Good evening. First of all, thank you all for joining this conference call. Now we will begin the conference of the fiscal year 2024 third quarter earnings result by KEPCO. This conference will start with a presentation followed by a divisional Q&A session. If you have a question, please press star one on your phone during the Q&A. Now we shall commence the presentation on the fiscal year 2024 third quarter earnings results by KEPCO.
[Foreign language]
Good afternoon. My name is Jang Nam-yeon. I am the head of Finance and Accounting Department of Korea Power Corporation. I would like to thank you for taking time out of your busy schedules to attend the IR conference call of the third quarter 2024 of KEPCO. Today's conference call is going to be provided in both Korean and English. I'm going to report to you the financial results and then take your questions. The financial results that we will present today are consolidated estimates based on IFRS, and all comparisons are based on year-on-year basis unless otherwise mentioned.
Also, the business plan and targets and estimates that we may mention during this conference call are the estimates at current points, so please understand there is uncertainty and risk in investment. Now I'm going to present to you the accumulated profit and loss of the third quarter 2024 in Korean and in English afterwards.
[Foreign language]
Good afternoon. I am Yang Si-yeong. I'm the head of IR. Let us now look at the operating profit. The accumulated consolidated operating profit in the third quarter 2024 recorded ₩5.9457 trillion. Let's look at the details. Our sales recorded ₩69.8698 trillion, up 6.4%. Among this, income from electricity sales ₩66.7279 trillion, up 8.0%, and other income including income from overseas business ₩3.1419 trillion, down 19.5%. Cost of sales and selling administrative expenses recorded ₩63.9241 trillion, down 11.4%. Among this, fuel cost and power purchase cost respectively recorded ₩17.6411 trillion and ₩26.8193 trillion, which are down 18.6% and 11.6% respectively due to fuel cost decrease. Depreciation recorded ₩8.5348 trillion, down 0.2%.
Among major non-operating profit and loss, interest expense recorded ₩3.4229 trillion, which is a year-over-year increase of ₩112.5 billion due to an increase in average balance of our borrowings. Due to the reasons that I mentioned so far, the accumulated consolidated operating profit in the 2024 third quarter recorded ₩5.9457 trillion, net income recorded ₩2.59 trillion.
[Foreign language]
Good afternoon. I am Eom Tae-seop, also in charge of IR. I would like to report to you the major concerns. Let me first start by the power sales performance and the outlook. Our power sales accumulated in the third quarter increased YoY by 1.7% to 421 TWh, thanks to better export of semiconductors and higher demand for summer cooling. On an annual basis, we believe that the power sales will slightly increase due to an increase in demand for heating and cooling.
[Foreign language]
Now let me report to you the fuel cost by fuel source. In the third quarter 2024, the quarterly fuel cost was ₩190,000 per ton for coal, ₩1.09 million per ton for LNG, and ₩974 per liter for oil. In the 2024 annual fuel cost, other than all the unloading cost, the coal cost is about ₩180,000 per ton, LNG ₩1.1 million per ton, and the oil about ₩907 per liter. Please understand that these outlooks may differ according to global fuel price trends.
[Foreign language]
Now we'll look at the power generation mix of our power generation companies. If you look at the power generation mix of accumulated third quarter, the nuclear power plant's share increased thanks to the operation of newly built reactors. Coal share slightly decreased because of a decrease in coal utilization rate. LNG's capacity slightly increased, but their mix was maintained due to an increase in base load. In 2024 as a whole, we believe that the nuclear power plant's share will increase due to the outlook of increase in utilization rate and the operation of newly built reactors such as Shin Hanul Unit two, which started commercial operation in April.
The coal's share will remain similar, and LNG's share will decrease. The utilization rate outlook of 2024 annually by power source is for nuclear power plants early to mid-80%, coal early to mid-50%, and LNG later 20% range.
[Foreign language]
Now let me report to you the cost related to RPS and ETS. The RPS-related cost accumulated to the third quarter of 2024 was ₩2.7638 trillion on a consolidated basis and ₩3.269 trillion on non-consolidated basis. ETS-related cost minus ₩30.2 billion consolidated or ₩0 million non-consolidated. Lastly, let me report to you on our capital finance. The consolidated borrowing accumulated to the third quarter 2024 was ₩132 trillion, and the borrowing of non-consolidated was ₩88 trillion.
[Foreign language]
Now we are going to have a question and answer session. Since the Q&A session will be conducted through consecutive interpretation between Korean and English, please make your questions concise and clear. We are ready to entertain your questions.
[Foreign language]
Now Q&A session will begin. Please press Star one if you have any questions. For cancellation, please press Star two on your phone.
[Foreign language]
The first question will be given by Mr. Pierre Lau of Citig roup. Please go ahead.
Hello, good morning, Capital Management. Thanks for your time. I have three questions. The first one is, what was the key reason for the finance expense drop by 80% year-on-year in the third quarter? The second question is, do you expect more tariff hikes in the next six months? The third question is, what is your guidance for your fuel cost in the fourth quarter this year and 2025? Thank you.
