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Edited Transcript of 015760.KS earnings conference call or presentation 14-Aug-19 8:00am GMT

Q2 2019 Korea Electric Power Corp Earnings Call (English, Korean)

Seoul Aug 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Korea Electric Power Corp earnings conference call or presentation Wednesday, August 14, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Oobi Pae

Korea Electric Power Corp. - Director General of Finance & IR

* Yoonhye Cho

Korea Electric Power Corp. - Senior IR Manager

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Conference Call Participants

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* Dong-jin Kang

Hyundai Motor Securities - Analyst

* Jahan Miu

- Analyst

* Sayon Parke

Nomura Securities - Analyst

* Young Fox Chin

Morgan Stanley - Analyst

* Mino Ho

Shinhan Financial Investment - Analyst

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Presentation

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Oobi Pae, Korea Electric Power Corp. - Director General of Finance & IR [1]

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(Spoken in Korean) Good afternoon. This is [Oobi Pae], Director General of Finance and IR Team of KEPCO. On behalf of KEPCO, I would like to thank you all for participating in today's conference call to announce earnings results for the first half of 2019. On our conference call, (Spoken in Korean). We will begin with a brief presentation on the earnings results which will be followed by Q&A session. This call will be presented in both Korean and English.

(Spoken in Korean) Please note that the financial information to be disclosed today is on a preliminary unaudited and consolidated basis in accordance with KIFRS. Any comparisons will be on a year-on-year basis between last year and this year. (Inaudible) plans, financial estimates and other forward-looking statements included in today's call are based on our current expectations and plans. Please note that such statements may involve certain risks and uncertainties.

(Spoken in Korean) Now Ms. Yoonhye Cho, Senior IR Manager, will began with an overview of our earnings results for the first half of 2019, first in Korean and repeat in English.

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Yoonhye Cho, Korea Electric Power Corp. - Senior IR Manager [2]

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(Spoken in Korean) Now we will provide the overview in English starting with operating income. In the first half of 2019, KEPCO reported an operating loss of KWN929 million. Taking a closer look, operating revenue decreased by 2.5% to KWN28.3 trillion. Our sales revenue decreased by 1.1% to KWN26.8 trillion and the revenues from overseas and other businesses decreased by 21.7% to KWN1.5 trillion.

Moving on to main operating cost, cost of goods sold, selling general and administrative expenses decreased by 2% to KWN29.25 trillion. Fuel cost decreased by 749% to KWN8.94 trillion as utilization rate of nuclear power plant decreased over 20% [going in] full power generation decreased compared to the previous year.

Meanwhile purchased power cost increased by 5.1% to KWN9.47 trillion. Declining electricity demand and improved utilization rate of nuclear power plants caused the purchased power volume to decrease by 6.1%. However, unit costs of purchased power rose by 6.5% due to the rise of unit cost of fuel. Depreciation costs remains stable at KWN422 trillion.

Now let me explain KEPCO's non-operating segments. Net financial loss was KWN866 billion, which was improved slightly from net loss of KWN870 billion of last year. As a result of the foregoing we recorded a consolidated net loss of KWN1.173 trillion (inaudible) by KWN4 billion from KWN1.169 trillion of consolidated net loss in the previous year. (Spoken in Korean) This concludes the official KEPCO earnings results for the first half of 2019.

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Oobi Pae, Korea Electric Power Corp. - Director General of Finance & IR [3]

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(Spoken in Korean) Now let us move on to Q&A session. I am joined with our IR committee members in charge of major various areas at KEPCO. We are prepared to take any questions. Since we are presenting the Q&A session and that Korean and English, please make your question and answers brief and clearly.

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Questions and Answers

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Operator [1]

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(Operator Instructions). Dong-jin Kang, Hyundai Motor Securities.

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Dong-jin Kang, Hyundai Motor Securities - Analyst [2]

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(Spoken in Korean) My first question is about the nuclear power plant utilization rate. So, of course the utilization rate has gone down considerably since its peak rate. So, what is your guidance for the nuclear power plant's utilization rate in the third quarter and fourth quarters of this year?

And also same question about the coal-fired power plants. What is your outlook for the utilization rate? And then for the coal price -- we see that the coal price recently has fallen, but then this is not -- your outlook for coal pricing roughly remains the same. So, when do you believe that the drop in the coal pricing will be booked for the year?

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Unidentified Company Representative [3]

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(Interpreted) Regarding the first question about the guidance for the nuclear power plant utilization rates for the third and fourth quarters of this year, please understand that we are not in the position to disclose this information.

And pertaining to your second question about the utilization rate of the coal-fired power plant, the guidance or the outlook for this year on average is about mid-70%. So, this remains unchanged.

And regarding your question about the coal price, particularly the bituminous coal, and also the fact that there seems to be no change to the per calorie price of the fuel for the Company, well, you have to understand there are various factors at play.

So, for example, there have been changes to the tax rate and also particularly for the bituminous coal, it is also dependent on the contract with the GENCOs as well as the exchange rate. So, please understand it is very difficult for us to give you any outlook on when the drop in the coal price will be reflected into the Company's account.

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Unidentified Company Representative [4]

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(Interpreted) Are there any follow-up questions?

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Operator [5]

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(Operator Instructions). [Jahan Miu], (inaudible).

