Yahoo Finance POSCO Holdings Inc. (NYSE:PKX) Q1 2024 Earnings Call Transcript
POSCO Holdings Inc. (NYSE:PKX) Q1 2024 Earnings Call Transcript April 29, 2024
POSCO Holdings Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Ki-Seop Jeong: Greetings, everyone. I am CSO of POSCO Holdings. My name is Jeong Ki-Seop. At the General Shareholders Meeting held in March, our shareholders offered approval of the new management team and the Board. POSCO Holdings has defined its new corporate vision as materials for tomorrow, innovation for excellence. To achieve this vision, we have identified seven major initiatives and 30 specific action items that are already under implementation. Before delivering the Q1 earnings report, I'd like to open the meeting with a brief introduction of what investors and shareholders may want to know most, which is what the new CEO and the management team would like to pursue as our strategic way forward. First, in the group's core businesses, namely steel and rechargeable battery materials, we intend to focus our resources and capabilities.
In steelmaking, our aim is to fortify our global competitiveness. Toward that goal, we will take the Lighthouse Factory Certification gained in 2019 on POSCO Smart Factory. Then by applying AI technology, we will take it up another notch to build an intelligent factory. Additionally, by transitioning to an economically viable low-carbon production system, we will acquire unrivaled production and cost competitiveness. In the Battery Materials business, by actively investing in promising assets that have future growth potential, we will have a replete materials value chain with undisputed competence. Second, EV market slowdown is being observed. The industry has gone into an adjustment period, but POSCO Group sees it differently. We believe that this is the right time to acquire native competencies in the battery materials business to get ahead of the race and to own breakthrough technologies.
This is an opportunity for us. We're especially interested currently in the upstream process in gaining promising assets. Recently, we've witnessed sufficient price drop of battery resources, including lithium price. If we can acquire prominent assets today, in the long-term, we believe they will serve as the foundation of growth and profit. Additionally, we intend to act early to get to future markets such as solid-state battery materials. This means we'll develop new R&D-based process technologies in lithium metals and dry recycling. Also, by forging stronger collaboration with our customers, we'll focus on commercialization of next-generation materials. By taking advantage of this market adjustment period, we'll diversify ways such as through M&As to expand our business and market.
However, in recognition of the EV market slowdown, we will make rational decisions to push out some of our investment schedules. Moreover, we'll focus our energy on strong profit businesses. Let me take an example. Considering the slowdown in the supply of EVs and the resulting decline in used batteries, which serve as a source of raw materials, we have made the decision to delay a part of our overseas investments to be made in recycling. For our capacity expansion plan between 2024 and 26, please refer to Slide 5 of the presentation deck. As you are well aware, 2024 is year 1 of lithium production at PASCO Group. Come year-end, we will begin operation of our plants responsible for lithium, nickel and precursors. Once those plants come online, our EV battery value chain, which had gaps here and there, will become replete.
And in 2024, we will begin to see its full shape and the full value chain in action. I give you my word. We'll do our best to keep this schedule. Third and final, as one of the values that this company holds in the highest esteem, we want to enhance shareholder value. Recently, the FSC unveiled the Corporate Value Up program, which has galvanized more attention to asset allocation and shareholder return policies. We have already begun discussions with the Board regarding the implications of the corporate value-up program. And as a result, we'll be taking an active look at ways to enhance our corporate value, including the possibility of retiring our Treasury stocks. I address everyone present at this meeting and remind you that we are confronting challenging business environments.
So, we're making efforts to recover short to midterm profitability by carefully making investment asset allocations. Our goal is to implement an invariable growth strategy aimed at upgrading the company's long-term value. So, let me now give the floor to the Chief of LiB, who will present a more detailed earnings report for the first quarter of '24.
Lee Kyung-seop : Good afternoon. Our CFO, Jeong Ki-Seop shared with you our new corporate vision, and now I'll present the first quarter consolidated earnings of POSCO Holdings. So please refer to Page 6 in your brochure. In Q1 of 2024, revenue decreased 3% Q-o-Q to KRW18.52 trillion, while OP increased 92% to KRW583 billion. This was due to the profit recovery of the steel subsidiary POSCO, and the reversal of inventory impairment losses of the rechargeables battery materials business, which had posted a loss in the previous quarter because of the inventory loss impairment. But as turned back to profit Q1. EBITDA in Q1 was KRW1.54 trillion. CapEx invested was KRW1.8 trillion on a consolidated basis and KRW3,000 billion on a standalone basis.
Net borrowings was up by KRW1.8 trillion from the end of last year to KRW9.86 trillion and our net debt-to-equity ratio still remains low at 16.3%. Next is performance by key businesses. The operating profit in the Steel business fell slightly to KRW339 billion from KRW346 billion of the previous quarter. POSCO's operating profit improved by KRW32 billion Q-o-Q to KRW295 billion but was impacted by lower sales volume at its overseas steel material subsidiary. As for the infrastructure business, it recorded operating profit of KRW340 billion, up KRW48 billion from the previous quarter. In the green future materials, we recorded a loss of KRW169 billion due to KRW130.5 billion inventory impairment loss, factoring in drop in lithium and other mineral prices in the previous quarter.
