Good afternoon. Thank you for joining us at POSCO Holdings Earnings Call. We will have a presentation from POSCO Holdings followed by a Q&A session with the participants. [Operator Instructions] We will now begin the POSCO Holdings 2024 Earnings Call. Greetings, everyone. I'm the Head of Finance and IR Division at POSCO Holdings. My name is Kim Jun-Hyung. I'd like to begin by expressing my profound gratitude to the investors who offer unwavering attention and support to our business. Thank you. In 2024, various internal and external challenges impacted our business, resulting in consolidated account revenue of KRW72.7 trillion and operating profit of KRW2.2 trillion both of which declined against the previous year. In steel, China's oversupply and its construction industry in a recession pushed the excess volume to exports, causing steel price in Asia to remain suppressed. We also feel limited in our ability to improve mill margin. In Energy Materials, given the slow EV market growth rate, essential minerals prices have tumbled. This led to inventory value impairment that have adversely impacted our earnings performance. Especially notable last year has been the successful completion of Q4 -- in Q4 of various EV battery materials plants, including POSCO Argentina, [PPOS] (ph) and POSCO Lithium Solution. However, high initial operation costs during the ramp up stage of new plants on top of inevitably low plant operation rate during product certification have led to larger shortfalls. Despite these steel business cycle headwinds in the region based on our value add steel products, POSCO Group has been able to maintain relatively stable profits. In addition, we are making steady progress on our core strategies such as in our plans to invest in abroad and to build electric furnaces. In the Energy Materials business, we were successful in building a system within 2024…

Good afternoon. I will now present the 2024 yearly and fourth quarter earnings. Please refer to Page 4. As for the yearly revenue, recorded KRW 72.7trillion, operating profit of KRW2.2 trillion. EBITDA for the year was KRW6.1 trillion and yearly CapEx amounted to KRW9 trillion, with KRW1 trillion on a stand-alone basis. Q4 operating profit came in particularly weak at KRW95 billion. Amidst the ongoing market downturn in both steel and battery materials, new secondary battery plants were commissioned in many numbers with initial operation costs accounted for and there were also one-off cost increases in the steel business including labor costs that were reflecting the December wage negotiation results. So if you look at the business segments, still operating profit declined 35% Y-o-Y, POSCO’s OP margin dropped by 3.9% with 29% Y-o-Y decrease in profit. As for overseas steel, despite the good performance of the Indian subsidiary due to weak performance in Indonesia, Vietnam and other Southeast Asia subsidiaries, profit decline was significant. As for Energy Materials, the business recorded KRW278 billion losses with the deficit widening further. POSCO Future M fell into the red in Q4, mainly due to high initial costs at newly commissioned plants. Now infrastructure. Operating profit declined 14% Y-o-Y. This was because as POSCO E&C completed large scale plant projects both domestically in Samcheok and overseas in Malaysia, additional costs were accounted for. Now if you look at the performance in Q4, return to a net loss of KRW703 billion. This was primarily because in the fourth quarter alone, KRW1.3 trillion in non-cash expenses including asset impairment losses were accounted for. Let me elaborate further on the next page. Now looking at the non-operating losses, we recognized asset impairment losses of KRW1 trillion in Q4 and KRW1.2 trillion for the full year. These can…

Let us begin the Q&A. [Operator Instructions] The first question comes from Hyundai Motors Insurance, Mr. Park.

Hello. My name is Park Hyun-Wook. Thank you very much for the opportunity to ask this question. I have three questions. The first is about the steel industry market situation. Because of the real estate market slowdown in China as well as, the inauguration of Trump 2.0, there are many uncertainties. So how does POSCO Group see the market this year? In addition, Chairman, Chang in his New Year's address promised innovation in price competitiveness. So how will this happen? In what area of your steel business? I'd like some elaboration on the approach as well as the areas in which the innovation will occur. And there's been foreign exchange rate hike and POSCO and POSCO Group are likely to either benefit or be disadvantaged from the FX hike. So I would like to know in detail how this will break down across the group. And on steel products, hot rolled coil products as well. There are some countervailing taxes and tariffs that are being imposed. So how will POSCO Group react to this? And in specific for electrodes, there's a lot to be gained in this market. So how do you intend to advance in this market? Will you be maybe spinning off this business or will you be absorbing that in your existing business structure?

So I'd like to ask Mr. [indiscernible], Head of Marketing at POSCO to answer that first question.

