Exhibit 99.1

POSCO HOLDINGS INC. (Formerly, POSCO)

Separate Financial Statements

December 31, 2021 and 2020

(With Independent Auditors’ Report Thereon)

Table of Contents

 

		Page
Independent Auditors’ Report			1
Separate Financial Statements
Separate Statements of Financial Position			5
Separate Statements of Comprehensive Income			7
Separate Statements of Changes in Equity			8
Separate Statements of Cash Flows			9
Notes to the Separate Financial Statements			11
Independent Auditors’ Report on Internal Control over Financial Reporting			92
Report on the Operating Status of Internal Control over Financial Reporting			94

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders

POSCO HOLDINGS INC. (formerly, POSCO):

Opinion

We have audited the separate financial statements of POSCO HOLDINGS INC. (formerly, POSCO, the “Company”), which comprise the separate statements of financial position as of December 31, 2021 and 2020, the separate statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2021 and 2020, and its separate financial performance and its separate cash flows for the years 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 Company’s Internal Control over Financial Reporting (“ICFR”) as of December 31, 2021 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 10, 2022 expressed an unmodified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing (“KSAs“). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the separate 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.

Emphasis of matter

We draw attention to Note 1 and Note 39 to the separate financial statements, which describes the spin-off by the former POSCO, the controlling company on March 1, 2022. Upon completion of the spin-off, the surviving company was renamed as POSCO HOLDINGS INC., and a new subsidiary, POSCO, was established. Our opinion is not modified in respect of this matter.

Key Audit Matters

The key audit matter communicated below is a matter that, in our professional judgment, was of most significance in our audit of the separate financial statements as of and for the year ended December 31, 2021. This matter was addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.

Assessment of impairment on investments in subsidiaries, associates and joint ventures

As described in notes 3(14), 11 and 32 to the separate financial statements, the carrying amount of investments in subsidiaries, associates and joint ventures is W16,002,640 million as of December 31, 2021. The Company recognized impairment loss on investments in subsidiaries, associates and joint ventures of W208,732 million during the year ended December 31, 2021.

The Company identifies whether there is any indication for impairment at the end of each reporting period and performs impairment test over investments in subsidiaries, associates and joint ventures when impairment indicator exists. The Company measures the impairment loss as the difference between the recoverable amount and the carrying amount, if the carrying amount exceeds the recoverable amount. Recoverable amount is the greater of value-in-use and fair value less costs to sell. In estimating the value-in-use, management’s judgment is involved in determining the key assumptions such as estimated sales, discount rate and terminal growth rate have significant impacts on the estimated value-in-use. Considering significant degree of management’s judgements required in estimating value-in-use and likelihood of existence of management bias, we identified assessment of impairment on investments in subsidiaries, associates and joint ventures as a key audit matter.

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

 

•

Testing certain internal controls over the Company’s impairment assessment process of investments in subsidiaries, associates and joint ventures;

 

•

Assessing whether the impairment tests have been completely performed on investments of which indication of impairment exists;

 

•

Evaluating the key assumptions (including estimated sales) used to determine the value-in-use by comparison with the latest financial budgets approved by the Board of Directors, historical performance and industry reports;

 

•

Comparing the estimated sales prepared in prior year with the current year’s performance to assess the Company’s ability to accurately forecast;

 

•

Assessing the terminal growth rates by comparison with observable market information;

 

•

Performing sensitivity analysis on the discount rates and terminal growth rates applied to assess the impact of changes in these key assumptions on the results of management’s impairment assessments; and,

 

•

Engaging our valuation specialists to assist us in evaluating the discount rates used in the valuation by comparing it against discount rates that were independently developed using observable information.

Other Matter

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

 

2

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

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

In preparing the separate financial statements, management is responsible for assessing the Company’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 Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether the separate 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 separate 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 separate 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 separate 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 Company’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 separate 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 Company to cease to continue as a going concern.

 

3

•

Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

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 separate 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 Se Hong Choi.

