Korea Electric Power - Earnings Call - H1 2022

Transcript

Speaker 0

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 twenty twenty two Second Quarter Earnings Results by Kepco. This conference will start with a presentation followed by a divisional Q and A session. Now we shall commence the presentation on the fiscal year twenty twenty two second quarter earnings measures by

Speaker 1

Good afternoon. This is Churchill, Head of the IR team of KETCO. On behalf of KETCO, would like to thank you all for participating in today's conference call to announce the earnings results for the 2020. Today's call will be proceeded in both Korean and English. We will begin with a brief presentation on the earnings results, which will be followed by the Q and A session.

Please note that the financial information to be disclosed today is on a preliminary unaudited and consolidated basis in accordance with Korean international financial reporting standards. Any comparison will be on a year on year basis between last year and this year. Business strategies, plans, financial estimates and other forward looking statements included in today's call are based on our current expectations and plans. Please be noted that such statements may involve certain risks and uncertainties. Now Mr.

Yoon Joo Lee, Senior IR Manager will begin with an overview of earnings results for the first half of twenty twenty first in Korean and repeat in English.

Speaker 2

Now I will provide the overview in English, starting with operating income. In the 2022, Kepka recorded an operating loss of KRW 14,300,000,000,000.0. To take a closer look, operating revenues increased by 11.5% to KRW 32,000,000,000,000 year on year. Power sales revenue rose by 9.3% to KRW 29,500,000,000,000.0, while revenues from overseas and other businesses increased by 46.9% to KRW 2,500,000,000,000.0. Moving on to main operating costs.

Cost of goods sold and selling, general and administrative expenses surged by 60.3% to KRW 46,000,000,000,000. Fuel costs surged by 86.3% to KRW 14,300,000,000,000.0 due to record increase in coal and LNG prices. Net purchase power costs surged by KRW 104.1 percent to KRW 19,000,000,000,000. This was due to larger purchase power volume from the independent power producers and higher unit price of purchased power. Depreciation costs rose by 4.8% to KRW 5,400,000,000,000.0 due to the increase in depreciable assets resulting from the completion of electric facilities.

Now let me explain KEVCO's non operating segment. The financial loss was KRW0.3 trillion, increased loss by KRW0.4 trillion from the last year. As a result of the foregoing, we recorded a consolidated net loss of KRW10.8 trillion, which was a KRW10.2 trillion decrease from KRW0.5 trillion of consolidated net loss in the previous year.

Speaker 3

We'll now like to spend a little bit of time to briefly explain some key points related to our earnings results. First, on sales outlook. In the first half of this year, power sales increased from recovery in domestic economy and robust exports. Sales volume grew by 3.4% in Q2 and 4.5% in Q1. In the second half, we expect sales volume to continue growing on year.

However, the growth rate may be slightly slower. For the full year, power sales are projected to grow by around 2% to 3%. Next, unit fuel price by source. In Q2, reflecting the changes in international fuel prices, unit fuel price for coal was KRW 270,000 per ton and for LNG, it was KRW 1,190,000.00 per ton. In light of the continued high global fuel prices, annual unit fuel price outlook is for coal, excluding unloading and other expenses, to be in the late KRW 200,000 per ton and LNG to be in the mid KRW 1,000,000 range per tonne.

Please note that such outlook is subject to change based on fuel price trends. In regards to the generation mix in Q2 year on year basis, the share of nuclear generation increased, while the share of coal fired generation decreased. For the full year compared to the previous year, the use of nuclear generation is forecasted to increase. Thus, higher share of nuclear generation on year is expected, while the shares of coal and LNG generation will relatively decrease. Next on RPS and ETS related costs.

In Q2, RPS cost was, on a consolidated basis, $850,000,000,000 and stand alone KRW 1,200,000,000,000. And for ETS cost, it was consolidated minus KRW55 billion and unconsolidated basis, minus KRW16 billion. This concludes the brief explanation on key business conditions.

Speaker 1

Now let us move on to Q and A session. Since we will proceed the session in both Korean and English, please leave your questions and

Speaker 0

The first question will be given by Moon Kyung Won from Meritage Securities. Please go ahead.

Speaker 3

Good afternoon. This is Moon Kyung Eun from Amer Securities, and I would like to ask three questions. The first question is related to the progress update on the KEPCO's self improvement effort, which is detailed to cost around KRW 6,000,000,000,000. I'm just wondering whether or not the funding of such amount will be successfully completed within this year. The second question is related to the possibility of additional fuel cost tariff adjustment that will be possible in the Q4.

I'm very aware of the five point for kilowatt price increase that was actually done previously. But is it possible that under the current circumstances, we can actually anticipate an additional tariff increase going forward? And the third question is related to your earnings results for this second quarter. I'm more interested in the other sales revenue because apart from the power sales revenue, I can note that there has been a considerable increase in the other sales revenue compared to the previous quarters. And so can you please explain what contributed to this increase?

Let me answer the first question. You may note, in May, we Kepco has announced its plan along with the work that we will be doing with our affiliated Genco. There is going to be an effort to improve our financial structure by with a target to improve this by KRW6 trillion. This will include activities to in respect to our equity investment, real estate overseas business and also various cost cutting efforts as well. And in respect to the overall details, for some items, they are currently underway.

