Korea Electric Power - H2 2022

Transcript

Operator (participant)

Good morning, and good evening. First of all, thank you all for joining this conference call. Now we'll begin the conference of the Fiscal Year 2022 Fourth Quarter Earnings Results by KEPCO. This conference will start with a presentation, followed by a regional Q&A session. If you have a question, please press asterisk one on your phone during the Q&A. Now we shall commence the presentation on the Fiscal Year 2022 Fourth Quarter Earnings Results by KEPCO.

Namyeon Jang (Head of Finance and IR Team)

안녕하십니까? 한국전력공사 금융실장 Namyeon Jang입니다. 바쁘신 와중에도 한국전력의 2022년도 실적 발표 IR 컨퍼런스 콜에 참석해 주신 여러분들께 감사의 말씀을 드립니다. 오늘 컨퍼런스 콜은 한국어와 영어로 함께 진행되며, 먼저 간단한 실적 발표 후 질의응답을 받도록 하겠습니다. 오늘 발표할 실적 자료는 IFRS 연결 기준 잠정 수치이며, 모든 비교는 전년 동기 대비입니다. 아울러 실적 발표 회의 내용 중 언급될 수 있는 경영 계획 및 목표, 추정 재무수치 등은 현시점에서의 목표 또는 전망치이므로 불확실성 및 투자 위험 요소가 있음을 양지하여 주시기 바랍니다. 지금부터 IR 담당 Chulsu Jeon 부장이 2022년도 기말 손익 증가 내역에 대해 우선 한국어로 말씀드린 다음 동일 내용을 영어로 설명하겠습니다. Good afternoon. This is Namyeon Jang, Head of Finance and IR Team of KEPCO. On behalf of KEPCO, I would like to thank all of you for participating in today's conference call to announce earnings results for fiscal year of 2022.

Today's call will be proceeded in both Korean and English, beginning with a brief presentation on the earnings results. Q&A session will be followed. Please note that the financial information disclosed today is on a preliminary, unaudited, and consolidated basis in accordance with KIFRS. 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, IR Manager Mr. Chulsu Jeon will begin with an overview of earnings results for 2022, first in Korean, and repeat in English. 안녕하십니까? IR 부장 전철수입니다. 먼저 영업손익부터 살펴보겠습니다. 2022 년 영업손익은 KRW 32.6 trillion 손실을 기록하였습니다. 세부적인 내역을 살펴보면, 매출액은 17.5% 증가한 KRW 71.2719 trillion을 기록하였습니다.

Chulsu Jeon (IR Manager)

전기 판매 수익은 15.5% 증가한 KRW 66.199 trillion을 기록하였습니다. 해외 사업 수익 등 기타 수익은 50.8% 증가한 KRW 5.0729 trillion을 기록하였습니다. 매출원가와 판관비는 56.2% 증가한 KRW 103.8753 trillion입니다. 이 중 연료비는 LNG, 석탄 등 연료 가격 급등으로 전년 대비 77.9% 증가한 KRW 34.669 trillion을 기록하였습니다. 한편 구입전력비의 경우 민간발전사로부터의 LNG 구입량 증가, 전력 구입 단가 상승 영향으로 지난해보다 93.9% 증가한 KRW 41.9171 trillion을 기록하였습니다. 단가상각비는 신규 발전소 준공 등에 따른 생상자산 증가로 지난해보다 3.8% 증가한 KRW 10.7853 trillion을 기록하였습니다. 다음은 영업외 손익 주요 증감 내역입니다. 금융손익은 KRW 2.9126 trillion 손실로 지난해 KRW 1.8432 trillion 대비 손실폭이 KRW 1.0694 trillion 증가하였습니다. 지금까지 언급한 내용을 주요 원인으로 2022 년도 연결 순손익은 전년도 당기순손실 KRW 5.2156 trillion 대비 KRW 19.0243 trillion이 증가한 KRW 24.4199 trillion의 당기순손실을 기록하였습니다. 이어서 영어로 순서대로 설명드리겠습니다. Now we will provide the overview in English, starting with operating income.