Seoul, Korea

March 10, 2022

 

 

4

POSCO HOLDINGS INC. (formerly, POSCO)

Separate Statements of Financial Position

As of December 31, 2021 and 2020

 

 

(in millions of Won)		Notes				December 31, 2021				December 31, 2020
Assets
Cash and cash equivalents			4,5,22			W	2,042,274				1,822,660
Trade accounts and notes receivable, net			6,22,36				6,017,508				3,693,535
Other receivables, net			7,22,36				545,341				279,555
Other short-term financial assets			8,22				9,605,522				9,607,632
Inventories			9,33				7,623,202				4,093,829
Assets held for sale			10				29,789				32,244
Other current assets			15				55,244				50,498
Total current assets							25,918,880				19,579,953
Long-term trade accounts and notes receivable, net			6,22				5,675				2,456
Other receivables, net			7,22				274,253				84,037
Other long-term financial assets			8,22				1,326,565				1,072,817
Investments in subsidiaries, associates and joint ventures			11,32				16,002,640				14,883,152
Investment property, net			12				144,140				149,617
Property, plant and equipment, net			13,32				19,772,299				20,216,932
Intangible assets, net			14				551,410				621,926
Defined benefit assets, net			20				212,531				76,501
Other non-current assets			15				34,366				107,578
Total non-current assets							38,323,879				37,215,016
Total assets						W	64,242,759				56,794,969

See accompanying notes to the separate financial statements.

 

5

POSCO HOLDINGS INC. (formerly, POSCO)

Separate Statements of Financial Position, Continued

As of December 31, 2021 and 2020

 

 

(in millions of Won)		Notes				December 31, 2021				December 31, 2020
Liabilities
Trade accounts and notes payable			22,36			W	2,453,068				1,258,470
Short-term borrowings and current installments of long-term borrowings			4,16,22,38				2,072,354				2,408,392
Other payables			17,22,36,38				1,267,459				1,127,323
Other short-term financial liabilities			18,22,38				13,755				12,788
Current income tax liabilities			34				1,832,078				137,858
Liabilities directly associated with the assets held for			10				185				—
Provisions			19				84,409				63,604
Other current liabilities			21				144,961				80,676
Total current liabilities							7,868,269				5,089,111
Long-term borrowings, excluding current installments			4,16,22,38				6,129,778				5,346,944
Other payables			17,22,38				399,144				220,612
Other long-term financial liabilities			18,22,38				21,991				122,154
Deferred tax liabilities			34				747,653				848,317
Long-term provisions			19				36,755				52,602
Other non-current liabilities			21				3,744				525
Total non-current liabilities							7,339,065				6,591,154
Total liabilities							15,207,334				11,680,265
Equity
Share capital			23				482,403				482,403
Capital surplus			23				1,339,289				1,339,289
Hybrid bonds			24				199,384				199,384
Reserves			25				(211,849	)			(296,626	)
Treasury shares			26				(2,508,294	)			(2,391,523	)
Retained earnings			27				49,734,492				45,781,777
Total equity							49,035,425				45,114,704
Total liabilities and equity						W	64,242,759				56,794,969

See accompanying notes to the separate financial statements.

 

6

POSCO HOLDINGS INC. (formerly, POSCO)

Separate Statements of Comprehensive Income

For the years ended December 31, 2021 and 2020

 

 

(in millions of Won, except per share informations)		Notes				2021				2020
Revenue			28,36			W	39,920,201				26,509,920
Cost of sales			9,20,30,33,36				(32,136,439	)			(24,323,352	)
Gross profit							7,783,762				2,186,568
Selling and administrative expenses
Impairment loss on trade accounts and notes receivable			22,33				(10	)			(4,372	)
Other administrative expenses			20,29,30,33				(911,841	)			(807,626	)
Selling expenses			29,33				(222,311	)			(239,373	)
Operating profit							6,649,600				1,135,197
Finance income and costs
Finance income			22,31				1,694,175				1,230,684
Finance costs			22,31				(925,649	)			(820,201	)
Other non-operating income and expenses
Reversal of (impairment loss) on other receivables			22,33				(363	)			487
Other non-operating income			32				227,008				146,548
Other non-operating expenses			32,33				(661,071	)			(674,835	)
Profit before income tax							6,983,700				1,017,880
Income tax expense			34				(1,802,473	)			(52,017	)
Profit							5,181,227				965,863
Other comprehensive income (loss)
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit plans			20				32,426				53,816
Net changes in fair value of equity investments at fair value through other comprehensive income			8,22,25				83,110				(115,599	)
Total comprehensive income						W	5,296,763				904,080
Earnings per share (in W on)			35
Basic earnings per share (in Won)							68,360				12,123
Diluted earnings per share (in Won)						W	66,651				12,123

See accompanying notes to the separate financial statements.