Regarding the industry outlook, market outlook, regardless of which experts we consult, they don't have a clear prospects. There is a lot of uncertainties regarding the Trump administration. So they all agree that there will be a weak hold on the current status in the market. What's the policies of the Trump administration becomes more clear and once we can find some stability in the market, we'll be able to say more. But for now, we are just monitoring this situation. But one thing that we are assessing is the fact that the fuel market is so slow is because of China. And because of the consumer trade-in policy that has been promoted by the Chinese government, this is one of their stimulus policies. There are various financial measures and easing of financial measures that the Chinese government is releasing. And I think this is going to have a positive impact on the steel industry, at least we hope. As the market tightens, regulations in China are also becoming stronger. And so due to these stimulus packages, as well as strengthening of its market, we hope that the market will recover a little bit in the second half of this year.

And the next question will be answered by Mr. [indiscernible], Head of Finance Office at POSCO.

So let me talk about how we intend to innovate price competitiveness. In our assessment, there are a lot of fixed costs in our production cost, and that takes a big part of our cost structure. From 2024 we have been making significant efforts to reduce this fixed cost. So this is what we've been focused on. As for specific measures, first of all, we will focus on the use of raw materials to reduce that amount. And we will try and purchase less expenses, raw materials, but squeeze out the same quality, of course. And one of the measures in this equation is on the fuel cost as well, reduction of fuel costs. And because maintenance cost is also quite high. These are some of the areas where we can try to reduce the total volume and energy costs have been rising significantly. So what we can do here is to enhance efficiency. That means enhancing facility efficiency. So this is what we are also focused on. And although this may not be production cost per se, there's also sales costs. So the raw materials costs that have increased. We want to be able to absorb some of that in the sales cost. And so we have created projects to focus on these specific items, and once all of these different pieces come together, we hope to be able to have something that is more systematic in terms of how we approach the cutting of production costs. So this is what we are engaged in and what we name cost innovation, and we are still exploring new ways to cut costs.

Next is about FX. And we'd like to ask Jinnyoung Yoo, Head of Finance and Trade to answer this question.

FX impact, let me address this by company. For POSCO, this is going to be a disadvantage. When FX hikes because -- although this is going to increase revenue and sales, because the import most of our raw materials from abroad, which is purchased using dollars, this acts as a disadvantage. But to state this off to offset this impact, we want to focus on value-added products so that we can improve the cost structure. So the impact of FX for POSCO, we want to be able to absorb this as much as possible through value-added products that will include HR products, as well as other premium products. Next, for POSCO International. High FX signified positive impact on revenues and operating income on short-term projects and trading business, export margins will expand, while profits will rise in energy, specifically in Myanmar Gas Field and LNG Power businesses. However, excessive cost hikes in steel and chemical products can lead to shrinking exports and sales as well. Hence, we must react with agility to the changing market environment. In POSCO E&C because domestic construction business comprises of a large share of our projects, FX impact is not likely to be significant. In POSCO DX, most of the revenues generate from domestic industries. So adequate margins are guaranteed in DX projects. Therefore, impact is not likely to be huge. In POSCO Argentina and POSCO Future M, because most of the volume is dedicated to exports, FX hikes are likely to have a positive impact on revenue and sales. Next is on trade affairs. So additional trade [remedies] (ph) are not being evaluated, but we are monitoring unfair trade practices for any low cost products that are flooding our markets and not playing by the rules, we will definitely consider invoking trade remedies. But…

Next question, please.

Next question will be from Kim Yoon Sang of iM Securities.

Hello, I'm Kim Yoon Sang from iM Securities. I would like to ask four questions. First question is about on-off losses. I would like to know if there could be additional one-off losses in the future, especially this year. You have a lot of restructuring goals, so you have cash coming in, but it is highly likely I would like to know if there is an additional accounting for the losses in your books. And regard you -- I would like to know about your business plans for each segment for 2025 as for the strategic direction. And I would like to also know about the strategic direction for the secondary battery materials and also bio materials, including the EBITDA margin? Will there be any changes with regards to that? And the third question is regarding CapEx for 2025. So there is the steel and also the secondary materials CapEx. Do you have any guidance on that? And when it comes to the EV market, there are a lot of volatility. So I would like to know if you have any guideline with regards to the capacity expansion for the secondary battery materials? Will there be any strategic direction changes occurring for 2025? And the last question is with the inauguration of Trump administration, I'd like to ask a question about the steel or the market in the North America. So there'll be 25% additional tariffs on Mexico imposed by the U. S. So of course, we export to ex-Mexico, but some of that is also exported to the U.S. As well. So I would like to know what kind of impact all of these tariffs would have on POSCO. And with regards to the upstreaming in the U.S., I heard that you have some plans for that. So I would like to know any update on the progress of the upstreaming business penetration in the U.S. With regards of course, there will be some advantages in terms of localization, but there are also ramp ups going up in the Americas as well and this could pose as a concern for you. So I would like to know if you have any updates on that matter.

