI convertible note transaction in 2012 (see Note 8). These amounts were paid in 2013.
Retention payable is the amount withheld (equal to 10% of the contract price) by the Company until the completion of the construction of a specific project.
Payable to CHI. Under the terms and conditions of the Tax Indemnity Letter in relation to the Note as discussed in Note 8, CHI shall deliver to MPTC a standby letter of credit (LC) with a face value amounting to P=574.6 million. As at December 31, 2012, the standby LC has not yet been delivered to MPTC. CHI, therefore, instructed MPTC to withhold an amount equal to the face value of the standby LC from the proceeds of the Note until CHI has delivered the standby LC to MPTC. The standby LC has been delivered to MPTC on January 31, 2013 and therefore, MPTC released such amount to CHI on February 1, 2013.
Payable to CHI as at December 31, 2013 relates to non-interest bearing advances obtained by CIC in 2012 for its debt service requirements. This is payable within one year.
17. Provisions
The tables below present the movements in this account:
December 31, 2013 Warranties and Guarantees Heavy Other (see Note 32) Maintenance Provisions Total (In Millions) Balance at the beginning of year P=489 P=336 P=3,097 P=3,922 Additions from business combination (see Note 4) – 228 6 234 Additions (see Note 23) – 188 1,046 1,234 Accretion – 8 – 8 Payments – (327) (82) (409) 489 433 4,067 4,989 Less current portion 489 121 4,067 4,677 P=– P=312 P=– P=312
98 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 December 31, 2012 Warranties and Guarantees Heavy Other (see Note 32) Maintenance Provisions Total (In Millions) Balance at the beginning of year =P489 =P370 =P2,320 =P3,179 Additions (see Note 23) – 120 862 982 Payments – (154) (12) (166) Reversals – – (73) (73) 489 336 3,097 3,922 Less current portion 489 154 3,027 3,670 =P– =P182 =P70 =P252
Warranties and Guarantees. This includes certain warranties and guarantees extended by NOHI in relation to debt for asset swap arrangements entered in prior years. Certain warranties and guarantees are secured by Pacific Plaza Tower (PPT) condominium units and BLC shares with carrying values of =18.9P million and =46.5P million, respectively (see Notes 9 and 10).
Heavy Maintenance. This pertains to the contractual obligations of MNTC and CIC to restore the service concession assets to a specified level of serviceability during the service concession term and to maintain the same assets in good condition prior to turnover of the assets to the Philippine government.
Other provisions. These consist of estimated liabilities for losses on claims by third parties. The information usually required by PAS 37 is not disclosed as it may prejudice the Company’s negotiation with third parties.
18. Service Concession Fees Payable
This account consists of:
2013 2012 (In Millions) Service concession fees payable P=8,512 =8,714P Less current portion 603 688 P=7,909 =8,026P
Concession fees relate to and arise from Maynilad’s service concession agreement (see Note 13) and are denominated in various currencies. These are payable monthly following an amortization table up to the end of the concession period and are non-interest bearing.
The schedule of undiscounted estimated future concession fee payments, based on the extended life of Maynilad’s concession agreement as of December 31, 2013, is as follows:
In Original Currency Foreign Peso Loans/ Currency Loans Project Local Total Peso Year (Translated to US$)* Support Equivalent* (In Millions) 2014 $17.22 =P818.64 =P1,582.94 2015 15.73 783.29 1,481.74 2016 16.62 509.5 1,247.42 2017 14.22 498.66 1,130.08 2018-2037 87.38 10,350.57 14,229.67 $151.17 =P12,960.66 =P19,671.85 * Translated using the December 31, 2013 exchange rate of =44.39:US$1.P
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 99 Notes to Financial Statements
Concession fee payments relating to the extension of the concession agreement (see Note 13) are only determinable upon loan drawdown of MWSS and their actual construction of the related concession projects. Accretion expense for the years ended December 31, 2013, 2012 and 2011 amounted to =659.0P million, =644.0P million and =686.1P million, respectively (see Note 26).
19. Note Payable and Long-term Debt
Note Payable. On December 27, 2012, the Company availed a short-term unsecured note in the amount of =4.7P billion from a local bank, the proceeds of which were invested in MPTC. The note bears fixed interest of 4.5% per annum, payable in 90 days or on March 27, 2013. On the date of scheduled payment, the Company fully settled the outstanding balance of the short-term payable including the related interest.
Long-term Debt. This account consists of:
December 31, 2013 Convertible Preferred Long-term Loans Shares Bonds Total (In Millions) DMWC and subsidiaries P=25,424 P=– P=– P=25,424 MPTC and subsidiaries 17,869 – – 17,869 MPIC 6,448 – – 6,448 AHI 1,121 – – 1,121 Others 387 6 – 393 51,249 6 – 51,255 Less unamortized debt issue cost 207 – – 207 51,042 6 – 51,048 Less current portion of long-term debt - net of unamortized debt issue cost 3,506 6 – 3,512 Noncurrent portion P=47,536 P=– P=– P=47,536
December 31, 2012 Convertible Preferred Long-term Loans Shares Bonds Total (In Millions) DMWC and subsidiaries =P21,670 =P– =P– =P21,670 MPTC and a subsidiary 9,038 – – 9,038 MPIC 6,514 – – 6,514 AHI 1,397 – – 1,397 Others 377 57 13 447 38,996 57 13 39,066 Less unamortized debt issue cost 151 – – 151 38,845 57 13 38,915 Less current portion of long-term debt - net of unamortized debt issue cost 1,777 57 13 1,847 Noncurrent portion =P37,068 =P– =P– =P37,068
100 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The table below presents the movements in unamortized debt issue costs:
2013 2012 (In Millions) Balance at beginning of year P=151 =617P Amortization during the year charged to interest expense (46) (93) Debt issue costs incurred during the year 543 – Amortization during the year charged to other expenses (441) (373) Balance at end of year P=207 =151P
The repayments of loans based on existing terms are scheduled as follows:
2013 2012 (In Millions and (In Millions and undiscounted) undiscounted) 2014 P=3,496 2013 =6,536P 2015 3,189 2014 3,073 2016 and onwards 44,253 2015 and onwards 34,098 P=50,938 =43,707P
The credit agreements provides for certain restrictions with respect to, among others, availing other loans or advances to any of the Company’s affiliates, subsidiaries, stockholders, directors and officers except in compliance with formally established and existing fringe benefit program of the Company. These restrictions were complied with by the Company.
DMWC and Subsidiaries Long-term debt consists of:
Interest Rate Description (per annum) Terms 2013 2012 (In Millions) Availed on March 22, 2013, =21.2P Billion Term Loan Facility Higher of 10-yr P= 2 0 , 3 0 6 =–P payable in semi-annual PDST-F + 0.75% or installment within 10 years 5.75% p.a.; floor to to commence at the end of be repriced after 5 the 6th month after the years initial issue date with final repayment in March 2023; contains negative pledge
=P5.0 Billion loan with BDO Fixed rate per Availed of on April 29, 2013, 5,000 – annum equal to the payable in semi-annual higher of (i) the installments within 10 years, PDST-F rate + to commence on the 42nd 0.75%, or (ii) 5.75% month, contains negative per annum pledge
(Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 101 Notes to Financial Statements
US$137.50 million loan with Land Same rate of Interest and principal P=89 =P– Bank of the Philippines (LBP) interest payable by payable in semi-annual LBP under the installments within 25 years, World Bank Loan inclusive of seven years Agreement + 1.25% grace period, contains p.a. negative pledge
US$365 million Corporate Notes · Series 1 Peso-denominated o Fixed rate note with peso 8.82% subject to Availed of on June 30, 2008 – 9,640 equivalent of US$120.0 review and and payable within 10 years, million (unsecured) renegotiation if 10- to commence at the end of yr PDST-F equals or the 36th month after the exceeed 8.29% p.a. initial issue date
o Floating rate note with peso 6-month PDST-F + equivalent of US$120.0 2% or 4.75% p.a. million (unsecured) floor
· Series 2 Dollar-denominated LIBOR and CDS rate – 4,977 US$125.0 million floating rate + 2.0% note(unsecured)
=7.0P Billion Corporate Notes 10-yr PDST-F + Entered into on March 23, – 7,000 0.75% or 6.5% p.a. 2011 and payable within ten floor years in semi-annual installments, to commence at the end of three years
Various peso-denominated loan of Various (PDST-F + Payable in quarterly 29 53 PHI spread; subject to installments over seven quarterly repricing) years from 2007 and 2009
25,424 21,670 Less unamortized debt issue costs 82 15 Less current portion of long-term debt 1,703 1,032 Total P=23,639 =20,623P
As at December 31, 2012, Maynilad was already in negotiations to refinance its existing loan of =22.0P billion debt (consisting of US$365 million Corporate Notes and the =7.0P Billion Corporate Notes) and assessed that the probability of refinancing is high. Hence, the capitalized debt issue costs of P=328.5 million related to the P=22.0 billion debt was written down in 2012 based on the revised expected cash flows.
On March 22, 2013, Maynilad entered into a Concessionaire Lenders’ Agreement for a =21.2P billion Term Loan Facility which was used to refinance the P=22.0 billion debt. The interest rate floor on the =21.2P Billion Term Loan Facility is an embedded derivative that was assessed by Maynilad as not for bifurcation based on the provisions of PAS 39.
The World Bank (“WB”), through the Metro Manila Wastewater Management Project (“MWMP”), provided a US$275 million loan to the Land Bank of the Philippines (“LBP”) for relending to Maynilad and Manila Water Company, Inc. The loan was divided equally to these two concessionaires. The MWMP is intended to finance investments in wastewater collection and treatment, and septage management in Metro Manila.
102 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Covenants. Maynilad’s loan agreements contain, among others, covenants regarding the maintenance of certain financial ratios such as debt-to-equity ratio and debt service coverage ratio, and maintenance of debt service account (see Note 7). As at December 31, 2013 and 2012, Maynilad has complied with these covenants.
Significant covenants for the PHI’s loan included maintenance of certain financial ratios and the prohibition against declaration or payment of dividends to PHI’s stockholders (other than dividends payable solely in shares of its capital stock) if payment of any sum due to the lenders is in arrears or if it would negatively affect PHI’s financial condition. As at December 31, 2012, PHI was unable to comply with the current ratio requirement which resulted to the classification of the noncurrent portion amounting to =40.8P million as part of current liabilities in the 2012 consolidated statement of financial position. With the amendment of the required current ratio in 2013, PHI was able to comply with all the covenants as at December 31, 2013. Thus, the noncurrent portion of the loan amounting to =17.0P million was reclassified as part of noncurrent liabilities in the 2013 consolidated statement of financial position.
PHI’s loans are secured by the assigned guarantee coverage of PHI at 85% of the customers’ monthly billing obligation but not to exceed P=75.0 million and P=150.0 million for the loans obtained in 2009 and 2007, respectively. In addition to this guarantee, the loan obtained in 2007 is secured by certain property and equipment while the loan obtained in 2009 is secured by a continuing surety made by PHI’s former shareholder.
MPTC and Subsidiaries Loans consist of:
Interest Rate Description (per annum) Terms 2013 2012 (In Millions) =P6.2 Billion Series A Notes Weighted average Availed of on April 15, 2011 P=6,086 =P6,148 (unsecured) fixed interest rate of and have tenors of 5 years, 7.22% p.a. 7 years and 10 years, subject to bullet like repayment
P=2.1 Billion loan with Philippine 6-month PDST-F + Availed of on March 16, 1,785 1,890 National Bank (PNB) (unsecured) 0.50% margin 2009 payable within 7 years, balloon type semiannual payment starting June 15, 2011, 85% payable on the last 4 semiannual periods
=P1.0 Billion Term Loan Facility Average fixed Availed of on December 12, 1,000 1,000 with the Insular Life Assurance interest rate of 2011. Final maturity date of Company Ltd. (Insular) and the 7.10% p.a. 15 years with two bullet Philippine American Life and repayment tranches of General Insurance Company =500.0P million each after 10 (Philam) (unsecured) and 15 years
=1.0P Billion Term Loan Facility Fixed interest rate Availed of on December 12, 1,000 – with Philam (unsecured) of 5.80% p.a. 2013, payable in lump sum after 15 years
=800.0P million Term Loan Facility Fixed interest rate Availed of on October 11, 800 – with Sun Life of Canada of 5.30% p.a. 2013, payable in lump sum (Philippines), Inc. (unsecured) after 10 years
(Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 103 Notes to Financial Statements
=200.0P million Term Loan Facility Fixed interest rate Availed of on November 29, P=200 =–P with Philam (unsecured) of 5.03% p.a. 2013, payable in lump sum after 10 years
Series 2010-1 Dollar-denominated Fixed rate of 12.0% Principal payments payable 854 – Notes quarterly, commencing March 2013 with final payment in September 2022
=P6.1 Billion Loan with BDO-RCBC 6.50% subject to Availed of in 2013, payable 6,144 – repricing on the quarterly within 10 years fifth year starting January 13, 2014 to December 26, 2023
17,869 9,038 Less unamortized debt issue costs 125 132 Less current portion of long-term debt 1,158 144 Total P=16,586 =8,762P
An interest rate swap (IRS) transaction was entered into to convert the floating rate P=2.1 billion loan with PNB into a fixed rate loan effective March 14, 2011. The interest rate swap effectively fixed the floating rate of the said loan over the remaining tenor at 5.9% per annum. However, on December 28, 2012, MNTC issued a notice for early termination of the IRS transaction covering the period December 15, 2012 up to December 15, 2015. The early termination fee was recognized as interest expense amounting to =175.0P million in the 2012 consolidated statement of comprehensive income.
Proceeds from the =6.2P Billion Series A Notes were used for the partial and full prepayment of certain outstanding debt of MNTC. The prepayment fees paid amounting to P=329.9 million were recognized as part of “Interest expense” in the 2011 consolidated statement of comprehensive income (see Note 26).
The Series 2010-1 Dollar-denominated Notes and =6.1P Billion Loan with BDO-RCBC resulted from the consolidation of CIC effective January 2013 (see Note 4). On December 26, 2013, CIC availed a =6.1P Billion Loan with BDO-RCBC, the proceeds of which was used primarily to refinance CIC’s existing loan (which included the long-term debt assumed upon by the Company’s acquisition of CIC) and other obligations, repayment of the advances owed to MPTC, refinancing certain short-term loan obligations of the borrower to BDO and for general working capital requirements of the borrower. The refinancing did not qualify as extinguishment of debt and as such, the additional transaction costs were capitalized and a new effective interest rate was computed. The prepayment option and interest rate floor were assessed to be clearly and closely related to the host loan, thus not bifurcated. The Series 2010-1 Dollar-denominated Notes, which was issued by CIC through a consolidated structured entity, stipulates certain “Repurchase Events” which would require CIC to repurchase certain concession collections and contract rights under CIC’s concession agreement, for a repurchase price. Repurchase Events included, among others, failure to make payments due under the transaction documents, attachment of CIC’s assets having a value in excess of US$5.0 million, and abandonment, or other than during the continuance of an event that constitutes force majeure under CIC’s Toll Operation Agreement. The Series 2010-1 Dollar-denominated Notes is secured by future toll collections from CAVITEX; pledge over transaction accounts and 40,000 preferred shares of CIC held by CHI.
CIC provided collateral security in connection with the =6.1P Billion loan with BDO-RCBC, which included a mortgage on certain debt instruments, equity investments of CIC, voting shares in the structured entity owned by the third party stockholders and assignment of a reserve account. The agreement covering this loan generally provides, among others, that for as long as the loans remain outstanding, CIC is subject to certain negative covenants requiring prior approval of the creditors for specified corporate acts.
Covenants. The loans contain, among others, covenants regarding the maintenance of certain financial ratios such and maintenance of reserve account. As at December 31, 2013, both MNTC and CIC are in compliance with their respective debt covenants.
104 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 MPIC
Loan consists of:
Description Interest Rate Terms 2013 2012 (In Millions) =P6.48 billion Fixed Rate Note Fixed rate for first 5 Availed of in June 2013 and P=6,448 =P– years; repricing on payable in ten years; with 5th year semiannual interest and principal payments with final principal payment in June 2023 =6.8P Billion Loan 10.7% p.a. Availed of in November – 6,514 2008, payable in 20 semi- annual installments and redeemable in whole or in part after four years from issue date
6,448 6,514 Less unamortized debt issue costs – 4 Less current portion of long-term debt (65) 63 Total P=6,383 =6,447P
In December 2012, the Parent Company obtained the consent of the lender of the =6.8P Billion Loan for its early redemption. A portion of the unamortized debt issue cost related to the loan amounting to P=44.2 million was expensed as a result of change in expected cash flow and charged to “Other expense ” as “Adjustment to amortized cost due to change in expected cash flows” in the consolidated statement of comprehensive income (see Note 27). Also, while the =6.8P Billion Loan was outstanding, the loan agreement requires the maintenance of a DSA account, which as of December 31, 2012 amounted to P=229.2 million and is presented as “Restricted cash” account in the consolidated statement of financial position (see Note 7).
Proceeds from the =6.48P Billion Fixed Rate Note availed of in 2013 was used to repay the outstanding balance of the =6.8P Billion Loan. Consequently, the pledge over the MPTC shares as security for the due and punctual payment of the P= 6.8 Billion Loan was also released.
Covenants. The =6.48P Billion Fixed Rate Note contain, among others, covenants regarding maintenance of reserve account and achieving certain financial ratios such as (1) debt-to-equity ratio not to exceed 70:30; and (2) debt-service coverage ratio at a minimum of 1.3 times. The Notes contain a negative pledge on all existing and future assets of MPIC and is redeemable at the option of the Noteholder, in whole but not in part, on the 5th year, by giving written notice of early redemption no earlier than 60 days nor later than 30 days prior to the exercise date. As at December 31, 2013, MPIC is in compliance with its debt covenants.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 105 Notes to Financial Statements
AHI
Loans consist of:
Description Interest Rate Terms 2013 2012 (In Millions) =P1.26 billion loan with 8.5% p.a. on first Availed of on P=730 =P918 International Finance drawdown; 8.1% February 8, 2008 and Corporation (IFC) p.a. on second payable in 16 unequal drawdown semiannual principal beginning May 15, 2010
=P595.0 million loan with Deutsche 9.1% p.a. on first Availed of on 347 438 Investitions-und drawdown; 8.6% February 8, 2008 and Entwicklungsgeselleschaft mbH p.a. on second payable in 16 unequal (DEG) drawdown semiannual principal beginning March 15, 2010
US$1.0 million IFC Subordinated Income Availed of on 44 41 Loan participation February 8, 2005 and Amount from 1% to payable on 2% of EBITDA April 30, 2017
1,121 1,397 Less current portion of long-term debt 276 280 Total P=845 =1,117P
AHI’s property and equipment with a carrying value of P=3,398 million and =3,387.4P million as at December 31, 2013 and 2012, respectively, are pledged as collaterals for its long-term loan (see Note 14).
Covenants. The agreements covering the loans generally provide, among others, that for as long as the loans remain outstanding, AHI is subject to certain negative covenants and maintenance of certain financial ratios. While the =1.26P billion loan with IFC and =595.0P million loan with DEG are outstanding, AHI is prohibited, among others, from: (i) declaring dividends or making cash distributions on its share capital unless payment is out of its retained earnings subject to maintenance of certain financial ratios and notification made to the lenders; (ii) incurring expenditures or commitments for acquisitions of fixed or other noncurrent assets except for expansion projects or necessary repairs and maintenance; (iii) entering into financial leases exceeding US$500,000 of annual lease payments; (iv) entering into guarantees and derivative transactions; and (v) creating lien on AHI’s property, revenue and other assets.
As at December 31, 2013 and 2012, AHI’s current ratio is below the minimum and is therefore prohibited from declaring dividends. No dividends were declared in 2012. However, after obtaining the approval from IFC and DEG, AHI was able to declare dividends amounting to =0.01P per share to 1,936,728,390 outstanding shares on April 28 and November 28, 2013 and paid the same on May 15, 2013 and December 13, 2013, respectively. As long as AHI was not able to meet the requirements set out in the loan agreement, AHI needs to obtain the approval from IFC and DEG prior to any dividend declaration.
106 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Others Consist of:
Description Interest Rate Terms 2013 2012 (In Millions) CVHMC · Loans with local bank Fixed rates ranging =P150 million availed of in P=125 =P150 (unsecured) from 4.0% to 5.5% 2012 and fully paid in 2013; p.a. =200P million availed of in 2013 and to be fully paid in 2014 RMCI and a subsidiary · Various loans with local banks 2% p.a. + PDST-F Availed of in various dates 162 137 rate for the loan from 2008 to 2013, and all with P=300 million payable quarterly principal; prevailing market rates for the remaining loans
EMHMC · P=100 million loan with local 5.50% p.a. Availed of in 2012 payable 92 90 bank(unsecured) monthly from March 19, 2012 to March 14, 2013
Others 14 70 393 447 Less current portion of long-term debt 310 363 Total P=83 =84P
RMCI’s loans are secured by continuing suretyship of some of the stockholders of RMCI and real mortgage constituted over various parcel of land and improvements of RMCI and RCI with aggregate carrying amounts of P=348.1 million and =168.5P million, as at December 31, 2013 and 2012, respectively (see Note 14). The loan agreements provide for certain restrictions with respect to, among others, incurrence of any other loans, advances or other obligations. These restrictions were complied with by RMCI in 2013 and 2012.
20. Deferred Credits and Other Long-term Liabilities
2012 (Restated - 2013 Note 2) (In Millions) Contingent liabilities arising from business combinations (see Notes 4 and 32) P=1,142 =–P Lease payable (see Notes 3 and 33) 1,020 1,060 Customers’ guaranty deposits 783 711 Accrued interest payable to MWSS 607 607 Deferred credits 478 2,529 LTIP payable (see Note 25) 409 39 Accrued retirement liability (see Note 25) 333 327 Payable to CHI 257 – Financial guarantee obligation (see Note 21) 65 65 Others 58 59 P=5,152 =5,397P
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 107 Notes to Financial Statements
Contingent Liabilities arising from Business Combinations. In relation to various acquisitions made, the Company recognized several contingent liabilities relating to the acquired entities and, therefore, portion of the cost of business combination was allocated to these contingent liabilities. As at December 31, 2013, the contingent liabilities relate to the acquisition of CIC (see Note 4).
Lease Payable. Lease payable represents present value of future minimum lease payments relating to the lease agreements entered into by EMHMC and CVHMC, which lease agreements qualify as business combinations. The lease payable was initially determined at acquisition date and subsequently adjusted for payments and accretion (see Notes 3 and 33). Current portion of the lease payable is included in the “Accounts payable and other current liabilities” (see Note 16). Total lease payable has nominal value of =2,522.0P million and P=2,625.2 million as at December 31, 2013 and 2012, respectively.
Customers’ Guaranty Deposits. Customers’ guaranty deposits serve to guarantee payment of bills by customers. These deposits are non-interest bearing and normally refunded upon termination of water service connection and are initially measured at fair value. After initial recognition, these deposits are subsequently measured at amortized cost using the effective interest rate method. The discount is amortized over the remaining concession period using the effective interest rate method.
