Ladies and gentlemen, we will now begin the Earnings Call for POSCO Holdings for the First Quarter of 2022. For today's conference call, you will begin with a presentation from the company side, followed by a Q&A session with the participant's presence. [Operator Instructions] We will now listen to the earnings presentation by POSCO Holdings.

Hello, everyone. I am Chon Jung-Son, Head of Corporate Strategy team at POSCO Holdings. So today actually marks the first earnings release after we transitioned to a holding company. We look forward to your continued support and interest to POSCO Holdings. As you may well know, this year on March 2, POSCO Group transitioned to a holding company structure centered on POSCO Holdings. So following this transition from today's earnings call to fully explain about our major businesses considered as [indiscernible] company such as the green - future green materials and green energy. We have the key management who are joining us today from POSCO Holdings. Not only that, we also have management from major operating companies from the five major operating companies joining us today. So, going forward, we at POSCO Holdings, as we've promised to our investors will continue to do our best in achieving a balanced growth in steel and new growth businesses to enhance our enterprise value. Before our Head of Finance team gives you a detailed presentation, let me share a few words on the overall performance of the 2022 first quarter. As for our steel business, despite increased pressure of to mitigate [ph] price hike, including coal due to Ukraine, Russia crisis, thanks to the rebound of the global steel prices, we achieved a strong performance of operating profit margin hovering 10%. As for the green infrastructure and green future materials, POSCO Energy, POSCO International and other major operating subsidiaries saw a greatly improved profit level, thus making our operating profit to exceed KRW 200 billion Q-o-Q on a consolidated basis. As for our lithium business, one of our seven core businesses, we broke ground on the Phase I production facility of 25,000 ton capacity at Hombre Muerto salt-lake in Argentina, and our Gwangyang [ph] lithium hydroxide production entity transitioned to a joint venture with Pilbara of Australia to stably secure lithium concentrate, which is a raw material for lithium production, thereby accelerating production capacity expansion. In the second quarter, with continued Ukraine, Russia crisis, coupled with economic recession outlook due to shift to monetary tightening of developed countries, we believe uncertainty is likely to expand compared to the first quarter. Therefore as for our steel business, given the cost pressure due to raw material price hike, we will manage our pricing policy with much agility. And as for the green infrastructure and green future materials, we will closely monitor all price fluctuations and key industry trends like EV to secure profitability through pre-emptive measures. We will indeed do our best to meet market expectations. With that, from now on, our Head of Finance team will give you a presentation on the Q1 earnings.

Hello everyone. I am Hag-Dong Kim, Head of Finance team at POSCO Holdings. Let me begin my earnings briefing comparing 2022 first quarter earnings of POSCO Holdings Q-o-Q. First is the consolidated earnings, first quarter consolidated operating profit is down Q-o-Q by KRW 110 billion, recording KRW 2.258 trillion. Reduced sales and cost increase resulted in lesser profits for the domestic steel business. However, overseas still recorded strong profits by actively responding to local demand and operating profits as major operating subsidiaries like POSCO International, POSCO Energy and POSCO Chemical in green infrastructure, green future materials greatly improved, allowing us to keep a profit level of KRW 2 trillion. Next is the details of the business performance by operating subsidiary. First is POSCOs standalone performance. Operating subsidiary, POSCO was newly established on March 2, but to facilitate our investors understanding, please note that in this presentation, we have included POSCO standalone performance prior to spin-off. Crude and product production both decreased Q-o-Q due to major facilities revamping including Gwangyang blast furnace 4. Sales volume declined as production decreased Q-o-Q by 170,000 ton, reaching 8.454 million ton. Domestic sales ratio went up 1.0% point Q-o-Q reaching 58.7% and WTP sales ratio went down 2.8% point recording 30.2%. Next is POSCOs standalone income and financial structure. As for the 1Q operating profit with sales dropping and coking coal price jumping, while middle margin tightening, it declined by KRW 474 billion, recording KRW 1.199 trillion. As for POSCOs standalone financial structure, following the vertical spin-off and transferring cash balance and equity-based securities to POSCO Holdings, net asset declined as a spin-off date March 1. Next is business performance of major overseas subsidiaries. Indonesia's PTKP defended profitability to the maximum by expanding domestic sales ratio, despite raw material price hike and product price declines.…

Now we're going to begin the Q&A session. [Operator Instructions] So the first question is from Hyundai Motor, Investment Security. Mr. Park.

