Mark Orbos: Good afternoon, ladies and gentlemen. Welcome to Manila Water Company's financial and operating results briefing for the first nine months of 2026. Before we begin, we would like to acknowledge the members of senior management joining us live in this virtual briefing, led by Roberto Locsin, President and CEO.
Roberto Locsin: Good afternoon, everyone.
Mark Orbos: Gigi Miguel, Chief Finance Officer and Treasurer.
Gigi Miguel: Good afternoon.
Mark Orbos: Sir Arnold Mortera, Chief Operating Officer for the East Zone.
Arnold Mortera: Good afternoon, everyone.
Mark Orbos: Melvin Tan, President of Manila Water Philippine Ventures, which manages our non-East Zone Philippines operations.
Melvin Tan: Good afternoon, everyone.
Mark Orbos: We are likewise joined by other members of Manila Water Management for our briefing this afternoon. Please ensure that your complete names and company affiliation are reflected in your respective profiles on our Microsoft Teams platform, so that we can properly acknowledge you during the Q&A segment. Following the presentation, you may field your questions by utilizing the Q&A function on Microsoft Teams. Submitted questions will be queued and addressed accordingly. In case we are unable to address your questions live, or if you may have further questions or clarifications following the proceedings, you may directly send these to us through the Manila Water Investor Relations email, as shown on the screen. As we begin, allow me to welcome our Chief Finance Officer, Ms. Gigi Miguel.
Gigi Miguel: Good afternoon, everyone, and welcome to Manila Water Company's briefing on financial and operating results for the first nine months of 2026. During the period, Manila Water sustained its strong business performance while it continued to invest in long-term water security and service reliability. Consolidated revenues expanded to PHP 33.4 billion, up by 11%, primarily driven by tariff adjustments. Billed volume was steady and increased by 0.5% year-on-year, as it reached 494 million cubic meters. EBITDA grew to PHP 24.4 billion, 12% higher against its year-ago level. Meanwhile, EBITDA margin was sustained at 73%, as our cost management and operational efficiency initiatives continue to mitigate the impact of rising costs brought about by macroeconomic, geopolitical, and climate pressures. Net income settled at PHP 12 billion, sliding by 5%, as impact of completed infrastructures, including the Upper Wawa Dam, flowed to the P&L through higher depreciation and financing costs.
Gigi Miguel: We invested PHP 11.7 billion in capital expenditures, reflecting timely project execution while maintaining compliance with our service obligations. We now turn to our consolidated financial results for the first nine months of 2026. Revenues increased by 11% to PHP 33.4 billion from PHP 30 billion in the prior year. East Zone revenues grew by 11% to PHP 26.9 billion, driven primarily by the fourth tranche of the rate rebasing adjustment implemented in January, which raised the average tariff by 11% to PHP 67.3 per cubic meter. Growth was further supported by steady billed volume performance, particularly driven by demand from subdivisions and bulk accounts in Rizal and Marikina, amid hotter temperatures, enhanced system pressure, and ongoing meter replacement initiatives. Meanwhile, revenues from our non-East Zone Philippines operations increased by 6.1% to PHP 7.4 billion, supported by tariff adjustments across key business units, including Clark, South Luzon, and Boracay.
Gigi Miguel: Growth was further supported by a 6% increase in billed volume and higher supervision fees, mainly from Laguna Water and Estate Water. Our continued focus on operating efficiency and disciplined cost management helped mitigate cost pressures while allowing us to capture the benefits of revenue growth. Consolidated cost of services and operating expenses increased by 11% to PHP 9.6 billion. The increase was driven primarily by, first, regulatory and compliance requirements. Second, inflationary pressure on key goods and services, including wages and employee benefits. Third, higher production costs for power and chemicals amid lower Angat levels associated with El Niño. Fourth, the integration and commissioning of new facilities, including those of Wawa JVCo. Personnel costs increased by 6% to PHP 2.3 billion, mainly due to adjustments in employee benefits and incremental costs from Wawa JVCo's operations, partly offset by lower compensation expense from reduced headcount.
