kowepo –korea’s leading power generation company
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KOWEPOKOWEPO –– Korea’s Leading Power Generation CompanyKorea’s Leading Power Generation Company
Strictly Private and Confidential
Investor PresentationInvestor PresentationApril 2012April 2012
Disclaimer
This presentation has been produced by Korea Western Power Co., Ltd. (the “Company”) solely for information purposes. The information contained in this presentation has not been independently verified. No representation or warranty express orimplied is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of such information or any opinion contained herein. The information contained in this presentation should be considered in the context of the circumstances prevailing at the time and will not be updated to reflect material developments that may occur after the date of the presentation. Neither Company nor any of its affiliates, advisors or directors shall have any liability whatsoever (in negligence or otherwise) for any loss arising from any use of this presentation or its contents or otherwise arising in connection with this presentation.
This presentation does not constitute or form part of an offer, invitation or recommendation to purchase or subscribe for anysecurities and no part of it shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation thereto.
The presentation may contain statements that reflect Company’s beliefs and expectations about the future. These forward-looking statements are based on a number of assumptions about the future, some of which are beyond Company’s control. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. Company does not undertake any obligation to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation.
All or any part of this presentation may not be taken away, reproduced, redistributed or retransmitted in any manner. The information provided herein shall be kept confidential unless such information is already publicly available.
By attending this presentation, you are agreeing to be bound by the foregoing limitations.
1
This presentation has been produced by Korea Western Power Co., Ltd. (the “Company”) solely for information purposes. The information contained in this presentation has not been independently verified. No representation or warranty express orimplied is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of such information or any opinion contained herein. The information contained in this presentation should be considered in the context of the circumstances prevailing at the time and will not be updated to reflect material developments that may occur after the date of the presentation. Neither Company nor any of its affiliates, advisors or directors shall have any liability whatsoever (in negligence or otherwise) for any loss arising from any use of this presentation or its contents or otherwise arising in connection with this presentation.
This presentation does not constitute or form part of an offer, invitation or recommendation to purchase or subscribe for anysecurities and no part of it shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation thereto.
The presentation may contain statements that reflect Company’s beliefs and expectations about the future. These forward-looking statements are based on a number of assumptions about the future, some of which are beyond Company’s control. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. Company does not undertake any obligation to update any forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation.
All or any part of this presentation may not be taken away, reproduced, redistributed or retransmitted in any manner. The information provided herein shall be kept confidential unless such information is already publicly available.
By attending this presentation, you are agreeing to be bound by the foregoing limitations.
Table of Contents
Regulatory Environment & IndustryRegulatory Environment & Industry
Operation OverviewOperation Overview
22
33
11 Company OverviewCompany Overview
2
Operation OverviewOperation Overview
Financial ManagementFinancial Management
AppendixAppendix
33
44
Company Overview
Company Name Korea Western Power Co. Ltd.
