Korea Electric Power Corp (KEP) 2023 Q3 法說會逐字稿

[Interpreted] Good afternoon. This is (inaudible), Head of Finance and IR team. On behalf of KEPCO, I would like to thank all of you for attending today's conference call to announce earnings results for the third quarter of 2023. Today's call will be proceeded in both Korean and English, and we will begin with a brief presentation on the earnings results 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 K-IFRS. 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, which may involve certain risks and uncertainties. We will now provide an overview of earnings results of the third quarter of 2023 in Korean and English.

[Interpreted] In the third quarter of 2023, KEPCO recorded an operating loss of KRW 6.5 trillion; third quarter only recorded an operating profit of KRW 2.0 trillion. To take a closer look, operating revenues increased by 26.9% to KRW 65.7 trillion year-on-year. Power sales revenue rose by 28.8% to KRW 61.8 trillion, while revenues from overseas and other businesses increased by 2.4% to KRW 3.9 trillion. Cost of goods sold and SG&A expenses decreased by 2% to KRW 72.1 trillion. Fuel costs went down by 10.9% to KRW 21.7 trillion due to stabilized global LNG and coal price. Purchased power cost slightly increased by 0.9% to KRW 30.3 trillion. Depreciation cost increased by 5.2% to KRW 8.5 trillion, mainly due to newly introduced facilities and power plant.

Now let me explain KEPCO's nonoperating segment. The net financial loss was KRW 3.0 trillion year-on-year basis, and loss was increased by KRW 0.7 trillion mainly due to increased debt and interest rate. As a result of the foregoing, we recorded an accumulated and consolidated net loss of KRW 6 trillion. Third quarter, we only recorded a consolidated net income of KRW 800 billion.

This is end of overview of KEPCO's earnings results for the first half of 2023.

[Interpreted] Good afternoon. This is Wonkee Cho, Senior Manager of the IR team. First, on sales outlook. Due to the prolonged global economic slowdown and sluggish export, electricity sales in Q3 decreased by 0.3% year-on-year to 415 terawatt hour. On an annual basis, the growth of the Korean economy is expected to slow down with a slight increase or similar to the previous year level.

Next is on unit cost of fuel by fuel source. In the third quarter of 2023, the cumulative unit price of fuel recorded around KRW 240,000 per ton for coal and KRW 1.4 million per ton for LNG from stabilization of international fuel prices. The annual unit price of fuel is expected to be in the early range of KRW 200,000 per ton for coal, excluding unloading cost, and late KRW 1.3 million per ton for LNG and late KRW 1,200 per liter for oil.

Looking at the power generation mix of GENCOs, in the third quarter, the share of nuclear power generation increased year-on-year, while coal and LNG decreased. In the case of nuclear power plant, there was a decrease in the utilization rate of nuclear power plant due to the increase in the number of preventive maintenance days, but the power generation volume increased due to the start of commercial operation of Shin-Hanul #1.

In the case of coal, the utilization rate decreased due to the increase in the number of maintenance days. And in the case of LNG, the power generation decreased due to high energy prices and decreased electricity demand.

In Q3, the utilization rate for nuclear power plant was 84.5%, coal 60.1% and LNG 33%. The annual power generation utilization outlook for nuclear power plant is in the early 80% range, and coal is in the middle of 50%, and LNG is in the mid- to late 20%.

In the case of IPP-purchased electricity cost, the cumulative purchase increased by 6.3% in the third quarter as new coal power plants were introduced.

Next is on the RPS and ETS-related cost. In the third quarter, IPS expenses were KRW 749.2 billion on a consolidated basis and KRW 762.9 billion on a separate or stand-alone basis. ETS expenses were negative KRW 31.2 billion on a consolidated basis and 0 on a stand-alone basis.

This concludes a brief explanation of the main business update.

(Operator Instructions) [Interpreted] We will now have our Q&A session. I am now joined by our IR Committee members in charge of major business throughout KEPCO. We are now ready to accommodate any questions. And since we'll be accommodating commenting questions in both Korean and English, please kindly make your questions and answers brief and clear.

(Operator Instructions) The first question will be given by (inaudible) from Meritz Securities.

[Interpreted] This is Kyeong Won Moon from Meritz Securities. I have two questions. First is on your other cost. On a consolidated basis, your other miscellaneous cost is down year-on-year basis and what is the reason behind this? Second question, looking out to the fourth quarter, on the repair costs, do you have any additional repair costs that we have to be mindful of and also in terms of wages and labor costs, in terms of implementing your turnaround plan, do you foresee any additional incremental wage or labor cost that is associated with the plan?

[Interpreted] Regarding the other cost, we have seen the decrease in the fuel price regarding Mexico's Norte project, hence the materials cost also went down accordingly. And also in terms of KDN's [ADN] deployment plan, we have also seen decrease in costs associated with the deployment plan.

[Interpreted] To answer your question on Q4 repair cost and wage and labor cost, is something that we can only foresee as we -- after some time. But in accordance with our press report on November 8, we released a turnaround plan that includes the overall turnaround of the organization, which includes reduction of manpower within our headquarter as well as reduction of our operation and administrative resources and also accommodating and getting early retirement plan in place. So please do refer to our press reporting. But for us to gauge an impact on our P&L, it's something that we have to wait to see how it will be further reflected on our P&L.

[Interpreted] (Operator Instructions) The following question is by Kang Dong Jin from Hyundai Motor Securities.

[Interpreted] I have about two questions. First is on your CapEx guidance. What is your consolidated base CapEx level for this year and next year? And also regarding the financial cost, what are your expected financial costs for next year, as well as if you can mention this year, on a consolidated and stand-alone basis? And if you can also mention some interest costs associated with it would be great.

[Interpreted] To answer your question on CapEx, for 2023, we have -- our CapEx guidance is KRW 17 trillion and KRW 18.4 trillion for 2024 for our KEPCO and also our GENCOs put together for directly investing into the Korean market. We have a cumulative of KRW 10.7 trillion of CapEx executed as of Q3 of 2023, which is the execution level of 87% versus plan. Going forward, we're going to execute CapEx related to our essential -- an essential supply of electricity. And also, we're going to deprioritize those nonessential items and consider delaying those CapEx execution as we move on with our turnaround plan.

[Interpreted] So for the financial cost, on a consolidated basis for Q3 has been KRW 1.67 trillion, but the level of the debt going forward is -- will depend -- [level of] financial costs going forward will depend on the size of borrowing as well as interest rate going forward.

[Interpreted] To elaborate further to talk about interest cost. When you look at the accumulated interest cost during January to September 2022, it was KRW 1.9 trillion, and for 2023 January to September it was KRW 3.3 trillion. On a stand-alone basis, interest costs during the 2022 from January to September has been KRW 894.9 billion, whereas for January to September 2023 it has been KRW 2.073 trillion.

[Interpreted] (Operator Instructions) As there are no further questions, we'll now end the Q&A session. For any additional inquiries, please contact our IR department.

This concludes the Fiscal Year 2023 3rd quarter earning result by KEPCO. Thank you for your participation.

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