Gigi Miguel: Direct costs likewise increased by 6% to PHP 4.1 billion, driven mainly by higher East Zone chemical costs due to increased water turbidity amid low Angat Dam levels, contractual cost escalations in software licenses and cybersecurity services, and higher repairs and maintenance expenses. These cost pressures were partly offset by lower East Zone power costs, reflecting the benefits of our transition to renewable retail electricity supply arrangements and more competitive rates under the retail aggregation program. Additional efficiencies came from improved water source management, better network balancing, and in-house solar generation. Premises costs increased by 7% to PHP 533 million, mainly due to higher insurance and security costs associated with the consolidation of Wawa JVCo. This was partly offset by optimized insurance structures and rationalized coverage in the East Zone. As a result, consolidated EBITDA grew by 12% to PHP 24.4 billion, while EBITDA margin remained strong at 73%.
Gigi Miguel: Below EBITDA, the movements largely reflect the transition of our long-term investment program from construction to operations. Depreciation and amortization amounted to PHP 4.9 billion, driven primarily by the Upper Wawa Dam and newly completed assets across the East Zone and the non-East Zone Philippines. Interest expense increased to PHP 4.7 billion as completed projects transitioned into operations alongside acquisition-related borrowings. Key contributors included the Upper Wawa Dam, Mandaluyong West, and Hinulugang Taktak in the East Zone. While these investments create near-term earnings pressure through higher depreciation and financing costs, they reinforce Manila Water's commitment to long-term water security. By investing in a more reliable and resilient water system today, we are strengthening our ability to serve customers while building a sustainable platform for future growth. Reported net income for the period reached PHP 12 billion, down 5% year-on-year, with a net income margin of 36%.
Gigi Miguel: Excluding one-off items, primarily the accounting gain from the debt restructuring of Wawa JVCo project loan, core net income stood at PHP 11 billion, down 6%, while maintaining a solid margin of 33%. Overall, the results demonstrate the underlying strength of the business. Operating earnings continued to grow even as we absorb the near-term accounting effects of investments that strengthen our long-term resilience and growth capacity. This slide summarizes our capital expenditure program for the first nine months of 2026. Total CapEx reached PHP 11.7 billion, reflecting sustained execution across the East Zone and non-East Zone Philippines businesses. The East Zone accounted for most of the spending at PHP 9.6 billion, or approximately 82% of total CapEx, as shown in the chart.
Gigi Miguel: Investments were primarily directed toward key water supply and wastewater projects, including East Bay 2, BNAQ7, Wawa-Kaysakat, San Mateo-Rodriguez Sewer, Levi Mariano Pump Station and Reservoir, Kaliwa Medium-Term Common Line, and Boso-Boso Barrage Line, alongside investments in our IT platform and network improvements. Overall, execution in the East Zone remained aligned with enabling continued compliance to our service obligations. In the non-East Zone, CapEx amounted to PHP 2.1 billion, supporting capacity expansion and service improvements, particularly in Laguna Water, LARC, Estate Water, and Clark Water, consistent with our growth and compliance priorities. Overall, our CapEx program remains consistent with our disciplined approach to strengthening core infrastructure, enhancing water security, improving network resilience, and reinforcing service reliability. The next slide shows several of our key water and wastewater infrastructure programs in the East Zone and non-East Zone Philippines. We continue to make progress towards the completion of the East Bay 2 and Wawa-Kaysakat projects.
Gigi Miguel: For East Bay 2, the only remaining requirement is the Department of Health operational permit, which was applied for during the first week of October. For Wawa-Kaysakat, all permits have already been secured, and we are currently awaiting the fourth-week results of the 28-day trial run. The remaining major deliverable for completion is the Boso-Boso Pumping Station. Target completion of the system is November 2026. Excuse me. For our wastewater projects, our focus remains on completing the remaining CapEx works that will help us achieve the wastewater service obligation target. Key activities include the completion of wastewater networks across Mandaluyong West, Hinulugang Taktak, North and South Pasig, Quezon City East, and San Mateo. These remaining works are critical in driving our wastewater coverage targets and ensuring the realization of the planned service improvements. We are likewise advancing key infrastructure across our non-East Zone Philippines operations.
