POSCO HOLDINGS INC. Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022; filed April 28, 2023. The filing presents consolidated IFRS financial statements for POSCO HOLDINGS INC. and subsidiaries. The company completed its conversion to a holding company through the March 2022 spin-off of the domestic steel business into wholly owned POSCO.
Business context
POSCO HOLDINGS operates through six reportable segments: Steel; Green Infrastructure, comprising Trading, Construction, and Energy and Other; Green Materials and Energy; and Others. Steel remained the largest business, while battery materials, lithium, energy, resources development, and infrastructure were strategic growth areas.
Key financial metrics
| Metric | 2021 | 2022 | Change |
|---|---|---|---|
| Revenue | ₩76,009 billion | ₩85,004 billion | +11.8% |
| Gross profit | ₩11,855 billion | ₩7,682 billion | -35.2% |
| Operating profit | ₩8,775 billion | ₩4,342 billion | -50.5% |
| Profit | ₩7,176 billion | ₩3,586 billion | -50.0% |
| Profit attributable to controlling shareholders | ₩6,607 billion | ₩3,158 billion | -52.2% |
| Operating margin | 11.5% | 5.1% | Down 6.4 percentage points |
| Gross margin | 15.6% | 9.0% | Down 6.6 percentage points |
| Net profit margin | 9.4% | 4.2% | Down 5.2 percentage points |
| Net cash from operating activities | ₩6,259 billion | ₩6,187 billion | -1.2% |
| Capital expenditures for property, plant and equipment | ₩3,069 billion | ₩4,928 billion | +60.6% |
Cash and cash equivalents were approximately ₩8,053 billion at year-end 2022, compared with ₩4,775 billion at year-end 2021. Working capital was ₩24,808 billion. POSCO had total available credit lines of ₩3,000 billion, of which ₩782 billion was used.
Total borrowings increased to ₩24,306 billion from ₩21,741 billion. Short-term borrowings and current installments of long-term borrowings rose to ₩11,916 billion, while long-term borrowings excluding current installments declined to ₩12,390 billion. Net borrowings-to-equity improved to 27.93% from 31.01%, primarily because cash increased.
Total assets were ₩99,022 billion and total equity was ₩58,192 billion at December 31, 2022. The company reported basic EPS of ₩41,634 and diluted EPS of ₩39,296.
Material changes versus the prior comparable period
- Revenue growth was driven by higher steel prices, increased Trading and Construction revenue, higher electricity prices and volumes, and strong sales of cathode and anode materials.
- Steel external revenue increased 8.4% to ₩44,547 billion, but principal steel product sales volume declined 7.2% to 27.7 million tons. Crude steel output declined to approximately 37.9 million tons from 43.0 million tons.
- The weighted average selling price of principal steel products increased 17.2% to approximately ₩1.436 million per ton, while coal prices rose sharply and the Korean Won depreciated against the U.S. dollar.
- Cost of sales increased 20.5% to ₩77,321 billion, outpacing revenue growth and reducing gross profit.
- The Steel segment’s reported profit fell 74.0% to ₩1,712 billion. Trading profit increased 61.7% to ₩526 billion, while Construction profit declined 16.0% to ₩138 billion. Energy and Other profit increased 60.8% to ₩294 billion; Green Materials and Energy profit was broadly stable at ₩109 billion.
- Goodwill impairment increased to ₩369 billion, including ₩338 billion related to POSCO International. The company also recognized ₩160 billion of impairment related to its CSP investment.
- The company retired 2.616 million treasury shares and ended the year with 8.722 million treasury shares.
Cash flow, liquidity, and capital allocation
- Operating cash flow remained strong at ₩6,187 billion despite lower profit and income tax payments of ₩2,774 billion. Lower inventory-related cash outflows partly offset the earnings decline.
- Investing cash outflow was ₩4,220 billion, including ₩4,928 billion of property, plant and equipment purchases and ₩901 billion of cash outflows related to business combinations.
- Financing activities provided ₩1,319 billion, including ₩1,765 billion of net short-term borrowings, partly offset by ₩1,218 billion of cash dividends and ₩4,138 billion of borrowing repayments.
- Management expected approximately ₩11 trillion of 2023 cash outflows for property, plant and equipment and investments in joint ventures and associates, subject to market conditions. Projects include lithium plants, an electric steel facility, LNG infrastructure, coke-plant construction, and steel rationalization.
- The approved 2022 annual dividend was ₩2,000 per common share, or approximately ₩151.7 billion in total, approved in March 2023.
Guidance, outlook, commentary, and unusual items
- Management expects continued volatility in steel demand, pricing, raw-material costs, foreign exchange rates, and global economic conditions. No specific revenue or earnings guidance was provided.
- Weakening steel demand and oversupply beginning in the second half of 2022 are expected to remain important near-term risks. The company may adjust production levels, selling prices, expenditures, and capital projects in response.
- Typhoon Hinnamnor flooding at Pohang Works resulted in ₩790 billion of unallocated production overheads, ₩380 billion of restoration expenses, ₩95 billion of inventory and raw-material impairment, and ₩207 billion of property, plant and equipment impairment. The company received ₩234 billion of insurance proceeds by year-end and expects additional coverage, but the final amount and timing remained undetermined.
- The company acquired Senex Energy Limited in Australia through Senex Holdings for approximately ₩801 billion, adding gas-field assets and liabilities to consolidation from April 1, 2022.
- Several lithium projects remain under construction. The Argentina projects target annual capacity of 25 thousand tons each of lithium hydroxide and lithium carbonate; the Pilbara project targets 43 thousand tons of annual lithium hydroxide capacity.
- Pending labor-related litigation includes claims by approximately 3,233 contractor-dispatched workers concerning employment status and unpaid wages. The company had not recorded provisions for these pending proceedings, and adverse rulings could increase labor costs.
- The company remains exposed to environmental regulation, carbon-transition costs, raw-material supply and price volatility, geopolitical developments, sanctions-related risks, cybersecurity threats, construction-contract losses, foreign exchange movements, and guarantees for subsidiaries and investees.
Most important facts for an investor to verify
- Confirm the sustainability of margins after the 2022 decline, particularly steel spreads between product prices and coal, iron ore, nickel, energy, and freight costs.
- Review the status, insurance recovery, and remaining financial effects of the Pohang Works flood.
- Assess the maturity and refinancing requirements of ₩11,916 billion of current borrowings and the expected reclassification of the ₩1,358 billion exchangeable bond under future accounting changes.
- Evaluate whether the planned approximately ₩11 trillion of 2023 capital spending is consistent with cash generation, leverage targets, and demand conditions.
- Analyze the valuation assumptions supporting POSCO International goodwill, including the 8.97% post-tax discount rate and 1.7% terminal growth rate.
- Monitor contractor-worker litigation, construction guarantees, environmental provisions, and other contingent liabilities. The filing reports financial guarantee exposure of approximately ₩3,982 billion.
- Verify the execution timetable, remaining costs, funding, and commercial viability of lithium, battery-materials, hydrogen, LNG, and other diversification projects.
- Consider the effect of the holding-company structure on dividend receipts, capital allocation, subsidiary restrictions, and the company’s ability to fund parent-level obligations.