POSCO Holdings Inc.

Greetings. I'm CSO of Posco Holdings. My name is Cheong Gi-seop. We have closed third quarter revenues and operating profits at levels very similar to the second quarter. However, seal price fell slightly deeper than we anticipated. In rechargeable battery materials, key raw materials prices continue to decline, creating a challenging business environment. These challenges notwithstanding, we try to stretch profits as much as possible, especially in steel. WTP products are high-end steel products that make up 32% of our sales, help to secure a level of profit margin that sustains POSCO's operating profit. In battery materials, lithium hydroxide prices falling below $10,000 per ton. Rapid price decline is exacerbated by the reverse lag created by the time difference between when they are bought and sold. This creates added challenge and disadvantage. In addition, our brine and ore lithium production plants lined up to complete construction. Anytime a plant comes online, they entail initial investment and operation costs that add to the overall burden of expenditures. However, some have recently been commissioned. The fact that these new plants have been completed and initial pilot operation have gone into effect without a hitch gives us reason to be proud that our lithium production technology and facilities have arrived production-ready at commercial scale. Before I give the floor to the head of IR for a more detailed presentation on our earnings, I'd like to take a brief moment to communicate the strategic alliance struck between POSCO Group and JSW Group, which was released yesterday. In your deck, it pertains to slides five and eight. With JSW Group in India, POSCO Group has signed an MOU to cooperate not only in building an integrated steel mill in India, but also to extend that collaboration into rechargeable battery materials and renewable energy sectors. In steel, we're delving into the details of building an integrated mill in India with at least a 5 million ton capacity. The new upstream plant will have a 50-50 investment from POSCO and JSW Group with plans to focus on premium automotive steel products. We have been proposed two potential plant sites that we are currently examining. In addition to the JV in steel, we're also discussing collaboration in rechargeable battery materials and renewable energy. While still early in our discussions, we're studying ways to collaborate on LFP-type EV battery materials in which cost-efficient manufacturing is an essential condition. This business partnership with JSW Group and our entry into upstream business in India have three strategic implications for POSCO Group. First, it is our response to the formation of steel market blocks around the world. Given the geopolitical risks and protectionist trade tendencies, the global steel industry supply chains are grouping into blocks. Hence, we must address this shift through localization in key markets. By entering the upstream business in India, we plan to move away from previous business strategies that focused on seeking growth centered on downstream process. Instead, we wish to get to the growth market early and to build presence through upstream business. On page seven, we provide a brief overview on the Indian steel market. India is one of the fastest steel demand growing economies in the world for per capita steel consumption in India is 90 kilograms, which is a mere 40% of the global average. Moreover, it is a market that is growing with strong push from the Indian government's promotion policies. On the other hand, the market share of the top five Indian steel makers is over 60%, signaling an oligopoly. Because the government protects its national mills, profit is relatively strong, too. Finally, abundance of iron ore reserves promise ample supply of inexpensive raw materials. In 2009, POSCO set up POSCO Maharashtra, or PMH, a downstream plant. We've defined our position in the market as a key automotive steel sheet supplier. As of 2023, our market share in automotive coated steel was 28%, taking joint number one market position. Currently, more than 50% of our products are supplied to the auto industry. Because we've already acquired a good number of clients that use premium steel products, we hope that a new upstream facility in India will generate immediate synergy with existing networks and assets in the country. And this is the way we want to be able to build a larger market for our products. The second implication is partnership with a formidable local partner. On page of your handout, there's a brief description. JSW Group is ranked number one steelmaker in India by production volume. A joint venture with such a strong partner helps to mitigate local risk. Therefore, we believe our partner will help us to make our entry into the market faster and more efficient. So entering into an overseas market in a more efficient way helps us to generate more profit wherever we end up. The third implication is In battery materials and renewable energy, we have strategic alignment in these areas for collaboration. JSW is known as a steelmaker. However, they've recently acquired shares of MG Motor India and built a recycling business, too. These actions signal aggressive investment into EVs. Through JSW Energy, the renewable energy business is expanding, too. From these perspectives, we find a great level of strategic alignment with POSCO Group's eco-friendly rechargeable battery materials business. Given the growing importance of manufacturing cost competence in the battery materials sector, India is rising in prominence, especially given its growing projections of EVs, and therefore all the more important to have a local partner in doing this business. To our investors and shareholders, I want to stress that due to a sluggish market, cost recovery continues to be delayed in both steel and the battery materials businesses. We're committed to continuing sound profit management and to seek growth trajectories in key businesses. This is how we promise to do our best to surmount the current crises. While we expand in these business areas, we're also committed to simultaneous restructuring of non-essential businesses and non-performing assets. Through these efforts, our long-term goal is to enhance capital efficiency. Now I'd like to hand the floor to the head of IR, who will deliver our third quarter earnings.

