Earnings Call Transcript - KEP Q4 2025

Operator, Operator

Good morning and good evening. Thank you for joining this conference. We will now begin the conference for KEPCO's fiscal year 2025 fourth quarter earnings results. The presentation will be followed by a divisional Q&A session. We will now start the presentation on the fiscal year 2025 fourth quarter earnings results by KEPCO.

Si-young Yang, Head of Finance Department

Good afternoon. This is Si-young Yang, Head of Finance Department of KEPCO. I appreciate your participation in today's conference call regarding the fourth quarter business results of 2025, especially during your busy schedules. This call will be in both Korean and English. We will start with a brief presentation of the earnings results, followed by a Q&A session. Please be aware that the financial information presented today is preliminary consolidated IFRS figures, and all comparisons are year-over-year unless stated otherwise. Additionally, the business plans, targets, financial estimates, and other forward-looking statements mentioned are based on our current goals and forecasts. Keep in mind that such statements may carry investment risks and uncertainties. Now, let's begin with the overview of the fourth quarter earnings results for 2025 in Korean, which will then be translated into English. I will first discuss the operating items. The consolidated operating income in 2025 was KRW 13,524.8 billion. Revenue rose by 4.3% to KRW 97,434.5 billion. Power sales improved by 4.6% to KRW 20,050.7 billion. However, overseas business and other revenue declined by 1.8% to KRW 4,429.9 billion. The cost of goods sold and SG&A decreased by 1.3% to KRW 83,909.7 billion. Fuel costs dropped by 13.8% to KRW 19,036.4 billion, and purchase power costs fell by 1.8% to KRW 34,052.7 billion. Depreciation expense grew by 2.3% to KRW 11,667.8 billion. Now, moving on to the non-operating items, interest expense decreased by KRW 325.6 billion year-over-year to KRW 4,339.5 billion. Consequently, the consolidated annual operating income for 2025 was KRW 13,524.8 billion, with a net income of KRW 8,007.2 billion.

Taeseop Eom, Head of IR Team

Good afternoon. I am Taeseop Eom, Head of the 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 the economic downturn has decreased. The total sales volume was 549.4 terawatt hours, which is a 0.1% decrease year-over-year. In 2026, the economic growth rate and number of operating days should lead to a slight increase in the total sales volume. 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 from 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. Next, I will go over the company's performance. 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 an 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%. 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 were KRW 129.8 trillion. And on a stand-alone basis, it was KRW 84.9 billion. 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.

Operator, Operator

The first question will be given by Jong Hwa Sung from Securities.

Jong Hwa Sung, Analyst at LS Securities

I am from LS Securities, and my name is Jong Hwa Sung. Please forgive my sore throat today. I have two questions. First, regarding the contribution of nuclear power generation in the generation mix, I believe that the fuel cost and power purchase cost were as expected. However, the operating income fell short of expectations by about KRW 1 trillion, largely due to other costs being KRW 1.2 trillion higher than anticipated. I think these additional costs are mostly related to the recovery of nuclear power generation sites and expenses tied to carbon and greenhouse gases. These costs seem to have peaked in Q4 of 2025. Nevertheless, in other years, they can be recorded in Q2 or Q4, which creates instability in seasonality. Annually, how much do you project these additional costs will generate or incur? Secondly, concerning the contribution of nuclear power generation, in Q4 of 2025, it seems that the contribution decreased by approximately 6% year-over-year, which is unusual since the first three quarters of 2025 showed a higher contribution. When you mentioned in your keynote that the contribution from nuclear power is expected to rise in 2026, does that refer to a comparison with Q4 of 2025, or with the first three quarters of 2025? Specifically, in Q4 of 2026, will the contribution from nuclear power be slightly higher or significantly higher than in Q4 of 2025?

Unknown Executive, Executive

Yes. 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 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 were actually write-backs. As to the exact timing of when we book these types of provisions and costs, I think we will discuss internally, and I'll get back to you later on. 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 that are going through and completing their 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.

Operator, Operator

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

Kyung-Won Moon, Analyst at Meritz Securities

My name is Kyeong Won Moon from Meritz Securities, and I have three questions today. One, if you compare the consolidated operating income of Q3 and Q4 and the stand-alone operating of the two quarters, I believe that the stand-alone operating income is relatively higher numbers or 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 finance and other businesses? My third question is related to the dividends. So I believe that 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?

