Korea Electric Power Corp (KEP) 2010 Q4 法說會逐字稿

Hello, everyone. This is Chang-Keun Shin, Vice President and Treasurer of KEPCO. We would like to take this opportunity to announce our earnings result for the fourth quarter of year 2010. And on behalf of KEPCO, I would like to thank all of you for attending our conference call today.

This call will begin with a brief presentation on the earnings result, followed by a Q&A session. Please note that the financial information to be disclosed today is on a preliminary and non-consolidated basis.

Now, Ms. Cecilia Oh, Senior Manager of our IR team, will give a presentation on the earnings result.

Hello, everyone. I'm Cecilia Oh, Senior Manager of the IR team. Let us briefly run through the financial results, starting with the operating income.

In the fourth quarter of 2010, we recorded net operating profit of KRW98b, up by KRW738b compared to net operating loss of KRW649b in the fourth quarter of 2009. This was primarily due to an increase in power sales volume and revenues, impacted by a surge in electricity consumption, as well as tariff hikes in August 2010, together with our intensive cost-control efforts and stabilized cost of power purchase in November 2010.

Looking more closely, operating revenues went up by 19.4% to KRW10.3 trillion. The sale of electricity, the principal component of our operating revenues, increased 13% to KRW9.5 trillion. Such increase was mainly affected by an overall average tariff increase of 3.5% in August 2010, as well as a 7.7% growth in the power sales volume, mainly due to a substantial demand growth for the electricity heating, an improvement of consumer sentiment and an increased demand from the industrial sector as a result of economic recovery.

Operating expenses grew 10.1% to KRW10.2 trillion, of which power purchase costs increased 11.3% to KRW8.5 trillion, due to an 8.1% increase in the volume of power purchased and a 3% increase in unit cost of power purchased.

Next, let me explain the non-operating income side. Net non-operating income was a KRW71b loss in the fourth quarter, compared to net profit of KRW95b in the previous year. This was mainly impacted by lower income from affiliates, such as six Gencos and Kogas, among others.

Net equity method income decreased to KRW104b in the fourth quarter of 2010, compared to KRW278b of the same period of last year, primarily resulting from high fuel price pressure on our six generation subsidiaries.

Interest costs increased 15.8% to KRW263b, mainly due to an increase in our non-consolidated interest-bearing debt from KRW21.8 trillion as of the end of 2009 to KRW26.3 trillion as of the end of 2010. As a result of the foregoing, we reported net loss of KRW18.2b in the fourth quarter of 2010, which has improved compared to net loss of KRW366b in the same period of 2009.

This concludes our presentation on earnings results for the fourth quarter of 2010. Next, we'll have a Q&A session, which will be hosted by our Vice President and Treasurer of KEPCO, Mr. Chang-Keun Shin.

Yes. I'm Chang-Keun Shin again. [I must] with our IR committee members in charge of major IR issues such as finance, tariff, overseas business, etc., participating in this call. Now, we are open for your questions. Please go ahead with your questions.

(Operator Instructions). The first question will be given by Geoffrey Boyd from CLSA. Please go ahead, sir.

Okay. Thanks for your time. I very much appreciate it. Just, I know that you generally don't release the consolidated numbers now, but I'm just wondering if there's any consolidated numbers that you can give on the cost line, because it seemed like maybe the fuel cost line was doing a little bit better than what we thought but it's difficult to reconcile it. Do you know the full fuel cost with the Gencos for 2010, or for the fourth quarter?

(Interpreted). As you have mentioned, we do not disclose consolidated numbers, but we will look at the fuel cost, as you have mentioned. As for the fuel cost, for six Gencos that we have under KEPCO, the fuel cost totals [KRW19 trillion]. And this total fuel cost, including KEPCO itself, is KRW18.8 trillion, and that reflects the internal adjustment portion which is around KRW300b.

Just for your information, compared to the previous year, the total P&L on the book was KRW15.5 trillion. And if you look at the number this year, on a year-on-year basis, the improvement was 20.9%.

Okay. Thanks very much for that. And while we're on this, are you -- can you -- at liberty to give out the depreciation and maybe the maintenance cost, those two line items, as well?

(Interpreted). I would like to state the fuel cost for Q4 only for 2010, including the depreciation cost as well as the maintenance cost. As for fuel cost for Q4 2010, it is KRW4.8 trillion, maintenance cost is KRW518.4b and depreciation cost is KRW1.5 trillion.

Okay. Great. And just I guess we -- just asking about an update on the tariff reform system. Everything is supposed to go ahead in terms of July, I believe, for tariff reform, but can you confirm that? My understanding is that the government is supposed to finalize that and approve the new tariff structure in the next month or so, because KEPCO will need the second quarter to educate their customers about this and put it on their website and let people know about it. Is that still the timeline? And does the government -- are we still relying on the government to approve it in the next month or two?

