POSCO Holdings Inc.

Good afternoon. Thank you for joining us for the Postco Holdings Earnings Call for Q2 2024. We will have a presentation of Postco Holdings followed by Q&A with the participants. If you would like to ask a question, please press P asterisk followed by number 1. Now we'll begin the Postco Holdings Earnings Call for Q2 2024.

Greetings. I'm CFO of Posco Holdings. My name is Kisap Jung. Earlier this month, we hosted events in Seoul, Hong Kong, and Singapore for Posco Group's Rechargeable Battery Materials Business Value Day. Amidst the uncertain business environment, how we plan to continue to grow and to achieve shareholder return was the strategy we shared at these venues. The group's new management vision and the buyback and cancellation of treasury stocks comprised the shareholder policy message that was announced. Taking advantage of the market chasm, the rechargeable battery materials business will take firm hold as the second growth engine for the group. This is the strong commitment that we communicated. In this process, investors have offered feedback from multiple perspectives. First, on the plan to buy back and cancel Treasury stocks. We shared that going forward, Treasury stocks would be canceled immediately upon buyback. On this principle, many investors mentioned that they heard a more shareholder-friendly policy from the board and the management. Next, on our restructuring plans, investors urged that the impact of restructuring will translate into substantive performance outcomes through additional funds that will feed into generating future growth and for shareholder returns. The industry of EV battery and materials has soured. During this time, we are closely monitoring demand fluctuations and adjusting the speed of our investments. For essential resources, such as lithium, we will not lose out on the opportunity to invest. With this new strategy, the predominant share of investors offered their buy-in. Through this communication with shareholders, we firmed up our strategy. In our management activities, we intend to make sure to meet investor expectations with integrity and determination. Despite that only about two weeks have passed since our last Value Day event, large-scale events that impact the sentiment surrounding the EV industry have happened, and they continue to surface. Changes are happening in the makeup of the U.S. presidential election. On the very far end of the EV business value chain, major OEMs are shifting their strategies, These events are expanding the breadth of uncertainty and unpredictability, providing us to be relentless in our reexamination of our own strategies. While we continue to examine and reexamine the specifics of our tactics, such as adjusting our investment schedule, the core essence of our strategy, which is to seek growth in the EV battery materials business, remains unchanged. We'll move forward undeterred. In steel, we have built the electric smelting furnace demo facility, which is an essential part of the hydrogen-based steelmaking technology. The first batch of molten iron was produced in April, which is a clear proof that we are on schedule to be ready to make future low-carbon steel. We are not alone in having to deliver on the mandate to offer decarbonized steel based on the belief that hydrogen-based steelmaking should be a national technology interest We're making efforts to develop this technology with government partnership. Therefore, we are working with MOTI, MSIT, and other government agencies to seek close consultation. We must also work hard to generate more profit and steal by addressing the lackluster market. Through multiple efforts, we have hit the bottom in Q4, and now we're making a slow but steady recovery. In the rechargeable battery materials business, for facilities that have been constructed or close to completion, we continue to gas the pedal to enhance operation rate for reliable plant operations. In our infrastructure business, we have businesses that are pulling the weight for the group by generating stable profits, which is natural gas production. We're on schedule to expand that facility In particular, the Stage 4 Myanmar gas field development business is the first project where a Korean company is managing a deep sea development project. We'll acquire our own and own our know-how gains, which we hope to have application for in future projects. I'll stop here and allow the head of IR to deliver more detail on our key business activities as well as our second quarter performance.