Hello, I am from Hyundai Motor, Investment Securities, Park Chung Kook. I would like to thank you for this wonderful performance, earnings and I have three questions for you. So the first question is regarding the steel business. So with the raw material hikes, we believe that it's going to be reflected in the cost from the second quarter. And despite the good earnings in the first quarter from the second quarter, the steel operating profit might decrease is the market consensus. So of course there is the uncertainties, but there should be some efforts that need to be made. But as you may well know, the US and price at a global – for steel prices is going up. So what I would like to know is that in the second quarter is POSCO Holdings thinking about raising their prices of their products to reflect the raw materials hike? And there is - actually the real [ph] demand in the electronics, as well as the auto industry, so how do you view the demand outlook? And nickel prices in March soared, so in the first quarter the stainless business must have been impacted we believe. So in the first quarter, I would like to know what was the profit of the stainless steel business of POSCO? And you also increased the capacity of the stainless steel. And I think that it falls short in covering the annual demand. So I would like to know if there's going to be an increased - increase in capacity or production? And as for the stainless steel production business profitability, how do you view it will be in the second quarter. And regarding the subsidiary. In POSCO Holdings, there is a political mobility solution. So there are high growth - there are companies with high growth potential, so these companies aren't like other grandparents companies under holdings. And do have any plans to make it as a subsidiary of POSCO Holdings, so that it can have a positive impact in improving the valuation of the company. So I would like to know whether you have any changes in adjusting the ownership structure or governance structure of the subsidiaries or the grandparent - grandson company? Thank you very much.

So regarding the first and second question, I think that it was regarding the second quarter profits of the steel business. And as for the steel, or for iron ore, or carbon steel, I think that it's very much related with the profitability. So maybe we can get an answer about that. And regarding the stainless, there was a question about the nickel price going up and stainless costs going up? And is that going to be reflect - can that be actually covered by the prices for the second quarter? So maybe from the marketing team, so the POSCO marketing office can actually give the answers to that question. Mr. Jung [ph]

Yes, hello. I'm good [indiscernible] from POSCO marketing strategy office. So you asked a lot of questions. If I miss out on any of the questions, then please let me know. So first of all, as you said, in the first quarter, because of the Russia and Ukrainian crisis and the global inflation, the coal and nickel prices soared. And in the dispute vision, there was explosion of the mills, so that actually impacted the supply. So that also led to price increases. And in line with that trend, or situation, POSCO in the first quarter until February, we actually signed a contract on the fourth quarter of last year. And we could not actually reflect all of these price hikes. But from March, we were able to flip them in the cost. And in the second quarter, as per the automobiles, and so forth, we have completed the price hike, price surge. And as for the electronics, so we are going to - we have actually completed fourth - until for the second quarter and as for the three shipbuilding companies, we have not finalized this yet. So this week, we're going to actually finalize the prices at a reasonable level. And as for the stainless steel business, as you may well know, the nickel prices have gone up onto $100,000. And it is a record high, unprecedented. But basically, we believe that we increased actually KRW500,000 last month, and this year we preserved this level. The reason for that is because we believe that basically for the now time being the real demand has not picked up. And we believe that the last month increase for nickel price will allow us to preserve our profitability level next quarter. And next month, we believe that there should be a…

Next we'd like to hear Kim Yoon Sang, High Investment Securities [ph] Please ask your question.