Gigi Miguel: Specifically, our biological nutrient removal sewage treatment plant upgrade of Clark Water continues with its functionality review and testing following physical completion. Furthermore, we continue to strengthen wastewater compliance in Boracay through our Balabag STP upgrades. These investments ensure that our non-East Zone Philippines businesses remain competitive, compliant, and capable of supporting the development and growth of the communities that we serve. Let me walk you through our balance sheet position as of the first nine months of the year. Total assets increased approximately PHP 309 billion, up by 3% from year-end 2025, driven by continued capital expenditures. Liquidity remains prudent and sufficient. We closed the quarter with PHP 4.9 billion in cash, providing adequate headroom to support operating requirements, ongoing capital expenditures, and debt service. Total borrowings increased by 27% to PHP 168 billion, reflecting funding our continued infrastructure investments, including the Wawa JVCo acquisition.
Gigi Miguel: The increase in debt is deliberate and aligned with our strategy of investing ahead of demand and climate risk, particularly to secure long-term water supply and system resilience. Despite higher borrowings, our average cost of debt improved to 5.77% from 6.09% at year-end. Most of our loans, about 71%, are on floating rates. This was a deliberate choice, and it let us benefit from the decline in interest rates before the Iran-US conflict. Going forward, we are managing our rate exposure actively. We stagger repricing dates, optimize choice of benchmark tenors, and hold a position of fixed-rate borrowings. The average remaining life of debt settled at 4.3 years, which continue to provide stability and manageable refinancing risk. Maturities remain spread over the life of our concessions. Our return on equity remained healthy at 18%, reflecting the continued strength of our underlying business and earnings generation.
Gigi Miguel: Finally, at the parent company level, our capital structure remains disciplined. Debt to equity increased to 1.5 times, which remains below the covenant ceiling of three times. Overall, our balance sheet remains robust and well-positioned, supporting both our near-term requirements and our long-term growth and resilience strategy. That concludes our discussion of Manila Water's consolidated performance for the nine months of 2026. We will now move on to a more detailed discussion per segment by Mark Orbos.
Mark Orbos: Thank you, Gigi. Good afternoon, ladies and gentlemen. For segment reporting purposes, the East Zone and parent, East Zone parent and Wawa JVCo are presented as one segment, reflecting how the business is managed and operated today. Water resources provided by Wawa are now fully integrated into the East Zone water supply system and form an integral part of our long-term water supply planning alongside Angat and our other strategic sources. Accordingly, planning, resource allocation, and performance management are undertaken on an integrated basis, providing a clear view of the scale, resilience, and flexibility of our core water supply platform. Moving to the operating and financial highlights of the parent and Wawa JVCo, billed volume remained steady for the period, up by 0.4% to over 395 million cubic meters. Domestic billed volume was stable at 1% growth year-on-year, driven by favorable weather conditions and enhanced system pressure.
Mark Orbos: Said conditions facilitated strong subdivision demand and increased low-income household consumption. On the semi-commercial segment, we saw a 3% billed volume growth, with strong demand from bulk and subdivision accounts in Marikina and Rizal, as well as improved occupancy and move-ins, supported by higher construction activities. For the commercial segment, the 2% contraction in billed volume is due to lower consumption in offices and commercial establishments, as well as lower institutional demand driven largely by the reduced on-site work arrangement and establishment closures. Meanwhile, our industrial segment continued to see the strongest demand growth during the period at 7%. This is driven mainly by sustained construction activities and reclassification of commercial accounts for redevelopment. Average effective tariff increased by 11% to over PHP 67 per cubic meter, with the implementation of the fourth tranche of the approved rate rebasing adjustment in January.
Mark Orbos: This is equivalent to an upward adjustment of 6.96% on the basic charge. Equally significant, MWSS approved the adjustment of the environmental charge from 25% to 30% at the start of the year. This is resultant from our attainment of wastewater coverage target of 30%. Collection efficiency saw further improvement during the period to 99%. Various collection engagements and consultation initiatives of our service area teams continue in support of our collection efficiency improvement efforts. Non-revenue water for the period closed at 14.8%. We continue our efforts to maintain non-revenue water at an optimal world-class level, which is to underscore that we maintain our non-revenue water level under a service standard of 24/7 water availability and average water pressure in compliance with regulatory standards. The team continues its network improvement and pressure management efforts in line with their service obligations.
