Korea Electric Power Q3 2023 Earnings Call Transcript

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November 13, 2023

Key Takeaways

  • Negative Sentiment: KEPCO recorded a preliminary consolidated net loss of KRW6 trillion for 2023, although Q3 alone yielded a net income of KRW800 billion.
  • Positive Sentiment: Operating revenues grew by 26.9% year-on-year to KRW65.7 trillion, supported by a 28.8% increase in power sales revenue.
  • Negative Sentiment: Net financial loss rose by KRW0.7 trillion to KRW3.0 trillion due to increased debt levels and higher interest rates.
  • Negative Sentiment: Electricity sales volume in Q3 slipped by 0.3% year-on-year to 415 TWh, reflecting weak domestic demand amid a global economic slowdown.
  • Neutral Sentiment: KEPCO maintained CapEx guidance of KRW17 trillion for 2023 and KRW18.4 trillion for 2024, with plans to prioritize essential projects and defer non-essentials.
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Earnings Conference Call
Korea Electric Power Q3 2023
00:00 / 00:00

There are 2 speakers on the call.

Operator

Good afternoon. This is Nam Young Jang, 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 2023. Today's call will be proceeded in both Korean and English, and we will begin with a brief presentation on the earnings result followed by a Q and 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.

Operator

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 for the 2023 in Korean and English. In the 2023, Keppel recorded an operating loss of KRW6.5 trillion. Third quarter only recorded an operating profit of KRW2.0 trillion.

Operator

To take a closer look, operating revenues increased by 26.9% to KRW65.7 trillion year on year. Power sales revenue rose by 28.8% to KRW61.8 trillion, while revenues from overseas and other businesses increased by 2.4% to KRW3.9 trillion. Cost of goods sold and SG and A expenses decreased by 2% to KRW72.1 trillion. Fuel costs went down by 10.9% to KRW21.7 trillion due to stabilized global LNG and coal price. Purchased power costs slightly increased by 0.9% to KRW3.3 trillion.

Operator

Depreciation costs increased by 5.2% to KRW8.5 trillion, mainly due to newly introduced facilities and power plant. Now let me explain Kepco's non operating segment. The net financial loss was KRW3.0 trillion year on year basis and loss was increased by KRW0.7 trillion, mainly due to increased debt and interest rate. As a result of the foregoing, we recorded an accumulated and consolidated net loss of KRW6 trillion. Third quarter, we only recorded an consolidated net income of KRW800 billion.

Operator

This is end of overview of Kepco's earnings result for the 2023. Good afternoon. This is Won Ki 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 four fifteen terawatt hour.

Operator

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 2023, the cumulative unit price of fuel recorded around KRW240000 per tonne for coal and KRW1.4 million per tonne for LNG from stabilization of international fuel prices. The annual unit price of fuel is expected to be in the early range of KRW200000 per ton for coal, excluding unloading cost and late KRW1.3 million per ton for LNG and late KRW1200 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.

Operator

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 Shinano No. 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%.

Operator

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 costs. In the third quarter, RPS expenses were KRW749.2 billion on a consolidated basis and KRW762.9 billion on a separate or stand alone basis. ETS expenses were negative 1,200,000,000.0 on a consolidated basis and zero on a standalone basis.

Operator

This concludes a brief explanation of the main business update. We will now have our Q and A session. I'm now joined by our IR committee members in charge of major business throughout TENCO. We are now ready to accommodate any questions. And since we will be accommodating questions in both Korean and English, please kindly make your questions and answers brief and clear.

Speaker 1

The first question will be given by Yoon Dong Joon from Merit Securities. Please go ahead.

Operator

This is Kyungwon Moon from Merit 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?

Operator

Second question, looking out to the fourth quarter on the repair cost, do you have any additional or repair costs that we have to be mindful of? And also in terms of wages and labor cost, in terms of implementing your turnaround plan, do you foresee any additional incremental wage or labor costs that is associated with the plan? Regarding the other cost, we have seen the decrease in the fuel price for regarding Mexico's Nortech 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.

Operator

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 and L, it's something that we have to wait to see how it will be further reflected on our P and L.

Speaker 1

Currently, there are no participants to question. The following question is by Kang Dong Jin from Hyundai Motor Securities. Please go ahead.

Operator

Thank you for the opportunity to ask question. I have about two questions. First is on your CapEx guidance. What is your consolidated based CapEx level for this year and next year? And also regarding the financial cost, what are your expected financial cost for next year as well as if you can mention this year on a consolidated and a standalone basis?

Operator

And if you can also mention some interest costs associated with it would be great. To answer your question on CapEx, for 2023, we have our CapEx guidance is KRW17 trillion and KRW18.4 trillion for 2024 for our Kepco and also our Gencos put together for directly investing into the Korean market. We have a cumulative of KRW10.7 trillion of CapEx executed as of 2023, which is the execution level of 87% versus plan. Going forward, we're going to execute CapEx related to our 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. The financial cost on a consolidated basis for Q3 has been KRW1.67 trillion, but the level of the debt going forward is will depend of financial cost going forward will depend on the size of borrowing as well as interest rate going forward.

Operator

To elaborate further to talk about interest cost, when you look at the accumulated interest cost during January to September 2022, it was KRW1.9 trillion. And for twenty twenty three January to September, it was KRW3.3 trillion. On a stand alone basis, interest cost during the 2022 from January to September has been KRW894.9 billion, whereas for January to September 2023, it has been KRW2.073 trillion.

Speaker 1

Currently, there are no participants with questions. Currently, there are no participants. As there are no further questions, we'll now end the Q and A session. For any additional inquiries, please contact our IR department. This concludes the fiscal year twenty twenty three third quarter earning results by Kepco.

Speaker 1

Thank you for your participation.

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