Korea Electric Power H2 2024 Earnings Call Transcript

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February 28, 2025

Key Takeaways

  • Positive Sentiment: Q4 consolidated operating profit was KRW8.3 trillion on 6.6% year-over-year revenue growth to KRW94 trillion, resulting in KRW3.7 trillion net income.
  • Positive Sentiment: Electricity sales volume rose 0.7% to 550 TWh in Q4, driven by stronger summer cooling demand, with a slight annual increase anticipated.
  • Positive Sentiment: Fuel costs fell by 16.5% for coal and 9.5% for purchased electricity, helping lower cost of sales and SG&A to KRW85.6 trillion.
  • Negative Sentiment: Discussions with the government on tariff adjustments to recover deficits from 2021–2023 remain unresolved, creating revenue uncertainty for 2025.
  • Negative Sentiment: Total consolidated borrowings reached KRW132.5 trillion in Q4 and interest expenses climbed to KRW4.7 trillion, adding pressure on financial leverage.
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Earnings Conference Call
Korea Electric Power H2 2024
00:00 / 00:00

There are 2 speakers on the call.

Operator

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the Fiscal Year twenty twenty four First Quarter Earnings Results by Ketco. This conference will start with a presentation followed by a divisional Q and A session. Now, we shall commence the presentation on the fiscal year twenty twenty four fourth quarter earnings result by Kepco.

Operator

Good afternoon, everyone. I am Jongtaek Ji, Head of Finance at Korea Electric Power Corporation, KEVCO. Thank you for taking the time out of your busy schedule to join KEVCO's Q4 twenty twenty four Earnings Conference Call. Today's conference call will be conducted in both Korean and English. We will begin with a brief earnings presentation followed by a Q and A session.

Operator

The financial results presented today are preliminary figures based on IFRS consolidated standard and may be subject to changes and all comparisons are made on a year over year basis unless otherwise specified. Additionally, any business plans targets and estimated financial figures mentioned in the earnings presentation reflect our current market outlook and objective, which is subject to uncertainties and investment risk. Now we will first present the key details regarding the cumulative profit and loss changes for Q4 twenty twenty four in Korean and then provide the same presentation in English. Good afternoon. This is Xiong Yang, IR Manager of Kepco.

Operator

Let me briefly first look at the operating profit and loss. Kepco's cumulative consolidated operating profit for Q4 twenty twenty four recorded KRW8.3 trillion. Breaking down the details, revenue increased by 6.6% year over year reaching KRW94 trillion. Among this, electricity sales revenue grew by 7.2%, totaling KRW88.9 trillion, while revenue from overseas businesses and other sources decreased by 2.9% amounting to trillion. Cost of sales and SG and A expenses declined to KRW85.6 trillion, down by 7.7%.

Operator

Among them fuel costs and purchased electricity costs decreased by 16.59.5% respectively due to falling fuel prices reporting KRW22.5 trillion and KRW34.6 trillion. Depreciation expenses increased by 0.8% amounting to KRW 11,400,000,000,000.0. Among key non operating profit and loss, interest expenses increased by KRW 2 and 33,400,000,000.0 to KRW 4,700,000,000,000.0 due to a rise in average balance of borrowing compared to the same period last year. As a result of the factors mentioned above, Kepco's cumulative consolidated operating profit for Q4 twenty twenty four recorded KRW8.3 trillion, while net income for the period was KRW3.7 trillion. Good afternoon.

Operator

This is Tae Sung Young from the IR team at HEPCO. I will now go over the key areas of interest starting with the electricity sales performance and outlook. Total electricity sales volume for Q4 twenty twenty four increased by 0.7% year on year reaching five fifty terawatt hour driven by improved driven by surge in cooling demand during the summer. On an annual basis, electricity sales volume is expected to see a slight increase due to a rising heating and cooling demand. Next is on fuel cost and energy source.

Operator

For Q4 twenty twenty four, coal costs were approximately 190,000 per ton, LNG costs were KRW 1,080,000.00 per ton and oil was KRW $9.78 per liter. In for the full year in 2024, excluding unloading and handling costs, coal costs are expected to be around KRW 180,000 per ton and LNG around KRW 1,050,000.00 per ton and oil around KRW1100 per litre. These estimates are subject to change according to global fuel prices. Looking at the power generation mix of Gencos in Q4, nuclear power increased its share due to the entry of new nuclear power plants. For coal, the power generation mix slightly decreased due to the decline in coal utilization rates.

Operator

For LNG, although there was a slight increase in installed capacity, its power generation mix was maintained due to an increase in baseload generation. In 2024, nuclear power mix is expected to be maintained due to higher utilization despite retired nuclear power plant, while LNG is at par and coal mix is expected to slightly decrease. For the 2025 annual forecast of utilization rate by power source, nuclear power is projected to be in the early 90% range, coal in the mid to high 40% range and LNG in the mid to high 20% range. Next, I will provide details on RPS and ETS related costs. For Q4 twenty twenty four, RPS costs recorded KRW3.46 on a consolidated basis and KRW4.88 trillion on a separate basis.

