Earnings Call Transcript - PKX Q4 2024

Kim Jun-Hyung, Head of Finance and IR Division

Good afternoon. Thank you for joining us for the POSCO Holdings Earnings Call. We will start with a presentation from POSCO Holdings, followed by a Q&A session. We will now commence the 2024 Earnings Call. Hello everyone. I want to start by thanking the investors for their continued support and attention to our business. Thank you. In 2024, we faced various internal and external challenges that affected our business, resulting in consolidated revenue of KRW72.7 trillion and operating profit of KRW2.2 trillion, both of which decreased compared to the previous year. In the steel sector, China's oversupply and a recession in its construction industry led to excess volumes being exported, keeping steel prices in Asia low. We also find our ability to improve mill margins limited. In Energy Materials, the slow growth in the EV market caused essential mineral prices to drop, leading to inventory value impairments that negatively affected our earnings. Notably last year, we successfully completed various EV battery materials plants in Q4, including POSCO Argentina and POSCO Lithium Solution. However, high initial operational costs during the ramp-up of new plants, along with low operation rates during product certification, have resulted in larger shortfalls. Despite the challenges in the steel business cycle in the region, POSCO Group has maintained relatively stable profits thanks to our value-added steel products. We are also making steady progress on our core strategies, including plans for overseas investments and building electric furnaces. In the Energy Materials sector, we have established a system in 2024 that can produce essential minerals like lithium and cathode active materials. This is significant and demonstrates the progress we are making in our business. Given the challenges in the rechargeable battery industry, we will adjust our pace accordingly. However, compared to our competitors, we have robust financials that position us well to seize new opportunities. We will prepare thoroughly and steadily for this. Beginning early last year, POSCO Group initiated a restructuring of low-performing businesses and non-essential assets to improve asset efficiency. We have sold low-profit real estate and simple equity shares, generating KRW662.5 billion in cash, with KRW100 billion allocated for buying back and retiring treasury shares. I want to remind our investors that we are facing increased trade barriers worldwide, while the EV market continues to experience slow growth. The business environment in 2025 is expected to remain challenging. Therefore, we will focus on ensuring strong profits. In Steel, we aim to make clear progress in investments in overseas growth markets and achieving carbon neutrality. By enhancing our facility capacity and efficiency, we will strive to maintain our price competitiveness. In the Energy Materials sector, we plan to proactively seek quality lithium assets in South America and Australia, while aiming to ramp up our new plants ahead of schedule. In the infrastructure business, we will continue investing in Australia and Myanmar to boost our production capacity and expand our domestic LNG terminal space, which will strengthen our energy business foundation. Additionally, we will focus on stabilizing our operations as much as possible. Moreover, by completing our restructuring goals during the year, we will enhance our asset efficiency. The cash generated from this process will support the group's future growth investments. Now, I would like to introduce the leader of our IR department who will provide more details on our 2024 earnings.