Deferred Credits. As at December 31, 2013 and 2012, deferred credits representing the net effect of unrealized foreign exchange gain or loss on service concession payable to MWSS, and restatement of foreign currency-denominated interest bearing loans and related interest amounted to P=478.0 million and P=2,529.0 million, respectively. Deferred credits are calculated as the difference between the drawdown or rebased rate versus the closing rate.
In 2013, Maynilad realized foreign exchange gain amounting to P=1.0 billion arising from the refinancing of dollar-denominated Corporate Notes (see Note 19). This resulted in a significant FCDA refund to the customers and subsequent reduction in deferred credits account. As at March 19, 2014, such realized foreign exchange gain has been substantially refunded.
Accrued Interest Payable to MWSS. In connection with Maynilad’s disputes with MWSS over certain charges billed by MWSS relating to (a) the basis of the computation of interest; (b) MWSS cost of borrowings; and (c) additional penalties, and as further discussed in Note 32, Maynilad has accrued interest on its payable to MWSS accumulating to P=985.3 million as at December 31, 2011, which was disputed by Maynilad before the Rehabilitation Court. Maynilad maintains that the accrued interest on its payable to MWSS has been adequately replaced by the Tranche B Concession Fees discussed in Note 32. Maynilad’s position is consistent with the Receiver’s recommendation which was upheld by the Rehabilitation Court.
In 2012, in line with Maynilad’s negotiations and outstanding offer of US$14 million to fully settle the claim of MWSS, Maynilad reduced the accrued interest payable to MWSS to =607.2P million as at December 31, 2012. The reduction of =378.1P million in accrued interest payable was released to “Other income” (see Note 27). In 2012, in line with the assessment of the accrued interest payable to MWSS, the contingent liability of =686.6P million as at December 31, 2011 was reversed as “Other income” (see Note 27) in 2012 consolidated statement of comprehensive income.
Payable to CHI. On October 20, 2011, CIC and CHI executed a Memorandum of Agreement (MOA), wherein, the CHI shall grant CIC a right-of-way to certain segments of the property CHI plans to reclaim to allow CIC to construct four feeder roads. The four feeder roads are estimated to cost P=520.0 million where CHI shall be liable for approximately fifty (50%) percent of construction costs. Actual contribution of CHI amounting to =256.7P million was received by CIC in 2012. As at March 19, 2014, the construction of the feeder roads has not yet started.
21. Related Party Transactions
Enterprises and individuals that directly, or indirectly through one or more intermediaries, control or are controlled by or under common control with the Company, including holding companies, subsidiaries and fellow subsidiaries, are related parties of the Company. Associates and individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the enterprise, key management personnel, including directors and officers of the Company and close members of the family of these individuals, and companies associated with these individuals also constitute related parties. In considering each possible related entity relationship, attention is directed to the substance of the relationship and not merely the legal form.
108 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Transactions with related parties Transactions with related parties, whether or not conducted under normal terms and conditions similar to those with unrelated parties, are disclosed below. See tabular presentation for the recorded transactions with with these related parties.
§ Transactions with TMC. TMC provides services as operator to the NLEX under the Operation and Maintenance Agreement (O&M) with MNTC until December 31, 2037. The O&M contains the terms and conditions for the operation and maintenance by TMC of Phase I of the NLEX and subsequently of Segment 7, and sets forth the scope of its services. Under the O&M, MNTC pays TMC a base annual amount subject to quarterly escalation plus a variable component. Effective 2010, the base amounts are set at =P 605.4 million for the NLE, =38.8P million for Segment 7, =33.6P million for Segment 8.1, and =17.5P million for the Plaridel Bypass Interchange. The O&M, which also provides for certain bonuses and penalties as described in the O&M, shall be effective for the entire service concession period. In 2012, the Company also added the new Bocaue Interchange to the scope of TMC’s operations and maintenance contract but the terms are still being formalized as at March 19, 2014.
On January 22, 2014, in view of the latest publication of the National Statistics Office (NSO) for consumer price index (CPI) values issued in July 2011, with different commodity grouping compared with those stipulated in the O&M Agreement, MNTC and TMC agreed to amend the base fee as follows:
§ =1,470.1P million for the Phase 1 of the NLEX; § =94.3P million for Segment 7; § P=7.8 million for Dau Interchange; and § =36.9P million for Segment 8.1.
All compensations payable to TMC shall be escalated in accordance with the O&M Agreement with a new Base Date of January 1, 2012. MNTC and TMC further agree that in order to reflect the new commodity grouping for the indices published by the NSO in July 2011, the definition of CPI in the O&M Agreement was likewise amended.
TMC also pays annual guarantee fee to MPTDC equivalent to 2.5% of the gross value of the corporate guarantee issued by MPTDC. The guarantee was issued in favor of MNTC for the liability of TMC under the O&M. The guarantee income is included as “Other income” in the consolidated statement of comprehensive income (see Note 27). In connection with the corporate guarantee arrangement, MPTDC recognizes a receivable from TMC equivalent to the financial guarantee obligation calculated as the present value of the guaranteed portion of the liability of TMC under the O&M. The receivable on financial guarantee obligation (included as “Due from related parties” in the consolidated statement of financial position) and the financial guarantee obligation amounted to =64.8P million and P=65.1 million as at December 31, 2013, and 2012. Interest also accrues to the receivable from TMC and the related financial guarantee obligation.
MPTC and MPTDC perform management, operational and financial advisory services for TMC. MPTC and MPTDC are in the process of formalizing their management agreements with TMC as at March 19, 2014.
See tabular presentation for the recorded transactions with TMC relating to operator’s fee, guarantee fee, interest income on receivable on financial guarantee obligation, management fee and the outstanding balances of amounts due from TMC.
§ Transaction with MWCI. As disclosed in Note 8, MPWIC extended a loan to MWCI in relation to the project with CMWD.
§ Transaction with Landco. Refer to Note 8 for the details of the transaction with Landco.
§ Transactions with PLDT, SMART and Digitel. The Company’s primary telecommunications carriers are PLDT (an associate of FPC) for its wireline and SMART (PLDT’s subsidiary) for its wireless services. The Company also has transactions with Digitel Mobile Philippines, Inc., (Digitel) which became a subsidiary of PLDT in 2011. Such services are covered by standard service contracts between the telecommunications carriers and each entity within the Company. Other than these service contracts, the Company also has the following transactions with these telecommunication carriers:
· Northern Fiesta Campaign, a joint sponsorship agreement among MNTC, SMART and PLDT which is a collaborative tourism promotion of local fiestas and festivals in the North and of safety and traffic discipline along NLEX through print media and through banners and traffic control gates stickers in the NLEX toll plazas. Outstanding receivable from PLDT amounted to =0.3P million and P=1.1 million (both inclusive of VAT) as at December 31, 2013 and 2012, respectively. Outstanding receivable
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 109 Notes to Financial Statements
from SMART for its share in the costs of the promotion amounted to P=2.9 million (inclusive of VAT) as at December 31, 2013 and 2012.
· Utilities Facilities Contract, between MNTC and SMART whereby MNTC provides SMART an access for the construction, operation and maintenance of a cellsite inside the NLEX right of way for an annual fee of P=0.3 million which shall then be escalated annually to 4.5% starting on the fourth year of the contract and every year thereafter. The contract is effective from April 26, 2010 for a period of five years which may be renewed or extended upon mutual agreement by MNTC and SMART.
· Agreement for the naming rights of the SMART Connect Interchange, where MNTC grants SMART the exclusive rights to name the NLEX-Mindanao Avenue Cloverleaf as a SMART Connect Interchange and put up outdoor advertising structures near the interchange. The annual package is based on a predetermined timetable of when the official road signs are progressively built. The base price is from =175.0P million to =228.2P million and may increase depending on the final features and characteristics of the cloverleaf.
· Utilities Facilities Contract between MNTC and PLDT for the Fiber Optic Overlay along Phase I and Phase II Segment 8.1 of the NLEX. PLDT pays an annual fee presented as “Others” under “Other expenses”.
· Advertising arrangements between MNTC and Digitel related to various advertising mediums which include rental, material production, installation and maintenance at several locations along NLEX covering the period up to November 2013. Income from this arrangement is presented in Note 27 as other income.
· MNTC’s plan asset invested in unsecured notes issued by PLDT and SMART. MNTC’s plan asset includes unsecured Fixed Rate Corporate Notes (FXCNs) of PLDT amounting to =2.4P million as at December 31, 2012 and unquoted and unsecured term loans of SMART amounting to =0.9P million and =1.1P million as at December 31, 2013 and 2012.
The PLDT FXCNs and SMART term loans bear interest of 6.6% and 6.3% per annum, respectively, and are due 2016 and 2022, respectively. The PLDT FXCNs were disposed of in 2013.
· Other transactions with PLDT include various administrative assistance extended to the Company and rentals from lease of office space.
§ Transactions with DM Consunji Inc. Maynilad, entered into certain construction contracts with D.M. Consunji, Inc. (Consunji), a subsidiary company of DMCI (a non-controlling shareholder in DMWC), in relation to the provision of engineering, procurement and construction services to Maynilad. In January 2009, DMWC extended non-interest bearing cash advances to DMCI amounting to =243.7P million. On October 10, 2012, DMCI settled the advances with DMWC through offsetting with the amount received from DMWC in the form of return of capital.
§ Transactions with Meralco. Meralco, sells electricity to the Company for the Company’s facilities within Meralco’s franchise area. The rates charged by Meralco are the same mandated rates by the ERC applicable to customers within the franchise area.
On April 13, 2012, CVHMC entered into a Memorandum of Agreement (MOA) with Meralco for the operation and management of the Meralco Corporate Wellness Center (Wellness Center), an outpatient diagnostic and consultation center for its employees and their dependents. In accord of the contract, CVHMC agreed to take steps to improve healthcare services, expand diagnostic services, enhance customer services levels, increase operational efficiencies, rationalize equipment upgrade and renovate and improve infrastructure. Income recognized for this arrangement in 2013 amounted to =12.0P million included under the “management income”.
§ Transactions with Beacon Electric. Refer to Note 11 for other related parties transactions with respect to the Company’s acquisition of Meralco shares and investment in Beacon Electric.
§ Other transactions. Other transactions with related parties [Metro Pacific Investments Foundation, Inc. (MPIFI), Ideaspace Foundation, Inc. (Ideaspace; Philippines’ largest privately-funded incubator supported by FPC), Lucena Land Corporation (LLC; a subsidiary of Landco), FPC and others] mainly relate to advances to finance various projects as well as intercompany charges for share in certain operating and administrative advances.
110 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 – – – – – – – – – – – – – – – – – – – – – – (9) P = (91) (111) (164) =164) (P Impairment 27) Note (see Provision for Provision – – – – – – – – – – – – – – – – – – – – – P = (11) (111) (11) (11) (11) (11) P= v – =11) (P and 24) Rentals (see Notes 23 Notes (see – – – – – – – – – – – – – – – – P = (12) (50) (41) (23) (41) (948) (642) =33) (695) (974) (P and 24) Utilities (see Notes 23 Notes (see – – – – – – – – – – – – – – – – – – – – – P= – Fee (1,566) 1,532) (1,493) (1,566) =1,532) (P=1,048) P = (P ( Operator’s (see Note 23) Note (see – – – – – – – – – – – – – – – – – – – – – – – – – P= – P = (504) Cost (1,100) (1,100) (1,493) (1,021) Construction – – – – – – – – – – – – – – – – – – – – – P= – P = 280 561 561 280 405 P= 4 0 5 ( 5 0 4 ) shares and 27) Dividend Preferred (see Notes 11 Notes (see Income from Income – – – – – – – – – – – – – – – – – – – 1 1 8 28 27 38 39 P = P= 6 7 P= 5 9 Advertising Income from Income – – – – – – – – – – – – – – – – – 2 – 2 2 – – – 2 2 P= – P= 2 P = Utility Facilities Income from Income – – – – – – – – – – – – – – – – – – – – 4 11 11 11 11 P= – 11 P= 1 5 P = Income Interest (see Note 26) Note (see – – – – – – – – – – – – – – – – – – – – – 23 23 23 23 P= – 24 P= 2 4 P = Income Guarantee – – – – – – – – – – – – – – – – – – – – 85 60 60 85 P= – 56 P= 6 8 P = Income (see Note 27) Note (see Management 2011 2012 2011 2011 2011 2012 2011 2012 2012 2012 2012 2011 2012 2011 2012 2011 2012 2011 2013 2013 2013 2013 2013 2013 2013 20132013 12 2013 TMC PMHI Electric Beacon Meralco MWCI DM Consunji, Inc. PLDT Digitel SMART The following table provides the total amount of transactions with related parties for the years ended December 31, 2013, 2012 and 2011 (amounts in millions): in (amounts and2011 2012 2013, 31, December ended years the for parties related with transactions of amount total the provides table following The Name Associates and Joint and Associates Venture: relatedOther parties: Total
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 111 Notes to Financial Statements . – – – 2 4 – – 2 – – – – – – – – – 1 3 2 7 97 97 97 P 15 = P ent = e e m s th 201
for vabl ettle s pt partie cei re
ed cash Exce
tes – – – – – 4 – – – – – – – – – – 3 elat 1 1 P = 72 93 93 93 P = r 15 uires q to lions). 201
l re the no
mi
of
Due in and
ts ons n diti cured – – – – – – – – – – – – – 3 2 6 9 e mou 77 12 P 72 1 = con
609 609 609 ns 32 10 (a 201 P = g, u and es in r below ms
16) iliti b bea Ter
ote lia t.
N n – – – – – 1 1 – – – – – – – – – 3 7 nt erest P = 26 t provided e
me 365 365 365 33 (see e ts 201 P = n curr on-in ou settl
n c le, ac
Accounts payable and other and payable Accounts cash
dab 7 – – – 3 1 – 4 – – – – 7 – – 4 0 2 2 65 4 s P = 362 15 211 146 P 12 11 =65 ollowing 201 P = equires f deman r
partie the
and and
er ed d ue um d un
relat – – 4 – – – – – – – 7 1 6 ann 3 7 2 5
are
on 31 65 P = 65 88 44 325 29 229 10 P = es per siti 201 rti from from po
pa
Due cial at 12% at ted n a na rel – – – – – – 3 7 – – – – – – – – – – – – 2 7 f P = 45 61 617 164 61 of
om P 201 = e t-bearing s ent bl to/fr m 8) a
ue intere ote tate d s N d, Receiv – – – – – – 1 1 – – – – – – – – – – – 3 0 1
and P =
ure 72 72 266 455 10 62 (see c P = 201 idated l Notes yable unse
pa conso
year, unts the
1 – – 1 – – – – – – – – 4 3 – – – – – 2 o 45 53 53 53 P = P = in
e acc 201
than ried r re ble, 8) a ca
eivabl mo c ote are
Re N
receiv
due due es – – – – – – – – – – – – – – – 3 1 9 5 4 is P = P = 31 31 31 12 rti (see 201 pa trade
ted Accounts MC, a om TMC T fr
rel
from due
with nt due 8. ou nt te ctions am No the in amou
transa of
nture of the : . es of tion
t Ve r c
ent es n t provided
rti po oi i Inc urr j J c nt are balan rren
e portion re and r cu non ac co I
ted pa l
ing s nt onsun I
– – a d sp C RV te L ite C C
a E g Land PC
noncu LLC MPIF PLDT Smart Others
LN PMHI TM TM Meralco Beacon MWC Di DM FPC F Idea Landco Less allowance for impairment for allowance Less Total portion Less current from The noncurre Outstan Company Associ Other rel
112 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Directors’ Remuneration Annual remuneration of the directors amounted to P=7.0 million, P=8.2 million and =9.5P million in 2013, 2012 and 2011, respectively.
Non-executive directors are entitled to a per diem allowance of P=50 thousand for each attendance in the Parent Company’s BOD meetings. The Parent Company’s By-Laws provide that an amount equivalent to 1.0% of net proft after tax of the Parent Company shall be allocated and distributed among the directors of the Parent Company who are not ofcers of the Parent Company or its subsidiaries and afliates, in such manner as the BOD may deem proper. No accruals were made with respect to this scheme for the years ended December 31, 2013, 2012 and 2011 in the absence of resolution from the BOD. There are no other special arrangements pursuant to which any director will be compensated.
Compensation of Key Management Personnel Compensation of key management personnel of the Company is as follows:
2013 2012 2011 (In Millions) Short-term employee benefts P=749 =74P 6 =56P 2 Share-based payment (see Note 31) 18 12 38 Post employment benefts - Retirement costs 47 45 37 Other long-term benefts: LTIP expense (see Note 25) 411 165 148 Others 8 4 – P=1,233 =97P 2 =78P 5
22. Equity
Details of authorized and issued capital stock are in the following tables:
Preferred Preferred Common shares Shares – Class A Shares – Class B Par Value/ Par Value/ Issue Issue Price Price per per Price per No. of Shares share No. of Shares share No. of Shares share
Authorized Capital Stock (ACS): Registration Date Activity March 20, 2006 Incorporation 100,000 =1.0P0 June 5, 2006 Increase in ACS 4,599,900,000 1.00 As at December 31, 2007 and 2006 4,600,000,000 1.00 August 12, 2008 Increase in ACS 7,350,000,000 1.00 5,000,000,000 =0.0P1 As at December 31, 2008 11,950,000,000 1.00 5,000,000,000 0.01 February 13, 2009 Increase in ACS 8,050,000,000 1.00 –– 1,500,000,000 =1.P0 December 21, 2009 Increase in ACS 2,688,518,336 1.00 –– –– As at December 31, 2010 and 2009 22,688,518,336 1.00 5,000,000,000 0.01 1,500,000,000 1.0 May 31, 2011 Increase in ACS 5,811,481,664 1.00 –– –– As at December 31, 2013 and 2012 28,500,000,000 1.00 5,000,000,000 0.01 1,500,000,000 1.0 Issued and Outstanding: Date Activity September 6, 2006 Original subscription of MPIC’s majority shareholders 968,820,495 1.00 –– –– October 23, 2006 Issuance of shares to NOHI majority owners in exchangefor MPIC shares 181,290,038 1.00 –– –– November 8, 2006 Tendered shares of NOHI minority shareholders in exchange for MPIC shares 48,841,989 1.00 –– –– (Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 113 Notes to Financial Statements
Preferred Preferred Common shares Shares – Class A Shares – Class B Par Value/ Par Value/ Issue Issue Price Price per per Price per No. of Shares share No. of Shares share No. of Shares share As at December 31, 2006 1,198,952,522 =1.00 P – =–P – =–P December 31, 2007 Tendered shares of NOHI minority shareholders in exchange for MPIC shares 143,966,271 1.00 –– –– As at December 31, 2007 1,342,918,793 1.00 –– –– June 30, 2008 Additional subscription of MPIC’s majority shareholders 3,791,525,175 2.00 –– –– June 30, 2008 Conversion of loan from MPHI to equity 1,893,282,845 1.00 –– –– As at December 31, 2008 7,027,726,813 1.00 –– –– February 13, 2009 Issuance on existing subscriptions from MPHI 2,389,040,000 2.00 –– –– July 9, 2009 Issuance on existing subscriptions from LAWL Pte. Ltd (LAWL) 791,110,491 2.60 –– –– July 29, 2009 Conversion of advances from MPHI to equity 5,000,000,000 0.01 –– October 2, 2009 Issuance in exchange for Meralco shares 4,464,202,634 3.20 –– –– September 19, Additional subscriptions of 2009 MPHI 4,770,000,000 3.00 –– –– December 21, 2009 Conversion of advances/loan from MPHI to equity 672,129,584 3.00 –– –– Various Exercise of stock option plan 13,945,000 2.41* –– –– As at December 31, 2009 20,128,154,522 1.00 5,000,000,000 0.01 –– Various Exercise of stock option plan** 32,310,000 2.12 –– –– As at December 31, 2010 20,160,464,522 1.00 5,000,000,000 0.01 –– May 31, 2011 Conversion of advances/loan from MPHI to equity 2,030,769,230 3.25 –– –– Additional subscriptions of July 13, 2011 MPHI 2,400,000,000 3.60 –– –– Various Exercise of stock option plan 2,060,000 2.73 –– –– As at December 31, 2011 24,593,293,752 1.00 5,000,000,000 0.01 –– Various Exercise of stock option plan** 20,530,000 2.41* –– –– As at December 31, 2012 24,613,823,752 1.00 5,000,000,000 0.01 –– January 22, 2013 Additional subscriptions of MPHI 1,330,000,000 4.60 –– –– Various Exercise of stock option plan 82,150,000 2.73* –– –– As at December 31, 2013 26,025,973,752 P=1.00 5,000,000,000 =0.01 P *Weighted average exercise price.
Authorized Capital Stock On May 31, 2011, the SEC approved the increase in the authorized capital stock of the Company from P=24.2 billion to =30.05P billion, divided into 28.5 billion common shares, 5.0 billion Class A Preferred Shares and 1.5 billion Class B Preferred Shares with a par value of =1.0P per share.
Common Shares At various dates in 2013, 2012 and 2011, a total of 82.15 million, 20.53 million, 2.06 million common shares, respectively, were issued in connection with the Parent Company stock option plan (see Note 31). The increase in common shares for the years ended 2013, 2012 and 2011 also resulted from the following transactions:
§ On May 31, 2011, MPIC issued MPHI a total of 2,030,769,230 common shares in relation to the conversion of the =6.6P billion convertible bonds issued to MPHI in 2010. The conversion also resulted to a reclassification of the equity component of the
114 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 convertible bonds amounting to =280.6P million from “Equity Reserves” to “Additional paid-in capital” account in the 2011 consolidated statement of changes in equity.
§ On July 7, 2011, the Parent Company raised fresh funds from the sale of shares via a “top-up” private placement. Through the top- up offering, MPHI offered and sold shares in MPIC but MPIC will issue the same amount of shares that it sold. The placement resulted to the issuance of 2.4 billion shares to MPHI.
§ On January 22, 2013, MPIC raised P=6.12 billion in an overnight placement of 1.33 billion in new MPIC shares worth =4.60P apiece. The shares came from the shareholdings of MPHI. As a result of this transaction, MPHI’s interest in MPIC was reduced from 59.0% as at December 31, 2012 to 55.8% as at December 31, 2013.
Class A Preferred Shares Holders of Class A Preferred Shares are entitled to vote and shall receive preferential cash dividends at the rate of 10.0% per annum based on share’s par value, upon declaration made at the sole option of the BOD. Dividends on these preferred shares, which shall be paid out of the Parent Company’s unrestricted retained earnings, are cumulative whether or not in any period the amount is covered by available unrestricted retained earnings. No dividends or other distributions shall be paid or declared and set apart for payment in respect of the common shares, unless the full accumulated dividends on all Class A Preferred Shares shall have been paid or declared. Holders of Class A Preferred Shares do not have right to participate in any additional dividends declared for common shareholders. MPHI holds all of the Parent Company’s Class A Preferred Shares.