In 2022, KEPCO recorded an operating loss of KRW 32.6 trillion. To take a closer look, operating revenue increased by 70% to KRW 71.3 trillion year-on-year. Power sales revenue rose by 15% to KRW 66.2 trillion, while revenue from other system and other business increased by 51% to KRW 5.1 trillion. Moving on the main operating cost of goods sold and SG&A expenses increased by 56% to KRW 103.9 trillion. Fuel cost was hiked by 78% to KRW 34.7 trillion due to rapid increase in LNG and coal prices. Next, purchased power cost surged by 94% to KRW 41.9 trillion. This was due to larger purchased power volume from the Independent Power Producers and higher unit prices of purchased power.

Depreciation cost increased by 4%, KRW 10.8 trillion, mainly due to newly constructed facilities and power plants. Let me explain KEPCO's non-operating segment. The net financial loss was KRW 2.9 trillion, increased loss by KRW 1.1 trillion from the last year. As a result of the foregoing, we recorded a consolidated net loss of KRW 24.4 trillion, which is a KRW 19.2 trillion increase from KRW 5.2 trillion of consolidating net loss in the previous year. This is the end of overview of KEPCO's earnings results for 2022.

Won-gu Cho (IR Manager)

Good afternoon. This is IR Manager, Won-gu Cho. I would like to briefly go over a few items related to earnings. First, on sales outlook. Electric sales volume in 2022 grew 2.7% year-on-year, driven by domestic economic recovery. In 2023, consumption is expected to decline due to slow global growth and trade, as well as high interest and high oil price and high inflation, which will limit sales volume growth at a low level. Next is on fuel unit cost by fuel source. Unit fuel cost in 2022 KRW 280,000 per ton for coal and KRW 1,540,000 per ton for LNG, excluding unloading cost as the fuel price rise globally. Generation mix by GENCOs in 2022 for nuclear power plants saw increased volume from higher utilization and electricity demand.

Coal went down slightly from plant maintenance days, mainly environmental equipment upgrade of the Yeongheung number one and two, and same for LNG due to increased nuclear utilization. Nuclear power plant generation is expected to go up as new plants are introduced, for example, Shin Hanul Number one and two, along with increased utilization. Coal and LNG is expected to have increased generation capacity from newly introduced plants, but generation volume remains to be determined as cap on coal generation is applied. Generation mix outlook for 2023 is expected at mid-80% level for nuclear. For coal, it will be similar to the previous year and mid-20% level for LNG. Next is on RPS and ETS related cost. In 2022, RPS cost has increased as the REC mandate increased from 9% in the previous year to 12.5%.

On a consolidated basis, the RPS cost is KRW 3,001.6 billion. On a standalone basis, it's KRW 3,708.1 billion. For ETS cost on a consolidated basis, the cost is KRW 493.4 billion, and on a standalone basis is KRW 53.1 billion. This concludes our briefing on the key business environment. Now we will move on to the Q&A session. We are joined by our IR committee members in charge of major business areas at KEPCO, and we're ready to accommodate questions that you will have. Since we are proceeding the question session in both Korean and English, please make your questions and answers brief and clear.

Operator (participant)

Q&A session will begin. Please press asterisk one if you have any question. For translation, please press asterisk two on your phone. Currently, there are no participants with question. Please press asterisk one to give your question. The first question will be given by Hwang Sung-Yeon from Yujin Investment Securities. Please go ahead.

Hwang Sung-Yeon (Equity Research Analyst)

Good afternoon. I have a question on the impact of SMP cap that started since December. I would like to understand the impact on the financial balance sheet, and also how much would the impact will be for the first quarter. Could you please share your prospects? The question, since the surge of the fuel price since December last year, in order to protect the consumers, we have implemented the emergency cap on the SMP price. If you look at the SMP price on average from December and January time period, it has ranged from KRW 250-KRW 260 per unit. The cap that was applied was KRW 160 for land power cost.

Of course, this cap cannot be applied for three consecutive months. This number will not be applied, starting in March. The optimal level of the cost will be determined, but It's expected to fluctuate depending on the international fuel cost range. The impact of this cap can be only determined once we have the first half of the number ready for 2023.

Operator (participant)

The following question is by Aram from Citi. Please go ahead.

Speaker 8

Hi, management. This is Aram from Citi Research. I would like to ask about your outlook or any guidance regarding on the unit core LNG, and oil cost assumption for 2023. Yes.