Establishment Date April 2, 2001 (spun off from KEPCO)
Ownership 100% owned by KEPCO (51% owned by the Korean government)
Number of Employees 1,725
Assets KRW 5,287 bn
3
Assets KRW 5,287 bn
Sales KRW 5,208 bn
Capacity of Equipment 8,404 MW, 5 Power plants with 44 units
Power Generation 52,903 GWh
Credit Rating A1 (Moody’s) / A (S&P)
Source: FSS (Financial Supervisory Service in Korea), Bloomberg (as of 2011), “Statistics of Electric Power in Korea”, KEPCO (January 2012)
§ Base load, intermediate load, and peak load accounts for 48%, 17% and 35% respectively in terms of operating generation capacity
§ Over 91% of capacity is within or near the Seoul metropolitan area– Seoul metropolitan areas comprise approximately 40% of total national demand
Power Plants Portfolio
Generation Capacity by Type of Plant
Base Load Intermediate Load Peak Load
4,000MW
2,998MW
Location of Plant Complex
CoalLNGBC OilHydro Solar
Metropolitan AreaPower Plant Region
4
Source: company data (as of 2011) Note: T/P denotes “Thermal Power Plant”, C/C denotes “Combined Cycle”Note: T/P denotes “Thermal Power Plant”, C/C denotes “Combined Cycle”
Base Load Intermediate Load Peak Load
Taean T/P(4,000 MW)
Pyeongtaek T/P(1,400 MW)
Seoincheon C/C(1,800 MW)
PyeongtaekC/C (480 MW)
GunsanC/C (718 MW)
2,998MW
1,400MW Taean
Pyeongtaek
Gunsan
Seoincheon
Samrangjin
Seoul & Gyunggi-do
(MW) (GWh)
KOWEPO’s Market Position - 2011
Others12,51815.8%
KHNP24,02130.3%
EWP8,81511.1%
KOSPO9,23911.6%
KOWEPO8,40410.6%
KOSEP8,39610.6%
KOMIPO7,949 10.0%
Others38,4108.3%
KHNP152,44333.0%
EWP51,12111.1%
KOSPO58,08512.6%
KOWEPO52,90311.4%
KOSEP58,03912.6%
KOMIPO51,355 11.1%
Market Share by Sales VolumeMarket Share by Generation Capacity
5
Total Generation Capacity79,342 MW
Total Electricity Sales462,356 GWh
Source: “Statistics of Electric Power in Korea”, KEPCO (January 2012)
Others12,51815.8%
KHNP24,02130.3%
EWP8,81511.1%
KOSPO9,23911.6%
KOWEPO8,40410.6%
KOSEP8,39610.6%
KOMIPO7,949 10.0%
Others38,4108.3%
KHNP152,44333.0%
EWP51,12111.1%
KOSPO58,08512.6%
KOWEPO52,90311.4%
KOSEP58,03912.6%
KOMIPO51,355 11.1%
§ Constantly growingpower consumption
§ 11.4% of the sales volume share for domestic power market in 2011
§ Strengtheningcompetitivenessthrough domestic &overseas investment
§ Cancelled privatization plans for Gencos
§ Market-oriented publicenterprise
§ Application of the cost-reflecting pricing mechanism
Investment Highlights
§ Continuous cash flows from operations - EBITDA : KRW503bn
§ Balanced and flexible debt portfolio – Well-diversified maturity profile
§ Second lowest debt to equity ratio among Gencos (50.0%)
§ Increasing Capacity Factor
§ Top-tier Capacity Factor with 74.5% in 2011
§ Long-term and medium-term raw material contracts
Industry Dynamics & Market Position
Supportive Regulatory Environment
Cost-Effective Operations Solid Financial Profile
6
§ Constantly growingpower consumption
§ 11.4% of the sales volume share for domestic power market in 2011
§ Strengtheningcompetitivenessthrough domestic &overseas investment
§ Cancelled privatization plans for Gencos
§ Market-oriented publicenterprise
§ Application of the cost-reflecting pricing mechanism
§ Continuous cash flows from operations - EBITDA : KRW503bn
§ Balanced and flexible debt portfolio – Well-diversified maturity profile
§ Second lowest debt to equity ratio among Gencos (50.0%)
§ Increasing Capacity Factor
§ Top-tier Capacity Factor with 74.5% in 2011
§ Long-term and medium-term raw material contracts
Source: Company Data
Table of Contents
Regulatory Environment & IndustryRegulatory Environment & Industry