Yes. Hello. My name is Kim Yoon Sang from High Investment Securities. Thank you very much for the presentation. I have about three or four questions. The first question is on raw fuel and how the supply is for that. And also with the ties improving between China and other countries and with the supply situation in Europe and et cetera, can you tell us a little bit about the supply chain and supply situation for your side? The second question is on the export situation for US and European markets, if you can elaborate on that, because I understand that the Russian quota has decreased. And this means that the sales volume or the quota for POSCO might have increased. And I know that the price has been increased gradually, recently, but perhaps because of a lower demand, perhaps might people might think that the price is not going to be elevated further. Can you tell us a little bit about the market situation right now? And your exports out? The third question is on lithium. Right now, I know that in Argentina, you have the commercial plant that is entering into construction, and there are negotiations right now for possible 20,000 tons supply that you are entering into with the local community I think that there might be some cost uncertainty, do you think that you can actually have supply of upwards of 110k going forward, beginning in 2024 and on? My last question is on CO2 emissions reduction, do you have visibility or guidance on scrap metal usage for last year and also this year as well?

Thank you very much for your question. First on raw coal and raw iron. For raw iron supply, I think that's [indiscernible] of the Head of the Raw Materials Office can better understand.

Yes, my name is [indiscernible] Head of the Raw Materials Office One. In terms of raw materials, particularly raw steel, Russia's supply takes up about 14% of the global supply, about 45 million tons. Of this 45 million tons, it is not 0% that has come into the market. In fact, Russia is also a net importer of about 10 million tons. So if you minus that from 45 million, we expect the impact to be about 30 million or so. And here for bituminous and PCR coke, I think that there is a lot of dependency for Europe. But right now we're seeing a lot of rebalancing in the market for Europe and South American steel makers because they are unable to purchase from Russia. They are importing from US, Canada, and China, India and Turkey are having access to cheap supply from Russia. Because of this, in April, Europe has issued an import ban on Russia supply. And beginning in August, an outright ban from Russian supply. But actually in the markets we have already seen this priced in already, even with this - this month as well. This means that following May we understand that Australia supply is going to enter into the market leading to expanded supply in the market. So right now, given the current price, we believe that it is going to stabilize somewhat and in the future it is going to become even more stable down the road. That is all. For a second question on steel, talking about US and European market possible export expansion into these different markets because of the situation from Russia with the quota decrease from Russia that this might have a positive impact for POSCO in terms of our exports to US and Europe. And also the additional question was on the price peak that the analyst has seen in the US and European market perhaps Mr. Chon Jung-Son [ph] at the Marketing Strategy Office can answer to this question.

My name is Jung-son Chon, of the Marketing Strategy Office at POSCO. First the question was on US and Europe on possible peak price in these different markets. Because of Ukrainian, Russian conflict that is becoming more prolonged, as the analyst has mentioned, we believe that right now the price has peaked and it is maintaining at those levels. With the US trade wars with the lifting of the tariffs, some of the supply in Europe is coming into the US market. So this is leading to a weak price for the market overall. And for the EU as the analyst has already mentioned, a direct exports to Russia is minimal for POSCO, with the EU quota, about 40 million and there's the global quota that is already open for us which means that for February and March and so on, we have managed to increase HR hot rolled steel into the European markets since then. The third question was on Argentina, lithium commercial plants construction. For the Argentina subsidiary and a possible supply expansion in the future, if we can have increased capacity from Argentina if there is any possible uncertainty for the capacity expansion. Perhaps we can hear from Holdings site Mr. Lee Tong [ph] Head of Green Infrastructure business.