 

7

POSCO HOLDINGS INC. (formerly, POSCO)

Separate Statements of Changes in Equity

For the years ended December 31, 2021 and 2020

 

 

(in millions of Won)		Share capital				Capital surplus				Hybrid bonds				Reserves				Treasury shares				Retained earnings				Total
Balance as of January 1, 2020		W	482,403				1,252,220				199,384				(183,930	)			(1,508,303	)			45,372,411				45,614,185
Comprehensive income:
Profit			—				—				—				—				—				965,863				965,863
Other comprehensive income (loss)
Remeasurements of defined benefit plans, net of tax			—				—				—				—				—				53,816				53,816
Net changes in fair value of equity investments at fair value through other comprehensive income, net of tax			—				—				—				(112,696	)			—				(2,903	)			(115,599	)
Transactions with owners of the Company, recognized directly in equity:
Year-end dividends			—				—				—				—				—				(320,462	)			(320,462	)
Interim dividends			—				—				—				—				—				(277,723	)			(277,723	)
Interest of hybrid bonds			—				—				—				—				—				(9,225	)			(9,225	)
Acquisition of treasury shares			—				—				—				—				(883,220	)			—				(883,220	)
Others			—				87,069				—				—				—				—				87,069
Balance as of December 31, 2020			W482,403				1,339,289				199,384				(296,626)				(2,391,523)				45,781,777				45,114,704
Balance as of January 1, 2021		W	482,403				1,339,289				199,384				(296,626	)			(2,391,523	)			45,781,777				45,114,704
Comprehensive income:
Profit			—				—				—				—				—				5,181,227				5,181,227
Other comprehensive income (loss)
Remeasurements of defined benefit plans, net of tax			—				—				—				—				—				32,426				32,426
Net changes in fair value of equity investments at fair value through other comprehensive income, net of tax			—				—				—				84,777				—				(1,667	)			83,110
Transactions with owners of the Company, recognized directly in equity:
Year-end dividends			—				—				—				—				—				(342,564	)			(342,564	)
Interim dividends			—				—				—				—				—				(907,507	)			(907,507	)
Interest of hybrid bonds			—				—				—				—				—				(9,200	)			(9,200	)
Acquisition of treasury shares			—				—				—				—				(116,771	)			—				(116,771	)
Balance as of December 31, 2021		W	482,403				1,339,289				199,384				(211,849	)			(2,508,294	)			49,734,492				49,035,425

See accompanying notes to the separate financial statements.

 

8

POSCO HOLDINGS INC. (formerly, POSCO)

Separate Statements of Cash Flows

For the years ended December 31, 2021 and 2020

 

 

(in millions of Won)		Notes				2021				2020
Cash flow s from operating activities
Profit						W	5,181,227				965,863
Adjustments for :
Expenses related to post-employment benefit							121,059				126,191
Depreciation							2,289,507				2,273,633
Amortization							107,465				106,926
Impairment loss on trade and other receivables							373				3,885
Finance income							(1,276,011	)			(779,150	)
Finance costs							514,904				457,851
Loss on valuation of inventories							4,854				4,735
Gain on disposal of property, plant and equipment							(30,359	)			(12,340	)
Loss on disposal of property, plant and equipment							111,955				181,454
Impairment loss on property, plant and equipment							228,171				27,846
Impairment loss on intangible assets							7,180				—
Gain on disposal of investments in subsidiaries, associates and joint ventures							(56,121	)			(24,334	)
Impariment loss on investments in subsidiaries, associates and joint ventures							208,732				360,894
Gain on disposal of assets held for sale							(48,018	)			(22,734	)
Loss on disposal of assets held for sale							—				5,383
Impairment loss on assets held for sale							—				9,093
Gain on disposal of emission rights							—				(24,566	)
Loss on disposal of emission rights							5,843				—
Increase to provisions							42,655				73,037
Income tax expense							1,802,473				52,017
Others							16,436				9,536
Changes in operating assets and liabilities			38				(4,980,364	)			1,550,039
Interest received							144,368				197,306
Interest paid							(180,743	)			(230,537	)
Dividends received							716,640				232,492
Income taxes paid							(151,888	)			(386,850	)
Net cash provided by operating activities						W	4,780,338				5,157,670

See accompanying notes to the separate financial statements.