Unidentified Company Representative, IR Department Leader

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 72.7 trillion, operating profit of KRW 2.2 trillion. EBITDA for the year was KRW 6.1 trillion, and yearly CapEx amounted to KRW9 trillion, with KRW 1 trillion on a stand-alone basis. Q4 operating profit came in particularly weak at KRW 95 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 a 29% Y-o-Y decrease in profit. As for overseas steel, despite the good performance of the Indian subsidiary, weak performance in Indonesia, Vietnam, and other Southeast Asia subsidiaries led to significant profit decline. 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 be divided into three categories of asset impairment losses. First is the steel business. In Q4, we suspended operations of outdated, low-efficiency assets like Pohang Steelmaking Line 1 and Wire Rod Mill 1, accounting for the impairment losses for these assets. Second, we accounted for the impairment losses of certain aging and low-profit assets of the battery business, including the Gumi Cathode Materials plant and precursor JV in China. Third, as part of our ongoing business restructuring efforts since the beginning of this year, we proactively recognized impairment losses on assets marked for sale. So let me give you an example. Vietnam's Mong Duong coal-fired power plant, which does not align with our ESG policies, is currently being sold. So all of this has been accounted for proactively. As for the operating profit, inventory valuation losses of KRW88.2 billion for the full year had an impact. You can see that the newly commissioned battery material plants in 2024, namely POSCO Pilbara Lithium Solution and Argentina subsidiary, saw significant inventory valuation losses. Now moving on to Page 6. Despite adverse business circumstances, we made some notable progress in 2024. To respond to the formation of economic blocks in steel, we are pursuing a JV upstream investment in India with JSW. Additionally, low carbon steel is progressing, evidenced by investments in electrical furnaces and the initial tapping of the pilot electric smelter facility, which is a milestone in our low carbon technology development. In Energy Materials, we celebrated year one of lithium production by completing hard rock and brine-based lithium plants in Korea and overseas. Initial production has been successful. At year-end, the next generation silicon anode active materials plant also came online. In cathode active materials, we expanded lines for NCA production. In infrastructure, offshore gas field Phase 3 commercial production was launched in Myanmar. At the same time, Phase 4 expansion kicked off construction. In Australia, we added Velocity to the new Senex development project to triple production. Next on Slide 7. Here we offer the latest updates on the Energy Materials business. Our paramount focus at the moment is to stabilize operation at our new plants and to build on associated technology developments. Argentina Phase 1 brine lithium plant was commissioned at the end of last year. Our goal is to complete ramp up by second quarter this year and to acquire battery maker certification by the fourth quarter. Lithium carbonate production is Phase 2 of this project, a project that is shooting for completion by August. POSCO Pilbara Lithium Solution Plant 1 or PPLS Plant 1 has reached full ramp-up as of the second half of 2024. So POSCO Future M and product certifications have been completed and two other battery makers are ramping up their certifications. As a result, in the fourth quarter, we have been negotiating contracts, so we signed a supply agreement with SK ON for 15,000 tons over 3 years and with Future M for 20,000 tons in 2025. With these two contracts alone, we have orders worth 25,000 tons per year, which surpasses the capacity of Plant 1, which stands at 21,500 tons. So again, with just these two orders alone, we exceed the capacity of Plant 1. Besides these two agreements, our search and supply agreements are in negotiations. Plant 2 completed construction at the end of last year, because this plant uses a different process, a separate certification process is underway. We expect certifications to be acquired from POSCO Future M by June and from two other battery makers and CAM manufacturers by September. POSCO HY Clean Metal is our recycling plant, whose operation rate is 95% or above. The recovery ratio is very favorable as well. So with this kind of ramp-up and stabilization, stable operations are helping to shave off losses. Because of this kind of progress and because we completed construction of Plant Phase 2 and the plant in POSCO Argentina, as these plants ramp up and as we