Ladies and gentlemen, my name is Lee Tong, serve as a green infrastructure business. Regarding the Argentina lithium business, we already have broken ground for 25,000 production capacity. And as of March 20, in fact, the CEO visited the groundbreaking ceremony and attended the ceremony in person from [indiscernible] to these territories. We also invited many different heads of these local municipal governments to come to the groundbreaking ceremony. The local governments have the licensing rights and the permits. We have received all the necessary and relevant licenses and permits from these different municipal governments. So we are now going into the engineering stage for the construction. We are hoping to break ground beginning - start actually construction beginning this year. We will continue to have deliberations with [indiscernible], head of the municipal government so that we can complete this on schedule. We have finished the environmental impact assessment and we believe that we are going to get all the necessary permits by the end of this year. So that we can begin construction of a possible production supply capacity for about 20k or 20,000 by the end of this year. We don't expect there to be a lot of uncertainty when it comes to this scheduling of the production. And from Umberto, we are going to have a production of about 10,000 by about 2030. With the infrastructure we are looking at the lots, the lands, the roads and all the different infrastructures. So because we have cleared away much of the infrastructure, and we have - we are nearing the EIA and we're almost receiving, almost close to receiving all of the permits and the licenses because we have good relations with the local community and the municipal governments. We don't believe that there's going to be extra challenges down the road. The Salt Lake profitability is much higher than the mine. So we are hoping to get access to these salt lakes, which is why we're also entering into more market research in Argentina and looking for possible candidates. As for the last question, was on CO2 emissions reduction, on the use of scrap metal, on a scrap iron on possible guidance. In the past and also going forward guidance on the use of scrap iron, perhaps you can hear from Tang Paun Soo [ph] if we can hear from Mr. Tang Paun Soo, so he is on the line from Pohang.

Yes, hello and the head of steel production and technology strategy office at Pohang. You are possibly asking about the scrap metal use in terms of carbon neutrality. For scrap iron, including all of the scrap that comes from all of our furnaces, we are using about 6.5 million tons thus far. And this is going to change gradually down the road because according to the carbon neutrality goals, by 2026, we are going to have newly installed capacity not just in Gwangyang, but also in Pohang. So after 2030 on we believe that there's going to be additional about 5 million tons of scrap iron. Since after that, after 2030, we're going to see a lot more on mining of hydrogen supply. So hopefully this is going to offset more of these carbon emissions. Thank you very much.

Next is from NH Investment Securities. Mr. Chan. Please go ahead.

Hello. I would like to ask a follow up question regarding the question that was already asked. So regarding the price hike, so you said that you finalized price increase other than the shipbuilding sector. But what we want to know is that you have to increase price. But would that be - you actually increased the price, but did you really actually reflect all the costs and so forth? Was that sufficient? So do you believe that is a sufficient level of increase? That's the first question I would like to ask. And the second question was about the question regarding the US and Europe. But with the steel cut in - the output cut in China, that's also - that may also have an impact on us. So how do you see the impact? And next one is about POSCO Energy. The power generation profits increased a lot, but the government's actually policy. So regarding the fight or utilities fee hike, increase, I think that the government is not very willing to do so. And I would like to know if that kind of trend is going to continue going forward. And as for POSCO Chemical, so if you look at their revenue of Q-o-Q it has actually decreased. Why did that happen? And the operating margin and profit margin is about 3%, your business is going up and revenue is going up. And it seems like the profitability has gone down. So maybe you have failed to include or reflect the cost? Or maybe it's because it's just a natural process of expanding your capacity. And after lithium business, I would like to know about its profitability, because as for brine, you know, we secured brine, so we can say that we have from the iron [ph] and so forth. But what Gwangyang is doing as far as the - do we have to go towards like a smelting company? Or is there other types of logic that we have to take into account to generate profitability. And as for POSCO International, you also mentioned about the agro business but because of the food, price hike, and a grain price hike, and so forth. I think the agro business is not very much related with the materials business. So you have to actually make a few - full use of the capital. And I would like to know whether you're going to continue with the material business in addition to the agro business. So I would appreciate brief answer for each question. Thank you very much.