 

9

POSCO HOLDINGS INC. (formerly, POSCO)

Separate Statements of Cash Flows, Continued

For the years ended December 31, 2021 and 2020

 

 

(in millions of Won)		Notes				2021				2020
Cash flows from investing activities
Decrease in deposits						W	2,464,819				3,336,891
Proceeds from disposal of short-term financial instruments							35,801,788				36,302,634
Proceeds from disposal of long-term financial instruments							6				—
Collection of short-term loans							7,430				2,709
Proceeds from disposal of debt securities							150,070				360,109
Proceeds from disposal of long-term debt securities							1,739				—
Proceeds from disposal of equity securities							14,066				7,937
Proceeds from disposal of other securities							6,049				8,183
Proceeds from disposal of derivatives							1,482				—
Proceeds from disposal of investments in subsidiaries, associates and joint ventures							3,896				24,247
Proceeds from disposal of intangible assets							727				1,047
Proceeds from disposal of assets held for sale							67,264				225,292
Proceeds from disposal of emission rights							5,503				66,143
Increase in deposits							(2,563,854	)			(3,380,247	)
Acquisition of short-term financial instruments							(35,426,439	)			(38,160,724	)
Acquisition of long-term financial instruments							(272,824	)			—
Increase in long-term loans							(196,101	)			(21,923	)
Acquisition of debt securities							(150,033	)			(220,110	)
Acquisition of other securities							(44,867	)			(20,795	)
Acquisition of investments in subsidiaries, associates and joint ventures							(1,206,424	)			(236,226	)
Acquisition of property, plant and equipment							(1,968,289	)			(2,450,816	)
Payment for disposal of property, plant and equipment							(59,806	)			(102,354	)
Acquisition of intangible assets							(49,478	)			(101,427	)
Net cash used in investing activities						W	(3,413,276	)			(4,359,430	)
Cash flows from financing activities
Proceeds from borrowings							5,553,432				3,566,518
Increase in long-term financial liabilities							1,396				537
Proceeds from (payment for) disposals of derivatives							(9,103	)			5,873
Receipt of government grants							431				954
Repayment of borrowings							(5,272,719	)			(1,941,838	)
Decrease in long-term financial liabilities							(1,318	)			(974	)
Repayment of lease liabilities							(46,756	)			(63,684	)
Payment of cash dividends							(1,248,689	)			(598,627	)
Acquisition of treasury shares							(116,771	)			(883,220	)
Payment of interest of hybrid bonds							(9,200	)			(9,225	)
Net cash provided by (used in) financing activities			38			W	(1,149,297	)			76,314
Effect of exchange rate fluctuation on cash held							1,849				(30,033	)
Net increase in cash and cash equivalents							219,614				844,521
Cash and cash equivalents at beginning of the period			5				1,822,660				978,139
Cash and cash equivalents at end of the period			5			W	2,042,274				1,822,660

See accompanying notes to the separate financial statements.

 

10

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements

As of December 31, 2021 and 2020

 

 

1.Reporting Entity

POSCO HOLDINGS INC. (formerly, POSCO), the Company, is the largest steel producer in Korea which was incorporated on April 1, 1968, under the Commercial Code of the Republic of Korea to manufacture and sell steel rolled products and plates in the domestic and foreign markets.

The shares of the Company have been listed on the Korea Exchange since June 10, 1988. The Company owns and operates two steel plants (Pohang and Gwangyang) and one office in Korea, and it also operates internationally through five of its overseas liaison offices.

The Company established a new subsidiary, POSCO, by a vertical spin-off of its steel business on March 1, 2022, and changed the name of the surviving company to POSCO HOLDINGS INC..

As of December 31, 2021, major shareholders are as follows:

 

Shareholder’s name		Number of shares				Ownership (%)
National Pension Service			8,063,521				9.25
BlackRock Fund Advisors(*1)			4,312,713				4.95
Nippon Steel Corporation			2,894,712				3.32
The Government of Singapore			2,889,467				3.31
Samsung group(*1)			1,325,407				1.52
Others			67,701,015				77.65
			87,186,835				100.00

 

(*1)	Includes shares held by subsidiaries and others.

As of December 31, 2021, the shares of the Company are listed on the Korea Exchange, while its ADRs are listed on the New York Stock Exchanges.

2. Statement of Compliance

Statement of compliance

The separate financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audit of Stock Companies, Etc. in the Republic of Korea.

