february 2004 korea western power co., ltd. presentation to standard & poor’s
TRANSCRIPT
February 2004February 2004
Korea Western Power Co., Ltd. Korea Western Power Co., Ltd.
Presentation to Standard & Poor’sPresentation to Standard & Poor’s
22
AgendaAgenda
I.I. Power Industry OverviewPower Industry Overview
II.II. Power Industry Restructuring in KoreaPower Industry Restructuring in Korea
III.III. Overview of Western PowerOverview of Western Power
IV.IV. Financial OverviewFinancial Overview
I. Power Industry OverviewI. Power Industry Overview
44
Nationwide Power ConsumptionNationwide Power Consumption Historically, power consumption has grown faster than Korean GDPHistorically, power consumption has grown faster than Korean GDP Steady increase in electricity consumption in recent years driven largely by strong industrial demandSteady increase in electricity consumption in recent years driven largely by strong industrial demand
0
50,000
100,000
150,000
200,000
250,000
300,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Growth Rate
Power consumption Consumption growth rate GDP growth rate
Power Consumption (GWh)
0
50,000
100,000
150,000
200,000
250,000
300,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Growth Rate
Power consumption Consumption growth rate GDP growth rate
Power Consumption (GWh)
Source: Statistics of Electric Power in Korea, KEPCO, Bank of KoreaSource: Statistics of Electric Power in Korea, KEPCO, Bank of Korea
Korean GDP and Domestic Power Consumption (1993–2003)Korean GDP and Domestic Power Consumption (1993–2003)
55
Domestic Consumption OutlookDomestic Consumption Outlook Electricity consumption is expected to increase at a CAGR of 2.8% between 2003 and 2012 Electricity consumption is expected to increase at a CAGR of 2.8% between 2003 and 2012
Source: Electricity Supply & Demand Long-Term Basic Plan (2002), MOCIESource: Electricity Supply & Demand Long-Term Basic Plan (2002), MOCIE
288,591299,983
311,056321,184
330,593339,452
347,675 355,324 362,922 370,248
150,000
200,000
250,000
300,000
350,000
400,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Unit: GWh
288,591299,983
311,056321,184
330,593339,452
347,675 355,324 362,922 370,248
150,000
200,000
250,000
300,000
350,000
400,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Unit: GWh
CAGR: 2.8%CAGR: 2.8%
Projected Domestic Power Demand (2003–2012F)Projected Domestic Power Demand (2003–2012F)
66
Projected Domestic Power Demand and Supply (2001A–2010F)Projected Domestic Power Demand and Supply (2001A–2010F)
Reserve MarginReserve Margin Reserve margin is expected to increase steadily to 25% levels, peak demand and Reserve margin is expected to increase steadily to 25% levels, peak demand and
generation capacity with projected CAGR of 3.9 % and 4.8% respectivelygeneration capacity with projected CAGR of 3.9 % and 4.8% respectively
Source: The 1Source: The 1stst Basic Plan of Long-Term Electricity Supply & Demand Basic Plan of Long-Term Electricity Supply & Demand
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2001A 2002A 2003A 2004F 2005F 2006F 2007F 2008F 2009F 2010F
MW
0%
5%
10%
15%
20%
25%
30%
35%
40%
Peak Demand Generation Capacity Reserve Margin
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2001A 2002A 2003A 2004F 2005F 2006F 2007F 2008F 2009F 2010F
MW
0%
5%
10%
15%
20%
25%
30%
35%
40%
Peak Demand Generation Capacity Reserve Margin
II. Power Industry Restructuring in KoreaII. Power Industry Restructuring in Korea
88
Industry Restructuring ScheduleIndustry Restructuring Schedule
GenerationGeneration
TransmissionTransmission
DistributionDistribution
Phase IPhase IPreparationPreparation
Phase IIPhase IIGeneration CompetitionGeneration Competition
20012001 20042004 20092009
Phase IIIPhase IIIWholesale Competition Wholesale Competition
Phase IVPhase IVRetail CompetitionRetail Competition
Announcement Announcement of Industry of Industry Restructuring Restructuring PlanPlan
