Business Context and Reporting Period
Company: Woori Finance Holdings Co., Ltd. (Woori Financial Group Inc.)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Quarter ended March 31, 2010 (Filed May 18, 2010)
Business Overview: The registrant is a financial holding company under the Financial Holding Company Act of Korea. Its primary business is the acquisition and ownership of shares in financial service companies and the governance of such subsidiaries. The company does not engage in direct banking operations; its main income source consists of dividends and equity method earnings from its subsidiaries, including Woori Bank, Kyongnam Bank, Kwangju Bank, Woori Investment & Securities, and Woori Aviva Life Insurance.
Key Financial Metrics
All figures in millions of Korean Won (KRW) unless otherwise noted.
| Metric | Q1 2010 | Q1 2009 | Full Year 2009 |
|---|---|---|---|
| Operating Revenue | 649,938 | 238,992 | 54,061,689 (Consolidated) |
| Net Income | 573,017 | 162,273 | 1,026,024 (Majority Shareholders) |
| Operating Income | 573,168 | 163,783 | 1,383,261 (Consolidated) |
| Total Assets | 17,995,072 | 17,545,128 | 284,904,067 (Consolidated) |
| Total Liabilities | 3,844,505 | 3,824,205 | 268,916,936 (Consolidated) |
| Shareholders' Equity | 14,150,567 | 13,720,923 | 15,987,131 (Consolidated) |
| Cash and Due from Banks | 312,986 | 23,267 | 21,133,831 (Consolidated) |
| Debt Ratio (Liabilities/Equity) | 27.17% | 27.87% | — |
| BIS Ratio (Consolidated) | 12.25% | 12.35% | — |
| Earnings Per Share (Basic) | 711 KRW | 201 KRW | 1,273 KRW |
Material Changes vs. Prior Period
- Significant Profit Growth: Net income for Q1 2010 increased to 573.0 billion KRW, a substantial rise from 162.3 billion KRW in Q1 2009. This growth is primarily driven by a "Gain on valuation using the equity method of accounting" of 647.9 billion KRW in Q1 2010, compared to 235.2 billion KRW in Q1 2009.
- Dividend Payments: The company declared and accrued cash dividends of 80.6 billion KRW in Q1 2010, reducing retained earnings. No cash dividends were paid in Q1 2009.
- Cash Position: Cash and bank deposits surged to 313.0 billion KRW in Q1 2010 from 23.3 billion KRW in Q1 2009, largely due to dividend receipts from subsidiaries (381.6 billion KRW) and loan collections.
- Loan Portfolio: Direct loans held by the holding company decreased to 99.5 billion KRW from 139.3 billion KRW in the prior year, reflecting a repayment of 40.0 billion KRW.
- Subsidiary Performance: Woori Bank contributed 73.7% of the holding company's net income in Q1 2010, up from 68.5% in Q1 2009. Conversely, Woori Financial and Woori Aviva Life Insurance reported losses in Q1 2010, whereas they were profitable or break-even in the prior year.
Guidance, Outlook, Risks, and Contingencies
- Accounting Standards Transition: The company is preparing to adopt Korean International Financial Reporting Standards (K-IFRS) effective January 1, 2011. Significant differences from current standards include changes in consolidation scope, goodwill evaluation (impairment testing vs. amortization), and financial instrument classification. The company states it cannot currently estimate the financial impact of these changes.
- Management Improvement Plan: The company and its three major bank subsidiaries (Woori, Kyongnam, Kwangju) are subject to agreements with the Korea Deposit Insurance Corporation (KDIC). These agreements mandate improvements in financial ratios (BIS, ROA, NPL rates). Failure to meet targets could result in KDIC-mandated capital adjustments, mergers, or business closures.
- Credit Quality Risks: The filing details significant exposures to borrowers classified as "Sub-standard" or "Precautionary."
- Sub-standard/Loss: Total exposure to the 20 largest borrowers in these categories is 1.92 trillion KRW, with a coverage ratio of 58%.
- Precautionary: Total exposure to the 20 largest precautionary borrowers is 3.52 trillion KRW, with a coverage ratio of 34%.
- Key Borrowers: Notable exposures include Sung-Dong Ship Marine (379 billion KRW precautionary), PI Investment (357 billion KRW precautionary), and Kumho Tire (390 billion KRW sub-standard).
- Regulatory Compliance: The company is required to maintain a legal reserve equal to its contributed capital. As of March 31, 2010, legal reserves were 885.9 billion KRW against a capital of 4.03 trillion KRW.
Investor Verification Checklist
- Equity Method Volatility: Verify the sustainability of the 647.9 billion KRW gain from equity method valuation, which drove the majority of Q1 2010 net income.
- Non-Performing Loan (NPL) Trends: Monitor the resolution of large exposures in the shipbuilding and construction sectors (e.g., Sung-Dong Ship Marine, PI Investment) which are classified as precautionary or sub-standard.
- K-IFRS Impact: Assess the potential impact of the 2011 transition to K-IFRS on reported equity and earnings, particularly regarding goodwill and consolidation rules.
- Dividend Policy: Confirm future dividend payout ratios given the significant cash dividend distribution in Q1 2010 (80.6 billion KRW) and the company's reliance on subsidiary dividends for cash flow.
- KDIC Agreements: Track the performance of the three bank subsidiaries against the specific financial ratio targets set by the KDIC management improvement plan to avoid regulatory intervention.