Now regarding the one-off expenses. Mr. Kim Jun-Hyung, Head of Finance will give the answer.

So as you may well know, the one off expenses as it was mentioned in the presentation as well, regarding the asset impairment losses, there are about KRW1.2 trillion and about the asset valuation losses, KRW89 billion. So I think the question was whether we will have additional one-off expenses in the future. So there is a possibility subject to market conditions as well as the restructuring, but we believe that the impairment losses that should be accounted for have not been identified as of now. Regarding question number two and three, regarding the business plan, as well as the operating profit guidelines, we do not yet have the approval of the Board. So we cannot share everything. But the basic direction is that in 2025, the operating profit will be slightly better than 2024. So slightly better, this means is that the lithium prices and the steel prices, all of that are not taken into account. So -- and we do not take into account any specific anti-dumping issues. So even though the current market situation holds, we expect that we'll be able to achieve a slightly higher OP. But as for the Energy Materials business, as it was mentioned before, the new plants were established last year and commissioned this year. And we do not believe that there's going to be significant increase in profits. So Future M is a different story, but I'm talking about the newly established plants or newly established subsidiary. So overall speaking, so in 2025, the operating profit will be better than 2024, but we do not expect a significant expansion of the profits. As for the CapEx, last year we spent KRW9 trillion. We believe that CapEx will be reduced slightly this year, because the secondary materials CapEx will also be smaller than last year, but it will not be that big of a reduction because there is going to be continued investment in lithium. So – but the CapEx will be slightly lower than last year and we will continue to execute the CapEx. Now regarding the investment, I would like to add some comments. So the group's perspective is that as for the new business investment, including the secondary materials will be continued, but we will select and focus in order to improve the quality of our investments. Now there was a question about the steel market in North America. So Mr. Hung, our Head of the Marketing Strategy will give the answer.

Yes, [2025] (ph) tariffs imposed on Mexican products or products that are exported through Mexico will be implemented, but I think that we have to continue to closely monitor the developments. So there are products that go through Mexico to the U. S. About 100,000 ton. So that is not very much. It only represents about 0.01% of the sales -- overall sales. And Mexico and the U.S., if you look at their trade relations, actually the goods that we export to Mexico are 100% coated products, coated goods. And the coated goods from Mexico to U.S. is about 580,000 actually from us to Mexico is from -- 580,000 to from Mexico to U. S. To U.S. To Mexico, 480,000. So you can say that within -- it will provide maybe a better condition for us to send goods to Mexico and sell goods to Mexico. And in the worst of all cases, there could be the end product or end vehicles that are sent from Mexico to the U.S. There are about 250,000 vehicles that are concerned. And of course that could lead to increased consumer prices for the U.S. Consumers. So I don't know how much that additional cost will be transferred to the consumer prices, but we believe and we expect that there will not be a drastic decrease of sales on our part. Now regarding the upstream project consideration in the U.S., as you said in your presentation, yes, there will be high additional investment costs involved and the volatility is high. So we're currently looking into many different options. Thank you. Next question?

Next is from Daishin Securities, Mr. Lee Tae-Hwan. Please ask your question.

My name is Lee Tae-Hwan. Thank you for giving me this opportunity. Previous people asked questions have satisfied some of my desires as well. So I'll ask one more. How's the future end turn to red ink in fourth quarter? And looking into the specifics, we can see certain areas that suffered more than others. So in adjusting the production cost, was this already accounted for or did this hit a certain aspect of the project? In POSCO Argentina, you started recording some revenues and you are recording losses. At which point will you be able to shift to black ink at POSCO Argentina? Those are my questions.

For this question, I'd like to ask Mr. [indiscernible], Infrastructure Business Department Lead.

At POSCO E&C, the deficits are more ascribable to the plant projects rather than building construction. In construction, it was not significantly impacted. In adjusting the prices, were you able to account for these changes? Or was this after the fact? I think that was the question. In plant projects, the Malaysia LNG power plant construction suffered from LD issue, and so that's where the impairment was. So if you ask were there specific issues, we want to make sure that these specific issues don't happen and we are making every effort to make sure that they don't happen again. But yes, let me summarize. This is an issue that came up in one project alone. So this will disappear next year.

And on the second question, we will ask [indiscernible], Head of Energy Materials Business Department.