Class B Preferred Shares The Parent Company may issue one or more series of Class B Preferred Shares, as the BOD may determine. The BOD shall also determine (a) cash dividend rate of such preferred share, which in no case to exceed 10.0% per annum; and (b) period and manner of conversion to common shares or redemption. Dividends on these preferred shares, which shall be paid out of the Parent Company’s unrestricted retained earnings, are cumulative whether or not in any period the amount is covered by available unrestricted retained earnings. No dividends shall be paid or declared and set apart for payment in respect of the common shares or Class A Preferred Shares, unless the full accumulated dividends on all Class B Preferred Shares shall have been paid or declared. Holders of Class B Preferred Shares do not have right to participate in any additional dividends declared for common shareholders.
There were no Class B Preferred Shares issued in 2013, 2012 and 2011.
Record of Registration of Securities with the SEC In accordance with SRC Rule 68, as Amended (2011), Annex 68-D, below is a summary of the Company’s track record of registration of securities:
Number of holders Number of shares of securities as at Date of SEC registered December 31, Issue Offer price approval securities 2013 2012 Tender offer to shareholders of Four (4) MPC October 25, 2006 Common shares 1,358 1,357 MPC covering common shares shares for one (1) of 56,878,766 and subscription warrants MPIC share plus relating to common shares of three (3) MPIC with par value of =1.0P per warrants share Subscription – – warrants of 170,636,298
The shares relating to the transaction above were exchanged in the Philippine Stock Exchange on December 15, 2006, effectively listing MPIC via listing by way of Introduction. Out of the total warrants available for conversion, 143,976,756 warrants were converted as of December 31, 2007 and 2,549,211 warrants expired on December 15, 2007.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 115 Notes to Financial Statements
Retained Earnings and Cash Dividends Of the Company’s consolidated retained earnings, =8,773.5P million and =1,702.7P million is available for dividend declaration as at December 31, 2013 and 2012, respectively. These amounts represent the Parent Company’s retained earnings available for dividend declaration calculated based on the regulatory requirements of the Philippine SEC. The difference between the consolidated retained earnings and the Parent Company’s retained earnings available for dividend declaration primarily consist of undistributed earnings of subsidiaries and equity method investees. Stand-alone earnings (unallocated to Parent Company and NCI) of the subsidiaries and share in net earnings of equity method investees aggregating to =17,512.1P million and P=22,012.7 million as at December 31, 2013 and 2012, respectively, are not available for dividends until declared.
Dividends paid and declared and proposed are as follows:
2013 2012 2011 (In Millions) Paid and declared: Final dividend in respect of the previous financial year approved and paid during the following interim period Common shareholders (=P0.02, =P0.015 and P=519.9 =368.9P =302.4P =0.015P per share in 2013, 2012 and 2011, respectively) Class A preferred shareholders 2.5 1.8 2.9 Interim dividend declared and paid during the interim period Common shareholders (=P0.015, =P0.012 390.3 295.2 245.9 and =0.01P per share in 2013, 2012 and 2011, respectively) Class A preferred shareholders 2.5 2.5 2.1 P=915.2 =668.4P =553.3P
Proposed final dividend: Common shareholders (=P0.022, =P0.02 and P=572.6 =519.9P =368.9P =0.015P per share in 2013, 2012 and 2011, respectively) Class A preferred shareholders 2.5 2.5 1.8 P=575.1 =522.4P =370.7P
Proposed dividends on both common and Class A preferred shares are subject to approval at the annual general meeting and are not recognized as a liability as at year-end.
On March 19, 2014, the BOD approved the declaration of the cash dividends of P=0.022 per common share in favor of the Parent Company’s shareholders of record as of the record date of April 8, 2014 with payment date of April 30, 2014. On the same date, the BOD approved the declaration of cash dividends amounting to P=2.5 million in favor of the preferred shareholders.
Equity Reserves This account consists of:
2013 2012 2011 (In Millions) Effect of MPIC acquisition of NOHI shares (a) P=690 =690P =690P Equity transactions(b): Disposal of equity interest in a subsidiary(b.1) (122) (122) (122) Acquisition of NCI(b.2) 31 31 31 Gain on equity transfer (b.3) 1,964 – – Other reserve from ESOP(c) (see Note 31) 80 108 107 P=2,643 =707P =706P
116 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 a. This relates to the difference between the par value of NOHI shares in exchange for MPIC shares in relation to the Parent Company’s acquisition of NOHI shares through share swap in 2006. b. “Equity transactions” represent impact on the equity attributable to owners of the Parent Company when the Parent Company’s ownership interest increases or decreases but does not result in loss of control:
b.1. Represents impact on equity with the decrease in the effective ownership in Maynilad resulting from the transfer of ESOP shares to certain employees of Maynilad in 2009.
b.2. Pertains to the increase in the Parent Company’s effective ownership in MSIHI by 19.97% in 2010.
b.3. “Gain on equity transfer” represents the impact of the change in the shareholding structure of Maynilad with the entry of MCNK as an investor in DMWC. On February 13, 2013, MCNK completed and fully paid its total subscription of 678,470,727 common shares of stock of DMWC at a total subscription price of =10,400P million giving it 21.54% equity interest in DMWC. With the entry of MCNK as an investor in DMWC, the Company’s effective ownership in Maynilad decreased from 56.81% as at December 31, 2012, to 52.80% as at December 31, 2013. MCNK is 90.0% owned by Marubeni Corporation, a company incorporated in Japan and 10% owned by MAPL Holdings B.V., a company incorporated in Netherlands.
Other reserve from ESOP. This reserve is used to recognize the value of equity-settled share-based payments provided to employees, including key management personnel, as part of their remuneration. See Note 31 for further details of these plans.
Other Comprehensive Income Reserve Other comprehensive income reserve consists of the following, net of applicable income taxes:
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) Share in the OCI of equity method investees P= 7 2 5 =558P =91P Actuarial losses (3) (52) (80) Fair value changes on AFS financial assets 210 25 13 Fair value changes on cash flow hedges (5) (11) (29) Fair value changes on cash flow hedges transferred to profit or loss – – 13 Revaluation reserve and others – (33) (99) P=927 =487P (P=91)
Refer to Note 28 for the movements and analysis of the other comprehensive income.
Non-controlling interest For the years ended December 31, 2013 and 2012, “Other changes in NCI” consists of the following:
2013 2012 (In Millions) Acquisition of ESOP shares (a) P=4 (P=2) Adjustment from completion of purchase price allocation (b) – 346 Investment from non-controlling interest (c) – 42 Tender offer (d) – (9) Return of capital (e) – (151) P=4 =226P a. This represents impact on NCI of the transfer of designated ESOP shares of Maynilad held by DMWC to intended recipients.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 117 Notes to Financial Statements
b. This relates to the setting up of 14.4% non-controlling interest with the finalization of the purchase price acquisition in 2012 with respect to the 2011 acquisitions of BIPI, NSHI and AHI. Although the acquisition occurred in 2011, the adjustments to reflect the final purchase price allocation were made in 2012 as the amounts were not material.
c. Investment from NCI in 2012 pertains to MCNK’s minimum subscription in connection with its entry as investor in DMWC. Amount represents 25% of the total subscription price.In December 2012, the PSE approved MPTC’s petition of voluntary delisting and accordingly ordered the delisting of MPTC’s shares effective December 31, 2012. Pursuant to the tender offer, MPIC purchased additional 1,302,333 of MPTC shares or 0.03% at =6.5P per share or a total of =8.7P million.
d. In 2012, DMWC decreased its authorized capital stock from P=5,854.8 million divided into 5,854.8 million common shares with par value of P=1.00 to 4,664.8 million common shares with par value of P=1.00. The main purpose of the decrease in authorized capital stock is to settle the subscription receivables from MPIC and DMCI aggregating to P=759.4 million and to return to such stockholders the capital surplus resulting from the decrease in paid-up capital stock of =430.6P million in proportion to their shareholdings. The return of capital surplus to the shareholding of the NCI in DMWC amounted to =150.9P million.
23. Costs of Sales and Services
This account consists of:
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Amortization of service concession assets (see Note 13) P=2,818 =3,073P =2,679P Cost of inventories (see Note 9) 2,033 1,839 790 Personnel cost (see Note 25) 2,025 1,671 1,208 Operator’s fees (see Note 21) 1,707 1,493 1,566 Utilities (see Note 21) 1,037 977 597 pairs and maintenance 592 539 424 PNCC fees (see Note 33) 418 400 385 Contracted services 417 548 296 Depreciation and amortization (see Note 14) 288 265 26 Provision for heavy maintenance (see Note 17) 167 107 109 Rentals (see Note 21) 123 144 169 Insurance 51 43 49 Toll collection and medical services 18 20 21 Others 151 49 80 P=11,845 =11,168P =8,399P
Cost of inventories includes cost of medical services, materials and supplies.
118 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 24. General and Administrative Expenses
This account consists of:
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Personnel costs (see Note 25) P=2,397 =2,152P =1,529P Depreciation and amortization (see Note 14) 659 507 421 Outside services 639 648 408 Professional fees 392 163 236 Taxes and licenses 338 307 208 Transportation and travel 248 208 169 Provision for doubtful accounts (see Note 8) 160 158 176 Provision for corporate initiatives and other provisions 159 121 39 Utilities (see Note 21) 149 108 92 Entertainment, amusement and representation 144 109 105 Repairs and maintenance 127 120 77 Advertising and promotion 106 130 115 Administrative supplies 102 112 48 Insurance 85 80 46 Public relation 78 60 36 Rentals (see Note 21) 62 49 53 Commissions 15 121 97 Miscellaneous 401 231 361 P=6,261 =5,384P =4,216P
25. Personnel Costs and Employee Benefits
This account consists of:
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Salaries and wages P=3,022 =2,701P =2,102P LTIP expense (see Notes 16 and 20) 411 165 148 Retirement costs 198 181 49 Provision for ESOP (see Note 31) 18 13 42 Other employee benefits 773 763 396 P=4,422 =3,823P =2,737P
2013 2012 2011 (In Millions) Cost of sales and services (see Note 23) P=2,025 =1,671P =1,208P General and administrative expenses (see Note 24) 2,397 2,152 1,529 P=4,422 =3,823P =2,737P
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 119 Notes to Financial Statements
Long-Term Incentive Plan (LTIP) Certain of the Company’s employees are eligible for long-term employee benefits under a long-term incentive plan. The liability recognized on the LTIP comprises the present value of the defined benefit obligation and was determined using the projected unit credit method. Each LTIP performance cycle generally covers 3 years (e.g., 2013 to 2015 and 2010 to 2012 for MPIC’s LTIP and 2012 to 2014 for MPTC’s LTIP) with payment intended to be made at the end of the each cycle (without interim payments) and is contingent upon the achievement of an approved target core income of the Company by the end of the performance cycle. Each LTIP performance cycle is approved by the respective boards of directors of the entities of the Company.
As at December 31, 2013, 2012 and 2011, the accrued LTIP is as follows:
2013 2012 2011 (In Millions)
Balance at beginning of year P= 4 4 6 =281P =133P Current service cost 407 159 137 Interest 2 6 6 Actuarial loss 2 – 5 Payment (402) – – Balance at end of year P=455 =446P =281P
Current P=46 =407P =–P Noncurrent 409 39 281 P=455 =446P =281P
On October 7, 2011, MPIC entered into an IMA with a Trustee Bank to fund the 2010-2012 LTIP program. The LTIP fund will be expected to continue accumulating for the LTIP target payout. The investment portfolio of IMA is limited to the following: securities issued, directly or indirectly, or guaranteed by the government; and time deposit and money market placements issued by any of the top 10 banks in the Philippines. As at December 31, 2012, the LTIP fund balance amounted to P=221.9 million. The IMA was closed last February 2013 upon payment of the 2010-2012 LTIP.
On December 18, 2013, MPIC entered into a new IMA with the same Trustee Bank to fund the 2013-2015 LTIP program. As at December 31, 2013, the LTIP fund balance amounted to =131.0P million.
Pension
Regulatory Environment. R.A. 7641 requires a minimum benefit of equivalent to one-half month’s salary for every year of service, with six months or more of service considered as one year. As the entities of the Company operate in the Philippines, they provide for either a defined contribution retirement plan or a defined benefit plan that consider the minimum benefit guarantee mandated under R.A. 7641.
Defined Contribution Retirement Plan. Retirement benefits of employees of MPIC, MPTC and MPTDC are provided through a defined contribution scheme. Each of these companies operates its own retirement plan. The retirement plan is a contributory plan wherein the employer undertakes to contribute a predetermined amount to the individual account of each employee and the employee gets whatever is standing to his credit, upon separation, from the company. The retirement plans are being managed and administered by these companies’ respective compensation committee. Each entity has an appointed trustee bank which holds and invests the assets of the retirement fund in accordance with the provisions of the retirement plan.
Contributions to the retirement plan are made based on the employee’s monthly basic salary which is at 10.0%. Additionally, an employee has an option to make a personal contribution to the fund, at an amount not exceeding 40.0% of his monthly salary. The employer then provides an additional contribution to the fund which aims to match the employee’s contribution but only up to a maximum of 5.0% of the employees’ monthly salary. Although the retirement plans of these entities have a defined contribution format, MPIC, MPTC and MPTDC are covered under R.A. 7641, which provides a defined benefit minimum guarantee for its qualified employees. The defined minimum guarantee is equivalent to a certain percentage of the monthly salary payable to an employee at normal retirement age with the required credited years of service based on the provisions of R.A. 7641. Accordingly and as discussed in Note 2, MPIC, MPTC and MPTDC account for the retirement obligation under the higher of defined benefit obligation relating to the
120 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 minimum guarantee and the obligation arising from the defined contribution plan. Disclosures required for a defined benefit retirement plan apply to MPIC, MPTC and MPTDC’s retirement plans and are provided together with the defined benefit retirement plans of the other subsidiaries of the Parent Company.
Each year, the compensation committee reviews compliance with R.A. 7641 to evaluate the level of funding that would ensure that the expected future value of the defined benefit contribution plan asset is sufficient to cover the future expected value of retirement benefits prescribed by R.A. 7641.
Defined Benefit Retirement Plan. These plans provide for a lump sum benefit payments upon retirement.
Maynilad, MNTC, RMCI, CVHMC and AHI have funded noncontributory defined benefit retirement plan covering all their eligible regular employees. The retirement benefit plans of AHI, RMCI, Maynilad and MNTC are funded and managed as follows:
§ RMCI’s retirement fund is being monitored by its Treasury Officer under the supervision of the RMCI’s Chief Financial Officer. § The plan assets of AHI, Maynilad and MNTC are maintained in trust accounts with local banks.
While there are no minimum funding standards in the Philippines, the companies annually engage the services of an actuary to conduct a valuation study to determine the retirement obligations and the level of funding to ensure that the assets currently in the fund would be sufficient to cover expected benefit payments.
CIC, CVHMC, EMHMC and DLSMC each has an unfunded, noncontributory defined benefit retirement plan covering substantially all of their respective employees. While there are no minimum funding standards in the Philippines, these entities also annually engage the services of an actuary to conduct a valuation study to determine the retirement obligations and ensure that should there be maturing obligations in the immediately succeeding periods, these are appropriately considered in the budgeting process.
Retirement Costs. The following tables summarize the components of the retirement costs under the defined benefit plans and the defined contribution plans included in “Personnel costs” under “Cost of services” and “General and administrative expenses” account in the consolidated statement of comprehensive income.
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Current service cost P= 1 8 0 =164P =129P Net interest cost 17 17 4 Past service cost 1 – 26 Curtailment gain – – (110) Retirement costs for the year P= 1 9 8 =181P =49P
Actual return on plan assets P= 7 7 =158P =55P
In line with its strategic goal to improve operational efficiency, Maynilad offered a Redundancy and Right-Sizing Program in 2011 and 2010. The redundancy program offered a separation package based on the number of years, or fractions thereof, on a pro rated basis, of service with Maynilad plus monetary equivalent of some benefits. This resulted in a curtailment gain of =110.2P million in 2011.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 121 Notes to Financial Statements
Pension Assets and Accrued Retirement Costs. Reconciliation of net liability/(asset) recognized in the consolidated statement of financial position follows:
December 31, January 1, 2012 2012 December 31, (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Present value of defined benefit obligation (PVDBO) P= 1 , 5 8 9 =1,452P =1,175P Fair value of plan assets (FVPA) 1,280 1,174 939 Net liability P= 3 0 9 =278P =236P
Pension asset(a) (P=24) (P=49) (P=30) Accrued retirement cost(b) 333 327 266 Net liability P= 3 0 9 =278P =236P (a)Included under “Other noncurrent asset” account (see Note 15). (b)Included under “Deferred credits and other long-term liabilities” (see Note 20).
Changes in PVDBO are as follows:
December 31, January 1, 2012 2012 December 31, (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) PVDBO at beginning of the year P=1,452 =1,175P =902P PVDBO from acquired subsidiaries 48 43 – Interest cost 86 78 73 Current service costs 180 164 129 Past service cost 1 – 26 Benefits paid from: Plan asset (30) (26) (11) Company funds (19) (13) (10) Curtailment – – (110) Actuarial losses (gains) due to: Changes in financial assumptions (119) 25 174 Changes in demographics (13) (16) – Experience adjustments 3 22 2 PVDBO at end of the year P=1,589 =1,452P =1,175P
Changes in FVPA are as follows:
December 31, January 1, 2012 2012 December 31, (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) FVPA at beginning of the year P=1,174 =939P =832P FVPA from acquired subsidiaries 6 6 – Interest income included in net interest cost 69 61 69 (Forward)
122 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Benefits paid (P=30) (P=26) (P=11) Contributions by employer 53 97 63 Remeasurement in OCI from return on plan asset excluding amount included in net interest cost 8 97 (14) FVPA at end of the year P=1,280 =1,174P =939P
Maynilad, MNTC, EMHMC, AHI, RMCI and CVHMC are not expecting any contribution to their respective retirement plan assets for 2014. MPIC expects to make approximately P=19.1 million of cash contribution to its retirement fund in 2014.
The major categories of the plan assets are the following:
2013 2012 (In Millions) Philippine bonds and treasury notes P=577 P=546 Philippine equity securities 316 371 Cash in bank 221 108 Unit trust funds 74 58 Philippine life insurance plans 17 16 Receivables and other assets 75 75 P=1,280 P=1,174
The plan asset’s carrying amount approximates its fair value since these are short-term in nature or marked-to-market. Plan assets consist of the following:
§ Philippine bonds and treasury notes. Consist of government issued securities and corporate bonds and subordinated notes. Government securities consist primarily of fixed-rate treasury notes and retail treasury bonds that bear interest ranging from 3.5% to 9.4% and have varying maturities of up to 2037. § Philippine equity securities. This substantially pertains to investment in shares of various entities (not related parties of the Company) which stocks are traded in the PSE. § Unit trust funds. Include mutual funds invested in quoted shares. § Receivables and others assets. Include a seven year certificate of deposit with interest at 5.25% and certain unsecured notes and loan issued by related parties with varying maturities of up to 2022 and interests ranging from 6.3% to 6.6% per annum.
While the Company does not perform any Asset-Liability Matching Study, the risks arising from the nature of the assets comprising the fund are mitigated as follows:
§ Credit Risks. Exposure to credit risk arises from financial assets comprising of cash and cash equivalents, investments and receivable. The credit risk results from the possible default of the issuer of the financial instrument, with a maximum exposure equivalent to the carrying amount of the instruments. The risk is minimized by ensuring that the exposure is limited only to the instruments as recommended by the trust managers.
§ Share Price Risk. Exposure arises from holdings of shares of stock being traded at the PSE. The price risk emanates from the volatility of the stock market. Policy is to limit investments in shares of stock to blue chip issues or issues with good fair values.
§ Liquidity Risk. This risk relates to the risk that the fund is unable to meet its payment obligations associated with its retirement liability when they fall due. To mitigate this risk, the entities contribute to their respective fund from time to time, based on the recommendations of their actuaries with the objective of maintaining their respective fund in a sound condition.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 123 Notes to Financial Statements
Actuarial assumptions. Principal assumptions used as at December 31, 2013 and 2012 in determining retirement obligations are shown below:
2013 2012 (In Percentage) Annual discount rate 3.78 to 6.38 4.58 to 6.49 Future range of annual salary increases 3.00 to 10.00 3.00 to 10.00
The discount rate represents the range of single weighted average discount rate used by each of the entities within the group in arriving at the present value of defined benefit obligation, service and interest cost components of the retirement cost. Assumptions regarding future mortality rate are based on the 1994 Group Annuity Mortality Table developed by the U.S. Society of Actuaries, which provides separate rates for males and females.
Sensitivity Analysis. The calculation of the defined benefit obligation is sensitive to the assumptions set above. The following table summarizes how the present value of defined benefit obligation at the end of reporting period would have increased (decreased) as a result of change in the respective assumptions by:
As at December 31, % Change 2013 (In Millions) Annual discount rate + 1.0% (=P124) - 1.0% 148 Future range of annual salary + 1.0% 142 increases - 1.0% (120)
The following table provides for the maturity analysis of the undiscounted benefit payments as at December 31, 2013:
Amount (In Millions) Less than one year =P136 More than one year to five years 676 More than five to ten years 1,201 Beyond ten years 5,602 Total expected benefit payments =P7,615
The average duration of the defined benefit obligation is 20 and 21 years as at December 31, 2013 and 2012, respectively.
26. Interest Income and Interest Expense
The following are the sources of the Company’s interest income:
2013 2012 2011 (In Millions) Cash and cash equivalents, short-term deposits and restricted cash (see Note 7) P= 2 9 5 =505P =530P Notes receivable (see Note 8) 96 100 97 Investments in bonds and treasury notes (see Note 10) 39 35 35 Receivable on financial guarantee (see Note 21) 11 11 11 Accretion on noncurrent financial assets 20 – 68 Others 1 1 2 P=462 =652P =743P
124 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The following are the sources of the Company’s interest expense:
2013 2012 2011 (In Millions) Notes payable and long-term debt (see Note 19) P=3,093 =2,793P =2,676P Accretion on service concession fees payable (see Note 18) 659 644 686 Accretion on financial liabilities 140 10 5 Amortization of debt issue costs (see Note 19) 46 93 85 Financial guarantee obligation (see Note 21) 11 11 11 Prepayment fees (see Note 19) – – 330 Others 52 128 184 P=4,001 =3,679P =3,977P
27. Other Income and Expenses
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Other income: Construction revenue (see Note 3) P=5,557 =6,731P =8,866P Deferred credits and foreign exchange gains – net 763 886 1,289 Dividend income (see Note 11) 405 561 280 Reversal of provisions for doubtful accounts (see Note 8) 196 – – Management fees (see Note 21) 153 82 107 Rental income 95 82 20 Inome from advertising (see Note 21) 64 45 33 Reversal of provisions and accruals 63 99 27 Guarantee fees (see Note 21) 24 23 23 Gain on bargain purchase (see Note 4) 22 – 88 Income from toll service facilities (see Note 21) 21 17 20 Reversal of contingent liabilities (see Note 20) – 687 – Reversal of accrued interest payable to MWSS (see Note 20) – 378 – Reversal of allowance for potential losses on Input VAT (see Note 32) – – 288 Others 750 524 382 P=8,113 =10,115P =11,423P
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 125 Notes to Financial Statements
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Other expenses: Construction costs (see Note 3) P=5,432 =P6,608 =P8,701 Refinancing costs (see Notes 16 and 19) 814 331 – Other provisions (see Note 32) 845 785 835 FCDA (see Note 20) 174 960 1,338 Adjustment to amortized cost due to change in expected cash flows (see Note 19) – 374 – Mark-to-market loss on derivatives (see Note 36) – 45 95 Others 294 136 339 P=7,559 =9,239P =11,308P
In 2013, certain of the items presented separately in prior years were aggregated as “Others” in consideration of materiality, and 2012 and 2011 presentations were aligned accordingly.
