Business Context and Reporting Period
POSCO HOLDINGS INC. filed its Form 20-F on April 29, 2024, covering the fiscal year ended December 31, 2023. The filing presents consolidated IFRS financial statements for POSCO HOLDINGS and its subsidiaries; separate fourth-quarter results are not clearly provided. POSCO HOLDINGS is a Korean holding company operating through steel, trading and energy, construction, logistics, battery materials and other subsidiaries.
The principal businesses are Steel, Green Infrastructure, Green Materials and Energy, and Others. POSCO Energy merged into POSCO International on January 1, 2023. The company produced approximately 39.9 million tons of crude and stainless steel in 2023, with approximately 45.3 million tons of annual capacity.
Key Financial Metrics
| Metric | 2022 | 2023 | Change |
|---|---|---|---|
| Revenue | Won 85,004 billion | Won 77,057 billion | Down 9.3% |
| Gross profit | Won 7,682 billion | Won 6,417 billion | Down 16.5% |
| Operating profit | Won 4,342 billion | Won 2,738 billion | Down 36.9% |
| Profit | Won 3,586 billion | Won 1,846 billion | Down 48.5% |
| Profit attributable to controlling owners | Won 3,158 billion | Won 1,698 billion | Down 46.2% |
| Operating margin | 5.1% | 3.6% | Down 1.5 percentage points |
| Gross margin | 9.0% | 8.3% | Down 0.7 percentage points |
| Net profit margin | 4.2% | 2.4% | Down 1.8 percentage points |
| Operating cash flow | Won 6,187 billion | Won 6,168 billion | Down 0.3% |
All amounts are consolidated and stated in Korean won unless otherwise indicated. Reported IFRS revenue was Won 77,056.549 billion and reported profit was Won 1,846.059 billion.
- Revenue mix: Steel external revenue was Won 40,393 billion, down 9.3%; Trading external revenue was Won 24,034 billion, down 18.6%; Construction external revenue was Won 8,301 billion, up 8.3%; Logistics and Others external revenue was Won 471 billion, up 8.0%; and Green Materials and Energy external revenue was Won 3,816 billion, up 55.6%.
- Steel operations: Principal steel product sales volume increased 4.0% to 28.8 million tons, but the weighted average selling price declined 11.3% to Won 1,272,754 per ton. POSCO’s domestic steel capacity utilization increased to 87.7% from 84.1%.
- Cash and liquidity: Cash and cash equivalents were Won 6,671 billion at year-end, down from Won 8,053 billion. Working capital was Won 24,264 billion, compared with Won 24,808 billion in 2022. POSCO had Won 4,000 billion of available credit lines, of which Won 34 billion was used.
- Debt: Total borrowings were Won 25,970 billion, comprising Won 10,959 billion of short-term borrowings and current maturities and Won 15,011 billion of long-term borrowings. Net borrowings-to-equity increased to 32.38% from 27.93%.
- Balance sheet: Total assets were Won 101,486 billion, total liabilities were Won 41,888 billion and total equity was Won 59,599 billion at December 31, 2023.
- Capital expenditures: Cash outflows for property, plant and equipment increased to Won 6,733 billion from Won 4,928 billion. The company expects approximately Won 10.8 trillion of 2024 spending on property, plant and equipment and investments in joint ventures and associates, subject to market conditions.
Material Changes Versus the Prior Comparable Period
- Weak global steel demand, market oversupply and lower selling prices reduced Steel and Trading revenue and compressed margins. The decline in steel prices exceeded the benefit from lower coal prices and stable iron ore prices.
- Steel production and sales normalized after the operational disruption caused by Typhoon Hinnamnor in 2022, but the recovery in volume did not offset lower prices.
- Green Materials and Energy revenue increased substantially, primarily from higher cathode and anode-material sales, but the segment reported a Won 236 billion loss before group-level adjustments versus Won 109 billion of profit in 2022. Management cited weaker anode-material demand and impairment charges.
- Operating performance was affected by Won 284 billion of impairment losses on other receivables, primarily related to FQM Australia Nickel projects, and Won 276 billion of property, plant and equipment impairment, primarily related to terminated or revised lithium-production facilities and hydrogen-peroxide facilities.
