Korea Electric Power Corporation Sponsored ADR Stock

[Interpreted] 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 2026 2nd 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.

[Interpreted] Good afternoon. This is Heung-Bok, Head of Finance at KEPCO. I'd like to thank you all for participating in today's conference call for the business results for the second quarter of 2026, despite your busy schedules.

Today's call will be conducted in both Korean and English. We will begin with a brief presentation on 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 target 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 first half of 2026 in Korean, which will be then consecutively translated into English.

First, I will go over the operating performance. The consolidated operating income in 2026 1st half stood at KRW 4,912.7 billion. Revenue increased by 0.3% to KRW 46,317.3 billion. Power Sales decreased by 0.4% to KRW 43,964.1 billion. Other revenue, including overseas business revenue increased by 16.7% to KRW 2,353.2 billion. Cost of goods sold and SG&A rose by 2.8% to KRW 41,404.6 billion.

Fuel costs increased by 8.8% to KRW 10,142.9 billion. Purchase power costs decreased by 0.9% to KRW 17,206.9 billion. Depreciation expense increased by 1.3% to JPY 5,951.5 billion. Of the nonoperating items, interest expense decreased by KRW 132.2 billion Y-o-Y to KRW 2,079.1 billion. As a result of the foregoing, the 2026 1st half consolidated operating income stood at KRW 4,912.7 billion and net income at KRW 2,796.5 billion.

[Interpreted] Good afternoon. I'm Taeseop Eom, Senior IR Manager. I will now go over the main areas of interest, starting with Power Sales performance and outlook. 2026 1st half Power Sales volume decreased by 0.6% Y-o-Y to 266.7 terawatt hours due to a decrease in industrial demand caused by economic slowdown. For the full year, a higher economic growth rate and number of operating days are expected to slightly increase sales volume.

Next, I will go over the fuel price by fuel source and SMP trends. In 2026 1st half for bituminous coal, Australian coal was around $128.2 per ton. JKM LNG was about KRW 939,000 per ton. SMP was approximately KRW 112.3 per kilowatt hour.

Looking at the subsidiaries generation mix in the first half, the capacity factor of nuclear power decreased and contribution to the generation mix decline. While for coal, utilization and contribution to the generation mix both increased due to the decrease of the capacity factor of nuclear power. In case of LNG, contribution to the generation mix increased as the overall volume of baseload generation decreased. In 2026, the contribution of nuclear power should slightly increase, coal should slightly decrease and LNG should largely be maintained.

Also in 2026, the capacity factor of these power [ sources ] is projected to be low- to mid-80% for nuclear power, low- to mid-50% for coal and low- to mid-20% for LNG.

RPS cost as of 2026 1st half was KRW 2,533 billion on a consolidated basis and KRW 2,938.9 billion on a stand-alone basis. Lastly, on funding. As of 2026 1st half, total borrowings on a consolidated basis was KRW 133.3 trillion and KRW 84.8 trillion on a stand-alone basis.

Now we will move on to the Q&A session. Since we will be conducting the Q&A session in Korean and English, with consecutive interpretation, please make your questions and answers clear and brief.

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

[Interpreted] I have one question on the contribution of nuclear power to the generation mix. Since Q3 last year, we have seen the contribution of nuclear power to the generation mix declined quite significantly on a Y-o-Y basis. And this Q2, I think we also saw a decline. That means this trend has been continuing for 4 consecutive quarters. But in your keynote today, you mentioned that for the full year, the contribution of nuclear power should show a slight increase.

But as I just mentioned, in the first half of this year, already, we have seen significant decline on Y-o-Y basis. And when we listened to the earnings call of your subsidiary, they mentioned that the preventive maintenance can be prolonged. So given all of these factors, does this mean in the second half, we will see a significant increase in the nuclear power contribution on a Y-o-Y basis to make sure that on a full year basis, nuclear power generation contribution still increased slightly, like you mentioned in your keynote? Or for this year, will you be managing these numbers more tightly?

[Interpreted] Thank you for the question. As mentioned in the keynote, the capacity factor of nuclear power is being expected to be around early or mid-80% by KEPCO. Like you've mentioned, there has been some issues in the prolonged preventive maintenance of some of the nuclear power generation unit. And as a result of that, in the first half, the capacity factor numbers were quite weak. However, we are monitoring the situation in the second half very closely.

