Earnings Transcript for PKX - Q4 Fiscal Year 2022

Operator: Good afternoon, ladies and gentlemen. From now on, we're going to have POSCO Holdings 2022 Earnings Release Conference Call. During the conference call, we will have a presentation by POSCO Holdings, followed by a Q&A session with our participants. [Operator Instructions] From now on, let us begin the presentation of POSCO Holdings.

Jeong Ki-seop: Good afternoon, ladies and gentlemen. I am Jeong Ki-Seop, Chief Strategic Officer at POSCO Holdings. First of all, I would like to extend my deepest gratitude to our investors for your continued to POSCO Holdings. Before I have worked at POSCO International POSCO and as CEO of POSCO Energy before joining POSCO Holdings as the CSO starting from this year. Going forward, I will work hard to hear to your investors' feedback and promote balanced growth between steel and new growth businesses to enhance the real corporate value of POSCO Holdings. And with that introduction, let us now begin today's earnings release call. Today, from POSCO Holdings, we are joined by 9 members of the management overseeing business strategy, finance, steel and secondary battery materials businesses. And from our operating companies, that is from POSCO, POSCO Chemical, POSCO International, we are equally joined by key 9 executives. During the past year, in 2022, the biggest challenge we faced at our POSCO Group was the flood damage due to the Typhoon Hinnamnor due to the flood impact 17 hot-rolling mill lines at Pohang were suspended, which was indeed unprecedented. However, thanks to the efforts of not only our management, but also the private, public, county, local government, partners, and clients' efforts that is a support encouragement from all levels. In 135 days as of January 20, we were able to fully normalize all of our mill operations. Other than such natural disasters, factors such as the global monetary tightening and geopolitical conflicts have led to a dampening of global demand, rising prices of raw materials and supply chain insecurity, which have together led to a substantial decrease in the earnings of POSCO Group as centered especially on our Steel business, particularly beginning in the fourth quarter of last year. Fortunately, however, ever since our transition to a holding company in March of last year, we have transformed our business structure that had formerly depended too heavily on steel and instead have invested and prepared variously for green new materials business so that we can see more growth in those sectors. Through this, we have established a solid foundation by which we can respond to such external uncertainties. As such, we expect that this year will be a year, where we can see visible results from our past investments, such as the first commercial production of lithium. Furthermore, with the merger between POSCO International and POSCO Energy, we believe that we can be more aggressive in pursuing the group's green energy strategies. The business climate for 2023 does not appear to be rosy. However, they say that known risks are no longer risks. We will continue to capture opportunities in the midst of these risks and more to prepare for the future. Lastly, allow me to discuss the dividend payout that has been decided by the Board today. In consideration of our earnings, midterm dividend policy and the payout ratio, the Board has set the dividend at KRW 2,000 per share for the fourth quarter for KRW 12,000 per share for the year 2022. If we include the 3% of share buybacks that we conducted in August, we have thus far executed a total KRW 1.5 trillion in shareholder payout. Going forward, POSCO Holdings will work to promote a good balance between increased corporate value and stable shareholder returns. With that, I would like to turn to Young-Ah Han, Head of the IR team to present the 2022 earnings for POSCO Holdings, and then have a Q&A session where we can entertain your questions.