Mark Orbos: Moving on to financial highlights, revenues posted strong growth with a 12% increase to PHP 26.9 billion. The rate rebasing tariff adjustment implementation in January, coupled with noted shifts in customer mix and consumption in the semi-commercial and industrial segments, contributed to the positive performance. Meanwhile, our consistent push for operational efficiency and cost management has mitigated the upward pressure on cost and expenses. COS and OPEX for the period was at PHP 6.6 billion, an increase of 11%. Under direct cost, the 6% increase during the period was mainly driven by higher billing-related costs, contracted software subscriptions, and cybersecurity services, as well as the incorporation of Wawa JVCo power costs. Notable that for the East Zone, power costs saw a decrease of PHP 131 million, equivalent to savings of nearly 12% from last year.
Mark Orbos: Along with our continuing drive towards higher in-house solar utilization, these cost efficiencies were attained through the transition to renewable retail electricity supply under the Retail Competition and Open Access Arrangement, or RCOA. This enabled us to secure more competitive power rates and optimize overall power costs, even with increased consumption. In the face of pervading pressure on related energy costs, it is notable that 90% of the East Zone's power requirements are now being sourced from 100% renewable sources. This provides a significant stability in terms of supply availability and cost. For premises costs, the 6% increase was mainly driven by Wawa JVCo insurance and security costs, partly offset by East Zone's lower insurance costs on account of lower policy rates and rationalized coverage. The robust top line and efficient management of costs led to a 13% increase in EBITDA to reach PHP 21 billion.
Mark Orbos: EBITDA margin strength was maintained at 78%. Consistent with the integration of Wawa JVCo and our continued addition of new facilities, depreciation and amortization increased to PHP 4 billion. This similarly impacted interest expense, which settled at PHP 3.9 billion for the period, as more completed infrastructure projects transitioned from construction to operations. These are in line with our long-term buildup of critical infrastructure, aimed to provide redundancy and resilience in the face of climate risks. In all, the parent company ended the period with net income after tax of PHP 8.22 billion. Integration in view of the Wawa JVCo consolidation eliminates the bulk water payments in the East Zone and replaces them with Wawa JVCo's own loan and interest and depreciation. After considering the interest on Wawa JVCo's acquisition loan, the integration adds over PHP 1 billion to consolidated net income. Consequently, net income margin remains strong at 41%.
Mark Orbos: We now move on to our business beyond the East Zone. Namely, these are our operations across the country under Non-East Zone Philippines, which is comprised of our domestic operations subsidiaries in Clark, Laguna, and Boracay, as well as Estate Water, which is an operating division within Manila Water Philippine Ventures. Non-East Zone Philippines continued to deliver steady growth during the first nine months. Revenues rose by 6% to PHP 7.4 billion, driven by tariff adjustments across Clark Water, South Luzon Water, and Boracay Water, together with the higher supervision fees from Estate Water. Billed volume growth of 6% lent further support to the strong top-line performance. Costs and operating expenses increased by 4% to PHP 3.7 billion, with higher direct and overhead costs driving the uptick via higher repairs and maintenance and contractual services. EBITDA accelerated by 8% to PHP 3.8 billion, with EBITDA margin maintained at 51%.
Mark Orbos: Depreciation and amortization rose 20% to PHP 904 million as new infrastructure came online in Laguna, Clark, and Boracay. Net interest expense declined by 8%, mainly due to higher capitalization and loan repayments. Overall, net income improved by 19% to PHP 1.4 billion, with margin improving two percentage points to 18%. Moving on to our sustainability updates, our initiatives continue to span the key dimensions of environmental stewardship, community development, and governance excellence. Our initiatives continue to translate commitments into measurable action across the environment, communities, and governance. Under protecting the environment, we expanded renewable energy use across 53 facilities in the East Zone and Laguna Water, including sites below the 100-kilowatt threshold. We also strengthened responsible wastewater management and received international recognition for climate-smart operations. Under helping communities thrive, we maintained full compliance with national drinking water standards for approximately 7.9 million customers during the Habagat season.