We are adding Saeul Unit 3 to the grid. And we are planning to implement preventive maintenance in existing nuclear power plants in a more timely manner to make sure that we can maintain appropriate level of nuclear power generation contribution for the full year.

[Interpreted] The following question is given by Jo [indiscernible] from UBS.

[Interpreted] First one is regarding cost. So if we look at the numbers of the first half and try to estimate Q2 numbers based on the first half results, there seems to be an increase in fuel cost, but more visibly an increase in other operating costs. So what would be the factors that drove the other operating cost on a Y-o-Y basis in Q2?

My second question is regarding the tariffs. So I understand that the Ministry of Climate, Energy and Environment is preparing to announce a corporate differentiated tariff system. And so what would be the financial impact if this new differentiated charging system is introduced.

[Interpreted] Yes. I will take your first question regarding the nonoperating cost drivers. So we already talked about KHNP and that the preventive maintenance period has been prolonged, so this has generated around KRW 101.3 billion in other operating expense. And another factor is coming from the Korea Southeastern Power. And so they supply fuel or coal to private operators, and there was an increase of KRW 70.3 billion in terms of the material cost associated with the supply of coal to private operators.

And then regarding your second question on the differentiated electricity pricing system, and so I think you are referring to the regional differentiation of electricity pricing. And I believe, unfortunately, it is too early to disclose any detailed financial impact.

Just to give you a little bit more color on the timing and progress. So there should be a public hearing on the regional pricing differentiation during the second half, and towards latter half of the year, I believe this system will be finalized. And this will be introduced by the end of this year. And it will also be conjunction with the reform of the regional wholesale power pricing mechanism.

[Interpreted] The following question is by Pierre Lau from Citibank.

I have 3 questions on KEPCO. The first one is, given that we have lower global oil prices as Middle East conflict seems to be -- have more stability now, do KEPCO expect its fuel cost in third quarter to be lower than that in second quarter or should it be similar?

Second question is, what is KEPCO expectation regarding tariff rise? Could we expect any tariff rise for the rest of this year? Or we have to wait until 2027?

The third question is does KEPCO think it's able to lower the ratio of corporate bond issuance to the sum of capital and reserves to below 2x by end of 2027?

[Interpreted] I'll take your first question on the fuel costs. So if we just look at the SMP in Q2 of 2026 and compare that on a Y-o-Y basis, it's lower than last year Q2. But if we look at the July and August numbers, so SMP in 2025 July was 121. And this year, it has been around 133. The SMP in August in 2025 was around 117 for the full month. This year, to date, it's around 151. There can be many different factors that caused the SMP to increase on a Y-o-Y basis. But I think one of the main drivers will be the increase of international fuel costs. And there is a time lag between the actual increase in the market and when it is actually reflected in the SMP. So I think this time lag has started to kick in, in July and August.

Yes, in terms of the tariff hikes, in order to address the accumulated operating loss and to also meet the bond issuance requirements, the increase in tariff will be very helpful. At the same time, there are various factors that need to be considered when raising the tariffs such as inflation and overall macroeconomic situation. We will be monitoring the domestic and international markets and economies very closely, and we'll be discussing with the government to try to achieve the tariff hike in the future.

[Interpreted] And then regarding your last question on bond issuance cap. So I don't believe it's an issue of whether we can meet this 2x requirement by end of 2027. We will be making utmost effort to ensure that we can meet those requirements by 2027 year-end. We are not really focusing on reducing the overall bond issuance amount. However, I think that is a more -- I think we are working more on increasing profit generation from operating activities. And like just mentioned, when answering second question, working closely with the government to achieve an appropriate level of tariffs to make sure that we can meet these requirements by the end of 2027.

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

[Interpreted] The first half last year, KHNP's other provisional liabilities was KRW 471.3 billion, what would be this number for the first half of this year?

[Interpreted] The number for this half, so from January to June was KRW 307.8 billion, but there has been some write-backs. So it's actually a minus cost, KRW 164.2 billion.

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

[Interpreted] I have one question on the 3 mega projects announced by government. I believe there is a critical role to play by KEPCO as the central power provider. But in order to do so, you will have to significantly increase the capacity and also expand the power grid, which should require considerable amounts of CapEx. We just discussed the bond issuance cap, reducing it from 5x to 2x. And you said, in order to meet these requirements, you will be working to boost the profit generation of KEPCO.

