Korea Electric Power Corp (KEP) 2011 Q3 法說會逐字稿

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, third quarter earnings results by Kepco.

This conference will start with a presentation, followed by a Q&A session. (Operator Instructions).

Now, we shall commence the presentation on the fiscal year 2011, third quarter earnings results by Kepco.

Good morning, good afternoon, everyone. My name is Chang-Keun Shin, Vice President of Kepco Treasury Department.

It is a pleasure to have this opportunity to announce Kepco's earnings results for the third quarter of 2011. On behalf of Kepco, I would like to thank you for participating in this conference call today.

Today's call will begin with a brief presentation on our earnings result, after which an opportunity for Q&A will follow.

[First of all to say], the financial information will be disclosed today is (inaudible) on a consolidated basis. At this time, Mr. Changyoung Ji, Senior Manager of Kepco's IR team will provide you with an overview of our earnings results.

Hello, everyone. My name is Changyoung Ji, and I am going to briefly run through financial result for the third quarter of 2011, starting with operating income.

In the third quarter of 2011, Kepco recorded a net operating income of [KRW177 billion], a year-on-year increase of KRW1.5 trillion, compared to the net operating income of KRW1.6 trillion, recorded in the same period last year.

Despite the increase in power sales revenues brought on by tariff hike in August 2010, and August 2011, there is an increase in the volume of power sales.

The decrease in net operating income was primarily due to increased fuel costs and power purchase cost, which went up 14.8%, and 44.9% respectively, compared to the third quarter of 2010.

Taking a closer look, operating revenues rose 9.6%, to KRW31.6 trillion. Power sales revenue, the principal component of our operating revenues, went up by [8.6%], recording KRW29.9 trillion.

This increase is attributed mainly to the overall tariff increase of 3.5% in August 2010, and 4.9% in August 2011, as well as 5.6% growth in power sales volume, which was caused by increased (inaudible).

Operating expenses witnessed a 15.3% rise in the third quarter of 2011, compared to the same period last year, recording KRW31.9 trillion.

Of Kepco's total operating expenses, fuel costs increased 14.8% year on year, to KRW15.8 trillion in the third quarter of 2011. The rise in fuel costs can be attributed to a [1.2%] increase in power generation, due to rising power demand, and a 13.6% jump in unit cost of fuel, such as coal and L&G.

At this time, I will explain Kepco's financial income and expenses. The Company's net financial loss for the third quarter of 2011 was KRW1.7 trillion, an increase of 23.4%, compared to the KRW1.4 trillion net loss in the third quarter of 2010. This is attributable to increase in interest payments, and increase in FX-related loss.

Equity income of Kepco affiliates totaled KRW118 billion, an increase of KRW52 billion over the KRW66 billion recorded in the third quarter of 2010. This is attributable to a significant rise in net income from our overseas affiliates, which recovered from a KRW17 billion net loss in the third quarter of 2010, to a KRW70 billion net income in the third quarter of 2011.

As a result of the above factors, we recorded a net loss of KRW1.37 trillion for the third quarter of 2011, as compared to a net loss of [KRW185 billion] for the third quarter of last year.

This concludes my review of Kepco's earnings results for the third quarter of 2011. Today's Q&A session will be held by Chang-Keun Shin, Vice President of Kepco's Treasury Department.

(inaudible) today I am joined by Kepco's [IR] committee members in charge of finance, tariffs and (inaudible) etc. At this time, we are prepared to take any questions you may have.

(Operator Instructions). Geoff Boyd, CLSA.

Just a quick question on the interest expense; I wasn't clear on the Excel file you sent around. But how much are you capitalizing of the interest? Like in the past, I think it was around 19% last year, but do you know what percentage is being capitalized this year?

(interpreted) Unfortunately, we don't have the exact numbers with us, so please let us go back and check, and get back to you at a later time.

Okay, thanks. And are you able to give us the updated view on 2011, in terms of your expectations for the full year, in terms of fuel expense and power purchased expense?

(interpreted) To cover the fuel costs, by the end of this year, the total cost we forecast to be KRW21,780 billion. This is a 14.7% year-over-year increase. And we're currently checking the numbers for the power purchased figure.

For the total power purchased amount up to the third quarter, is KRW5,342 billion, and so for the full year, we forecast roughly about KRW7 trillion.

Yes, because on the fuel cost, your total fuel cost for the third quarter was almost KRW5 trillion exactly. But if you actually have KRW21.78 trillion for the year, then that would imply almost KRW6 trillion in the last quarter of the year, the fourth quarter, which seems a bit high, because normally the third quarter consumption of electricity is higher, I think, because of summer usage, air conditioning, whatever. But the fourth quarter, do you think it'll be KRW6 trillion in fuel cost?

(interpreted) The KRW21.78 trillion forecast that we mentioned use several assumptions, including the exchange rate, the oil price, and the bituminous coal price. And as you have correctly mentioned, historically, Q4 we declare a smaller number than Q3. And so possibly the difference comes from some of the assumptions that we're using to do our forecast. We have given you a full-year forecast, based on our estimate what the Q4 would be like.

Okay, fair enough. Yes, I know that, generally, you don't like to talk about this, but what about the tariff hikes? What's the latest word on that? There's been some talk about the Government doing something in the first half of next year.

(interpreted) Regarding the tariff adjustment, there is a consensus that we need to increase the tariff before the onset of the winter season. However, the final position is left up to the Government, and so we are currently unsure about the actual timing of the increase of the tariff. But, clearly, we're recognizing that there is a growing demand for a tariff increase.

Okay. That's it from me, thank you very much.

Currently, there are no participant question. (Operator Instructions). Geoff, CLSA.

Sorry, just one last question on the sale of electricity power. It was up 6% year on year in the third quarter. What are we expecting for the full year for the fourth quarter for that line? What are you budgeting for in terms of sale of electricity power?

(interpreted) In terms of the volume growth for the power sales, assuming that GDP grows at 4.2% in the Q4, we believe that the growth rate will be 5.3%. Correction, for the full year for growth, it's 5.3% and for Q4, 4.8%.

What will be the growth in the revenue, because you also have the tariff hike effect?

(interpreted) In terms of the revenue sales amount, we forecast the growth to be 8.7%.

Sorry, 8.7%?

8.7%.

And that's for the year, right?

Right.

Okay, thank you very much.

Currently, there are no participant questions. (Operator Instructions).

(interpreted) While we are waiting for the next question, we can go back to the earlier question raised regarding our capitalization ratio for the interest expense up to Q3; that is 21.71%.

Currently, there are no participant questions. (Operator Instructions).

If we have no further questions, we'll conclude the conference call. If you have additional questions, or [for any assistance], please feel free to contact our IR staff at any time. Once again, thank you for your interest in Kepco, and for joining in this conference call today. Thank you again. Bye.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.