Korea Electric Power Corporation (KEP) Q4 2025 Earnings Report, Transcript and Summary

Good morning, and good evening. First of all, thank you all for joining this conference. And now we will begin the conference of the fiscal year 2025 fourth quarter earnings resulted by KEPCO. This conference will start with a presentation followed by a divisional Q&A session. [Operator Instructions] Now we shall commence the presentation on the fiscal year 2025 fourth quarter earnings resulted by KEPCO.

[Interpreted] Good afternoon. This is Siyung Yang, Head of Finance Department of KEPCO. I'd like to thank you all for participating in today's conference call for the business results of the fourth quarter of 2025 despite your busy schedule. Today's call will be conducted in both Korean and English. We will begin with a brief presentation of the earnings results, which will be followed by a Q&A session. Please note that the financial information to be disclosed today is preliminary consolidated IFRS figures and all comparison is on a year-over-year basis unless stated otherwise. Also, business plans, targets, financial estimates and other forward-looking statements mentioned today are based on our current targets and forecasts. Please be noted that such statements may involve investment risks and uncertainties. Now we will begin with an overview of the earnings results for the fourth quarter of 2025 in Korean, which will be then consecutively translated into English. [Interpreted] I will first go over the operating items. The consolidated operating income in 2025 stood at KRW 13,524.8 billion. Revenue increased by 4.3% to KRW 97,434.5 billion. Power sales increased by 4.6% to KRW [indiscernible] billion. Overseas business and other revenue decreased by 1.8% to KRW 4,429.9 billion. Cost of goods sold and SG&A decreased by 1.3% to KRW 83,909.7 billion. Fuel costs decreased by 13.8% to KRW 19,036.4 billion and purchase power costs decreased by 1.8% to KRW 34,052.7 billion. Depreciation expense increased by 2.3% to KRW 11,667.8 billion. Next, I will go over the nonoperating items. Interest expense decreased by KRW 325.6 billion Y-o-Y to KRW 4,339.5 billion. As a result of the foregoing, the 2025 consolidated annual operating income stood at KRW 13,524.8 billion, and net income was KRW 8,007.2 billion.

[Interpreted] Good afternoon. I am Taeseop Eom, Head of IR team. Now I will go over the matters of interest. First, I will talk about the performance of power sales and its outlook for the remainder of the year. Annual power sales volume due to economic downturn and as a result of that, given the industrial demand has decreased. The total sales volume was 549.4 terawatt hour, which is a 0.1% decrease Y-o-Y. In 2026, the economic growth rate and number of operating days increase should lead to a slight increase in the total sales volume. [Interpreted] Next, I will go over the fuel price by fuel source and S&P trends. In 2025, if you look at the annual trend of the fuel prices for bituminous coal Australia, the price was around $105.7 per ton. For LNG, JKM was KRW 980,000 per ton and the S&P was around KRW 112.7 per kilowatt hour. [Interpreted] Next, I will go over the [indiscernible] company. If you look at the annual 2025 generation mix, the capacity factor of nuclear power increased and thus, its contribution to the mix increased as well. For coal, the capacity factor increased and thus, the contribution in the generation mix increased. For LNG, the installed capacity decreased. And due to the increase of baseload power generation, the contribution to the mix decreased. For 2026 on annual basis, we expect the contribution of nuclear power to increase, coal to decrease and LNG should largely remain flat. In 2026, the capacity factor for each fuel source should be as follows: nuclear power around mid- to high 80%, coal around mid-40% and LNG should be around early to mid-20%. [Interpreted] Next, I will go over the RPS cost. In 2025, annual RPS expense on a consolidated basis was KRW 3,989.7 billion. And on a stand-alone basis, it was KRW 4,818.8 billion. Last, I will go over the funding situation. As of 2025 Q4, consolidated total borrowings was KRW 129.8 trillion. And on a stand-alone basis, it was KRW 84.9 billion. [Interpreted] Now we will move on to the Q&A session. Since we will be conducting the Q&A session in both Korean and English, please make your questions and answers clear and brief.

[Interpreted] [Operator Instructions] The first question will be given by Jong Hwa Sung from Securities.

[Interpreted] I am from LS Securities and my name is Jong Hwa Sung. Please understand my sore throat today. I have 2 questions. Number one, it's about the contribution of the nuclear power generation in the generation mix. So I think largely fuel cost and power purchase cost was in line with expectations. But nevertheless, the operating income was underperforming expectations by around KRW 1 trillion. I think this is largely because of other costs. I think other cost was around KRW 1.2 trillion higher than what we expected. I believe this is mainly coming from the recovery of nuclear power generation sites and costs associated to carbon and greenhouse gases. it seems that these cost items were concentrated in Q4 in 2025. However, if you look at other years, sometimes it's booked in Q2, sometimes it's booked in Q4. And so the seasonality is not stable. So on an annual basis, how much do you expect these other cost items to be generated or incurred every year? And then second is about the contribution of the nuclear power generation. So in Q4 2025, on a Y-o-Y basis, I think the nuclear power generation contribution went down by around 6%, which is unusual given that for the first 3 quarters of 2025, nuclear power generation contribution was higher than that. So when you say -- or you said in your keynote that the contribution of nuclear power will probably increase in 2026. Is it compared to Q4 2025? Or is it compared to the first 3 quarters of 2025? In other words, in Q4 2026, will nuclear power generation contribution be slightly higher or significantly higher than 2025 Q4?

