Korea Electric Power - Earnings Call - Q3 2022

Transcript

Speaker 0

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year twenty twenty two third quarter earnings resulted by TEPCO. 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 third quarter earnings resulted by Capco.

Speaker 1

Afternoon. This is Tristan, Head of IRT, KECO. On behalf of KECO, I would like to thank you all for participating in today's conference call to announce the earnings results for the 2022. Today's call will be posted in both Korean and English. We'll begin with a brief presentation on the earnings results, which will be followed by a 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 the 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. Mr.

Eunjoo Lee, Senior IR Manager, will begin with an overview of earnings results for the 2022, first in Korean and repeat in English.

Speaker 0

Now we will provide the overview in English, starting with the operating income. In the 2022, Kemco recorded an operating loss of KRW21.8 trillion. To take a closer look, operating revenues increased by 14.7 points to KRW51.8 trillion year on year. Card sales revenue rose by 12.8 to KRW48 trillion, while revenues from overseas and other businesses increased by 44.9% to KRW3.8 trillion. Moving on to main operating costs.

Cost of goods sold and selling, general and administrative expenses increased by 59.1% to KRW73.6 trillion. Steel cost for Tide five by 79.9% to KRW24.3 trillion due to rapid increase in LNG and coal prices. Next, purchased power costs surged by 100.5% to KRW30.1 trillion. This was due to larger purchased power volume from the independent processes and high unit price of purchased power. Depreciation cost rose by 4.1% to KRW8.1 trillion due to the increase in depreciable assets resulting from the completion facility.

Now let me explain Keppco's non operating segment. The net financial loss was KRW2.3 trillion, increased loss by KRW0.9 trillion from the last year. As a result of the foregoing, we reported a consolidated net loss of KRW16.6 6,000,000,000,000, which is a KRW 15.1 decrease from KRW 1,600,000,000,000.0 of consolidated net loss in the previous year. That concludes the overview. At this point in time, we'd like to briefly share some information related to the earnings results.

First, we'd like to give you some key information related to power sales. Power sales in the third quarter of this year due to rising demand for the usage of air conditioning and cooling as well as improved exports of the Korean companies, it rose by 3% compared to the same period last year. Taking this into account, if we look at the yearly figure for 2022, we expect it to rise by 3%. Moving on to the fuel cost fuel unit cost. In the third quarter, reflecting the international fuel price trends, the unit cost for fuel for coal was roughly KRW 290,000 per tonne, while for LNG, the cost was roughly KRW 1,560,000.00 per tonne.

Bearing these international fuel cost trends in mind, on an annual basis, our assumption for coal unit price for the year would be somewhere around the upper KRW 200,000 levels per tonne. This is excluding associated costs for unloading at dock. For LNG, we expect it to be somewhere around the KRW 1,000,000 levels per tonne. Moving on to information about the generation mix for Q3. Compared to the same quarter for the previous year, the portion taken up by nuclear generation has increased while the coal contribution has decreased.

On an annual basis compared to the previous year, that is 2021, we expect the contribution of nuclear in the total generation mix to grow while coal and LNG will slightly drop. And then moving on to RPS and EPS related expenses. In the third quarter, the recorded costs for these are as follows: The RPS expenses on a consolidated basis reported KRW $970,000,000,000 and on a nonconsolidated basis KRW 1,200,000,000,000.0. For ETFs related costs, on a consolidated basis, it recorded minus KRW 8,000,000,000, and for nonconsolidated, minus KRW 1,000,000,000. This concludes the summary of key management conditions.

Speaker 1

Discussion in both Korean and English, please make your questions and answers brief and clear. Thank you.

Speaker 0

Now q and a session will begin. Please press asterisk one if you have any questions. For cancellation, please press asterisk two on your phone. The first question will be given by Mung Jung Won from Merit Securities. Please go ahead.