Young-Ah Han: Hello, everyone. I would like to share with you the 2022 earnings. Last year, POSCO Holdings saw a consolidated revenue of KRW 84.75 trillion, up 11% Y-o-Y, with operating profit down by 47% at KRW 4.85 trillion. This is believed to be due to the flood impact of Pohang steel mills last September, which brought about suspended operation and associated costs, having an impact of some KRW 1.3 trillion on our OP. Added to that was the steel sector's rapid downturn from second half last year, which resulted in KRW 425 billion deficit in OP in Q4. However, the Green Materials businesses centered on secondary battery materials showed Y-o-Y growth in annual revenue and OP up 62% and 27%, respectively, driven by a good performance of the Energy business. The green infra business also saw a 27% increase Y-o-Y. POSCO Holdings since transitioning to a holding company structure last March has made strenuous efforts to promote new growth business and streamline our business portfolio. So if you look on Page 5, so you can see a graph of the CapEx in steel and non-steel business. So we increased our CapEx in non-steel business, primarily secondary battery materials and energy, which amounted to KRW 3.1 trillion. So 47% of total CapEx was allocated to a new growth business. So driven by such investment, the non-steel business profits grew 27% Y-o-Y, reaching up to 35% of the total OP. So the non-steel business has reached up to KRW 69 trillion. Moreover, there is the lithium brine plant in Argentina, SNNC nickel matte plant and POSCO high nickel refinery, which have been constructed. So the secondary battery materials business is conducted as planned. To produce black mass for recycling, we completed the construction and the permit of PLSC, and it began production. And the POSCO HY Clean Metal construction has been completed with permit underway. Once POSCO HY Clean Metal began production, this means that POSCO Holdings will commercially produce for the first time, core materials, including lithium. Our investment goes beyond secondary battery with the merger of POSCO International and Energy. New entity was launched in the bidding of this year, which will drive the energy business. We also have integrated logistics at the group level through restructuring and improved efficiency. Before I go into business performance by major areas, let me share with you 3 major business activities in 2022. So looking at Page 6. First is recovery status or recovery completion of Pohang mills. Our -- I'm sure that many of you were concerned. Our mills operations had been suspended, but have now fully normalized at our 17 mills as of January 20, and there is also #1 plate mill with lower efficiency due to small size of 600,000 tonne capacity. We decided to completely close it down. So we believe that the impact from natural disasters should not occur. That is why we are trying to improve our logistics as well. So the flood impact on our earnings is about KRW 1.34 trillion. That is KRW 904.5 billion in Q4. As mentioned in Q3, there was no additional inventory impairment loss. Recovery costs are estimated to be KRW 288.4 billion. Non-OP loss, including impairment loss and tangible assets, stood at [ KRW 235 million ]. The insurance settlement process is still ongoing. We received partial insurance payments. So this will go on, and we can expect more additional compensations. In Q1, we believe there could be additional recovery costs and its impact on earnings, but the level will be significantly lower than Q4. Now moving on to Page 7. Second is about the completed construction of PLSC and POSCO HY Clean Metal. As you may well know, our company is implementing a used better recycling business. The construction of PLSC in Poland was completed last August. We acquired business permit for waste disposal and treatment at the end of last year, and production has actually begun. And PLSC can produce 8,000 tonnes of black mass per year, and this black mass will be delivered in total quantity to POSCO HY Clean Metal at Gwangyang to be used in the lines. If you look on the right, there is POSCO HY Clean Metal image, and we have built the #1 plant on a land of 60,000 square meters and is currently in the commissioning phase. The CapEx for this plant was KRW 215.2 billion. And lithium, nickel, cobalt, manganese, that is total of 7 materials, can be extracted. So sometime around February this year, we'll obtain the business permits. And if that becomes possible in the second quarter, we'll be able to go for initial production. The produce is goods, we'll additional certification from precursor, cathode, and anode firms, including POSCO Chemical. And as for lithium, we have to get certification from battery makers, and we really want to shorten the certification period as much as possible so that we can start producing certified goods from mid-September and reach normal capacity by the end of this year. And even before certification, the goods can be sold as general materials. And we expect that from Q3, we'll be able to recognize sales, although in small amounts. So once we reach normal capacity, annual sales is expected around KRW 3,300 billion. So now moving on to Page 8. The recycling strategy at POSCO Holdings are 2 tracks. First, with green policies promoting stronger regulations on the use of recycled materials and secondary battery starting from Europe. There is indeed a growing need to develop partnerships for more competitive and stable recycling, and there is also a need to develop this type of partnerships. And as you may well know, we can recycle cell maker scraps and OEMs' used batteries as raw materials and then ultimately transform them into cathode, a precursor materials at POSCO Chemical for resupply. So this allows us to implement a closed loop. And we believe that, that is indeed a competitive edge. And the second recycling strategy is that with IRA in the U.S. and battery passport system in EU. There is a growing localization and demand for a supply chain of secondary battery materials. So building on our recent experience, we will work towards implementing localization by region in the long-run with cell makers and OEM players. On the next page, you can see a brief outline of our recycling