POSCO Holdings Inc.

I am CSO of POSCO Holdings. My name is Jung Gi Sub. At the general shareholders meeting held in March, our shareholders offered approval of the new management team and the board. POSCO Holdings has defined its new corporate vision as materials for tomorrow, innovation for excellence. To achieve this vision, we have identified seven major initiatives and 30 specific action items that are already under implementation. Before delivering the Q1 earnings report, I'd like to open the meeting with a brief introduction of what investors and shareholders may want to know most, which is what the new CEO and the management team would like to pursue as our strategic way forward. First, in the group's core businesses, namely steel and rechargeable battery materials, we intend to focus our resources and capabilities. In steelmaking, our aim is to fortify our global competitiveness. Toward that goal, we will take the Lighthouse Factory certification gained in 2019 on POSCO Smart Factory. Then by applying AI technology, we will take it up another notch to build an intelligent factory. Additionally, by transitioning to an economically viable low-carbon production system, we will acquire unrivaled production and cost competitiveness. In the battery materials business, by actively investing in promising assets that have future growth potential, we will have a replete materials value chain with undisputed competence. Second, EV market slowdown is being observed. The industry has gone into an adjustment period But Posco Group sees it differently. We believe that this is the right time to acquire native competencies in the battery materials business to get ahead of the race and to own breakthrough technologies. This is an opportunity for us. We're especially interested currently in the upstream process in gaining promising assets. Recently, we've witnessed sufficient price drop of battery resources, including lithium price. If we can acquire prominent assets today, in the long term, we believe they will serve as the foundation of growth and profit. Additionally, we intend to act early to get to future markets such as solid-state battery materials. This means we'll develop new R&D-based process technologies in lithium metals and dry recycling. Also, by forging stronger collaboration with our customers, we'll focus on commercialization of next-generation materials. By taking advantage of this market adjustment period, we'll diversify ways, such as through M&As, to expand our business and market. However, in recognition of the EV market slowdown, we will make rational decisions to push out some of our investment schedules. Moreover, we'll focus our energy on strong profit businesses. Let me take an example. Considering the slowdown in the supply of EVs and the resulting decline in used batteries, which serve as a source of raw materials, we have made the decision to delay a part of our overseas investments to be made in recycling. For our capacity expansion plan between 24 and 26, please refer to slide five of the presentation deck. As you are well aware, 2024 is year one of lithium production at POSCO Group. Come year end, we will begin operation of our plants responsible for lithium, nickel, and precursors. Once those plants come online, our EV battery value chain, which had gaps here and there, will become replete, and in 24, we will begin to see its full shape and the full value chain in action. I give you my word we'll do our best to keep this schedule. Third and final, as one of the values that this company holds in the highest esteem, we want to enhance shareholder value. Recently, the FSC unveiled the Corporate Value Up program, which has galvanized more attention to asset allocation and shareholder return policies. We have already begun discussions with the Board regarding the implications of the Corporate Value Up program. And as a result, we'll be taking an active look at ways to enhance our corporate value, including the possibility of retiring our treasury stocks. I address everyone present at this meeting and remind you that we are confronting challenging business environments. So we're making efforts to recover short- to mid-term profitability by carefully making investment asset allocations. Our goal is to implement an invariable growth strategy aimed at upgrading the company's long-term value. So let me now give the floor to the Chief of IR who will present a more detailed earnings report for the first quarter of 24.

Good afternoon. Our CSO, Jung, just shared with you our new corporate vision, and now I'll present the first quarter consolidated earnings of Postco Holdings. So please refer to page six in your brochure. In Q1 of 2024, revenue decreased 3% QOQ to 18.52 trillion won, while OP increased 92% to 583 billion won. This was due to the profit recovery of the steel subsidiary Postco and the reversal of inventory impairment losses of the rechargeables battery materials business, which had posted a loss in the previous quarter because of the inventory loss impairment, but has turned back to profit Q1. EBITDA in Q1 was 1.54 trillion won, CapEx invested was $1.8 trillion on a consolidated basis and $3,000 billion on a standalone basis. Net borrowings was up by $1.8 trillion from the end of last year to $9.86 trillion, and our net debt-to-equity ratio still remains low at 16.3%. Next is performance by key businesses. The operating profit in the steel business fell slightly to $339 billion from $346 billion of the previous quarter, POSCO's operating profit improved by $32.1 billion to $295.1 billion, but was impacted by lower sales volume at its overseas steel materials subsidiary. As for the infrastructure business, it recorded operating profit of $340.1 billion, up $48 billion from the previous quarter. In the green future materials, we recorded a loss of $169.1 billion due to a 130.5 billion won inventory impairment loss, factoring in drop in lithium and other mineral prices in the previous quarter. But due to the reversal of the inventory impairment losses of 66 billion won in the first quarter, we turned profit to