POSCO Holdings Inc.

Good afternoon. Thank you for joining us for the Postco Holdings earnings call. Today we will have a presentation by Postco Holdings followed by a Q&A session with our participants. If you would like to ask questions, please press star followed by number one on your phone. Now let us begin Postco Holdings earnings presentation for first quarter of 2025.

Greetings, everyone. I am head of the Finance and IR Division at POSCO Holdings. My name is Kim Seung Joon. I'd like to extend my appreciation to all investors who are attending this meeting for taking time out of your busy schedule. As we're all aware, including investors, the first quarter witnessed the global tariff war materialize, which has intensified economic uncertainty. Despite this headwind, POSCO Holdings achieved improvement against the previous quarter. In Q1, consolidated revenue hit $17.4 trillion won and operating profit $570 billion won. Looking at the general overview by key businesses, despite lingering volatility in export volume and FX rates, the domestic steel market is showing moderate signs of stability. In addition, iron ore and coking coal prices have also become more stable. POSCO Future M is selling more CAM and M, while POSCO International's gas field business continues to perform well. While these Q1 results are insufficient to jump to the conclusion that we have made a turn toward clear recovery, we do, however, have signals that allow positive assessments little by little. Therefore, barring unexpected exigencies out of left field, we are carefully optimistic that things cannot get any worse from here. Next, I turn to a topic that I'm sure many have read in the media. I'd like to address our MOU signed with Hyundai Motor Group. As was illustrated in the POSCO Holdings Corporate Value Enhancement Program released in December 2024, we have defined a strategy to invest in overseas upstream seal-making process, and we have been taking a close and hard look at the high-growth market of India and high-profit market of North America. As an outcome of that plan, in October last year, we signed a comprehensive MOU with JSW Group in India to seek collaboration in steel, energy materials, and renewable energy businesses. This time with Hyundai Motor Group or HMG with the goal to address the global trade environment and to enhance our competence in the future mobility materials business, we intend to strengthen our collaboration to jointly invest in to build a steel making plant in the U.S. and to jointly develop next generation battery materials. This alliance can be regarded as a strategic choice made to actively address the rapidly changing trade environment. In steel, in compliance with the USMCA melted and poured origin rule, we plan to offer reliable supply of steel products melted and poured in the U.S. to our auto panel manufacturing plant in Pasco, Mexico. Additionally, we will expand volume supply to our U.S. OEMs to whom our volume was limited due to the export quota. In addition, by focusing the EV battery material technology that both companies possess, we hope to be able to advance to an elevated level of Korea's next-generation battery development once the EV market chasm draws to a close. Currently, we're in discussions with HMG regarding the size of equity investment into a U.S. steel mill, as well as more specifics on how we will see cooperation. Once we have more detail confirmed, we'll make sure to share those with you. I'd like now to invite the head of our IR department, to deliver the first quarter results.