process, and there might be some investors who have taken a trip there. If you look at our recycling plants, it consists of pipes totaling 5.7 kilometers in length, along with over 700 tanks, installed row-on-row. Through this, we can ensure a continuous flow of production, meaning that we can expect to see a recovery rate of over 95% for our black mass, nickel and cobalt. The process has also been designed to ensure a recovery rate of 85% of battery-grade lithium. This is quite competitive in our opinion. And for longer-term efficiency, we have also invested in process automation. The chart that you see on the right-hand side shows a process that is still under a development, and it is currently in the R&D stage. It involves an automated pretreatment process that allows for mass production without the need for dismantling and discharging, and it will also have a more simplified downstream process. So you can see that we will continue to invest in R&D and technological development, continue to accumulate our experiences and operate in commercialized plans so that we can see visible progress. Thirdly, on Page 10, you would see that we can now report that the merger of POSCO International and POSCO Energy has been completed as of January. This newly-integrated corporation will consolidate the value chain for all of the energy businesses of POSCO Group, allowing us to execute our green energy strategy in earnest. As the Energy business grows, we believe that this will give us more of a competitive edge as we transition our Steel business to eco-friendly green steel. The market cap of the integrated POSCO International is KRW 4.2 trillion, and this means that the equity stake of POSCO Holdings has increased from 62.9% to 70.7%. Next, allow me to deep dive into the earnings for each sector on Page 12 for POSCO. You will see that production and sales have decreased year-on-year due to the shutdown of the Pohang plant. You will see that the impact to profit was larger than the decrease in production and sales, and the reason for this is due to the product mix. We have repaired the facilities in turn, but we were unable to produce finished products in the fourth quarter and instead had to ship semi-finished products that have a lower unit price and less added value. So if you look at the sales mix on the bottom right, you'll see that the sales of slab increased substantially in the fourth quarter. Whereas the higher-priced STS in plates, which are produced out of our Pohang plants, have seen a decrease in sales. Together with fixed costs, this has impacted our sales mix and therefore impacted our bottom line. Next page. Even without the impact from the flood, the overall weakness in the steel market became more pronounced in 4Q. Sales price of carbon steel peaked in the second quarter, and 4Q sales price declined 13% compared to the third quarter. And on a month-to-month basis, the sales volume for December was the lowest. The combined losses stemming from the flood and from the overall market downturn has led to POSCO going into the red in the fourth quarter, finishing the year with an operating income of KRW 2.295 trillion. For overseas steel subsidiaries, they saw a profit of KRW 474 billion in 2022. But on a quarterly basis, the slow global steel demand edged these subsidiaries to turn to loss as of the fourth quarter. In particular, Indonesia, PT Krakatau and Maharashtra in India saw a further decline in 4Q. However, what's interesting is that our Chinese subsidiary, Zhangjiagang STS; and the Vietnam subsidiary, PY VINA, saw an improvement in the fourth quarter compared to 3Q. Next, moving on to POSCO International. POSCO International saw its highest revenue and profit ever recorded last year. Its 4Q operating profit also grew 21% year-on-year. The Myanmar gas field have performed quite well. I'm sure most of our investors are aware of this. And the Senex Australia subsidiary, which we acquired in April, also returned an operating profit of 21% since our acquisition to contribute to the earnings increase. On the next page, you would see POSCO Energy, which also performed very well. Revenue and operating profit in 2022, increasing 88% and 33%, respectively, benefiting from the rise in LNG prices and the expansion in its LNG sales and connecting business, making use of its own tanks. Going forward, the merger would lead to consolidated earnings, and this means that we'll see KRW 41.6 trillion, and this means that we will see combined earnings together going beyond, surpassing the KRW 1 trillion mark. As for POSCO E&C, they've recorded a profit of KRW 308.6 billion. Its profits have been shrinking due to the downturn in the construction industry and hike in the price, but managed to record a net positive OP for the fourth quarter as well to the tune of KRW 21.8 billion. POSCO E&C is maintaining a stable business by preemptively shoring up cash reserves and downsizing risks. For POSCO Chemical, it saw revenue of KRW 3.3 trillion and OP of KRW 165.9 billion. Last year was meaningful for POSCO Chemical as it was the first year when revenues from our new business, such as cathodes and anodes exceeded those of the existing products such as refractories and quicklime/chemical. Profitability declined in 4Q due to such imbalanced factors, such as the price of lithium inventory and changes in exchange rate as well as the flooding of the Pohang plant, which led to slower sales of refractories and quicklime. In 2023, this year, our revenue target has been set for KRW 86 trillion. Due to our aggressive planned investments into commercialization of the plant's producing materials for rechargeable cells, such as cathodes, anodes, lithium and nickel. Our CapEx is expected to increase to KRW 11 trillion year-on-year. However, within this budget, we will -- although we have this budget set aside, this doesn't mean that they are all slated for execution because our thinking is that we will quickly greenlight those investments that can ensure future growth while downsizing or even delaying the investments that are not as urgent. So we will be selective in pursuing these investments from the perspective of our entire business portfolio. And this will conclude my earnings presentation. Move to Q&A.