about 6 billion won. Next, I will briefly highlight the key business activities for Q1 of this year. On April 16th, POSCO Pilbara Lithium Solution shipped the first batch of lithium hydroxide based on lithium ore, which was the first of its kind in Korea. After completing the facility in November last year, we began production in March after various tests, and the production volume in the first quarter was 148 tons. Although it was not a huge volume since it's our first time, we believe that we'll be able to produce the including the Plan 2 to be completed in June, a total of 43 kilotons of lithium hydroxide after normalizing operations for about a year. Currently, product certification is in progress at Postco Future M, and we're discussing certification procedures with two additional battery makers. Meanwhile, as for the products produced, we have signed a sales agreement with Company A in December last year and are currently negotiating sales agreements with three clients. Lithium hydroxide produced by PPLS is a lithium hydroxide that can get IRA tax benefits, so it is expected to contribute to stabilizing the Korean rechargeable battery materials supply chain. Next, we have completed silicon anode active materials downstream facility. POSCO Holdings is constructing a commercial production line of POSCO silicon solutions at Yeongil Bay Industrial Complex in Pohang with an annual capacity of 550 tons. We completed the downstream facility first, and the upstream facility will be complete in September and will be ramped up in stages after validating the mass production of the first phase of 550 ton. POSCO Holdings, since the acquisition of POSCO's silicon solution, has been focusing our group R&D capabilities to maximize product performance and efficiency and productivity gains. The product portfolio has been expanded from one to four products, and low-cost, high-quality coating technologies based on steel byproducts have been applied. And as a result, in terms of efficiency, capacity, lifespan, and swell, we have been able to secure superior performance compared to the industry average. Currently, research on process technologies that can further improve the productivity of core processing facilities is being conducted. Next, I will elaborate on performance by key areas. Please refer to page 10. First up is POSCO. POSCO's crude steel output was reduced by 358 kilotons from previous quarter to 8,661 kilotons due to the refurbishment of the Polang No. 4 blast furnace. However, despite lower crude steel output, product sales decreased 101 kilotons from the previous quarter to 8,229 kilotons due to the utilization of semi-finished inventory. Despite the decrease in sales volume, the product sales price increased and sales revenue went up by $14.4 billion to $9.52 trillion. Carbon steel sales prices increased to $1.07 million per ton, up $23,000 from 984,000 won per ton in the fourth quarter. Breaking down the increase, we can see that the unit price hike and FX impact accounted for 11,000 won per ton, while more sales of higher margin products and other changes in product composition accounted for 12,000 won per ton. Operating profit went up by $32.1 billion to record $295 billion. Despite the increase in the raw material cost, Thanks to the price increase efforts and the reduction of the one-time cost impact of the collective bargaining agreement reached last December, we could minimize cost impact and recover profits to some degree. The first quarter was particularly volatile for cooking coal prices. After rising to $338 in early January, the HCC prices began to fall in March and are currently hovering around $240, down about 30% from peak. However, due to the time lag between the raw material purchases and product sales and changing exchange rate, it is expected that the cost of goods sold will not decrease until sometime around third quarter. Page 11. Overseas steel subsidiaries also continue to be impacted by the weak global market conditions. PT Krakakau in Indonesia in Q1 saw increased processing costs due to steel plate line repair, and the raw materials prices also increased 6.6%, contracting OPEC. Maharashtra in India also saw sales price drop due to global steel market downturn, thus reduced roll margin, recording low revenue and OP. However, China's Zhangjiajiang SDS, due to the impact of lower raw material prices coming from the oversupply of nickel, it was able to narrow its loss from a very large loss of the previous quarter. Next is POSCO International. Revenue decreased by about 2% QOQ, but OP increased by 24%. The steel and major commodities trading profits increased by $11.1 billion due to the expansion of sales of automotive steel plates to the U.S. and Europe's green industries in the energy business. Operating profit declined due to lower gas sales and lower recovery of investment costs in gas sales, while operating profit increased due to the cost-saving measures like direct import of low-cost LNG in the power generation business. Next is POSCO ENC. Because of lower revenue in the construction division, the overall revenue decreased by approximately 12% QOQ, but profit remained at the same level as previous quarter as lower cost in the plant and infrastructure business due to the base effect of the previous quarter were offset by higher costs in the housing business. Next, Post-Good Future M. As you can see on this slide, while the revenue, which had been growing steadily has now gone down about 1% to 1.138 trillion won. So you may think that it is stagnant, and this was due to actually decline in sales price, and the sales volume is actually growing continuously. As for cathode-active materials, the sales price dropped 21% QOQ, but despite all that, the sales volume went up, helping to maintain the revenue at the same level as previous quarter. As for anode-active materials, we have expanded shipments to new clients other than Korean battery makers, which resulted in 9% in surge in sales volume, with stronger profits. Now, this wraps up the earnings presentations of Flesco Holdings. We will now have a Q&A session.