prepare for other new plants on a short-term basis, it's difficult to say that we'll be able to shift to profitability anytime soon. But because things are happening without any snags, I believe a medium-term recovery into profitability is very possible. HY Clean Metal will be able to reduce most of its losses by next year. That is our hope and plan. And within the next two years to three years, I believe we'll be able to see a lot of stabilization happening in many of the other plants as well. Recently, we've seen a lot of policy shifts and policy changes in various countries, but because the U.S. policy shift has not become specific, we are going to be focusing on select strengths. So we are strengthening our core competence while reducing less competitive businesses. To offer examples, P&O Chemical shares have been sold off, precursor nickel JV between Future M and YU have been canceled. A decision was made to postpone our JV investment in precursors with CNGR 2. Next is Slide 8 on our restructuring progress. In 2024, POSCO Group dissolved 45 assets, generating KRW662.5 billion. This year, we will liquidate another 61 assets to generate additional cash of KRW1.5 trillion. By turning down low-profit non-operation assets, we intend to focus on improving our asset efficiency. Next, let's delve into the performance of each affiliated company. First Page 9 is POSCO. POSCO's crude steel production for Q4 was slightly down from the previous quarter, standing at a full year of 35.47 million tons. In 2025, the total crude steel output is expected to remain flat or slightly lower because of the number 3 Finex fire and partial refurbishment at Pohang number 2 furnace. Originally, the 3 Finex facility was scheduled for refurbishment in 2026, but due to last year's fire, we decided to accelerate the process aiming for completion by September this year. Selling prices, which saw a slight rebound in Q2 last year, dropped another 5% in Q4 compared to Q3, but the production cost declined even more significantly, leading to a slight recovery in mill margins, quarter-on-quarter. But despite all that, the overall profitability declined because of higher energy costs due to rising power rates and rising labor costs I mentioned before. Now as exchange rate hikes have pushed up import sale prices in Q1 2025, price increases may be possible for certain clients with high dependence on imported steel, but as the depreciation of the Korean won will impact costs with a time lag, cost pressures are also expected to increase. Given this, we're currently at the bottom of the market situation. From a conservative view of things, we believe that an immediate or significant expansion of operating profit in Q1 may be somewhat challenging. However, there are some notable developments including import quotas of countries and several policy shifts in the Chinese steel industry announced last year. We will continue to monitor that and continue to cut costs and enhance our product mix. Now page 12. As for the overseas sale business, despite stable profitability in the Indian subsidiary, the performance in Southeast Asian subsidiaries deteriorated due to intensifying competition from exports of Chinese, Japanese, and Korean filmmakers leading to an overall profit decline. But with aggressive cost-cutting, we are targeting a profitable recovery in 2025. Now POSCO Future M. Revenue declined 22% Y-o-Y, with profits nearing breakeven levels, and the company fell into the red in Q4. While high nickel cathode material sales increased, this offset the sharp decline in mid nickel sales, resulting in only a slight Y-o-Y increase in total cathode material sales. But due to the falling mineral prices, the cathode material revenue fell 30% Y-o-Y. For anode materials, the deferral of FEOC in the U.S. was confirmed in May 2024, leading to sales volume falling below BP and additionally, with artificial graphite mass production starting from last year, fixed costs increased, contributing to operating losses. So in 2025, as we complete the ramp-up with new high nickel clients and move into full-scale mass production and sales, we expect cathode material sales to grow by more than 30% compared to 2024. Now POSCO International, while profits from steel trading declined, steady earnings in the energy sector helped maintain overall operating profit. However, in Q4, the stabilization of natural gas and oil prices led to a drop in S&P, causing a significant Y-o-Y decline in profit. Now POSCO E&C, after maintaining stable operating profit, Q4 turned into a loss due to additional costs, including delayed penalties on the commissioned Malaysia LNG power project. However, we expect profitability to improve in 2025.