- Other unusual items included a Won 103 billion loss on disposal of assets held for sale related to CSP, a Won 185 billion gain on reclassification of QSONE as a consolidated subsidiary, and a Won 41 billion bargain-purchase gain.
- Income tax expense rose to Won 789 billion from Won 462 billion despite lower pretax profit. The effective tax rate increased to approximately 30.0%, partly due to Won 151 billion of tax expense from tax audits.
- Finance costs declined overall to Won 4,203 billion from Won 5,804 billion, but interest expense increased 64.9% to Won 1,001 billion as interest rates and average interest-bearing liabilities rose.
- The company redeemed hybrid bonds during 2023, including Won 340 billion of repayment reflected in financing cash flows. It did not repurchase treasury shares during 2023.
Guidance, Outlook, Commentary, Risks and Contingencies
Management expects continued volatility in steel demand, selling prices, raw-material costs, exchange rates and global economic conditions. The company intends to focus on cost reduction, productivity, higher-value-added steel products, group synergies, battery materials, lithium, nickel, hydrogen and other green businesses. The filing does not provide a specific 2024 revenue or earnings forecast.
- Capital program: Major projects include lithium commercialization plants in Argentina and Korea, Canadian cathode-material facilities, electric-steel facilities, a coke plant, raw-material-yard rationalization and LNG infrastructure. Completion dates and remaining costs are disclosed in the filing, but execution depends on market conditions and project economics.
- Commodity and supply risk: POSCO imports virtually all iron ore and coal. 2023 average benchmark prices were approximately US$120 per dry metric ton for iron ore and US$296 per wet metric ton for coking coal. Long-term contracts provide for periodic market-based price adjustments.
- Currency and interest-rate risk: A 10% adverse foreign-exchange movement would have had an estimated Won 617 billion impact for U.S.-dollar exposure and Won 234 billion for euro exposure. A 1% increase in floating-rate borrowing costs would reduce annual profit and equity by approximately Won 77 billion.
- Legal and labor matters: Fourteen lawsuits involving approximately 2,671 dispatched workers remained pending as of April 23, 2024. The company has not recorded provisions for these proceedings. The filing also describes other litigation, including a Won 20 billion Songdo-related claim and various construction, labor, guarantee and damages claims.
- Guarantees and commitments: Maximum exposure under financial guarantees was approximately Won 3,939 billion. The company also has substantial project-finance support obligations, construction guarantees, raw-material purchase commitments and long-term LNG contracts.
- Environmental and operational risks: Carbon-emission regulation, remediation obligations, accidents, natural disasters, fixed-price construction contracts, cybersecurity incidents and potential supply disruptions could materially affect results.
- Geopolitical and sanctions exposure: The group conducts limited business in Russia, Myanmar and other higher-risk jurisdictions. Russia and Crimea-related activities represented approximately 0.03% of 2023 consolidated revenue; Myanmar gas-field revenue represented approximately 0.80%.
- Audit and controls: KPMG Samjong issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management concluded that disclosure controls and internal control over financial reporting were effective at December 31, 2023. Ernst & Young Han Young was appointed as principal auditor for 2024–2026 following the mandated auditor-designation process.
Most Important Facts for Investors to Verify
- Whether steel prices, global demand, Chinese oversupply and raw-material spreads improve sufficiently to restore operating margins.
- The funding, timing, production ramp-up and economic returns of lithium, cathode-material, nickel, hydrogen and other green-business projects.
- The drivers and recoverability of the FQM-related receivable impairment and the impairment charges on lithium and hydrogen-peroxide facilities.
- Potential cash requirements from debt maturities, exchangeable-bond put rights, project-finance guarantees, construction obligations and long-term commodity and LNG contracts.
- The outcome and potential cost of dispatched-worker litigation and other legal proceedings for which provisions are limited or absent.
- The sustainability of dividends: the 2023 average total dividend was Won 10,000 per common share, but future dividends are not assured.
- The impact of the auditor transition, tax audits, global minimum tax rules and changes in IFRS presentation requirements.