Operator

Finally, regarding the funding status for Q4 twenty twenty four, Kepco's total borrowing amounted to KRW132.5 trillion on a consolidated basis and KRW87.9 trillion on a separate basis. We will now begin the Q and A session since this the A With that, we would now like to open up for questions. The first question will be given by Hwang Sung Yeon of Yujin Investment Securities. Good afternoon. I have three questions.

Operator

First question is on the detailed breakdown of other revenue sources. Second question is we're seeing a slight increase in other costs as well. So could you also break down the cost items for other costs as well? The third question I would like to pose is on how you have calculated your dividend payout that you have disclosed for the fourth quarter. What was the criteria to reach the dividend payout ratio?

Operator

So on the first two questions on other revenue, we have seen the additional incremental profit from outsourcing services as well as generation from COSEF, Korea Southeast Power Corporation. As for other cost, we have seen decline in materials cost for the fuel related costs for other costs. To also answer your question on dividend payout ratio, our goal was to maintain financial stability. So we had to consider the balance between the future investment and funding sources as well as ways to enhance shareholder values. With that, we have decided to provide and decide on the minimum payout ratio for our shareholders.

Operator

The following question is from Mr. Peter Lau of Citi. Please go ahead sir.

Speaker 1

Hello. Good afternoon, management. I have four questions on the company. The first one is about your consolidated income statement for the last year. In the external filing that you sent out, the finance income was KRW2.1 and the finance expense was really large at KRW34.1 trillion.

Speaker 1

I just want to confirm, are these Q number correct or not? It seems that these numbers are too large. The second question is, what is your guidance regarding your unit coal, LNG and oil courses for 2025? And the third question is, do you think you have any chance of tariff in 2025? And if yes, what do expect regarding the back end period?

Speaker 1

And the last question is, you mentioned about your minimum dividend payout ratio. So what is the advantage that you want to keep for this minimum level going forward? Thank you.

Operator

To answer your first question on financial income as well as financial expenses, we have incurred financial income from the hedge product that we have purchased in order for our foreign exchange hedging. The overall valuation of the derivatives hedging product that we have purchased has appreciated, hence incurring our financial income. As for financial expenses, with the same reason, because the foreign exchange rate has increased significantly, we have seen loss in the currency nominated liability financial vehicle that we were using. To answer your question on the unit fuel price, for 2024, our fuel mix or energy mix for nuclear power plant was 48%, coal was 36%, LNG 12%. We believe this trend will not change much in 2024.

Operator

As for the unit fuel price guideline, the coal unit cost is expected at KRW 180,000 per ton. And for oil for LNG about KRW1.1 million, KRW50000 per tonne as well as for oil we believe that it will be around KRW1100 per liter. But however, these prices are expected to change according to global energy prices. As for the tariff outlook for 2021 in achieving our fair tariff level, we have to consider the overall outlook of the financial market as well as different operating environment. We're also seeing increase in foreign exchange rate as well as different energy prices.

Operator

So all of these different factors have to be taken into consideration dynamically as well while resolving all the deficit that was incurred during 2021 to 2023. These are the issues that we are in discussion with the government to achieve fair level of tariffs for the Korean market. On your question regarding dividend payout trend going forward, we had a level a deep level of deficit during 2021 to 2023, which were taken into consideration in coming up with our dividend payout stance. And we also have to be in consideration of future CapEx that are in plan. So at this point, it's very difficult for us to carry out active dividend payout.

Operator

That has to be in consideration of our current financial status as well as future investment enhancement, while balancing that with overall shareholder value. That's something that we're going to closely discuss with the government to balance that out with to balance that out to enhance shareholder value. The following question is by Mr. Moon Kyung Wan of Merit Securities. Please go ahead, sir.

Operator

First question is regarding your other operating cost breakdown, which is a follow-up to the previous question. Compared to Q4 twenty twenty three, we are seeing an increase of about 500,000,000,000 in repair and maintenance costs as well as KRW 1,000,000,000,000 increase in other operating costs as well. What has driven this cost up? Is it coming from the additional reserve for the nuclear power plant maintenance reserve that are required or from reflecting UAE construction cost? It will be great to have some guidance on where this is coming from.

Operator

And second question is something that was also mentioned by the media recently, but we were able to see that there has been some dispute between KEVCO and Korea Hydro and Nuclear Power Corporation on UAE construction cost. What would be the impact of this dispute on your P and L? And how will that affect in 2025 as well? Third question is on your adjustment coefficient. When you look at 2024 Q4, has it been adjusted once again?

Operator

And could you share your insight comparing this coefficient to 2024 of Q3 as well as share the guidelines on how this coefficient will move in 2025? Will it increase To answer your first question on the other operating cost item, we have seen the project cost of goods increase for our Egypt El Daba nuclear power plant project and that was taken into consideration. And also cost for depreciation and repair cost has also increased. As for the reserve for nuclear power plant decommissioning cost, we have reflected some discounting rate as well as the required mandatory reserve from defined by the government.

