Greetings. We will now begin the 2023 POSCO Holdings Earnings Release Conference Call. Today's conference call will begin with presentations from POSCO Holdings. Then with all of those participating, we will have a Q&A session. [Operator Instructions] Let's give the floor to POSCO Holdings.

Good afternoon. I am Ki-Seop Jeong, CSO of POSCO Holdings. First of all, I would like to thank our investors for your continuous support and attention to POSCO Holdings. 2023 was a difficult year, both internally and externally. Looking inward, the early recovery from flood-related damage was encouraging. However, high-interest rates in the U.S. weighed down on the global economy, while China's underwhelming reopening suppressed steel prices. On the backdrop of the ongoing war in Ukraine, the conflict in Gaza in the fourth quarter escalated geopolitical risks in the Middle East and pushed up energy prices. This has been coupled with softening EV demand and the downturn in critical metals prices, bringing our consolidated revenues in 2023 to KRW 77.1 trillion and operating profit to KRW 3.5 trillion, a decline in profits from last year. Despite the challenging environment, POSCO Group continued to lay the groundwork for its future. First, the steel-making business expanded introduction of low-carbon bridge technologies for the BF-BOF route and defined our transition strategy to HyREX, positioning us for sustainable growth. Second, in the rechargeable battery materials business, construction was completed on lithium hydroxide and recycling plants in Gwangyang. We are progressing with Phases 1 and 2 of the Argentine lithium brine project and the nickel JV project. The strong uplift in lithium and nickel production will put us on a solid path into the EV supply chain. POSCO Pilbara Lithium Solution completed construction on POSCO type plant 1, which uses hard-rock lithium, and now final testing with raw material feed is underway. The first batch of products will soon come off our production line. Third, the reshaping of our business portfolio, such as the merger of POSCO International and POSCO Energy generated synergy and enhanced operational efficiency. Finally, we increased board oversight on group-wide ESG…

Hello. On our website, we have posted the earnings report, so we will take note of that as I give you this presentation. First, year-on-year, the 2023 annual revenue and operating profit fell by 9% and 27%, respectively, each closing with KRW 77.127 trillion and KRW 3.531 trillion. We generated annual EBITDA of KRW 7.355 trillion. Inclusive of CapEx and share repurchases, total investment came to KRW 8.6 trillion. Consequently, net debt rose to KRW 8 trillion, but net debt ratio was kept consistently low at about 13.4%. Looking at the fourth quarter, the consolidated revenue and operating profit, respectively, were KRW 18.664 trillion and KRW 304 billion, recording significant losses compared to the previous year. Year-on-year, in the fourth quarter, despite the very strong 24.2% profit in eco-friendly infrastructure business, other businesses, namely steel and eco-friendly future materials suffered weakened performance. Let's first look at steel. Price decline that began in the third quarter continues today while cost of raw materials such as iron ore held on strong. Then in December, feed costs actually rose. The rare and momentary decoupling of prices associated with raw feed and steel drove down steel business profits from KRW 853 billion in Q3 to KRW 346 billion in Q4. Eco-friendly future materials recorded a KRW 169 billion deficit in Q4 with the fall in price of metals, including lithium, price of cathode active materials also declined. Profit was also driven down by the reverse lag effect generated by the time difference between raw materials feed and product sale. Reflected in the current earnings report is the loss of inventory valuation or inventory repairment that results from metals price decline. In eco-friendly future materials, that inventory valuation loss across 2023 was KRW 148.2 billion, of which KRW 130.6 billion was recognized in the fourth…

We will begin our Q&A session. [Operator Instructions] The first question is from Park Hyun-Wook from Hyundai Securities.