These financial statements are separate financial statements prepared in accordance with K-IFRS No. 1027 “Separate Financial Statements” presented by a parent, an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost.

The separate financial statements were authorized for issue by the Board of Directors on January 28, 2022, and will be submitted for approval at the shareholders’ meeting to be held on March 18, 2022.

 

11

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Basis of measurement

The separate financial statements have been prepared on the historical cost basis, except for the following material items in the statement of financial position, as described in the accounting policy below.

 

(a)	Derivatives instruments measured at fair value

 

(b)	Financial instruments measured at fair value through profit or loss

 

(c)	Financial instruments measured at fair value through other comprehensive income

 

(d)	Defined benefit liabilities measured at the present value of the defined benefit obligation less the fair value of the plan assets

Functional and presentation currency

These separate financial statements are presented in Korean Won, which is the Company’s functional currency which is the currency of the primary economic environment in which the Company operates.

Use of estimates and judgments

The preparation of the separate financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

 

(a)

Judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the separate financial statements is included in the following notes:

 

•

Note 11—Investments in subsidiaries, associates and joint ventures

 

12

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(b)	Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next fiscal year is included in the following notes:

 

•

Note 9—Inventories

 

•

Note 11—Investments in subsidiaries, associates and joint ventures

 

•

Note 19—Provisions

 

•

Note 20—Employee benefits

 

•

Note 22—Financial Instruments

 

•

Note 34—Income taxes

 

•

Note 37—Commitments and contingencies

 

(c)	Measurement of fair value

The Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the financial officer.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS including the level in the fair value hierarchy in which such valuation techniques should be classified.

Significant valuation issues are reported to the Company’s Audit Committee.

When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

 

•

Level 1 – unadjusted quoted prices in active markets for identical assets or liabilities.

 

•

Level 2 – inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either directly or indirectly.

 

•

Level 3 – inputs for the assets or liability that are not based on observable market data.

 

13

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about the assumptions made in measuring fair values is included in the following note:

 

•

Note 22 – Financial instruments

Changes in Accounting Policies

Except for the standards and amendments applied for the first time for the reporting period beginning on January 1, 2021 described below, the accounting policies applied by the Company in these separate financial statements are the same as those applied by the Company in its financial statements as of and for the year ended December 31, 2020.

The Company has applied ‘Phase 2 Interest Rate Benchmark Reform’(K-IFRS No. 1109 “Financial Instruments”, K-IFRS No. 1039 “Financial Instruments: Recognition and Measurement” , K-IFRS No. 1107 “Financial Instruments : Disclosures” , K-IFRS No. 1116 “Lease”) for the first time for the reporting period commenced January 1, 2021. The Company believes that the effect of the other standards and amendments applied for the first time for the reporting period commenced January 1, 2021 is not significant.

In relation to ‘Phase 2 Interest Rate Benchmark Reform’, the amendments provide practical expedients to account for modification in financial instruments, lease and hedging relationship.

Information about the accounting policy is included in the note 3(f) to the separate financial statements.

The Company believes that the effect of the amendments to the financial statements is not significant.

 

14

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

3. Summary of Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its separate financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these financial statements, except for those as disclosed in note 2.

Investments in subsidiaries, associates and joint ventures

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027 “Separate Financial Statements”. The Company applied the cost method to investments in subsidiaries, associates and joint ventures in accordance with K-IFRS No. 1027. Dividends from a subsidiary, associate or joint venture are recognized in profit or loss when the right to receive the dividend is established.

Foreign currency transactions and translation

Foreign currency transactions are initially recorded using the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the original transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate at the date fair value is initially determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise. When gains or losses on non-monetary items are recognized in other comprehensive income, exchange components of those gains or losses are recognized in other comprehensive income. Conversely, when gains or losses on non-monetary items are recognized in profit or loss, exchange components of those gains or losses are recognized in profit or loss.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and short-term investments in highly liquid securities that are readily convertible to known amounts of cash with maturities of three months or less from the acquisition date and which are subject to an insignificant risk of changes in value. Equity investments are excluded from cash and cash equivalents.

 

15

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Non-derivative financial assets

Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets are initially recognized when the Company becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at financial assets measured at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

On initial recognition, a financial asset is classified as measured at amortized cost, debt instruments measured at fair value through other comprehensive income, equity instruments measured at fair value through other comprehensive income, or financial assets measured at fair value through profit or loss.

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the reporting period following the change in the business model.

