Korea Electric Power Corp (KEP) 2021 Q2 法說會逐字稿

(Spoken in Korean). Good afternoon. This is (inaudible), Head of IR team at 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 first half of 2021.

Today's call will be posted 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 financing reporting standards, any comparison will be on a year-on-year basis between last year and this year.

Potential 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 Ms. Yoonjui Lee, Senior IR Manager, will begin with an overview of earnings results for the first half of 2021 first in Korean and repeating in English.

(Spoken in Korean). Now we'll provide the overview and English starting with operating income. In the first half of 2021, KEPCO recorded an operating loss of JPY193.2 billion. To take a closer look, operating revenues increased by 1.5% to JPY28.59 trillion. Power sales revenue increased by 1.0% to JPY26.88 trillion, and revenue from overseas and other businesses also increased by 9.7% to JPY1.72 trillion.

Moving on to main operating costs, cost of goods sold and selling, general and administrative expenses rose by 5.3% to JPY28.79 trillion. Fuel costs increased by 3.6% to JPY7.83 trillion mainly due to a 5.6% rise in average unit cost of fuel.

Next, power costs increased by 12.2% to JPY9.31 trillion. This was due to larger purchase power volumes from the independent coal producers and strengthened RPS requirements compared to the previous year. Depreciation costs rose by 5.4% to JPY5.16 trillion due to the increase in depreciable assets resulting from the acquisition of electric facilities, including transmission and distribution lines.

Now let me explain KEPCO's non-operating segment. The net financial loss was JPY861.9 billion, reduced loss by JPY34.6 billion from the last year. As a result of the foregoing, we recorded a consolidated net loss of JPY555.4 billion, which is an JPY811.9 billion decrease from JPY256.5 billion of consolidated net profit in the previous period. (Spoken in Korean). This concludes the overview of KEPCO's earnings results for the first half of 2021.

(Spoken in Korean) Now let us move on to the Q&A session. I am joined with our IR committee members in charge of major (inaudible) areas at KEPCO. Since we will first say the Q&A session in both Korean and English, please make your questions and answers brief and clear. Thank you.

(Spoken in Korean). [Tehan Mui], (inaudible).

(Spoken in Korean).

The first question is on the standalone profit and loss numbers. When you've compared this with the consolidated numbers, there has been some (inaudible) [gap] and discrepancy. I would like to understand the cause of it. And also would like to understand management's view on whether this trend will continue going forward. And will the Companies be able to pay out dividends?

The second question will be on utilization rate for Q3. It has been predicted that the nuclear power plant utilization is likely to go down, but recently with the power shortage coming out we are hearing that the nuclear utilization will go up. And we want to understand what the utilization was for Q2 for coal and nuclear power plant. Last but not least, would like to also understand about the sales unit price. Electricity in Q2 --.

(spoken in Korean).

Correction there would be would like to understand about the sales volume in Q2. There has been an increase on the average sales volume and what is the reason behind this? (Spoken in Korean). To answer your first question, as you know, the consolidated number and standalone numbers are influenced by the adjustment coefficient numbers.

Whether this will be maintained going forward will be difficult to predict at this point because it depends on the adjustment coefficient which will be calculated based on discussion between KEPCO and its [GENCOs]. The basic guideline here is to maintain certain gaps between consolidated and standalone numbers, but we need to wait and see the second half of -- what will develop in the second half to see how this will turn out. (Spoken in Korean).

And your second question on the utilization for nuclear and our core utilization. When we look at this number on an annualized basis compared to last year, we predict that utilization will go down.

(Spoken in Korean). And for the nuclear power plant, we are seeing an increased number of planned maintenance days. So we predict that the utilization for nuclear would be somewhere at early to mid-70% level for coal because of the restriction policy that is being employed. We are predicting some late 50% number, so that would be a slight decrease compared to the previous year.

(Spoken in Korean). In the second quarter we see an increase of sales volume by 5.2%. We believe this is an impact on economic recovery trajectory as well as somewhat influenced by the plunge in sales volume that happened last year in the same period.

(Spoken in Korean). And to take our annualized sales volume going forward, with the industrial recovery being in place, we believe that the growth level would be at late 2% level, but we will need to wait and see how COVID-19 develops in the second half of the year. I hope that answered your questions.

(Spoken in Korean).

[Cowan Lin], [Merit] Securities.

(Spoken in Korean). (Interpreted) I have two questions. The first question is regarding the nuclear power plant. Do you have any further plans to export nuclear power plant overseas? What kind of plan or discussion is in place if any?

The second question is regarding your photovoltaic generation. There has been some self-generation of photovoltaic energy. And in relation with [RE100] there has been some installation of PV on the roof of some industrial complexes. How will this trend impact the mid- or long-term sales trend for KEPCO? Will this lead to the decreased sales of KEPCO going forward?

