Korea Electric Power Corporation — FY2020 Form 20-F Summary
Business context and reporting period
KEPCO filed its annual report on Form 20-F on April 30, 2021, covering the fiscal year ended December 31, 2020. The consolidated financial statements are audited and prepared under IFRS as issued by the IASB. KEPCO is Korea’s dominant integrated electric utility, transmitting and distributing substantially all electricity in Korea and generating power through six wholly owned generation subsidiaries. The Korean government and Korea Development Bank controlled 51.1% of outstanding shares at year-end.
KEPCO sold 509,270 GWh of electricity in 2020, down 2.2% from 2019. Industrial demand declined 3.7% and commercial demand declined 2.2%, while residential demand increased 5.0%, reflecting COVID-19-related economic disruption, social distancing and increased time spent at home.
Key financial metrics
| Metric | 2019 | 2020 | Change |
|---|---|---|---|
| Sales | ₩58,568 billion | ₩57,926 billion | Down 1.1% |
| Cost of sales | ₩57,780 billion | ₩51,805 billion | Down 10.3% |
| Gross profit | ₩788 billion | ₩6,121 billion | Up 676.8% |
| Gross margin | 1.3% | 10.6% | Improved 9.3 percentage points |
| Operating profit (loss) | Loss of ₩1,708 billion | Profit of ₩4,097 billion | Turned profitable |
| Operating margin | (2.9)% | 7.1% | Improved 10.0 percentage points |
| Profit (loss) for the year | Loss of ₩2,264 billion | Profit of ₩2,092 billion | Turned profitable |
| Profit attributable to owners | Loss of ₩2,346 billion | Profit of ₩1,991 billion | Turned profitable |
| Net margin | (3.9)% | 3.6% | Improved 7.5 percentage points |
| Basic EPS | Loss of ₩3,654 | ₩3,102 | Turned positive |
| Net cash from operating activities | ₩8,213 billion | ₩13,208 billion | Up 60.8% |
Sales of electricity declined 0.4% to ₩56,684 billion, while construction-services revenue fell 35.8% to ₩812 billion as UAE nuclear construction projects progressed. The average electricity sales price increased 1.0% to ₩109.80 per kWh.
- Power-purchase costs fell 13.9% to ₩15,725 billion, primarily because of lower wholesale power prices.
- Fuel costs were 28.6% of cost of sales and 25.5% of sales, versus 31.6% and 31.2%, respectively, in 2019.
- Greenhouse-gas allowance expenditure declined to approximately ₩311 billion from ₩710 billion, mainly because coal-fired generation decreased.
- Net finance expense declined 21.8% to ₩1,386 billion, despite total finance expense of ₩2,896 billion, due primarily to higher finance income and lower interest costs.
- Capital expenditures for generation, transmission and distribution facilities were ₩15,485 billion, compared with ₩15,795 billion in 2019.
Financial position, debt and liquidity
| Balance-sheet item | 2019 | 2020 |
|---|---|---|
| Total assets | ₩197,598 billion | ₩203,142 billion |
| Property, plant and equipment, net | ₩164,702 billion | ₩168,709 billion |
| Total equity | ₩68,890 billion | ₩70,667 billion |
| Total borrowings and debt securities | ₩67,877 billion | ₩69,725 billion |
| Cash and cash equivalents | ₩1,810 billion | ₩2,030 billion |
| Working-capital deficit | ₩4,749 billion | ₩5,319 billion |
- Net cash used in investing activities was ₩14,832 billion, primarily reflecting capital investment and financial-asset acquisitions.
- Net cash provided by financing activities was ₩1,881 billion, down from ₩5,775 billion, as debt issuance proceeds declined.
- Debt maturities for 2021 totaled approximately ₩10,094 billion, including ₩7,241 billion of domestic debentures and ₩1,305 billion of foreign debentures.
- Credit facilities totaling ₩5,119 billion and US$1.810 billion were fully available at December 31, 2020. Global medium-term note programs had approximately US$8 billion available for future drawdown, plus approximately A$1.7 billion under a separate Australian-dollar program.
