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?
- Meralco, as a distribution company, has captive customers. These are end-users who
simply get their power from Meralco (and from whichever power plant Meralco has
contracted with). As mentioned in the General Evaluation (Section II.A), these
customers are segmented into regular customers, businesses, and corporations.
Why do its customers choose this business unit's products? What need is being met? What are
the key success factors in this market?
- The way they do business: This is about their process, policies, the hours they are
open, their location and more. It is really about their operation. These are very
 tangible reasons. These may get a customer in the door, but many of the other
reasons are why customers choose to come back.
What are the trends in key performance indicators (KPIs) for this business?
- Key Performance Indicators for electric utilities are the quantitative values used to
determine how effectively and efficiently the electric utility company achieves
specific goals and objectives over a set period of time. Crucial business questions that
electric utility providers can answer by measuring and benchmarking Key
Performance Indicators include:

1. What percentage of sales revenue originates from renewable energy sources?

2. How many hours are spent on transmission line maintenance?
3. How many utility customer complaints are resolved in a timely manner?
4. What is the percentage of smart meters in use?
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?
- The activities and processes of the organization utilize certain assets. These assets are
called resources. These resources can be created within the organization. They
form the internal resources. Such generated resources are organization-specific.
Otherwise they could be obtained externally from the suppliers available
in the resource markets.
- Organization performance
can also be described by evaluating the reliability of service and by understanding
the quality of customers of the organization. Value can come from providing a
reliable service, so that the customers know that they will receive the service on time,
at the promised time, to a good standard of performance.

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?
- Aside from just delivering electricity, Meralco provides additional services through its
many subsidiaries like consultancy and energy-saving technologies. External
Environment Factor Affecting Business. Economic Environment:
Economic factors throw light on the nature and direction of the economy in which a
firm operates. Consumption patterns are usually governed by the relative affluence of
market segments.
What is the dominant logic that guides this business's decision-making and contributes to the
way strategy develops?
 - Logic is a tool we can use to help us make better business decisions. Deductive
reasoning occurs when a conclusion is based on premises that are frequently
assumed to be true.
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?
- These companies had ambitions well beyond the reach of their current
means. These ambitions, usually, constituted a coherent long-term vision or strategic
intent, which was emotionally engaging and meaningful for all employees and,
therefore, worthy of their commitment and sustained efforts. More important than
the ambition itself was the management process used to reach it: a constant process
of stretching the capabilities of the organization and of building new capabilities over
time
What are the strengths and weaknesses of the business?
- STRENGTHS:
In the strengths, management should identify the following points exists in the organization:
• Advantages of the organization
• Activities of the company better than competitors.
• Unique resources and low cost resources company have.
• Activities and resources market sees as the company’s strength.
• Unique selling proposition of the company.
- WEAKNESSES:
• Improvement that could be done.
• Activities that can be avoided for Meralco Financial Statements.
• Activities that can be determined as your weakness in the market.
• Factors that can reduce the sales.
• Competitor’s activities that can be seen as your weakness.

What are the opportunities and threats that exist for this business?
- OPPORTUNITIES:
• Good opportunities that can be spotted.
• Interesting trends of industry.
• Opportunities for Meralco Financial Statements can be obtained from things such as:
• Change in technology and market strategies
 • Government policy changes that is related to the company’s field
• Changes in social patterns and lifestyles.
• Local events.
- THREATS:
Following points can be identified as a threat to company:
• Company’s facing obstacles.
• Activities of competitors.
• Product and services quality standards
• Threat from changing technologies
• Financial/cash flow problems
• Weakness that threaten the business.

What is the strategic position of this business?

- Meralco is a Filipino electricity distribution utility (DU), operating mainly in Metro
Manila. It was founded 116 years ago by Americans but was subsequently sold to the
biggest Filipino conglomerates. Its first entrant advantage made it the largest DU in
the country, in the richest part of the Philippines. Its size gives it strong bargaining
power with its suppliers. Its ownership gives it working capital to invest in and
improve its infrastructure and services. Being the oldest and one of the most valuable
companies in the Philippines give Meralco implicit alliances across the industry. These
factors allow Meralco to thrive in the changing business environment. The power
industry is being restructured by the Electric Power Industry Reform Act (EPIRA), the
Philippines’ economy is growing rapidly, and distributed generation technologies are
improving. From being just a DU, Meralco has vertically integrated across the power
sector and has diversified to complementary and even unrelated businesses. The
company dominates both the distribution and retail sectors and is also entering the
generation sector with three coal power plants in the pipeline. It also uses its
subsidiaries to address changing users’ needs and customize its services.

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.