KOREA ELECTRIC POWER

A015760
Cours en clôture Korea Stock Exchange - 00:00:00 01/02/2023
19660.00 KRW -0.91%

Transcript : Korea Electric Power Corporation, Q3 2022 Earnings Call, Nov 11, 2022

11/11/2022 | 07:00

Presentation Operator Message
Operator (Operator)

[Interpreted] 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 2022 third quarter earnings resulted by KEPCO.

[Operator Instructions] Now we shall commence the presentation on the fiscal year 2022 third quarter earnings resulted by KEPCO.

Presenter Speech
Unknown Executive (Executives)

[Foreign Language] Good afternoon. This is [ Christian ], head of IR Of team, KEPCO. On behalf of KEPCO, I would like to thank you all for participating in today's conference call to announce the earnings results for the third quarter of 2022.

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 a Q&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.

Ms. Yoonjue Lee, Senior IR Manager, will begin with an overview of earnings results for the third quarter of 2022, first, in Korean; and repeat in English.

Presenter Speech
Yoonjue Lee (Executives)

[Foreign Language] Now we will provide the overview in English, starting with the operating income.

In the third quarter of 2022, KEPCO recorded an operating loss of KRW 21.8 trillion. To take a closer look: Operating revenues increased by 14.7 points (sic) [ 14.7% ] to KRW 51.8 trillion year-on-year. Power sales revenue rose by 12.8% to KRW 48 trillion, while revenues from overseas and other businesses increased by 44.9% to KRW 3.8 trillion.

Moving on to main operating costs. Cost of goods sold; and selling, general and administrative expenses increased by 59.1% to KRW 73.6 trillion. Fuel [ cost was high ] by 79.9% to KRW 24.3 trillion due to rapid increase in LNG and coal prices.

Next, purchased power costs surged by 100.5% to KRW 30.1 trillion. This was due to larger purchased power volume from the independent power producers and high unit price of purchased power. Depreciation costs rose by 4.1% to KRW 8.1 trillion due to the increase in depreciable assets resulting from [ the completion of facilities ].

Now let me explain KEPCO's nonoperating segment. The net financial loss was KRW 2.3 trillion, increased loss by KRW 0.9 trillion from the last year. As a result of the foregoing, we recorded a consolidated net loss of KRW 16.6 trillion, which is a KRW 15 trillion decrease from KRW 1.6 trillion of consolidated net loss in the previous year.

Presenter Speech
Unknown Executive (Executives)

[Interpreted] That concludes the overview. At this point in time, we'd like to briefly share some information related to the earnings results.

Presenter Speech
Unknown Executive (Executives)

[Interpreted] 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 unit costs. In the third quarter, reflecting the international fuel price trends, the unit cost for fuel for coal was roughly KRW 290,000 per ton, while for LNG the cost was roughly KRW 1.56 million per ton. 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 level, per ton. This is excluding associated costs for unloading at docks. For LNG, we expect it to be somewhere around the mid-KRW 1 million won level, per ton.

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 ETS-related expenses. In the third quarter, the recorded costs for these are as follows. The RPS expenses on a consolidated basis recorded [ KRW 970 billion ] and on a nonconsolidated basis KRW 1.2 trillion. For ETS-related costs, on a consolidated basis, it recorded minus 8 billion and, for nonconsolidated, minus 1 billion.

This concludes the summary of key management conditions.

Presenter Speech
Unknown Executive (Executives)

[Foreign Language] Now let us move on to the Q&A session. Since we will proceed the discussion in both Korean and English, please make your questions and answers brief and clear. Thank you.

Question and Answer Operator Message
Operator (Operator)

[Interpreted] [Operator Instructions] The first question will be given by Moon, Kyung-Won from Meritz Securities.

Question
Kyung-Won Moon (Analysts)

[Interpreted] 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 KRW 6 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 seemed to be quite notable in the figures that came out as 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 entering into operation or increase of operation of Shin-Hanul 1? Or is it any other factor that was involved? Then I'd like to ask for some plans moving forward about this area as well.

