POSCO Holdings Inc.

Presentation after the operator's announcement. Ladies and gentlemen, we will now begin the POSCO Holdings earnings call for the second quarter of 2022. For today's conference call, you'll first hear the earnings presentation from POSCO Holdings, and then we'll move on to a question and answer session with the participants present. If you have a question, please press the star button followed by one. We'll now like to hear the presentation from the company. Good afternoon.

I am Jeon Jung-Sung, CSO of POSCO Holdings. I would like to take this opportunity to thank our investors for your support and interest for POSCO Holdings. During the second quarter with the war in Ukraine continuing, the concern for inflation has become a reality, accelerating fiscal uncertainties, including sharp increases The spike in raw material prices, including iron ore and coal, did lead to difficulties in production and sales. However, thanks to proactive responses in pricing and efforts to achieve cost cuts, POSCO has recorded a revenue of $23 trillion won and operating profit of $2.1 trillion won based on our consolidated business performance. Thank you for joining us. Such as POSCO International, POSCO ENC, and POSCO Chemical. The rechargeable battery business, one of the seven key businesses, completed the construction of PLC Poland for recycling to produce black mass from battery scraps. We have also made an equity investment in Progrium, a Taiwanese company that produces hybrid solid-state batteries, and acquired Terra Technos, which holds batteries The steel industry plans to upgrade the product portfolio centered around markets expected to have Thank you for joining us. Q2 Earnings First, the consolidated business performance. The consolidated operating profits for the second quarter recorded 2.98 trillion won, which is a decrease of 160 million won compared to the previous quarter. Profits for the steel industry increased due to higher sales prices. Oversteel Steel also maintained sound profits and surround PTKP operating profits for key units in green infrastructure and green materials and energy businesses Such as POSCO International, POSCO E&C, and POSCO Chemical remain strong, recording a consolidated operating profit of $2 trillion range. And if we take a look at the debt, it seems like it did increase, but it also meant that there was $1.5 trillion won that was paid back, and so please take that into consideration. Next, let's take a look at the business performances of major units in detail. First, let's go to POSCO. Crude steel and product production volume both decreased compared to the previous quarter due to the revamping of Gwangyang No. 4 BS. But the revamp has been completed, so from the third quarter, we will be able to recover to the normal levels of production. Impacted by decrease in production volume, the sales volume recorded 8.238 million tons, a decrease of 216 million tons. The WTP sales ratio recorded 28.2%, a 2% point decrease, QOQ. This is because the materials for automobile is included for WTP, but we see that the recovery of demand from the automotive industry is not as fast as expected. Next, the POSCO income and financial structure. Operating profit for 2Q recorded 1.322 trillion won, an increase of 123 billion won, QOQ, thanks to increases in sale prices despite the decrease in sales volume and increases in raw material prices such as iron ore. The financial structure for POSCO shows financial soundness thanks to an improved cash balance based on improvements in profitability. You can see here that there is the weaker won, and so there's an increase in the won transaction amount of USD-dominated debt, but this actually has been accounted for with the exception of the very short-term debt. Next, performance by overseas steel subsidiaries. Indonesia's PTKP, which is a joint venture, recorded a higher operating profit, QOQ, And that maintained the overall international performance. There are two reasons behind this. First, due to the war in Ukraine, the provision of slab has decreased, and so the prices of slab has increased, and so that actually helped the profitability. Second, our partner, Krakatau Steel, they actually have our... We were able to sell HR with slab after being processed from KS. And so that actually led to adjustments in the sales mix as well as selling HR with slab after being processed with KS, which boosted the higher operating profit. As for China's Zhangjia Zhang stainless steel, we have seen that profitability worsened significantly. because of the raw material crust increase due to spike in nickel prices as well as the well-known lockdown in the Shanghai area. For India, POSCO's Mahastra recorded a decrease in revenues and operating profits, QOQ, due to steel export tax imposed by Indian government as well as the slow demand from non-automotive industries If we take a look at PY Vita in Vietnam, it recorded actually higher revenues and operating profits, QOQ. It actually increased by 1.5% point due to production cost drop from improvement in production yield and increases in sale prices despite this slight decrease in the overall sales volume.