Won-gu Cho (IR Manager)

Just to comment on that first, the recent energy price is very difficult to predict due to uncertainties of the market. With that in mind, I would like to add the following price outlook. Sorry. It's very uncertain for us to predict. That is to be determined depending on the recent market trend.

Speaker 8

Okay. Thank you, management.

Operator (participant)

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

다음으로 질문해 주실 분은 키움투자자산운용의 김동환이입니다. 질문해 주십시오. The following question is by Kim Dong-hwan from Kiwoom Investment Asset Management. Please go ahead.

Kim Dong-hwan (Investment and Portfolio Manager)

네, 저 그 질문 2개 있는데요. 그 Shinhan Bank No. 3 and No. 4 building이 그 지금 준공은 그 계획상으로 2033년도, 2034년도인데 그 스케줄, 그러니까 저희 뭐 진행 상황이 뭐 이체 단계판이고 건설 사이 좀 간 상황인지 좀 공유를 좀 부탁드리고요. 두 번째는 일일부터 해서 이점까지 그 한전 전체 저희 발행 규모랑 이자, 그리고 저희 원전 가동률, 그 최근 것 좀 업데이트 부탁드립니다.

Speaker 9

I have two questions. The first question is on the progress to date for the construction of Shinhan No. 3 and 4. I believe the completion is expected at 2033 and 2038 respectively for these nuclear power plants. What is the current update on the progress? The second question is on the size and interest rate of KEPCO bond as of January. What is your current utilization for the nuclear power plant? Thank you.

Hwang Sung-Yeon (Equity Research Analyst)

저기 Shinhan Bank building No. 3에 관련해서는 정부 인허가 이제 후속 조치 단계인 걸로 알고 있고요. 저희가 그거는 좀 더 확인을 하고 추후에 다시 답변드리도록 하겠습니다.

Speaker 9

Regarding Shinhan. On your question on Shinhan No. 3 and No. 4, we are currently following up on the government approval of the nuclear power plant. We will actually follow up with you offline on the current updates.

Hwang Sung-Yeon (Equity Research Analyst)

어, 일월 저희가 발행한 그 한전 채권에 대한 규모와 이자 비용은 지금 저희가 어, 어, 요 컨퍼런스 콜 끝나고 저희가 따로, 따로 이제 연락을 드려서 자료를 제공해 드리도록 하겠습니다.

Won-gu Cho (IR Manager)

On the size and interest rate of KEPCO bond for January, we'll follow up with you offline after this conference call and give you the data separately. 현재 질문을 요청하고 계신 분은 없습니다. 질문이 있으신 분들은 전화기 버튼의 별표와 일번을 눌러주십시오. Currently there are no participants with question. Please press asterisk one to give your question.

Hwang Sung-Yeon (Equity Research Analyst)

그 아까 드리고 질문 주신 원전 이용률 전망은 내년에는 80% 중반 정도로 보고 있습니다.

Speaker 9

On your second question regarding, utilization outlook for nuclear power plant for this year is expected at mid 80% level.

Hwang Sung-Yeon (Equity Research Analyst)

네, 다음 질문 받겠습니다.

Won-gu Cho (IR Manager)

We are accommodate. We are ready to accommodate next question. 다음으로 질문해 주실 분은 키움투자자산운용의 김동환이입니다. 질문해 주십시오. The following question is by Kim Dongha from Kiwoom Investment Asset Management. Please go ahead.

Kim Dong-hwan (Investment and Portfolio Manager)

네, 저 하나만 더 여쭈보고 싶은데 저희 LNG 가격 SMP에 반영되는 시점이 이제 저희 현물 비중 좀 늘어나면서 좀 가격도 피고 했으면 내림시점 좀 예측 어려운 측면이 있었는데 지금 뭐 좀 가격도 내리고 했으니까 이거 저희 좀 내부적으로 후행 어느 정도 하는지 좀 말씀해 주실 수 있는지 유연탄이랑 같이 해서 좀 국제 가격이 후행해서 어느 정도로 저희 원가단에 좀 후행해서 반영되는지 여쭤보겠습니다?

Speaker 9

I have a follow-up question for LNG price. There will be some lag to reflect that price change in the, on the SMP. The price is going down. Internally, what's your view on reflection of these decline in price on the SMP price? If you could also tie that answer to the bituminous coal price as well, because that is the lagging index, and it will be great to understand when that will be reflected on the SMP.