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Jahan Miu, - Analyst [6]

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(Interpreted) My first question is about the purchase power cost. So, now for the RAC in particular, it seems as if the total cost seems to be similar to the second quarter. But then in terms of the purchase volume, I wonder whether there have been any changes to the purchase volume. And then also for the unit price, it seems as if there has been a decline while up YoY. So, do you see this declining trend continuing into the second half of this year?

And the second question is about the revision to the power rate, the tariff. So, we understand that this will be announced by November this year, but have there been any decisions or planning made so far?

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Unidentified Company Representative [7]

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(Interpreted) Now in response to your first question for the purchase power cost, so for the RPS costs there are largely two components. One is the cost incurred by GENCOs, the subsidiaries, and the second is the compensation to the independent power generators, the power plants.

So for the GENCOs, the cost for the GENCOs is they will be recognized on an accrual basis meaning that they will be [accounted] at the time of the accrual. And then for the compensation to the independent power plant, they would also be accounted at the time of the invoicing.

And then regarding the RAC for the GENCOs we do not have the exact statistics yet, but then it appears as if the purchase volume has been decreased. And as for the compensation to the independent power plants, the amount for the compensation has gone up considerably in the first half, which has driven up the overall cost of the RPS. And as for the trend in the second half, we do not have the data at this point because of the number of variables and uncertainties involved.

And to your second question specifically about whether there are any plans to adjust the rate itself, there is no such planning at this point. We are trying to revise the tariff system to be more financially sustainable for KEPCO. And this planning will be done by the end of November this year. And afterwards will be having consultations with the government and we will be submitting the plan for approval by the government in the first half of next year.

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Operator [8]

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(Operator Instructions). [Sayon Parke], Nomura Securities.

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Sayon Parke, Nomura Securities - Analyst [9]

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(Spoken in Korean) The first question is about your investment plans, so the plan for this year was KRW16 trillion. And in the first half we seen that KRW6.7 trillion or KRW6.8 trillion has actually been spent. So, does this mean that the remaining of the planned KRW16 trillion in investment will be spent in the second half of this year? Or do you believe that the actual spending compared to -- versus the investment plan will fall short of the planning?

And then the second question is we see that for the parent company, their financial performance has improved in the second quarter. So, is this due to improvement in sales or have there been any changes to the adjustment coefficient?

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Unidentified Company Representative [10]

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(Interpreted) In response to your first question about the investment execution, yes, it is true that in the first half the execution percentage fell short of our plans, but then our plan right now is to spend all of the planned investment for the year. Having said that, there could also be some changes in the actual spending of the investment because of the construction period or also depending on the actual payment agreed on contracts.

And then to your second question, so for the three months in the second quarter for -- on a non-consolidated basis KEPCO had seen KRW260 billion in income. And on one hand it is due to the increase in the nuclear power plant utilization rate, and also due to the lower purchased power cost, for example, because of the revision in the consumption tax which had also lowered the LNG purchase cost for us. And there has also been some impact from the -- in the revision of the adjustment coefficient.

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Operator [11]

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[Young Fox Chin], Morgan Stanley.

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Young Fox Chin, Morgan Stanley - Analyst [12]

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(Spoken in Korean) (Interpreted) It's a follow-up question to the previous one. So, it's about the CapEx planned for KRW16 trillion for this year. Then can you just give us a breakdown of your CapEx plans for the second half of this year?

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Unidentified Company Representative [13]

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(Interpreted) In the second half KRW2.4 trillion is planned for the reinforcement of the transmission and distribution facilities in the second half and also KRW3.2 trillion for the reinforcement of generation facilities.

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Operator [14]

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[Mino Ho], Shinhan Financial Investment.

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Mino Ho, Shinhan Financial Investment - Analyst [15]

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(Spoken in Korean) (Interpreted) The first question is about your emission -- carbon emission and also the RPS. So can you tell me tell us about the cost for the two items on both the consolidated and non-consolidated basis? And the second question is when do you believe that you will be getting the approval for the operation of the [Shin 100 #1]?

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Unidentified Company Representative [16]

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(Interpreted) In response to your first question for the three months between April to June in 2019, in terms of the emission rights for greenhouse gas. On a non-consolidated basis it was KRW800 million. On a consolidated basis it was KRW23.5 billion or RPS on a non-consolidated basis KRW594.8 billion, on a consolidated basis KRW436.4 billion.

And regarding your second question, the official position of the (inaudible) is that they will be completing this by November this year. But then because of the pilot operation period there are some uncertainties and variable factors. So, if there are any changes to the planning then we will communicate with the market as soon as possible.

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Mino Ho, Shinhan Financial Investment - Analyst [17]

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(Interpreted) Then I understand there would be a lot of new coal fired plants to be introduced in the latter part of this year and into early part of next year. So, if you believe that the operation of these coal fired plants would have no problem.

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Unidentified Company Representative [18]

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(Interpreted) Now in response to your question, actually we have no plans to introduce new coal fired plants for this year or next year. So, if we come across any information that tells us otherwise then we will let you know.

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Operator [19]

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(Operator Instructions).

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Unidentified Company Representative [20]

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(Interpreted) If there are no further questions then we are going to conclude the conference call for the second quarter of 2019. Thank you very much for your participation.

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Editor [21]

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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.