Passage of Passage of Restructuring Restructuring BillsBills
19991999 20002000
Introduction of Introduction of Vesting Vesting ContractsContracts
Introduce Price-Introduce Price-Based Two-Way Based Two-Way Bidding SystemBidding System
Commence Commence Privatization Privatization of Gencosof Gencos
Gencos, KPX Gencos, KPX and KEC Setup and KEC Setup
Cost-Based Cost-Based Electricity Pool Electricity Pool System System IntroducedIntroduced
20032003
Full Full CompetitionCompetition
KPXKPX
TransmissionTransmission
DistributionDistribution
NN GG GG GGGG NN GG GG GGGG
TransmissionTransmission
DD DD DD DDDD DD
KPXKPX
Establish Establish Distribution Distribution Companies Companies (Discos)(Discos)
Under ReviewUnder Review
99
Preparation for KOSEPCO’s IPO, instead of a sale of Preparation for KOSEPCO’s IPO, instead of a sale of controlling stake to a strategic investor, has been startedcontrolling stake to a strategic investor, has been started
The privatization of the remaining Gencos will be determined The privatization of the remaining Gencos will be determined after an evaluation of the KOSEPCO privatizationafter an evaluation of the KOSEPCO privatization
Electricity price is determined on a cost plus basisElectricity price is determined on a cost plus basis Intermediate step to prepare Gencos for wholesale Intermediate step to prepare Gencos for wholesale
competitioncompetition
The proposed use of vesting contracts will minimize price volThe proposed use of vesting contracts will minimize price volatility in the early stages of reformatility in the early stages of reform
Vesting contracts would result in sVesting contracts would result in stable table operating cash flows operating cash flows during the wholesale competition periodduring the wholesale competition period
Privatization process has Privatization process has been reviewed...been reviewed...
Cost Based Pool has Cost Based Pool has been established...been established...
Introduction of Vesting Introduction of Vesting Contracts is the next Contracts is the next
step...step...
Industry Restructuring Initiatives & Progress Industry Restructuring Initiatives & Progress
Separating distribution Separating distribution assets is being assets is being
reviewed...reviewed...
The plan of separating distribution assets is under discussionThe plan of separating distribution assets is under discussion Mock operation will be conducted for a certain period before Mock operation will be conducted for a certain period before
actual separation in order to avoid or reduce trial and errorsactual separation in order to avoid or reduce trial and errors
III. Overview of Western PowerIII. Overview of Western Power
1111
1. Includes Taean #7, 8 (1,000MW) and Cheongsong #1, 2 (600MW) under construction1. Includes Taean #7, 8 (1,000MW) and Cheongsong #1, 2 (600MW) under construction
2. FX rate of W1,193/US$ as of Dec. 31, 20032. FX rate of W1,193/US$ as of Dec. 31, 2003
April 2, 2001April 2, 2001
1,5841,584
8,8,9946 46 MWMW(1)(1)
W 3,038 billion (US$2.5 billion) W 3,038 billion (US$2.5 billion) (2)(2)
W 2,134 billion (US$1.8 billion) W 2,134 billion (US$1.8 billion) (2)(2)
37,09637,096 GWhGWh
EstablishedEstablished
Number of EmployeesNumber of Employees
Generation CapacityGeneration Capacity
Total Assets (2003)Total Assets (2003)
Power Sold (2003)Power Sold (2003)
Snapshot of Western Power Snapshot of Western Power
Revenues (2003)Revenues (2003)
Power Plant ComplexPower Plant Complex Taean, Pyeongtaek, Kunsan, Seoincheon, Samrangjin, Taean, Pyeongtaek, Kunsan, Seoincheon, Samrangjin, Cheongsong Cheongsong (1)(1)
BBB+ by S&P, Outlook: PositiveBBB+ by S&P, Outlook: PositiveCredit RatingCredit Rating
1212
Western Power’s ManagementWestern Power’s Management Strong management with a wealth of industry expertiseStrong management with a wealth of industry expertise
IndividualIndividual
Young-Cheol LeeYoung-Cheol Lee
Yoon-Tae KimYoon-Tae Kim
Gap-Jin ChoiGap-Jin Choi