(Spoken in Korean). Regarding the overseas nuclear power plant export, I can probably talk about Saudi Arabia and [Cheko], these are the two projects that are being discussed. Saudi Arabia started its process in 2018 where KEPCO was selected and shortlisted as the provider for nuclear power plants and currently we're waiting for the RFP process. We have yet to know about detailed timeline of how this will move going forward.

And regarding Czech Republic, I have to say I have the same answer for this where we are currently preparing for a bidding process and waiting for the bidding process to start.

(Spoken in Korean).

(Interpreted) To answer your second question on the increase of photovoltaic energy and how this will affect KEPCO sales and overall, and also the impact of RE100, we do see that IPP space is widening. And currently it's very difficult for KEPCO to predict whether our actual sales volume will go up and down due to increase of these kinds of renewable energy, especially photovoltaic.

But when you look at renewable energy space, KEPCO and its GENCO has plan to increase its renewable mix -- renewable volume by 42 GW until 2030. So, you can see that KEPCO has a major role to play when it comes to renewables energy space.

But however, when it comes to RE100 and IPP and renewable energy as well as photovoltaic energy growing, it's difficult to predict at this moment how this will impact KEPCO's overall sales in the long run. If that has answered your question, we will move on to the next question.

(Spoken in Korean). (Inaudible), [KPV] Investment Securities.

(Spoken in Korean). (Interpreted) I have two questions. The first is on the fuel cost [mid] price. We see that coal price and LNG unit price is going to be increased. And when you look at the numbers for coal in the second quarter, the unit cost has gone up slightly over that JPY140,000 level.

How do you foresee the unit fuel cost in the second half of this year? And LNG is lagging behind when it comes to its price increase, so it will probably have more increase in the following quarter than quarter one and two. So, how do you foresee the fuel unit costs for these two fuel sources?

And second question is on the Q2 performance. The deficit level is slightly limited and the reason could be because your other revenue has gone up whereas the cost for other revenue -- other cost has gone down. So, I'm wondering whether this is because of the UAE numbers that was supposed to fade out but increased instead. And it would be great if the management can share views on this.

On other costs, did the one-off costs go down? I would like to understand whether the costs have actually gone down this quarter (technical difficulty).

(Spoken in Korean). The core unit costs for Q2 is around JPY140,000 per ton for coal, but this includes the unloading cost for coal as well. So, if you exclude that landed cost, the actual coal price will be JPY136,000 per ton.

(Spoken in Korean). And to quote our annualized number that we'd predict would be early JPY140,000 level per ton, excluding the unloading expenses. And for LNG we are expecting to see JPY650,000 per [liter]. We are expecting to see JPY650,000 per ton.

(Spoken in Korean). To answer your second question, on a year-on-year basis the other revenue has gone up because of our revenue coming from the overseas business, especially from (inaudible), they are currently carrying out [Neara] power plant project. And this power plant is now in operations since the end of June and the revenue started coming in from that project. And also from Mexico we have Norte project that is going on. And their fuel cost has gone up which drove up also the revenue from the overseas business as well.

Regarding one-off costs, our UAE progress rate has gone down, therefore the cost of the business also went down. And also the cost from the greenhouse gas emission has also gone down significantly.

(Spoken in Korean).

One correction there, the UAE progress rate cost reduction as well as the greenhouse gas emission cost reduction is not a one-off cost reduction per se, but it's a cost that is occurring on a regular basis.

(Spoken in Korean).

(Interpreted). I have a follow-up question, and correct me if I'm wrong. On the ETS cost reduction, it seems there has been plunge in ETS cost. And because of this the Q2 numbers have gone down significantly on a year-on-year basis. Is my understanding correct?

Yes. (Spoken in Korean). The average cost for ETS has been JPY26,000 but in the first day of 2021 the cost has gone down to JPY21,000, which reduced the overall ETS-related expenses.

(Spoken in Korean).

Kim Seung-woo, Samsung.

(Spoken in Korean). This is a follow-up question to the ETS question that was raised just before. Could you share the actual number for ETS costs for Q2? In Q1 I believe it was somewhere around JPY23 billion. I would like to understand the actual cost in Q2. And this year we're going to see a reduction in the free ETS volume and would like to understand your overall guideline or prediction for the cost of ETS. (Spoken in Korean)

(Spoken in Korean).

So, to give you the number for this quarter, it is negative JPY109.5 billion for this quarter, and last year it was negative JPY45.1 billion. (Spoken in Korean).

And to answer your second question, starting this quarter we are going to see reduced -- a reduction in our free allocated ETS ratio. And because our ETS cost is influenced by overall emissions that we emit, as well as the ETS unit cost. So, at this point we regret to say that we're unable to predict our expected ETS costs for the following quarters.

(Spoken in Korean).

With this we would like to conclude our Q2 earnings conference call. Thank you all for taking the time out of your busy schedule to be here. Thank you.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.