Your second question, please.
Second question is, what is your expectation regarding more tariff hikes in the fourth quarter this year or first quarter next year?
[Foreign language] Let me now try to answer your first question about interest expense. Our borrowings did decrease on a consolidated basis. However, the average balance of borrowing increased year on year basis. So, on an accumulated basis to third quarter, the interest expense was ₩3.4 trillion, which is up by ₩110 billion from the same quarter last year. [Foreign language]
Hi, excuse me. I'm asking for the finance expense in the third quarter. The number was ₩334 billion, and it's dropped 80% year on year from last year of ₩1.674 trillion. So, I'm asking about the finance expense. Why is it dropped 80% year on year in the third quarter? Thank you.
[Foreign language]
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. That is why we are down from the last year of ₩1.3 trillion.
[Foreign language]
For your question on the guidance of tariffs into the fourth quarter and next year, we increased the tariff of industrial service power by ₩16.1 on October 24, and the effect of this tariff increase on average is equivalent to an increase of ₩8.5. It has not been a month since the last increase in October, so we do not foresee any more increase in the near future. We are going to closely monitor the financial impact of this increase in energy prices and foreign exchange market.
[Foreign language]
About your questions on the fuel cost outlook, KEPCO does not present any official outlook on fuel cost.
[Foreign language]
Now, if that answers your question, we would like to take the next question.
[Foreign language]
The following question is by 성정화 of LS Securities. Please go ahead.
[Foreign language]
Thank you for the opportunity to ask a question. My question is about dividend. We understand that you still 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. If so, will the guideline be the same as the past, about 10% dividend of the net income, or because you still have accumulated operating loss, are you going to pay out less than previous guideline and pay out more dividend as time goes by?
[Foreign language]
In answering your question, we will consider the plan to pay out dividends if there are 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.
[Foreign language]
The volume was low from the Korean speaker side, so we would like to ask the Korean speaker to repeat your answer, please.
연간 실적을 기준으로 배당 가능 이익이 발생할 경우에 배당 시행 여부를 검토할 계획이고요. 배당 성향을 포함한 배당 정책에 관련해서는 아직까지 검토한 바가 없습니다.
[Foreign language]
[Foreign language]
Next question, please.
[Foreign language]
The next question is for Mr. Ryu Jae-hyun of 미래에셋증권. Please go ahead.
[Foreign language]
I'd like to ask a question about your financial income being minus ₩460 billion. Could you tell us why? My second question is about the completion plan of nuclear power plants. You announced that the Shin Hanul Unit 3 is planned to be completed in the fourth quarter. Is it still the case, or is there any possibility of postponing this? When this is completed, when will it start operation?
[Foreign language]
To give you an answer on the financial income, the financial income is also influenced by a number of factors such as interest rate, foreign exchange, and the derived products' evaluation profits. Just like my last answer, this year the increase of the foreign exchange was lower than last year. The derived evaluation profit also came down.
[Foreign language]
Your questions about the plan for Shin Hanul Unit 3, the completion plan for Shin Hanul Unit 3, we have not been officially notified by either KHNP or KPX that this plan will be postponed, but we understand they are considering postponing this process because of a delayed construction process.
[Foreign language]
Next question, please.
[Foreign language]
The next questioner is Mr. Moon Kyung-won from Meritz Securities. Please go ahead.
[Foreign language]
Two questions. 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? Is it because you increased the adjusted coefficient? If you did so, how much did you mark up the adjusted coefficient? My second question. The other operating expenses is down by ₩300 billion. Can you tell us why?
[Foreign language]
Our non-consolidated operating profit is smaller because the SMP relatively increased in the third quarter. It led to 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 profits of our six generation companies and other subsidiaries. Other operating expenses became smaller because of the decrease in the fuel supply cost in Southeast Power.
[Foreign language]
[Foreign language]
[Foreign language] .
[Foreign language]
To give you the number of adjusted coefficient, the first determination of the adjusted coefficient in 2024 was applied two months from January to March. They were determined as 0.4 for nuclear power and 0.5 for coal. The coefficient got adjusted for April through September, 1 for coal and 0.5 for nuclear power. They got readjusted again for the fourth quarter to 0.5 for coal and 0.4 for nuclear power.
[Foreign language]
To add a little more point on the adjusted coefficient, the current coefficient which is determined for the fourth quarter may be updated one more, may be adjusted one more after updating our performance derived from the last adjusted coefficient.
[Foreign language]
Next question, please.
[Foreign language]
Currently, there is no participant with questions. Please press star 1 to give your question.
[Foreign language]
The next question is from Mr. Heo Min-ho of Daishin Securities. Please go ahead.
[Foreign language]
Three questions. My first question is about the fuel cost for nuclear power plants. In the fourth 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 ₩300 billion, but actually they decreased by ₩220 billion in the second quarter year-over-year and again by ₩75 billion. Could you tell us why they are going down after you said that they may go up in the first quarter? Again, other operating expenses are going down by ₩500 billion in the second quarter and ₩300 billion in the third quarter. Do you believe that they will continue to go down in the fourth quarter? The last question, the SMP dropped a lot more than the drop of the fuel cost in October. Can you tell us why?