However, even considering all of these factors, I believe that given the sheer amount of capital required for such a large national projects, KEPCO will be needing additional amount of capital and funding. What is your solution in terms of funding such large national projects?

[Interpreted] Thank you for the question. The mega project and the grid expansion that you just mentioned are mid- to long-term projects, meaning that it does not necessarily mean we need the full amount upfront at once. At the same time, we do face the challenge of reducing the bond issuance amount to 2x of capital. So I think we need to take a balanced approach. We need to develop a mid-, long-term CapEx plan and calculate the total CapEx amount that may be necessary for these projects and try to distribute that across multiple quarters and years and also have strict management approach towards the management of funds that we already have.

We will be working closely with government departments, the multiple stakeholders and all of the relevant departments and subsidiaries of KEPCO to try to come up with the most optimal way to approach these funding needs. And at the same time, of course, we will be also working to ensure that such CapEx does not undermine the business management of overall KEPCO.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions]

[Interpreted] Yes. And I would like to take this opportunity to make a correction in the keynote presentation today regarding the contribution of the different fuel sources to a generation mix. We mentioned earlier that the coal contribution increased. The main factors were the increase in LNG prices triggered by the Middle Eastern conflict and also higher bituminous coal prices as well. So I don't think that was very clearly stated in the presentation earlier, so I would like to make this correction. Thank you.

[Interpreted] [Operator Instructions]

As there are no further questions, we will now end the Q&A session. For any additional inquiries, please contact our IR department.

This concludes the fiscal year 2026 2nd quarter earnings resulted by KEPCO. Thank you for the participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

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.]

[Interpreted] Good morning, and good evening. First of all, thank you all for joining this conference call. And now we'll begin the conference of the fiscal year 2025 third quarter earnings results by KEPCO. [Operator Instructions].

Now we shall commence the presentation on the fiscal year 2025 third quarter earnings results by KEPCO.

[Interpreted] Good afternoon. I am Jong Taek Lee, Head of the Finance team at Korea Electric Power Corporation. We sincerely thank you all for joining us for KEPCO's Q3 2025 earnings conference call despite your busy schedule. Today's conference call will be conducted in both Korean and English. And after a brief earnings presentation, we will proceed to a Q&A session.

The figures presented today are preliminary based on IFRS consolidated standard, and all comparisons are made year-over-year unless otherwise stated. Please also note that any management plans, targets and estimated financial figures mentioned during the call reflect our current outlook and are subject to uncertainty and investment risk.

We now present the Q3 2025 profit and loss details in Korean and then provide the same content in English.

[Interpreted] Good afternoon. This is Siyung Yang, Head of the IR team. Let us begin by reviewing the operating profit. The consolidated operating profit for Q3 of 2025 is KRW 11,541.4 billion. If you look into the details, sales revenue was KRW 73,746.5 billion, up by 5.5%. Of this, electricity sales revenue posted KRW 70,631.6 billion, accounting for 5.9%. And other revenue, including overseas business income recorded KRW 3,114.9 billion, down by 0.9%.

Cost of sales and SG&A expenses totaled [ KRW 52,205.1 billion ], down by 2.7%. Among these, the fuel cost is KRW 14,826 billion, down by 16%. And power purchase cost is KRW 26,606.3 billion, down by 0.8% affected by fuel price changes. Depreciation expenses came to KRW 834.4 billion, increasing by 3.5%. Among the nonoperating items, interest expense is down Y-o-Y by KRW 143.5 billion to post KRW 3,279.4 billion. Based on the factors mentioned, Q3 2025 consolidated operating profit was KRW 11,541.4 billion, and net profit for the period was KRW 7,328.1 billion.

[Interpreted] Good afternoon. This is Taeseop Eom, Senior IR Manager of the IR team. I will now go over the key points of interest. First, on electricity sales, performance and outlook. Electricity sales volume in Q3 reached 419.9 terawatt hours, up 0.4% Y-o-Y due to mostly the summer heat wave, among other factors. For the full year of 2025, we project sales to go down slightly due to the impact of lower economic growth rate and also the impact of the downturn in the manufacturing sector.

Next, let me cover the fuel price by type and the SMP trend. In Q3 of 2025, the bituminous coal price based on Australian coal was around $105.0 per ton, while LNG based on JKN was approximately KRW 1.01 million per ton. Additionally, the SMP was around KRW 118.2 per kilowatt hour.

