Ladies and gentlemen, we will now begin the Earnings Call for POSCO Holdings for the First Quarter of 2022. Today's conference call will start with a presentation from the company, followed by a Q&A session with participants. We will now listen to the earnings presentation by POSCO Holdings.

Hello, everyone. I am Chon Jung-Son, Head of the Corporate Strategy team at POSCO Holdings. Today actually marks the first earnings release after we transitioned to a holding company. We look forward to your continued support and interest in POSCO Holdings. As you may well know, on March 2, POSCO Group transitioned to a holding company structure centered on POSCO Holdings. Following this transition, I would like to explain our major businesses, including future green materials and green energy. We have key management from POSCO Holdings and major operating companies joining us today. We at POSCO Holdings will continue to do our best in achieving 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 to mitigate price hikes, including coal due to the Ukraine-Russia crisis, thanks to the rebound of global steel prices, we achieved a strong operating profit margin hovering around 10%. In terms of green infrastructure and green future materials, POSCO Energy, POSCO International, and other major operating subsidiaries saw a greatly improved profit level, allowing our operating profit to exceed KRW 200 billion quarter-on-quarter on a consolidated basis. Regarding our lithium business, one of our seven core businesses, we broke ground on the Phase I production facility with a capacity of 25,000 tons at Hombre Muerto salt-lake in Argentina. We also transitioned our Gwangyang lithium hydroxide production entity to a joint venture with Pilbara of Australia to securely establish lithium concentrate, which is a raw material for lithium production, thereby accelerating production capacity expansion. Looking towards the second quarter, with the ongoing Ukraine-Russia crisis and an economic recession outlook due to the shift to monetary tightening in developed countries, we expect uncertainty to expand compared to the first quarter. For our steel business, given the cost pressure due to raw material price increases, we will manage our pricing policy with agility. In terms of green infrastructure and green future materials, we will closely monitor price fluctuations and key industry trends, such as electric vehicles, to secure profitability through proactive measures. We will certainly do our best to meet market expectations. With that, our Head of Finance team will present the Q1 earnings.