We'll begin the Q&A. For those who want to pose a question, please press star 4. The first question comes from Hyundai Securities, Mr. Park. Greetings. My name is Park Chan-woo. Thank you for giving me this opportunity. I have a couple questions. The first one is about the steel market. In the first quarter, because demands have been declining in the market, I think a lot of that has been reflected in the earnings report for POSCO. So in the first half of this year, how do you see the market? The second question has been addressed, but it's about lithium price. So in terms of assets acquisition, such as Salt Lakes and other mines, I think that's a good idea. But if there are any more specific plans that you can share with us, I would love to hear about them. And looking at the current lithium price, PPLS, once it goes into full operation, EBITDA margin and operating profit margin, how do you see those panning out? And another question is about the stocks. You did consider retiring some of your treasury stocks. But looking at your global peers, one of the risks that Posco Holdings has is the dual listing of its companies. So from a long-term perspective, do you have any plans to address these issues? And I think you are looking into reducing about 1 trillion won of costs every year, but there are challenges here. Where do you intend to cut these costs amounting to about 1 trillion won? Those are my questions. Thank you. So among your questions for questions regarding the steel market, I'd like to ask Mr. Hong Yun Shik from Postco Marketing. And on the questions regarding lithium, Mr. Lee Sung Won, head of lithium business team, will answer that question. And for treasury stocks, we will ask Ms. Han, head of IR, to respond on production costs. I'd like to ask Mr. Han Seong Ah, head of finance, to answer those questions. Let me address the steel market situation. There's interest rates as well as inflation and various other factors that add to the decline of the market. We also have the crisis in the Middle East, and so this is a prolonged depression. Since December, we have seen the market decline and in China because we have not seen a stimulus plan that is as effective as it was made out to be. There is some disappointment, and so prices continue to fall. So although price is holding up in some places, I think demand is the serious issue because it is really falling. In domestic demand, we have enough demand so to speak, but I think the automotive sales are declining a little bit. And of course, EVs are suffering a little bit too. But exports are active. So 4.2 million units sold last week, I think, I'm sorry, last year, I think that will hold up. And new orders as well as new shipbuilding, I think this is going to hold up some of our sales. But in construction, because of profits losses. We are seeing prolonged recession in this market in home appliances because this is also impacted by the construction market. I think we are going to continue to see that market decline as well. And oil price drops as well as the attack on Israel of Iran is impacting some of the market situation as well. So we will have to continue to keep a keen eye on how the market moves. I'm sorry to have to report such a depressing landscape, but in the second quarter, we have long-term contracts with our OEMs, and so that's a bright spot for us. And although we do renegotiate contracts on a half-year basis, we do have quarterly orders that are continuously rolling out. And by Applying some of the cost fluctuations, we have renegotiated some of our contracts with the automotive companies, and the same thing is happening with the shipbuilding companies. So in the steel-using industries as well as in other areas, we are going to keep an eye on the market and try our best to pull what is going to be most beneficial to us. Let me address the lithium market, or lithium price, that is. On the lithium resources, lithium is about $15,000, about $14,000 per ton. So it has hit, in our opinion, the lowest point. And up to now, we've seen lithium resources... overvalued up to now. So perhaps we are going through the appropriate adjustment period. And although I can't give you exact projections at the moment, in hard rock lithium, we are looking at different assets in North America. And as for salt lakes, Because the only salt lakes available are in the southern part of America, we are actively looking there as well. And of course, we have Pilbara Minerals, our partner, with whom we are discussing second phase expansion. And secondly, POSCO Pilbara Lithium Solution, operating performance. I think there was a question about our outlook for the rest of the year. At PPLS, we have completed pilot operation by March, and now we are in ramp up. Of course, it's always important to maximize our business as soon as possible, but right now we're focusing more on adding substance to our facility and adding efficiency. So certification is underway at the moment. and we're validating our processes. So rather than giving you specific numbers right now, which is a little bit challenging, we'd like to give you a brighter picture about when we will complete all of these processes, which will be in the beginning of next year. So from 2025, we are targeting two-digit EBITDA and operating margin. And on the valuation improvements, and the dual listing of affiliated companies. There are three axes to enhancing shareholder value, how to grow, how to enhance value, and how to address the holding company discount, HOCO discount. And as our CSO has mentioned, to return shareholder value, I don't want to speak too much about the theoretical framework. We do make sure to report all of potential challenges to the Board so that we can address them more actively. And so we will be looking at each issue more actively this year. For the issue regarding dual listing of affiliated companies, We have in our articles of association a clause that bars the dual or double listing. Even if a new operating company is to be established, that company remains unlisted, and we have repeatedly made this clear to you. There are no listed companies that we're considering at the moment. So you spoke about cost reduction in the amount of $1 trillion. Let me break that down. So we're looking at three main areas for potential cost reduction. First, processing costs. On a short-term basis, when we install new facility, we will be testing for enhanced efficiency, and on a long-term basis, robotics and AI technology will be applied to maximize productivity through automation. Secondly, in manufacturing costs, a large part of the manufacturing cost is taken up by raw materials costs. So this is where we have to make improvements. Short-term plan, the raw materials, highly priced, Domestic raw materials, we will be diversifying that, sourcing. And midterm, we will be keeping an eye on the market to make sure that we make timely and most appropriate decisions. And we will be making equity shares investments to be able to stabilize and make our supply more reliable. And fourth, we will create a master plan that will be not only drawn up but implemented on our facilities. We will be making a more bird's eye view review of our facilities and use that to improve our profitability. Midterm for carbon neutrality strategy, we will be looking into ways to optimize the application of new facilities too. That concludes my response.