Operation OverviewOperation Overview
22
33
11 Company OverviewCompany Overview
7
Operation OverviewOperation Overview
Financial ManagementFinancial Management
AppendixAppendix
33
44
Assets: 94.77Revenues: 43.21
Transmission & Distribution
Holding 100% Ownership of
Gencos
51%
Ownership
100% Ownership
Domestic Power Industry Structure
KEPCO
Public Corporation Act
Electricity Business Law
Basic Plan for Energy
Development
Environmental Policy Law
Strong Government Support
8
Transmission & Distribution
Holding 100% Ownership of
Gencos
91.7% market share of sales
volume
100% Ownership
Assets: 5.29Revenues: 5.20
Thermal &Renewable
Assets: 40.04Revenues: 6.61
Nuclear &Hydro
KHNP
Assets: 6.45Revenues: 4.39
Thermal &Renewable
KOSEP
Assets: 5.33Revenues: 5.03
Thermal &Renewable
KOMIPO
Assets: 6.04Revenues: 5.91
Thermal &Renewable
KOSPO
Assets: 5.69Revenues: 4.81
Thermal &Renewable
EWPKOWEPO
11.4% Sales Volume Share
Gencos
Unit : KRW in trillions
Source: FSS (Financial Supervisory Service in Korea) (as of 2011), “Statistics of Electric Power in Korea”, KEPCO (January 2012)
1999 2000 20022001 2003 2004 2005 2007 20082006 2009
§ MOCIE * announced restructuring plan for power industry
§ Initiation of KOSEP privatization
The power industry restructuring plan delayed and the former privatization plan for Gencos cancelled
2010
§ Gencos were designated as market-oriented public enterprises
§ IPO of KOSEP was delayed
Latest Power Industry Operating Environment
2011
§ Introduction of vesting contracts for Gencos deferred
§ Wholesale competition was put on hold
* MOCIE: Ministry of Commerce, Industry and Energy(currently renamed as MKE (Ministry of Knowledge Economy))
2012
9
1999 2000 20022001 2003 2004 2005 2007 20082006 2009
§ Incorporation of generation companies
§ Cost-based pool bidding (“CBP”) mechanism
§ Plan to separate KEPCO’s distribution sector was halted due to substantial risk and uncertain benefits from the separation plan
Update on Gencos Privatization and Consolidation Plan§ Privatization plan for KEPCO and its Gencos was indefinitely suspended in July 2008§ Gencos have been designated as market oriented public firms by government to create a more efficient
management structure and enhance their competitiveness in 2011
2010
§ Privatization plan for Gencos indefinitely suspended
2011
§ Implementation of TWBP (1) was suspended
2012
Note:
1. TWBP= Two Way Bidding Pool
Nationwide Power Consumption
462482
503521
536551
567582
598612
626640
654
300
400
500
600
700
2012 2015 2020 2024
Power consumption
History of Power Consumption Electricity Demand Forecast
§ Power consumption has continued to rise on the back of strong economic growth at an average rate of 6.0% per annum from 2000 to 2011
§ Power demand is expected to grow at an average rate of 2.9% per annum from 2012 to 2024
(Unit: TWh) (Unit: TWh)
10
Source: “Statistics of Electric Power in Korea”, KEPCO / The Bank of Korea (as of 2011) / “Electricity Supply and Demand Basic Plan #5”, MKE (as of 2011)
462482
503521
536551
567582
598612
626640
654
300
400
500
600
700
2012 2015 2020 2024
Power consumption
§ Power Price ComparisonPrice type Price Remarks
Capacity Payment
(CP)
Base LoadKRW 7.73/kWh
KRW 7.73/kWh as a base price, CP is differentiated by regions, by seasons and by hoursNon Base Load
§ Application of The Adjusted Coefficient of SMPü KOWEPO can pass through 100% of its fuel cost through the energy priceü Electricity Generation Cost Evaluation Committee annually determines The Adjusted Coefficient
