Posco Future M : FY2023 Audit Report

POSCO FUTURE M CO., LTD.

(FORMERLY, POSCO CHEMICAL CO., LTD.) and its Subsidiaries

Consolidated Financial Statements

December 31, 2023 and 2022

(With Independent Auditors' Report Thereon)

Table of Contents

	Page
Independent Auditors' Report	1
Consolidated Financial Statements
Consolidated Statements of Financial Position	5
Consolidated Statements of Comprehensive Income (Loss)	7
Consolidated Statements of Changes in Equity	9
Consolidated Statements of Cash Flows	11
Notes to the Consolidated Financial Statements	13
Independent Auditors' Report on Internal Control over Financial Reporting for
Consolidation Purposes	76
Report on the Operating Status of Internal Control over Financial Reporting for
Consolidation Purposes	78

Independent Auditors' Report

Based on a report originally issued in Korean

To the Shareholders and Board of Directors of

POSCO FUTURE M CO., LTD. (FORMERLY, POSCO CHEMICAL CO., LTD.)

Opinion

We have audited the consolidated financial statements of POSCO FUTURE M CO., LTD. (FORMERLY, POSCO CHEMICAL CO., LTD.) and its subsidiaries ("the Group"), which comprise the consolidated statement of financial position as of December 31, 2023, the consolidated statements of comprehensive loss, changes in equity and cash flows for the year then ended, and notes, comprising of material accounting policy information and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2023, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Korean International Financial Reporting Standards ("K-IFRS").

We also have audited, in accordance with Korean Standards on Auditing (KSAs), the Group's Internal Control over Financial Reporting for Consolidation Purposes("ICFR") as of December 31, 2023 based on the criteria established in Conceptual Framework for Designing and Operating Internal Control over Financial Reporting issued by the Operating Committee of Internal Control over Financial Reporting in the Republic of Korea, and our report dated March 13, 2024 expressed an unmodified opinion on the effectiveness of the Group's internal control over financial reporting for consolidation purposes.

Basis for Opinion

We conducted our audit in accordance with KSAs. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matter

Key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements as of and for the year ended December 31, 2023. This matter was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.

Risk of adjustment to timing of export sales revenue recognition from energy materials business

Sales from energy material business account for a material portion of the Group's sales. A significant portion of the sales of energy material businesses are export sales. Revenue recognition for these sales transactions may vary depending on the "International Rules on the Interpretation of Trade Terms (incoterms)" and usually the delivery of the products to the destination takes a long period of time, we judged that there is a high possibility of inappropriate adjustments on the timing of revenue recognition due to fraud.

Considering the inherent risk associated with export sales of energy material business and the significance of sales amount, we determined that the appropriateness of the timing of export sales revenue recognition from energy material business as a key audit matter.

The primary procedures we performed to address this key audit matter included the following:

• Evaluation of the effectiveness of the design and operation of internal controls over the accuracy of revenue recognition cut-off related to the export sales of energy materials business
• Analysis of monthly sales trends for key customers to verify the cut-off accuracy of sales to those customers whose sales transaction volume increased significantly in the last month of current reporting period
• Checking the accuracy of the timing of revenue recognition through document inspection for unusual export sales transactions in the energy material business that occurred close to the end of the fiscal period
• Inspection of document to verify the appropriateness of timing of revenue recognition for samples selected from export sales transactions of energy material projects that occurred during a certain period before and after the end of the fiscal period

Other Matters

The consolidated financial statements of the Group as of and for the year ended December 31, 2022, were audited by another auditor who expressed an unmodified opinion on those statements on March 8, 2023.

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

Auditors' Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with KSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and

obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.
• Evaluate the appropriateness of accounting policies used in the preparation of the consolidated financial statements and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditors' report is Yang-Ki Jung.

Seoul, Korea

March 13, 2024

This report is effective as of March 13, 2024, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

POSCO FUTURE M CO., LTD. (FORMERLY, POSCO CHEMICAL CO., LTD.) AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED

DECEMBER 31, 2023 AND 2022

The accompanying consolidated financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, POSCO FUTURE M CO., LTD.

Kim, Jun Hyung

Chief Executive Officer

POSCO FUTURE M CO., LTD.

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POSCO FUTURE M CO., LTD. (FORMERLY, POSCO CHEMICAL CO., LTD.) AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2023 AND 2022

				December 31,			December 31,
	Notes			2023			2022
ASSETS:				(Korean		won)
CURRENT ASSETS:
Cash and cash equivalents	4,6,7,8		₩	389,579,199,482		₩	281,380,444,158
Other financial assets	4,6,8,10,11,38,39			263,412,024,345			543,581,894,767
Trade receivables	4,6,9,39			758,049,903,328			288,251,214,999
Contract assets	4,9,29,39			9,680,909,912			11,953,195,995
Inventories	13			916,674,470,483			870,133,665,539
Other assets	12			71,356,583,015			42,187,760,955
Income taxes receivable	23			3,128,320,264			30,295,537
				2,411,881,410,829			2,037,518,471,950
NON-CURRENT ASSETS:
Property, plant and equipment	14			3,359,487,997,645			2,097,998,557,447
Right-of-use assets	15			103,847,838,212			99,734,376,124
Intangible assets	16			40,880,147,843			30,937,938,871
Investments in associates and
joint ventures	18			262,841,552,913			287,705,105,620
Other financial assets	4,6,10,11,38,39			49,257,106,080			34,375,942,268
Investment property	17			188,070,156			188,070,156
Net Defined benefit assets	22			27,388,587,772			31,155,257,910
Other assets	12			23,338,406,670			1,074,893,841
Deferred tax assets	23			55,482,179,751			16,787,526,002
				3,922,711,887,042			2,599,957,668,239
TOTAL ASSETS
		₩	6,334,593,297,871		₩	4,637,476,140,189
LIABILITIES:
CURRENT LIABILITIES:
Trade payables	4,6,39		₩	262,251,342,107		₩	288,697,331,268
Contract liabilities	20,29,39			1,271,094,700			4,743,604,414
Short-term borrowings	4,6,21			352,139,820,122			202,826,829,068
Current portion of long-term
borrowings and debentures	4,6,21			327,651,087,897			262,105,774,279
Other financial liabilities	4,6,19,38,39			424,393,605,558			162,576,173,394
Lease liabilities	4,6,15			16,787,717,635			18,075,727,222
Other provisions	24			5,798,873,151			3,917,731,426
Other liabilities	20			4,828,034,290			3,496,114,947
Income taxes payable	23			1,286,237,565			19,353,536,748
				1,396,407,813,025			965,792,822,766