Good afternoon. I'd like to share with you our earnings for the second quarter, which is on page 4 of the presentation. In Q2 of 2024, revenue increased 2.5% from previous quarter to 18.51 trillion won and operating profit 29% to 752 billion won, driven by higher profits that are still subsidiary postco and improved infrastructure performance. If you look at the EBITDA in Q2, it was 1.74 trillion won, up by 201 billion won. KPEX invested amounted to 2.6 trillion won on a consolidated basis. Despite the continued investment with lowering working capital and sell-off of non-core assets, net borrowings increased by 115 billion won from the previous quarter end, resulting in a net debt-to-equity ratio of 15.9%, down 0.4 percentage point from Q1. Next, performance by key business segments. OP of the steel business went from 339 billion won in Q1 to 497 billion won in Q2, up 150 billion won. PESCO improved by 123 billion to record 418 billion won. And as sales of high-margin products like automotive steel plates increased at its rolling mills and processing centers in Mexico, Thailand, and Turkey, overseas steel profits also improved. The infrastructure business went up 89.1 billion from Q1 to post-429 billion. Recertification of Phase III-IV reserves in Myanmar's gas field and higher selling prices resulted in improved energy profits. Rechargeable battery materials posted a loss of $28.1 billion. POSCO Future M's profit narrowed due to initial startup costs and inventory valuation losses for artificial graphite, while expenses continued to be incurred for projects in its final construction phase, including ramp-up and so forth, including the lithium business in POSCO Argentina. I'd like to briefly highlight key business activities by second segment in Q2 of 2024. First is HIREX. The HIREX technology under development was designated as a national strategic technology in January this year and was selected for a pre-feasibility study by the Ministry of Trade, Industry and Energy in March. In May, the project to develop raw materials for hybrids was selected as a global R&D flagship project by the Ministry of Science and ICT. So we're promoting the technology development in earnest aligned with national R&D demo program. In April, the first batch of molten iron from electric smelting furnace or ESF, a part of the Hybrids Facility, was produced. Leveraging the experience of operating two of the world's largest ESF at its subsidiary, SNNC, POSCO completed the production capacity of achieving a maximum molten iron production capacity of one ton per hour over a seven-month period. So with this initial output from the test facility, we can say that POSCO has officially begun preparing for the demo of high-res technology. Next is page six, highlighting the progress of lithium and nickel production. Pusko Pivaro Lithium Solution, which produces lithium hydroxide from ore, achieved a daily plant operation rate of up to 76% in June. And leveraging the experience from operating the demo plant, efforts are being made to shorten the ramp-up period and obtain certification. Plant 1 is targeting full operation by February next year and Plant 2 by September next year. Pusko Argentina, which is based on brine, completed the construction of Phase 1 as scheduled this month. And to train operations workers and stabilize the facility early, the operational know-how from POSCO Pilbara Lithium Solution in Gwangyang is being utilized, targeting full-scale operation by April next year. As for recycling subsidiary, POSCO HY Clean Metal, following plant completion in July last year, achieved 100% qualified product rate as of January this year. and a 92% plant operation rate of June. So you can say that currently quality certification is underway with POSCO FutureM, local cathode material electrolyte manufacturers. The nickel business involves melting and refining operation with a capacity of about 20,000 tons that goes from SNNC to POSCO. The refinery plants successfully completed the trial run and shipments are expected to begin in third quarter. Indonesia nickel project, it reached 69% construction progress by the end of Q2 and is on track for completion by Q2 of next year. Next is the natural gas upstream expansion. The development of the Myanmar offshore gas field stage three has been completed and finally began commercial production in April. Also, the stage four expansion is underway. This year, the main construction began in July. And once drilling starts in January 2026, we expect full-scale gas production to begin in July 2027. The stage four is the first deep sea development project to be carried out by a Korean company as the main operator, which is different from other stages. which we believe is significant in terms of enhancing and internalizing our capabilities in natural gas upstream business. If you look on the right, in June of this year in Australia, Cenex obtained final approval and this is a very good news. So it obtained final approval from the Australian federal government for its project to triple production capacity. So with this approval, development is expected to accelerate, and new contracts for the increased gas production have also been