The plant has to operate first before we can generate some profits. When we look at our investments, HY Clean Metal has hit about 90% operation rate. And so based on cash cost, we believe that they will turn a profit this year. So operation rate is very important. In the lithium business rather than the plant operation rate, materials cost is more important. At the current materials cost, no company will be able to turn a profit. Even the miners in Australia are suffering from large deficits. So the prices have to come up first and plant operation at POSCO Argentina has to be 80% or higher before we can start hitting, black ink. So I think that's going to be next year. Next question please.

Next question will be from [indiscernible] DB Financial Investment.

Can you hear me?

Yes, we do.

I am [indiscernible] from DB Financial Investment. So I would like to ask a question about the shareholder return that you presented in December. So the ROIC as well as revenue growth targets were mentioned during the presentation. As for the revenue target, I would like to know what will be the contribution by each business segment to achieve that goal? And regarding the ROIC, I think the ROIC is the key. So you are now currently restructuring the underperforming assets. But not only that, each business division should also see improved profitability. So when it comes to the steel, you mentioned about some innovative cost restructuring. And as for the electric furnace, when that comes alive, there could be limitations and I think that we have to see more improved profitability from other business segments. So can you give us the overall picture of how you're going to meet the ROIC target?

Now Mr. [indiscernible] of the Business Strategy will give the answer.

Now I would like to give you the mid to long-term or mid-term for the revenue growth. It could be divided into three. So first is the steel infrastructure. So now we have to complete and commission the ongoing on plants and to seek mid-term revenue growth by doing so. So for example, as for steel, the EAC at Kwangyang will be completed in 2026 and CGR in 2027. As for the infrastructure, the Senex E&P, we will ramp up. And in the mid-stream, the Kwangyang LNG terminal number 7 and 8 will go through a ramp up in 2026. So all of these will contribute to increased revenue. And the second category is the energy materials. So there is the ongoing plants at our subsidiaries that was mentioned. So we will continue with the ramp up. So it is very important to accelerate the stabilization of the production system and the structure. We have to secure additional new materials and new resources so that we can drive revenue at the mid-term level. Now third, category is aligned with our group strategy to promote new businesses for the future. So in the mid-level – mid-term level, we are going to achieve KRW1 trillion revenue in these new businesses. Now the second question was regarding the ROIC improvement. We said that our target was 6% to 9%, during our value update. And as you mentioned in your presentation, yes, we have to improve the efficiency of our assets and that is why we are rebalancing or restructuring underperforming assets. But with the proceeds, we will reinvest them into the growth of our company or group. So as for the invested assets, we want to optimize that. And when it comes to the returns, we can see two factors. First of all,…

Next is from [DB Bank, Yi Yong Yang] (ph).

Thank you. I have a slightly different question in mind. First, POSCO International and Samcheok coal fired power plants. The Samcheok plant perhaps went into operation last year or perhaps it was imminent. In any case, it's about ready to begin operation. So what kind of impact does it have on the operating profit and on your overall performance? And I know that, POSCO Group reduced its equity shares in this power plant. So what is your strategy on this project? I know that a lot of CapEx was expended on this project. And are there any impairments that have hit the books on this project? If they haven't hit your books yet, should we anticipate any losses or impairments that will hit your books in the future? What are some of the impacts that we should anticipate in the future? And the steel market is very challenging. I am very surprised that POSCO was able to turn a profit. But from a short-term perspective, for example, in the first quarter that you were expecting some improvements in cost structure that will turn a profit as well. So can we expect an improvement over the previous quarter? So what are some of the short-term profit expectations? It's surprising to see that you're generating any kind of profit in the business under these market circumstances. And in the fourth quarter, I know that you elaborated on this already. POSCO International generated an operating profit, but why did it turn into a loss in the fourth quarter? And among the steel products, what are some of the products that are generating negative profits in your steel products that is?

First, on the second question about the steel market situation, we will ask [indiscernible], Head of the Marketing Department at POSCO Marketing Office, sorry.

So the steel market situation, everybody knows that it's not bright. But compared to our competition, yes, we have made some performance. The reason being because of the downstream process facilities that have been able to generate some profit. I think they've served as a main axis. It is in the automotive industry. And because there we have a lot of formula agreements, formula based agreements that is how we've turned a profit, but we are negotiating these contracts renegotiating these contracts. In the domestic market as well, for our domestic customers, because foreign exchange hikes the cost that we incur there is absorbed in customer prices, because we are making products based on raw materials that were purchased with the foreign exchange hikes, we believe that, profit wise, the fourth quarter of last year is going to be the lowest point. And that's why we think there will be an improvement over the last quarter. Again, we believe that the lowest profit point was hit already last -- in the last quarter. I think there is another question. Are there any products that are generating negative profits? It is quite variable by product, so it's difficult to pinpoint, which ones are profitable, which ones are not. But wire rods are negative and automotive and stainless products are relatively profitable. Next is on POSCO International and Samcheok Power Plant. Let's ask Mr. [indiscernible], Infrastructure Business Department Head.