Jeong-Kooc HanJeong-Kooc Han
PositionPosition
President & CEOPresident & CEO
Executive AuditorExecutive Auditor
Senior Vice PresidentSenior Vice PresidentPower Generation &Power Generation &
Construction DivisionConstruction Division
Senior Vice PresidentSenior Vice President General & General &
Finance DivisionFinance Division
ExperienceExperience
Secret Service for the President of Korea for 26 Secret Service for the President of Korea for 26 yearsyears
Managing Director, Management Information Managing Director, Management Information System and Public Relation Division, KEPCO System and Public Relation Division, KEPCO
Head of Uijeongbu and Incheon Branches, Head of Uijeongbu and Incheon Branches, KEPCOKEPCO
39 Years of Industry Experience39 Years of Industry Experience
Managing Director, Power Generation Dept., Managing Director, Power Generation Dept., Western Power and Samcheonpo T/P Plant Western Power and Samcheonpo T/P Plant Division, KEPCODivision, KEPCO
40 Years of Industry Experience40 Years of Industry Experience
Senior Vice President, Western PowerSenior Vice President, Western Power Vice President, KEPCOVice President, KEPCO Managing Director of Samcheonpo, BoryeongManaging Director of Samcheonpo, Boryeong T/P Plant Division, KEPCOT/P Plant Division, KEPCO 35 Years of Industry Experience35 Years of Industry Experience
Academic QualificationAcademic Qualification
Kwang-Joo Cheil High School Kwang-Joo Cheil High School
BA, Youngnam UniversityBA, Youngnam University MBA, Hanyang UniversityMBA, Hanyang University
BS, Yonsei UniversityBS, Yonsei University AMP, Cornell UniversityAMP, Cornell University
BS, Hanyang UniversityBS, Hanyang University PM (Project Management) PM (Project Management)
Program, Soong Shil UniversityProgram, Soong Shil University
1313
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Base Load Intermediate Load Peak Load
In Operation Under Construction
MW
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Base Load Intermediate Load Peak Load
In Operation Under Construction
MW
Western Power’s Plant Complex CapacityWestern Power’s Plant Complex Capacity 90% of capacity is located near the Seoul and Gyeonggi metropolitan areas90% of capacity is located near the Seoul and Gyeonggi metropolitan areas
Generation Capacity by Type of PlantGeneration Capacity by Type of Plant Plant Complex LocationPlant Complex Location
TaeanTaeanPyeongtaekPyeongtaek
KunsanKunsan
CheongsongCheongsong(Under Construction)(Under Construction)
CoalCoalLNGLNGBC OilBC OilPumped StoragePumped Storage
SeoincheonSeoincheon
SamrangjinSamrangjin
Seoul Metropolitan AreaSeoul Metropolitan Area
PyeongtaekPyeongtaekC/C (480 MW)C/C (480 MW)
SeoincheonSeoincheon(1,800 (1,800 MW)MW)
SamrangjinSamrangjinP/SP/S
(600 (600 MW)MW)
CheongsongP/S
(600 MW)
3,4803,480MWMW
PyeongtaekPyeongtaek(1,400 (1,400 MW)MW)
1,4661,466MW MW KunsanKunsan(1)(1)
(66 MW)(66 MW)TaeanTaean#1~6#1~6
(3,000 (3,000 MW)MW)
4,000MW4,000MW
Notes: Notes: As of Dec. 31, 2003As of Dec. 31, 2003
1. Kunsan (66MW) shut down in Jan. 20041. Kunsan (66MW) shut down in Jan. 2004
Taean (1000 MW)
1414
Western Power’s Plant ComplexesWestern Power’s Plant Complexes
Taean T/P Taean T/P Pyeongtaek Pyeongtaek T/P T/P
Seoincheon Seoincheon C/C C/C Kunsan T/PKunsan T/P(1)(1) Pyeongtaek Pyeongtaek
C/CC/CSamrangjinSamrangjin
P/SP/S
CCapacity (MW)apacity (MW)
Load TypeLoad Type
MMain Fuelain Fuel
Efficiency (%)Efficiency (%)
Utilization Utilization (%)(%)
# # of Unitsof Units
WeightedWeightedAvg. AgeAvg. Age
Note:Note: As of Dec. 31. 2003As of Dec. 31. 2003
1. Kunsan T/P shut down in Jan. 20041. Kunsan T/P shut down in Jan. 2004
3,0003,000 6666 1,4001,400 1,8001,800 480480 600600
66 11 44 1616 55 22
BaseBase IntermediateIntermediate IntermediateIntermediate PeakPeak PeakPeak PeakPeak
BituminousBituminous AnthraciteAnthracite B.C. OilB.C. Oil LNGLNG LNGLNG P/SP/S
39.6539.65 30.3830.38 38.1438.14 45.3345.33 41.3741.37 N.A.N.A.