Operator: [Operator Instructions] The first question is from Hyundai Motor Investment Securities, Park Hyun-Wook.

Hyun-wook Park: I have 3 questions for you. And first is regarding the steel market conditions. So as of end of December, the global and the Chinese steel prices seem to become more stabilized and rebound. And also, we believe that there will be expectations that the steel market will recover with the property market in China. So as for POSCO Holdings in the first half and the second half of this year, how do you expect the steel market to be? And regarding the coking coal as well as iron ore prices, how do you expect the price range would be for this year? And second question is about lithium. So during the Q3 conference call, you mentioned about lithium, and I would like to know if there have been any updates ever since regarding lithium? And this October, I would like to know if the plants will be completed as planned. And I think the lithium prices, especially from China, has gone down slightly recently. How do you -- what is your outlook for lithium prices this year? And the third question is about EU. There is CBAM that will become effective from 2026, effective from 2026. So how would that impact our business? Of course, the export volume is not that high. But what preparations are you making to respond to CBAM?

Jeong Ki-seop: Yes. First is regarding the steel market Eom Gi-Chen is going to give the answer.

Gi-Chen Eom: I am Head of Marketing Strategy at POSCO, Eom Gi-Chen. So you mentioned about the steel markets in the first half and the second half of this year. So last October, as it was projected by the Steel Association, the demand for this year will increase about 1% to over about 1.8 billion tonnes. So by quarter, in the first half, there will be additional interest hikes in the EU as well as U.S., and the global recessions or the downturn may continue this year. And in terms of steel demand, there is the Ukrainian war, and there's also the supply issues for the auto making. And we believe that, that will serve as a limitation for the demand recovery. However, because of the inflammation (sic) [ inflation ], there are increasing costs and also the raw material prices surge, and that will put actually a burden on the cost. And despite the global downturn, this will actually lead to increase the prices for the steel makers. And in the latter half, there are stimulus packages prepared by different governments. There will -- there is also recovery expected coming from China. So we believe that the steel market is expected to recover in the second half, especially with the herd immunity achieved in China. The Coronavirus risk may be mitigated and addressed. And if the stimulus packages become effective in China, we believe that the recovery will take place from end of Q1 to Q2 to see growing upturn for the steel market. You also asked a question about the property market in China. In 2023, the property market in China will be impacted by the regulation that began in 2021. And following 2022, people expected that there will be a continued downturn in the property market. But the liquidity has been improved or -- in China recently, and there is also the ease of COVID-19 and also stimulus packages becoming effective and valid in China. So we can expect some sort of recovery coming from China. And as you may well know, the Chinese government last October actually announced 16 stimulus packages. And Bloomberg said that, that is one of the most strongest, actually a stimulus package for the property market of China. So we could actually see the renewed commitment or the strong commitment coming from the Chinese government. So if the property market actually goes into recovery, as the government expects, we believe that the steel demand in the property market will also increase as well. Thank you.

Jeong Ki-seop: Next question is about raw materials. I would like to ask [ Seungkwan Oh ], who is the Head of Raw Materials Office at POSCO to answer the question.

Unknown Executive: Hello. I'm [ Seungkwan Oh ], Head of Raw Materials Office at POSCO. You mentioned -- I would like to talk about the iron ore market. Actually, at Q3, it was about $80 recently because of the expectations of reopening in China and stimulus packages in China, and there is also the extreme weather conditions in the Southern hemisphere. So the price went up until $120. We believe that in terms of supply and demand, the iron ore demand will not increase very much this year. There are not many drivers. On the other hand, as for supply of iron ore, there is the recovery of Vale mine in Brazil. So we believe that it will increase about more than 14 million tonnes. And if you look at the comparison of the first half and the second half, in the first half, there is the weather issue in Brazil and Australia and also the expectations of reopening in China. So the prices will remain strong. But in the second -- but thereafter, it's going to slightly go down. And in the second half, the global supply will go up. So we believe that the price will be further stabilized. As for coking coal, so there is the price for generation. And because of weather conditions in Australia, it has gone up to $320. But just like iron ore, we believe that the demand for coking coal will not increase drastically. But as for supply because of extreme weather conditions, it will be very difficult to be normalized in the first half. So the first half, as for the coking coal, we believe that the current situation will last until February and March. And after the Q2, the supply will go up and the price will stabilize. And in the latter half, centering on Australia, the supply will stabilize. So we believe that the price will be also stabilized around $200. But as you may well know, China actually started very importing coking coal from Australia. So we believe that going forward, the price might slightly go up. Thank you.

Jeong Ki-seop: Next on lithium, we would like to ask Lee Kyung-Seop, who is the Chief of the Lithium-ion batteries Materials business.

Lee Kyung-Seop: Hello. My name is Lee Kyung-Seop. As for the lithium business, I don't think that there have been any drastic changes to report. However, the plans that we have reported to our investors in the past have become more concretize. If we take a look at Gwangyang, our plans are going forward as planned, and so we are going to see operations in October. That's the first stage. And we believe that the second stage is going to also proceed as planned up to February of next year. And as for Argentina, we are moving on with the first stage production process of 25,000 tonnes, and civil engineering projects are also seamlessly underway. So until the end of this year, we believe that once the CapEx are all up and that in 2024, we will be able to see completion for brine second stage. We have received green lights at the Board. And so in Gwangyang, for our plans, we have completed incorporation of a new subsidiary of a new entity. And so this means that we are going to continue on its plan with upstream in Argentina and downstream in Gwangyang, and we will break ground. For the lithium market, some people say that lithium prices have gone down in the past. But last year, in November, it's in demand, and lithium securing of inventory went up to about 1,000 and about what was reported to about 72,700 around the Korean Lunar New Year holidays. We believe that there's going to be insufficient supply of lithium and as what Wood Mackenzie has reported last year, at the end of last year in October or so. The forecast is to be about 68,800 and around 60,000 to 70,000 range for 2024 as well. In June, there was a lithium conference held in the U.S., and the industry outlook was that in the mid- to long-term, the prices will fluctuate around the range of 50,000 to about 60,000, give or take, 70,000 or so. Last year, EV sales went up to about 15 million globally. The reported -- so expectations were about 9.3 million. But as you can see that although people say that the EV market outlook is going to go to the downturn, we've seen continued increased sales. Tesla has said that sales have gone down and they are actually slashing the prices of their cars, but this means that other OEMs are selling more easy. So the total overall EV market is continuing to see growth. This means that for secondary sale CapEx investment for POSCO, we will continue to accelerate these investment plans. That is all.

Jeong Ki-seop: So regarding the CBAM, Kim Kyung-Han, Head of International Trade Affairs Office, will give the answer.