Updating on Electricity Pricing Mechanism
11
Capacity Payment
(CP)
Energy Price
Base Load[Max {(SMP-Fuel Cost), 0} x The Adjusted Coefficient + Fuel Cost]
The Adjusted Coefficient (Jan. 2012~ )ü Nuclear : 0.2498 (←0.2086)ü Coal : 0.1560 (←0.1176)ü Anthracite : 0.5000 (←0.2002)ü Others/General : 0.7634 (←0.6602)
Non Base Load
※ SMP : System Marginal Price
Introduction of “The Adjusted Coefficient of SMP” will motivate Gencos to construct base load power plants and lead to fair competition among Gencos. It will increase the efficiency of the power market by stimulating cost reduction
§ Newly raised Adjusted Coefficient will increase KOWEPO’s operating income
Source: company data (as of January 2012)
Regulatory Environment & IndustryRegulatory Environment & Industry
Operation OverviewOperation Overview
22
33
11 Company OverviewCompany Overview
Table of Contents
12
Operation OverviewOperation Overview
Financial ManagementFinancial Management
AppendixAppendix
33
44
KOWEPO operates 44 generation units with total generation capacity of 8,404MW
Power Plant Facilities in Operation
Power Plant Type Fuel Type Number of Units Capacity(MW)
Capacity Factor (%)
Taean
Thermal Bituminous 8 4,000 96.2
Solar - 1 0.1 12.4
Small Hydro - 4 2.2 21.5
PyeongtaekThermal BC Oil 4 1,400 21.3
13
Source: company data (as of 2011)
PyeongtaekCombined Cycle LNG GT (1) : 4
ST (2) : 1320160 35.0
Seoincheon Combined Cycle LNG GT (1) : 8ST (2) : 8
1,200600 76.0
GunsanSolar - 1 0.3 15.4
Combined Cycle LNG GT (1) : 2ST (2) : 1 718 79.6
Samrangjin Solar - 2 3 14.2
TOTAL 44 8,404 74.5
Note: 1. GT: Gas Turbine2. ST: Steam Turbine
Operational Strength
74.5%
83.3%
74.5% 74.6%
69.5%
50%
60%
70%
80%
90%
KOWEPO KOSEP KOMIPO KOSPO EWP
Increasing Historical Capacity Factor Capacity Factor (KOWEPO vs. Comps)
64.6%
74.5%
58.8%
30%
40%
50%
60%
70%
80%
2009 2010 2011
14
Source: company data (as of 2011)
74.5%
83.3%
74.5% 74.6%
69.5%
50%
60%
70%
80%
90%
KOWEPO KOSEP KOMIPO KOSPO EWP
64.6%
74.5%
58.8%
30%
40%
50%
60%
70%
80%
2009 2010 2011
Source: company data (as of 2011)
§ KOWEPO plans to maintain its strong market position and superb operating performance promoting growth with new plant constructions and new business
New Business - Domestic
Power Plant Type Generation Capacity
Construction Period Remarks
New Plant
Taean IGCC IGCC 380MW Nov. 2011~Nov. 2015
§ Integrated Gasification Combined Cycle§ R&D project supported by Government
Taean #9, #10 Thermal 2,100MW July 2012~Dec. 2016 § Largest unit capacity in Korea
15
Taean #9, #10 Thermal 2,100MW July 2012~Dec. 2016 § Largest unit capacity in Korea
Pyuntaek 2nd Combined Cycle 920MW Oct. 2012~Oct. 2014
§ Emergency power plant to prepare exponential increase in demand in summer of 2013
§ Initiation of Gas Turbine in July 2013
Equity Investment
Garolim Tidal 520MW May 2012~Mar. 2019
§ Consortium With Posco E&C, Daewoo E&C, Lotte E&C§ Project Financing§ KOWEPO to be in charge of construction management,
operation and maintenance
Dongducheon Combined Cycle 1,880MW June 2012~Dec. 2014
§ Consortium with Samsung E&C, Hyundai Development Company§ Project Financing§ KOWEPO to be in charge of construction management,
operation and maintenance
Source: company data (as of March 2012)
§ KOWEPO plans to diversify its revenue through overseas expansion by leveraging its proven experience in operating and maintaining power plants
§ Project financing as a key funding source to minimize financial risk
New Business - Overseas
Power Plant Type Generation Capacity Remarks
Equity Investment