Hello. My name is Park Hyun-Wook. I have 3 questions. The first, in Q1, you explained that you believe that steel price can be pushed up. But because demand still remains sluggish, I think that posted some limitations on price hikes. So how do you see the market for steel in the first quarter in automotive and shipbuilding as well as other demand industries? How do you see the demand? Second, PPLS, POSCO Pilbara Lithium Solution, the first plant complete -- was completed in -- at the end of last year. So this year, you're going to ramp up and actually begin production. When will you see products rolling off the conveyor belt? And lithium demand is actually lower than what we had anticipated. So we are snowballing. Looking at current prices, how do you anticipate the profitability? On the third question, because there is discussions about next leadership at POSCO Holdings, as investors, we believe that there will be a lot of consideration given to the rechargeable battery materials industry and leadership in that field. So during this leadership change or afterwards, will there be some strategy changes in conducting this business? Those are my 3 questions.

So on the first half steel market prospects, we will have Mr. Ban. And on the profitability of lithium, from rechargeable battery materials business, we will have Mr. Lee, Kyung-Sub respond. And on the holdings' leadership, yes, there's a lot of buzz about that.

So what are our growth strategies? I will address that question. I'm at POSCO marketing strategy office. My name is Ban Don-ho. So Ms. Young already spoke about the market prospects in the first quarter. So just to repeat, last year, we saw a lot of recessionary factors, such as China as well as the sluggish demand of steel. And in the domestic market, we saw a slight increase in imports, about 20%. And so it was very difficult for us to hold on to our price levels. In the fourth quarter of '23, as Ms. Young already mentioned, with iron ore, about 20%, and with coal, about 51% cost increases were experienced. The raw materials price hikes are really impacting us in a big way. And so we failed to see this happening. And already about a month has passed in 2024. We are anticipating 3 highs, high inflation, high interest rates, and high prices. So we're going to have to anticipate a little more slowdown in recovery. By industry, automotive and shipbuilding industries did very well. We're going to anticipate a little bit of slowdown in that this year. In infrastructure building and SOC, there are some restraints that will cause the market to slow down. And so that's why we believe that steel market is going to continue to experience a recession. And you've -- I'm sure you've heard through media coverage that not only us but also other steelmakers are suffering from profit losses, and we are taking all things into consideration to try and improve our profit structure. Especially this year in China through the lowering of interest rates in China by about 5%, we are anticipating a little bit of a pickup there. And so we saw some prices go as low as $700…

My name is Lee, Kyung-Sub, in charge of battery materials business. I will address the second question. So lithium production, projections as well as the lithium market projections. So I know that you're all very curious. So I will take this as a general question and try to address as much of it as possible. PPLS completed construction at the end of last year. And so raw materials are being fed in and we are ramping up production. So we consider the first year, the period of ramp-up, and we are going in phases. By the end of the year, we will see about 80% to 89% operation rate. So by the end of the year, our target is to operate the plant at 80%. So purchasing agreements are in place with Pilbara as well as Fastmarkets based on the benchmarked price formula. And we're also almost reaching the end of our sales negotiations as well. So including Argentina, our long-term purchasing agreements are almost at conclusion point. On profit and loss, because lithium prices have fallen, I know that you're all very concerned. This morning, Fastmarkets said $17,530 spodumene was $850. So PPLS stage 1, which completed last year by the fourth quarter of this year, we hope it will turn to black. By next year, we will begin to definitely hit black ink. Yes, lithium prices have fallen. But even at this rate, we are still seeing operating profit at 2 digits. And because we are linked to the benchmark price and formula, when lithium prices fall, then other prices also tend to fall. And as a result, we are able to maintain our operating margin relatively. Spodumene was $850 this morning. This is Australian spodumene and they've hit the highest point. It's -- I believe the production cost is $800 to $900. So for small-scale miners, for example, in Western Australia, because spodumene prices have been falling, some of them have had to close business. And there are other parts of Australia, where we're seeing small-scale miners closing business as well. Liontown is another region, Albemarle. Australia Phase 4 lithium hydroxide plant is being delayed on their side as well. So lithium price, based on the current spodumene price, I think, have hit almost the rock bottom. Lithium production cost is compared to even Chinese companies, POSCO does not pale in comparison. So if lithium price falls, spodumene price falls as well, and that's what gives us the leeway to generate margin. So this market structure for battery-grade materials, we are anticipating about a 5% to 10% oversupply in the next 2 years to 3 years. So in the lithium market, we will begin to see some restructuring of smaller-scale producers. But from a long-term perspective, we believe we are still very competitive. That concludes my response.