[Foreign language]
We would like to answer your first question about the fuel cost for nuclear power plant later through a different format.
[Foreign language]
My answer to your question, the second question is about other operating expenses. As I already answered to other questions, the fuel supply business cost for Southeast Power Generation Company is going down because this is influenced by the decrease of the fuel cost, and that is why the other operating expenses are going down.
[Foreign language]
My question is related to other operating expenses. Does that have much to do with the fuel cost of Southeast Power Generation Company?
[Foreign language]
Yes, I'll try to answer the question. In the conference call, IR conference call, when we refer to fuel cost by KEPCO, this refers to the pure fuel cost that goes into our power generation business, whereas the fuel expenses in other operating expenses refer to the fuel cost of our power generation facilities overseas and Southeast's fuel supply business.
[Foreign language]
To give you the RPS-related cost, on a consolidated basis, the RPS cost was ₩2 trillion 763.8 billion, and on a non-consolidated basis, ₩3 trillion 269 billion. The ETS-related expenses are minus ₩30.2 billion consolidated and zero non-consolidated.
[Foreign language]
Your last question is about why the SMP dropped much larger than the fuel cost drop. SMP, of course, is influenced by the trend of fuel cost, but it is also influenced by the demand and supply. The October SMP dropped a lot because the demand for power decreased a lot after the hot season.
[Foreign language]
Any other questions, please?
[Foreign language]
The next questioner is Mr. Jiaren Luo of BlackRock. Please go ahead.
Hi, can you hear me?
Yes, we hear you.
Yes, thank you for taking the questions I have too. One is, again, SMP price down a lot. Does that mean your procurement cost in fourth quarter would also drop proportionately due to this SMP decline? The second question is regarding dividend. What's the current dividend payout policy? Given you are profitable this year, can we expect at least some dividend pay to shareholders?
[Foreign language] In your SMP-related question, what do you exactly mean by procurement cost?
The cost when you purchase power from third-party power plants.
[Foreign language]
[Foreign language]
SMP sets the standards of settlement in the power market, so when the SMP goes down, then it is natural that our procurement cost, which is the power purchase cost, also goes down.
[Foreign language]
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 make a decision for dividend payout. At the moment, we do not have any official consideration for dividend policy.
I'm sorry, do you mind if I follow up on this? How do you define profit payable? Any different versus reported net profit?
[Foreign language]
[Foreign language]
This dividend payable profit is calculated as on a non-consolidated net income; we subtract the deferred loss and the reserve.
Okay, I see. Thank you very much.
[Foreign language]
[Foreign language]
Currently, there is no participant with questions. Please press star and one to give your question.
[Foreign language]
The next question is from Mr. Heo Minho of Daishin Securities. Please go ahead.
[Foreign language]
How much power did you purchase?
[Foreign language]
In the third quarter, we purchased about 156 TWh . Among this, we purchased 104 TWh from our Genco.
[Foreign language]
Next question, please.
[Foreign language]
Currently, there is no participant waiting with questions. Please press star one to give your question.
[Foreign language]
The next question is from Park Yushin of HSBC. Please go ahead.
[Foreign language]
Opportunity, I have two questions. I understand that KEPCO is making many efforts, including tariff increase, to improve the financial structure. Other than tariff increase, what other measures is KEPCO taking? 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?
[Foreign language]
KEPCO's valuation plan worth ₩30 trillion for the next. What was it? KEPCO is implementing a ₩30 trillion financial stabilization plan for five years from 2022 to 2026.
[Foreign language]
In this plan, we are taking a lot of measures, such as selling our assets and reducing our cost of investment, and trying to increase the income other than from power sales, and we are beating this target by 110%.
[Foreign language]
To answer your questions about foreign exchange fluctuation impact on us, foreign exchange fluctuation can impact our business in two ways. The first, on the borrowing; the second, on the fuel cost. However, our borrowings are hedged, so we are hedged from risk somewhat. 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 vary from the fluctuation range and the cost of global fuel.
[Foreign language]
[Foreign language]
Currently, there is no participant waiting with questions. Please press star one to give your question.
[Foreign language]
The next question is from Cho Yoonheng of UBS. Please go ahead.
[Foreign language]
For the information, if you look at our report of national investigation, we understand that KEPCO is planning asset revaluation to improve its financial standing. If it's planning so, when will this asset revaluation have an impact on your financial position?
[Foreign language]
We have a plan to reevaluate our land as part of our financial stabilization plan, and we are considering looking at the possible impact of this land reevaluation.
[Foreign language]
Next question, please.
[Foreign language]
Currently, there is no participant with questions. Please press star one to give your question.
[Foreign language]
Once again, if you have any question, please press star one.
[Foreign language]
Since there are no further questions, we would like to conclude our IR conference call for the third quarter of 2024. If you have further questions, please do not hesitate to contact the IR team. Thank you for your attention.
[Foreign language]