Korea Electric Power Corp (KEP) 2021 Q4 法說會逐字稿

(foreign language) 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 2021 full quarter earnings resulted by KEPCO. This conference will start with a presentation followed by a divisional Q&A session. (Operator Instructions) Now we shall commence the presentation on the fiscal year 2021 full quarter earnings resulted by KEPCO.

(foreign language) Good afternoon. This is (inaudible) Head of IR business. On behalf of KEPCO, I would like to thank you for participating in today's conference call to announce the earnings results for the fiscal year of 2021. Today's call will be proceeded in both Korean and English. We'll 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 discussed today is on a preliminary, unaudited and consolidated basis in accordance with the 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. Please be noted that such statements may involve certain risks and uncertainties.

Now Ms. Yoon Cho Hye, Senior IR Manager will begin with an overview of our earnings results for 2021, firstly in Korean and repeat in English.

[Interpreted] Now we will provide the overview in English starting with operating income. In the fiscal year 2021, KEPCO reported an operating loss of KRW 20.9 trillion. To take a further look, operating revenues increased by 3.4% to KRW 60.6 trillion. Power sales revenue increased by 2.7% to KRW 57.2 trillion, and revenues from overseas and other businesses also increased by 18.5% to KRW 3.4 trillion.

Moving on to main operating, costs of good sold and selling, general and administrative expenses rose by 21.9% to KRW 56.4 trillion. Fuel costs increased by 31.2% to KRW 19.4 trillion, mainly due to a 29.3% rise an average unit cost of fuel.

Next, purchase power cost increased by 37.6% to KRW 21.6 trillion. This was due to larger purpose power volumes from the independent power producers and high RPS requirements related costs compared to the previous year.

Depreciation cost rose by 4.5% to KRW 10.4 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 nonoperating segments. The net financial loss was KRW 1.8 trillion, increased loss was KRW 0.4 trillion from the last year. As a result of the foregoing, we reported a consolidated net loss of KRW 5.3 trillion, which is a KRW 7.4 trillion decrease from KRW 2.1 trillion of consolidated net profit in the previous year.

[Interpreted] Next, we'd like to brief you on the update on key business line items. First, on sales outflows. Electric sales in 2021 rose just 4.7% year-on-year from increased (inaudible) and economic recovery and export and domestic market growth in (inaudible) in 2022, increased sales volume growth will also grow as continuously as in 2021.

Next is on the breakdown of the unit cost of fuel. With fuel cost rising globally, coal price, excluding unloading costs and other associated costs, is expected to be KRW 150,000 per ton, LNG at KRW 720,000 per ton. High energy price is expected to continue on in 2022 with the coal price expected at KRW 190,000 per ton, LNG at KRW 110,000 per ton and oil at KRW 1,080 per liter. However, these estimates are subject to change with changes in global energy price.

On generation mix in Gencos, while utilization of nuclear and coal generation remained similar to the previous year, share in overall generation mix went down due to increased electricity demand. We believe share of nuclear generation will go up in 2022 from higher utilization rates and completion of greenfield into nuclear power plants, but share of coal and LNG generation, in general, could potentially go down from shutdown of old coal generation plants and from operation of new private coal generation plant.

Utilization outlook by energy source for 2022 is high 70% for nuclear fuel plant and high 50% for coal and mid-20% for LNG.

RPS and EPS costs in 2022 -- as per RPS cost is up from previous year at KRW 2.36 trillion on a consolidated basis and at KRW 3.26 trillion on a stand-alone basis, as RAC ratio is increased to 9% from 7%.

ETS costs recorded KRW 570 billion on a consolidated basis and KRW 430 billion on a stand-alone basis. This concludes a brief update on key business environment.

Now let us move on to the Q&A session. (Operator Instructions)

(Operator Instructions) The first question will be given by Mr. Pierre Lau from Citi.

I have three questions. First one is, could you give us any guidance regarding our expectation of tariffs in 2022?

And the second question, would you mind repeating what you said regarding the unit fuel cost for coal and LNG and oil, you just mentioned? So I cannot get to answer.

And the third question is, what is your expectations of the generation mix in 2022 for coal, LNG and oil?

[Interpreted] To answer your first question on the 2021 fuel price. For coal, it was KRW 150,000 per ton; and for LNG, it was KRW 720,000 per ton; and for oil, it was KRW 800 per liter. And as for 2022 guideline, we expect the fuel price for coal to be KRW 190,000 per ton; and for LNG, KRW 1,010,000 per ton; and for oil, KRW 1,081 per liter.

On your last question on generation mix, in 2021, the gencos actual generation mix for nuclear power plant was 39%; and for coal, it was 43%; and for LNG, it was 14%. Our expectation for 2022, we believe the utilization or the energy mix for nuclear will be slightly up. And for coal, it will remain somewhat similar to this year. And LNG, we believe it will likely go down.

We would now like to move on to the question.

[Interpreted] The following question is by Mr. Hwang Sung Hyun (sic) [Sung Hyun Hwang] from Eugene Investment Securities.

[Interpreted] First question is on the other or miscellaneous fuel costs, why did it go down? And what are the drivers that decreased the other fuel cost line item?

Second question is on the UAE business side. How -- what is the progress rate of the overall project? And what is the size of other revenue or sales created by UAE project?