I will respond to that question. Samcheok Power Plant has completed construction. It is in operation. It is not in deficit. However, the cost that went into building this plant is in the books. So how is this going to impact the overall group performance and how will it be improved in the future? I think that was just of your question. It's in operation, but the complete phase construction is not over. So there are some electricals and electrical transmission works that need to be completed in the next one or two years. And some of that remains a little bit ambiguous. So it is difficult to speak about the future of this project. But from a carbon neutrality perspective and to align with our carbon net zero strategy, we intend to reduce our shares further in this project. POSCO International's fourth quarter performance, I'm not sure that I understand the question fully. The reason it turned -- recorded a deficit in the fourth quarter at POSCO International is, I believe, because there was asset impairment involved. I would like to check on this before I respond to you. So Mongduoung power plant in Vietnam, this is also this also enters the POSCO International accounts. So Mongduoung plant in Vietnam and the Hotel in Myanmar, these are some tens of billions of one that hit the books and were recognized in the accounts. I think if I can elaborate on the Mongduoung project, we agreed to sell this in 2021, but we are awaiting government approval on this sale. And we are receiving dividends on this project. And because we have to pay this back, that has been entered into the books and that's what recorded the deficit. And on the Samcheok coal fired power plant, we have no official statement to give at the moment. But based on some of the recent progress that we've made on coal fired power plants, what is our group's position and our stance, I think that has been very clear. So that's why we'll take the next question now.

Next question will be from [Yu Jin Lee from Yu Jin Securities] (ph).

I'm Yu Jin Lee from Yu Jin Securities. I have three questions. Last year -- at the end of last year, China said that it's going to impose -- import quota on the U.S. regarding the battery. And after the Lithium Project #1, I know that it's also in partnership with China. So I would like to know how things are going to evolve in the future regarding this matter? And the second is regarding the electric steel plate import. So as for India as well as China, they are manufacturing a lot of electric steel plate. I know that they are very good, but I would like to know if that would have an impact on our profitability. And the third is regarding the steel plates. So if there is an AD filing again regarding steel plates, I think that there could be a room for us to increase our prices. I would like to know about the price negotiations ongoing with the shipbuilding sector. And I would like to -- I also know that there are some bonded areas for the shipbuilding as well that they do not pay taxes. So can you elaborate a little bit on that as well? Regarding the battery materials, so Mr. [Lee Jae Yong] (ph) from the Energy Materials business is going to give the answer. And regarding the second and the third, Mr. Hong from Marketing Strategy will give the answer.

So regarding lithium, China is not really the main player with regards to lithium going to the U. S. Because there is Chile and Argentina that are sufficiently meeting the demand of the U.S. So when it comes to the lithium and export control on lithium, it is not the impact is going to be minimal. But what is important is nickel and graphite. Are we going to regulate only the companies that are based in China or Chinese companies? It's very much a different story. For example, if China actually regulates the companies that are abroad, the nickel companies and the anode companies cannot export, so that could be a problem. But regarding this matter, the [AOC] (ph) regulations are not fully defined yet, so I think that it is too early to make any assumptions. Regarding the electric plates, steel plate operating profit, there are different types of electric plates. So there is a dual product that goes into transmitters, or converters, but there is also another type that is used for the EV vehicles. So compared to other carbon sales, they show higher profitability. But the thing is that when it comes to anode product, if we cannot only use it for the EVs or the vehicles. So as for the other types because of the oversupply from the China, the profitability is very low. So all of these three different types show different levels of profitability. And when it comes to the AD complaint filed for steel plate, can we increase the prices? We believe that the prices can be increased naturally. And of course, the AD filing naturally the price increase is not something that we should not we should be very sure of, because it could have also an impact on the upstream business as well. So I think that we can look forward to more normalization of the abnormal prices. And when it comes to negotiating prices with the shipbuilding sector, I think that this could give us an upper hand or more advantage. But as the shipbuilding sectors or shipbuilding companies did not pay taxes for the bonded areas, so the impact is also minimal as well. So everything is currently very much complicated, but the AD filing could I think will lead to increased prices. That is for sure.

Yes, are there any additional questions? If there are no further questions. I'd like to thank all the investors for participating today. And with this, I'd like to close the 2024 POSCO Holdings earnings call. Thank you.