Hello everyone. I am Hag-Dong Kim, Head of Finance team at POSCO Holdings. I would like to begin my earnings briefing by comparing the 2022 first quarter earnings of POSCO Holdings quarter-on-quarter. First, regarding consolidated earnings, the first quarter consolidated operating profit is down quarter-on-quarter by KRW 110 billion, recording KRW 2.258 trillion. Reduced sales and cost increases resulted in lesser profits for the domestic steel business. However, strong profits were recorded overseas by actively responding to local demand, particularly in major operating subsidiaries like POSCO International, POSCO Energy, and POSCO Chemical, which significantly improved profit levels, allowing us to maintain a profit level of KRW 2 trillion. Next, I will detail the business performance by operating subsidiary. Starting with POSCO's standalone performance: Operating subsidiary, POSCO, was newly established on March 2, but to facilitate investor understanding, please note that we have included POSCO's standalone performance prior to spin-off. Crude and product production both decreased quarter-on-quarter due to major facility revamping, including the Gwangyang blast furnace 4. Sales volume decreased by 170,000 tons, reaching 8.454 million tons. The domestic sales ratio went up 1.0 percentage points quarter-on-quarter to 58.7%, while WTP sales ratio decreased by 2.8 percentage points to 30.2%. Regarding POSCO's standalone income and financial structure: For Q1, operating profit declined by KRW 474 billion, recording KRW 1.199 trillion due to dropping sales and a spike in coking coal prices while middle margins tightened. As for POSCO's standalone financial structure, following the vertical spin-off and the transfer of cash balances and equity-based securities to POSCO Holdings, net assets declined as of the spin-off date, March 1. Moving on to business performance of major overseas subsidiaries: Indonesia's PTKP defended profitability to the maximum by expanding domestic sales ratios, despite raw material price hikes and product price declines. In China's Zhangjiagang, operating profit edged down quarter-on-quarter despite price increases, impacted by rising raw material costs due to fluctuations in nickel price and energy costs. India's large POSCO Maharashtra saw both revenue and profit edge up quarter-on-quarter as sales volume and prices rose following auto demand recovery. Vietnam's PY VINA, despite the delayed sales market recovery, experienced improved profits through stronger domestic sales activities and export expansion. Next, we take a look at POSCO International's performance: Thanks to the steel product sales volume increase and raw material price hikes, including coal, steel business revenue increased, thus both revenue and profit increased quarter-on-quarter. As for the energy business, although gas field product prices increased, revenue declined due to a temporary drop in sales volume caused by construction of a new mining lot connecting to the platform. Regarding agro materials, the prolonged Ukraine-Russia crisis negatively impacted performance, resulting in lower revenue. Next, regarding POSCO E&C: POSCO E&C saw increases in new orders quarter-on-quarter, and improved profits in the infrastructure and building business saw operating profit adjust quarter-on-quarter. Although the construction business has entered the offseason, leading to a seasonal revenue decrease, the infrastructure business has seen improved profits due to reduced costs from closed litigation and lowered bad debt expenses. On the building business side, profits increased quarter-on-quarter as cash from completed projects was recognized. Next, turning to POSCO Energy: POSCO Energy has seen robust revenue and profit increases across all businesses, including power generation and LNG terminals. Both profits and revenue in power generation increased due to entering the peak power season and a surge in LNG fuel prices, which led to an increase in sales prices. In the LNG terminals segment, revenue and profit both increased quarter-on-quarter due to growth in terminal-related business, including stable earnings from tank rentals and expanded ship commissioning, both domestically and internationally. Next, we will discuss POSCO Chemical's earnings: POSCO Chemical has also seen improved revenue and profit quarter-on-quarter. The cathode business has witnessed increases in profits and revenue due to higher sales volumes and rising sales prices attributed to the increase in raw material prices. The anode business also saw a rise in sales volumes, contributing to improved revenue quarter-on-quarter. In contrast, refractories and furnace maintenance recorded additional new orders for steel and non-ferrous applications, leading to top-line growth. On the quick-lime and chemical side, growth in revenue has been fueled by increased sales prices. Next, I would like to describe the performance of the seven key businesses, specifically major activities in the first quarter and future plans. For steel, POSCO has launched a carbon-neutral committee and an outside advisory council, as well as an in-house organization dedicated to addressing issues surrounding net zero strategies. Through high pellet operations and lower HMR levels, we achieved our first quarter carbon emissions reduction targets. We will begin reviewing EAS implementation in the second quarter to prepare for future electric furnace implementation in both steel mills. Currently, we are at stage three and stage four construction at Gwangyang to expand production capacity of cathode and anode materials, while also proceeding with the construction of the Sejong number two plant for natural graphite. In April, we broke ground for stage five at Pohang for cathode production and are also reviewing an equity stake investment in a graphite mine in Australia to better diversify our supply chain for secondary battery raw materials. Regarding the lithium business, the construction of saltwater brine ore and recycling plants is proceeding on schedule, with the brine stage one plant in Salar del Hombre Muerto initiating in March for POSCO, Argentina. POSCO Pilbara lithium solution is currently building ore-based plants in Gwangyang, and the HY clean metal recycling plant is slated for completion by the end of this year. With our nickel business, the environmental impact assessment is underway for a new high-purity nickel refining plant transitioning SNNC's ferronickel production for battery use. The recycling plant is targeting completion by the end of this year. In Australia, the nickel maker Ravensthorpe nickel operations refinery for MHP, the nickel intermediate material, aims to break ground in the second quarter. For hydrogen, we are conducting a feasibility study for a major production project involving byproduct blue and green hydrogen both in Korea and abroad, together with surveying opportunities to develop projects in RE abundant areas. We are also pursuing possible investment opportunities with a global water electrolysis company, along with other efforts to secure core technologies in the sector. For energy, we are interested in strengthening our RE business portfolio by pursuing joint development of domestic offshore wind power plants in Trung Nam Province, along with Korea Southeast Power. Going forward, we will participate in the bid for solar power plant production at Incheon Airport and secure the relevant business rates. For construction, we will enhance our PR activities on remodeling business through the Sharp Gallery to book more new orders. We have demonstrated a green building capacity by receiving the zero-energy building certification at Leeds Blues rhythm city community. On the agriculture front, we have secured a base for cotton and wheat production for the farm allocation of the cotton textile production subsidiary in Uzbekistan, continuously reviewing possible investment candidates to expand our value chain for the palm business. To wrap up the business outlook for the remaining year, POSCO Holdings consolidated revenue is expected to be KRW 77.2 trillion, with CapEx planned at KRW 8.9 trillion on a consolidated basis and debt standing at KRW 21.4 trillion. We would like to conclude our earnings presentation for the first quarter of 2022 and will now begin the Q&A session. If you have a question, please follow the instructions of the operator to raise your question.

