Tohoku Electric Power Company,Incorporated Q2 FY2026 earnings call

Overall Financial Results

• Consolidated net sales declined 142.6 billion yen year-over-year to 1.1689 trillion yen, primarily due to lower retail electricity sales volume.
• Consolidated ordinary profit declined 27.6 billion yen year-over-year to 125.6 billion yen; excluding the fuel cost adjustment time lag impact, it declined 42.6 billion yen to 102.6 billion yen.
• Interim net profit attributable to parent company shareholders declined 18.3 billion yen year-over-year to 87.6 billion yen.
• Free cash flow was negative 118.5 billion yen, a 62.5 billion yen decline year-over-year; this decline is driven entirely by an increase in time deposits with maturity over 3 months, which will all mature within the current fiscal year.
• Total assets increased 43.1 billion yen year-over-year to 5.4413 trillion yen, and equity ratio improved 1.3pp from the prior fiscal year-end to 19.6%.

Electricity Sales and Supply Performance

• Retail sales volume declined 1.2 billion kWh year-over-year to 27.9 billion kWh, driven by customer switching due to growing competition and lower industrial operation levels.
• Wholesale sales volume increased 2.1 billion kWh year-over-year to 11.1 billion kWh, driven by higher bilateral wholesale volumes, bringing total system sales volume up 0.8 billion kWh to 39.0 billion kWh year-over-year.
• In-house generation output increased for hydro and nuclear power due to improved water flow rates and the restart of Onagawa Unit 2, while thermal generation output declined. Power purchases from other companies declined due to lower operation at joint thermal plants for scheduled maintenance.

Long-Term Growth Initiatives

• Demand Growth Capture: Long-term electricity demand in the Tohoku service area is projected to increase 3% over the next 10 years, upwardly revised from prior forecasts due to new data center and semiconductor factory construction. A dedicated data center recruitment team was established in July 2025, and a business cooperation agreement was signed with NTT East and Development Bank of Japan in October 2025 to leverage regional advantages (proximity to major metro areas, cool climate, abundant renewable energy) to attract data center investment and drive regional economic growth.
• Green Business and Corporate PPA: Tohoku Electric views growing corporate decarbonization demand as a key business opportunity, and offers customized corporate power purchase agreement (PPA) services for renewable energy as part of its green energy solution portfolio. As of September 2025, cumulative contracted volume reached 209,000 kW, with on-site PPA launched in 2020 and off-site PPA launched in 2023, both growing steadily. The company is on track to hit its target of over 2,000,000 kW of renewable energy capacity by the early 2030s, with 900,000 kW already secured as of September 2025.
• Grid Infrastructure Investment: Tohoku Electric Network is advancing transmission grid strengthening projects to support renewable energy grid interconnection for carbon neutrality, including the Hokkaido-Honshu interconnection, Tohoku-Tokyo interconnection, and transmission expansion for power generation connections in northern Tohoku.

Nuclear Power Development Status

• Onagawa Unit 2 restarted operation, but the completion of the mandatory Specific Major Accident Response Facility (SMARF) has been delayed from December 2026 to August 2028 due to external labor market constraints in the construction industry that could not be offset by internal efficiency efforts. Onagawa Unit 2 will be shut down from December 23, 2026 until construction is complete. The Japan Atomic Energy Association (ATENA) has submitted a 3-year extension request for the installation deadline to the Nuclear Regulation Authority, and Tohoku Electric will continue to monitor developments and participate appropriately as an ATENA member.
• Preparations for Higashidori Unit 1 aim to publish a revised completion date for safety upgrades by March 2027, when plant review preparations are complete. Geological survey work is underway for Onagawa Unit 3 to expand geological data ahead of a compatibility review application.

Financial Targets

• The company has set three medium to long-term financial targets for 2026 and 2030: consolidated ordinary profit target, consolidated equity ratio target for financial health, and consolidated ROIC target for profitability. 2024 results were on track: ordinary profit (excluding fuel cost adjustment lag) hit 234.7 billion yen, ROIC hit 4.8%, and equity ratio improved from 15.4% to 18.3% year-over-year. The equity ratio is projected to reach approximately 19.5% by the end of 2025, continuing a steady recovery from 10.5% in 2022 following the Ukraine crisis.

1. Power Generation & Sales Segment: The segment reported a 13.4 billion yen year-over-year decrease in ordinary profit (a 28.4 billion yen decrease when excluding the impact of fuel cost adjustment time lag). Partial offsetting improvements came from the restart of Unit 2 at Onagawa Nuclear Power Plant and increased spread gains from the fuel cost adjustment system time lag, but these were more than canceled out by profit deterioration from changing market and sales environments. Revenue contribution percentage data was not provided in the transcript. 2. Power Transmission & Distribution Segment: The segment reported a 24.7 billion yen year-over-year decrease in ordinary profit. Profit deterioration was driven by higher balancing procurement costs that increased supply-demand adjustment expenses. Area electricity demand increased 1.0% year-over-year to 400 million kWh, driven by higher cooling demand from hotter summer temperatures. Revenue contribution percentage data was not provided. 3. Other Segments: The segment reported a 1.5 billion yen year-over-year decrease in ordinary profit. Revenue contribution percentage data was not provided.

• The full-year 2025 consolidated ordinary profit and full-year dividend guidance maintained the numbers published in April, with no changes. Only underlying key forecasts were updated.
• Full-year retail electricity sales volume guidance was downward revised to reflect interim period performance trends. Management is actively expanding sales efforts including outside the Tohoku service area to recover the lost volume, and expects these efforts to deliver results in the second half of the fiscal year; only partial expected gains are included in the current revised forecast, and the company will continue to work to recover the downward revision and achieve upside.
• The interim dividend is maintained at 20 yen per share, in line with the April guidance.

• Growing retail competition has driven customer churn and reduced retail sales volumes, pressuring generation and sales segment profitability.
• Higher balancing power procurement costs have increased supply-demand adjustment expenses for the transmission and distribution segment, driving significant profit decline.
• Construction industry labor market constraints have caused an 18-month delay in the completion of the mandatory SMARF for Onagawa Unit 2, which will force a shutdown of the unit from December 2026 until construction is finished in August 2028, eliminating planned nuclear generation profit during this period. While a 3-year deadline extension request is pending with regulators, the outcome is uncertain.
• The broader business environment has elevated uncertainty, including rising inflation-driven costs, higher interest rates, volatile fuel market prices, and exchange rate fluctuations.
• Further downward pressure on profitability could result if sales expansion efforts to recover the downward revised retail sales volume forecast do not deliver expected results in the second half of 2025.

The provided transcript does not include a question and answer section.