Manila Electric Company

(Meralco)

Brief Company Background

Meralco celebrates 118 years of service in 2021.  The Company is the largest private
sector electric distribution utility company in the Philippines covering 36 cities and 75
municipalities.  Its franchise area of over 9,685 km2  includes the country’s industrial,
commercial, and population centers.  Meralco ended 2019 with a market capitalization of
PhP357.3 billion.

Preliminary Corporate Analysis Algorithm

What products and markets do this organization supply/serve? What are its business units?
Meralco’s products and services are providing power and other services. Under power,
their services are divided into 3 parts: Electric Distribution, Power Generation and Retail Electric
Supply. Under the Electric Distribution are the MERALCO and Clark Electric Distribution
Corporation (CEDC). Under the Power generation is the Meralco Powergen Corporation
(MGEN) and Subsidiaries. Lastly, under the Retail Electric Supply is the MERALCO through
MPOWER business unit. The other services that MERALCO is providing their customers are
Meralco Industrial Engineering Services Corporation (MIESCOR), Meralco Financial Services
Corporation (FINSERVE), Lighthouse Overseas Insurance Limited (LOIL), Republic Surety
Insurance Company, Inc. (RSIC), Corporate Information Solutions, Inc. (CIS), e-Meralco
Ventures, Inc. (EMVI) and Subsidiary, Meralco Energy, Inc. (MEI), and MIESCOR Rail.

What is the formal structure of this organization?

The Meralco Group Structure is in charge of a number of corporations such as the Clark
Electric Distribution Corporation (CEDC), Meralco Powergen Corporation (MPC), Lighthouse
Overseas Insurance Limited (LOIL) and Corporation Information Solutions, Inc. (CIS).

What is the financial performance of each business? What is the contribution of each business to
the overall financial performance of the whole?
Meralco 2020 Annual Report
Power On shows Meralco’s commitment to service excellence – bringing light and
uninterrupted power to homes, businesses and COVID-19 vital facilities while streamlining its
operations and executing a digital transformation to elevate customer experience as the Company
navigates towards the new normal.
MANILA Electric Co. (Meralco) posted a core net income of P11.4 billion in the first
half, up by 8% year on year, on the back of higher revenues from its joint venture project San
Buenaventura Power Ltd.

Who are the major stakeholders in the organization? What are the issues that are important to
these stakeholders?
The following are the Company’s key players in ensuring the application of good governance
practices and policies within Meralco:
A. Shareholders
B. Employees
C. Subsidaries
D. Community
E. Other Stake Holders

A. Shareholders
Meralco recognizes its responsibility to protect its shareholders’ rights by creating value
and ensuring sustainable growth in business.
B. Employees
Meralco is committed to the development and welfare of its employees. As the Company
sustains its efforts in building a high-performance culture to fully respond to the requirements of
the new business environment, employees are continuously trained and developed to enable them
to achieve excellent performance founded on our corporate values. Career development
programs are implemented to ensure professional growth through skills and job enrichment
opportunities, learning and development programs, performance management and promotions
systems. Employees are compensated based on performance and over-all qualifications and
market competitiveness. Adequate provisions for medical, health and other essential benefits;
and workplace safety are provided to promote employee welfare and well-being. Uprightness
and impartiality are observed in conflict resolution. HR Programs for our employees are
continuously reviewed and enhanced to ensure their over-all effectiveness and responsiveness.
C. Subsidiaries
As one of Meralco’s five strategic business pillars, the subsidiaries contribute
significantly in boosting shareholder value. The Subsidiary Management Policy continues to
serve as the guidebook in creating and managing subsidiaries based on the criteria and principles
embodied in the Revised Manual of Corporate Governance, Code of Ethics, and existing laws,
rules and regulations.
 D. Community (Corporate Social Responsibility)
Meralco continues to live up to its commitment as a partner in building energized and
strong communities through various corporate social responsibility programs under the
stewardship of One Meralco Foundation, Inc. (OMF).
E. Other Stakeholders
Meralco seriously considers the impact of business decisions on the interests of its
shareholders and other stakeholders. The Declaration of Corporate Principle of the Company’s
Revised Manual of Corporate Governance specifically mentions: “The Company…uphold(s) an
ethical culture that will protect and promote the best interest of the Company for the common
benefit of the Company’s stockholders and other stakeholders.” The Company also protects and
maintains good relations with its suppliers and creditors based on mutual respect and benefit.
The Company strives to foster long-term stability, direct and open relations, and continuous
development with suppliers to ensure quality, competitiveness, process efficiency and
performance reliability; foster governance principles in all of its business dealings with them;
and seek, encourage and prefer suppliers whose business practices respect human dignity and the
environment.

Individual Business Analysis Algorithm (select only one [1] core business unit)
Who are the consumers of the unit's goods and services?

Why do its customers choose this business unit's products? What need is being met? What are
the key success factors in this market?

What are the trends in key performance indicators (KPIs) for this business?

What resources (assets and competencies) within and around the organization allow the
organization to provide products that customers will buy? To what extent can the business
performance be explained by an understanding of an organization's resources?