But due to the reversal of the inventory impairment losses of KRW66 billion in the first quarter, returned profit to about KRW6 billion. Next, I will briefly highlight the key business activities for Q1 of this year. On April 16th, POSCO global Lithium Solutions shipped the first batch of lithium hydroxide base on lithium ore, which was the first of its kind in Korea. After completing the facility in November last year, we began production in March after various tests, and the production volume in the first quarter was 148 tons. Although it was not a huge volume since it's our first time, we believe that we'll be able to produce, including the plant 2 to be completed in June, a total of 43 kilotons of lithium hydroxide after normalizing operations for about a year.
Currently, product certification is in progress at POSCO Future M, and we're discussing certification procedures with two additional battery makers. Meanwhile, as for the products produced, we have signed a sales agreement with Company A in December last year and are currently negotiating sales agreements with three clients. Lithium hydroxide produced by PPLS is a lithium hydroxide that can get IRA tax benefits, so it is expected to contribute to stabilizing the Korean rechargeable battery materials supply chain. Next, we have completed silicon anode active materials downstream facility. POSCO Holdings is constructing a commercial production line of POSCO Silicon Solutions at Young-il Bay Industrial Complex in Pohang with an annual capacity of 550 tons.
We completed the downstream facility first, and the upstream facility will be complete in September and will be ramped up in stages after validating the mass production of the first phase of 550 tons. POSCO Holdings, since the acquisition of POSCO Silicon Solution, has been focusing our group R&D capabilities to maximize product performance and efficiency and productivity gains. The product portfolio has been expanded from one to four products and low-cost, high-quality coating technologies based on steel byproducts have been applied. And as a result, in terms of efficiency capacity, life span and swell, we have been able to secure superior performance compared to the industry average. Currently, research on process technologies that can further improve the productivity of core processing facility is being conducted.
Next, I will elaborate on performance by key areas. Please refer to Page 10. First up is POSCO. POSCO's crude steel output was reduced by 358 kilotons from previous quarter to 8,661 kilotons due to the refurbishment of the po long number 4 blast furnace. However, despite lower crude steel output, product sales decreased 101 kilotons from the previous quarter to 8,229 kilotons due to the utilization of semi-finished industry inventory. Despite the decrease in sales volume, the product sales price increased and sales revenue went up by KRW14.4 billion to KRW9.52 trillion. Carbon steel sales prices increased to KRW1.07 million per ton, up KRW23,000 from KRW984,000 per ton in the fourth quarter. Breaking down the increase, we can see that the unit price hike and FX impact accounted for KRW11,000 per ton, while more sales of higher margin products and other changes in product composition accounted for KRW12,000 per ton.
Operating profit went up by KRW32 billion Q-o-Q to record KRW295 billion. Despite the increase in the raw material costs, after the price increase efforts and the reduction of the onetime cost impact of the collective bargaining agreement reached last December, we could minimize cost impact and recover profits to some degree. The first quarter was particularly volatile for coking coal prices. After rising to $3.38 in early January, the HTC prices began to fall in March and are currently hovering around $240 down about 30% from peak. However, due to the time lag between the raw material purchases and product sales and change in exchange rate, it is expected that the cost of goods sold will not decrease until sometime around third quarter. Page 11.
Overseas sales subsidiaries also continued to be impacted by the weak global market conditions. PT Krakatau in Indonesia in Q1 saw increased processing costs due to steel plate line repair and the raw materials prices also increased 6.6% contracting OP. Maharashtra in India also saw sales price drop due to global steel market downturn, thus reduced roll margin recording lower revenue and OP. However, China's Zhangjiajang Kang SGS [ph], due to the impact of lower raw material prices coming from the oversupply of nickel, it was able to narrow its loss from a very large loss of the previous quarter. Next is POSCO International. Revenue decreased by about 2% Q-o-Q, but OP increased by 24%. The Steel and Major Commodities Trading, profits increased by KRW11 billion due to the expansion of sales of automotive steel plates to the U.S. and Europe's green industries in the Energy business.
Operating profit declined due to lower gas sales and lower recovery of investment costs in gas sales, while operating profit increased due to the cost saving measures like direct import of low-cost LNG in the power generation business. Next is POSCO E&C. Because of lower revenue in the construction division, the overall revenue decreased by approximately 12% Q-o-Q, but profit remained at the same level as previous quarter as lower cost in the plant and infrastructure business due to the base effect of the previous quarter were offset by higher cost in the housing business. Next, POSCO Future M. As you can see on this slide, while the revenue, which had been growing steadily, has now gone down about 1% to KRW1.138 trillion. So, you may think that it is stagnant.
And this was due to actually decline in sales price, and the sales volume is actually growing continuously. As for cathode active materials, the sales price dropped 21% Q-o-Q. But despite all that, the sales volume went up, helping to maintain the revenue at the same level as previous quarter. As for anode active materials, we have expanded shipments to new clients other than Korean battery makers, which resulted in 9% in surge in sales volume with stronger profits. Now this wraps up the earnings presentation of POSCO Holdings. We will now have a Q&A session.
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