My name is Jeong Ki-Seop. I am the CSO. Among your questions, you asked about the leadership change at POSCO Holdings. And so will the leadership change impact our growth strategy in the rechargeable battery materials business? So we are devising strategies and we have phased management plans. POSCO Holdings since it acquired the Salt Lake in Argentina, we have planned 2 phases, each producing well, the capacity to produce 25,000 tonnes. And so we are very close to actually producing lithium from these acquisitions. By 2025, we will be expanding a lot more. But come the end of 2025, we will begin to turn profits. And we believe we were able to make these decisions, bold decisions, thanks to our investors and shareholders. So we have mid- to long-term strategies, and these are based on various supplies and orders as well. So even if there is a leadership change on the investments that have already been executed or those that await to be executed, there will not be a dramatic change in direction. And definitely, we will not be abandoning any of these plans. However, there could be some short-term changes, environmental change, and whether that will lead to significant risk, we have mechanisms in place, regular meetings to keep that in check. This year, we also will see another presidential election in the United States. So these will impact our business as well. So we are keeping eyes and our antennas up on all of these factors. Our basic strategy is to enhance our shareholder value. And that is why before anything dramatic happens, we will have in-depth discussions with our shareholders. So yes, we are going through a succession process right now, and our growth strategy fares very prominently in who becomes the leader next. And rechargeable battery materials is a very important part of our strategy. And so I have no doubt that this will continue. And I hope you will continue to pay attention to us and continue to participate actively so that we can continue to show this very positive relationship between the company and investors. If for any reason due to these changes, some of these mid- to long-term strategies, any part of it may have to change, we are going to make sure that we communicate with you through ample discussions. Communication with the shareholders, being transparent and enhancing and maximizing shareholder value, that is our strategy, and that will not budge.

The next question comes from Kim Yoon Sang from HI Investment Securities.

This is Kim Yoon Sang from HI Securities. I have 3 questions as well. Business plan for different quarters in 2024 is what I'm interested in. And in steel, the projections are not bright. So how do you see your earnings panning out in 2024? Secondly, on nickel. So there are some restraints concerning nickel, but what are your price projections? And should there be a price fall? Will that impact your investment plans? Next is coking coal. Price of coking coal has been fluctuating. Because of net zero goals, I know that there were some cutbacks. But recently, I think we're seeing an increase in demand. So any traditional strategies that you can share and changes in those strategies, I would appreciate.

So the first question was the business plan by each business in the year 2024. So the numbers for each business will be discussed by the people who are in charge of the each business. And for the price on nickel, Mr. Lee Kyung-Sub will take over again, and for coking coal, Mr. Suh Ji-Won, in charge of raw materials office at POSCO.