Kim Kyung-Han: I'm Kim Kyung-Han from International Trade Affairs Office. So December 13, the -- according to a tripartite agreement, EU actually upgraded on the final version of CBAM. So from October this year, there is going to be a requirement that kicks in for a transitional period. So a transitional period actually does not impose the players to buy the credit, but the exporters actually need to report the emissions to EU governments, and this obligation actually will remain valid until 2025. So from 2023 to 2025, there is no mandatory obligation or requirement for the company. However, this type of [indiscernible] could have an impact on our exports. So the government and the businesses need to collaborate together to actually reduce the burden of reporting. So that is the ongoing efforts. From 2026, we -- regarding the emissions of our experts, we have to buy the credits, emissions credits, trading credits. But this is not a requirement only for the exporters, but also there is the same requirement that actually applies to EU -- EC. So for the -- if we fail to actually reduce the emissions, we have to buy the credit rights. And this actually applies to EU players as well as the exporters, and this will kick in phase by phase until 2034. So the mills as well as steel makers and their efforts to reduce emissions will be the key. And as for POSCO compared to our competitors, we have a competitive edge in terms of reducing CO2 emissions. So given all that, we believe that we'll be able to actually take -- reduce or mitigate those burden of having to reduce emissions in the European markets going forward. Thank you.

Operator: Yes. Moving on to the next question. it's from HI Investment Securities, Mr. [ EJ ] Yoon.

Yoon-sang Kim: I'm Kim Yoon Sang from HI Investment Securities. I have a 2 questions. First is about -- so there is POSCO International and POSCO E&C as well. I would like to know about your business plan for this year. And the second is regarding CapEx. It was also mentioned in the presentation. So we sometimes make -- we can see that the CapEx is going up. But can you actually also share the details of CapEx plans for this year? So based on the profit outlook and CapEx outlook, what is your dividend outlook for this year as well? That will be the additional question. And last but not least...

Jeong Ki-seop: So the last question, can you repeat the last question?

Yoon-sang Kim: There is also -- our company is being actually mentioned as a candidate for the HMA acquisition. What's your view on that?

Jeong Ki-seop: The first is regarding the green infra group and also the POSCO E&C business plans. So regarding that, [ Park Jeong Bin ], who is the Head of green infra business team will give you the answer.

Unknown Executive: So I'm heading the green infra business team. As for POSCO inter on a consolidated basis compared to last year, we expect -- given the consolidated synergy, we have actually seen an upward outlook. So it was about KRW 38 trillion in revenue, and OP is about KRW 900 billion. But compared to that, we see an upward trend of about 10%. So the company with a revenue of KRW 40 trillion. And as for the direction, we're going to make active investments in the green areas. So there is the LNG #2 investment taking place in Gwangyang, and we want to actually drive our business in terms of LNG. So if that actually is realized, we'll be able to leverage the consolidated synergy so that we can expand our business portfolio. And as for POSCO E&C for construction. So you can see that the presales market is not doing very well, and there is an increase of labor cost and material cost. And there is also a risk of apartments not being sold. So compared to last year, we actually downward or down revisited our business plan in terms of revenue as well as OP. So about 10% downward outlook or estimation. But the issue is that in terms of risk management, especially liquidity risk management is very important. So instead of expanding our business, we want to actually better manage our risks. So we develop -- we will develop a contingency plan so that we can actively respond to business-related risk this year. Thank you.

Jeong Ki-seop: And as for CapEx, we would like to turn to Jeong Dae-Hyung Head of Corporate Strategy.

Jeong Dae-Hyung: I'd like to respond to your question. Our CapEx investment trend for this year, as has been mentioned by the Head of IR, is that we are going to substantially increase CapEx budget year-on-year, but we are going to be mindful in adjusting the size of the investments that we actually execute. For the major businesses, we will be very aggressive in pursuing these investments, and we will also execute the investments to make sure that they are done in a timely manner. So in fact, if you look at these different sectors within our group, the CapEx will be focused primarily on those areas that will ensure high growth for the group. If we look at POSCO, first of all, we're going to look at steel plate investment. And the [indiscernible] plant revamping is also something that we are planning. That's in the works. As for chemical, we are going to aggressively pursue investments in cathodes and other different battery-grade materials. For green infrastructure, this is considered a key business. LNG terminals is something that is key for us. So we're going to invest in expanding LNG terminals. And above all, for holdings, we've been talking about the lithium business, but investments into our lithium business is going to be very much a focus for our group. It's going to be a priority area for our group this year. That is all.

Jeong Ki-seop: Next, on dividend. We'd like to turn to our Head of IR.

Young-Ah Han: This year, our adjusted dividend payout is about 26%, so almost close to 30%. We believe that the 3-year midterm dividend payout policy that we began in the early 2000s has been -- come to fruition. At the next Board meeting, we will continue to have these deliberations, and then we can report to you at a later date. However, we can say that growth will lead to push up share price, and we will continue to provide stable returns to our shareholders. Now when we transition to a holding company, we believe that we can maintain a dividend payout of about KRW 10,000. I believe that this is something that we reported to our shareholders, and we believe that we can maintain the current trend. This means that with increased investments, even with our increased CapEx, we will continue to maintain that payout policy. Our net debt is still below 10%. As you know, it's quite low. So this means that our created EBITDA flow can be more than enough to cover our CapEx needs and also the dividend payout. That is all. Thank you.

Jeong Ki-seop: Yes. And lastly, the question on the HMM acquisition. I would like to turn to [ Park Young-Ju ], Head of Strategic Investment.