Looking at the generation mix of KEPCO's GENCOs, our generation mix for nuclear went up due to the entry into operation of new nuclear power plants. As for coal, generation mix is maintained with no major changes in generation capacity and utilization rate, while LNG decreased slightly from decreased generation capacity and increased baseload generation. For the full year of 2025, we expect that the nuclear generation will increase and coal is expected to decrease, while the LNG mix is expected to be maintained. Expected utilization rate by generation source for 2025 for nuclear is at the mid- to high 80% range; coal, mid-40% range; and LNG, mid- to high 20% range.

Now let me touch upon the RPS-related costs. In Q3 of 2025, the RPS costs were KRW 2,876.1 billion on a consolidated basis and KRW 3,469.4 billion on a separate basis.

Finally, to go over the funding status, as of Q3 of 2025, borrowings stood at KRW 130.5 trillion on a consolidated basis and KRW 86.1 trillion on a separate basis.

We now move on to the Q&A session. Since we're providing consecutive interpretation, we would appreciate it if you can keep your questions and answers brief. We now begin Q&A session.

[Interpreted] [Operator Instructions] The first question will be given by Hyun Sung Hwang from Eugene Investment & Securities.

[Interpreted] Yes. My name is Hyun Sung Hwang from Eugene Securities. Congratulations on your good results. I have brief four questions. The first has to do with your short-term corporate bonds. When rolling over these securities, is there any impact because of the volatility in the interest rate? And my second question has to do with the localized marginal pricing. So can you explain further about whether the wholesale and the retail pricing will be introduced simultaneously, and the point in time in which this new system will be introduced?

My third question has to do with the direct purchase transaction system. So it is expected that this will go up to 50% by 2030. And what would be your responses with regards to the GENCOs' settlement? And with regards to my fourth question, this has to do with the energy highway. It is expected that greater room will be given to the private sector players to increase their investment, and this will be advised to issue the settlement as well as others. So can you provide more details about this matter?

[Interpreted] With regards to your first question about any impact or issues regarding the rollover of our short-term corporate debt, with regards to the volatility and the interest rates related to the sovereign bonds or the treasury bonds, we have read news reports that there is very close monitoring undertaken by the government part, and we are also closely monitoring the situation as well. As of yet, no such signs are being detected, but we will be working closely with the relevant government authorities as well as looking closely into the market development and ensure that proactive responses are made when it comes to this [indiscernible].

[Interpreted] With regards to the second question about the localized marginal pricing. So by -- in the May of 2024, it has been decided that within the year 2025, the wholesale system will be introduced. And by 2026, the retail system will be introduced. After that announcement, there has been -- no further announcement that has been made. And we will be completing the research that has been commissioned to outside organizations regarding this issue by the month of February of next year, and a more detailed plan will be designed by next year.

Thirdly, with regards to your question on the emission trading scheme. So on the 10th of November, the fourth plan period ETS has been announced and finalized. And it is expected that for the GENCOs, they will be subjected to 10% to 50% of the paid allocation. With regards to this, we will make sure that these charges are fully reflected in our environmental charges, and we will continue to maintain close consultations with the government authorities.

With regard to your last question about the possible private sector investment into the energy highway, what has been finalized as of present is that for the West Coast Energy Highway, private sector investment will be allowed. However, that is something that has already been included and reflected in the 10th Basic Plan for Electricity Supply and Demand. And there has been no further official announcements made about any additional private sector investment since then. But once discussions become initiated about the 12th Basic Plan for Electricity Supply and Demand, it may be reviewed. However, as of yet, no official discussion is underway.

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

[Interpreted] I'm Moon Kyeong Won from Meritz Securities. So I have two questions. My first question is, I would presume that you are having discussions with the relevant government authorities about the additional increases in the electricity tariffs. So there may -- I do presume that there are many factors and many grounds for raising the tariffs. What in your view will be the strongest basis for further increases in the tariffs? Would it be your debt levels? Or would it be the need to invest further in grid expansion. [ So you can answer that question. ]

And my second question has to do with the adjusted coefficient. So has there ever been a case where in the second quarter or the third quarter, you have actually raised the adjusted coefficient. And do you have any plans of changing the adjusted coefficient until the end of this year?