The third question is on the other costs such as the nuclear power plant decommissioning cost. How is the cost going to be?

And fourth and last question will be on the renewable energy capacity. I know that the CapEx has gone up slightly. And how is capacity status at the moment? Is it going up? And what is the current capacity for the renewable energy?

[Interpreted] To answer your first question on the UAE project progress. For UAE power plant #1, the completion was done at April -- in April of 2021. And the second power plant was completed in March and the fuel filling has been completed 100% for full output. And we regret to say that the progress rate due to confidentiality, we cannot share that number with you at this point.

To answer your fourth question on renewable energy capacity and CapEx. As for the CapEx number for -- to give you our overall CapEx for renewable energy for 2021, the CapEx executed was KRW 570 billion, and our plan for 2022 is KRW 970 billion and '23 is KRW 990 billion. And we regret to say -- we will get back to you on the detailed capacity number off-line.

[Interpreted] To answer your third question and other costs regarding decommissioning cost and provisioning as per the January 11, 2021, mostly requirement, the provisioning amount has changed for decommissioning. And we have allocated and the overall provisioning would be KRW 92.6 billion.

[Interpreted] And to answer your first question on why there has been a decline in other fuel costs is that when you look at the other fuel cost line item for our gencos, mostly, it is regarding renewable energy costs. And as the spend regarding the environment has gone down, the costs associated with the renewable energy cost have also gone down. I hope that answered your question. If so, we will move on to next question.

[Interpreted] The following question is by Ryu Jae-Hyun (sic) [Jae-Hyun Ryu] from Mirae Asset Securities.

[Interpreted] I'd like to once again check the overall RPS and ETS costs. I heard that there is going to be an increase in our RPS and ETS related costs. And could you please confirm that? And also, we would -- I would like to ask about internal view on the overall tariff structure. Do you see -- do you foresee the tariffs to go up in the near term?

And there has -- we're expecting to see a surge in fuel costs going forward. So do you have the additional plan to increase your tariffs as well?

[Interpreted] Total cost of RPS in 2021 is KRW 2.36 trillion on a consolidated basis and KRW 3.26 trillion on a stand-alone basis. As for ETS cost, it recorded KRW 570 billion on a consolidated basis and KRW 440 billion on a stand-alone basis.

And as for the year 2002 (sic) [2022], the REC requirement will go up from last year's 9% to 12.5% this year. So the unit cost will be based on the changes in REC requirements. So at this point, we are unable to forecast the overall RPS cost and ETS cost.

[Interpreted] So that -- so listening to the overall changes in the REC unit cost and -- which is likely to go up and also what we believe the overall purchase volume would also likely go up by 30%. So this will eventually have to be linked to the tariff cost price increase I would like to understand what -- how management sees the likelihood of increasing tariffs in the near future?

[Interpreted] To answer your question on the overall tariff, as we have mentioned in last year's call on December 27, we have planned to increase the overall base price by KRW 4.91 starting in April and climate and environment-related costs by KRW 2.01 starting in April. We also have additional plan to increase base cost or base tariff by KRW 4.91 in October.

The additional plan to increase tariff in 2022 will be finalized once we calculate and coordinate the overall cost of energy supply with the government. And once there is a factor to increase tariffs, we will coordinate work with the government to take such measures.

We will now move on to next question.

Currently, there are no participants with questions. (Operator Instructions) The following question is by (inaudible) from Nomura Financial Investment.

[Interpreted] Even if we increase the overall tariff rate in April and October, because of the surge in energy costs and the raw material costs, we believe that there would be a big deficit in the operating cost. So we'd like to understand whether KEPCO shares the similar outlook on the overall deficit of the company? If so, last year, you have recorded a record high deficit. Do you -- and if deficit continues on, to this year, how are you going to go about managing the company? Could management team share their view on the overall outlook?

[Interpreted] As you have rightly mentioned that there has been a big surge in energy costs recently and we are closely monitoring that trend. In order to respond to such change, we are working on to save overall of cost as well as increase and streamline the efficiency on our capacity and equipment.

Also, we are working to sell off our noncore asset to cope with the situation. And we also are working toward reasonably reflecting our changing market situation into our cost bases, so that we can get a fair return and fair cost compensation on the energy -- electricity service that we provide.

[Interpreted] The following question is by Sung Hyun Hwang from Eugene Investment & Securities.

[Interpreted] As a follow-up question, could you also share some of other line items that is under other costs or other fuel costs that we have talked about previously in my question? And also, I know you have planned to sell off the (inaudible) land site. What is the progress to date on the sales of this land site?

[Interpreted] To answer your first question on other costs is that there has been increase in the overall decommissioning cost of the nuclear waste. And also, there has been an increase in ETS costs. And other than that, there has -- there is no significant line item that contributes to increase or decrease of the other cost line item.

Those other cost line items are all in line with the overall revenue increase and the cost that is associated with revenue increase.

[Interpreted] On the progress of the line side sell-off, we're going to check the overall progress and get back to you.

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

[Interpreted] We would like to then conclude our Q&A session. I would like to once again thank everyone for their attendance. Thank you.

[Interpreted] This concludes the fiscal year 2021 fourth quarter earnings resulted by KEPCO. Thanks for the participation.