“Others” under other income above included gains on sale of investments, property and equipment, and real estate inventory, reversal of provision for decline in value of an asset, adjustment on projected to actual payments, gain on remeasurements of existing investments, other recoveries and incidental income. “Others” under other expenses consists of provision for decline in value of an asset, loss on remeasurements of previously held interest, loss on sale and conveyance of certain assets and other incidental expenses.
In 2011, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) 39-2011 (dated August 31, 2011) to fully implement the imposition of VAT on the gross receipts of tollway operators from all types of vehicles starting October 1, 2011. In view of this RMC, MNTC started imposing VAT on toll fees from motorists and correspondingly started recognizing VAT liability on October 1, 2011. However, prior to the issuance of the RMC, MNTC had an accumulated input VAT amounting to =1,438.7P million as of December 31, 2010 which was fully provided for with an allowance for decline in value. MNTC wrote-off =1,150.6P million of the accumulated input VAT against the related allowance with the issuance of the RMC. The remaining P=288.1 million was capitalized to service concession assets as this relates to the construction of service concession asset and other assets. The related allowance of =288.1P million on input VAT was reversed to income upon capitalization of the input VAT to service concession asset and other assets.
28. Other Comprehensive Income
Other comprehensive income recognized in the consolidated statements of comprehensive income consists of the following:
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions) Other comprehensive income to be reclassified to profit or loss in subsequent periods: Share in the OCI of an equity method investee coming from (see Note 11): Fair value changes in cash flow hedges (P=181) =–P =–P (Forward)
126 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Exchange differences on translation of foreign operations (P=21) =–P =–P Fair value changes of cash flow hedges 11 11 (30) Change in fair value of AFS financial assets (see Note 10) 199 17 4 Income tax (22) (7) 7 Net other comprehensive income to be reclassified to profit or loss in subsequent periods (P=14) =21P (P=19)
Items not to be reclassified to profit or loss in subsequent periods: Share in the actuarial gains on defined benefit plans of equity method investees (see Note 11) P= 3 6 9 =469P =89P Re-measurement gains (losses) on defined benefit plans (see Note 25) 137 68 (205) Revaluation increment (94) 94 – Income tax (14) (50) 64 Net other comprehensive income not to be reclassified to profit or loss in subsequent periods P= 3 9 8 =581P (P=52)
The fair value changes of cash flow hedges in 2013 and 2012 pertain to the amounts transferred from equity to profit or loss related to the preterminated swap of MPTC (see Note 36).
29. Income Tax
a. The Company’s deferred tax components as at December 31 are as follows:
2012 (Restated - 2013 Note 2) (In Millions)
Provisions P= 6 1 9 =352P Accrued retirement cost and other accrued expenses 156 162 NOLCO 203 – Lease payable 113 93 Debt issue cost 42 – (Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 127 Notes to Financial Statements
MCIT P=20 =–P Unamortized past service cost 12 13 Excess of fair values over book values (3,140) (2,971) Timing difference in depreciation method (555) (491) Unamortized foreign exchange losses capitalized as service concession assets (21) (22) Improvement of facilities (5) (6) Others – (50) Net deferred tax assets/(liabilities) (P=2,556) (P=2,920)
Reflected in the Statement of Financial Position:
2013 2012 (In Millions) Deferred tax assets (see Note 15) P=1,218 =530P Deferred tax liabilities (3,774) (3,450) (P=2,556) (P=2,920)
Deferred tax asset arising from change in amortization method amounting to P=592.0 million was written off in 2012 (see Note 2). As at December 31, 2013 and 2012, deferred taxes included balances of acquired subsidiaries amounting to P=165.3 million and =107.7P million of net deferred tax liability, respectively (see Note 4).
b. The Company has the following temporary differences for which no deferred tax assets have been recognized since management believes that it is not probable that these will be realized in the near future.
2013 2012 (In Millions) NOLCO P=3,762 =3,816P Allowance for doubtful accounts 1,267 1,702 Provisions and other accruals 54 893 Allowance for decline in value of land and land development costs – 3 Accrued retirement cost and others 82 108 MCIT 17 15 P=5,182 =6,537P
c. As at December 31, 2013 and 2012, NOLCO of the Parent Company and various subsidiaries can be carried forward and claimed as deduction from regular taxable income as follows:
Year Incurred Amount Acquisition Addition Expired Application Balance Expiry Year (In Millions) 2013 =P– =P– =P1,454 =P– =P– =P1,454 2016 2012 1,149 521 – – – 1,670 2015 2011 1,160 154 – – – 1,314 2014 2010 1,507 =P– – (1,507) – – 2013 =P3,816 =P675 =P1,454 (=P1,507) =P– =P4,438
128 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 d. The following carryforward benefits of MCIT can be claimed as tax credits against future income taxes payable:
Year Incurred Amount Acquisition Addition Expired Application Balance Expiry Year (In Millions) 2013 =P– =P– =P18 =P– =P– =P18 2016 2012 7 8 – – – 15 2015 2011 4 – – – 4 2014 2010 4 5 – (9) – – 2013 =P15 =P13 =P18 (=P9) =P– =P37 e. The current provision for income tax in 2013, 2012 and 2011 consists of the following:
2013 2012 2011 (In Millions) RCIT P=978 =977P =598P MCIT 18 7 4 Final tax 65 113 110 P=1,061 =1,097P =712P
The reconciliation of provision for income tax computed at the statutory income tax rate to provision for income tax as shown in the consolidated statements of comprehensive income is summarized as follows:
2012 (Restated - 2011 (Restated - 2013 Note 2) Note 2) (In Millions) Income from continuing operations before income tax P= 1 2 , 0 7 2 =10,869P =7,691P Income tax at statutory tax rate of 30.0% 3,621 3,261 2,307 Net income under ITH (1,799) (1,634) (1,517) Share in net earnings of equity method investees (686) (529) (407) Changes in unrecognized deferred tax assets and others (193) 536 197 Effect of optional standard deduction (126) – – Various income subjected to lower final tax rates – net (72) (145) (168) Final tax on interest income 65 106 110 Nondeductible (nontaxable) expenses (income) – net (235) 47 (51) MCIT 18 7 4 Others – 13 – P=593 =1,662P =475P
On December 18, 2008, the BIR issued Revenue Regulation (RR) No. 16-2008, which implemented the provisions of R.A. 9504 on Optional Standard Deduction (OSD), which allowed both individual and corporate tax payers to use OSD in computing their taxable income. For corporations, they may elect a standard deduction in an amount equivalent to 40% of gross income, as provided by law, in lieu of the itemized allowed deductions. MNTC opted to avail of the OSD for the taxable year 2013 while this was not availed for taxable years 2012 and 2011.
Income Tax Holiday Maynilad is registered with the Board of Investments (BOI) as an operator of water supply and sewerage system for the West Service Area on a pioneer status. Under the terms of the registration, Maynilad is subject to certain requirements, principally that of maintaining at least 60.0% Filipino ownership or voting equity. As a registered enterprise, Maynilad is entitled to certain tax and non-
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 129 Notes to Financial Statements
tax incentives, including Income Tax Holiday (ITH). Maynilad’s ITH incentives for the sales generated from the operation of its three plants which substantially cover its total capacity, will end in December 2015. ITH incentive enjoyed by Maynilad amounted to =1,799.4P million, =1,889.9P million and P=1,569.4 million in 2013, 2012 and 2011, respectively.
PHI’s operations in Legazpi City and Norzagaray, Bulacan were registered with the BOI as New Bulk Supplier of Treated Water and New Operator of Bulk Water Supply Facility. As a registered enterprise, PHI enjoys certain tax and non-tax incentives, including ITH for four years until December 31, 2013 limited to the revenue generated from the sales of bulk water supply to Legazpi City Water District and the bulk water supply facility with Norzagaray Water District.
CIC is registered with the BOI to build and transfer infrastructure project for the CAVITEX on a pioneer status under the Omnibus Investments Code of 1987. As a registered enterprise, CIC is entitled to certain tax and non-tax incentives, including ITH for the sale/revenue of the R-1 Extension, Segment 4 (Zapote to Kawit, Cavite) for a period of 6 years from January 2009 or actual start of commercial operation, whichever is earlier, but in no case earlier than the date of registration (February 8, 2008). As provided under the terms of the registration, CIC shall initially be granted a four-year ITH. The additional two-year ITH shall be granted upon submission of completed or on-going projects in compliance with its corporate social responsibility, which shall be submitted before the lapse of its initial four-year ITH. CIC was not able to comply with the requirements of the BOI, thus, has not availed of the ITH in 2013.
30. Earnings Per Share
The calculation of earnings per share for the years ended December 31 follows:
2012 2011 (Restated - (Restated - 2013 Note 2) Note 2) (In Millions, Except for Per Share Amounts) Net income attributable to owners of the Parent Company (a) P=7,209 =5,907P =4,382P Effect of cumulative dividends on preferred shareholders of the Parent Company (see Note 22) (b) (5) (5) (5) Net income attributable to common owners of the Parent Company (c) 7,204 5,902 4,377 Interest and discount on convertible bonds - net of tax (d) – – 88 Net income attributable to common owners of the Parent Company adjusted for the effect of dilution (e) P=7,204 =5,902P =4,465P
Outstanding common shares at the beginning of the year P= 2 4 , 6 1 4 P= 24,593 P= 20,155 Effect of issuance of common shares during the year 1,314 5 2,321 Weighted average number of common shares for basic earnings per share (f) 25,928 24,598 22,476 Effects of potential dilution from: ESOP (see Note 31) 61 54 66 Convertible options (see Note 22) – – 835 Weighted average number of common shares adjusted for the effects of potential dilution (g) P= 2 5 , 9 8 9 =24,652P =23,377P
Basic earnings per share (c/f) P=0.278 =0.240P =0.195P Diluted earnings per share (e/g) P=0.277 =0.239P =0.191P
130 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Weighted average number of shares issued and outstanding is derived by multiplying the number of shares outstanding at the beginning of the year, adjusted by the number of shares issued during the year, with a time-weighting factor. The time-weighting factor is the number of days that the common shares are outstanding as a proportion to the total number of days in the year.
In 2013, 2012 and 2011, the ESOP was considered in the computation of the diluted earnings and certain grants were considered dilutive. The convertible bonds, issued by the Company in 2010 and subsequently converted in 2011, have dilutive effect for the year ended December 31, 2011.
31. Share-based Payment
On June 24, 2007, the shareholders of MPIC approved a share option scheme (the Plan) under which MPIC’s directors may, at their discretion, invite executives of MPIC upon the regularization of employment of eligible executives, to take up share option of MPIC to obtain an ownership interest in MPIC and for the purpose of long-term employment motivation. The scheme became effective on June 14, 2007 and is valid for 10 years. An amended plan was approved by the stockholders on February 20, 2009.
As amended, the overall limit on the number of shares that may be issued upon exercise of all options to be granted and yet to be exercised under the Plan must not exceed 5.0% of the shares in issue from time to time.
The exercise price in relation to each option shall be determined by the Company’s Compensation Committee, but shall not be lower than the highest of: (i) the closing price of the shares for one or more board lots of such shares on the PSE on the option offer date; (ii) the average closing price of the shares for one or more board lots of such shares on the PSE for the five business days on which dealings in the shares are made immediately preceding the option offer date; and (iii) the par value of the shares.
First Grant. The Company granted on December 9, 2008 (Tranche A) and March 10, 2009 (Tranche B) options in respect of 123,925,245 common shares to its senior management. Details of the said tranches follow: (a) Tranche A for 61,000,000 shares, 50.0% of which vested immediately on January 2, 2009 with an exercise price of =2.12P per share and (b) Tranche B for 62,925,245 shares, 50.0% of which vested on March 10, 2009 with an exercise price of =2.73P per share. The remaining 50.0% of each said tranche will vest on the first anniversary of the initial vesting date. The share options automatically vest on their respective vesting schedules. The grantees of the said option may exercise in whole or in part their respective options at any time after vesting but prior to the expiration of three years after all of the options shares for such tranche have vested. Both tranches of the First Grant expired on January 2, 2013 and March 10, 2013, respectively.
Second and Third Grants. In 2010, in consideration of SEC’s policy to exclude the independent directors from ESOP grant and pending MPIC’s consequent position paper filed with the SEC maintaining the validity of the grant to independent directors, the Compensation Committee modified the resolution it adopted on July 2, 2010. The Compensation Committee approved a modified plan excluding the independent directors from ESOP grant, without prejudice to reinstatement, as approved by SEC on September 20, 2010.
In the modified plan, MPIC allocated and set aside stock options relating to an additional 145,000,000 common shares, of which (a) a total of 94,300,000 common shares was granted to its new directors and senior management officers, as well as, members of the management committees of certain MPIC subsidiaries at the exercise price of P=2.73 per common share on July 2, 2010 (the Second Grant) and (b) another 10,000,000 common shares was granted at the exercise price of =3.50P on December 21, 2010 to officers of Maynilad (the Third Grant A).
On March 8, 2011, 1,000,000 common shares were granted at the exercise price of P=3.53 to senior management of Maynilad (the Third Grant B) and on April 14, 2011, another 3,000,000 common shares was granted at the exercise price of P=3.66 to an MPIC officer (the Third Grant C).
Fourth Grant. On October 14, 2013, MPIC made an ESOP grant (the Fourth Grant) consisting of 112.0 million common shares, to its directors and senior management officers. 112 million common shares were granted under Tranche A while 8 million common shares will be included under Tranche B. The grantees include the 3 independent directors of the Company. Of the total shares granted, 14.0 million common shares are allocated to senior management of MPTC. The grant was approved by the SEC on March 4, 2014.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 131 Notes to Financial Statements
The weighted average remaining term to expiry for the share options outstanding as at December 31, 2013 and 2012 as follows:
2013 2012 (In Years) First grant – – Second grant 1.5 2.5 Third grant 2.1 3.1 Fourth grant 4.8 –
For the years ended December 31, 2013 and 2012, the weighted average share price of MPIC’s common share is =5.17P and =4.46P per share, respectively. Total ESOP expense recognized in 2013, 2012 and 2011 follows:
2013 2012 2011 Personnel Equity Personnel Equity Personnel Equity Cost Reserves Cost Reserves Cost Reserves (Note 25) (Note 22) (Note 25) (Note 22) (Note 25) (Note 22) (In Millions) First grant P=– P=– =–P =–P =–P =–P Second grant – – 8 8 34 34 Third grant – – 5 5 8 8 Fourth grant 18 18 – – – – P=18 P=18 =13P =13P =42P =42P
The following table illustrates the number of, exercise prices of, and movements in share options in 2013 and 2012:
First Grant Second Grant Tranche A Tranche B Tranche A Tranche B Number Exercise Number Exercise Number Exercise Number Exercise of shares price of shares price of shares price of shares price Outstanding at December 31, 2011 26,075,000 P=2.12 29,000,000 P=2.73 62,500,000 P=2.73 30,240,000 P=2.73 Exercised during the year* (see Note22) (11,075,000) 2.12 (3,950,000) 2.73 (3,120,000) 2.73 (2,135,000) 2.73 Outstanding at December 31, 2012 15,000,000 2.12 25,050,000 P=2.73 59,380,000 P=2.73 28,105,000 P=2.73 Exercised during the year * (31,280,000)2.73 (10,125,000) (see Note22) (10,000,000) 2.12 (22,550,000) 2.73 Expired during the year (5,000,000) – (2,500,000) – – – –– Outstanding at December 31, 2013 – – – – 28,100,000 P=2.73 17,980,000 P=2.73 Exercisable at December 31, 2012 15,000,000 P=2.12 25,050,000 P=2.73 59,380,000 P=2.73 16,975,000 P=2.73 Exercisable at December 31, 2013 – – – – 28,100,000 P=2.73 17,980,000 P=2.73
Third Grant Fourth Grant Tranche A Tranche B Tranche C Tranche A Number Exercise Number Exercise Number Exercise Number Exercise of shares price of shares price of shares price of shares price Outstanding at December 31, 2011 10,000,000 P=3.50 1,000,000 P=3.53 3,000,000 =3.66P –P=– Exercised during the year* (see Note22) – – – –(250,000)3.66 – – Outstanding at December 31, 2012 10,000,000 P=3.50 1,000,000 P=3.53 2,750,000 =3.66P –P=– Grant during the year – – – – – – 112,000,000 4.60 Exercised during the year* (see Note22) (6,500,000) P=3.50(650,000) 3.53(1,045,000) 3.66 – – Expired during the year – – – – – – – – Outstanding at December 31, 2013 3,500,000 P=3.50 350,000 P=3.53 1,705,000 P=3.66 112,000,000 P=4.60 Exercisable at December 31, 2012 6,500,000 P=3.50 300,000 P=3.53 1,250,000 =3.66P –P=– Exercisable at December 31, 2013 3,500,000 P=3.50 – –1,705,000 P=3.66 – P= –
132 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The fair value of the options granted is estimated at the date of grant using Black-Scholes-Merton formula, taking into account the terms and conditions at the time the options were granted. The following tables list the inputs to the model used for the ESOP:
First Grant Second Grant Tranche A Tranche B Tranche A Tranche B 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 30.0% 35.0% 35.0% vesting on vesting on vesting on vesting on vesting on vesting on vesting on vesting on vesting on January 2, January 2, March 10, March 10, January 1, January 1, July 2, July 2, July 2, 2009 2010 2009 2010 2011 2012 2011 2012 2013 Spot Price =2.10P 2.10 P=2.70 P=2.70 P=2.65 P=2.65 P=2.65 =2.65P =2.65P Exercise price =2.12P 2.12 P=2.73 P=2.73 P=2.73 P=2.73 P=2.73 =2.73P =2.73P Risk-free rate 5.92% 6.60% 4.24% 4.82% 4.16% 4.92% 4.61% 5.21% 5.67% Expected volatility* 94.07% 58.10% 61.25% 66.43% 48.33% 69.83% 69.27% 67.52% 76.60% Term to vesting in days 24 389 61 365 183 548 365 731 1,096 Call price =0.20P P=0.55 P=0.27 P=0.75 P=0.35 P=0.91 P=0.73 =1.03P =1.39P
Third Grant Fourth Grant Tranche A Tranche B Tranche C Tranche A 30.0% 35.0% 35.0% 30.0% 35.0% 35.0% 50.0% 50.0% 50.0% 50.0% vesting on vesting on vesting on vesting on vesting on vesting on vesting on vesting on vesting on vesting on August 1, August 1, August 1, March 8, March 8, March 8, April 14, April 14, October 14, October 14, 2011 2012 2013 2012 2013 2014 2012 2013 2014 2015 Spot Price =3.47P P=3.47 P=3.47 P=3.53 P=3.53 P=3.53 P=3.66 P=3.66 P=4.59 P=4.59 Exercise price =3.50P P=3.50 P=3.50 P=3.53 P=3.53 P=3.53 P=3.66 P=3.66 P=4.60 P=4.60 Risk-free rate 1.62% 2.83% 3.73 2.56% 4.38% 5.01% 2.05% 3.83% 0.66% 2.40% Expected volatility* 46.62% 68.23% 72.82% 39.32% 61.39% 64.42% 39.13% 60.76% 35.23% 33.07% Term to vesting in days 223 589 954 366 731 1,096 366 731 365 730 Call price =0.46P P=1.20 P=1.62 P=0.58 P=1.28 P=1.62 P=0.60 P=1.30 P=0.63 P=0.89
* The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.
32. Contingencies
Water Segment
Disputed Billings with MWSS. Additional Tranche B Concession Fees and interest penalty are being claimed by MWSS in excess of the amount recommended by the Receiver. Such additional charges being claimed by MWSS (in addition to other miscellaneous claims) amounted to =4.9P billion and =4.5P billion as at December 31, 2013 and 2012, respectively. The Rehabilitation Court has resolved to deny and disallow the said disputed claims of MWSS in its December 19, 2007 Order, upholding the recommendations of the Receiver on the matter.
Following the termination of the Maynilad’s rehabilitation proceedings, Maynilad and MWSS sought to resolve this matter in accordance with the dispute resolution requirements of the TCA (see Notes 3 and 20).
Real Property Taxes Assessment. On October 13, 2005, Maynilad and Manila Water Company, Inc. (the Concessionaires) were jointly assessed by the Municipality of Norzagaray, Bulacan for real property taxes on certain common purpose facilities purportedly due from 1998 to 2005 amounting to =357.1P million. It is the position of the Concessionaires that these properties are owned by the ROP and therefore, exempt from taxation.
The supposed joint liability of the Concessionaires for real property tax, including interests, as at December 31, 2013 amounted to P=1.0 billion.
After, the Local Board of Assessment Appeals (LBAA) ruled in favor of the Municipality of Norzagaray, Bulacan. The Concessionaires elevated the ruling of the LBAA to the Central Board of Assessment Appeals (CBAA) by filing separate appeals. As at March 19, 2014, the decision is still pending.
Cost of Living Allowance (COLA). On November 24, 2006, the Labor Arbiter issued a decision in favor of the Maynilad Water Supervisors Association (“MWSA”), ordering the payment of COLA to Maynilad’s supervisor-employees, retroactive to the date when they were hired by Maynilad in 1997, with legal interest from the date of promulgation of the decision until full payment of the award or =249.5P million as computed and claimed by MWSA. This decision was reversed and set aside by the National Labor Relations
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 133 Notes to Financial Statements
Commission (“NLRC”) in 2007, but reinstated by the Court of Appeals in 2010. After the issuance of the Labor Arbiter’s decision in 2007, Maynilad executed a compromise agreement with MWSA, wherein Maynilad agreed to pay MWSA residual benefits equivalent to its claim for COLA for 23 months, from August 1997 to June 1999. Thus, the Maynilad’s dispute with MWSA was limited to the supervisor-employees claim for COLA from July 1999 up to the present time. In 2011, the Court of Appeals granted the motion for reconsideration filed by Maynilad by issuing an amended decision reinstating and affirming the resolutions of the NLRC. The Court of Appeals thereafter issued a resolution denying the motion for reconsideration filed by MWSA. On November 16, 2011, MWSA filed a Petition for Review on Certiorari before the Supreme Court, seeking to annul the said amended decision and the resolution of the Court of Appeals.