Operator

And the reserve requirement has gone down. Therefore, our funding for the decommissioning reserve has gone down as well. As for your question regarding our dispute with Korea Hydro and Nuclear Corporation on the project budget expenses, we are currently in discussion with KHNP on the cost that is that will be involved in extending the overall construction period. We're going to reasonably calculate the expected amount that will be seen as the leakage of economic resources and that has been recognized as the additional allowances or reserve for Kepco to recognize. The details are currently in discussion and we regret to share more details at this point in time.

Operator

As for your question on adjustment coefficient, there has been a recalculation or reset of the adjustment coefficient in Q4 twenty twenty four according to the rules and regulation that is set forth. As for the trend for 2025, we will need to reflect global energy prices as well as external environment, which makes us difficult to predict at this point in time on how it will evolve. We will work closely with the exchange power exchange to be in compliance with the rules and regulation. Next question is from Mr. Yu Zhishan of Hana Securities.

Operator

Please go ahead, sir. The first question is regarding the overseas revenue for Q4. The increase in revenue from overseas business is it coming from your project in Egypt or from UAE construction projects settlement? And we're also seeing this RMB1 billion newly added amount for UAE project for 2024 in Q4. We're seeing this in the footnote and it seems that according to the construction planning, the total profit which has been excluded is being added once again.

Operator

Will this so according to the current statement is this $1,000,000,000 from UAE fully reflected? Or is it going to be a new expense that will be added going forward? It would be great if we can get some clarification from the management. On Q4, it seems that the fuel cost trend has been somewhat different from what we are seeing from Q1 to Q3. Could you also share where this is coming from?

Operator

And I would also like to understand about your EPS cost on a consolidated basis. To answer your first question on the increase in overseas business revenue, it is actually coming from Egypt's Eldava project. On your question regarding TEPCO and PHNP additional cost, this will be this cost will be set aside for up to Q4 as liability allowances. On your question related to why the fuel cost for the nuclear power plant has declined for Q4. That's something I would like to follow-up later on.

Operator

On the ETS cost side, due to the trade in tariff that we have reflected and also the fact that we have not executed the settlement payment, the overall ETS cost has increased due to these two factors. So on a separate basis, the EPS cost for a separate accounting basis is minimal. So that's something that I can get back to you later on. We're ready to accommodate next question. The following question is from Mr.

Operator

Hwang Sung Yeon of Yuzun Investment Securities. Please go ahead, sir. I have a follow-up question on your El Daba project in Egypt. What will be your guidance for additional revenue and cost for this going forward? We will get back to you on the guidance.

Operator

Next question is from Mr. Moon Kang Won of Merit Securities. Please go ahead, sir. I have a follow-up question on the dividend payout for Genco's. So for Genco's and other consolidated affiliate companies, I believe that the dividend amount would have been decided by now.

Operator

What is your guidance for the dividend income for 2024? And what would that look like compared to 2024? The dividend payout for our affiliate companies including Genco's are currently in discussion. Once that discussion is concluded, we will be able to share the details. Next question is from Mr.

Operator

Yu Joon of Hana Securities. Please go ahead, sir. I have a question regarding overseas sales revenue for operating cost. I believe although it's not in the annual report, I believe there is a line item for this on a separate accounting basis. Could you share the overseas business related expenses and costs for Q4?

Operator

On the separate basis overseas business cost compared to last year, the cost has gone down by KRW150 billion to KRW0.5 trillion. Currently, there is no participant waiting with questions. The next question is from Mr. Hong Min Ho of Taejin Securities. Please go ahead, sir.

Operator

I have a question regarding the overseas business around nuclear power plant. For UAE project, have you reflected all the allowances that is required for Q4? And there's no longer any need for additional reserves required? Or is there a further need to set aside these allowances going forward? It would be great if you can clarify that.

Operator

And on a consolidated basis, what is the remaining balance for bond issuance of the fourth bond issuance for KEPCO? On your question regarding the allowances that we have set aside for liability for Q4 is that it's something that we are currently in discussion to consider the economic resource leakage that would take place. And since we are in the midst of this discussion and negotiation, we regret to say that we are unable to share the details at this point. And as for our balance or limits on the corporate bond issuance is something that is based on preliminary earnings performance. So we cannot state accurate number at this point.

Operator

Currently, there is no participant waiting with questions. The following question is from Mr. Hwang Sung Hyun of Eugene Investment Securities. Please go ahead, sir. Although there has been a statement that it will not be set at this point in time, but if the management can share with us how much will be strengthened in terms of issuing the corporate bonds, it will be great.

Operator

The overall direction is to strengthen and tightly manage the issuance level. And to your and what is the level that you're expecting for this? On the details of answer to your for detailed answer to your question, we'll be happy to get back to you once we find out the specifics of this content. We'll move on to the next question. Currently, there is no participant with questions.

Operator

As there is no further questions, we will now end the Q and A session.

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