What are the characteristics of the markets that this business serves? What are the factors that
exist outside the business unit that impact its ability to provide goods and services? Can this
analysis explain trends in performance indicators?
What is the dominant logic that guides this business's decision-making and contributes to the
way strategy develops?

Do the business's key players have a coherent vision of what they want the business to be in the
medium and long term? Are these business' ambitions a coherent part of the vision for the
corporate whole?

What are the strengths and weaknesses of the business?

What are the opportunities and threats that exist for this business?

What is the strategic position of this business?

Summative Corporate Analysis Algorithm

What is the relationship between the corporate center and the individual businesses? What are
the processes by which strategy develops in the business units and the organization as a whole?
Corporate Strategy builds on top of business strategy, which is concerned with
the strategic decision making for an individual business.
Markets are diverse, and strategies need to be tailored to individual markets. In this
respect, a company is often divided into business units according to its different products in order
to develop and follow a specific strategy. Consequently, these are called strategic business units
(SBUs) and they are based on three characteristics (Kotler & Keller, 2009). An SBU:
 is a single business (product), or a collection of related businesses (products), that can be
planned separately from the rest of the company
 has its own defined market (with customers, competitors etc.)
 has a manager responsible for strategic planning and profit performance.
Once a company has defined its SBUs, management has to decide how the budget needs to be
allocated. Each SBU must therefore be assessed according to its value, which is based on
potential growth opportunities.
A review of opportunities for improving existing businesses can be performed within the
framework of Ansoff's product-market expansion grid. Based on current products and markets, a
company must assess whether it could gain a higher market share (better market penetration) or
needs to explore new markets (market development) for its current products. New markets may
be new customer segments or international markets, for example. The second consideration
focuses on new products and whether they can be offered in the existing markets (product
development) and/or should be offered to new markets. When approaching markets in other
countries especially, a certain degree of product adjustment is required to suit the local context
(language, legal issues etc.).

What are the relationships between the individual businesses? Are they supporting, neutral or
disadvantageous?
They are neutral, the non-executive directors have separate periodic meetings with the
external auditor and respective heads of internal audit, compliance and risk functions, without
any executive director present to ensure that proper check and balance are in place within the
corporation. The meetings are chaired by the lead independent director or an independent
director.

What are the factors outside the organization that influence the organization's activities?
Meralco engages volunteers, farmers in saving the Philippines forests
The Malubog Watershed is among the reforestation sites nurtured by Global Business Power
Corporation (GBPC) under its Kabilin project. Kabilin is part of the One for Trees program of
Meralco.
The Meralco Group launched an initiative called “One for Trees” to sustainably plant and
nurture trees in Philippine forests and critical watersheds. Led by the company’s corporate social
responsibility arm, One Meralco Foundation (OMF), and supported by its subsidiaries and
affiliates, the program has planted more than a million trees in reforestation sites in Bulacan,
Cebu and Panay

What are the strengths and weaknesses of the organization?

Strengths
 Brand equity: Meralco has already been known and trusted for a very long time. It has
established itself as a reliable company.
 Employee Development Programs: Meralco continuously provide seminars for its
employees to further develop their personality and skills required in performing their
jobs.
 Outstanding operational performance: Though it has faced obstacles, the company
continues to strive to be successful.
Weaknesses
 Re-entry in power generation business: According to S&P, this would weaken the capital
structure and financial risk profile of the company since it would result to additional debt
to fund these new projects.

What are the opportunities and threats that exist for this organization?
Opportunities
 Sole provider in the metro: Metro Manila is one of the populous cities in the world. This
may serve as an opportunity for Meralco to make better products and services for its
customers.
 Increasing demand for electricity in some areas in the country: The company should
consider venturing in areas that have no access to electricity yet.
 Increasing energy consumption: Energy consumption is expected to increase with the
rising temperature.
 Customer Loyalty: To retain its customers, Meralco should still find ways to improve its
customer relations programs.

Threats
 Bargaining power of suppliers: Meralco has no control over its suppliers. They should
have clear agreements to avoid misunderstandings.
 Development of alternative products: Though it might be a small threat for now, the
company must be alarmed by this fact since people nowadays continue to look for less
costly substitutes.
 Faulty equipment: Since the facilities of Meralco are mostly in the open area, the
company must take extra precaution in dealing with this threat since any malfunction
would result to inefficient and ineffective service.

What is the overall strategic position of the organization?

Meralco is a vertically-integrated power company in the Philippines, whose core business
is distributing electricity in Metro Manila. It dominates in the distribution and retail supply
sectors, and soon in the generating sector as well. It is able to do so because of the right mix of
its environment and resources. Meralco has the first entry advantage, giving it monopoly in
Metro Manila, the richest region in the country. Add to this the growing Philippine economy,
which gives Meralco greater opportunities. On the resources side, Meralco has great economic
and political muscle by virtue of its ownership. Being owned by the biggest conglomerates in the
Philippines, it has implicit alliances across different industries. Because of its size, it has strong
bargaining power to get favorable contracts from its suppliers.