- Foreign-currency debt represented 17.1% of long-term debt, excluding the effect of swaps.
Material changes versus the prior comparable period
- KEPCO moved from an operating loss and net loss in 2019 to operating and net profit in 2020, driven primarily by lower fuel and purchased-power costs and lower emissions-related costs.
- Electricity volume declined because of COVID-19-related reductions in industrial and commercial activity, partly offset by higher residential consumption.
- Coal-fired generation declined materially, while nuclear generation increased. Nuclear generation represented 29.0% of Korea’s 2020 electricity generation; independent power producers represented 28.6%.
- Total equity increased 2.6%, while total borrowings and debt securities increased approximately 2.7%. The working-capital deficit widened.
- KEPCO paid a dividend of ₩1,216 per share for fiscal 2020, after no dividend for fiscal 2019.
Guidance, outlook, management commentary and risks
KEPCO did not provide a conventional earnings-per-share or revenue forecast in the filing. Its outlook is shaped by the Ninth Basic Plan for Electricity Supply and Demand, covering 2020–2034, and by Korea’s transition toward lower-carbon generation.
- Budgeted capital expenditures are ₩14,397 billion for 2021, ₩16,310 billion for 2022 and ₩15,316 billion for 2023, or ₩46,023 billion in total.
- The plan calls for retirement of 30 aging coal plants and 11 nuclear plants by 2034, conversion of 24 coal plants to LNG, and significant renewable-capacity expansion.
- From January 1, 2021, KEPCO implemented a cost pass-through tariff system with quarterly fuel-cost adjustments and a separate climate/environment charge. Adjustments are subject to caps and government discretion, so cost recovery may lag actual fuel and environmental costs.
- The 2021 climate/environment charge was set at ₩5.3 per kWh. The filing states that the new tariff system may not fully recover costs if adjustments are capped, delayed or not approved by the government.
- Major risks include fuel-price volatility, exchange-rate movements, regulated tariffs, COVID-19 effects, environmental and carbon-compliance costs, nuclear-safety events, construction delays, labor disputes, cyberattacks, litigation, sanctions exposure involving Iran and Russia, and the need for substantial refinancing and capital investment.
- Environmental and transition costs may rise as renewable portfolio requirements, emissions trading, coal-generation restrictions and carbon-neutrality policies become more stringent.
- The company carried ₩20,075 billion of non-current provisions at year-end, including ₩16,975 billion for nuclear-plant decommissioning, ₩1,845 billion for radioactive waste and ₩1,354 billion for spent fuel.
- KEPCO and its subsidiaries were defendants in 663 lawsuits with aggregate claims of approximately ₩551 billion and plaintiffs in 200 lawsuits with claims of approximately ₩730 billion. Provisions for legal claims were ₩113 billion.
- The filing identifies impairment of transmission and distribution PP&E as a critical audit matter. No impairment charge was recognized for the related cash-generating unit in 2020, but recoverability depends on assumptions regarding future sales, tariffs, power-purchase costs and discount rates.
Most important facts for an investor to verify
- Whether the cost pass-through tariff system delivers timely and sufficient recovery of fuel, emissions and renewable-compliance costs.
- 2021 and later trends in coal, LNG, uranium and carbon-allowance prices, and the resulting effect on operating margins.
- Debt refinancing progress, near-term maturities and the availability and cost of new domestic and foreign-currency funding.
- Actual electricity demand by industrial, commercial and residential customers after COVID-19 effects normalize.
- Progress, cost and regulatory status of nuclear construction, retirements, decommissioning and renewable-energy projects.
- Potential cash outflows from guarantees, shareholder put options, litigation, nuclear-related obligations and overseas projects.
- Exposure to foreign exchange: the filing estimates that a 10% unfavorable movement in the Won against foreign currencies would reduce pre-tax income by approximately ₩1,337 billion, before hedge effects.
- Whether management’s PP&E recoverability assumptions remain supportable under future tariff, demand and power-purchase-cost scenarios.