So maybe we can be brief with our answers. So we would like to know if the price increase is enough compared to the cost, actual cost. So my name - I'm from the marketing office. So as for the price increase, as per our raw materials, actually, it takes two to three months of lead time, so for that to be fully reflected. So we cannot really say that it has been fully reflected, but we believe that it has been amply reflected. And as for the shortfalls, you know, there's the cost savings that we have to do, and we have to fill up with. And as for the steel, output cut by China, from first quarter, we had expected that to happen. And we actually - we've actually diverted about 40,000 to 50,000 ton towards the EU. And in terms of supply, there is still Ukrainian and Russia crisis impacting and China is pushing ahead with its carbon neutrality initiative. And the export oriented policies have been rolled back. And that could actually act favorably towards our company. And with the prolonged COVID-19, as you may well know, because of the monetary tightening in the US that also may pose as some concern for us. And as for the third question was about the first quarter profit which was good in terms of POSCO Energy, but the government is not willing to raise utility prices, we believe that the profitability for the energy business will hold going forward. So, Mr. Kim Zhon Yuang [ph] from the POSCO Energy Corporate Planning and Finance Office will explain, sorry POSCO Finance office will explain about this.

So there are two drivers of profitability for POSCO Energy. So first of all, is the power generation and the second is the terminal, LNG terminal business. And in the first quarter, our profits were good because the power - as per the power generation, because we have entered the peak season. And recently the LNG prices soared. So following that, the SMP, the system marginal price actually also increased about 55% year-on-year. So that led to increased revenue and increased profitability. And the second is our terminal business. And as for terminal business, so there is the LNG terminal in Gwangyang that generates stable revenue and profits. So as for the terminal business, we believe that the profits will remain about similar. But as for the power generation business, as I said, you know, KEPCO [ph] is seeing a lot of deficits and actually focused on KEPCO a lot of gen-cos or the private, independent ITPs are also making efforts and we are trying to - we will try our best to defend the price, but there will be also limitations. So we will closely monitor there our trend and we will try to make sure that we remain profitable. But as per our second quarter outlook, as per the power generation sector, we have a clear distinction between off season and peak season. Q1, the SMP was high because of higher raw material prices, but in the second quarter, though, even though the raw material prices are high, there is the CP which may go down. So, in the second quarter we may not expect as much profits as first quarter. Thank you.

So, first question is regarding the anode materials revenue, which declined a lot and what is the outlook for the anode materials? So, POSCO Chemicals, Mr. [indiscernible], is going to give the answer.

Hello, I'm [indiscernible] Chemical Corporate Planning and Finance Office. So our operating profit margin was quite high last year. But this first - is their first quarter, it drastically declined because - declined, because the magnesium material prices went up, raw material prices went up. And as for the increased raw material prices, this has not been fully taken into account. So in the second quarter, we believe that this increased magnesium prices will be reflected in the product price. And as for the anode materials, as you may well know, we - most of the raw materials that are actually owned by China, and they have a lot of competitiveness in that - in this area. So even though they add on material prices have gone out, because there is a lot of low price volumes coming from China, that is having an impact on our product prices, our sales prices. So that's something to take note of. And that is undermining our competitiveness. But in the second quarter, so we're going to also invest in your like [ph] so that's in the second quarter, we're going to go for a long term contract with the three top players in the domestic markets. So if that happens, then we believe we'll be able to normalize our anode material business. And as for the cathode materials. In the past, the profitability was about 2% to 3%, this year about 5%. So there's an increase sales, but the raw materials or supply plan if that is actually materialized at the POSCO Holdings level, I believe that that will also boost our profitability for going for a – for POSCO Chemical going forward. So the fifth question is about the ores, our profitability is that in the lithium or in smelting. So…

Next year, we'd like to hear from [indiscernible] Asset Security, please.

Yes, hello. My name [indiscernible] Asset Securities. I also have about three questions that I would like to ask the company. For nickel, if we go into a little bit more of the specifics, I understand that you have two projects that you're planning right now, for the SNNC, you are trying to go from ferronickel to batteries and for Australian business, you are trying to go from to MHP ultimately, to NHP refining, is this correct, as I understand it, correct. And also for nickel. When it comes to carbon emissions, there are many people who are saying that nickel is not necessarily environmentally friendly, that there is some controversy regarding nickel as the raw material, what is your stance on this issue? And also for Ravensthorpe RNO, my understanding is that this was a landmine that was closed in the past because of low profitability, but it is in operation again, what is its B2C cost? If we can have access to this. And also for lithium, I think that you touched upon this issue in the past, but again with the price structure for pricing, are you very flexible when it comes to pricing depending on the cost of the raw material and et cetera? Are you going to continue to play it by year going forward? And also with lithium again, I think that there – where there was talk about this in salt lakes, but the way that it vaporizes, it's in the past it was natural and however POSCO was able to develop an artificial kind of vaporizing - vaporization technology is this technology continue to be used? Is it still valid? And my last question is on guidance, your guidance remains the same from fourth quarter last year, although there are many changes since then, has the pricing not been completely reflected in your forward guidance or has it been and this is the forward guidance that you are maintaining? That is all.