The first question I'd like to ask is related to sales of assets. According to what was given as information ahead of time, it seems that there are plans for sales of assets totaling up to about KRW6 trillion. And so I'd like to ask about the timing related to these sales as well as how far those plans have been implemented. The second question is related to interest costs, interest expenses. It seems to be quite notable in the figures that came out as a result for this quarter.

I would like to ask if the reason behind this increase is due to the increase in debt? Or were there any other factors involved? The last question I'd like to ask is about the increase of nuclear portion within the generation mix. Is this due to the entry into operation or increase of operation of Shinhanul-one? Or is there any other factor that was involved?

And I'd like to ask for some plans moving forward about this area as well. Yes. Allow me to answer your first question. Indeed, there are some midterm plans that have been established quite recently in order to improve our financial status given the current challenging environment. And among those plans are sales of noncore assets, including some facilities overseas as well as real estate assets that we own.

The plans have been set with a time line of up to 2026. However, we will be coming up with more detailed shorter term or midterm plans. But once they become more concrete, we will share that information with you at that given time. And answering your third question ahead of time is related to the increase in the proportion of nuclear in the overall generation mix. Indeed, for this third quarter, that ratio has been increased, that is due to the utilization rate increase of nuclear power plants within Kemco.

If we look at the figures for last year, that is to say for the 2021, utilization rate of the nuclear power plants was 69.7%, whereas this year for the third quarter, it has grown to 82.4%. As for the Shinhanou-one plant, as you have asked about, indeed, it is in the process of doing test operations right now, and we expect commercial operation to launch within the year. We do not have an exact time line to share with you at this point in time, but we will do so looking forward. Yes. Allow me to answer the second question.

For the increase of interest related expenses for the third quarter, the main reason behind that is the result of borrowings. Next question, please. Currently, there are no participants with questions. Please press asterisk one to give you a question. The following question is by from Merit Securities.

Please go ahead. Yes. Since there doesn't seem to be any other questions from other entities at this moment, I'd like to ask one more question. Recently, we have read some articles related to financing options for KEPCO. And I believe that your plans are to raise capital during the winter period through issuance of Kepco bonds or borrowings from banks.

So are these the main plans? Or do you have any other long term options that you're looking into for financing? Indeed, as you have mentioned, we are seeing a witnessing a growth of borrowings at TEPCO. And other measures that we are looking into are striving to achieve the amendment of the TEPCO law so that we can actually do more issuances and also increase borrowings from banks. And we are looking into diversification of lending sources for these debts.

Next question, please. Currently, there are no participants with questions. Please press asterisk one to give your question. The following question is by Kim Do from Q Investment Assets. Yes.

My question is a little bit related to the previous question, I think, but I would like to ask for further elaboration if possible. It was mentioned earlier that financing will be pursued on TEPCO's side by additional issuances of bonds or also increasing the level of borrowings from banks. However, I believe that the situation may not be that favorable because even in the case of eliminating the ceiling or cap in order to issue more, I think in previous cases, for example, in October, there was a situation where it really didn't reach full capacity. And also, if you look at the situation of the commercial banks currently, I think the size of the lending that they can provide is not that excessive as well. So given that as a backdrop, do you have any other financing plans that have been set up?

And additionally, if you could elaborate a bit more on the repayment schedule for 2023 and what plans you have in mind to pay back those loans that are coming up with the 2023 maturity deadline. Yes. Allow me to answer that question. As mentioned earlier, our basic approach is to make sure that we do not have any financing related issues rising by taking measures to increase the level of issuances that we can go and undertake as well as diversification of sources of financing at the same time. One more thing that we want to additionally mention is the fact that we have already taken measures into place to make sure that we do not have those types of liquidity issues that may arise by adjusting the power purchase related payment schedule.

All of these efforts will be in line with the overarching plans that we have in place for financial consolidation. And this will include strengthening our financial status as well as achieving normalization of tariffs that reflect more correctly the costs involved. Related to your specific question about the repayment schedule for 2023, we will The following question is by Papak Gwangne from Shinhan Investment Securities. Thank you. I'd like to ask a question related to the S and P TAP system that was mentioned in the press about being implemented for a temporary basis.