Now we will start the Q&A session. The first question is from Hyundai Motor, Investment Securities. Mr. Park.

Hello, I am from Hyundai Motor, Investment Securities, Park Chung Kook. I would like to thank you for this wonderful performance and earnings. I have three questions for you. The first question is regarding the steel business. With the raw material hikes, we believe that it is going to be reflected in the cost from the second quarter. Despite good earnings in the first quarter, market consensus expects steel operating profit to decrease in the second quarter. Of course, there are uncertainties, but there should be efforts made. You may know that US and global steel prices are rising. I would like to know if POSCO Holdings is planning to raise product prices in the second quarter to reflect the raw material hikes. Furthermore, there is real demand in the electronics and auto industry, so how do you view the demand outlook? In March, nickel prices soared, and I believe the first quarter profitability of your stainless steel business was impacted. I would like to know what the profit of the stainless steel business of POSCO was in the first quarter. You also increased the capacity for stainless steel, but I think it falls short of covering annual demand. Will there be an increase in capacity or production? Lastly, regarding the subsidiary, POSCO Holdings has high-growth political mobility solutions companies. Do you have any plans to make them subsidiaries of POSCO Holdings to positively impact company valuation? I would like to know if there will be 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, about second quarter profits of the steel business: steel and iron ore profitability is evidently related. Perhaps we can get an answer about that. As for stainless, there was a question about the impact of rising nickel prices. Will any of that be reflected in the second quarter prices scheduled by the POSCO marketing office? Yes, hello. I'm from the POSCO marketing strategy office. You asked many questions, so let me know if I miss any. In the first quarter, due to the Russia-Ukraine crisis and global inflation, coal and nickel prices surged. The disruption in production also impacted supply leading to price increases. Up until February, we signed contracts based on last year's fourth quarter, and we could not reflect all the price hikes. However, from March, we managed to factor those costs in. In the second quarter for the auto sector, we have completed the price surge, and for electronics, we have done this throughout the second quarter. For the three shipbuilding companies, we haven't finalized prices yet, but will do so at reasonable levels. In regards to the stainless steel business, the nickel price has jumped to $100,000, an unprecedented level. We believe we increased it by KRW 500,000 last month and maintained that level this year. The reason is that the real demand hasn't picked up yet. Last month’s spike in nickel price enables us to preserve our profitability next quarter. We anticipate a further price increase, but I cannot provide details. However, we expect the second quarter prices will not show a significant decline compared to the first quarter. Regarding the question about the subsidiaries and their potential for improvement, we transitioned to a holding company to have a fair assessment of enterprise value in the market. Currently, we are thoughtfully considering adjusting the governance and ownership structure to maximize synergy and value. This is an ongoing investigation, and once decisions are made, we will communicate them to the market. We believe that certain businesses could indeed boost the value of the holdings in the future. Moving forward, we will consider all concerns and inquiries in the market.

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, especially in light of improving ties between China and other countries and the supply situation in Europe. Can you tell us about the supply chain and the supply situation? The second question is on the export situation for US and European markets. I understand that the Russian supply has decreased, meaning that the sales volume for POSCO might have increased. Can you elaborate on that given the recent gradual price changes and possibly lower demand perceptions? My third question relates to lithium. I know that in Argentina, you have a commercial plant entering construction, and there are negotiations for a possible 20,000 tons supply. Do you think you can supply upwards of 110k going forward from 2024? Lastly, do you have visibility or guidance on scrap metal usage for last year and this year?