On December 11, 2013, Notice of Judgment was issued by the Supreme Court which upheld the assailed Amended Decision and Resolution of the Court of Appeals which held that the employees of Maynilad are not entitled to receive COLA pursuant to the terms of Maynilad’s concession agreement.
Others. Maynilad is a party to various civil and labor cases relating to breach of contracts with damages, illegal dismissal of employees, and nonpayment of backwages, benefits and performance bonus, among others.
It is the opinion of Maynilad’s management and its outside legal counsel that it is reasonably possible, but not probable, that the aforementioned lawsuits and claims will be settled against Maynilad. Accordingly, no provision for any liability has been made. As at March 19, 2014, no resolution has been reached on these matters.
Toll Operations Segment
Value-Added Tax. In 2011, the BIR issued Revenue Memorandum Circular (RMC) 39-2011 dated August 31, 2011 to fully implement VAT on the gross receipts of tollway operators from all types of vehicles starting October 1, 2011. In view of RMC 39-2011, MNTC started imposing VAT on toll fees from motorists and correspondingly started recognizing VAT liability on October 1, 2011. MNTC also reduced its accumulated input VAT to zero as at September 30, 2011. The input VAT were either charged to expense or capitalized to assets.
Through all the years that the issues of VAT are being discussed, MNTC continues to receive the following VAT assessments:
§ MNTC received a Formal Letter of Demand from the BIR on March 16, 2009 requesting MNTC to pay deficiency VAT plus penalties amounting to =1,010.5P million for taxable year 2006. In August 2010, MNTC applied for abatement of alleged VAT liabilities for taxable year 2006. In March 2012, MNTC filed a position paper with the BIR regarding the treatment of deferred input VAT from the purchase of capital goods and services in relation to its application for abatement. The BIR has yet to resolve the application for abatement of MNTC.
§ MNTC received a Final Assessment Notice from the BIR dated November 15, 2009, assessing MNTC for deficiency VAT plus penalties amounting to =557.6P million for taxable year 2007. MNTC filed a protest letter with the BIR in December 2009 and a supplement to the protest letter in February 2010. In April 2010, MNTC filed a petition for review with the CTA to appeal the March 2010 denial by the BIR of its protest. MNTC filed its memorandum in July 2013 and a supplemental memorandum in August 2013 and the case is now considered submitted for decision. Meanwhile, in August 2010, MNTC applied for abatement of alleged VAT liabilities for taxable year 2007. The BIR has yet to resolve the application for abatement of MNTC.
§ MNTC received a Notice of Informal Assessment from the BIR dated October 5, 2009, assessing MNTC for deficiency VAT plus penalties amounting to =470.9P million for taxable year 2008. On May 21, 2010, the BIR issued another notice increasing the deficiency VAT for taxable year 2008 to =1,209.2P million (including penalties). On June 11, 2010, MNTC filed its Position Paper with the BIR reiterating its claim that it is not subject to VAT on toll fees.
§ On May 21, 2010, the BIR issued a Notice of Informal Conference assessing MNTC for deficiency VAT plus penalties amounting to =1.0P billion for taxable year 2009. On June 11, 2010, MTNC filed its Position Paper with the BIR reiterating its claim that it is not subject to VAT on toll fees for years 2008 and 2009. On June 11, 2010, MNTC filed its Position Paper with the BIR reiterating its claim that it is not subject to VAT on toll fees.
Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in any event, the STOA among MNTC, ROP, acting by and through the TRB, and PNCC, provides MNTC with legal recourse in order to protect its lawful interests in case there is a change in existing laws, which makes the performance by MNTC of its obligations materially more expensive.
134 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Local Business Tax (LBT). On July 7, 2011, the Regional Trial Court of Bulacan ruled that MNTC is liable for P=67.4 million in local business taxes and permits and regulatory fees, citing that the NLEX toll plazas located in Guiguinto, Bulacan are considered branches or sales outlets and that the STOA does not expressly provide for MNTC’s exemption on local business taxes. A profer of excluded evidence and a petition for review with the RTC of Malolos, Bulacan and Court of Tax Appeals (CTA), respectively, were fled on November 9, 2011 by MNTC. The CTA, in a decision dated December 3, 2012, partially granted MNTC’s petition for review. The CTA modifed the RTC of Malolos, Bulacan’s decision and cancelled and set aside for lack of basis the notice of assessment dated 2008 issued against MNTC for P=67.4 million LBT for the years 2005 to 2007. However, the CTA ordered the Company to pay the municipality of Guiguinto the P=2.3 million mayors’ permit and other regulatory fees assessment for the years 2004 to 2008, inclusive of surcharges and penalties. The municipality of Guiguinto subsequently fled with the CTA a motion for reconsideration. The CTA, in a resolution dated April 25, 2013, denied the motion for reconsideration fled by the municipality of Guiguinto. As at March 19, 2014, the local government has not fled an appeal.
The DOF issued Local Finance Circular No. 1-2013 dated January 18, 2013 prescribing guidelines governing the power of LGUs to impose LBT on tollway operators. The guidelines state that, among other things, all receipts collected by the toll booths in a toll barrier/plaza shall be recorded in said toll barrier/plaza and the tax due thereon shall be payable to the city or municipality where the said toll booth or toll barrier/plaza is located. The LBT guideline shall apply to all LGUs that may host a toll booth or toll barrier/plaza that may be established in the future along other segments, extensions, stretches, linkages, diversions, or expansions of the toll expressway system. The LBT allocation shall apply prospectively from the time of the issuance and/or efectivity of this Circular.
Real Property Tax (RPT). On July 15, 2008, MNTC fled a petition for review under Section 226 of the Local Government Code (“LGC”) with LBAA to annul and set aside the action of the provincial assessor of the province of Bulacan, in motu proprio issuing fve (5) assailed tax declarations under the name of MNTC as administrator/benefcial user and classifying and categorizing the NLEX as a commercial property subject to RPT. The LBAA scheduled an ocular inspection of the subject real properties on May 7, 2009 to determine whether said properties in fact covers portions of the NLEX, which MNTC argues are part of public land exempt from RPT. The ocular inspection however was reset due to the unavailability of some of the members of the LBAA. The LBAA has yet to re- schedule the ocular inspection as of date. The case is still pending before the LBAA of the Province of Bulacan.
In April 2013, MNTC fled a petition for review under Section 226 of the LGC with the LBAA to declare as null and void the assailed assessment and the assailed thirty-four (34) tax declarations motu proprio issued by the provincial assessor of the province of Bulacan in the name of MNTC as owner of the NLEX and categorizing the NLEX as a commercial property, subject to RPT, and the corresponding notice of assessment dated January 10, 2013 for RPT against MNTC over the said properties pursuant to Section 204 of the LGC. In June 2013, the LBAA issued an January 10, 2013 for RPT against MNTC over the said properties pursuant to Section 204 of the LGC. In June 2013, the LBAA issued an order denying due course to the petition. In July 2013, MNTC fled a motion for reconsideration praying that the order be reconsidered and that MNTC’s petition be given due course. In September 2013, MNTC received an order from the LBAA setting the date for the hearing on MNTC’s motion for reconsideration on September 25, 2013. In September 2013, MNTC received the province of Bulacan’s comment to MNTC’s motion for reconsideration. Since MNTC learned of the September 25, 2013 hearing only after it received the order on September 26, 2013, MNTC fled a manifestation and motion praying that (i) MNTC be given until October 16, 2013 within which to fle its reply to the comment, and (ii) the hearing on the motion for reconsideration be reset to October 22, 2013. During the hearing on November 20, 2013, the province requested for time to fle its rejoinder. The LBAA also ordered the Respondents to submit samples of the tax declarations in question. The LBAA then set another hearing on December 11, 2013. The LBAA submitted the Motion for Reconsideration for resolution during the December 11, 2013 hearing. As of March 19, 2014, the LBAA has not yet resolved the motion.
On September 18, 2013, MNTC received Notices of Realty Tax Delinquencies for the years 2006 to 2013 issued by the Provincial Treasurer, which state that, if after ffteen (15) days from MNTC’s receipt of the Notices, MNTC fails to pay or remit the alleged delinquent RPT due in the amount of P=304.9 million, the remedies provided for under the law for the collection of delinquent taxes shall be applied to enforce collection. On September 27, 2013, the BLGF wrote a letter to the LGU advising it to hold in abeyance any further course of action pertaining to the RPT delinquency covering the subject 34 tax declarations. On October 3, 2013, MNTC received another notice dated October 1, 2013 from the Provincial Treasurer, alleging that since the period given in the Notices has already elapsed, the Province may apply “the remedies under the law for the collection of delinquent taxes.”
On October 4, 2013, the Provincial Treasurer withdrew the October 3, 2013 notice to respect the directive from the DOF-BLGF to hold the enforcement of any collection remedies in abeyance.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 135 Notes to Financial Statements
Others. The companies in the toll operations segment are also parties to other cases and claims arising from the ordinary course of business filed by third parties, which are either pending decisions by the courts or are subject to settlement agreements. The outcome of these claims cannot be presently determined. In the opinion of management and its legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on the Company’s consolidated financial statements.
Power Segment
Meralco and its subsidiaries are subject to various pending or threatened legal actions in the ordinary course of business which, if the conclusion is unfavourable to Meralco and subsidiaries, may result in the payout of substantial claims and or the adjustment of electricity distribution rates. These contingencies mainly relate to tax assessments (real property tax, local franchise tax, local business tax and income tax) and the ongoing mediation with National Power Corporation and the unbundling of rates, for which Meralco is awaiting the action of the ERC on the COA Audit Report. Other disclosures required by PAS 37 were not provided as it may prejudice Meralco’s position in on-going claims, litigations and assessments.
Supreme Court (SC) Temporary Restraining Order on December 2013 Increase in Meralco Rate. On December 9, 2013, the ERC gave clearance to the request of Meralco to implement a staggered collection over three (3) months covering the December billing month for the increase in generation charge and other bill components such as value-added tax, local franchise tax, transmission charge, and system loss charge, which reflected a total increase of P=4.15/kWh for a 200-kWh residential consumer. The generation costs for the November 2013 supply month, increased significantly because of the use of the more expensive liquid fuel by the natural gas-fired power plants that were affected by the Malampaya Gas Field or Malampaya, shutdown from November 11 to December 10, 2013. This was compounded by the aberrant spike in the Wholesale Electricity Spot Market (WESM), charges on account of the scheduled and extended shutdown, and the forced outages of several base load power plants, as well as the non-compliance with WESM Rules by certain plants resulting in significant power generation capacities not being offered and dispatched.
The Department of Justice commenced an investigation while the House of Representatives and Senate conducted separated hearings to determine the underlying reasons for the price increase, including any possible collusion among the power firms. In the meantime, Meralco proceeded with billing its captive customers with the ERC approval.
On December 19, 2013, several party-list representatives in the House of Representatives, filed a Petition against Meralco, ERC and the Department of Energy or DOE before the SC, questioning the ERC clearance granted to Meralco to charge the =4.15/kWhP price increase, alleging the lack of hearing and due process. It also sought for the declaration of the unconstitutionality of Sections 6 and 29 of Republic Act No. 9136, “The Electric Power Industry Reform Act of 2001” or EPIRA, which essentially declared the generation and supply sectors competitive and open, and not considered public utilities. A similar petition was filed by a consumer group and several private homeowners associations challenging also the legality of the Automatic Generation Rate Adjustment or AGRA that the ERC had promulgated. Both petitions prayed for the issuance of a TRO, and Writ of Preliminary Injunction.
On December 23, 2013, the SC consolidated the two (2) Petitions and granted the application for TRO effectively immediately and for a period of sixty (60) days, which effectively enjoined the ERC and Meralco from implementing the P=4.15/kwh price increase. The SC also ordered Meralco, ERC and DOE to file their respective comments to the Petitions and set the hearing for Oral Arguments on January 21, 2014. The SC further set two more Oral Arguments on February 4, 2014 and February 11, 2014. After the conclusion of the Oral Arguments, the SC gave all the Parties to the consolidated Petitions to file their respective Memorandum on or before February 26, 2014 after which the Petitions will be deemed submitted for resolution of the SC. Meralco complied with said directive and had filed its Memorandum on said date.
On February 18, 2014, acting on the motion filed by the Petitioners, the SC extended for another period of 60 days or until April 22, 2014 the TRO that it originally issued against Meralco and ERC last December 23, 2013. The TRO was also similarly applied to the generating companies, specifically Masinloc Power Partners Co. Ltd., San Miguel Energy Corporation, South Premier Power Corporation, First Gas Power Corporation, and the National Grid Corporation of the Philippines, and the Philippine Electricity Market Corporation or PEMC (the administrator of WESM and market operator) who were all enjoined from collecting from Meralco the deferred amounts representing the =4.15/kWhP price increase for the November 2013 supply month.
In the meantime, on January 30, 2014, Meralco filed an Omnibus Motion with Manifestation with the ERC for the latter to direct PEMC to conduct a re-run or re-calculation of the WESM prices for the supply months of November to December 2013. Subsequently, on February 17, 2014, Meralco filed with the ERC an Application for the recovery of deferred generation costs for the December 2013 supply month praying that it be allowed to recover the same over a six (6)-month period.
136 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 On March 3, 2014, the ERC issued an Order voiding the Luzon WESM prices given that the prices in WESM during the November and December 2013 supply months could not qualify as reasonable, rational and competitive. PEMC was given seven days upon receipt of the Order to calculate these regulated prices and implement the same in the revised WESM bills of the concerned.
As at March 19, 2014, Meralco is still awaiting decisions of the SC.
Others
Donor’s Tax. NOHI received on January 14, 2011 a Final Assessment Notice (FAN) demanding the payment of approximately =199.7P million as deficiency donor’s tax (including surcharge and interest as at January 31, 2011) on the excess of the book value over the selling price of several shares of stock in BLC which NOHI sold to a third party. The assessment was based on the finding of the Bureau of Internal Revenue-Large Taxpayer Service (BIR-LTS) that the transaction is subject to donor’s tax as a “deemed gift” transaction under Section 100 of the 1997 National Internal Revenue Tax Code (the Tax Code).
On February 14, 2011, NOHI filed its formal protest to the FAN raising several factual and legal arguments. However, this was denied by the BIR through the letter it has delivered to NOHI stating its Final Decision on Disputed Assessment (“FDDA”). NOHI then filed a Petition for Review with the Court of Tax Appeals (“CTA”) to challenge the FDDA. In 2012, Trial commenced and both parties had presented their witnesses and evidences and submission of affidavit of last witness and formal offer of evidence to CTA for Resolution. In a Resolution dated November 13, 2012, the Court admitted in evidence all of the NOHI’s exhibits, and NOHI presented evidence on January 16, 2013.
During the hearing on January 16, 2013, respondent’s counsel requested for a resetting, which was granted and the hearing was reset to February 21, 2013. On February 6, 2013, respondent’s counsel filed a motion to cancel the February 21, 2013 hearing, which was likewise granted and the hearing was reset to March 18, 2013. On March 18, 2013, respondent’s counsel presented as her first witness, Mr. Albert C. Eya, a BIR Revenue Officer. The hearing scheduled on April 22, 2013 for continuation of presentations of respondent’s witnesses and pieces of evidence was postponed due to the re-organization of the CTA after the appointment of a new presiding justice. After the respondent filed its Formal Offer of Evidence, and the exhibits offered were admitted in evidence, the parties were granted time within which to submit their respective memoranda. Both parties submitted their respective memoranda and the matter has been submitted for resolution of the CTA.
NOHI firmly believes that it is not liable for the deficiency donor’s taxes and that it has strong legal and factual basis to question the FDDA in its appeal with the CTA. Accordingly, NOHI believes that no provision for the assessment is necessary as at December 31, 2013.
Indemnity. Under the agreement relating to the repayment of a certain loan signed between NOHI, Ayala Land Inc. (ALI) and Greenfield Development Corp. (GDC) on April 17, 2003, certain obligations/warranties by NOHI will remain outstanding for certain periods ranging from one to three years and covered by security arrangements. Under the agreement, NOHI shall indemnify ALI and GDC to the extent of NOHI’s derivative share in BLC/ Fort Bonifacio Development Corporation (FBDC) for certain secured indemnity obligations and other obligations resulting from any breach of warranties and representations.
ALI and GDC have formally advised NOHI in their letter dated September 19, 2003 that they are allocating the pledge of 5.0% interest of NOHI in BLC and a condominium unit in Pacific Plaza Tower for possible payment of secured indemnity obligations enumerated in their letter. Total estimated indemnity amounts to =434.1P million. NOHI has fully provided this obligation in prior years, determined based on certain possible taxes that were actually claimed by ALI and GDC within the warranty period. The above warranty expired on April 17, 2007. However, subject to actual payment of pending taxes included in the warranties, the provision has remained in the books as at December 31, 2013 and 2012 (see Note 17).
In September 2009, NOHI sold 2,603,708 shares out of the 5% interest in BLC pledged to Columbus Holdings, Inc. (Columbus), a company jointly owned by ALI and GDC, at an agreed purchase price of P=158.0 per share for a total consideration of =411.4P million. No gain was recognized on the sale pending Supreme Court judgment on the ongoing documentary stamp tax claim against FBDC in which case and in the event of an unfavorable judgment against FBDC, the total proceeds from the sale will be returned to Columbus. Consequently, NOHI recognized an additional provision amounting to =54.8P million in 2009 for contingent liability equivalent to the unrealized gain (see Note 17).
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 137 Notes to Financial Statements
On June 26, 2013, NOHI received a favorable judgment from the Supreme Court with pending entry of final judgment to release the liability from Columbus. As at December 31, 2013, no final judgment has been granted and it is for this reason that NOHI deems it not yet necessary to recognize the unrealized gain.
In the opinion of management and NOHI’s legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on NOHI’s financial position and financial performance, as well as in the consolidated financial statements.
Other disclosures required by PAS 37 were not provided as it may prejudice the Company’s position in ongoing claims, litigations and assessments.
33. Significant Contracts, Agreements and Commitments
MPIC
On April 24, 2012, MPIC signed a memorandum of agreement with Ayala Corporation (AC) to form an exclusive strategic partnership to jointly pursue and develop light rail projects in Metro Manila area. Under the agreement, each of the parties will own 50% interest in the light rail projects and related real estate development undertakings. The partnership is initially eyeing to bid for the light rail transit projects identified under the government’s Public Private Partnership Program (PPP). However, it is also open to work together on other rail-related opportunities.
On January 30, 2014, the AF Consortium received a Notice of Award from the Department of Transportation and Communications (DOTC) declaring it the winning bidder for P=1.72 billion contactless Automated Fare Collection System (AFCS) Project. The AF Consortium is composed of BPI Card Finance Corporation as lead member, Globe Telecom, Inc., AC Infrastructuture Holdings Corp., Smart Communications, Inc., Meralco Financial Services Corporation, and the Parent Company. The contactless payment system will facilitate efficient passenger transfer to other rail lines, and enhance fare collection efficiency.
Notice of award was received on February 23, 2014 although as at March 19, 2014, the concession agreement has yet to be signed. On February 10, 2014, the Automated Fare Collection Services, Inc. was incorporated by the members of the AF Consortium with the Parent Company holding 20% of the total shares subscribed.
Maynilad
Contracts. In relation to Maynilad’s concession agreement (the “Concession Agreement”), Maynilad entered into the following contracts with Manila Water (the “East Concessionaire”):
a. Interconnection Agreement wherein the two Concessionaires shall form an unincorporated joint venture that will manage, operate, and maintain interconnection facilities. The terms of the agreement provide, among others, the cost and the volume of water to be transferred between zones; and,
b. Common Purpose Facilities Agreement that provides for the operation, maintenance, renewal, and, as appropriate, decommissioning of the Common Purpose Facilities, and performance of other functions pursuant to and in accordance with the provisions of the Concession Agreement and performance of such other functions relating to the concession (and the concession of the East Concessionaire) as Maynilad and the East Concessionaire may choose to delegate to the Joint Venture, subject to the approval of MWSS.
Commitments. Significant commitments under the Concession Agreement follow:
a. Payment of Concession Fees (see Note 18)
b. Posting of performance bond
Under Section 6.9 of the Concession Agreement, Maynilad is required to post a performance bond to secure the performance of its obligations under certain provisions of the Concession Agreement.
138 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The aggregate amount drawable in one or more installments under such performance bond during the Rate Rebasing Period to which it relates is set out below.
Aggregate Amount Drawable Under Rate Rebasing Period Performance Bond (In Millions) First (August 1, 1997–December 31, 2002) US$120.0 Second (January 1, 2003–December 31, 2007) 120.0 Third (January 1, 2008–December 31, 2012) 90.0 Fourth (January 1, 2013–December 31, 2017) 80.0 Fifth (January 1, 2018–May 6, 2022) 60.0
Within 30 days from the commencement of each renewal date, Maynilad shall cause the performance bond to be reinstated to the full amount set forth above applicable for the year.
In connection with the extension of the term of Maynilad’s Concession Agreement (see Note 13), certain adjustments to the obligation of Maynilad to post the performance bond under Section 6.9 of the Concession Agreement have been approved and summarized as follows:
§ The aggregate amount drawable in one or more installments under each performance bond during the Rate Rebasing Period to which it relates has been adjusted to US$30.0 million until the Expiration Date;
§ The amount of the Performance Bond for the period covering 2023 to 2037 shall be mutually agreed upon in writing by the MWSS and Maynilad consistent with the provisions of the Concession Agreement.
§ Maynilad posted the Surety Bond for the amount of US$90.0 million issued by Prudential Guarantee and Assurance, Inc. (the Surety) in favor of MWSS, as security for Maynilad’s proper and timely performance of its obligations under the Concession Agreement. On December 6, 2012, Maynilad renewed the Surety Bond for the amount of US$80.0 million issued by the Surety in favor of MWSS. The liability of the Surety under this bond will expire on December 31, 2017. c. Payment of half of MWSS and MWSS-RO’s budgeted expenditures for the subsequent years, provided the aggregate annual budgeted expenditures do not exceed P=200.0 million, subject to CPI adjustments. Beginning 2010, the annual budgeted expenditures shall increase by 100.0%, subject to CPI adjustments, as a result of the extension of the life of the Maynilad’s concession agreement. d. To meet certain specific commitments in respect to the provision of water and sewerage services in the West Service Area, unless modified by the MWSS-RO due to unforeseen circumstances; e. To operate, maintain, renew and, as appropriate, decommission facilities in a manner consistent with the National Building Standards and best industrial practices so that, at all times, the water and sewerage system in the West Service Area is capable of meeting the service obligations (as such obligations may be revised from time to time by the MWSS-RO following consultation with Maynilad); f. To repair and correct, on a priority basis, any defect in the facilities that could adversely affect public health or welfare, or cause damage to persons or third-party property; g. To ensure that at all times Maynilad has sufficient financial, material and personnel resources available to meet its obligations under the Concession Agreement; h. Non-incurrence of debt or liability that would mature beyond the term of the Concession Agreement, without the prior notice of MWSS;
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 139 Notes to Financial Statements
Failure of Maynilad to perform any of its obligations under the Concession Agreement of a kind or to a degree which, in a reasonable opinion of the MWSS-RO, amounts to an effective abandonment of the Concession Agreement and which failure continues for at least 30 days after written notice from the MWSS-RO, may cause the Concession Agreement terminated.