[Interpreted] With regards to the electricity tariff with expansion of the use of renewable energy and also to supply stable electricity for the advanced industries in this country, there is a need to make further investments into our power grid. And so yes, it is necessary to raise the tariffs in order to raise the funds to finance these investments. In addition, in order to achieve the greenhouse reduction target that is set by the government, this will lead to additional costs, and this is also expected to further reinforce the need to raise our tariff. So in principle, there is a need to adjust the tariffs so that it reasonably or adequately reflects all the cost involved.

[Interpreted] Let me take your second question. With regards to the adjusted coefficient, there has been already one change to the adjusted coefficient range in the third quarter and whether we will engage in an additional change to the adjusted coefficient is something that we will need to determine through consultations with the relevant authorities.

[Interpreted] Currently, there are no participants with questions. [Operator Instructions] The following question is by Hur Minho from Daishin Securities.

[Interpreted] This is Hur Minho from Daishin Securities. So if you look at the news, in the year 2026, a lot of the nuclear power plants are expected to go through scheduled maintenance, and that it is possible to make up for the gap through renewable energy. So can you give us an outlook for the utilization rate for the nuclear power generation for 2026?

And also my second question has to do with the HVDC. When do you expect that the preliminary or first round of construction -- first phase construction completion and the operation of this HVDC project to be? And if that happens, do you expect an increase in the utilization rate of the coal-fired power plant and the nuclear power generation?

And also, another question has to do with your entry into the United States nuclear power market. Is there any update that you can provide to the analysts and investors?

[Interpreted] So let me answer your question about the scheduled maintenance for nuclear power for 2026. Let us verify the actual schedule and get back to you at a later date.

[Interpreted] So let me take your second question about the transmission capacity constraints that are occurring in the East Coast area. At present, the construction is underway for the HVDC project. And the first phase of the project is expected to be completed by October of 2026, and the second phase of the construction is expected to be completed by December of 2027.

Once the HVDC project is completed, then it will be providing additional 4 gigawatt of transmission capacity, which is, we do believe, sufficient to address the 7.8 gigawatt of constraint that we are currently experiencing.

[Interpreted] So let me answer your third question. So as you are well aware, the Trump administration in the United States has announced a policy to increase the nuclear power generation within the United States, and they are looking forward to cooperating with KEPCO and team Korea in this area. So we are looking into various options in how we can participate in the U.S. nuclear market, and we'll be looking at the various risk factors that are involved and continue the review of this matter.

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

[Interpreted] I'm Yoo Jaeseon from Hana Securities. I have three questions. So I have a very good disclosure about the delay in the HVDC project. What about the substation issue? Has that been resolved? That's my first question. And my second question has to do with the exchange rate volatility. So how much of exchange rate hedging is incorporated into your fuel cost? That is my second question.

And you said that the utilization rate for the nuclear power generation is in the mid-80% range. When was that established? But when we look at the website of KHNP, the plant overhaul is set at 79% or so. So I'd like to know when these plans were established. And so do these numbers perhaps include a possibility that those reactor units that have been suspended operation like Kori-2 units that they will be back into operation perhaps. Is that possibility included in those numbers that you have established?

[Interpreted] With regard to your first question about the HVDC project in the East Coast, with regards to the licensing and permit issue of the substation that you have mentioned, as of yet, the licensing process has not been completed. It is based on the assumption that all the licensing and permit will come through, that the first phase of the construction will be completed on October 2026.

[Interpreted] So let me touch upon the exchange rate issue that you have raised in your second question. With regards to the LNG that we procure from KOGAS, on a monthly basis, we settle on an average -- settled the price based on the average exchange rate.

[Interpreted] As we have mentioned during our presentation for the full year nuclear power utilization rate, we expect that it will be around mid- to high 80% range.

[Interpreted] The following question is by Yoo Sean-han from NH Investment & Securities.

[Interpreted] Okay. I'm Yoo Sean-han from NH Securities.

[Interpreted] So let me answer your questions.

[Interpreted] So based on the agreement between Korea and United States, we now have to -- now to go ahead with the enrichment and reprocessing of uranium. So would there be any role to be played by KEPCO or KHNP in this? Or if not, who will be involved in this path? And my second question has to do with the securing of the uranium in which countries and during which period? And what share would be procured? That is my second question.

[Interpreted] First, let me take your question about the nuclear agreement between Korea and United States. Up until now, it has not been allowed for Korea to engage in uranium enrichment within Korea. However, we are looking forward to the situation being resolved based on the recent agreement. However, going forward, the exact details of how this will be brought about is something that has not yet been finally determined.