Unknown Executive, Executive

Yes. In response to your first question, it may appear that the stand-alone profits are stronger than the consolidated figures due to certain costs from our subsidiaries that are included in the consolidated financial statements but not in our stand-alone results. About the adjustment coefficient, in the fourth quarter of last year, the figures were somewhat higher than the average of previous quarters. For 2026, we anticipate the coefficient to be slightly higher than that of 2025. In response to your question about the comparison between operating income and before-tax income, our subsidiaries faced some lease liabilities that couldn't be hedged due to the decline in foreign exchange rates. As a result, during the foreign exchange conversion process, we recorded certain valuation losses and gains that affected the overall figures. Regarding your question on dividends, last year's payout was 16.5% and this year it decreased to 13.65%. While the percentage decreased, it’s important to note that the net income on a stand-alone basis grew significantly, meaning the total amount of dividends paid out will increase. The dividend per share also rose to approximately KRW 1,541. Looking ahead to 2026, as a public corporation, we are subject to relevant legislation and will need to discuss our dividend strategy with government departments. Unfortunately, we cannot comment on the direction of dividends for 2026 at this time.

Operator, Operator

The following question is by Jaeseon Yoo from Hana Securities.

Jaeseon Yoo, Analyst at Hana Securities

I am Jaeseon Yoo from Hana Securities, and I have four questions. My first question is about provisional liabilities related to used nuclear fuel. In January, I read news that the unit price has gone up, so can you provide more details on this topic? My second question is also related. What was the total amount of used nuclear fuel-related provisional liabilities booked by KHNP in Q4 2025? Third, there was a 15% price decrease that was subject to a grace period, which is now coming to an end. I believe this means the price of bituminous coal might increase. What associated costs are you expecting with the end of this grace period? My fourth question concerns the bond issuance limit. What is the outstanding amount of bonds issued, and how much room do you have compared to the cap?

Unknown Executive, Executive

I will address your first two questions together. The provisional liabilities recorded for the recovery of nuclear power sites increased by 904.5 billion KRW to a total of 24,769 billion KRW. The value for used nuclear fuel decreased by 178.4 billion KRW to 2,745.3 billion KRW. Additionally, the provisions and liabilities associated with mid- and low-level nuclear waste increased by 10.2 billion KRW to reach 1,077.2 billion KRW. 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. Yes. And regarding your final question on the bond issuance cap. So 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.

Operator, Operator

Currently, there are no participants with questions. The following question is from Jong Hwa Sung from LS Securities.

Jong Hwa Sung, Analyst at LS Securities

I have two 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 an impact on the financial statements?

Unknown Executive, Executive

Yes. I will address your first question regarding the export of nuclear power plants from Korea. 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 a high-quality nuclear power plant export strategy can be developed to maximize and satisfy global customers. 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.

Operator, Operator

The following question is by Yoon Cho from UBS.

Yoon Cho, Analyst at UBS

I have three 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 industrial use. There are also talks about regional pricing schemes for 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 your comments earlier today. You mentioned that in Q4, there were some costs associated with 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 on a consolidated basis for Q4?

Unknown Executive, Executive

Regarding your first question, with the increase of solar PV power generation, the overall load patterns are changing. And to reflect this change, we are currently developing seasonal pricing schemes and also different pricing schemes for time periods. We are also considering the balanced growth of the overall national economy and regions and 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 rational new pricing scheme, reflecting all of these elements. However, as to its impact on unit price and the exact timeline, I believe it's a little bit early. We are also listening to the opinions of corporates and the 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. And regarding your second question, I think all we can say at this point about the cost booked by the 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.

Operator, Operator

The following question is from an analyst at JPMorgan.

Unknown Analyst, Analyst

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?

Unknown Executive, Executive

Can you please elaborate on that question, please?

Unknown Analyst, Analyst

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 were to 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.

Unknown Executive, Executive

Yes. Currently, we have a cost pass-through system in place. On a quarterly basis, fuel prices are reflected in the tariffs. However, we are also working to enhance the implementation of this system. We are in discussions with the government and considering feedback from stakeholders and industries to identify further improvements to the cost pass-through system moving forward.

Operator, Operator

Currently, there are no participants with questions. As there are no further questions, we will now end the Q&A session. If you have any additional inquiries, please contact our IR department. This concludes the fiscal year 2025 fourth quarter earnings results by KEPCO. Thank you for your participation.