Operating Lease Commitment. Maynilad leases the office space, branches where service outlets are located, equipment and service vehicles, renewable under certain terms and conditions to be agreed upon by the parties. Total rent expense for the above operating leases amounted to =158.9P million, =175.2P million and =208.2P million in 2013, 2012 and 2011, respectively.
Future minimum operating lease payments as at December 31, 2013 and 2012 are:
Period Covered 2013 2012 (In Millions) Not later than one year P=132 =115P More than one year and not later than five years 76 185
MPTC
NLEX Concession Agreement. Obligations and commitments of MNTC under the NLEX Concession Agreement are discussed in Notes 13 and 17.
Subic-Clark-Tarlac Expressway (SCTEX) Concession Agreement. In 2010, MNTC participated in a public bidding conducted by the BCDA under the latter’s Terms of Reference (TOR) for the Privatization of the SCTEX with the right to manage, operate and maintain the SCTEX on an “as is, where is” basis for a period until October 30, 2043. On June 9, 2010, BCDA formally awarded MNTC the right to enter into a concession agreement with BCDA for the management, operation and maintenance of SCTEX.
On July 20, 2011, MNTC and BCDA signed a Business and Operating Agreement (BOA) under which BCDA granted MNTC all its usufructuary rights, interests and obligations under its Toll Operating Agreement with the TRB relating to the management, operation and maintenance of the 94-km SCTEX, including the exclusive right to possess and use the SCTEX toll road and facilities and the right to collect toll. The BOA requires the satisfaction of certain conditions precedent including the necessary Philippine Government approvals such as the approval of the President of the Republic of the Philippines and the execution of a Supplemental Toll Operation Agreement (STOA) by and among MNTC, BCDA and ROP, through the TRB. The term of the BOA shall be from the Effective Date until October 30, 2043. At the end of the contract term or upon termination of the Agreement, the SCTEx shall be turned over to BCDA or its successor-in-interest conformably with law, and in all cases in accordance with and subject to the terms and conditions of the STOA, in relation to SCTEX.
The BOA and the STOA were favorably endorsed for Presidential approval via a joint letter of BCDA and TRB dated 5 October 2011 which contained the following statement: “The privatization of the SCTEX, as embodied in the BOA and STOA, is very well in harmony with the administration’s Public-Private-Partnership (PPP) Program. We thus respectfully seek your favorable action on this request for approval of the BOA and the STOA”.
Meantime, MNTC and BCDA agreed to extend the deadline provided under the BOA for compliance by the parties with all conditions precedent (Long-stop Date) until December 31, 2013. On December 20, 2013, MNTC proposed to further extend the Long-Stop Date to June 30, 2014 and this was approved by the BCDA Board on January 16, 2014.
As at March 19, 2014, the BCDA is still in the process of obtaining the necessary Philippine Government approvals. Accordingly, the SCTEX had not been assigned and turned over to the MNTC.
NLEX-SLEX Connector Road Project. In September 2013, MPTDC was requested by the Government to consider undertaking the Connector Road Project either through a new joint venture with PNCC, or under the existing joint venture between PNCC and MPTDC and pursuant to the existing STOA amongst PNCC, MNTC and the TRB dated April 30, 1998. Accordingly, the NEDA Board approved that the Connector Road Project proposed by MPTDC will be implemented: (i) through a joint venture between MPTDC and PNCC, or (ii) to the extent possible, through an amendment or extension of the existing joint venture of PNCC and MPTDC and/or STOA pursuant to PD No. 1894.
In a letter dated November 7, 2013, DPWH informed MPTDC that it would defer further consideration and processing of the Connector Road Project as a Build-Operate-Transfer (BOT) unsolicited proposal to allow TRB to pursue the implementation of the same project as an amendment or extension of the existing STOA. Consequently, MNTC as the existing joint venture company, was requested to
140 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 consider undertaking the NLEX-SLEX Connector Road Project as an extension of Segment 10 of the NLEX under the existing STOA from C3 Road in Caloocan to PUP Sta. Mesa, Manila utilizing the same PNR right-of-way covered by the BOT unsolicited proposal.
On November 20, 2013, MNTC submitted to TRB an Investment Proposal for the implementation of the Connector Road Project as the new Segment 10.2 of the NLEX through an amendment or extension of the STOA, particularly the existing Phase II Segment 10, pursuant to a Grantor-initiated request under Clause 8.2 of the STOA.
On January 10, 2014, MNTC and MPTDC entered into a letter agreement with PNCC, as shareholder of MNTC, and joint venture partner of MPTDC for the NLEX Project, confirming the agreement to implement Segment 10.2 as an extension or linkage of Phase 2 Segment 10 of the NLEX Project pursuant to P.D. No. 1894, and as an integral portion of NLEX subject to prior approval of the TRB. Conformably to the provisions of the Joint Venture Agreement and the Amended and Restated Shareholders’ Agreement (ARSA), and upon TRB approval of the implementation of Segment 10.2, PNCC will be entitled (a) to receive 6% of the gross toll revenue collected by MNTC from the operation and maintenance of Segment 10.2 upon its completion in addition to its share in the gross toll revenues collected by MNTC from the toll roads as provided in the ARSA, and (b) to all dividends accruing on its shares of stock in MNTC. As at March 19, 2014, MNTC is still in the process of obtaining the necessary Philippine Government approvals.
PNCC. PNCC is a non-controlling stockholder in MNTC. In consideration of the assignment by PNCC of its usufructuary rights, interests and privileges under its franchise, PNCC is entitled to receive a payment equivalent to 6.0% and 2.0% of the toll revenue from the NLEX and Segment 7, respectively. Any unpaid balance carried forward will accrue interest at the rate of the latest Philippine 91-day Treasury bill rate plus 1.0% per annum. The PNCC franchise expired in May 2007 but since the payment is a continuing obligation under the Shareholders’ Agreement, PNCC continues to receive the same payment. However, on December 2, 2010, MNTC received a letter from the TRB dated November 30, 2010, citing a decision of the Supreme Court dated October 19, 2010 directing MNTC to remit to the National Treasury, through TRB, all payments representing PNCC’s percentage share of the toll revenues and dividends, if any, arising out of PNCC’s participation in the NLEX Project.
On the basis of the conflicting claims of PNCC and TRB to the revenue share and dividends, on December 8, 2010, MNTC filed a motion for clarification asking the SC to clarify the entity to which MNTC should remit its payments which was then due on December 20, 2010. Pending resolution by the SC of the motion for clarification, MNTC filed a petition for consignation with the RTC of Caloocan for the latter to hold the payments in trust and deliver to the party ultimately adjudged by the SC to be entitled to it. On December 29, 2010, MNTC through a letter sent by its legal counsel, informed PNCC and TRB of the consignation made to the RTC of Caloocan.
In a resolution dated January 18, 2011, the SC directed MNTC to remit to the National Treasury PNCC’s percentage share of toll revenues and dividends arising out of PNCC’s participation in the NLEX Project. On April 12, 2011, the SC issued a Resolution directing MNTC to remit PNCC’s share in the net income from toll revenues to the National Treasury and the TRB, with the assistance of the Commission on Audit (COA) was directed to prepare and finalize the implementing rules and guideline relative to the determination of the net income remittable by PNCC to the National Treasury. In the meantime, while the guidelines have yet to be formulated, PNCC and TRB have agreed to remit the entire consigned amount to the National Treasury. Following the directive of the TRB dated March 22, 2012, MNTC has remitted to the National Government through the TRB the payments for the PNCC fees accruing since the month of December 2010 and the dividends payable to PNCC since July 2010. In accordance with the TRB directive, 90% of the PNCC fees and dividends payable was remitted to the TRB while the balance of 10% to PNCC.
On September 19, 2011, Forum Holdings Corporation (FHC, an Intervenor) filed a Petition-in-Intervention with the RTC of Caloocan praying that MNTC be ordered to comply with its contractual commitment to PNCC under contract by releasing and delivering directly to PNCC the consigned amount. The Intervenor, however, does not pray for any damages against MNTC. PNCC has filed its opposition to the Motion for Intervention. On January 11, 2012, RTC of Caloocan, despite the fact that the consigned amount at that time has already been remitted to the National Treasury, granted FHC’s petition filed on September 19, 2011. On September 6, 2013, the RTC heard the case to decide on the prayer for dismissal requested by MNTC, TRB and PNCC in their urgent joint manifestation and motion. During said hearing, the RTC found that the petition for consignation was already rendered moot and academic since the consigned amount was already remitted to the National Government and FHC already withdrew its intervention. Since there was no more pending incident for resolution, the RTC ordered the case dismissed.
EMHMC and CVHMC As discussed in Note 3, EMHMC and CVHMC entered into lease agreements with SSpS and RCAM for the management and operation of OLLH and CSMC, respectively. Each of these lease agreements is for a period of 20 years, renewable for successive periods of 10 years upon the mutual consent of both parties. EMHMC and CVHMC accounted for their respective lease agreements as acquisition of a business in accordance with PFRS 3.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 141 Notes to Financial Statements
As consideration for the lease agreement, EMHMC and CVHMC pay fixed and variable monthly rates, where the variable rate is based on the prior year’s net revenues. Below is the schedule of fixed and variable monthly rent:
Annual Fixed Variable Rent Monthly (% of Prior Year’s Period Rent Net Revenues) (In Thousands) EMHMC November 2010 to October 2015 =P1,000 2.00% November 2015 to October 2020 1,250 2.25% November 2020 to October 2030 1,500 2.50% CVHMC April 2009 to March 2014 3,000 3.00% April 2014 to March 2019 3,300 3.00% April 2019 to March 2024 3,630 3.00% April 2024 to March 2029 3,993 3.00%
Lease payments under these arrangements are as follows:
2013 2012 Fixed Variable Total Fixed Variable Total (In Millions) Not later than one year P=51 P=62 P=113 =48P =54P =102P More than one year and not later than five years 259 355 614 251 338 589 More than five years 628 1,167 1,795 687 1,247 1,934 Total lease payments 938 1,584 2,522 986 1,639 2,625 Less amount representing interest 1,447 1,457 Present value of lease obligation P=1,075 =1,168P
EMHMC commits to improve and develop OLLH, by way of cumulative capital expenditures of at least P=350.0 million no later than November 1, 2015. The commitment shall be utilized in accordance with EMHMC’s Capital Expenditure (CAPEX) program and in the event that EMHMC fails to make or infuse the commitment in the amounts and within the period stated, EMHMC shall deposit in escrow such deficiency and the use of which will be mutually determined by both parties. Accumulated infusion to the CAPEX Program, subject to review and approval of SSps, as of December 31, 2013 and 2012 are at P=192.2 million and =167.4P million, respectively.
CVHMC has a commitment to make a Capital Expenditure in CSMC amounting to at least P=750.0 million (CAPEX Commitment) no later than the 10th anniversary of the Agreement, with at least P=250.0 million of which shall be spent over a period of three years, and with majority spent as CAPEX for Expansion and Development no later than the 10th anniversary of the closing date of the agreement. CVHMC’s accumulated infusion to the CAPEX program are =1,018.4P million and =683.5P million as of December 31, 2013 and 2012, respectively.
On September 16, 2011, CVHMC renewed a purchase commitment with a third party supplier with a minimum purchase requirement amounting to =28.0P million worth of certain medical products for two years expiring September 2013. The agreement provides for rebates and discounts but if CVHMC fails to meet the set minimum purchase requirements, CVHMC shall pay the supplier the amount equal to all the rebates provided plus default interest. CVHMC completed its minimum purchase commitment in September 2013.
142 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 34. Assets Held in Trust
Materials and Supplies Maynilad has the right to use any item of inventory owned by MWSS in carrying out its responsibility under the Concession Agreement, subject to the obligation to return the same at the end of the concession period, in kind or in value at its current rate, subject to CPI adjustments.
Facilities Maynilad had been granted the right to operate, maintain in good working order, repair, decommission and refurbish the movable properties required to provide the water and sewerage services under the Concession Agreement. MWSS shall retain legal title to all movable properties in existence at the commencement date on August 1, 1997. However, upon expiration of the useful life of any such movable property as may be determined by Maynilad, such movable properties shall be returned to MWSS in its then-current condition at no charge to MWSS or Maynilad (see Note 13).
The Concession Agreement also provides Maynilad and the East Concessionaire to have equal access to MWSS facilities involved in the provision of water supply and sewerage services in both West and East Service Areas including, but not limited to, the MWSS management information system, billing system, telemetry system, central control room and central records.
The net book value of the facilities transferred to Maynilad on commencement date based on MWSS’ closing audit report amounted to P=7.3 billion with a sound value of =13.8P billion.
MWSS’ corporate headquarters are made available to Maynilad and the East Concessionaire for a one-year period beginning on the commencement date, subject to yearly renewal with the consent of the parties concerned. Rent expense amounted to =33.1P million, P=33.1 million and =35.7P million in 2013, 2012 and 2011, respectively.
35. Financial Risk Management Objectives and Policies
The Company’s principal financial instruments consist mainly of borrowings from a related party and third party creditors, proceeds of which were used for the acquisition of investments and in financing operations. The Company has other financial assets and financial liabilities such as cash and cash equivalents, short-term deposits, receivables, accounts payable and other current liabilities, concession fees payable and other related party transactions which arise directly from the Company’s operations. The Company also holds AFS financial assets.
The Company also enters into derivative transactions, particularly interest rate swaps and cross-currency swaps, to manage the interest rate and foreign currency risks arising from its long-term debts (see Note 36).
The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, interest rate risk, and foreign currency risk. The BOD reviews and approves policies of managing each of these risks and they are summarized below.
Credit Risk Credit risk is the risk that the Company will incur a loss arising from customers, clients or counterparties that fail to discharge their contracted obligations. The Company manages and controls credit risk by setting limits on the amount of risk that the Company is willing to accept for individual counterparties and by monitoring exposures in relation to such limits.
MPIC. MPIC’s exposure to credit risk is equal to the carrying amount of its financial assets. MPIC has no concentration of credit risk.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 143 Notes to Financial Statements
MPIC. MPIC’s exposure to credit risk is equal to the carrying amount of its financial assets. MPIC has no concentration of credit risk.
Toll segment. Receivables arose mainly from Easytrip Services Corporation (ESC) when Easytrip tag-motorists ply in NLEX and those non-toll revenues in the form of advertising services particularly from SMART. ESC, a wholly owned subsidiary of Egis (a NCI in MNTC), assists MNTC in increasing the usage of the electronic toll collection (ETC) facility. The segment’s due from related parties are mainly from TMC. ESC, SMART and TMC are considered as low-risk counterparties as these are well-established companies. Moreover, MNTC has payment obligations to TMC which far exceed the aggregate amount of receivables and dues from TMC. Receivables also arose from motorists who cause accidental damage to NLEX property from day-to-day operations. Property damage claims are initially processed by TMC and are eventually turned over to MNTC. MNTC also has advances made to DPWH, a Philippine government entity, which is covered by a Reimbursement Agreement.
MNTC also generates non-toll revenues in the form of service fees collected from business locators, generally called TSF (toll service facilities), along the stretch of the NLEX. The collection of such fees is provided in the STOA and is based on the principle that these TSF derive benefit from offering goods and services to NLEX motorists. The fees range from one-time access fees to recurring fees calculated as a percentage of sales. The arrangements are backed by a service facility contract between MNTC and the various locators. The credit risk on these arrangements is minimal because the fees are collected on a monthly basis mostly from well- established companies. The exposure is also limited given that the recurring amounts are not significant and there are adequate safeguards in the contract against payment delinquency. Nevertheless, MNTC closely monitors receivables from the TSF.
This segment’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to carrying amount of these financial assets. The Company does not require any collateral for its financial assets.
Water segment. Because of the basic need service that Maynilad provides, historical collections of Maynilad are relatively high, thus, credit risk exposure is widely dispersed. Maynilad billings are payable on the due date, which is normally 14 days from the billing date. However, customers are given 60 days to settle any unpaid bills before disconnection. Receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant.
Healthcare segment. The hospitals of the Company manages risk by setting credit limits for all customers and by monitoring credit exposures and the creditworthiness of counterparties. Credit limits are set and a regular review of these limits is being done by management. Credit is extended only to reputable entities such as HMO and insurance companies.
MPIC Group. The table below shows the maximum exposure to credit risk of the Company without considering the effects of collaterals, credit enhancements and other credit risk mitigation techniques and the net maximum exposure to credit risk of the Company considering the effects of collaterals, credit enhancements and other credit risk mitigation techniques.
The credit enhancement relating to cash and cash equivalents pertains to insured deposits in banks as prescribed by Philippine Deposit Insurance Corporation. The collateral covering certain receivables represents first-ranking pledge of Landco common shares in favor of the Company. For due from related parties, credit enhancement represents payable to the same counterparty that the Company will not pay until collection of the receivables.
144 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 3 0 8 60 90 80 28 32 – 7 441 285 4 294 131 313 14 Net 224 100 640 211 Total 3,627 1,827 1,03 2, 3,517 P =257 11,493 26,431 8,943 1,359 9,856 21,604 P = P = P = exposure (c) = (a) – (b) – (a) = (c) – – – – – – – – – – – – 5 6 2 P = 180 193 P = Impaired Individually – – – – – – – 48 P =– (b) 2012 1,084 1,132 credit P = 3 8 90 80 28 32 85 775 441 279 45 294 131 313 Total collateral or collateral 3,627 1,827 2, 3,517 11,493 26,238 Fair value and value Fair enhancement P = P = financial effect of financial effect – – – – – – – – – – – – – P = 90 14 707 811 Total – P = 14 (a) 224 100 640 211 P =257 8,991 1,359 Gross 10,940 22,736 P = exposure maximum – – – – – – – – – – – – – 1 P = 88 90 179 P = >120 Days >120
(In Millions) – 7 77 5 32 – – – – – – – – – – – – – – 3 Net 131 313 294 P = (In Millions) P = 97 3,627 1,827 3,8 3,517 100 11,439 25,0 P = P = exposure 120 Days 120 – (c) = (a) – (b) – = (a) (c) 91 – – – – – – – – – – – – – – 4 P = 98 102 P = 90 Days – – – – – – – – – P = 19 54 61 (b) Past Due but not Impaired but not Past Due 465 5 2013 P = credit – – – – – – – – – – – – – – 5 P = 163 168 collateral or P = enhancement Fair value Fair and 60 Days – financial effect of effect financial 30 – – – – – – – – – – – – – – 1 P = – 2 6 261 262 32 (a) P = 313 131 294 P = 3,627 1,827 4,34 3,517 Gross <30 Days 11,493 25,57 P = exposure maximum
=113.5million as at December 31, 2013and 2012, respectively. – 3 4 4 80 28 32 85 441 279 4 294 131 313 3,627 1,827 2,068 3,517 Due nor Due 11,493 25,427 Impaired P = P = Neither Past Neither
=142.7 million and P (a) iscellaneous (a) iscellaneous (c) (d) (b) (c) (c) (c) term cash and m and cash term - (current and noncurrent) and (current deposits term cash and m and cash term - Due from related parties related from Due Long (b)
Excludes cash on hand amounting to P amounting hand on cash Excludes position. financial of statement consolidated the in account assets” current “Other under Included position. of financial statement consolidated the in account assets” noncurrent “Other under Included stocks. of shares Excludes deposits Excluding cash on hand. Excluding shares of stocks. of the financial position. account statement in noncurrent assets” Included underconsolidated “Other
(a) (b) Cash and cash equivalents cash and receivables and Loans Cash Cash deposits Cash Derivative assets Derivative Derivative assets deposits cash FVPL at assets Financial Derivative Short-term Restricted Receivables LTIP for Deposits assets AFS financial (a) (b) employees (c) follows: as is assets financial impaired not and but past due of analysis aging the 2013 31, December at As receivables affiliates customers other to receivable officers equivalents cash and Cash receivables interests to deposits Short-term to cash Restricted Receivables Notes Trade Advances Accrued Advances Advances receivable Dividends Others parties related from Due AFS LTIP for Deposits Long * (c)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 145 Notes to Financial Statements 2 4 7 5 14 9 74 25 500 179 36 224 211 640 100 257 8,991 1,359 7,508 2,39 Total 22,93 P = P = – – – 2 4 6 – 1 – 5 – – – – – 8 P = 180 19 P = Impaired Individually 2 6 3 7 14 9 73 25 49 17 362 224 211 640 100 257 8,991 1,359 7,328 2,392 22,73 P = P = – – – – – – 1 – – – – – – – 5 9 38 P = Total Total 276 40 P = – – – – 6 – – 1 – – 8 – – – – – 5 2 9 P = 12 P = – – – – – – – – – 3 – – – – – (In Millions) 36 39 P = P = 120 Days >120 Days – not Impaired – – – – 8 – – – – – 1 – – – – – 9 2 2 P = P = Past Due but Due Past – – – – – – – – – 1 – – – – – 55 56 P = P = – – – – – – – – – – – – – – 6 25 P = 131 15 P = 1 6 6 3 2 14 73 25 49 17 324 224 211 640 100 257 8,991 1,359 7,328 2,11 Due nor Due 22,33 P = Impaired <30 Days 30–60 Days 61–90 Days 91 P = Neither Past Neither (a) (d) (b,d) (b) term deposits term - (c) Notes receivable Notes receivables Trade customers to Advances receivables interests Accrued affiliates other to Advances employees and officers to Advances receivable Dividends Others Excluding cash on hand. Includedunder “Other current assets” account in the consolidated statement of financial position. Excluding shares of stocks. shares Excluding under Included “Other noncurrent assets” account thein consolidated statement of financial position.
(a) (b)
As at December 31, 2012 the aging analysis of past due but not impaired financial assets follows: as is assets financial impaired not but past due of analysis aging the 2012 31, December at As equivalents cash and Cash Short cash Restricted Receivables deposits Cash parties related from Due AFS deposits Miscellaneous assets Derivative * * (c) (d)
146 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The Company also assesses each financial asset based on its credit quality.
The table below shows the credit quality per class of financial assets of the Company that are neither past due nor impaired.