signed. Cenex in Australia plans to secure an annual production capacity of 1 million tons by 2026 by progressively ramping up production. Lastly, let me update you on the ESG matters. If you go to our website, there is a sustainability management report that was published at the end of June. So the report includes climate change response strategies and measures to address physical and transitional risks required by global disclosure standards for major operating companies with high carbon emissions like POSCO, POSCO International, POSCO Future M. And not only that, we have made efforts to transparently and comprehensively disclose status on major controversies surrounding the group And we expanded the scope of ESG data consolidation to include 10 Korean and major overseas group entities. So we have made such improvements. And with regards to the ESG direction and performance of postcode group, please refer to this report. Our efforts to enhance ESG information disclosure have been recognized by external agencies. We're seeing an uptick in our ratings. So as a result in April, we obtained MSCI ESG rating of A, enabling us to achieve the highest levels in various domestic and international ESG evaluations. So if you have any inquiries, please let us know and we'll get back to you. Next. I'd like to share with you in detail our business performance by key area. Moscow's crude steel output was significantly affected by the refurbishment of the Po-Wang blast furnace bore, leading to a decrease of 660,000 tons of QOQ, recording a total of 8 million tons. Consequently, product sales volume also fell, and the revenue also dropped to 9.27 trillion won. Despite the output cut, Usually when the output is cut, the fixed cost goes up. But the March operating profit improved due to the rise in product sales prices and the decline in raw materials input costs. So the operating profit increased by $123.1 billion, totaling $418.1 billion. So you can see that if you break down the increase, the unit price hike and FX impact contributed $15,001 per ton, and the changes in product composition also accounted for $4,001 per ton. And as for the raw material cost, it went slightly down. So you can see that the raw materials cost dropped, and it was covered by the sales price increase. Now, if you look at the Q3, the sales environment for Q3, and also the prices, all of these environments for Q3 appear to be challenging. Yes, there is a completion of the blast furnace and downstream refurbishment, which is expected to restore production levels to at least that of the first quarter. And second, the continued decline in the cost of major raw materials is anticipated to lower input costs. in the third quarter. So if we are to consider all of these different factors, we are cautiously optimistic about achieving further profit improvement in Q3 compared to Q2. Now let's look at page 10. As for the overseas steel business, there's been an influx of cheap imports in the East and Southeast Asia that has significantly impacted operations. So our major integrated meal subsidiaries, PTKP in Indonesia and PYB9 in Vietnam, recorded about a 6% decrease in sales. That's turning into the red. And as for the Mazda in India, it saw a 3% decrease in sales as well. But the profits actually increased. because there was an increasing sales of high-margin products like automotive fill sheets at the rolling mills and processing centers in Mexico, Thailand, and Turkey. So the overall profit from overseas fill has improved. Now, Postco International. Revenue fell by about 7% KOQ, but OP rose by 32%. In the energy sector, the EMP business saw an increase in operating profit due to the effect of lower depreciation costs from the recertification of gas fuel reserves and increase in the cost recovery ratio. Meanwhile, for the power generation, as gas power plants enter the off season, so it's due to the seasonal factor, operating profits fell. The trading business for major materials like steel generated stable profits thanks to strong sales of high tensile steel bound for Europe and Americas and green industry related products. Next is PESCO E&C. The overall construction sector is not doing very well but through rigorous management both revenue and OP have been stably maintained and we have secured a sufficient cash reserves and you are seeing also that we have sufficient cash reserves of $1.2 trillion to manage risk and operating by conducting monthly reviews of all of our PF projects. Now let's look at FOSCO Future M. Its revenue and operating profit decreased by 20% and 92%, respectively, QOQ. As for the cathode materials, If we exclude the inventory evaluation loss, you can see that the situation has improved. So the low operating rate of N65 production line led to a decline in sales volume, although sales volume and margins for high nickel products increased. And as for the anode materials, revenue and profits from natural graphite remain similar to the previous quarter, but the initial operation cost of artificial graphite were accounted for, shifting to a loss. So this concludes the brief overview of post-coholding Q2 earnings. We'll now proceed to the Q&A section. Thank you.