[Interpreted] Yes. So I will first address your first question regarding the other cost. So the provisions related to greenhouse gas emissions went up by around KRW 120.6 billion to KRW 340.6 billion. As for the provisions regarding the nuclear -- provisions regarding the recovery of the nuclear power generation sites, it went up by KRW 411.2 billion, resulting in a negative KRW 4.6 billion. So there was actually write-backs. As to the exact timing of when we book these type of provisions and costs, I think we will discuss internally, and I'll get back to you later on.

[Interpreted] Yes. Regarding your second question, we mentioned that the capacity factor for nuclear power should be around mid- high 80% on an annual basis. So maybe towards the end or early part of the year, the capacity factor may seem lower than that. But on an annual basis, I believe that it will be higher, especially given that we have nuclear power plants who are going through and completing its preventive maintenance process, which should come back online. And also the addition of new power plants should add to the higher capacity factor of nuclear power in 2026.

[Interpreted] The following question is by Kyeong Won Moon from Meritz Securities.

[Interpreted] My name is Kyeong Won Moon from Meritz Securities, and I have 3 questions today. One, if you compare the consolidated operating income of Q3 and Q4 and the stand-alone operating of the 2 quarters, I believe that the stand-alone operating income is relatively higher numbers or relatively better -- showed better performance. I believe this is largely driven by the adjustment coefficient. So is that the main reason? What is the main reason behind this? And what would be your expected adjustment coefficient for Q1 2026? My second question is regarding the before tax profit. So compared to the operating income, the before tax profit seemed to have performed quite strongly, both for consolidated and stand-alone numbers. What would be the reason behind this? Were there any one-off P&L items in other categories like the finance and other businesses? My third question is related to the dividends. So I believe that -- so the dividend was just announced. And if you look at the dividend payout on the stand-alone net income basis, it seems that it actually decreased compared to last year. So how did you come to this DPS number? What is the logic behind that? And what would be your expectation or outlook for the dividend payout of 2026? Do you think it will be higher than 2024 and 2025?

[Interpreted] Yes. So regarding your first question, it may seem that the stand-alone profits are stronger than the consolidated numbers because there are some costs associated with our subsidiaries, which is booked under consolidated financial statements, but not on our stand-alone numbers. [Interpreted] Regarding the adjustment coefficient, in Q4 last year, the numbers were slightly higher than previous average quarters. [Interpreted] And the coefficient for 2026, we expect to be slightly higher than 2025.

[Interpreted] And regarding your question comparing the operating income and the before tax income. So for our subsidiaries, there were some lease liabilities that could not be hedged due to the decrease in the FX rates. And so because of the FX -- in the process of the FX conversion, there were some valuation losses and gains that needed to be booked that impacted the numbers.

[Interpreted] And regarding your question on dividends. So last year, the payout was 16.5%. And this year, it was 13.65%. So like you mentioned, it did decrease. However, I'd like to note that the size of the net income on a stand-alone basis increased significantly. So the absolute amount of dividends that were paid out will increase. And DPS also increased to around KRW 1,541 per share. As for 2026, as you know, we are subject -- we are a public corporation and subject to the relevant legislations, we need to discuss the dividend strategy with government departments. So at this point, unfortunately, we are not able to comment on the direction of 2026 dividends.

[Interpreted] The following question is by Jaeseon Yoo from Hana Securities.

[Interpreted] I am Jaeseon Yoo from Hana Securities, and I have 4 questions. My first question is provisional liabilities related to used fuel -- used nuclear fuel. So in January, I read news that the unit price has gone up. And so maybe can you give us a little bit more color on this topic? And my second question is also related to this as well. What was the total amount of the used nuclear fuel-related provisional liabilities booked by KHNP in Q4 2025? And third, there was a 15% decrease -- price decrease that was subject to a grace period, and that grace period is coming to an end. I believe, therefore, the bituminous coal price can go up. So what would be the associated cost that you are expecting in regards to the end of the grace period? And fourth is related to the bond issuance limit. So what would be the outstanding amount of bonds issued? And how much room do you have in comparison to the cap?

[Interpreted] I'll try to address your first 2 questions at once. So the provisional liabilities that were booked for the recovery of nuclear power sites was KRW 904.5 billion -- increased by KRW 904.5 billion to KRW 24,769 billion. As for the used nuclear fuel, it decreased by KRW 178.4 billion to KRW 2,745.3 billion. And as for the mid- and low level nuclear waste associated provisions and liabilities, it went up by KRW 10.2 billion to KRW 1,077.2 billion.