Answer
Unknown Executive (Executives)

[Interpreted] Allow me to answer your first question. Indeed there are some mid-term 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 plan has been set with a time line of up to 2026. However, we will be coming up with more detailed shorter-term or mid-term 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. And that is due to the utilization rate increase of nuclear power plants within KEPCO. If we look at the figures for last year, that is to say for the third quarter of 2021, utilization rate of the nuclear power plant was 69.7%, whereas this year, for the third quarter, it has rose. It has grown to [ 82.4% ]. As for the Shin-Hanul 1 plant as you have asked about, indeed it is in the process of doing test operations right now; and we expect commercial operations 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 moving forward.

Answer
Unknown Executive (Executives)

[Interpreted] 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 growth of borrowings.

Question and Answer Operator Message
Operator (Operator)

[Interpreted] Currently there are no participants with questions. [Operator Instructions] The following question is by Moon, Kyung-Won from Meritz Securities.

Question
Kyung-Won Moon (Analysts)

[Interpreted] 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 trends? Or do you have any other long-term options that you're looking into for financing?

Answer
Unknown Executive (Executives)

[Interpreted] Indeed, as you have mentioned, we are seeing a, witnessing a growth of borrowings at KEPCO. And other measures that we are looking into are striving to achieve the amendment of the KEPCO laws 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.

Question and Answer Operator Message
Operator (Operator)

[Interpreted] Currently there are no participants with questions. [Operator Instructions] The following question is by [ Kim Dong-Ha from Kiwoom Investment Assets ].

Question
Unknown Analyst (Analysts)

[Interpreted] 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 KEPCO'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 lendings 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.

Answer
Unknown Executive (Executives)

[Interpreted] 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 think that information out and get back to you separately on that. Thank you.

Question and Answer Operator Message
Operator (Operator)

[Interpreted] The following question is by Park, KwangRae from Shinhan Investment Securities.

Question
KwangRae Park (Analysts)

[Interpreted] I'd like to ask a question related to the SMP cap 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 3-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 this system is implemented at this point in time?

Answer
Unknown Executive (Executives)

[Interpreted] 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 that -- back at that period. At the time, the ministry announced that it has plans to pursue this type of a system to be implemented. And they had to go through some process of collecting information as well as opinion 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 -- implemented. And therefore, they are still in the review process and coordinating the details of the -- 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 SMP. However, due to the fluctuations we see in the market related to fuel costs and other economic elements, it is difficult for us to give you those types of figures at this point in time.

Question and Answer Operator Message
Operator (Operator)

[Interpreted] The following question is by [ Lee Jung-Hyun from Kiwoom Securities ].

Question
Unknown Analyst (Analysts)

[Interpreted] I have a question related to tariffs. Recently, in October, there was also a rate increase which had been implemented separately and differently for various areas. And 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 end of 2020, but 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?

Answer
Unknown Executive (Executives)

[Interpreted] Allow me to answer that question. As you have rightly mentioned, at the end of 2020, we did announce an amendment of the tariff system; and that is still being implemented to this day. We have 2 unique elements that we introduced during that revision at the end of 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 tariffs, that is always reflecting the changes in the standard fuel costs. 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 costs 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 costs.

Question and Answer Operator Message
Operator (Operator)

[Interpreted] Currently there are no participants with questions. [Operator Instructions] The following question is by [ Kim Dong-Ha from Kiwoom Investment Assets ].

Question
Unknown Analyst (Analysts)

[Interpreted] 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 costs. And also you derive and calculate the standard fuel costs that will be the basis for your further calculation for tariffs. 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?

Answer
Unknown Executive (Executives)

[Interpreted] Well, related to the -- any changes in the standard fuel costs, we are in close communication with the government. And we will continue to do so for the remaining period of the second half.

Question and Answer Operator Message
Operator (Operator)

[Interpreted] Currently there are no participants with questions. [Operator Instructions]

Answer
Unknown Executive (Executives)

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

Question and Answer Operator Message
Operator (Operator)

[Interpreted] This concludes the fiscal year 2022 third quarter earnings resulted by KEPCO. Thanks for the participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

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