Korea Electric Power Corporation (A015760) Earnings Call Transcript & Summary

[Foreign Language] Good morning and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the fiscal year 2022 second quarter earning results by KEPCO. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2022 second quarter earning results by KEPCO.

[Foreign Language] Good afternoon. This is [indiscernible], Head of IR team of 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 2020. 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 the 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. Now Ms. Yoonjue Lee, senior IR manager, will begin with an overview of our earnings results for the first half of 2020, first, in Korean; and repeated in English.

[Foreign Language] Now we will provide the overview in English, starting with operating income. In the first half of 2022, KEPCO recorded an operating loss of KRW 14.3 trillion. To take a closer look: Operating revenues increased by 11.5% to KRW 32.0 trillion year-on-year. Power sales revenue rose by 9.3% to KRW 29.5 trillion, while revenues from overseas and other businesses increased by 46.9% to KRW 2.5 trillion. Moving on to main operating costs. Cost of goods sold; and selling, general and administrative expenses surged by [ 60.3% to KRW 46 trillion ]. Fuel costs surged by 86.3% to KRW 14.3 trillion due to rapid increase in coal and LNG prices. Next, purchased power costs surged by 104.1% to KRW 19.0 trillion. This was due to larger purchased power volumes from the independent power producers and higher unit price of purchased power. Depreciation costs rose by 4.8% to KRW 5.4 trillion due to the increase in depreciable assets resulting from the completion of electric facilities. Now let me explain KEPCO's nonoperating segment. The financial loss was KRW 1.3 trillion, increased loss by KRW 0.4 trillion from the last year. As a result of the foregoing, we recorded a consolidated net loss of KRW 10.8 trillion, which is a KRW 10.3 trillion decrease from KRW 0.5 trillion of consolidated net loss in the previous year.

[Interpreted] We now would like to spend a little bit of time to briefly explain some key points related to our earnings results.

[Interpreted] First, on sales outlook. In the first half of this year, power sales increased from recovery in domestic economy and robust exports. Sales volume grew by 3.4% in Q2 and 4.5% in Q1. In the second half, we expect sales volume to continue growing on year. However, the growth rate may be slightly slower. For the full year, power sales are projected to grow by around 2% to 3%. Next, unit fuel price by source. In Q2, reflecting the changes in international fuel prices, unit fuel price for coal was KRW 270,000 per ton. And for LNG, it was KRW 1.19 million per ton. In light of the continued high global fuel prices, annual unit fuel price outlook is for coal, excluding unloading and other expenses, to be in the late KRW 200,000 per ton; and LNG to be in the mid KRW 1 million range per ton. Please note that such outlook is subject to change based on fuel price trends. In regards to the generation mix. In Q2 year-on-year basis, the share of nuclear generation increased, while the share of coal-fired generation decreased. For the full year, compared to the previous year, the use of nuclear generation is forecasted to increase. Thus, higher share of nuclear generation on year is expected, while the shares of coal and LNG generation will relatively decrease. Next, on RPS and ETS related costs. In Q2, RPS cost was on a consolidated basis KRW 850 billion and standalone KRW 1.2 trillion. And for ETS costs, it was, consolidated, minus KRW 55 billion; and unconsolidated basis, minus KRW 60 billion. This concludes the brief explanation on key business conditions.

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

[Foreign Language] [Operator Instructions] [Foreign Language] The first question will be given by [ Moon Gyeongwon from Merit Securities ].

[Interpreted] This is [ Moon Gyeongwon from Merit Securities ], and I would like to ask 3 questions. The first question is related to the progress update on the KEPCO's self-improvement effort which has entailed to cost around KRW 6 trillion. I'm just wondering whether or not the funding of such amount will be successfully completed within this year. The second question is related to the possibility of additional fuel tariff adjustments that would be possible in the Q4. I'm very aware of the [ KRW 5 ] price increase that was actually done previously, but is it possible that under the current circumstances we can actually anticipate an additional tariff increase going forward? And the third question is related to your earnings results for this second quarter. I'm more interested in the other sales revenue because, apart from the power sales revenue, I can note that there have been a considerable increase in the other sales revenue compared to the [ previous quarters ]. And so can you please explain what contributed to this increase?

[Interpreted] Let me answer the first question. As you may note, in May of this year, we -- KEPCO has announced its plan along with the work that we will be doing with our affiliated GENCOs. There is going to be an effort to improve our financials structure by -- with a target to improve this by KRW 6 trillion. This will include activities to -- in respect to our equity investment real estate overseas business and also various cost-cutting efforts as well. And in respect to the overall details for some items, they are currently underway. For some other items, we are still in the review process. And so please understand that, while the plan has announced the KRW 6 trillion, it doesn't necessarily mean that the KRW 6 trillion will be all completed and implemented within this year. It really depends on individual item. And per individual item, the overall implementation and completion schedule may vary.

[Interpreted] And in respect to your second question, which was related to the fuel cost adjustment and the ceiling that we put on the unit price. In respect to the current market situation, everyone recognizes that we are currently seeing an unprecedented volatility in terms of the international fuel prices. And as such, we have already previously announced that in the third quarter we'll be able to increase the ceiling from KRW 3 to KRW 5. And in -- and to finalize it, we are currently continuing our consultation with the government. In this process, I also believe that there will be discussions related to the possibility of anything we can do in the fourth quarter as well. So the discussion is still ongoing with the government.

[Interpreted] And in respect to the key contributors that delivered a increase in our performance for the other revenue, there are 3 notable examples. The first one is related to our business in Mexico, where we were able to see an increase in the prices as well as the power generation volume. We also saw a positive performance in the UAE business for the Korea hydro and nuclear GENCO. And also there has been an increase in the energy -- LNG sale prices and volumes.

[Foreign Language] The following question is by Ryu Jae-Hyun from Mirae Asset.