Thank you very much for your questions. The first question regarding raw coal and raw iron supply is best addressed by the Head of the Raw Materials Office. Yes, my name is the Head of the Raw Materials Office. Regarding raw materials, particularly raw steel, Russia's supply accounts for about 14% of the global supply, around 45 million tons. Of this, approximately 10 million tons are net imports by Russia. Considering this, we can estimate an impact of about 30 million tons. For bituminous and PCR coke, there's substantial dependency on Europe. Currently, there's a lot of rebalancing in the market for European and South American steel makers unable to source from Russia, turning to imports from the US, Canada, and China. India and Turkey benefit from access to cheaper Russian supply. In April, Europe issued an import ban on Russian supplies, with an outright ban expected starting in August. This pricing has already been affected in the market, and we believe that by May, Australian supplies will begin entering the market leading to stabilizing prices thereafter. Moving to the second question regarding POSCO's exports to the US and Europe: the prolonged conflict between Ukraine and Russia is expected to positively affect our export opportunities to those regions. The US trade wars, combined with the lifting of tariffs, could lead to supply influxes into the US market and induce a weak pricing environment overall. For the EU, minimal direct exports to Russia from POSCO mean our leverage for EU quotas may increase, enabling us to expand our hot-rolled steel exports. Regarding Argentina's lithium commercial plants: We've broken ground for production capacity of 25,000 tons. The CEO attended the ceremony on March 20 with local municipal government officials. We have received all relevant licenses and permits and are now moving into the engineering phase for construction. We hope to begin full-scale construction by the end of this year. As for production capacity projections, we expect to reach 20,000 tons by 2024 with continued support from local relationships and community engagement. On CO2 emissions reduction and the use of scrap metal in achieving carbon neutrality, currently we utilize about 6.5 million tons, intending to increase as we move towards our goal of carbon neutrality by 2026. We anticipate additional scrap utilization starting around 2030 as hydrogen supply mining is ramped up.

I would like to ask a follow-up question about the price hike. While you mentioned finalizing price increases outside the shipbuilding sector, did the recent increases adequately reflect all costs? And two, regarding steel output cuts in China, how do you project that will affect your operations? Additionally, about POSCO Energy, although power generation profits surged, the government’s reluctance for utility fee hikes raises concerns—could you address that factor? Regarding POSCO Chemical, revenue has decreased quarter-on-quarter; what led to this? Lastly, can you discuss the lithium profitability and potential alignment with the smelting operations?

Regarding your questions about price increases and their sufficiency: the reflection of costs takes about two to three months, thus full impact cannot usually be realized immediately. However, we believe the adjustments have been sufficiently implemented. Additionally, we must account for potential deficits through cost-saving measures. Steel output cuts from China, which we had anticipated, have led to redirection of export volumes toward the EU. While challenges persist from the Ukraine-Russia situation and fluctuating mandates from China, we find opportunities ahead as supply dynamics shift. In terms of POSCO Energy’s profitability, driven by power generation and terminal business, profits were indeed bolstered during peak season thanks to increased SMP and LNG prices. We aim to maintain profitability through prudent management, though some fluctuations in profit can be expected in the second quarter due to seasonal variations. For POSCO Chemical, our operating profit margin saw a decline this quarter primarily driven by increased raw material prices which have not fully rolled out into product prices yet. However, we anticipate recovery as these price hikes are reflected in the longer term. Regarding the lithium business, the profitability aspect relies on securing key agreements for long-term contracts, and we are focused on stabilizing our supply chain through existing operational frameworks. Lastly, regarding our agro business and its synergy with materials—after the holding company transition, the strategy discussions at the board level regarding expanding our agro sector are ongoing. We believe the agricultural trading has good potential, especially in light of food security concerns affecting the market dynamics in Korea. We are considering various operational frameworks, including ways to fortify supply chains and logistics capabilities.

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

Hello, I would like to follow up with a question regarding the cancellation of shares or treasury stock that was mentioned by the Chairman. Can you confirm if there are plans to execute share cancellations in the first half? Additionally, I would like clarification on the difference in consolidated OP performance as observed between Q4 and the recent quarter; is this related to dividend recognition?

The gap in consolidated OP performance arose primarily due to the variations in accounting methods post spin-off on March 1. As for the treasury shares, during our transition to a holding company, we communicated our intent to consider share cancellations before the end of the year, and discussions are ongoing at the board level to fulfill this promise to our shareholders.

Thank you. There are no further questions. I believe that we can wrap up the POSCO Holdings first quarter earnings call. Thank you very much to all investors and analysts for joining us today.