My name is Byeong-Og Yoo. I'm Head of Green Infrastructure business team, and I'd like to give you an overview of our business plan. So in 2023, this is -- in 2023, our focus was on the merger of POSCO International and POSCO Energy to generate more synergy there. In 2024, our goal is to expand on that and to realize the potential synergies, especially in energy because we are able to build out a complete LNG value chain. That adds a lot of advantage to us. And so we are able to address a lot more volume, and so that bodes well for growth potential. So that's the growth that we're seeking this year. I can't give you any numbers right now, but we will be at least where we were in 2023, if not more. POSCO E&C due to market circumstances and construction circumstances are not -- the prospects are not bright. And so year-on-year, we're seeing some lackluster performance here. And I don't think we're going to see too much improvement this year. And this is because of raw materials price hikes as well as just overall cost increase. So we are seeing the peak point subside a little bit, but some of the construction starts that we had previously contracted, they will begin in the year 2024. But because of these cost increases, I think performance-wise, earnings-wise, we might see a little bit of a slip compared to 2023. We will do everything in our ability to manage our costs so that we don't slip by a big margin. So we will continue to pay attention to these factors. In green materials because of the price fall in metal, PPLS and Hy Clean Metal, all of these companies experienced inventory impairments. Starting this year, we believe the impact of the raw materials price declines last year were fully experienced and the impact of that has now subsided. So I believe we're going to hit black ink this year. And this is not just me speaking, but the entire market believes that the EV battery materials market is going to experience a lot of difficulty this year. So compared to 2022 and 2023, where we had very dramatic growth, we will not meet that kind of growth rate, but we will continue to take orders and continue to seek growth. At PPLS, plant #1 was completed last year, and we have something going on in Argentina, which will complete if we can be quick maybe by the end of this year, at least by the first quarter of next year, it will go into operation. So up to that point, there's going to be ramp-up costs, initial costs involved in ramping up a plant. So some of the losses we will experience in the next year or so is inevitable. I want you to understand that.

I'm from the finance office. My name is Kim Seung-Jun. So business plan in the steel business is what I'll address. This year, the steel market will be focused on ESG regulations as well as carbon net zero and the major economic blocks that are forming around the world. These will act as constraints but we're most focused on safety. So last year, we had no major accidents. And we wish to continue to hold on to that number zero this year as well. By cultivating our culture of safety through the application of smart technologies as well as just creating a culture of safety, and we will also create new production systems that will invite more green, eco-friendly, sustainable processes. So decarbonized production, steelmaking as well as bridge technologies and Greenate is our new brand that embraces various decarbonization strategies and mechanisms. So green products and green materials will be embraced and these will add to our engine of growth. We will innovate our processes so that against competition, we will emerge more competitive. Through digital transformation in the production process, we will apply robots, more machines, automation and also introduce metaverse to create the future platform. So these are some of the strategies that we have in plan, and our prospects for this year, however, the business prospects are not entirely bright as already mentioned, because of the raw materials cost increases as well as price fluctuations that have not yet hit our books. We believe that in the first quarter, we will not be able to make any meaningful dent. But because we will be increasing our prices to reflect -- better reflect raw materials price hikes, we will increase strategic product sales. And these are some of the efforts we will exert in order to improve…

My name is Suh Ji-Won. I'm with the POSCO raw materials office. On coking coal, the price is quite high. What is the reason? From a demand perspective, it's because India is putting out a lot more volume. And there are many new businesses that are producing coke. But on the supply side, because of difficulties in acquiring labor as well as inclement climate, weather conditions, this is the reason for the hike in price. So mid-term price strategy, starting this year with new project starts because new plants will come online and ramp up, we will see about 10 million tonne expansion in production. And so price-wise, it will not be as high as the previous year, but we will see it stabilize. Investments. Coking coal and raw materials investments, we have a basic ground rules. So we have target prices as well as partners, investors, and they have to be ESG issue-free. So these are some of the benchmarks of our investment plan. And with coking coal, we have some concerns because we have to make some adjustments based on our net zero goal. That concludes my response.

The next question will come from Hyun-soo from Yuanta Securities.

My name is Hyun-soo. I'm from Yuanta Securities. I think this was already mentioned. In battery materials, IRA and FEOC are concerns. I would like to know how you will address this going forward. Secondly, because of dull demand in China, there's oversupply because they continue to produce just as much. So I think if this trend continues, we will end up importing more from China. What is your response to this? And the next question, NSC is acquiring U.S. Steel. If my memory is correct, in July of 2021, POSCO released record-level crude steel production and made some promises. So I want to know what is happening with this plan. And I want POSCO's opinion on NSC's acquisition of U.S. Steel. One more question in NSC.