88.9088.90 74.7074.70 48.9048.90 45.3045.30 21.2021.20 11.3011.30
5.65.6 35.335.3 21.621.6 11.411.4 10.610.6 18.118.1
IV. Financial OverviewIV. Financial Overview
1616
Western Power’s Financial Overview (2003)Western Power’s Financial Overview (2003)
AssetsAssets W 3,038 billion (US$2.5 billion)W 3,038 billion (US$2.5 billion)
– Fixed AssetsFixed Assets//Total Assets RatioTotal Assets Ratio : : 83.1%83.1%
W 1,050 billion (US$880 million)W 1,050 billion (US$880 million)– Debt-to-Equity RatioDebt-to-Equity Ratio : : 39.3% 39.3%
W 1,988 billion (US$1.7 billion)W 1,988 billion (US$1.7 billion)– Stake is Wholly Owned by KEPCOStake is Wholly Owned by KEPCO
Net Income Net Income : : W 253 billion (US$212 million) W 253 billion (US$212 million) – Net Margin: 11.9%Net Margin: 11.9%
LiabilitiesLiabilities
Shareholders’ EquityShareholders’ Equity
ProfitabilityProfitability
W 2,134 billion (US$1.8 billion)W 2,134 billion (US$1.8 billion)– EBIT / EBITDA : W 429 / 711 billionEBIT / EBITDA : W 429 / 711 billion
RevenueRevenue
Notes:Notes: As of Dec. 31. 2003As of Dec. 31. 2003
FX rate of W1,193/US$FX rate of W1,193/US$
1717
Western Power’s Financial ProfileWestern Power’s Financial Profile Western Power is one of the most profitable Korean gencosWestern Power is one of the most profitable Korean gencos Western Power has reduced leverage in an effort to restructure unfavorable debt with Western Power has reduced leverage in an effort to restructure unfavorable debt with
strong cash flow strong cash flow
Revenue & EBITDA (2003)Revenue & EBITDA (2003) Total Liabilities / Equity (2003)Total Liabilities / Equity (2003)
0%
20%
40%
60%
80%
100%
KO
SE
PC
O
KO
MIP
O
WE
ST
ER
NP
OW
ER
KO
SP
O
KE
WE
SP
O
Total Liabilities / Equity
0%
20%
40%
60%
80%
100%
KO
SE
PC
O
KO
MIP
O
WE
ST
ER
NP
OW
ER
KO
SP
O
KE
WE
SP
O
Total Liabilities / Equity
0
500
1,000
1,500
2,000
2,500
KO
SE
PC
O
KO
MIP
O
WE
ST
ER
NP
OW
ER
KO
SP
O
KE
WE
SP
O
Revenue EBITDA
Unit: KRW billion
0
500
1,000
1,500
2,000
2,500
KO
SE
PC
O
KO
MIP
O
WE
ST
ER
NP
OW
ER
KO
SP
O
KE
WE
SP
O
Revenue EBITDA
Unit: KRW billion
Average: 60.9%
1818
Western Power’s Key Financial RatiosWestern Power’s Key Financial Ratios Western Power has achieved improving profitabilityWestern Power has achieved improving profitability
Note:Note: FY 01 represents the period from Apr. 2, 2001 to Dec. 31, 2001FY 01 represents the period from Apr. 2, 2001 to Dec. 31, 2001
Net MarginNet MarginEBIT MarginEBIT MarginEBITDA MarginEBITDA Margin
29.1%
35.1%33.3%
0%
10%
20%
30%
40%
FY
01
FY
02
FY
03
29.1%
35.1%33.3%
0%
10%
20%
30%
40%
FY
01
FY
02
FY
03
15.7%
19.8% 20.1%
0%
10%
20%
30%
40%
FY
01
FY
02
FY
03
15.7%
19.8% 20.1%
0%
10%
20%
30%
40%
FY
01
FY
02
FY
03
8.9%11.5% 11.9%
0%
10%
20%
30%
40%
FY
01
FY
02
FY
03
8.9%11.5% 11.9%
0%
10%
20%
30%
40%
FY
01
FY
02
FY
03
1919
Western Power’s Key Credit StatisticsWestern Power’s Key Credit Statistics Western Power has healthy debt service and interest coverage ratiosWestern Power has healthy debt service and interest coverage ratios