Kim Jun-Hyung, Head of Finance and IR Division

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

Park Hyun-Wook, Analyst

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 a 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?

Kim Jun-Hyung, Head of Finance and IR Division

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

Unidentified Company Representative, Head of Marketing

Regarding the industry outlook, regardless of which experts we consult, they don't have clear prospects. There are 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 become 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.

Kim Jun-Hyung, Head of Finance and IR Division

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

Unidentified Company Representative, Head of Finance Office

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, we will focus on the use of raw materials to reduce that amount. And we will try and purchase less expensive raw materials, but squeeze out the same quality, of course. One of the measures in this equation is on the fuel cost as well, reduction of fuel costs. And because maintenance costs are also quite high, these are some of the areas where we can reduce the total volume, and energy costs have been rising significantly. So what we can do here is 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.

Kim Jun-Hyung, Head of Finance and IR Division

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

Yoo Jinnyoung, Head of Finance and Trade

FX impact, let me address this by company. For POSCO, this is going to be a disadvantage. When FX hikes occur, although this is going to increase revenue and sales, most of our raw materials are imported from abroad, which is purchased using dollars, this acts as a disadvantage. But 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 signifies positive impact on revenues and operating income on short-term projects and trading business, 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 a large share of our projects, FX impact is not likely to be significant. In POSCO DX, most of the revenues are generated 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 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 we represent the Korean steel industry, and we are more focused on stabilizing the economy and the market. So we take into consideration many variables before we take action. That is our position. Next is on the electrode rods. So this is something that is as attractive as the rechargeable battery materials business. And there is no domestic manufacturer. So POSCO has both the captive market as well as other markets that demand electrodes. So sales is likely to be very profitable and stable. And needle cokes are things that we produce ourselves, which is a raw material of electrodes. And so we have the full value chain in control. And that is why we have assessed this business and researched this business in great detail and we participated in national projects as well. But we have not initiated the business just yet. The reason being is that there is surplus production in China. And so even in Japan, they are seeing their market share shrink because of Chinese manufacturers. So this requires high temperature that needs to be maintained at a consistent rate. And because of the power demand required in this business, we have not initiated business yet, but something we can definitely jump into as soon as we see a market opportunity. And listing options, we don't have a company incorporated for the purpose of manufacturing electrodes. So I'm not sure if I understood the question correctly. But if this is what you meant, this is something we are considering with Mitsubishi, and we may, if we incorporate, list this company as well. This is something that we will negotiate going forward.

Kim Jun-Hyung, Head of Finance and IR Division

Next question, please.

Operator, Operator

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

Kim Yoon Sang, Analyst

Hello, I'm Kim Yoon Sang from iM Securities. I would like to ask four questions. First question is about one-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. Regarding your business plans for each segment for 2025 and the strategic direction. I would also like to 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 the Trump administration, I'd like to ask a question about the steel or the market in North America. So there'll be 25% additional tariffs on Mexico imposed by the U.S. So of course, we export to 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 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 to 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.

Operator, Operator

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

Kim Jun-Hyung, Head of Finance and IR Division

So as you may well know, the one-off expenses, as it was mentioned in the presentation, 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 that the lithium prices and the steel prices, all of that are not taken into account. 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 a significant increase in profits. So Future M is a different story, but I'm talking about newly established plants or newly established subsidiaries. So overall, speaking, 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 continue, 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.

Unidentified Company Representative, Head of Marketing Strategy

Yes, the 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 tons. So that is not very much. It only represents about 0.01% of overall sales. If you look at the trade relations between Mexico and the U.S., actually the goods that we export to Mexico are 100% coated products. The coated goods from Mexico to the U.S. is about 580,000, and from us to Mexico is 580,000 to the U.S. To Mexico is about 480,000. So you can say that this will provide maybe a better condition for us to send goods to Mexico and sell goods to Mexico. 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 U.S. consumers. So I don't know how much that additional cost will be transferred to the consumer prices, but we believe and expect that there will not be a drastic decrease in sales on our part. Now regarding the upstream project considerations 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.

Kim Jun-Hyung, Head of Finance and IR Division

Next question?

Operator, Operator

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

Lee Tae-Hwan, Analyst

My name is Lee Tae-Hwan. Thank you for giving me this opportunity. Previous people's 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 the 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, yet you are recording losses. At which point will you be able to shift to profitability at POSCO Argentina? Those are my questions.

Operator, Operator

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

Unidentified Company Representative, 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 issues, and so that's where the impairment was. If you ask whether there were specific issues, we want to make sure that these specific issues don't happen and we are making every effort to ensure they don't happen again. But yes, to summarize, this is an issue that came up in one project alone. So this will disappear next year.

Operator, Operator

And on the second question, we will ask Energy Materials Business Department Head.

Unidentified Company Representative, 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 the operation rate is very important. In the lithium business, rather than the plant operation rate, material 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 profitability. I think that's going to be next year. Next question, please.

Operator, Operator

Next question will be from DB Financial Investment.

Unidentified Analyst, Analyst

Can you hear me?

Unidentified Company Representative, Yes

Yes, we do.

Unidentified Analyst, Analyst

I am an analyst 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? 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 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?

Operator, Operator

Now Mr. Business Strategy will give the answer.