2013 Standard Sub-standard High Grade Grade Grade Total (In Millions) Financial Assets at FVPL Derivative assets P=32 P=– P=– P=32 Loans and Receivables Cash and cash equivalents(a) 11,493 – – 11,493 Short-term deposits 3,627 – – 3,627 Restricted cash 1,827 – – 1,827 Receivables Notes receivable 589 264 – 853 Trade receivables 2,051 17 – 2,068 Advances to customers 441 – – 441 Accrued interests receivables 279 – – 279 Advances to officers and 80 – – 80 employees Dividends receivable 28 – – 28 Others 444 – – 444 Deposit for LTIP(c) 131 – – 131 Due from related parties 294 – – 294 Miscellaneous deposits(c) – 313 – 313 AFS financial assets (d) 3,517 – – 3,517 P=24,833 P=594 P=– P=25,427
2012 Standard Sub-standard High Grade Grade Grade Total (In Millions) Financial Assets at FVPL Derivative assets =P257 =P– =P– =P257 Loans and Receivables Cash and cash equivalents(a) 8,991 – – 8,991 Short-term deposits 14 – – 14 Restricted cash 1,359 – – 1,359 Receivables Notes receivable 7,064 264 – 7,328 Trade receivables 1,717 399 – 2,116 Advances to customers 496 – – 496 Accrued interests receivables 173 – – 173 (Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 147 Notes to Financial Statements
2012 Standard Sub-standard High Grade Grade Grade Total (In Millions) Advances to officers and employees =73P =–P =–P =73P Advances to other affiliates 1 – – 1 Dividends receivable 25 – – 25 Others 324 – – 324 Cash deposits(b) 224 – – 224 Due from related parties 211 – – 211 Miscellaneous deposits(c) 3 97 – 100 AFS financial assets (d) 640 – – 640 =P21,572 =P760 =P– =P22,332 (a)Excluding cash on hand. (b)Included under “Other current assets” account in the consolidated statement of financial position. (c) Included under “Other noncurrent assets” account in the consolidated statement of financial position. (d) Excluding shares of stocks.
Cash and cash equivalents and sinking fund are classified as high grade since these are placed with reputable local and international banks, which meet the standards set by the Company’s Board.
For the Company’s other financial assets, high-grade relate to those financial assets which are consistently collected before the maturity date. In addition, these are financial assets from counterparties that also have corresponding collectibles from the Company for certain contracted services. The first layer of security comes from the Company’s ability to offset amounts receivable from those counterparties against payments due to them. Standard grade include financial assets that are collected on their due dates even without an effort from the Company to follow them up. Sub-standard grade relates to financial assets that are collected on their due dates provided that the Company made a persistent effort to collect them.
Liquidity Risk MPIC Group. Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and facilities.
The Company monitors its cash position using a cash forecasting system. All expected collections, check disbursements and other cash payments are determined daily to arrive at the projected cash position to cover its obligations and to ensure that obligations are met as they fall due. The Company monitors its cash flow position, particularly the collections from receivables, receipts of dividends and the funding requirements of operations, to ensure an adequate balance of inflows and outflows. The Company also has online facilities with its depository banks wherein bank balances are monitored daily to determine the Company’s actual cash balances at any time.
The Company’s liquidity and funding management process include the following:
§ Managing the concentration and profile of debt maturities; § Maintaining debt financing plans; and § Monitoring liquidity ratios against internal and regulatory requirements.
Liquidity risk concentrations arise when a number of economic features would cause the Company’s ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. As at December 31, 2012, the Company has negative working capital as a result of the availment of P=4.7 billion note payable to finance its various investment activities (see Note 19). Management sees this circumstance as temporary partly due to timing difference of cash inflows and outflows. Such situation is warranted and properly planned and addressed by the Company through a capital raising exercise which took place in January 2013 (see Note 22). The Company has a total cash and cash equivalents and short-term deposits, amounting to
148 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 =15,263.3P million and =9,118.6P million as at December 31, 2013 and 2012, respectively, that are allocated to meet the Company’s short-term liquidity needs.
The table below summarizes the maturity profile of the Company’s financial assets and liabilities as at December 31, 2013 and 2012 based on undiscounted contractual payments.
2013 On Within More than Demand 1 Year 1–2 Years 2–3 Years 3–4 Years 4 Years Total (In Millions) Financial Assets Cash and cash equivalents(a) P=2,413 P=9,080 P= – P= – P= – P= – P= 1 1 , 4 9 3 Short-term deposits – 3,627 – – – – 3,627 Receivables 792 2,991 215 – 190 501 4,689 Due from related parties – 240 11 11 11 221 494 Beacon Electric preferred shares(b) –––––11,573 11,573 AFS financial assets (c) – 2,103 – 481 464 1,897 4,945 Cash and miscellaneous deposits(d) –––444 ––444 3,205 18,041 226 936 665 14,192 37,265 Financial Liabilities Note payable – – – – – – – Accrued expenses(e) – 2,189 – – – – 2,189 Accrued construction costs – 4,655 – – – – 4,655 Trade payables(e) 583 2,966 – – – – 3,549 Accounts payable 45 902 – – – – 947 Interest and other financing charges – 620 ––––620 Dividends payable – 425 – – – – 425 Retention payable – 218 – – – – 218 Other current liabilities(e) 25 177 – – – – 202 Due to related parties 93 – – – – – 93 Payable to CHI – 163 – – – – 163 Customers’ guaranty deposits(f) –––––784 784 Financial guarantee obligation(f) – 11 11 11 11 221 265 Concession fees payable 7 1,214 1,119 1,155 1,050 11,889 16,434 Long-term debts(g) 6 5,130 4,848 4,084 9,861 38,277 62,206 759 18,670 5,978 5,250 10,922 51,171 92,750 Liquidity gap P=2,446 (P=629) (P=5,752) (P=4,314) (P=10,257) (P=36,979) (P=55,485)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 149 Notes to Financial Statements
2012 On Within More than Demand 1 Year 1–2 Years 2–3 Years 3–4 Years 4 Years Total (In Millions) Financial Assets Cash and cash equivalents(a) =1,414P =7,577P =–P =–P =–P =–P =8,991P Short-term deposits – 14 – – – – 14 Receivables 1,156 8,864 232 215 – 861 11,328 Due from related parties – 157 11 11 11 232 422 Beacon Electric preferred shares(b) –––––11,573 11,573 AFS financial assets (c) – 146 33 348 220 935 1,682 Cash and miscellaneous deposits(d) – 324 ––––324 2,570 17,082 276 574 231 13,601 34,334 Financial Liabilities Note payable – 4,753 – – – – 4,753 Accrued expenses(e) – 2,594 – – – – 2,594 Accrued construction costs – 5,114 – – – – 5,114 Trade payables(e) 564 2,419 – – – – 2,983 Accounts payable 69 408 – – – – 477 Interest and other financing charges 238 499 ––––737 Dividends payable 24 279 – – – – 303 Retention payable – 67 – – – – 67 Other current liabilities(e) 35 29 – – – – 64 Due to related parties 97 – – – – – 97 Payable to CHI – 575 – – – – 575 Customers’ guaranty deposits(f) –––––711 711 Financial guarantee obligation(f) – 11 11 11 11 232 276 Concession fees payable – 1,186 1,202 1,066 1,100 12,318 16,872 Long-term debts(g) 70 4,336 5,539 6,093 6,528 30,057 52,623 1,097 22,270 6,752 7,170 7,639 43,318 88,246 Liquidity gap =1,473P (P=5,188) (P=6,476) (P=6,596) (P=7,408) (P=29,717) (P=53,912) (a) Excluding cash on hand. (b) Included in the “Investments and advances” account in the consolidated statement of financial position. (c) Excluding shares of stocks but including interest to be received on investments in bonds. (d)Included under “Other Current assets” and “Other Noncurrent assets” accounts in the consolidated statement of financial position. (e)Excluding statutory payables. (f)Included under “Deferred credits and other long-term liabilities” account in the consolidated statement of financial position. (g)Including contractual interest payments.
Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As at December 31, 2013 and 2012, the Company is subject to fair value and cash flow interest rate risks. Fixed rate financial instruments measured at fair value are subject to fair value interest rate risk while floating rate financial instruments are subject to cash flow interest rate risk.
The Company’s exposure to interest rate risk relates primarily to long-term debt obligations that bear floating interest rate. The Company generally mitigates risk of changes in market interest rates by constantly monitoring fluctuations of interest rates and maintaining a mix of fixed and floating interest-bearing loans. Specific interest rate risk policies are as follows:
150 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 MPIC. As at December 31, 2012, MPIC is not subject to cash flow interest rate risk as its borrowing bears fixed interest rate and it has no interest bearing financial instruments that are carried at fair value. However, in 2013, MPIC entered into a loan agreement to refinance its outstanding loan. The new loan bears a fixed rate for the first five years and is subject to an interest rate repricing on the fifth year. Should the interest rate on the repricing date be significantly higher than the current fixed rate, the Company has an option to prepay or refinance the loan starting on the fifth year at every interest payment date.
Tollway segment. The debt of the entities in this group are significantly fixed-rate loans, effectively locking in the interest rate in order to reduce exposure to interest rate fluctuations. To further reduce its cash flow interest rate risk exposure, MNTC also enters into a series of derivative transactions, in particular, cross currency interest rate swaps. With 100.0% of the financial instruments in local currency loans, around 21.0% of which is in floating interest rate, exposure is now limited to changes in six-month PDST-F.
Water segment. Maynilad’s exposure to interest rate risk relates primarily to its interest-bearing loans. Maynilad maintains a mix of floating and fixed rate loans, currently at a ratio of 47% floating and 53% fixed. The floating rate loans will increase to a higher portion over time as a greater portion of the fixed rate loans will mature earlier than the floating rate portion.
MPIC Group. The following tables set out the carrying amount, classified by maturity, of the Company’s interest-bearing financial assets and financial liabilities that are subject to interest rate risk. Interest on financial instruments classified as floating rate is repriced either semi-annually or quarterly on each interest payment date. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument with an exception for the certain borrowings which are subject to repricing as discussed above. The other financial instruments of the Company that are not included in the table below are non-interest bearing and are therefore not subject to interest rate risk.
US Dollar-Denominated Financial Assets and Financial Liabilities
December 31, 2013 Within More than Interest Rate On Demand 1 Year 2–3 Years 4–5 Years 5 Years Total (In Millions) Cash and cash equivalents $2 $– $– $– $– $2 Floating rate loans: MWMP Worldbank LoanFloating rate benchmark +1.25% spread – – – – 2 2 International Finance LIBOR+IPA (1%- Corporation- 2% of Subordinated EBITDA) – – – 1 - 1 $2 $– $– $1 $2 $3
December 31, 2012 Within More than Interest Rate On Demand 1 Year 2–3 Years 4–5 Years 5 Years Total (In Millions) Cash and cash equivalents 0.50%–1.75% $3 $– $– $– $– $3 Floating rate loans: Maynilad Omnibus LIBOR+CDS+2% Agreement spread (3.60% November 10, 2012 to May 11, 2013) – 2 16 20 83 121 International Finance LIBOR + IPA (1% Corporation- to 2% of Subordinated EBITDA) – – – 1 – 1 $– $2 $16 $21 $83 $122
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 151 Notes to Financial Statements
Peso-Denominated Financial Assets and Financial Liabilities
December 31, 2013 On Within More than Interest Rate Demand 1 Year 2–3 Years 4–5 Years 5 Years Total (In Millions) Cash and cash equivalents 0.05%-4.60% P=2,326 P=9,068 P= – P= – P= – P= 1 1 , 3 9 4 Notes receivable 10%-12% – 265 133 100 355 853 Investment in bonds and corporate notes 2.13%-6% ––350 394 778 1,522 P=2,326 P=9,333 P=483 P=494 P=1,133 P=13,769 Floating rate loans: PNB Loan PDST-F + 0.5% Margin P= – P= 8 9 2 P= 8 9 3 P= – P= – P=1,785 Peso-denominated Floating rate Bank Loan benchmark +4.00% (9.00%, June 3, 2009 to June 3, 2016) – 17 12 ––29 BDO Bank Loan 2% p.a +PDST- F rate ;prevailing market interest rates – 79 16 33 34 162 P=– P=988 P=921 P=33 P=34 P=1,976
December 31, 2012 On Within More than Interest Rate Demand 1 Year 2–3 Years 4–5 Years 5 Years Total (In Millions) Cash and cash equivalents 0.50%–4.64% P=1,268 P=7,577 P= - P= - P= - =8,845P Notes receivable 10.00%–12.00% - - 297 100 353 750 Investment in bonds 5.30%–9.00% - 53 320 214 53 640 =P1,268 =P7,630 =P617 =P314 =P406 =P10, 235 Floating rate loans: Maynilad Omnibus Floating rate Agreement benchmark +2% spread (5.19% July 10, 2012 to January 11, 2013) P= - =438P =876P =876P =2,629P =4,819P (Forward)
152 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Maynilad =P7 Billion Floating rate Notes Facility benchmark (6.50% September 30, 2011 to March 31, 2012) P= - P= - =280P =700P =6,020P =7,000P PNB Loan PHIREF + 0.50% Margin - 105 1,785 --1,890 BDO Bank Loan Floating Rate Note (25+PDST-F) - 53 63 12 9 137 P= - =596P =3,004P =1,588P =8,658P =13,846P
The following table demonstrates the sensitivity of income before income tax and other comprehensive income arising from changes in interest cash flows of floating rate loans and fair values of AFS financial assets, respectively, due to changes in Philippine Peso and US Dollar interest rates with all other variables held constant. The estimates in the movement of interest rates were based on the management’s annual financial forecast. There is no other impact on equity other than those already affecting the consolidated statement of income.
Increase/Decrease Effect on Income in Basis Points Before Income Tax (In Millions)
2013 +50 (10)
–50 10
2012 +50 (39) –50 39
There were no outstanding derivative transactions as at December 31, 2013 and 2012.
Foreign Currency Risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. As at December 31, 2013 and 2012, the Company’s foreign currency risk results primarily from movements of the Philippine Peso against US Dollar, Euro and Japanese Yen.
In general, the Company’s exposure to foreign currency risk is minimal as significantly all of the transactions are denominated in Philippine Peso. Exposure to foreign currency risk primarily results from the following foreign currency borrowings:
Tollways segment. The segment’s exposure to foreign exchange currency risk relates mainly to CIC’s dollar denominated Series 2010-1 Notes amounting to $19.5 million (P=854.4 million) as at December 31, 2013. The segment’s practice is to refinance outstanding U.S. dollar loans with peso loans to reduce the exposure to foreign currency risk. The segment also enters into derivative transactions which allow the segment to fully hedge its exposure on variability in cash flows due to foreign currency exchange fluctuations. The segment also aims to minimize economic and material transactional exposures arising from currency movements against the peso.
Water Segment. The servicing of foreign currency-denominated loans of MWSS is among the requirements of Maynilad’s Concession Agreement. Majority of the revenues are generated in Philippine Peso. However, there is a mechanism in place as part of the Concession Agreement wherein Maynilad (or the end consumers) can recover foreign currency fluctuations through the FCDA that is approved by the Regulatory Office.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 153 Notes to Financial Statements
Hospital Segment. Of the entities in the healthcare segment, AHI has foreign currency risk arising from its cash and cash equivalents, international insurance included under receivables and US dollar denominated loan exposure. AHI also has transactional currency exposures arising from purchases of medical equipment or supplies in currencies other than the Philippine Peso. AHI is unable to take on any derivative transaction to hedge these exposures since its loan covenants do not allow it. AHI relies on its ability to generate dollar-based revenue from its foreign patients to mitigate this risk.
MPIC Group. The Company’s foreign currency-denominated financial assets and liabilities as at December 31 are:
2013 2012 US Dollar Euro JPY US Dollar Euro JPY (In Millions) Assets: Cash and cash equivalents $2 €– ¥– $3 €– ¥– Receivables 1 – – 2 – – 3 – – 5 – – Liabilities: Service concession fees payable (92) (1) (1,472) (97) (1) (2,027) Long-term debts (22) – – (123) – – (114) (1) (1,472) (220) (1) (2,027) Net foreign currency- denominated liabilities ($111) (€1) (¥1,472) ($215) (€1) (¥2,027)
The following table demonstrates sensitivity of cash flows due to changes in foreign exchange rates with all variables held constant. The estimates in the movement of the foreign exchange rates were based on the management’s annual financial forecast.
Increase/Decrease Foreign Effect on Income in Foreign Exchange Rates Exchange Rate Before Income Tax (In Millions) 2013 US Dollar +5% 44.40 (P=246) Euro +5% 60.82 (3) JPY +5% 0.42 (31) US Dollar -5% 44.40 246 Euro -5% 60.82 3 JPY -5% 0.42 31 2012 US Dollar +5% 41.05 (441) Euro +5% 54.53 (3) JPY +5% 0.48 (49) US Dollar -5% 41.05 441 Euro -5% 54.53 3 JPY -5% 0.48 49
Capital Management Capital includes preferred shares and equity attributable to the equity holders of the Parent Company. The primary objective of the Company’s capital management policies is to ensure that the Company maintains a strong statement of financial position and healthy capital ratios in order to support its business and maximize shareholder value. The Company ensures that it is compliant with all debt covenants not only at the consolidated level but also at the level of Parent Company and each of its subsidiaries.
In general, the Company closely monitors its debt covenants and maintains a capital expenditure program and dividend declaration policy that keeps the compliance of these covenants into consideration.
154 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 The following debt covenants are being complied with by the Company as part of maintaining a strong credit rating with its creditors:
MPIC. MPIC’s loan agreement provides that MPIC shall ensure during the term of the loan that its debt-to-equity ratio does not exceed 70:30, and its debt service coverage ratio (DSCR) is at a minimum of 1.3x. To be able to declare dividends, MPIC shall achieve a DSCR of 1.5x. As at December 31, 2013 and 2012, MPIC is in compliance with the required financial ratios and other loan covenants.
Tollways Segment. Under the loan agreements, MNTC is required a Maintenance Debt Service Coverage Ratio (DSCR) of not less than 1.15 times and maintain a debt-to-equity ratio not exceeding 3.0 times for the first three years after the date of the loan agreement and not exceeding 2.5 times after such period. The loan agreements provide that MNTC may incur new loans or declare dividends as long as the Pro-forma DSCR for the relevant year is not less than 1.30 times.
MNTC also ensures that its debt to equity ratio is in line with the requirements of the BOI. BOI requires the Company to comply with a 75:25 debt to equity ratio as proof of capital build-up. MNTC is in compliance with the required financial ratios and other loan covenants.
In relation to CIC’s loan agreement relating to the Series 2010-1 Dollar-denominated Notes, CIC shall not pay any dividends or make any other distribution in respect of its share capital following these events: (1) early amortization, cash trapping and repurchase events as indicated in the terms of the Notes; (2) failure to fully fund the transaction account; (3) while the construction of CAVITEX is not yet complete; (4) while the Notes are outstanding. CIC has not paid any dividends in 2013. Other than restrictions as to dividend distribution, CIC is not subject to other externally imposed capital requirements.
Under the RCBC/BDO loan, CIC is required to maintain a DSCR of at least 1.05 times at all times until full payment of the long-term debt and at least 1.20 times for declaration of dividends and other distributions. CIC shall also maintain a maximum debt to equity ratio of 3.0 times at all times until full payment of the long-term debt. CIC is in compliance with the required financial ratios and other loan covenants.
Water Segment. Maynilad closely manages its capital structure vis-a-vis a certain target gearing ratio, which is net debt divided by total capital plus net debt. Maynilad’s target gearing ratio is 75%. This target is to be maintained over the next five years by managing the level of borrowings and dividend payments to shareholders.
For purposes of computing its net debt, Maynilad includes the outstanding balance of its long-term interest-bearing loans, service concession obligation payable to MWSS and trade and other payables, less the outstanding cash and cash equivalents, short-term investments, deposits and sinking fund. To compute its capital, Maynilad uses net equity. Maynilad closely monitors its debt covenants and maintains a capital expenditure program and dividend declaration policy that keeps the compliance of these covenants into consideration. In 2013, Maynilad is in compliance with the required financial ratios and other loan covenants.
MPIC Group. The Company manages its capital structure and adjust to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may obtain additional advances from shareholders, return capital to shareholders, issue new shares or issue new debt or redemption of existing debt. No changes were made in the objectives, policies or processes during the years ended December 31, 2013 and 2012. The Company monitors capital on the basis of debt-to-equity ratio. Debt-to-equity ratio is calculated as long-term debts over equity. The Company’s goal is to maintain a sustainable debt-to-equity ratio.
The debt-to-equity ratio as at December 31, 2013 and 2012 are:
2013 2012* (In Millions) Long-term debts P=51,048 =38,915P Equity 113,280 94,390 Debt-to-equity ratio 45% 41% *Restated for adoption of PAS19R.
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 155 Notes to Financial Statements
36. Financial Instruments – Categories and Derivatives
Categories of Financial Instruments The categories of the Company’s fnancial assets and fnancial liabilities as at December 31, 2013 and 2012 are:
2013 Financial Financial Assets Liabilities AFS Other Loans and Financial Financial FVPL Receivables Assets Liabilities Total (In Millions) ASSETS Cash and cash equivalents P=– P=11,493 P=– P=– P=11,493 Short-term deposits – 3,627 – – 3,627 Restricted cash – 1,827 – – 1,827 Receivables - net – 4,342 – – 4,342 Due from related parties – 294 – – 294 Derivative assets 32 – – – 32 AFS fnancial assets: – – – – – Investment in bonds – – 1,522 – 1,522 Investment in UITF – – 1,995 – 1,995 Investment in equity – – 1,295 – 1,295 Other current assets – – – – – Equity method investees (a) – 756 11,573 – 12,329 Other noncurrent assets – 163 – – 163 P=32 P=22,502 P=16,385 P=– P=38,919
LIABILITIES Accounts payable and other current liabilities (b) P –= P –= –=P P=13,066 P=13,066 Due to related parties – – – 93 93 Service concession fees payable – – – 8,512 8,512 Long-term debt – – – 51,048 51,048 Payable to CHI – – – – – Deferred credits and other long-term liabilities – – – 1,321 1,321 P=– P=– P=– P=74,040 P=74,040 (a) Includes advances to Beacon Electric and investment in preferred shares of Beacon Electric classifed as AFS fnancial assets. (b)Excludes statutory payables
2012 Financial Financial Assets Liabilities AFS Other Loans and Financial Financial FVPL Receivables Assets LiabilitiesTotal (In Millions) ASSETS Cash and cash equivalents (a) =P– =P8,991 =P– =P– =P8,991 Short-term deposits – 14 – – 14 Restricted cash – 1,359 – – 1,359 (Forward)
156 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Receivables - net =P– =P10,940 =P– =P– =P10,940 Due from related parties – 211 – – 211 Derivative assets 257 – – – 257 AFS financial assets: Investment in bonds and treasury notes – – 640 – 640 Investment in equity (shares of stock) – – 872 – 872 Other current assets - deposits – 224 – – 224 Investments and advances (b) – 756 11,573 – 12,329 Other noncurrent assets (c) – 32 – – 32 =257P =22,527P =13,085P =–P =35,869P
LIABILITIES Accounts payable and other current liabilities (d) =–P =–P =–P =13,402P =13,402P Due to related parties – – – 97 97 Service concession fees payable – – – 8,714 8,714 Long-term debt – – – 38,915 38,915 Note payable – – – 4,700 4,700 Payable to CHI – – – 575 575 Deferred credits and other long-term liabilities – – – 826 826 =–P =–P =–P =67,229P =67,229P (a) Excludes cash on hand. (b) Only included the advances to and investment in preferred shares of Beacon Electric. (c) Only included the accounts “Deposits” and “Long-term cash and miscellaneous deposits” (d)Excludes statutory payables
Derivative Financial Instruments Below is the table showing the fair values of the Company’s outstanding embedded and freestanding derivative financial instruments as at December 31, 2013 and 2012. These derivative financial instruments are accounted by the Company as derivatives not designated as accounting hedges. The Company has no freestanding derivatives and no derivatives accounted for as cash flow hedges as at December 31, 2013 and 2012.