For some other items, we are still in the review process. And so please understand that while the plant has announced the KRW 6,000,000,000,000, it doesn't necessarily mean that the KRW 6,000,000,000,000 will be all completed and implemented within this year. It really depends on individual item. And per individual item, the overall implementation and completion schedule may vary. And in respect to your second question, which was related to the fuel cost adjustment and the ceiling that we put on the unit price.

In respect to the current market situation, everyone recognizes that we are currently seeing an unprecedented volatility in terms of the international fuel prices. And as such, we have already previously announced that in the third quarter, we'll be able to increase the ceiling from KRW 3,100,000,000.0 to KRW 5,100,000,000.0. And to finalize this, we are currently continuing our consultation with the government. In this process, I also believe that there will be discussions related to the possibility of anything we can do in the fourth quarter as well. So the discussion is still ongoing with the government.

And in respect to the key contributors that delivered an increase in our performance for the other revenue. There are three notable examples. The first one is related to our business in Mexico, where we were able to see an increase in the prices as well as the power generation volume. We also saw a positive performance in The UAE business for The Korea Hydronuclear Genco and also there has been an increase in the energy LNG sale prices and volume.

Speaker 0

The following question is by YuJae Han from Miraeus. Please go ahead.

Speaker 3

I have two questions. This is Yu Joon from Mirror Asset. And my first question is more of a confirmation related to your comments related to your outlook for the coal and LNG prices because what you expect and with respect to your forecast for the second half, these prices actually seem lower than what I currently expect what we expected. And so could you actually elaborate why it is lower than the expectation? And just please confirm if my understanding is correct.

And second question is related to the SMB price cap. Can you actually give us more color on your expectations for the second half of this year as well as if possible for your outlook for next year? To answer your first question related to the unit fuel price outlook, The outlook that I have shared was for the full year basis. So on a full year basis, our outlook for coal is to be in the late KRW200000 range per ton and for LNG to be in the mid KRW1 million range per tonne. And so for LNG, please note that we are currently experiencing very high price volatility.

And so this outlook for LNG is subject to possible change in the future. And in respect to your second question related to the outlook for the S and P price cap, as you may know, this is currently headed by MoTi and it is governed by the Electricity Business Act. And in the Electricity Business Act, the regulation actually requires disclosure and also setting up the ceiling for the tariff prices. And this is aimed to protect the power consumers from the changes in the international fuel prices. And so there is an ongoing effort to make the necessary changes and to collect public opinion as well as to follow administrative procedures.

And so the regulatory efforts are currently ongoing. We're monitoring the progress. And as such, we also ask you to continue monitoring the development.

Speaker 0

Currently, there are no participants with question. The following question is by Moon Kyung Won from Merit Securities. Please go ahead.

Speaker 3

This question is from Moon Kyung Wan from Merit Securities. I just have one more question on my side. And this just is a follow-up to what you have previously shared in the past where you have said that your current outstanding balance for issuing TEPCO bonds is around KRW 90,000,000,000,000 compared to the standing capital as of 2021. And so in light of the possible balance that you may have for 2022, what would that

Speaker 1

be?

Speaker 3

As you correctly noted, in 2021, based on the audited statement, our standing balance was KRW 92,000,000,000,000 for Kepto bond. And in Q2, as we look at the current balance, it stands at KRW 52,000,000,000,000. However, in respect to your question, what the limit will be for the year end, this is actually tied to our earnings performance for this year as well. And so at this point in time, it's very difficult for us to comment on exactly what that balance will be for the year end. However, we are closely monitoring this, and we are making our efforts to make sure that there is no impact to the overall funding endeavors that we have for this year.

Speaker 0

Following question is by Ryu Jae Hyun from

Speaker 3

This is Yu Jian from Near Asset. I joined the call late, so I may have missed your comment on the nuclear power plant utilization rate. I think you mentioned that it would increase, but can you actually share specific utilization rate? And if possible, your outlook for the price for the purchase of power as well? First, to talk about the generation utilization rate, and I'm talking about 2022 full year basis.

For the nuclear, it will be in the late 70%, whereas for the coal side, it will be around 60%. And in respect to the fact that the nuclear generation utilization rate has is increasing, it also means that, as stated earlier, that the share of the nuclear generation portion is also higher than before. And in respect to the greater demand for power, which this is also going to be offset. And as such, we believe that the overall level of the consumer pricing volume will remain quite similar. And so in respect to the purchase power cost, this is very much tied to the overall fuel prices in the market.

And as such, we are not able to specifically give you an outlook on what the price of the purchase power would be.

Speaker 0

Currently, there are no participants to question. Please press asterisk one to give your question.

Speaker 3

And on this note, this concludes the Q and A session. KEPCO would like to continue making efforts to have self improvement goals realized. And at the same time, we will continue to have close dialogue with the government to be able to normalize electricity tariffs based on the costing basis. Thank you.

Speaker 0

This completes the fiscal year twenty twenty two second quarter earning results by Kepco. Thank you for your participation.