Hwang Sung Hyun (Equity Research Analyst)

네, 안녕하세요. 한전전력시장처에 근무 중인 황연수입니다. 조금 전에 질문 주셨던 연료값 후행 시점 관련해서는 그 도입되는 도입선에 따라서 조금 차이를 보이고 있는데요. LNG는 평균적으로 육 개월 후행하고 스팟 같은 경우는 최근 조금 짧아져서 삼 개월 정도 후행한다고 보고 있고요. 유연탄 같은 경우는 탄 종류에 따라서 좀 차이가 있는데 기준이 되는 UBS 선가 같은 경우는 육 개월 정도 후행한다고 보시면 되고요. 호주탄과 인니탄은 조금 더 빠르긴 한데 크게 차이를 보이지 않고 있습니다. 호주탄은 한 오 개월 정도, 인니탄은 조금 더 빠르게 보고 있는데 정확한 수치는 인니탄은 좀 확인하기가 어렵습니다.

Speaker 9

The reflection of the actual price on SMP will be different depending on the source of the fuel. For LNG, usually the lagging period would be six months, and for spot, it will be about three months. For bituminous coal, it will be different on, based on the purchasing source of the bituminous coal. For Newcastle coal, it will be around six months to be reflected on the price. For Australian coal, it will be 5 months. For Indonesia, it's earlier than that. At this point, it's difficult to confirm how early that would be. The following question is by Minjae Lee from NH Investment Securities. Please go ahead. I have two questions.

First is on how much buffer do we have to issue corporate bonds since the fourth quarter of 2022. Second question is, what are some of the overseas nuclear power plant that we are currently proceeding at the moment? As of end of 2021, based on KEPCO Act, we can issue 2x the capital that we can utilize, and the buffer that we had was up to KRW 92 trillion. As of last year, 2022, it is KRW 70 trillion. With the amendment to KEPCO Act, we can issue 6x as high as our corporate bond, and the final amount could be determined once KEPCO finalizes on its final financial closure.

At the moment, currently, KEPCO is pursuing overseas nuclear power plant in the United Kingdom as well as Turkey. We are currently pursuing two more nuclear power plant project in Saudi Arabia. Currently, there are no participants with question. Please press asterisk one to give you a question. The following question is by Minjae Lee from NH Investment Securities. Please go ahead. If I may ask one more question, you will probably pursue to increase the tariff in the remainder of the quarters, and I would like to understand which line items you will be leveraging to reflect this increased tariff. For 2022, we're going to make efforts to rationalize the tariff electricity tariff system in a phased manner.

At the moment, the line items or items that will be used is not determined yet, but we will be working closely with the government, to reflect that in the final tariff.

Operator (participant)

The following question is by Hwang Sung Hyun from Yuanta Investment Securities. Please go ahead.

Hwang Sung Hyun (Equity Research Analyst)

I have a question on the increased other cost, and it has gone up by more than KRW 1 trillion. It would be nice to understand the line item that was involved in driving up this other cost line items, compared to previous year or on a quarter-over-quarter basis. Most of the line item that was causing the increase of other operating cost higher up is the line item of other materials cost. This is largely the overall acquisition cost of new projects for a combined of power plant for our GENCOs.

Operator (participant)

Currently, there are no participants with question. Please press asterisk one to give your question. The following question is by Park Gwang Rae from Shinhan Investment Securities. Please go ahead.

Park Gwang Rae (Equity Research Analyst)

I may have missed this in your previous briefing, for the last year's fourth quarter, could you share with us your power purchase volume and as well as power purchase cost? As for the purchase volume in 2022, it's 571 terawatts for the whole year. This is the number combined for both GENCOs and the IPPs. For purchase cost, it's KRW 41.17 trillion won. KRW 41.19 trillion won, up by KRW 22 trillion won.

Operator (participant)

Currently, there are no participants with question. Please press asterisk one to give your question. Once again, if you have a question, please press asterisk then one.

Speaker 9

If there are no further question, we would now like to conclude our earnings conference call. Thank you for your participation.

Operator (participant)

This completes the Fiscal Year 2022 Fourth Quarter Earnings Register by KEPCO. Thank you for your participation.