We will ask Mr. Ban Don-ho from POSCO's marketing strategy office. And on exports, we will ask Mr. Kim Kyung-Han from international trade office.

For battery materials, I already mentioned FEOC when I was addressing nickel. Nickel has no relevance to FEOC because it doesn't involve China. So FEOC applies globally to nickel. For nickel, for IRA-compliant volume, we will use the production from SNNC plant in Gwangyang. So we will complete construction in March this year, and this is where our nickel -- IRA compliant nickel would be produced and supplied to POSCO Future M. So JVs with China that are subject to FEOC, there are some that target European markets, but others target other markets. For example, if Indonesia does not need IRA rules, then we are prepared to accept that. If, however, Indonesia is recognized as an FTA compliant or equivalent partner company, then we anticipate additional benefits on top of what we're anticipating. So we don't anticipate any direct negative or adverse impact of FEOC on our business in this year. At POSCO Future M, in their graphite business -- natural graphite business for anode active materials, FEOC or other IRA rules or detailed guidelines have not been released. And so I think they're still discussing and going through some adjustments. So once they're released, we will address them. For natural anode active materials, we are producing spherical graphite. And right now, we import a lot of that from China. We will try and make that more endogenous to Korea.

I'm from the international trade affairs office. I'd like to address your question about how to substitute imports. So all global steelmakers are experiencing the oversupply, and they're also concerned about how to meet carbon neutrality goals. So these are 2 main goals that need to be addressed. China produces about 50% of all crude steel produced in the world. And in 2020 -- up to now, they have been exporting much of that volume or actually increasing exports, which is inevitable. And so the question is, will they continue that trend this year? And that I think depends on the stimulus package that the Chinese government is rolling out and the impact of that, if it has the positive impact that we're hoping for, then I think imports will go down. But from a domestic perspective, all local steelmakers, for example, in the United States, steelmakers use Trade Expansion Act Section 232 to impose tariffs. And India, Brazil, Thailand and Indonesia, these emerging economies are also putting in place non-tariff measures to restrain imports. So there are a lot of retaliatory measures that are being put in place. But still it's a primary material that is indispensable to infrastructure building as well as just human societies. Compared to other countries, our import restrictions are not high and -- because we have a very strong manufacturing base. We believe that we do need to prepare for these imports coming in from other countries. So is this a market -- a temporary market situation resulting from oversupply or is this something that is going to be more permanent and something that we need to address more permanently in the Korean market? We need to protect our crude steel industry. And with that in mind, at the moment, we will keep all options open and address each issue to our country's advantage. But I think there's some misunderstanding. I think most people believe that POSCO is a big company. It's going to block all imports. Low-cost imports come in and damage some of our industries. So this would be the basis for which we will be fighting some of the imports for no other reason.

I'm with marketing strategy. The overseas market status as well as the acquisition of U.S. Steel by NSC and sales projections for 2024 is what I will address. So overseas investments. So we want to go beyond our growth in the local market and to hold on to our global position as a global top 3, we will be devising strategies, which will also involve investments that will be made in India, not only the ones that have already been planned but others as well. So let me address some of those. Through PTKP in Indonesia, we have made inroads into that market already. PTKP in the future will become one of the very few, if not the unique automotive steel sheets manufacturer in Southeast Asia -- South Asia, that is. And not just that, that 10 million is planned to be produced in eco-friendly manner in -- through decarbonized steelmaking process. One of the most active markets is India. And in India, we will be seeking additional opportunities to invest. To mitigate business risk, we are in discussions with a trustworthy partner on building an integrated mill. NSC's acquisition of U.S. Steel in December last year, $15 billion was the valuation. But what I understand is in the Biden administration, there is an overseas investment consultation committee that is looking at this and unions are objecting to this. And to enhance steelmaking competitiveness in the United States, some of the U.S. population are cheering this decision. So I think we need to wait and see. POSCO and NSC's business strategies differ a little bit. NSC has felt the limitations of its local market. So they want to continue to grow their size by investing overseas. On the other hand, POSCO, as you're aware, we want to be able to strengthen our core quality. So we've expanded our portfolio of future strategies. And when you look at the revenue of the 2 companies, I think it gives you some hints about our strategic direction. About 88% is the overseas market for Japan and 51% for Korea. And there are a lot more trade barriers in the U.S. market. And so they impose tariffs, and we are exporting only based -- within the threshold that hold of that quota and tariffs. So we will continue to monitor whether NSC is able to acquire U.S. Steel through government approval. And we will continue to check and to address issues in the U.S. market. Sales volume last year was about 34 million tonnes. We completely recovered from the aftermath of Typhoon Hinnamnor. So we hit our goal. But looking at and considering the different market circumstances, it may be difficult for us to set higher goals in crude steel production. So I think 33 million tonnes is what we will target this year. Thank you.