Note:Note: FY 01 represents the period from Apr. 2, 2001 to Dec. 31, 2001FY 01 represents the period from Apr. 2, 2001 to Dec. 31, 2001
Net Debt / EBITDANet Debt / EBITDAEBITDA Interest CoverageEBITDA Interest Coverage
5.0 x
7.4 x
11.6 x
0.0 x
3.0 x
6.0 x
9.0 x
12.0 x
FY01 FY02 FY03
5.0 x
7.4 x
11.6 x
0.0 x
3.0 x
6.0 x
9.0 x
12.0 x
FY01 FY02 FY03
2.9 x
1.2 x0.9 x
0.0 x
1.0 x
2.0 x
3.0 x
4.0 x
FY01 FY02 FY03
2.9 x
1.2 x0.9 x
0.0 x
1.0 x
2.0 x
3.0 x
4.0 x
FY01 FY02 FY03
2020
Western Power’s Capex RequirementsWestern Power’s Capex Requirements
Projected Capital Expenditure (2004–2008)Projected Capital Expenditure (2004–2008)
Cheongsong plant is planned for completion in 2006Cheongsong plant is planned for completion in 2006 Initiated construction of Taean project in Nov 2003, targeted for completion in 2008Initiated construction of Taean project in Nov 2003, targeted for completion in 2008
0
200
400
600
800
2004 2005 2006 2007 2008
Unit: KRW billion
Capacity Addition Facility Improvement
0
200
400
600
800
2004 2005 2006 2007 2008
Unit: KRW billion
Capacity Addition Facility Improvement
459.8459.8
747.6747.6663.3663.3
425.9425.9367.1367.1
2121
Western Power’s Debt Maturity ProfileWestern Power’s Debt Maturity Profile Western Power is prepaying debt to further reduce leverage and smoothen cash flowWestern Power is prepaying debt to further reduce leverage and smoothen cash flow
Before RestructuringBefore Restructuring After RestructuringAfter Restructuring
181.5180.0
38.6
225.3
138.6
0
100
200
300
400
2004 2005 2006 2007 2008
Debenture
Unit: KRW billion
181.5180.0
38.6
225.3
138.6
0
100
200
300
400
2004 2005 2006 2007 2008
Debenture
Unit: KRW billion
0.0
181.5180.0186.8215.7
0
100
200
300
400
2004 2005 2006 2007 2008
Debenture
Unit: KRW billion
0.0
181.5180.0186.8215.7
0
100
200
300
400
2004 2005 2006 2007 2008
Debenture
Unit: KRW billion
2222
Western Power’s Debt ProfileWestern Power’s Debt Profile
US$ bond issuance in December 2002 diversified Western Power’s debt profileUS$ bond issuance in December 2002 diversified Western Power’s debt profile Western Power’s target financing mix is 50% from internal retained earning and 50% Western Power’s target financing mix is 50% from internal retained earning and 50%
from outside financingfrom outside financing
Type of InterestType of InterestCurrency DistributionCurrency DistributionType of InstrumentType of Instrument
USD24%
KRW76%
USD24%
KRW76%
26%
Fixed74%
26%
Fixed74%
25%
26%
25%
24% 25%
26%
25%
24%
Note: As of Dec. 31, 2003Note: As of Dec. 31, 2003
EurobondEurobondKEPCOKEPCO
Domestic BondDomestic Bond
KDB PrivateKDB PrivatePlacement BondPlacement Bond
CorporateCorporateBondBond
FloatingFloating
February 2004February 2004
Korea Western Power Co., Ltd. Korea Western Power Co., Ltd.
Presentation to Standard & Poor’sPresentation to Standard & Poor’s