Korea Electric Power Corporation (KEP)

Q2 2011 Earnings Call

August 16, 2011 4:00 AM ET


Jung-in Kim – General Manager, IR

Jong-Hyun Park – Assistant Manager, IR


Cathy Chan – Citigroup

Geoffrey Boyd – CLSA

Vincent Chow – Morgan Stanley

Shannon – Merrill Lynch



Good morning and good evening. First of all, thank you all for joining this conference call. And now we’ll begin the conference of the fiscal year 2011 second quarter earnings results by KEPCO. This conference will start with a presentation followed by Q&A session. (Operator Instructions) Now we shall commence the presentation on the fiscal year 2011 second quarter earnings results by KEPCO.

Jung-in Kim

Good afternoon everyone. My name is Jung-in Kim, General Manager of KEPCO’s IR team. It’s a pleasure to have this opportunity to announce KEPCO’s earnings results for the first half of 2011. On behalf of KEPCO, I’d like to thank you all for participating in this conference call today. Today’s call we will begin with a brief presentation on our earnings results after which an opportunity for Q&A will follow.

Please note that the financial information that we disclosed today is on a preliminary and consolidated basis. At this time, Jong-Hyun Park, Assistant Manager of KEPCO’s IR team will provide you with our formal view of our earnings results.

Jong-Hyun Park

Hello everyone, my name is Jong-Hyun Park and I am going to briefly run through the first half financial results starting with operating income. In the first half of 2011, KEPCO recorded a net operating loss of KRW1.3 trillion, a year-on-year increase of KRW1.1 trillion compared to the net operating loss of KRW178 billion recorded in the same period last year. Despite the increase in power sales revenue, growth on (inaudible) in August 2010 as well as an increase in the volume of power sales, KEPCO’s net operating loss for the first half of 2011 was primarily due to increased fuel costs and power purchase costs which went up 18.5% and 44.8% respectively compared to the first half of 2010.

Taking a closer look, operating revenues rose 12% to KRW19.9 trillion. Power sales revenue, the principal component of our operating revenues went up by 10.1% totaling KRW18.8 trillion. This increase is attributed mainly to the over average tariff increase of 3.5% in August 2010, as well as 6.7% growth in power sales volume, which was closed by a substantial growth in demand for electric heating and increased demand flow on the industrial sector. Operating expenses witnessed a 17.9% rise in the first half of 2011 compared to the same period last year, recording KRW21.6 trillion.

Our total operating expenses, fuels costs increased 18.5% year-on-year to KRW10.8 trillion in the first half of 2011. The rise in fuel costs can be attributed to a 3.3% increase in power generation due to rising power demand and a 14.8% jump in unit cost of fuel such as coal and LNG. At this time, I will explain KEPCO’s financial income and expenses. The compared net financial loss for the first half of 2011 was KRW757 billion, a decrease of 25.4% compared to the KRW1.1 trillion net loss in the first half of 2010. The major reason for this improvement is the stronger Won. Net equity income of KEPCO affiliates totaled KRW166 billion on increase of a KRW78 billion over the KRW88 billion recorded in the first half of 2010.

This is primarily attributable to a significant rise in net income from our overseas affiliates which recovered from a KRW15 billion net loss in the first half of 2010, to record KRW39 billion in net income in the first half of 2011. To illustrate [ph] that one I have just explained are on overall debt loss of KRW1.2 trillion for the first half of 2011 which compared to a net loss of KRW1.1 trillion for the first half of last year. This concludes my overview of KEPCO’s earnings results for the first half of 2011.

The question and answer part of today’s call will be handled by Jung-in Kim, General Manger of KEPCO’s IR Team.

Jung-in Kim

This is Jung-in Kim again. Today I am joined by KEPCO’s IR committee members in-charge of finance, tariffs and overseas businesses. At this time we are looking forward to any questions that you may have. Please go ahead.

Question-and-Answer Session


Now Q&A session will begin. (Operator Instructions) The first question will be given by Cathy Chan from Citigroup. Please go ahead madam.

Cathy Chan – Citigroup

Good afternoon management. This is Cathy from Citigroup, Hong Kong. I will have a few questions want to know more from you. The first question is about the overseas business. What was the revenue for KEPCO since first half 2011 from which is generated from the overseas business, and as the overseas business revenue, what is the amount generated from the UAE project?

Unidentified Company Representative

[Foreign Language – Korean] The revenue coming from the overseas business for the first half of 2011 is KRW602.7 billion. [Foreign Language – Korean] And among that, the UAE project took up KRW413.3 billion.

Cathy Chan – Citigroup

Okay, thanks a lot. And my second question is could you explain more about the fuel cost pass-through mechanism which has been implemented from the 1st of July 2011, for example what is the expected impact on the mechanism for this year or the coming years and also if you can explain more about for example the when the fuel price be high in this mechanism or the frequency to be reviewed by government for this mechanism?

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