Unknown Executive: Hello. My name is Park Young-Ju, Head of Strategic Investment. This has been reported in the media about the possible acquisition of HMM, and there's been some news reports made of this. However, considering our midterm business outlook, we don't believe the acquisition of HMM will be a good fit for us. That is why currently POSCO Holdings is not considering acquisition of HMM.

Operator: Next question is from Kim Securities, [ Jerry-Li ].

Unknown Analyst: I am from Kim Securities. I have a few questions. So first of all, China from this year, they said that they want to increase their bargaining power for the steel market iron ore, and the iron ore purchasing volume in China is very large. So if the channels are all integrated, then China, I believe that we can also get more discounts than other countries. So if that becomes the case, then we may have more cost competitiveness compared to like Japan. So I would like to know what's your take on this. Do you have any prepared measures or responses that you have in mind? And regarding the lithium business, we bought the Salt Lake in Argentina. We also bought shares in Pilbara, and we're also making investments in lithium plant in Gwangyang. So from 2022 until now, I would like to know the amount of investments that was made and also how much CapEx or how much money that you're going to spend this year. If you have any specific figures, so please share those statistics with us. And last but not least, if you look at the presentation, you mentioned about the business activities as well as CapEx highlights. And you mentioned about investments in secondary materials business in detail. But when you announce the transitioning to a holding company, you said that the crude production will be about 23 million by 2030. And that was your plan for the crude production, steel production. So I would like to know if the plan is going well as planned.

Jeong Ki-seop: So first is regarding the iron ore purchasing channel integration. So that will be by Mr. Seungkwan Oh.

Unknown Executive: I'm Seungkwan Oh, Head at Raw Materials office. So China [indiscernible] Resources Group, once it was launched, on behalf of the 20 steelmakers when they actually bargain or negotiate for the iron ore, would that actually not be more competitive compared to the Korean steelmakers and Japanese steelmakers. And there are major suppliers that we discussed with. And as for the suppliers, they will abide by the current terms and agreement. And the market share of the 4 measures is over 70%. So we believe that the CMRG's bargaining power will not be very effective. And what they are arguing is that regarding the index price, the China wants to actually trade in yuan and they want to also have the volume-based discounts, but we believe that these conditions cannot be accepted by the 4 majors. And the Chinese steel makers, whether they get their discount, we can actually check that because we actually are involved with the management and operations of the mines that we invest in. So we can actually read the trend. So if we actually identify the fact that the Chinese steelmakers are getting discounts, we can also get similar discounts. So I don't think that will be disadvantaged compared to them. And as for the steel merchants, we believe that this will be like a power struggle between the raw material supplier and steelmakers, but it can also serve as an advantage for store makers because the Chinese steelmakers actually can raise the spot prices individually, but that kind of risk can be reduced in address. So overall, for the steelmakers, that could serve as a positive advantage. And as per our short-term response and mid- to long-term response, we are continuing to get discounts. And we are also expanding our capacity and volume in the mines that we invest in. So we can say that we're not very much as suspended compared to Chinese steelmakers.

Jeong Ki-seop: Next on the second question on lithium, I'd like to ask Lee Kyung-Seop to respond to that question as well.

Lee Kyung-Seop: For the secondary cells, our investment into rechargeable batteries was, as of the end of last year, KRW 1.3 trillion for lithium, recycling KRW 240 billion. This has been executed at the holding company level for lithium. We have acquired the plants in Argentina, and the development about KRW 400 billion. And the second stage, Gwangyang PLS, also saw executed budget. Gwangyang PLS also saw executed budget totaling KRW 1.3 trillion, as I mentioned. And in 2023, for PPLS completion and Argentina first stage and second stage, we expect to see KRW 1.7 trillion additionally. And as for nickel thus far, SNNC CapEx and the Australia R&O [indiscernible] nickel investments. So a combined investment of KRW 620 billion so far this year. We are going to invest in refinement for nickel. And with these acquired investments, we expect to see about KRW 1.3 trillion for nickel alone. And this means that this year, we're going to begin heavily investing in nickel in earnest.

Jeong Ki-seop: Next on overseas steel investment perhaps I could turn to Head of Corporate Strategy, Jeong Dae-Hyung to respond to this question.

Jeong Dae-Hyung: I am Jeong Dae-Hyung, Head of Corporate Strategy. For overseas steel investments, I think that we can see this as a two-trap kind of instruments. There is Indonesia investments where we already have captured upstream and investment into possible green steel future sites. For the first investment, we have seen growth in Indonesia, and we have investment together with [indiscernible]. And we have actually invested in new plants for the first stage, about KRW 300 billion last year, an additional KRW 300 billion this year. And for the second stage, these possible green sites such as India, the U.S. or Australia, for these sites, we are going to explore opportunities for investments and also engage in possible partnerships with investment partners, which are currently underway. And depending on the outcome of these negotiations, we can or might not execute these investments. And this is why we have reserves on hand to possibly greenlight any investments that we feel is necessary.

Operator: Next question is from NH Investment Securities, [indiscernible] Kwang.