Mark Orbos: We also provided water, sanitation, and hygiene assistance to more than 41,000-plus affected individuals. At the same time, climate-resilient projects and enhanced operational readiness are reinforcing reliable water supply during both wet and prolonged dry conditions. Finally, under building a culture of trust and care, nearly 37,000 volunteers joined the International Coastal Cleanup, while La Mesa Eco Park conservation activities have engaged almost 6,000 volunteers and planted more than 20,000 native trees. Together, these initiatives demonstrate how sustainability remains central to Manila Water's operations and long-term value creation. In closing, allow me to recap our performance highlights for the period. Strong revenue growth underpinned by tariff adjustments across both East Zone and non-East Zone Philippines, with sustained demand across business units. Earnings and margin strength anchored on disciplined cost management and operational efficiency initiatives to mitigate the impact of challenging market conditions.
Mark Orbos: Net income settled at PHP 12 billion, lowered by 5% on higher depreciation and interest expense, with the continued rollout of infrastructure, and that weighed on our NIAT and margin. CapEx reached PHP 11.7 billion for the period, consistent with disciplined project execution and our continuing commitment to service obligations. Overall, the results reflect a business that continues to grow operating margins and earnings, preserves financial strength, and invests deliberately for resilience and long-term value creation. Thank you very much, and now we shift to our Q&A. First question coming from Alastair of BPI Securities. Hi, Alastair. Thanks for joining us. How much of the increase in interest expense would be attributable to Wawa and new East Zone borrowings?
Gigi Miguel: Take that, Mark?
Mark Orbos: Thank you.
Gigi Miguel: Yeah. Out of the delta in depreciation and amortization, around 55% is attributable to Wawa JVCo. So that's PHP 551 million, and the rest is predominantly East Zone, the rest.
Mark Orbos: Thank you. Thank you, Gigi. Next question comes from Eunice. Hi, Eunice. Good afternoon. It says here, "Hi, thanks for the briefing. Can you refresh us again on the supply agreement with East Zone and Wawa JV? Is this exclusive only to Manila Water, or are there potential cross-border contracts? Can you give some insight as well to the business model under the parent with Wawa and East Zone consolidated in this segment?" Thank you so much.
Roberto Locsin: Thanks. I'll take that. To start off, I think the important thing to think about here is who is the potential cross-border contract going to be with? There's only one logical entity that would be able to take the water, and we are in constant discussion with them to ensure that, from a water sector perspective, we're able to supply them in times of need. The other way to think about the water from Wawa is that we're building water supply resiliency for the East Zone customers. This gives us a very distinct ability to ensure customers during severe weather conditions that we will be able to remain 24/7 water supply for everyone.
Mark Orbos: Thank you.
Roberto Locsin: Thanks.
Gigi Miguel: Mark, sorry, if I may just supplement.
Mark Orbos: Yes
Gigi Miguel: My response to Alastair earlier. For the increase in interest, that is a delta of PHP 2.4 billion. 35% of that is attributable to Wawa JVCo, and the rest would be the loans of East Zone.
Mark Orbos: Thank you.
Gigi Miguel: I think that completes the depreciation delta and interest.
Mark Orbos: Thank you, Gigi. For the second question of Eunice, can you give some insights as well to the business model under the parent with Wawa and East Zone consolidated in this segment? If I may. This is maybe on the consolidation.
Mark Orbos: Just to give some context to this, Eunice, as I said earlier, historically, there is an exclusive supply contract between Wawa JVCo and the East Zone, wherein we pay bulk water payments to Wawa JVCo historically. But now that we are integrated, these bulk water payments of the East Zone are actually eliminated and replaced with Wawa JVCo's interest and depreciation expenses. The eliminations on this allows us to gain some synergies and efficiencies so that we are actually, the transaction of the acquisition of Wawa becomes accretive. I hope that gives some color on how the dynamics between the East Zone and Wawa JVCo behaves. Thank you. Next question is from Jolene. Hi, Jolene. Thanks for joining us. First question, well, Jolene has several questions, we'll go through them one by one. First, what's driving the rising non-revenue water in the East Zone?
Mark Orbos: Maybe we'll answer that first.
Arnold Mortera: As we energize and activate new water sources with a higher pressure, we're expecting a little bit of nuisance in terms of leakages. But as of today, we're actually addressing those nuisances. As a matter of fact, we're sub 14%, and hopefully by the end of the year, we'll be staying at that level.
Mark Orbos: Thank you. Thank you very much, Arnold. Second question, any updates on the Agua de Puebla acquisition? What is driving the deal closure delays?