Please refer to page 4 of the presentation materials. On a consolidated basis, our Q1 revenue and operating profit came in at 17.4 trillion won and 568 billion won respectively due to a market downturn in the previous quarter and structural adjustments. operating profit dropped to as low as 95 billion won, but has since rebounded across all business segments to 568 billion won, reaching the same level as the previous year. EBITDA reached 1.6 trillion, and our consolidated CAPEX for the quarter amounted to 1.5 trillion won. Now, by business segment. In the still, The operating profit improved from 2.3% to 3% QOQ. What's particularly notable is that Postco's OP margin recovered to 3.9%. Overseas sale business also showed improvement thanks to strong performance in our engine operations and reduced losses at our China's Zhangjiagang plant. As for the energy materials, thanks to POSCO Futuram's turnaround to profit, overall operating losses were reduced by half, QOQ, but due to ramp-up of newly built plants and investment, losses continued. As for the infrastructure segment, overall performance remained quite solid. Now, looking at page 5, you will find a summary of the MOU, or Mutual Cooperation with Hyundai Motor Group, Our CFO in his remarks earlier mentioned about the strategic rationale behind what we're seeking to pursue. In essence, it includes cooperation in entering the U.S. upstream electric furnace operations, and in the battery sector, we'll work together on investments in key materials, supply chain establishment, and joint technology development. Let me elaborate further on page six. Presco currently operates not only in Korea, but also in China, Vietnam, and Indonesia, our upstream steel production basis, while running sales subsidiaries, downstream processing lines, and processing centers around the world to sell made-in-Korea products globally. As global steel markets increasingly continue to regionalize and form blocks, we have selected India, U.S., Indonesia as three priority regions for upstream expansion. In India, together with JSW, we're working to establish a specialized automotive steel sheet, specialized company, with an estimated capability capacity of about 5 million tons. And we're proceeding with final site selection and initial planning step by step. The latest announcement regarding upstream cooperation is driven by two needs. First is to expand our presence in the U.S. automotive sale market, our long-term objective, and second is to respond to the USMCA, which will take effect in July 2027, its mid- to short-term need. USMCA is the revised multilateral trade agreement that replaced NAFTA among three North American countries to qualify for tariff-free automobiles, There are three conditions, one of which is the regional content requirement. Here, the molten iron of the steel must be produced within North America for steel to be recognized as North American made. POSCO currently uses cold-rolled steel source from molten iron produced at our Kongyang Works in Korea, with which POSCO Mexico produces coated automotive steel sheets. And starting from July 2027, for POSCO Mexico and its operations, it's essential to use cold-rolled steel made from molten ore iron produced within north america so this new partnership is therefore a critical decision that aligns with our long-term strategic ambition in the automotive steel sheet market also addressing the urgent midterm need to respond to usmca now page 7 progress on our rebalancing efforts through the restructuring of underperforming projects and non-core assets in q1 of 2025 we tried to generate cash, so we divested a total of six assets in the first quarter, raising $286.6 billion. And since last year, the cumulative cash generated reached $949.1 billion, with 51 projects completed. So in Q1, we sold off loss-making operations like P&O Chemical, as well as the power demand management business of POSCO DX. So these rebalancing measures are not only just about securing additional cash, but are also expected to help eliminate potential sources of loss going forward. Moving on to the next page. The CAPEX plan for this year. This year we have established a CAPEX plan of $8.8 trillion, slightly down from the previous year. We plan to continue investing in core businesses while adjusting the pace. We have allocated 43% to steel, 34% to energy materials, and 17% to the infrastructure. As for the steel segment, there is the construction of the new EAC in Gwangyang, overseas growth, and replacement of aging facilities to improve operation efficiency. We have budgeted a CAPEX for these initiatives, and as for the energy materials, its CAPEX spending in 2024 was 4.1 trillion, but major production facilities including Argentina were completed at the end of last year, and this year, despite ongoing construction of second brine plant in Argentina and cut that materials plant, CAPEX burden will be slightly lower to 3.1 trillion. As for the infrastructure, we planned the project in Australia, stage four of Myanmar gas field, and construction of the second LNG terminal. Now performance by key area. Page 9, first is POSCO. POSCO's crude steel output in Q1 mainly due to the impact of overall maintenance works declined by 5.5% QQ. But while selling prices slightly increased and raw materials cost remained stable, and we have been making cost-saving efforts enterprise-wide, And all of these efforts led to an improvement in OP margin, which rose to 3.9%. And the volumes were reduced not because of a demand cut, So in Q2, we believe there's going to be a recovery in terms of sales and so forth. And recently in the domestic retail market, there was a reduction in unfairly traded imported products, which had previously caused significant disruption in the market. But we're seeing a gradual normalization of the market prices in certain categories, such as steel sheets, which are some positive developments. Now let's move to page 10. Profits from overseas steel operations have partially recovered. First, our Indian subsidiary has steadily expanded sales of high-margin products like automotive steel sheet, thus seeing improved profit. And second, China's Zhangjiagang, due to a rise in regional stainless steel selling prices, has reduced its losses. But subsidiaries in Southeast Asia continue to underperform. Next is Presco Future M. With increased sales volume of cathode materials and higher prices for phasing materials, operating profits improved, resulting in a turnaround in the first quarter. In particular, the sales volume of high nickel cathode materials, our main product, rose by 64% QOQ. And as for the sales of natural graphite-based atom materials, mostly driven by the demand from customers seeking non-China origin atom materials, the sales increased by 33% QOQ. Page 12. At the end of last year, Argentina Plant 1 completed its construction, ramp-up is underway, and it's implementing client certification process. On the other hand, Plant 4, in light of the delayed recovery in lithium prices and continued market sluggishness, the completion has been postponed to the first quarter of 2026. So the Lithium POSCOM solution domestic downstream subsidiary project has also been rescheduled to the first quarter of 2026 accordingly. As for the POSCO Pilbara Lithium Solution Plant 1, which completed full construction in November last year, it began full-scale shipments of contracted volume starting in the Q2. And as for the Plan 2, which was completed at the end of last year, we aim for a client certification in Q3. Thus, we will focus on testing and ramp-up. Next is Postco International. Due to increased electricity sales during the winter and solid domestic sales from Myanmar gas field, operating profit and energy increased. In particular, in the LNG power generation business, there was a completion of major maintenance work, so that led to recovery in sales. Now let's move on to POSCO E&C. As several major large projects were completed at the end of last year, first quarter revenue decreased. However, as completion-related profits were accounted for, operating profit in both the plant and the infrastructure segments increased slightly. Lastly, let me update you on our recent ESG-related developments. Our group, as a company with operations all around the world, is striving to establish principles and systems for global standard human rights management, not just in Korea but around our business sites around the world. In Q1, the Chairman and the CEOs of each affiliate jointly proclaimed the Postco Group Human Rights Commitment And we would like to report that we have established a human rights management framework aligned with the UNGC standards, including trends in the global legislative landscape and human rights due diligence and grievances redress mechanisms. Now this ends the presentation. We'll move on to the Q&A session.