Korea Electric Power Management Discusses Q3 2011 Results - Earnings Call Transcript

Korea Electric Power Corporation ( KEP)

Q3 2011 Earnings Call

November 16, 2011 3:00 AM ET

Executives

Chang-Keun Shin – VP, Treasury Department

Changyoung Ji – Senior Manager, IR

Analysts

Geoffrey Boyd – CLSA

Presentation

Operator

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 Q&A session. (Operator Instructions) Now we shall commence the presentation on the fiscal year 2011 third quarter earnings results by KEPCO.

Chang-Keun Shin

Good morning and good afternoon everyone. My name is Chang-Keun Shin, Vice President of KEPCO’s 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 all for participating in this conference call today. Today’s call 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 preliminary and is on 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.

Changyoung Ji

Hello everyone, my name is Changyoung Ji and I am going to briefly run through the financial results 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 revenue, followed by a tariff hike in August 2010 and August 2011 as well as an increase in the volume of power sales, decrease in net operating income was primarily due to increased fuel costs and power purchase costs 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 8.2% totaling KRW29.9 trillion. This increase is attributed mainly to the overall average 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 demand (inaudible). Operating expenses witnessed a 15.3% rise in the third quarter of 2011 compared to the same period last year, recording KRW21.9 trillion.

KEPCO’s total operating expenses, fuels 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 LNG. 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.

[Foreign Language – Korean]

Equity net 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 primarily 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 overview of KEPCO’s earnings results for the third quarter of 2011.

Today’s Q&A session will be held by Mr. Chang-Keun Shin, Vice President of KEPCO’s Treasury Department.

Chang-Keun Shin

This is Chang-Keun Shin again. Today I am joined by KEPCO’s IR members in-charge of finance, tariffs and overseas businesses. At this time we are prepared to take any questions you may have.

Question-and-Answer Session

Operator

Now Q&A session will begin. (Operator Instructions) The first question will be given by Geoff from CLSA. Please go ahead sir.

Geoffrey Boyd – CLSA

Yes, thank you for taking the time to do this call. Thank you very much. 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?

Unidentified Company Representative

[Foreign Language – Korean]

Unidentified Company Representative

[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.

Geoffrey Boyd – CLSA

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?

Unidentified Company Representative

[Foreign Language – Korean]

Unidentified Company Representative

[Interpreted] Talking about the first fuel cost 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.

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