Roberto Locsin: Mark, I will take that. For Agua de Puebla, it is unfortunately now officially on pause by the seller, as they have indicated the difficulties in obtaining consent to sell the asset from the state of Puebla. One of the things to look forward to here is that we remain interested in the asset, and as soon as they are able to resolve their differences, we are ready to move forward again. As an aside, just to talk about strategy around international business, we remain committed to find operating assets that fall well within our investment criteria, and I am pleased to share that this pipeline of opportunities remains healthy. From our perspective, there are a number of assets that we do believe are accretive to the enterprise.
Mark Orbos: Thank you. Third question from Jolene. Are there any updates on the Vietnam bulk water tariff hikes? Which unit drove the losses in non-East Zone international?
Roberto Locsin: I will take that again. Both units, Thu Duc and Kenh Dong, are our primary bulk water businesses in Ho Chi Minh City. The People's Committee have not provided bulk water providers any tariff relief in the last few years. However, we are starting to hear rumblings that this may soon find a way to resolve itself. So we patiently wait for government announcements on our tariff increase.
Mark Orbos: Thank you. Last question from Jolene. How much of the capitalized interest in the 9 months could transition to P&L next year upon completion of major water supply and wastewater projects? Maybe offhand, Jolene, the rate of capitalization of interest is largely dependent upon the completion of projects. Depending on how these projects actually progress to operations, it would be hard to give guidance on how much of those that portion of capitalized interest will actually be fully realized. We will have to see the progress of each of these projects before they transition. Hope that clarifies. Thank you. Looking at some of the other questions that we have, just refreshing what we have here. From Alastair again, what is your current operating cash profit, or OCP, and how has it trended over the recent periods? Sorry about that. Please go ahead.
Gigi Miguel: I think that is referred to as the operating cash profit.
Mark Orbos: Opening cash position. Sorry.
Gigi Miguel: Yeah. Maybe this is referred to as the OCP or opening cash position. We do not publish our current opening cash position just because that is an exercise that is run via an audit on a yearly basis and will be official by the time we do the rate rebasing of 2028.
Mark Orbos: Thank you.
Gigi Miguel: Stay tuned for rate rebasing 2028.
Mark Orbos: Yes. Second question, could you provide a breakdown of the tariff increases implemented across your non-East Zone businesses and their contribution this quarter? From a general sense, what further tariff adjustments are expected across non-East Zone Philippines in the coming periods?
Melvin Tan: I will take that. Thank you for the question, Alastair. There are various tariff adjustments implemented in various timelines this year. To name them, first, Clark Water, 45%. Boracay Water, we had a CPI adjustment at the start of this year. In Ilagan, our bulk water facilities in Isabela, we had 100% tariff increase. In Tagum Water, we had a 15% tariff increase in May. In Calasiao, late last year, November last year, so there is that full year impact in 2026, we implemented 30% tariff adjustment. In Tanauan, where our subsidiary called South Luzon Water is operating, we had a 47% at the start of this year. Middle of this year, we had a 24% tariff increase at Laguna Aquatech. For 2027, there are a couple of BUs undergoing review exercise with our regulators and partners.
Melvin Tan: There will be a couple, and we will share them once approved. Thank you.
Mark Orbos: Thank you very much. Third question. Could you share Wawa JVCo's 9 months financials standalone, particularly just the important P&L items?
Gigi Miguel: I'll take that, Mark.
Mark Orbos: Thank you.
Gigi Miguel: For Wawa JVCo's 9 months operations, its EBITDA is around PHP 2 billion and a margin of 84% on a revenue of PHP 2.4 billion. Its bottom line is PHP 1.9 billion or 78% net income margin. One-off core net income, or taking off one-off, which is the gain on restructuring its project loan, the core net is PHP 1 billion.
Mark Orbos: Thank you. Next question from Alastair. What factors are driving your current billed volume levels? Any expectations for billed volume going forward?
Arnold Mortera: We were actually somehow affected by the weather last August and the earlier part of September. But we are still expecting a little bit of growth on the eastern part of our concession area, particularly in Rizal, and some growth expected in the platform areas.