I understand that the current discussions are looking at an implementation for about a three month period. If you could elaborate and explain a little bit what this will entail and what is included in the overall plan, that would be helpful for our understanding. Also when we had the conference call in May, I think there was some information about the initial version of the draft of this plan that was introduced. And at that time, there was some mention about the economic effects and benefits that can be seen on a monthly basis when this is implemented. Taking that into consideration, could you elaborate on what kind of effects or results you expect to see if the system is implemented at this point in time?

Thank you very much for that question. I believe that what you were referring to in terms of the information provided in May was related to what was given as information by the Ministry of Industry back at that period. At the time, the ministry announced that it had planned to pursue this type of a system to be implemented, and they had to go through some process of collecting information as well as opinions from the relevant parties. According to the recent reports in the media, it is my understanding that the government is still going through a review of how this scheme will be established and also interviewed and implemented. And therefore, are still in the review process and coordinating the details of what will be included.

So at this point in time, that plan is currently under review and being assessed as a regulation. In terms of when it will be implemented and the details included in it, it has not been fully decided yet, I believe. That is my understanding. As for your question about how what kind of economic effects this will have, At this point in time, it is very difficult to make predictions due to the fact that, of course, it will set the cap or the limit, the upper limit on the S and P. However, due to the fluctuations we see in the market related to fuel cost and other economic elements, it is difficult for us to give you those types of figures at this point in time.

Next question, please. The following question is by Eun Young from QM Securities. Please go ahead. Yes. I have a question related to tariffs.

Recently, in October, there was also a rate increase which has been implemented separately and differently for various areas. According to the stories that we see on the in the media, there are some discussions or talks about another possible increase of 40 to 51 levels. So I think given these types of movements, it's very confusing for us to understand what the clear picture about the tariff system is because there was one introduced and announced back in the 2020. Since then, there have been many changes and talks and discussions about these changes that seem to be rumored here and there. So I would like to ask related to the tariffs, what are the current discussions underway with the government?

Yes. Allow me to answer that question. As you have rightly mentioned, at the 2020, we did announce an amendment of the tariff system, and that is still being implemented to this day. We had two unique elements that were introduced during that revision at the 2020, which is the fuel cost adjusted tariff system as well as the introduction of the climate related charges. The climate related charges are being separately announced at regular intervals.

And also for the fuel cost related tariff, that is always reflecting the changes in the standard fuel cost. And on a quarterly basis, we do calculations for what that will be. So those are the current systems that are under operation right now. It is true that due to the drastic rise of fuel costs, we have had to adjust to the rising cost involved for our organization. And therefore, there are elements in place for us to have a tariff hike.

But in terms of the speed of that hike and what the range is going to be, that is always due to discussions with the government. So since all of these elements are subject to discussions with the government, we will do our utmost to have close communications with the government to be able to correctly reflect the appropriate signals that are in the market for any increases of cost. Next question, please. Currently, there are no participants with questions. Please press asterisk one to give your question.

The following question is by Kim Doha from Q Investment Asset. Please go ahead. If I'd like to ask an additional question related to the previous question about tariffs. According to the reference data that was given a while back, I believe that my understanding is you have your quarterly fuel cost and also you derive and calculate the standard fuel cost that will be the basis for your further calculation for tariff. So I know that you mentioned earlier that there are further discussions that need to take place with the government.

But may I understand that until a new announcement for amendment of the system is notified for us, Are we correct in assuming that all of your calculations will be based upon the previous system that you have announced? Well, related to the any changes in the standard fuel cost, we are in close communication with the government, and we will continue to do so for the remaining period of the second half. Next question, please. Currently, there are no participants with questions. Please press address 1 to give your question.

Thank you very much. It seems that there are no further questions. We will wrap up the Q and A session here. Tepco would like to conclude the earnings release conference call. Thank you again for your participation today.

Thank you. This concludes the fiscal year twenty twenty two third quarter