Thank you very much for your questions. The first question was on nickel, and steel is trying to go beyond steel and to go from refining and for Ravensthorpe is trying to make this intermediate material call it MHP, your understanding so is correct. RNOs cash cost I think was your other question and on nickel melt, if the nickel melt method is actually whether or not it is environmentally friendly. Regarding this I think that Lee Kang [ph] can respond to this question.

And the green infrastructure business, there was a lot of questions from this, you asked questions about the nickel side and also from the for RNO, if I were to elaborate on nickel first of all, as the CSO has mentioned, the wet method is used, the wet processes used for MHP and SNNC creates nickel node [ph] because it uses a dry process. Thus for environmentally friendly or whether it's a green material or not. For Ravensthorpe they have a plant that creates sulphuric acid. And so this - the heat that comes from this plant, so for creating sulfuric acid is enough to be turned into and converted into heat energy for the refinery. So this can show you that it is carbon neutral in terms of emissions. And SNNC for nickel melts comes from New Caledonia and the ore ratio is low. And this also when it comes to green technologies, I think it is just 50% of the emissions compared to the existing methods. So we actually think that there is great strengths on this process. Regarding Ravensthorpe, my understanding is that the cash cause was maybe 11k. I might not be sure, but at the end of last year, there were additional mines that were developed nearby. And beginning in January, this new mine was operational. And we were looking into the earnings performance in March, and the OP was about 52%. The operations, utilization and production were all going well, quite smoothly. So we actually think that the RNO operations are quite competitive, that's our understanding. And for lithium pricing, you asked whether we continue with very flexible spot pricing or not. So the market is continuing to fluctuate, as you know, the package producers and suppliers have tried to enter into long term…

Next question is Keum Securities [indiscernible]

Hello, I'm from Keum Securities. I think, given time, I'm going to ask two short questions. First is regarding OP. So there's a consolidated. And if you actually compare with the 4Q on a consolidated basis its about KRW 150 billion. But Pembury [ph] sits about KRW400 billion lower. So if you look at the detail performance of the subsidiary, so in green infrastructure, you can see that there's an increase of about KRW200. And then there is not much increase in that first - fourth quarter. So it seems like KRW160 billion is - there's a gap of KRW160 billion. So is that because of how you actually recognize the dividend payout? Or is there some kind of adjustments? Why is there a gap KRW160 billion? And the second question is about the cancellation of shares, the treasury stock that was mentioned by the Chairman. And there's also a media coverage about that. So in the first half, do you have any plans to cancel shares or treasury stock?

Thank you very much. So that was about the consolidated OP, standalone OP that are a little bit different. And there's a gap, can you elaborate a little bit.

Hello, I am Chon Jung-Son. So the spin-off date is March 1st. So the accounting method of the operating income and non-operating income was a little bit different. And that explains the gap. So regarding the cancellation of treasury stock, so when we transitioned to a holding company, when we communicated with our shareholders, we said that sometime this year before the end of this year, we're going to cancel parts of our treasury shares and we are considering this option. And I think that further discussion so will be needed at the board and as promised to our shareholders, so we believe we will try our best to confirm this decision by the end of this year.

Thank you. So there are no further questions asked. [Operator Instructions] I believe that there are no further questions, so with that, I would like to wrap up the POSCO Holdings first quarter earnings call. Thank you very much all investors and analysts for joining us today. Thank you, and good bye.