I'm in charge of corporate strategy. Let me speak a little bit about CapEx strategy. We plan this every year. And so I want to tell you that this year is similar to last year. Overall, it will be about KRW 8 trillion consolidated basis by each business. We can look at steel and battery materials. And so the 2 are neck and neck in terms of the investment volume or value, about KRW 3 trillion each. And this year's investment plans, whether it's in steel or battery materials, our CapEx will increase this year for each business. In steel, we need to brace for carbon net zero decarbonization. So some of our larger investments will begin this year. In battery materials as well, because we have expanded orders, we will be building out more, and that means more CapEx. So at the end of last year, beginning of this year, looking at the economic situation, there are a lot of uncertainties. So some of the investment plans that were devised at the end of last year, we do this every year, but on a quarterly basis, some of that has to be revised. So we need to be conservative, but flexible. And make sure that we keep an eye on our growth.

So a lot more time has transpired than we had planned. We will just take a few more questions.

The next question will come from Eugene from Eugene Securities.

This is Eugene at Eugene Investment Securities. So a lot of questions were already addressed. I know that you have a hydrogen project in Oman. But we can't find too much information on that. So what is the project? How are you conducting it? And what is the projected margin? Secondly, retirement of treasury stocks. You did that in the previous year. Do you have plans to do more? And there are claims about dumping. Do you have some progress update on that?

Let me talk about dividends first. So we have 10.3% treasury stocks. In September of '21, we issued transferable bonds -- convertible bonds. And so there is a part of that, that belongs to K-SURE, and that's 3.8%. So if we remove that, that brings us to the actual ownership of our treasury stocks. By retiring our treasury stocks in 2022, we have made this mechanism a part of our shareholder return policy. So whether we have that in the plan this year, we cannot discuss that right now. But we are not interested simply in paying out the dividends, but we will actively look into retiring our treasury stocks as well. That's all I can share at the moment. Second is about the Oman project. In June of '23, with the Oman government we entered into an agreement about exclusive land use rights because this green energy generation requires land, appropriate land, suitable land. And so this is what we came into agreement with the Oman government. This land is the size of half of Seoul for solar energy and other renewable energies as well. Exactly how we're going to use this land, what we're going to do here and on what schedule, we are still conducting feasibility study. So we couldn't tell you very much in detail about capacity or operating margin.

I'm with the international trade affairs office. What I want to say about dumping is every country wants to protect their own steel industry. And this is one of the things that they have to fight. To initiate investigation, there has to be an act of dumping. So these are unfair prices that -- volumes that come into a market with unfair prices. So we are examining all of the details, but I can't tell you for sure right now whether we're preparing a case against dumping. We have all the options open right now and examining the situation.

To all people who participated today, I want to thank you. Because of time constraints, I'm afraid we have to close. It would be lovely to get more questions and comments from you, but I'm afraid we'll have to conclude. I would like to conclude the 2023 fourth quarter earnings release conference call. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]