Well, I'd like to discuss those consolidated results for the third quarter. Please go to page four of the presentation deck. Overall, the third quarter ended at a similar level to the second quarter. We recorded $18.321 trillion for the sales and operating income, $743 billion. We made a lot of efforts, but because of rather sluggish performance in the steel and rechargeable batteries, and the initial cost of subsidies being reflected, that turned out to be the factor. For the third quarter, we have sales and operating income for the third quarter at $18,321,743 billion. And that's a return of $1,705,000,000 in the third quarter. And we have... Now going into the sectoral outcome, please go to the steel side. On the operating profit, that was $466 billion, and that's down by $331 billion from the previous quarter. Post-score post-tax improvement of $20 billion, recording $438 billion, but because of the deterioration in the profitability of Chinese subsidiaries, including Zhang Jiangang, we have seen the slow demand in China resulting to the results of The infrastructure segment posted operating profit of $449 billion, up $20 billion, and the profit improved at the postcode international due to high-power generation profits. For the future M, because of the lower anode active material sales volume and losses in the cathode material, the profit shrank, and the postcode filibuster lithium solution began to reflect the initial cost of production entities, including ramp-up of the postcode filibuster. lithium solution and the completion of the POSCO Argentina. Next, I'd like to share with you the major activities in the third quarter. Mr. Jong-Jisub spoke about the strategic alliance between POSCO and the JWS Group in India and our successful entry into the Indian market. Please go to page 9 for the completion of the POSCO Argentina's brine lithium phase 1 plant construction. For the POSCO Argentina brine lithium phase 1, this is an upstream and downstream process with a capacity of 25,000 tons of lithium hydroxide. It has been completed recently. Completion ceremony was held in Argentina. And the initial production of the 200 tons of lithium hydroxide was successfully completed. We are currently going on a ramp-up process. And from November, we'll start the product certification process for the Postco Future M and battery companies. Next, on the upstream process of the Postco Argentina Phase II with a capacity of 25,000 tons, this will be completed in the third quarter of next year. And if the downstream process in Guangyang is completed around that time, I think this will happen by the end of next year, and we'll have a system of 50,000 tons of salt lake-based, salt lake-based lithium, brine-based lithium hydroxide production. The post-copy of our lithium-prosolidium-1 plant in the Gwangyang is ahead of its production ramp-up schedule by about one quarter, and it's expected to be completed by the end of this year. In the third quarter, the cumulative production will be 1,965 tons, and we are stabilizing the production. So we're inching closer to the stage of stable, the mass production. This is the internal evaluation. And at the same time, the product evaluation is nearly completion. And we are pleased to announce that we recently signed a contract to supply 20,000 tons of lithium hydroxide for EVs in 2025. And this will be signed sometime in December of this year. For the future battery companies, we are currently going on the certification procedure. And we believe the additional supply contracts will be added in the first half of next year. By the end of this year, as you know very well, we have a capacity of 21,500 tons, a second plant, to be completed. We're working very hard to complete the completion, and currently we're going on the commissioning. And this is supposed to be completed by December this year. So with this, the hard rock and the Brian completed. We believe that we will have a production base of 68,000 tons and 89,500 tons by the end of next year. More recently, we have seen the leading prices coming down below 10,000 levels by the end of this year. And next year, we will have investments for the new plants, and the product certification will take a year or so. And we are not going to be able to enhance the utilization rate very rapidly. So we have some fixed costs coming in. So it will take time for us to come to the normalized margin level. So we're trying to accumulate the mass production experience and also trying to make sure that we bring efficiency in the production. So we're setting our best efforts to come up with the best results. We're also trying to advance the normalization of lithium production, and we're also working to secure key mineral assets at a time of declining lithium prices. And as was reported by the media, you'll see that, indeed, Chile, Alto Andino's lithium project is going on. We were included in the short list in August, and negotiations are currently underway. We believe that by the end of the first quarter, the final candidate will be selected. And also for the Maricunga salt, the brine-based lithium project, we are participating in the bidding process. And in addition, we also have the hard rock-based lithium. This is also what the company is considering, mainly in Australia and the United States. Secondly, I want to mention that POSCO International has made equity investment in black rock mining, and this is going to be 60,000 tons of battery-grade flake graphite. Next page, this is about the progress of restructuring program. The company has added five more restructuring targets on top of what we announced in July. So there will be a total of 55 low-margin businesses and 70 core assets. We have 21 businesses and assets we have completed restructuring. This led to a bring-up of $625.4 billion in cash. And this is at the end of September. You'll be very curious what we have sold off. Some of them include a heavy oil plant in Papua New Guinea and a regional steel processing center in China. So these are some of the low-margin production centers that we have owned in the overseas countries. So these are low-margin, and these are not part of the core future businesses that we have in mind, so we sold them. And for the non-core assets, I also want to mention the KB Financial Group was to sold up and expressly where we have like a simple minor equity stakes. And we also have Hengdang-dong Multi-purpose Commercial Building, which is a non-core real estate assets that we held. So we sold these assets to secure