(Interpreted). As far as the timeline, the timeline you have just mentioned is still most updated one. And as far as the government approval is concerned, we believe that the approval will happen within February of this year.

Okay. Great.

Geoff, please note that the consolidated numbers we just gave you are the non-audited and estimated numbers. Okay?

Okay. That's fine. Yes, I think that's the end of my questions. Thanks.

Okay. Then next question, please.

(Operator Instructions). The following question is by [Tim Dowd] from [GCI]. Please go ahead, sir.

Hi. Good afternoon. Thanks very much for the call and the opportunity to ask some questions. Could you just update me on what you're thinking about your fuel costs in 2011 by different fuel sources? What do you think your unit costs are going to be rising by this year? What have you contracted, so far?

And what are you thinking in terms of volume growth and overall GDP growth for Korea? And also, your won assumptions, that would be good too. Thank you.

(Interpreted). First, on the fuel cost forecast, for six Gencos under KEPCO we believe the total fuel cost will reach KRW19.96 trillion, which is up by 4.9%.

If I give you a breakout, for bituminous coal there will be increase of 0.5%, and unit price will go up by 8.8%. So, in terms of total fuel cost for bituminous coal will be 9.3%. For LNG, the volume will go up by 2.7%, but unit price will go down by 0.8%, and the total fuel cost will be up by 1.8%. And for oil, we believe the total volume will go down by 3.8% and the total unit price will go down by 2.9%, and the total fuel cost will go up by 6.6%.

And our won assumption for this year is KRW1,100. Currently, the won is fluctuating around KRW1,121 level. We believe the won level will go down toward the year end, and will even go below KRW1,100 level.

And for bituminous coal, we have secured 50% of total assumed consumption for this year, and the unit price is $105 per tonne based on CFR. Just for your information, our unit price in 2010 was $93.97. And for the sales power, we believe the sales will go up by 4.7%, assuming that our GDP growth assumption is 4.5%.

Great. Thank you very much.

A pleasure. Next question, please.

(Operator Instructions). The following question is by Geoffrey Boyd from CLSA. Please go ahead, sir.

Yes. Hi. Just two more follow-up questions. On the new IFRS accounting standards, my understanding is that the asset base will be revalued upwards, and I was told that it was going to be about KRW21 trillion for the asset base and maybe KRW16 trillion for the equity base. And then, I was also under the impression that maybe the depreciation cost would be closer to KRW6 trillion or KRW6.2 trillion this year for -- can you confirm whether those numbers are -- you agree with those numbers, or have they changed or anything like that?

(Interpreted). For the asset revaluation through IFRS adoption, we have refined or conducted revaluation to compensate or offset the reduction from the depreciation cost already.

(Interpreted). The total asset revaluation, including six GENCOs, was KRW21 trillion, as you have mentioned. If we break that number between KEPCO and six Genco, KEPCO will be KRW11 trillion, while six Genco will have KRW10 trillion. For depreciation cost, KEPCO and six Genco combined, it is KRW6.2 trillion, as you have mentioned. If we break that down, KEPCO would be KRW2.6 trillion, while six Genco would be KRW4 trillion.

I'm sorry; I need to make one adjustment. For six Gencos, the total depreciation cost would be KRW3.6 trillion.

And what about the equity base? How much will the equity base rise by?

(Interpreted). The equity increase that you have mentioned would be KRW15.5 trillion.

Okay. Great. Okay. I think that's -- one thing I was going to ask was you mentioned 50% of your coal costs are locked at $105. Does that mean that the remaining 50% -- I mean what sort of cost can we expect for that? Because if coal right now is about $120 or $125, is that what you're going to be paying for the remainder of the coal, or will --?

(Interpreted). If you look at the bituminous coal price at the moment, it is surging due to the natural disasters of this flood in Australia. If you look at bituminous coal produced in Australia, it is high calorie with high quality; therefore the unit cost is also very high. As compared to Indonesia and China, those two countries' coal have relatively low calorie value with lower price. So we would like to offset the increased price of coal with this low-cost coal from other countries and maintain this $105 coal price level.

Okay. I guess what you're saying, though, you would require more coal at the $105 level, to equate to the same coal coming from Australia at $125. So the volume would go up, right?

(Interpreted). Yes. As you have rightly pointed out, we believe the total purchase volume will go up.

Okay. That's it from me. Thanks very much.

Yes. Next question, please.

(Operator Instructions).

Okay. If you have no further questions, we'll conclude the conference call. If you have any additional questions or need any help, please contact our IR at any time. Once again, thank you for your interest in KEPCO and I thank you for joining our conference call today. Thank you again. Bye.

Portions of this transcript that are noted "interpreted" were interpreted on the conference call by an Interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.