Next question about the procurement of the uranium. So in the case of KHNP, uranium is being procured through various long-term agreements spanning from anywhere from 5 years to 10 years. And also, these agreements include the option to adjust the volume that is procured depending on the uranium price trend. They can adjust the timing of the purchase. And this is how they are actually managing or controlling for the fuel cost. However, the percentage taken up by uranium and the overall fuel cost of KHNP is not that high, and they do have sufficient inventory built up.

[Interpreted] So can I ask a further question?

[Interpreted] Yes, you may go ahead.

[Interpreted] The question is, if we are allowed to have a role in the reprocessing or enrichment of uranium, do you have any candidates or companies that you have in mind for this role?

[Interpreted] So as of now, the uranium is being imported by KHNP and the fuel or rod is the responsibility of KEPCO NF. But going forward, we're as of yet, not in the know of the exact detail.

[Interpreted] The following question is by Hur Minho from Daishin Securities.

[Interpreted] So this is Hur Minho from Daishin Securities. I have two additional questions. First, with regards to East Coast HVDC project. You said that the provisional phase of the construction [indiscernible] cover of 2026. So when the first phase of [indiscernible] is completed, would it be possible [indiscernible] link up or connect to the transmission system and resolve the transmission [indiscernible] through the 4 gigawatt that is provided? Or because HVDC requires commissioning, would it take several months more from that point on until commercial operation is possible?

And also, I have another question. You mentioned during one of your answers that you have once adjusted the -- adjusted coefficient in the third quarter. So did it go up or down? And what was the magnitude of the adjustment? That is my second question.

[Interpreted] First, let me take your question about the HVDC project. So the first phase of the project and the second phase of the project will each provide 4 gigawatts in additional capacity for transmission. So once the first phase of the project is completed, then from [ Sinan-gun to Shingyeongju ], there will be -- our understanding is that -- immediately once the project is completed, 4 gigawatt of additional capacity will be provided into [indiscernible].

[Interpreted] So let me take your question about the change in the adjusted coefficient, the magnitude of the change. In the case of the coal, there were no changes. And for the nuclear power generation, there was a slight decline.

[Interpreted] The following question is by [ Lee Sun-Woo ] from JPMorgan.

[Interpreted] So this is [ Lee Sun-Woo ] from JPMorgan. I have two questions. You said that there was a monthly settlement with KOGAS based on the average exchange rate. Does that mean that you have an open position, or that you are hedging for foreign exchange rate to some degree? That's my first question. And my second question is that you said that the utilization rate of the coal-fired has gone up. Do you think that this generation mix will continue? Or is there any possibility of the coal-fired utilization rate coming down going forward?

[Interpreted] Let me take your question about the foreign exchange rate. In the case of KEPCO, for the most part, yes, we are exposed. We have an open position to the foreign exchange rate.

[Interpreted] Let me take your second question about the coal-fired generation utilization rate. So this is related not only to the temperature conditions, but also the policies of the government. So we will continue to ensure that a reasonable generation mix is maintained through consultations with the relevant government authorities.

[Interpreted] The following question is by Park Yushin from HSBC.

[Interpreted] So this is Park Yushin from HSBC. I have two questions. With regards to the nuclear power, aside from the United States and Europe, you also have bidding projects in Asia as well as Middle East. Can you provide an update on those projects? And my second question has to do with the shareholder return. Can you communicate to the extent that is possible about the future directions for the shareholder return policy of KEPCO?

[Interpreted] Let me take your first question about the overseas nuclear power projects. For the Asian market, we are carrying out activities to win nuclear power plant orders in Vietnam. And in the case of Middle East, we have participated in the bidding process of a nuclear power plant project in Saudi Arabia. However, the bidding is in process. So we're not in a position to disclose any further details. We ask for your understanding.

[Interpreted] Let me take your second question about the shareholder return. So the more important aspect of shareholder return would be, of course, the dividend policy. And the dividend policy would take into consideration the net profit of the year. And also, it is determined through the dividend consultative body in [ MOEF ]. So we're not in a position at present to disclose any size of the dividend.

[Interpreted] Currently, there are no participants questions. [Operator Instructions].

As there are no further questions, we'll now end the Q&A session. For any additional inquiries, please contact our IR department. This concludes the fiscal year 2025 third quarter earnings results by KEPCO. Thank you for your participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]