Korea Electric Power Corporation Q3 FY2024 earnings call

Operating Profit: Accumulated consolidated operating profit in the third quarter 2024 was KRW5,945.7 billion. Sales increased with electricity sales up 8.0% and other income down. Cost of sales and expenses decreased. ### Power Sales: Third quarter power sales up 1.7% to 421 terawatt hour, annual expected slight increase due to heating and cooling demand. ### Fuel Costs: Third quarter and annual fuel cost details provided, outlook affected by global fuel price trends. ### Power Generation Mix: Nuclear share increased, coal share decreased, LNG capacity slightly increased. Annual outlook: nuclear share to increase, coal share similar, LNG share to decrease. ### RPS and ETS Costs: RPS related cost consolidated KRW2,763.8 billion, non-consolidated KRW3,269 billion. ETS-related costs: minus KRW30.2 billion consolidated, KRW0 non-consolidated. ### Capital Finance: Consolidated borrowing KRW132 trillion, non-consolidated borrowing KRW88 trillion as of third quarter 2024.

The accumulated consolidated operating profit in the third quarter 2024 recorded KRW5,945.7 billion. Sales recorded KRW69,869.8 billion, up 6.4%. Income from electricity sales was KRW66,727.9 billion, up 8.0%. Other income including income from overseas business was KRW3,141.9 billion, down 19.5%. Cost of sales and selling and administrative expenses recorded KRW63,924.1 billion, down 11.4%. Depreciation recorded KRW8,534.8 billion, down 0.2%. Net income recorded KRW2,590 billion. Power sales accumulated in the third quarter increased Y-o-Y by 1.7% to 421 terawatt hour. Fuel costs in the third quarter 2024 were KRW1,990 per ton for coal, KRW1.90 million per ton for LNG, and KRW974 per liter of oil. Annual fuel costs were estimated to be about KRW180,000 per ton for coal, KRW1.1 million per ton for LNG, and KRW907 per liter for oil. Power generation mix: nuclear power plant share increased, coal share slightly decreased, LNG capacity slightly increased but mix maintained. Consolidated borrowing accumulated to the third quarter 2024 was KRW132 trillion and non-consolidated borrowing was KRW88 trillion.

Tariffs: Increased tariff for industrial service power on October 24th, no immediate plans for further tariff increases in the near future. ### Fuel Cost: KEPCO does not present official outlook on fuel cost. ### Dividend: Will consider dividend payout depending on annual performance and availability of funds, no set plan or policy on dividend amount.

Fuel Price: Uncertainty in global fuel price trends affecting fuel cost outlook. ### Nuclear Plant Completion: Possible postponement of Shinhanu Unit 3 completion due to delayed construction process.

Q: What was the key reason for the finance expense drop by 80% year-on-year in the third quarter?

A: The financial expenses is not only influenced by the interest rate, it is also influenced by the loss derived from foreign exchange. Because the range of increase of foreign exchange decreased from the last year, our loss derived from foreign exchange also decreased.

Q: Do you expect more tariff hike in the next six months?

A: We increased the tariff of industrial service power by KRW16.1 on October 24th. And the effect of this tariff increase on average is equivalent to an increase of KRW8.5. It has not been a month since the last increase in October, so we do not foresee any more increase in the near future.

Q: What is your guidance for your fuel cost in fourth quarters this year and 2025?

A: The KEPCO does not present any official outlook on fuel cost.

Q: We understand that still you have sizable accumulated operating loss, but this year net income was positive. So we want to know whether KEPCO is planning to resume paying out dividend.

A: In answering your question, we will consider the plan to pay our dividends if there is the funds to pay out dividends depending on our annual performance and we do not have any set plan or policy on how much dividends to pay out.

Q: My question is about your financial income being minus KRW460 billion. Could you tell us why? And my second question is about the completion plan of nuclear power plants. You announced that the Shinhanu Unit 3 is planned to be completed in the fourth quarter, is it still the case, or is there any possibility of postponing this?

A: Your questions about the plan for Shinhanu Unit 3, the completion plan for Shinhanu Unit 3. We have not been officially notified by either KHMP or KPX that this plan will be postponed, but we understand they are considering postponing this process because of a delayed construction process.

Q: Although your consolidated operating profit improved a lot, we see an enlarged deficit on a non-consolidated basis. Can you tell us why the gap is getting bigger between consolidated operating profit and non-consolidated operating profit and loss? And the other operating expenses is down by KRW300 billion. Can you tell us why?

A: Our non-consolidated operating profit is smaller because the S&P relatively increased in the third quarter. It led to a less profit on both consolidated and non-consolidated basis. The consolidated operating profit increased because it includes not only KEPCO’s operating profit but also the operating profit of our GENCOs and other subsidiaries. Other operating expenses is smaller because of the decrease in the fuel supply cost in Southeast power.

Q: My first question is about the fuel cost for nuclear power plants. In the first quarter, there was a consensus, and you also let us know that there will be an increase of the fuel cost for nuclear power plants for about KRW300 billion, but actually they decreased by KRW220 billion in the second quarter, Y-o-Y, and again by KRW75 billion. Could you tell us why they are going down after you said that they may go up in the first quarter? And again, other operating expenses are going down by KRW500 billion in the second quarter and KRW300 billion in the third quarter. Do you believe that they will continue to go down in the fourth quarter? And the last question, the S&P dropped a lot more than the drop of the fuel cost in October. Can you tell us why?

A: The fuel expenses and other operating expenses refer to the fuel cost of our power generation facilities overseas and GENCO. Other operating expenses are down due to decrease in fuel supply cost in Southeast Power Generation Company. S&P is influenced by fuel cost, demand and supply; October S&P dropped a lot because demand for power decreased after hot season.

Q: Again, on S&P price down a lot. Does that mean the cost, your procurement cost in fourth quarter would also drop proportionately due to this S&P decline. And the second question is regarding dividend. What's the current dividend payout policy? And given you are profitable this year, can we expect at least some dividend pay to shareholders?

A: S&P sets the standards of settlement in the power market. So when the S&P goes down, then it is natural that our procurement cost, which is the power purchase cost, also goes down. Once again, about our policy for dividend payout, at the point of announcing the annual closing of our finances we will check whether we have profits that are payable as dividends and to make a decision for dividend payout. At the moment we do not have any official consideration for dividend policy.

Q: How much power did you purchase?

A: In the third quarter, we purchased about 156 terawatt hour. Among this, we purchased 104 terawatt hour from our GENCOs.

Q: Other than tariffs increase, what other measures is the company taking? And secondly, in the market currently the won is depreciating. Can you please tell us the impact of the value of won in the foreign exchange market.

A: KEPCO is implementing a KRW30 trillion of financial stabilization plan for five years from 2022 to 2026. In this plan, we are taking a lot of measures such as filling our assets and reducing our cost of investment and trying to increase the income other than from power sales. Foreign exchange fluctuations can impact our business in two ways. The first on the borrowing and the second on the fuel cost. However, our borrowings are hedged so we are hedged from risk somewhat. And secondly, the impact on the fuel cost. We are exposed to some foreign exchange fluctuation risk when we buy LNG or other fuel, but the details of this impact varies from the fluctuation range and the cost of global fuel.

Q: If you look at our report of national investigation, we understand that KEPCO is planning asset revaluation to improve its financial standing. And if it's planning so, when will this asset revaluation have an impact on your financial position?

A: We have a plan to re-evaluate our land as part of our financial stabilization plan and we are considering by looking at the possible impact of this land re-evaluation.