Mark Orbos: Thank you. Next question from Alastair, "Could you provide guidance in your expected CapEx towards the end of this year and next year?" Of course, as we did discuss, we don't give forward guidance on our CapEx. I think the main reference for us is, of course, our ability to comply with service obligations. In particular to note, next year, we go into our discussions with the regulator on the rate rebasing exercise. So, this is where we actually discuss the next set of service obligations that would comprise our service improvement plan. Last but not least, "Do you have plans to increase leverage further, and how should investors think about your debt strategy over the next few years?
Gigi Miguel: I will take that, Mark. Considering our committed CapEx program for the East Zone, you will see leverage to inch up. Please note that we always leave ample room of debt capacity for any opportunistic acquisition outside the Philippines.
Mark Orbos: Thank you. Thank you, Gigi. We have a question from Carissa. Hi, Carissa. Thanks for joining us. "Going to billed volume, for the Q3 alone, what was the driver for the year-on-year acceleration in billed volume growth for the domestic and semi-business customers? What was also the reason for the year-on-year decline for commercial and industrial customer volumes?" Maybe I can go back to some of the key highlights, and then I will pass it on to Arnold Mortera. For domestic and semi-business, as discussed earlier, of course, we saw the favorable weather conditions coming out of the monsoon season and the overall increase in temperatures with the prevailing coming of El Niño. So, this facilitated strong demand, particularly in our subdivisions and our low-income household consumption.
Mark Orbos: As you would remember, in the previous period, we were plagued by some relocations and some fires, and now we are seeing some recovery in those segments for the domestic segment. For semi-commercial, we saw strong demand from our bulk and subdivision accounts, particularly in Marikina and Rizal, as well as improved occupancy and move-in rates, as well as higher construction activities from our semi-commercial establishments. Arnold?
Arnold Mortera: Thank you, Mark. I think you summed it all up. I just want to add that going forward towards the end of the year, because of El Niño, we are expecting a bit of improvement in terms of billed volume. Although, come some parts of the month, we are expecting holidays or so there is a bit of a decline. But with the declaration of about super El Niño, there is going to be a bit better billed volume towards the end of the year as compared to last.
Mark Orbos: Thank you. Another question from Carissa. Please state the reason for the year-on-year decline for commercial and industrial customer volume. Maybe just to start also, Carissa, for the commercial segment, we saw that there was low institutional demand for the commercial segment, largely because we had some establishment closures and low occupancies. For industrial, actually, we saw some significant increase because of construction activities, but maybe some additional insight on the industrial.
Arnold Mortera: Well, it's more of reclassifications of commercials into industrial. As you noticed, the industrial segment is quite better last year, and yeah, because of that reclassification from commercial to industrial, particularly in Quezon City area and in MMS, or Makati, Mandaluyong, and San Juan areas.
Mark Orbos: Thank you.
Melvin Tan: Mark, just to add, just to let our analysts know, Manila Water actually operates about eight industrial parks all over the country. Those eight industrial parks account for about 19% of the country's national export. So, what we're seeing at the industrial parks that we operate are mixed results. Some of the relatively older industrial parks, their billed volume declined, but some new ones, like Anflo Industrial Estate, for instance, in Panabo City in Mindanao, 36% increase versus last year. So, there are some bright spots in the industrial sector. Thank you.
Mark Orbos: Thank you. There is a follow-up question from Carissa as well. I will go to it already. "Has the RR28 cycle or process commenced already? Can you share some timelines?
Gigi Miguel: I will take that, and Vince may want to supplement. Internally, we have started our planning, but officially with the regulatory office, not yet. We are expected to submit our new plan by March 2027. That will be the start of the official process. It is expected that, well, the best result is to have it settled, have the next rate settled, calculated, and targets determined and agreed prior to December so that we can implement the new tariff from 1 January 2028.
Mark Orbos: Thank you. We have a question here from Lyle, from Singapore, one of our investors. Thank you for joining us at this briefing. Last question is, at the high level, core earnings are down this year despite an increase in water tariffs, exceeding the pace of core cost growth. It would seem the cause of this is interest and depreciation costs associated with the Wawa JVCo acquisition exceeding its EBITDA earnings accretion. Is this the case? Are Wawa JV depreciation costs indicative of long-term maintenance costs or merely a book entry? Do you expect Wawa JVCo to become a net positive contributor to earnings at some stage, and how? Yeah. Maybe-
Gigi Miguel: Yeah.