more cash. And on these points, This relates to improving the efficiency of our asset management at the group level. And as I've announced before, by the end of 2026, we'll be able to arrive at the target that we have sought. So we'll be able to come up with $26 trillion in cash, and this will be used for future investments. And we'll make sure that there is stringent control of this management of these assets. Next, I'd like to talk about the company results. Please go to page 11. The first up is POSCO. POSCO's crude steel production in the second quarter turned out to be normalized. It has been reduced a bit, and it's been returned to normal levels. And that comes after the Pohang No. 4 blast furnace completion. This increased by 1.3 million tons from the previous quarter of 9.23 to 4 million tons. And correspondingly, our revenue has grown to $9,479 trillion. Although the profit improved due to the effect of low fixed costs due to the increase in the production volume, so we have seen some improvements. And also, you can see the raw material prices has also dropped. But the sales price, this has reduced by 43,000 Korean won per ton. So this is a large decrease, and therefore the mill margin has reduced significantly. slightly, and despite the difficulties, we believe that we have seen the sales improve slightly from the third quarter. For the fourth quarter, you see that the raw material prices are expected to decline further quarter on quarter, and production sales volumes are expected to increase slightly compared to the third quarter. So in terms of the manufacturing cost, the fourth quarter turns out to be more positive than the third quarter. But we see that the real estate downturn in China continues, and there are no concrete signs of recovery. So the sales environment is expected to continue to be challenging. The company has, compared to other competing companies, we have high-proportional long-term contracts for the high-value products. And thus, we expect the profits in the fourth quarter to be in line with the third quarter. But we are making every effort to secure profits in case the decline in selling prices continues. Please go to page 12. In the overseas steel business, we look at Indonesian bills, the upstream, and also these short-pressure bills in India and Mexico. They're improving their profitability. by increasing the proportion of high-margin steel plates. In particular, for the Pusk Mastra, the Indian downstream subsidiary, is making structural progress in diversifying its sales mix towards a high-end alternative steel. And the proportion of alternative steel sales is reaching 52% in terms of the mix. We're looking at structural improvement. However, I want to mention that if you look at the Chinese subsidiaries you're looking at, lower selling prices caused by the deteriorating market conditions, and therefore the overall profit is still decreased quarter-on-quarter. Next is on the post-co-international sales operating profit increased by 1.2% respectively from the previous quarter. We have seen the energy sector operating profit decrease due to a decrease in the cost recovery ratio of the gas fields, but we are able to result, lead to a profit in the same level as the previous quarter. On the post-CNC, we look at the ongoing crisis in the construction market, so we're prioritizing on securing financial stability, including cash flow-oriented management. We want to maintain this profitable level. In the third quarter, in line with the group restructuring plan, we sold non-core assets, and that led to more than 100 billion won. In the cash and improving profit by $32.9 billion, let's go to possible future M now. Sales increased slightly from the previous quarter, but if you look at the sluggish business in the energy side, we see that the operating profit fell 64%. In the cathode active material, sales volume increased on quarter-on-quarter basis. And this is due to strong sales in the high-nickel products, but because of the inventory evaluation losses, operating profit turned to a loss. In the anodic materials due to sluggish sales of the natural graphite, we've seen the overall decline in the profitability. For the Pohang No. 4 blaster furnace, because of the changes incurred there, we see that things have been turned to the normalized level. And I think this includes a brief overview of our third quarter earnings. Now we'd like to proceed to Q&A session. Thank you.

We will begin the Q&A session. If you'd like to ask a question, please make sure to press star 1 on your phone. If you'd like to cancel your question, please press star 2. The first question is from Hyundai Motor Securities, Mr. Park. This is Park Hyun-wook. Thank you for this opportunity to ask you a question. I have about three questions. The first is regarding the market, steel market, that is. In automobiles and shipbuilding, what kind of price negotiations are ongoing and how is it going? And there have been some announcements regarding EVs and there are mixed signals. From POSCO Holdings' perspective, looking at the stimulus package that's been released in China. How does that relate to our own steel market? How do you view that? The second question is regarding non-essential assets and underperforming businesses. These are one-time expenditures that are usually consolidated at the end of the year, and I totally understand why you would want to do that. Is this something we should be expecting this year as well? So on certain one-time expenditures, will we see all of this being consolidated towards the end of the year? And third is something that was mentioned by the CSO. So the fact that POSCO is investing in India, I think that's practical and reasonable. However, I do have some questions. You did mention an integrated mill. Is this blast furnace-based, or is this based on hydrogen steelmaking? And I also have a question about the size. It's probably going to be one blast furnace, but it's probably not going to end there. So does it have expandability? And the location of Odisha? there's quite a distance between Odisha and Maharashtra. So if you produce in Odisha and other sheets are produced in PMH, there's quite a distance and transportation that's required. So how will you calibrate what gets produced where? And about 20 years ago, I believe you had contemplated building an integrated mill in Odisha but failed. And I believe there was a lot of opposition from the community, and that was part of the reason why you failed. What is different this time?