Saudi Arabia Rabigh Thermal 1,204 MW §O&M from KEPCO-ACWA Consortium §KOWEPO to be in charge of O&M
16Source: company data (as of March 2012)
India Maharashtra C/C 388MW §Consortium with PPIL (construction started in Jan. 2012)§Build, Own, Operate & O&M
Laos Xe-Namnoi Hydro 390MW§Consortium with SK E&C, Ratchaburi, LHSE§Build, Own, Operate, Transfer & O&M§Under PPA Negotiation
Indonesia Takalar Thermal 200MW§Consortium with Sambu, Yooho & MSC §Build, Own, Operate & O&M §Tariff approved
Resources Development
Indonesia Mutiara Jawa Floating Loading Facility 8 mil ton/yr §Consortium with KOFT, STX, KORINDO
§Setting up O&M, Ship Building Contracts
Capital Expenditure Schedule
Capital Expenditure Plan
-
500
1,000
1,500
2,000
2,500
3,000
2012 2013 2014
Expansion Maintenance Others
Unit : KRW billions
2,014
2,650
3,001
17
Source: company data (as of March 2012)
-
500
1,000
1,500
2,000
2,500
3,000
2012 2013 2014
Expansion Maintenance Others
Cost Efficiency
5444 50
86
110
148
129
108107
0
20
40
60
80
100
120
140
160
2009 2010 2011
Coal Heavy Oil Combined(LNG)
Fuel CostUnit : KRW / kWh
§ Fuel costs account for 87.3% of production costs § Long-term supply contracts assure adequate supply
of the raw materials § Hedging risks by adjusting portion of long-term
contracts with market volatility
Coal
Long-term62%
Short-term38%
LNG
Long-term100%
18
Others, 1.3%
Coal, 36.9%
LNG, 53.3%
Oil, 8.5%
Fuel Cost Composition
Source: company data (as of 2011)
5444 50
86
110
148
129
108107
0
20
40
60
80
100
120
140
160
2009 2010 2011
Coal Heavy Oil Combined(LNG)
Major Suppliers of CoalUnit : kiloton
Total 13,698 kilotons(1)
Note: 1. Represents fuel costs other than that required to generate electricity, such as fuel required to start up the generating units
Regulatory Environment & IndustryRegulatory Environment & Industry
Operation OverviewOperation Overview
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11 Company OverviewCompany Overview
Table of Contents
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Operation OverviewOperation Overview
Financial ManagementFinancial Management
AppendixAppendix
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Capital Structure
Capital Structure
Assets
Liability
ShareholdersEquity
§ KRW 5,287 bn- Non-Current Assets/Total
Assets Ratio : 77.6%
§ KRW 2,335 bn
§ KRW 2,952 bn- wholly owned by KEPCO
5,388 5,287
4,482
2,3542,132
2,3352,127
3,2562,952
0
1,000
2,000
3,000
4,000
5,000
6,000
2009 2010 2011
(KR
W b
illion
)
Total Assets Total Shareholders' Equity Total Liability
20
ShareholdersEquity
Revenue
EBITDA
§ KRW 2,952 bn- wholly owned by KEPCO
§ KRW 5,208 bn
§ KRW 503 bn- Net Income : KRW 42 bn
5,388 5,287
4,482
2,3542,132
2,3352,127
3,2562,952
0
1,000
2,000
3,000
4,000
5,000
6,000
2009 2010 2011
(KR
W b
illion
)
Total Assets Total Shareholders' Equity Total Liability
Source: FSS (Financial Supervisory Service in Korea) (as of 2011) Note: 1. Financial data based on non-consolidated K-GAAP accounting standard 2. Financial data based on consolidated K-IFRS accounting standard
(1) (2) (2)
EBITDARevenue
Financial Performance (1)
(KRW billion) (KRW billion)
5,2084,572
3,678
0
2,000
4,000
6,000
2009 2010 2011
496
711
503
0
200
400
600
800
2009 2010 2011
21 Source: company data (as of December 2011)
LeverageInterest Coverage(Times) (%)
5,2084,572
3,678
0
2,000
4,000
6,000
2009 2010 2011
496
711
503
0
200
400
600
800
2009 2010 2011
3.5
1.9
2.72.4
4.9
2.0
0
2
4
6
2009 2010 2011
EBIT/Gross Interest Expense Debt/EBITDA
38.5
28.733.6
50.040.5
62.5
0
20
40
60
80
2009 2010 2011
Debt/Equity Debt/Capital