Next, moving on to the earnings report for POSCO International. Oscar International saw increased, substantially increased revenue and profits queue on queue thanks to robust improvements. And you might think that this is due to the increase in unit cost and unit price of steel. And yes, the price hike in these raw materials have helped. But in terms of profits, we've also seen the gas sales improve about $61 billion. That is why we believe that this contribution from the profits was quite substantial. For agriculture and materials, the grain sales have decreased because of the war in Ukraine. However, the revenue and operating profit expanded queue-on-queue as sales improved from South American soybean and Southeast Asian fat and oil. Moving on to POSCO ENC. POSCO ENC saw increase of performance. Although the materials cost have hiked in terms of infrastructure construction, we've saw profits increase as the payment process went through on second quarter completed constructions. The order backlog is about 37.6 trillion. Next on POSCO Energy. For POSCO Energy, queue-on-queue revenue and profits fell. However, for power generation, as you know, the second quarter is seasonally slow. Sales volumes have gone down, and also there's been a scheduled revamping of number three and number seven power plants. And due to these reasons, we saw revenue and profits edge down. If we look at this on a year-on-year basis, however, we can see that the profits have been robust and have recovered down the road. Next, moving on to POSCO Chemical. For POSCO Chemical, profits for the CAFO business improved, and the CAFO business profits contributed substantially to POSCO Chemical's overall top and bottom line. We saw a hike in lithium and metal prices, which was reflected in the increased sales price, so the revenue and profits improved queue-on-queue on the back of this improved performance. For refractories and furnace maintenance as well as construction, we saw revenue and profits fell due to delay in BOF maintenance and increase in labor costs among our subcontractors. And also we've seen operating profits for quicklime and chemical business improve due to rise in the sales price of chemical products. Now I'd like to move on to discussing the major business activities of this past quarter along with our future plans. First on secondary battery materials, we are remaining on track when it comes to the construction of our lithium, nickel, cathode, anode, and recycling plants. And let me brief you on this process. First on lithium, Costco Argentina brine stage one plants will break ground, has broken ground in March and will be completed in April 2024. POSCO Pilbar Lithium Solution is an ore-based plant and is also currently under construction. For nickel, we will begin construction for converting SNNC to produce battery-grade nickel, and this went into process as of June. Upstream completion will be finalized by the third quarter of 2023. For recycling business, We completed construction of PLSC Poland in June with a black mass production capacity. Production of the black mass will begin in September of this year. This production will then be supplied to the HY Clean Metal Plant in Gwangyang. Construction for this plant is currently underway. And it's currently on track for about 47%. Completion is on schedule. Completion will be slated as on schedule. For cathodes, we established Ultium Chem, the joint venture between POSCO Chemical and GM in Canada this past May, with completion slated for the second half of 2024. The Gwangyang Stage 3 and 4 have been completed as of June, capable of 60,000 tons of cathode capacity, and the Sejong 2-2 plant for graphite anode materials was completed in May. For lithium, cathode, nickel, although this has not been reflected in revenue in our top line, we believe that all these plants, they are moving according to schedule with slated commercialization of the production down the road. Next, I'd like to briefly tell you a little bit about our inorganic growth. We are planning to pursue next generation battery materials business such as with silicon anodes and all solid state batteries through inorganic growth and MNAs. In May, we acquired a 2.1% stake in the Taiwanese from Prologium, a supply of commercialized small size solid state cells such as wearable That just put in use in wearables, and we signed an agreement on co-developing solid state batteries for EVs and material application. With Terra Technos, as well as the POSCO JK solid solutions that we established in March, and along with this Taiwanese firm, I believe that we can test these supplies in some of our commercialized products. We believe that this would be very important for our future growth. We announced the 100% stake investment in TerraTechnos, and let me briefly tell you about this company. It possesses production technology for silicon oxide anodes. The production capacity is four-fold increase as of the batch production, so we believe that this is going to cut down on costs. With this, the production capacity will increase from its current 100 tons to 500 tons by 2025. And with this objective in mind, we have acquired a 100% stake in TerraTechnos. Next on to our energy business, Costco International is planning to increase production from the Cenex gas field, which it acquired in April from It's current capacity. And it has contributed about $12 billion to our operating profits. In fact, the Senex gas field has outperformed our expectations. Its current capacity of 420K tons will be increased to 1.2 million tons by 2025. And of the approximately 800K tons of increased supply, 400K tons will be supplied domestically after 2026 to be used as fuel for No. 3 and No. 4 LNG power plants. Costco Energy is planning to expand its midstream business by expanding the production of its Gwangyang LNG No. 2 terminal. It will complete two storage tanks of 200,000 kiloliters of LNG in the Gwangyang Industrial Complex by 2025, along with expanding the anchor berth for a 270K L-sized ship by 2025 as well. It will utilize these assets in related businesses, such as storage of imported LNG, ship commissioning, and LNG bunkering. With this, I conclude the earnings report. for the first half of this year. And on this, we believe that on our 2022 year outlook, we will expect our consolidated revenue to increase to about 86 trillion KRW. We will continue to do our best to meet our top line and bottom line projected earnings. With this, we would like to conclude my presentation on our 2022 second quarter earnings, and I would like to begin the Q&A session if you have a question. Please follow the instructions of the operator.