Mark Orbos: Go ahead. Sorry.
Gigi Miguel: You're right. It's an accounting interpretation. But I think we mentioned earlier that Wawa JVCo is already a net income contributor. Its accretion to the consolidated net income for the first nine months of the year is PHP 1 billion. As we move along, as its own project loan is amortized or repaid, then definitely the accretion will grow.
Mark Orbos: Thank you. That's very clear. I hope that answers that. Thank you very much. Klein is also here with us on the call. Klein, thanks for joining us. She has a question on CapEx guidance, which we did indicate earlier on us not giving forward guidance. Here, she has a follow-up question. Do you expect your CapEx program for the next regulatory period to be higher or lower compared to the PHP 100 billion CapEx commitment in the current regulatory period?
Roberto Locsin: I'll take that. Thanks for the question. The simple answer is it will be higher. What we're looking at here is to continue meeting our service obligations and aligning them with a number of key projects that support 24/7 water and an expanded access to our sewer coverage. On top of that, we are looking at water supply resiliency through a number of projects that would protect customers from future El Niño events such as what we're experiencing now. Put that all together, we are seeing a significant investment in CapEx over the next five years, beginning our RR28.
Mark Orbos: Thank you. Eunice has another question. EBITDA margins have steadied at this level since last year. Are you already at the optimal level, or are there any cost optimization measures still being done from your end?
Roberto Locsin: Good question, Eunice. Let me take that. EBITDA margins, we manage them at a point where we understand the very fine line at decompressing some of these margins without sacrificing our service obligations, and that really is the primary driver for how we are going to maintain these optimal levels. Now, are there any other measures that we can still do? I do think that there are still some small areas where we can improve, but we are operating at a very high level today. As you know, power is a very big contributor to water utility operations. As long as we can manage to onboard our demand into these programs that we mentioned earlier, our RCOA RAP, we are also expanding our in-house solar. Right now, we are about 6 megawatts, but we are planning our road to 20 megawatts of self-installed solar over the next three years.
Roberto Locsin: That should help.
Mark Orbos: Yes. Thank you. Just a follow-up question from Carissa. How much was the debt restructuring one-off gain in nine months of 2026? I think you are pertaining to the Wawa loan. That is the question. How much was the restructuring one-off gain?
Gigi Miguel: Pre-tax, that is about PHP 1 billion or PHP 1.1 billion.
Mark Orbos: That is correct. Thank you. Again from Jolene, can you please run through the rate rebasing milestones that we can expect for next year? When are you expected to submit the first business plan draft? Will there be a PHP 22 billion
Gigi Miguel: This is the second.
Mark Orbos: Oh, sorry. Even the second question, I think, was answered as well, so we will go on to the next. Can you give us an indication for how much would be spent on sewage improvement for the upcoming rate rebasing? Although we do not give guidance, maybe some color on the priority of wastewater going into the next rate rebasing period. Thank you.
Arnold Mortera: Most of the spending for the next rate rebasing will be on the construction of the sewer network and maximizing the capacity of all the existing STPs that we have. So, it is more on construction of sewer network.
Roberto Locsin: Yeah, if I can just add. As you all know, we launched two new sewage treatment plants this year, Mandaluyong West, otherwise known as Aglipay, and Hinulugang Taktak. As we look at Mandaluyong West in the density of this operation, residents are able to know that as we expand northward, we are looking at Mandaluyong, Quezon City, San Juan as natural areas for expansion. Our target this year for sewer coverage is an additional 6%, and that will obviously increase over time. We are committed to ensuring that these plants increase utilization as we expand the coverage.
Mark Orbos: Thank you. Next question. How does management view the higher interest rate regime compared to the fixed rate return in the East Zone? Are there funding options that allow Manila Water to preserve real returns despite higher rates?
Gigi Miguel: Yeah. We are definitely mindful of the increasing interest rate environment, and we are making deliberate choices to optimize our cost of borrowing by choosing the right benchmark. Yes, we are mindful about the cap in our earnings, and we need to be more prudent in the way we view our cost of borrowings. There are other funding sources in our menu aside from borrowings. We do have as well our treasury shares, which is always an option for us to tap if there are opportunities.