Unidentified Company Representative, Business Strategy Analyst

Now I would like to discuss the mid to long-term revenue growth, which can be divided into three categories. The first is steel infrastructure, where we need to complete and commission the ongoing plants to achieve mid-term revenue growth. For instance, the EAC at Kwangyang will be finished in 2026, and CGR in 2027. For infrastructure, we will ramp up Senex E&P, and in the mid-stream, Kwangyang LNG terminals 7 and 8 will ramp up in 2026, all contributing to increased revenue. The second category is energy materials, where we have ongoing plants at our subsidiaries. It's crucial to accelerate the stabilization of our production systems and structures, as well as secure additional new materials and resources for mid-term revenue growth. The third category aligns with our group strategy to promote new businesses for the future, aiming for KRW1 trillion in revenue from these new businesses in the mid-term. Regarding ROIC improvement, our target remains 6% to 9%. As mentioned, we must enhance asset efficiency, which is why we are restructuring underperforming assets. The proceeds will be reinvested into our company's growth. We aim to optimize invested assets. In terms of returns, we plan a cost restructuring of KRW1 trillion in the steel business, enhancing leadership in high-end products to boost competitiveness and profitability. In the energy materials sector, we strive for maximum operational stability to respond effectively to EV demand. We anticipate low single-digit growth in steel and energy materials, with energy projecting a CAGR of over 40%. Concerning ROIC, our investments in secondary materials have yet to yield revenue or profit, potentially affecting asset turnover. However, as Mr. Cheo mentioned, our ROIC will improve with asset turnover and operating profit. The current steel margin is unusual, while secondary battery material investments are expected to shift to profitability in the next two to three years. We are confident in this outlook and sharing these targets with you. Should there be additional price increases, there may be further upside compared to our conservative view on shareholder returns.

Operator, Operator

Next is from DB Bank, Yi Yong Yang.

Unidentified Analyst, Analyst

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. 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? It's surprising to see that you're generating any kind of profit in the business under these market circumstances. 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?

Operator, Operator

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

Unidentified Company Representative, Head of Marketing Department

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 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 of foreign exchange hikes, the costs we incur there are absorbed in customer prices, because we are making products based on raw materials that were purchased with the foreign exchange hikes. We believe the fourth quarter of last year is going to be the lowest point. We think there will be an improvement over the last quarter. Again, we believe that the lowest profit point was hit already 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 and which ones are not. But wire rods are negative and automotive and stainless products are relatively profitable.

Operator, Operator

Next is on POSCO International and Samcheok Power Plant. Let's ask the Infrastructure Business Department Head.

Unidentified Company Representative, Infrastructure Business Department Head

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? I think that was just of your question. It's in operation, but the complete phase construction is not over. So there are some electrical transmission works that need to be completed in the next one or two years. Some of that remains a little bit ambiguous. 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 I understand the question fully. The reason it turned into a deficit in the fourth quarter at POSCO International is, I believe, because of asset impairment involved. I would like to check on this before I respond to you. So Mongduoung power plant in Vietnam, this also enters the POSCO International accounts. So Mongduoung plant in Vietnam and the Hotel in Myanmar, these are some tens of billions 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. We are receiving dividends from this project. And because we have to pay this back, that has been entered into the books, and that's what recorded the deficit. 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.

Operator, Operator

Next question will be from Yu Jin Lee from Yu Jin Securities.

Unidentified Analyst, Analyst

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 plates. 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. If there is an AD filing again regarding steel plates, I think that there could be room for us to increase our prices. I would like to know about the price negotiations ongoing with the shipbuilding sector. I would also like to know there are some bonded areas for the shipbuilding as well that they do not pay taxes. So can you elaborate a bit on that as well?

Unidentified Company Representative, Energy Materials Business Analyst

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 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. 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 China, the profitability is very low. So all three different types show different levels of profitability. 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 would lead to a price increase, but we have to be very sure, because it could also impact the upstream business as well. I think we can look forward to more normalization of the abnormal prices. When it comes to negotiating prices with the shipbuilding sector, I think this could give us an upper hand or more advantage. The shipbuilding sectors or shipbuilding companies did not pay taxes for the bonded areas, so the impact is also minimal as well. Everything is currently very complicated, but the AD filing could and will lead to increased prices. That is for sure.

Kim Jun-Hyung, Head of Finance and IR Division

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.