[Interpreted] As for your third question regarding the grace period of the individual consumption tax coming to an end and how that would impact our cost. So we do have an internal estimate, but unfortunately, we are not able to disclose those numbers to the public in the market. So we ask for your understanding.

[Interpreted] Yes. And regarding your final question on the bond issuance cap. So that can -- the final exact number can be calculated after the dividend is finalized at the Board and shareholders' meeting. But we believe that it will be something around just over 3x once all of those dividend-related activities are finalized.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question is by Jong Hwa Sung from LS Securities.

[Interpreted] I have 2 questions. First is regarding the nuclear power generation export strategy. So I believe that there is a process currently ongoing to streamline the Korean nuclear power generation export strategy. So maybe can you elaborate a little bit on how that is moving forward? And second, I believe that there is some court case in the international mediation courts by KHNP regarding the additional KRW 1.4 trillion construction cost that was incurred during the BNPP construction project. Has that been already reflected in the financial statement? And if so, if KHNP is able to recover the cost from the UAE government, will that have impact on the financial statements?

[Interpreted] Yes. I will address your first question regarding the export of nuclear power plants of Korea. And so we are -- I believe that the research project has been outsourced by the Ministry of Industry, and they are currently waiting for the results. KEPCO, of course, will be closely cooperating with the government to ensure that high-quality nuclear power plant export strategy can be developed to maximize and satisfy the global customers.

[Interpreted] Yes. And your second question regarding the dispute between KEPCO and KHNP. So we are currently in conversation and negotiation with them. And I think both parties are making utmost effort to resolve this conflict in a stable manner. However, please understand that we are not able to disclose any specific numbers.

[Interpreted] The following question is by Yoon Cho from UBS.

[Interpreted] I have 3 questions. One is regarding the tariff. So the press recently has reported that there may be some differentiated price scheme applied to industrial power. And currently, you are thinking of, for example, different pricing per time or offering weekend discounts for the industrial use. There are also talks about regional pricing schemes for the industrial power. And these elements have been mentioned by the Minister of Climate, Energy and Environment. So can you elaborate or give us a little bit more color on these schemes? How do you think it will impact the average unit price of power, overall? And when do you think that these new schemes can be introduced? My second question is regarding to your comments earlier today. You mentioned that in Q4, there were some cost associated subsidiaries that were booked. Were there any unusual one-offs that we should be aware of? And my third question is about the SG&A cost. What was the exact amount consolidated basis for Q4?

[Interpreted] Regarding your first question, with the increase of the solar PV power generation, the overall load patterns are changing. And to reflect this change, we are currently developing seasonal and -- seasonal pricing schemes and also different pricing schemes for time period. We are also considering the balanced growth of the overall national economy and regions and also working to distribute or disperse the power demand nationwide. And these are the reasons why we are also developing a new pricing scheme that can better reflect the regional situations and regional demand. We are working closely with the central government to develop a reasonable and rationable new pricing scheme, reflecting all of these elements. However, as to its impact on unit price and the exact time line, I believe it's a little bit early. We are also listening to the opinion of the corporates and overall business and industry community as well. So once we have a better idea on the specifics of this matter, then I think we can disclose some other information. But currently, we are under close negotiation and discussion with the government. [Interpreted] And regarding your second question, I think all we can say at this point about the cost booked by subsidiary is that it is related to overseas businesses.

And as for your final question regarding consolidated SG&A cost. So currently, we are in the process of closing the books. And so we do not have the final exact numbers right now. But once the audit report is released, the number will be included in the financial statements.

[Interpreted] The following question is by [indiscernible] from JPMorgan.

[Interpreted] I only have one question. I believe that in the past, there were some discussions on reflecting the individual elements in the fuel cost of the ASP. So have you continued those discussions? Do you have any updates that you can share with us?

[Interpreted] Can you please elaborate on that question, please?

[Interpreted] Yes, I believe currently, when the tariffs are determined, KEPCO would make a proposal to the government, maybe around plus/minus 51. And ultimately, the government would make the decision. However, I believe that there were some discussions on finding the legal mechanism to ensure that the cost pass-through system can work like other utility companies outside of Korea. And so if the fuel cost would go up, this would naturally be reflected in the tariffs through the cost pass-through mechanism. So I was wondering if there were any progress in those discussions with the government.

[Interpreted] Yes. So currently, we have implemented -- we have in place the cost pass-through system. So on a quarterly basis, the fuel prices are reflected in the tariffs. But we are also working to improve how it is being implemented. We are discussing with the government and listening to the voices of the related parties and industries to find ways to further improve the cost pass-through system going forward.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions] [Interpreted] As there are no further questions, we will now end the Q&A session. If you have any questions -- additional inquiries, please contact our IR department. This concludes the fiscal year 2025 fourth quarter earnings resulted by KEPCO. Thanks for the participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]