Unknown Analyst: I'm [indiscernible] Kwang from NH Investment Securities. I have 3 questions. First is you also mentioned about this before. But recently, as for India, the steel production and lithium recovery is quite noteworthy, and the government also said that they're going to increase about 300 million tonnes. So I would like to know what kind of strategy we have for the Indian market. Can you be more specific about that? And the second question is with the increasing production in India, just like China, there are also some concerns that are coming regarding the Indian market. So how do you view that? And also the HyREX actually import or is actually going up. And if we actually increase the DRI, how much carbon emissions can we reduce coming? And if you look at POSCO, POSCO in the future wants to use actually renewable energy to produce HyREX. That's whatever in the newspapers. So I would like to know the ongoing progress. And last but not least, if you look at our holding basis, the dividend is not very -- the debt is very low, but do you have any additional plans for getting debt, for borrowing, additional borrowing?

Unknown Executive: I am [indiscernible] from the Holding Steel Business Team. As for India, we have the largest in downstream in India, about 1.8 million tonne. And across India, we have 4 processing plants. So downstreaming is 1.8 million tonnes, and the processing center volume is about 1 million tonnes. So when we actually make investments, we look at places where they have supply chains and downstreaming process. And also, we look at the market potential, and we picked and selected India as a promising market. As you may well know, in January 2022, we actually signed an MOU with Adani. And to give you more specifics, in order to do this JV business, there are lots of pending issues, but we're in the process of addressing these issues one by one. And as for India, the Indian government by 2030 wants to increase its actually crude steel production capacity to 300 million under the banner NFP. So they have the strategy. So we, at POSCO, has the core capacity or core ability. So we are selecting potential businesses in India to make a relevant investment.

Jeong Ki-seop: And regarding the CO2 emissions, [indiscernible], who is the Head of Steel Production Technology Strategy Office, will give the answer.

Unknown Executive: So what you asked was about the CO2 reduction plan and the BF-based process, we also have the CO2 reduction plan. And to jump deeper into our plan. And as for FINEX and blast furnace, so we are conducting relevant experience. And also, we are working with the pellet tests. So we have this plan from March until October this year to do different types of experiments and tests. And also, we are trying to expand the application of smart technologies to blast furnace so that we can actually reduce the share of carbon in the existing BF. We're trying to optimize the relevant technologies. And another question was about the HyREX production capacity using new technologies. And in order to transition to low carbon, we are accelerating relevant projects. And as for last year into live, we actually did pre-engineering -- signed a pre-engineering MOU, and the relevant project will be completed by the end of March this year. So once the results come out, we will also comply that with the design of the HyREX and use it as the preliminary data. And we also have like 1 million demonstrating plans planned, and we want to apply this technology to the demonstration plans. And to finalize this technology, we are working with the Institute or Technology Institute to accelerate our R&D. So to accelerate our efforts, we are also considering setting up a team exclusive for HyREX.

Jeong Ki-seop: Yes. On HBI, perhaps I can turn to Suh Ji-Won for the response.

Suh Ji-Won: Hello. I am Suh Ji-Won, Head of our Materials Officer, POSCO for profitable overseas investments for HBI steel. Just briefly, following the big picture carbon neutrality goals, we are moving as planned, HBI project in Western Australia, beginning in February. So we are going to complete our feasibility study by February, which is next month. But before that, in October, we have work together with the Western Australian government, and they have given us permits on a possible site location where we can engage in the investment for the size and the actual scope of the investments. We can share these numbers with you after the FS is conducted. And in the first quarter, we will continue to look at possible investments. Other than the Western Australia project, for the HBI project, we have to have a stable supply of iron ore and the other relevant materials that we need for HBI. So for Middle East and North America and other different regions, we are continuing to engage in pre-feasibility studies with other partners.

Jeong Ki-seop: Then moving on future borrowings of Holdings company, perhaps we can hear from Jeong Dae-Hyung, Head of Corporate Strategy.

Jeong Dae-Hyung: So for our debt, interest-bearing debt, we are -- we have no plans to borrow more money because although our CapEx budget has gone up, we have cash balances that we have on hold. So we do not intend borrow. We believe that our funding is sufficient. Our debt might increase to about KRW 1 trillion more. But with the equity stake share adjustment, with the merger, this is responsible for the slight increase. That is all.

Operator: Our next question comes from DBS Bank, Lee Eun Young.

Eun Young Lee: I wanted to ask about the steel market, your earnings outlook. Because last year, the typhoon and the flooding has led to unexpected decrease in earnings and the fourth quarter earnings were quite bad. In the 3Q earnings you said that there's not going to be additional costs. But in any case, there was a quite significant deficit, quite significant loss in 4Q, much worse than I anticipated. So overall, because of this unexpected loss in the second half of last year, perhaps this year, we can expect to see better performance. What is your view? Because right now, the market outlook is poor. So how do you see the steel market for 2023, particularly for POSCO? So not just POSCO Holdings, but actually POSCO, what is the earnings outlook for POSCO as you see? And I know that somebody else asked this question. But for overseas investment in steel business, we are particularly interested in whether or not you're going to build another BF in Indonesia. Personally, so if you're going to build additional blast furnace in Indonesia, because you're moving into carbon neutrality, perhaps this additional new build in Indonesia might go against your carbon neutrality plan. This means that carbon emissions will increase if you do decide to build the blast furnace in Indonesia. So what are some possible plans on how you're going to invest or if you're going to invest in a possible new blast furnace Indonesia? And if so, how are you going to dampen the impact of carbon emissions? And I think I had another question, but I forgot. That is all.