2013 2012
Derivative Assets Derivative Assets (In Millions) Embedded derivatives Embedded conversion option P=32 =32P Options arising from the Note – 225 Total derivatives P=32 =257P
Presented as: Current P=– =225P Noncurrent 32 32 Total derivatives P=32 =257P
Embedded conversion option. As discussed in Note 8, the Company bifurcated the embedded conversion option in its investment in Landco’s preferred shares. The conversion option gives the Company the right to convert the preferred shares into common shares of Landco at a conversion price of =156.27,P subject to the occurrence of certain contingent events.
At initial recognition, the Company assigned a value amounting to =31.7P million to the conversion option. This amount is the residual
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 157 Notes to Financial Statements
At initial recognition, the Company assigned a value amounting to =31.7P million to the conversion option. This amount is the residual after deducting from the value of the hybrid instrument the fair value of the host instrument (preferred shares without any embedded derivative) calculated as the present value of all future cash flows from the preferred shares discounted using credit adjusted interest rates ranging from 8.5% to 11.8%.
The embedded conversion option is carried at cost in the consolidated statement of financial position since the underlying common shares of Landco are unquoted and there is no reliable basis to determine subsequent fair value.
Options arising from the Note. As discussed in Note 8, receivables include the Note issued by CHI. The Convertible Note contains multiple embedded derivatives which compose of long equity call option and short put option which were accounted for as compound derivatives. Such compound derivatives were bifurcated by MPTC from the Note (host instrument) on the acquisition date. The long equity call option pertains to the right of MPTC to convert the Note to CHI preferred shares, exercisable on June 27, 2013 (maturity of the Convertible Note) at the conversion price of P=100 per convertible note unit. The short put option pertains to the right of CHI (issuer) to prepay the Convertible Note prior to maturity date, at the conversion price of P=100 per convertible note unit, through the issuance of the CHI preferred shares subject to the fulfillment of the conditions for conversion as provided in the Convertible Note Agreement. Subject to applicable regulatory approvals and the terms and conditions of the Convertible Note Agreement, the CHI preferred shares are, under certain circumstances, also convertible into CHI or CIC common shares. The positive fair value of the options at inception amounted to =221.7P million.
The Convertible Note was converted into CHI Preferred Shares on June 25, 2013. As this is part of the consideration transferred on the acquisition of CIC on January 2, 2013, the investment in CHI Preferred Shares, including the derivative asset arising from the option, was eliminated upon consolidation of CIC (see Note 4).
Cummulative Translation Adjustment on Cash Flow Hedges. On March 11, 2011, MNTC entered into a pay-fixed, receive-floating interest rate swap contract to hedge the variability of cash flows pertaining to the floating rate PNB Term Loan effective March 14, 2011. The swap was designated under cash flow hedge accounting at inception. However, this swap was pre-terminated on December 28, 2012 while the hedged PNB Term Loan is still outstanding. As a result, amount deferred in equity are to be transferred to profit or loss once the hedged cash flows are recognized in profit or loss. As at December 31, 2013 and 2012, there are no derivatives accounted for as cash flow hedges.
Movements of the Company’s cumulative translation adjustments on cash flow hedge for the years ended December 31, 2013 and 2012 are provided in Notes 22 and 28. In 2012, P=10.5 million is included in “Interest expense” account. In 2011, P=25.5 million and =3.5P million are included in “Interest expense” and “Other expenses” accounts, respectively.
Fair Value Changes on Derivatives. The net changes in the fair values of all derivative instruments for the years ended December 31, 2013 and 2012 are:
2013 2012 (In Millions) Balance at beginning of year P=257 (P=98) Consolidation adjustment (see Note 4) (225) – Embedded derivative bifurcated during the year – 222 Net changes in fair values of derivatives not designated as accounting hedges(a) – (42) 32 82 Fair value of settled instruments – 175 Balance at end of year P=32 =257P (a) In 2012, =44.8P million and =3.2P million are included under “Others” account under Other expenses of the consolidated statement of comprehensive income.
158 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 37. Fair Value Measurement
The fair value of the assets and liabilities is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. The following tables summarize the carrying amounts and fair values of the assets and liabilities, analyzed among those whose fair value is based on:
· Level 1 - Quoted market prices in active markets for identical assets or liabilities · Level 2 - Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and · Level 3 - Those with inputs for the asset or liability that are not based on observable market data (unobservable input)
As discussed in Notes 10 and 36, the unlisted shares of stock (except for NEPSCC shares) and the embedded conversion option are carried at cost in the consolidated statement of financial position since there are no reliable bases to determine subsequent fair value.
2013 Carrying Total Fair Value Level 1 Level 2 Level 3 Value (In Millions) Assets measured at fair value AFS Financial Assets (see Note 10) Shares of stock P=474 P=15 P=459 P=– P=474 Unit Investment Trust Fund 1,995 – 1,995 – 1,995 Investment in bonds and treasury notes 1,552 1,552 – – 1,552 Investment in PMHI (see Note 11) 70 427 – – 427 P=4,091 P=1,994 P=2,454 P=– P=4,448
Assets for which fair values are disclosed Loans and Receivables Notes receivables (see Note 8) P=853 P=– P=– P=1,167 P=1,167 Due from related parties 294 – – 294 294 Miscellaneous deposits 155 – (see Note 15) – 109 109 P=1,302 P=– P=– P=1,570 P=1,570
Liabilities for which fair values are disclosed Other financial liabilities Refundable deposits P=8 P=– P=– P=1 P=1 Service concession fees payable (current and noncurrent) 8,512 – – 16,296 16,296 Long-term debts (current and noncurrent) 51,048 – – 56,987 56,987 Customer guaranty deposit 783 – – 607 607 Financial guarantee obligation 65 – – 150 150 P=60,416 P=– P=– P=74,041 P=74,041
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 159 Notes to Financial Statements
2012 Carrying Value Level 1 Level 2 Level 3 Total Fair Value (In Millions) Assets measured at fair value Financial Assets at FVPL Derivative assets - Option arising from the Note =225P =–P =–P =225P =225P AFS Financial Assets (see Note 10) Listed shares of stock 24 24 – – 24 Investment in bonds and treasury – – notes 640 640 640 =P889 =P664 =P– =P225 =P889
Assets for which fair values are disclosed Loans and Receivables Notes receivables (see Note 8) =P7,328 =P– =P– =P7,735 =P7,735 Due from related parties 211 – – 211 211 Miscellaneous deposits 92 – – 92 92 (see Note 15) =P7,631 =P– =P– =P8,038 =P8,038
Liabilities for which fair values are disclosed Refundable deposits =P7 =P– =P– =P1 =P1 Service concession fees payable 8,714 – – 16,094 16,094 (current and noncurrent) Long-term debts (current and 38,915 – – 40,402 40,402 noncurrent) Customer guaranty deposit 711 – – 574 574 Financial guarantee obligation 65 – – 151 151 =P48,412 =P– =P– =P57,222 =P57,222
During the year ended December 31, 2013 and 2012, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurement.
The following methods and assumptions were used to measure the fair value of each class of assets and liabilites for which it is practicable to estimate such value:
Levels 1 and 2 Fair Value Hierarchy Cash and Cash Equivalents. Due to the short-term nature of transactions, the fair value of cash and cash equivalents approximate the carrying amounts at the end of the reporting period.
Restricted Cash, Cash Deposits, and Accounts Payable and Other Current Liabilities. Carrying values approximate the fair values at the reporting date due to the short-term nature of the transactions.
Investments in UITF. A UITF uses the mark-to-market method in valuing the fund’s securities. It is a valuation method which calculates the Net Asset Value (NAV) based on the estimated fair market value of the assets of the fund based on prices supplied by independent sources. Due from Related Parties. In 2013 and 2012, fair value of due from related parties approximates their carrying amounts as these are already to be settled within a year from the consolidated statement of financial position date. Refundable Occupancy Deposits The fair value of the refundable occupancy deposits is determined by discounting the deposit using the prevailing market rate of interest. The effective annual rate used in 2013 and 2012 is 7.01% and 5.48%, respectively. Service Concession Fees Payable and Customers’ Guaranty Deposits. Estimated fair value is based on the discounted value of future cash flows using the applicable rates for similar types of financial instruments.
160 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 Financial Guarantee Obligation. Estimated fair value is based on the discounted value of future cash flows using the prevailing peso interest rates that are specific to the tenor of the instruments cash flows ranging from 1.0% to 6.0% in 2013 and 0.7% to 6.4% in 2012. Notes Receivable, Miscellaneous Deposits and Other Financial Assets. Estimated fair value is based on the present value of future cash flows discounted using the prevailing PDST-F rates that are specific to the tenor of the instruments’ cash flows at the end of each reporting period with credit spread adjustment. Long-term Debt. For both fixed rate and floating rate (repriceable every six months) US dollar-denominated debts and Philippine Peso-denominated fixed rate corporate notes, estimated fair value is based on the discounted value of future cash flows using the prevailing credit adjusted US risk-free rates and Philippine risk free rates that are adjusted for credit spread ranging from 1.2% to 6.1% and 1.9% to 8.2% in 2013 and 2012, respectively.
Level 3 Fair Value Hierarchy The financial instrument classified under Level 3 pertains to the derivative asset arising from the options embedded in the Note acquired by MPTC from CHI. The derivative asset was valued using standard option pricing models (i.e., closed-form and binomial approach). These valuation techniques require stock prices of CHI and CIC, and also stock price volatilities which are not directly available from the market, and for which non-market-observable proxies were used. Among these inputs to the fair value calculation of the options only stock price volatility was assessed to have significant impact on the options fair value. Significant increases (decreases) in the stock price volatility would result in a significantly higher (lower) fair value measurement. The movements in the fair value of the derivative asset for the year ended December 31, 2012 are summarized below (in millions):
Derivative asset at inception =P222 Net change in fair value 3 Derivative asset at end of year =P225
The net change in fair value for 2012 was recognized under “Other income” in the 2012 consolidated statement of comprehensive income. Below is an analysis of the impact of stock price volatility to the Company’s income before income tax in relation to the fair value change of the derivative asset (in millions):
Effect on Income Increase/Decrease in Volatility Before Income Tax 2012 +10% =P11 -10% (3)
38. Supplemental Cash Flow Information
The following table shows the Company’s non-cash investing and financing activities and corresponding transaction amounts for the years ended December 31, 2013, 2012 and 2011:
2013 2012 2011 (In Millions) Non-cash investing and financing activities: Acquisition of CIC through subscription of convertible notes (see Note 4) P=6,772 =–P =–P Additions to service concession assets and concession fees payable pertains to drawn portion of MWSS loans (see Notes 13 and 18) 1,143 1,075 1,034 Unpaid consideration related to the acquisition of PHI (see Note 4) 122 317 – (Forward)
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 161 Notes to Financial Statements
Conversion of advances from MPHI to equity (see Note 22) P= – =–P =6,729P Acquisition of interest in BIPI and NSHI through recognition of contractual liability and payable to non-controlling interest (see Note 22) – – 1,299 Additions to service concession assets as a result of MNTC’s input VAT reclassification (see Note 27) – – 228
In 2013, the Company revisited its cash flows presentation with the intention to reassess certain items considered as operating activities if they remain as such and to improve the overall presentation. The following were undertaken for the 2012 and 2011 consolidated statements of cash flows as results:
i. Adjustments to income before tax that were previously presented as separate line item and now presented in aggregate under “Refinancing cost and others” in consideration of the minimum requirements and of materiality:
2012 2011 (In Millions) Refinancing cost (see Note 27) =P331 =P– LTIP expense (see Note 25) 165 148 Mark-to-market loss on derivatives (see Note 27) 41 95 Unearned toll and tuition fees realized (33) (60) Provision for ESOP (see Note 31) 12 38 Loss (gain) on remeasurements of previously held interest 10 (71) Gain on sale of property and equipment – net (4) (36) Gain on debt settlement – (31) Loss on conveyance of assets – 11 =P522 =P94
ii. Adjustments to income before tax that were previously presented as separate line and now included as part of working capital changes:
2012 2011 (In Millions) Reversal of provision for decline in value of assets (=P278) (=P2) Provision for heavy maintenance (see Note 23) 107 109 Reversal of provisions (73) (27) Provision for decline in value of assets 40 133 Reversal of accruals (25) – (=P229) =P213
iii. Movement in short-term deposits now presented as investing activities as the related activities have become investments in nature.
39. Events after the Reporting Period
Term Loan Facility Agreement with BDO On January 9, 2014, MPTDC entered into Term Loan Facility Agreement with BDO for up to =3,250.0P million loan due 2024 for the purpose of financing its acquisition of approximately 8.5% of the total issued and outstanding capital stock of MNTC from EGIS Projects SA (Egis) and for other corporate purposes. On January 10, 2014, MPTDC availed of =1,000.0P million out of the available facility. MPTDC shall pay the availed amount semi-annually within 10 years based on the amortization schedule indicated in the Term Loan Facility Agreement. The loan is subject to interest rate of the higher of (i) 5-year PDST-F rate on the drawdown date plus a margin of 1.75% per annum; and (ii) 5.5% per annum, which will be repriced after 5 years from drawdown date. On the repricing date, an interest
162 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 rate review shall be undertaken and the applicable interest rate shall be adjusted to a rate equal to the higher of (i) 5.5% per annum; and (ii) 5-year PDST-F rate on the repricing date plus a margin of 1.75% per annum. The interest shall be payable semi-annually.
Acquisition of additional MNTC shares On January 10, 2014, MPTDC acquired 692,640 MNTC shares representing 3.9% of its total outstanding shares held by Egis for =1.5P billion. After the acquisition, MPTDC’s interest in MNTC increased from 67.1% to 71%.
Issuance of Fixed-rate Bonds of up to =P7,000.0 million due 2021 and 2024 On February 7, 2014, MNTC filed a registration statement with the SEC for the offering of fixed rate bonds with aggregate principal amount of up to =7,000.0P million comprised of 7-year fixed rate bonds due in 2021 and 10-year fixed rate bonds due in 2024.
Upon issuance, the bonds shall constitute direct, unconditional, unsubordinated, and unsecured obligations of MNTC. The bonds will be offered to the public at face value through the Joint Issue Managers and will be listed in the Philippine Dealing & Exchange Corporation.
The proceeds from the offer shall be used primarily by MNTC to partially fund the 5.65 km Segment 10 of the Manila-North Expressway Project which will connect the MacArthur Highway in Valenzuela City, to C-3 Road in Caloocan City.
The SEC approved the registration statement on March 18, 2014.
Change in Corporate Name of DMWC Effective February 17, 2014, DMWC changed its corporate name to Maynilad Water Holding Company, Inc.
Sale of AFS investment MPIC sold all of its shares in NEPSCC, representing 36.89% of the issued and outstanding capital stock of NEPSCC, to Cosco Capital Inc. on February 28, 2014.
40. Future Changes in Accounting Policies
The Company has not applied the following PFRS, Philippine Interpretations and amendments to existing standards which are not yet effective as at December 31, 2013. Except for additional disclosure requirements, adoption of the following standards are not expected to have any material impact on the Company’s financial position or performance:
§ Amendments to PFRS 10, PFRS 12 and PAS 27 - Investment Entities —These amendments are effective for annual periods beginning on or after January 1, 2014. They provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to the Company.
§ Philippine Interpretation IFRIC 21, Levies (IFRIC 21) —IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after January 1, 2014.
§ PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Accounting (Amendments) —These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after January 1, 2014. The Company has not novated its derivatives during the current period. However, these amendments would be considered for future novations.
§ PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments) — The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments affect presentation only and have no impact on the Company’s
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 163 Notes to Financial Statements
financial position or performance. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014.
§ PAS 19, Employee Benefits – Defined Benefit Plans: Employee Contributions (Amendments) — The amendments apply to contributions from employees or third parties to defined benefit plans. Contributions that are set out in the formal terms of the plan shall be accounted for as reductions to current service costs if they are linked to service or as part of the remeasurements of the net defined benefit asset or liability if they are not linked to service. Contributions that are discretionary shall be accounted for as reductions of current service cost upon payment of these contributions to the plans. The amendments to PAS 19 are to be retrospectively applied for annual periods beginning on or after July 1, 2014.
Annual Improvements to PFRSs (2010-2012 cycle). The Annual Improvements to PFRSs (2010-2012 cycle) contain non-urgent but necessary amendments to the following standards:
§ PFRS 2, Share-based Payment – Definition of Vesting Condition — The amendment revised the definitions of vesting condition and market condition and added the definitions of performance condition and service condition to clarify various issues. This amendment shall be prospectively applied to share-based payment transactions for which the grant date is on or after July 1, 2014.
§ PFRS 3, Business Combinations – Accounting for Contingent Consideration in a Business Combination — The amendment clarifies that a contingent consideration that meets the definition of a financial instrument should be classified as a financial liability or as equity in accordance with PAS 32. Contingent consideration that is not classified as equity is subsequently measured at fair value through profit or loss whether or not it falls within the scope of PAS 39. The amendment shall be prospectively applied to business combinations for which the acquisition date is on or after July 1, 2014. The Company shall consider this amendment for future business combinations.
§ PFRS 8, Operating Segments – Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Assets — The amendments require entities to disclose the judgment made by management in aggregating two or more operating segments. This disclosure should include a brief description of the operating segments that have been aggregated in this way and the economic indicators that have been assessed in determining that the aggregated operating segments share similar economic characteristics. The amendments also clarify that an entity shall provide reconciliations of the total of the reportable segments’ assets to the entity’s assets if such amounts are regularly provided to the chief operating decision maker. These amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The amendments will affect disclosures only.
§ PFRS 13, Fair Value Measurement – Short-term Receivables and Payables — The amendment clarifies that short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial.
§ PAS 16, Property, Plant and Equipment – Revaluation Method – Proportionate Restatement of Accumulated Depreciation — The amendment clarifies that, upon revaluation of an item of property, plant and equipment, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses.
b. The accumulated depreciation is eliminated against the gross carrying amount of the asset.
The amendment is effective for annual periods beginning on or after July 1, 2014. The amendment shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period.
§ PAS 24, Related Party Disclosures – Key Management Personnel — The amendments clarify that an entity is a related party of the reporting entity if the said entity, or any member of a group for which it is a part of, provides key management personnel services to the reporting entity or to the parent company of the reporting entity. The amendments also clarify that a reporting entity that obtains management personnel services from another entity (also referred to as management entity) is not required to disclose
164 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 the compensation paid or payable by the management entity to its employees or directors. The reporting entity is required to disclose the amounts incurred for the key management personnel services provided by a separate management entity. The amendments are effective for annual periods beginning on or after July 1, 2014 and are applied retrospectively. The amendments affect disclosures only.
§ PAS 38, Intangible Assets – Revaluation Method – Proportionate Restatement of Accumulated Amortization — The amendments clarify that, upon revaluation of an intangible asset, the carrying amount of the asset shall be adjusted to the revalued amount, and the asset shall be treated in one of the following ways:
a. The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. The accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account any accumulated impairment losses.
b. The accumulated amortization is eliminated against the gross carrying amount of the asset.
The amendments also clarify that the amount of the adjustment of the accumulated amortization should form part of the increase or decrease in the carrying amount accounted for in accordance with the standard.
The amendments are effective for annual periods beginning on or after July 1, 2014. The amendments shall apply to all revaluations recognized in annual periods beginning on or after the date of initial application of this amendment and in the immediately preceding annual period.
Annual Improvements to PFRSs (2011-2013 cycle). The Annual Improvements to PFRSs (2011-2013 cycle) contain non-urgent but necessary amendments to the following standards:
§ PFRS 1, First-time Adoption of Philippine Financial Reporting Standards – Meaning of Effective PFRSs — The amendment clarifies that an entity may choose to apply either a current standard or a new standard that is not yet mandatory, but that permits early application, provided either standard is applied consistently throughout the periods presented in the entity’s first PFRS financial statements. This amendment is not applicable to the Company as it is not a first-time adopter of PFRS.
§ PFRS 3, Business Combinations – Scope Exceptions for Joint Arrangements — The amendment clarifies that PFRS 3 does not apply to the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. The amendment is effective for annual periods beginning on or after July 1 2014 and is applied prospectively.
§ PFRS 13, Fair Value Measurement – Portfolio Exception — The amendment clarifies that the portfolio exception in PFRS 13 can be applied to financial assets, financial liabilities and other contracts. The amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively.
§ PAS 40, Investment Property — The amendment clarifies the interrelationship between PFRS 3 and PAS 40 when classifying property as investment property or owner-occupied property. The amendment stated that judgment is needed when determining whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of PFRS 3. This judgment is based on the guidance of PFRS 3. This amendment is effective for annual periods beginning on or after July 1, 2014 and is applied prospectively.
§ PFRS 9, Financial Instruments — PFRS 9, as issued, reflects the first and third phases of the project to replace PAS 39 and applies to the classification and measurement of financial assets and liabilities and hedge accounting, respectively. Work on the second phase, which relate to impairment of financial instruments, and the limited amendments to the classification and measurement model are still ongoing, with a view to replace PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through OCI or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For liabilities designated as at FVPL using the fair value option, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the
METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013 165 Notes to Financial Statements
change in fair value is presented in profit or loss, unless presentation of the fair value change relating to the entity’s own credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward to PFRS 9, including the embedded derivative bifurcation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but will potentially have no impact on the classification and measurement of financial liabilities.
On hedge accounting, PFRS 9 replaces the rules-based hedge accounting model of PAS 39 with a more principles-based approach. Changes include replacing the rules-based hedge effectiveness test with an objectives-based test that focuses on the economic relationship between the hedged item and the hedging instrument, and the effect of credit risk on that economic relationship; allowing risk components to be designated as the hedged item, not only for financial items, but also for non- financial items, provided that the risk component is separately identifiable and reliably measurable; and allowing the time value of an option, the forward element of a forward contract and any foreign currency basis spread to be excluded from the designation of a financial instrument as the hedging instrument and accounted for as costs of hedging. PFRS 9 also requires more extensive disclosures for hedge accounting.
PFRS 9 currently has no mandatory effective date. PFRS 9 may be applied before the completion of the limited amendments to the classification and measurement model and impairment methodology. The Company will not adopt the standard before the completion of the limited amendments and the second phase of the project.
§ Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate — This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed.
166 METRO PACIFIC INVESTMENTS CORPORATION ANNUAL REPORT 2013
10th Floor, Makati General Office Building, Legazpi corner Dela Rosa Street, Legaspi Village, 0721 Makati City, Philippines www.mpic.com.ph