EBITDA / Revenue
Financial Performance (2)
Debt / EquityEBITDA / Net Interest Expense
(%) (Times) (%)
22Source: FSS, DART Filing (as of 2011)
(KRW billion)
Local88.7%
(KRW 1,124bn)
Foreign11.3%
(KRW 144bn)
Debt Profile
Debt Maturity Profile (1) Local vs. Foreign Currency
242
0
404
10080
220220
0
100
200
300
400
500
2012 2013 2014 2015 2016 2017 2018
23
Fixed vs. Floating Rate Debt
Source: company data (as of 2011)
Fixed91.8%
(KRW 1,164bn)
Floating8.2%
(KRW 104bn)
242
0
404
10080
220220
0
100
200
300
400
500
2012 2013 2014 2015 2016 2017 2018
Note: 1. Excludes swap effect of KRW29Bn and short-term borrowings of KRW182Bn
Regulatory Environment & IndustryRegulatory Environment & Industry
Operation OverviewOperation Overview
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11 Company OverviewCompany Overview
Table of Contents
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Operation OverviewOperation Overview
Financial ManagementFinancial Management
AppendixAppendix
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Financial Statements
Income Statement(Unit : KRW Billion)
2009(1) 2010(1) 2010(2) 2011(2)
Sales 3,817 4,767 4,572 5,208
Cost of Sales 3,681 4,393 4,277 5,030
Gross Profit 136 374 295 178
SG&A 32 38 39 55
Net Other Operating Income (IFRS adj.) - - 20 (4)
Operating Profit (Loss) 104 335* 276 119
25
Note: 1. Financial data based on non-consolidated K-GAAP accounting standard2. Financial data based on consolidated K-IFRS accounting standard
Operating Profit (Loss) 104 335* 276 119
Non-Operating Income 141 87 47 13
Non-Operating Expense 132 104 81 64
Net Profit from Subs / Affiliates (IFRS adj.) - - (3) (1)
Income Tax Expense (Benefits) 25 72 55 25
Income from Discontinued Operations (Loss) - - 34 -
Net Income (Loss) 88 246 218 42
* decimal difference
Financial Statements
2009(1) 2010(1) 2010(2) 2011(2)
Assets
Current Assets 843 815 1,348 1,182
Non-Current Assets 3,639 3,683 4,040 4,105
Total Assets 4,482 4,499* 5,388 5,287
Liabilities
Balance Sheet(Unit : KRW Billion)
26
Current Liabilities 956 765 994 938
Non-Current Liabilities 1,171 1,167 1,138 1,397
Total Liabilities 2,127 1,932 2,132 2,335
Stockholders’ Equity
Capital Stock 176 176 1,443 1,192
Capital Surplus 1,267 1,267 22 2
Retained Earnings 896 1,116 1,791 1,757
Total Stockholders’ Equity 2,354 2,567 3,256 2,952*
Total Liabilities and Stockholders’ Equity 4,482 4,499 5,388 5,287
Note: 1. Financial data based on non-consolidated K-GAAP accounting standard2. Financial data based on consolidated K-IFRS accounting standard
* decimal difference
Financial Statements
Cash Flow Statement(Unit : KRW Billion)
2009(1) 2010(1) 2010(2) 2011(2)
Cash Flows from Operating Activities
Net Income 88 246 218 42
Non-cash Income & Expenses 306 410 546 478
Changes in Assets and Liabilities 98 (38) (52) (167)
Other - - (88) (76)
Net Cash Provided by Operating Activities 492 618 624 277
27
Net Cash Provided by Operating Activities 492 618 624 277
Cash Flows from Investing Activities
Purchase of Fixed Asset (593) (487) (506) (452)
Other, Net (34) (19) (12) 11
Net Cash Used in Investing Activities (627) (506) (518) (441)
Cash Flows from Financing Activities
Cash Inflows 1,234 968 968 721
Cash Outflows (1,014) (1,062) (1,061) (422)
Net Cash Used in Financing Activities 220 (94) (93) 299
Cash and Cash Equiv. at End of Period 131 150 153 285
Note: 1. Financial data based on non-consolidated K-GAAP accounting standard2. Financial data based on consolidated K-IFRS accounting standard
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