(Continued)

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POSCO FUTURE M CO., LTD. (FORMERLY, POSCO CHEMICAL CO., LTD.) AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2023 AND 2022

				December 31,			December 31,
	Notes			2023			2022
NON-CURRENT LIABILITIES:				(Korean		won)
Long-term borrowings and
debentures	4,6,21			2,218,104,479,318			926,410,899,757
Net benefit defined liabilities	22			406,999,499			424,740,953
Other financial liabilities	4,6,19,38,39			16,843,484,836			10,709,737,378
Lease liabilities	4,6,15			79,702,557,350			73,711,926,919
Other provisions	24			8,057,979,367			5,839,075,936
Deferred tax liabilities	23			3,603,994,393			3,942,297,639
				2,326,719,494,763			1,021,038,678,582
TOTAL LIABILITIES
		₩	3,723,127,307,788		₩	1,986,831,501,348
SHAREHOLDERS' EQUITY:
EQUITY ATTRIBUTABLE TO
OWNERS OF THE PARENT:
Common stock	25		₩	38,731,610,000		₩	38,731,610,000
Additional paid-in capital	26			1,457,400,615,954			1,454,531,893,625
Capital adjustment	27			(127,633,910,076)			(16,819,535,254)
Accumulated other comprehensive
income (loss)	28			(16,742,186,987)			(8,920,112,154)
Retained earnings	28			998,453,747,373			1,003,497,787,834
				2,350,209,876,264			2,471,021,644,051
NON-CONTROLLING INTERESTS				261,256,113,819			179,622,994,790
TOTAL SHAREHOLDERS'EQUITY
		₩	2,611,465,990,083		₩	2,650,644,638,841
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY			₩	6,334,593,297,871		₩	4,637,476,140,189

(Concluded)

See notes to consolidated financial statements.

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POSCO FUTURE M CO., LTD. (FORMERLY, POSCO CHEMICAL CO., LTD.) AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

	Notes	2023			2022
				(Korean		won)
SALES	5,29,39 ₩	4,759,871,486,264		₩	3,301,915,805,063
COST OF SALES	32,39			4,502,641,709,206			2,967,157,795,371
GROSS PROFIT				257,229,777,058			334,758,009,692
General administrative expense	30,32,39			197,707,172,296			156,949,012,419
Selling and logistics expense	30,33			23,640,418,763			11,937,327,330
OPERATING INCOME				35,882,185,999			165,871,669,943
Other income	31,39			9,937,503,103			4,774,826,974
Other expense	31,39			58,667,161,732			3,441,213,761
Share of profit (loss) of associates and joint				(30,920,020,533)			20,749,921,121
ventures	18
Financial income	6,33			203,467,428,777			121,370,869,361
Financial expense	6,33			175,792,031,699			175,381,126,020
INCOME (LOSS)				(16,092,096,085)			133,944,947,618
BEFORE INCOME TAX EXPENSE
Income tax expense (income)	23			(20,527,316,038)			12,016,380,494
NET INCOME			₩	4,435,219,953		₩	121,928,567,124
NET INCOME ATTRIBUTABLE TO:
Owners of the Parent				28,722,208,549			118,266,658,602
Non-controlling interests				(24,286,988,596)			3,661,908,522

(Continued)

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POSCO FUTURE M CO., LTD. (FORMERLY, POSCO CHEMICAL CO., LTD.) AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

	Notes			2023			2022
				(Korean		won)
OTHER COMPREHENSIVE INCOME (LOSS):			₩	(20,192,299,665)		₩	(4,366,879,099)
Items not to be reclassified subsequently to profit or
loss:
Remeasurement of defined benefit plan				(10,799,110,527)			10,241,676,645
Changes in retained earnings in equity method				295,594,425			12,439,072
Gain (loss) on currency translation for foreign
operations				(1,866,708,730)			(6,445,238,307)
Gain on valuation of financial assets at FVTOCI				-			605,570,000
Items to be reclassified subsequently to profit or loss:
Changes in equity in equity method	18			267,936,226			(2,937,228,837)
Gain (loss) on currency translation for foreign
operations				(8,090,011,059)			(5,844,097,672)
COMPREHENSIVE INCOME (LOSS)			₩	(15,757,079,712)		₩	117,561,688,025
COMPREHENSIVE INCOME (LOSS)
ATTRIBUTABLE TO:
Owners of the Parent				10,356,040,206			120,339,139,797
Non-controlling interests				(26,113,119,918)			(2,777,451,772)
NET EARNINGS PER SHARE:
Basic and diluted earnings per share	34		₩	371		₩	1,527

(Concluded)

See notes to consolidated financial statements.

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