Jeong Ki-seop: Well, the first question on steel market outlook for POSCO, I'd like to turn to Lee Sang-Geol of POSCO Finance.

Lee Sang-Geol: 2023, our steel business for POSCO, you were asking about profitability, and I'll respond as such. In 2020, when we came up with our business plan, our goal was KRW 4 trillion. But with the flooding right up until August, our OP was about KRW 3.2 trillion. So we were performing quite well. However, we have only seen KRW 800 billion. If we had seen KRW 800 billion operating profit from the month of September to December, we would have met the target, but that was quite unfortunate. And with the presentation materials that you've seen, the flooding has led to repair costs, recovery costs and inventory losses, realized losses leading to about KRW 1.3 trillion in losses that were unexpected. And in 4Q with the market downturn, slow demand, this has led to falling prices, and this meant that we have seen losses of about KRW 400 billion. And so we were under KRW 1.7 million trillion of our target. This year, we understand that the market conditions are still not rosy, but our business plan is set for KRW 3 trillion OP. That is our current target. As of first quarter, the steel market has not completely recovered, so I think that we are still finding the bottom. The things were much better than the fourth quarter. But in the first quarter of this year, the stainless steel FAT1 and the beta steel plant, the repair cost continue on from January. It's still going to be reflected in our finances. So this means that in the first quarter, we don't think that we might be able to meet fully your expectations in terms of the recovery process. However, beginning in 2Q, we will turn around, and we are going to work to the best of our ability to meet our target. And to that end, our company has announced an emergency business operation plan. All the executives and all of our employees are working very hard to meet our goal.

Jeong Ki-seop: Next question was about Indonesia and investment there. So Eom Gi-Chen, Head of Marketing Strategy Office, please go ahead. And the carbon reduction efforts about Indonesia, that will be by [indiscernible], Head of Environmental Planning Office. We're going to give the answer together.

Gi-Chen Eom: Hello. I'm Head of Marketing Strategy Office. I think analyst Eun Young is very much interested in Indonesia. And as you may well know, actually, last year, our partner is a state-owned company. So there was a slight delay in terms of decision-making, and our 10 million-tonne project may -- and actually are adding about 3 million. It's actually doing well, and we are also thinking about CR. And we believe that -- and you also mentioned about carbon neutrality. But as for Indonesia, still it's excluded from the net-zero initiative. So about adding 3 million to 4 million, we are actually working with our BF partners. And as -- we are also looking at other options like green options, including electric arc furnace.

Jeong Ki-seop: So [indiscernible], Head of Environmental Planning Office is going to answer about carbon neutrality.

Unknown Executive: I think that everybody said it all about net zero. I don't think I have anything to add. If you have additional questions, please let me know.

Unknown Analyst: Actually, so I have a better understanding, so I think that your investment in Indonesia is in the existing blast furnace. What I'm concerned about is that if you make actually additional investments in here that will drive up carbon emissions. So that would have an impact on the overall road map to net-zero. So that was one of the concerns I wanted to raise. So I wanted to know if you have any plans to address or mitigate these risks. If you have some, please share with us. And the last question, I just remembered, is that all of these facilities are insured. So you mentioned about receiving about KRW 30 billion of insurance before. So how is this accounted for in the books? And how much additional compensation from insurance are you expecting in the future?

Jeong Ki-seop: Regarding insurance payments, I think that Lee Sang Gyu, Head of Finance team or office is going to answer.

Lee Sang-Geol: In December 2022, regarding the flood damage, we received about KRW 234 billion in insurance payments. So to give you the background of the rationale, actually, our -- we have personnel who is dispatched from the insurance company. So the team actually assesses the level of damage, and we believe that the insurance payment that we could get is up to KRW 460 billion. So we received 50% of that was reported. And in 2022, it was actually recognized as a non-operating profit. And based on our estimates out of the recovery cost, we believe that the 70% of that will be covered by the insurance. That's how we look and estimate. So according to our estimation in -- during this year, we believe that we'll be able to get more compensation compared to last year. But how we'll calculate the insurance payments and the level of payment, level of compensation and all of how we do that at the insurance company and our company are different. So we believe that we'll be able to get back to with more details in the latter half of this year. But one thing that we can say is that we'll be able to get more compensation this year compared to last year.

Jeong Ki-seop: Regarding the net zero road map, we'll get back to you, Ms. Lee, for more details. Because of limited time, we cannot share with you everything today. We ask for your understanding. So for the interest of time, we're going to entertain one last question.

Operator: There is no one. Requesting to take the floor. [Operator Instructions]

Jeong Ki-seop: Thank you, everyone, for joining us for today's conference call. We will reflect all of your feedback and questions to better our company. So this wraps up the POSCO Holdings 2022 earnings release conference call. Thank you very much.