 

(a)	Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at fair value through profit or loss.

 

•

it is held within a business model whose objective is to hold assets to collect contractual cash flows, and

 

•

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

Financial assets measured at amortized cost are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, gains and losses on foreign currency translation and impairment losses are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

 

16

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(b)	Debt instruments measured at fair value through other comprehensive income

A debt instrument is measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated as at fair value through profit or loss.

 

•

it is held within a business model whose objective is achieved by both collection contractual cash flows and selling financial assets and

 

•

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

Debt instruments measured at fair value through other comprehensive income are subsequently measured at fair value. Interest income which is calculated using the effective interest method, gains and losses from foreign currency translation and impairment losses are recognized in profit or loss and other net profit or losses are recognized in other comprehensive income. At the time of elimination, other accumulated comprehensive income is reclassified to profit or loss.

 

(c)	Equity instruments measured at fair value through other comprehensive income

On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an investment-by-investment basis.

Equity instruments measured at fair value through other comprehensive income are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in other comprehensive income and never reclassified to profit or loss.

 

(d)	Financial assets measured at fair value through profit or loss

All financial assets not classified as measured at amortized cost of fair value through other comprehensive income as described above are measured at fair value through profit or loss. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at fair value through other comprehensive income as at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets measured at fair value through profit or loss are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.

 

17

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(e)	Derecognition of financial assets

Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. If a transfer does not result in derecognition because the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received.

 

(f)	Interest rate benchmark reform

The Company reflects the changes in the basis for determining contractual cash flows of financial assets and financial liabilities as a result of interest rate benchmark reform by updating the effective interest rate.

A change in the basis for determining the contractual cash flows is required by the interest rate benchmark reform if the following conditions are met:

(a) the change is necessary as a direct consequence of the reform; and

(b) the new basis for determining the contractual cash flows is economically equivalent to the previous basis – i.e. the basis immediately before the change.

When changes were made to a financial asset or financial liability in addition to changes to the basis for determining the contractual cash flows required by interest rate benchmark reform, the Company first updates the effective interest rate, and then applies the policies on accounting for modifications to the additional changes.

 

(g)	Offsetting a financial asset and a financial liability

Financial assets and financial liabilities are offset and the net amount is presented in the separate statement of financial position only when the Company currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

Inventories

Inventory costs, except materials-in-transit in which costs are determined by using specific identification method, are determined by using the moving-weighted average method. The cost of inventories comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The allocation of fixed production overheads to the costs of finished goods or work in progress are based on the normal capacity of the production facilities.

 

18

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Inventories are measured at the lower of cost or net realizable value. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period, the write-down or loss occurs. The amount of any reversal of any write-down of inventories arising from an increase in net realizable value is recognized as a reduction in the amount of inventories recognized as a cost of goods sold in the period in which the reversal occurs.

The carrying amount of those inventories is recognized as cost of goods sold in the period in which the related revenue is recognized.

Non-current assets held for sale

Non-current assets or disposal groups comprising assets and liabilities that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. In order to be classified as held for sale, the assets or disposal groups must be available for immediate sale in their present condition and their sale must be highly probable. The assets or disposal groups that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell.

The Company recognizes an impairment loss for any initial or subsequent write-down of an asset or disposal group to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized.

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

Investment property

Property held to earn rentals or for capital appreciation or both is classified as investment property. Investment property is measured initially at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

 

19

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and any accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and, when the Company has an obligation to remove the asset or restore the site, an estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

The cost of replacing a part of an item is recognized in the carrying amount of the item of property, plant and equipment, if the following recognition criteria are met:

(a) it is probable that future economic benefits associated with the item will flow to the Company and

(b) the cost can be measured reliably.

The carrying amount of the replaced part is derecognized at the time the replacement part is recognized. The costs of the day-to-day servicing of the item are recognized in profit or loss as incurred.

Items of property, plant and equipment are depreciated from the date they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use. Other than land, the costs of an asset less its estimated residual value are depreciated. Depreciation of property, plant and equipment is recognized in profit or loss on a straight-line basis, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset, over the estimated useful lives of each component of an item of property, plant and equipment.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognized.

The estimated useful lives for the current period are as follows:

 

Buildings			5-40 years
Structures			5-40 years
Machinery and equipment			15 years
Vehicles			4 years
Tools			4 years
Furniture and fixtures			4 years
Lease assets			4-20 years

The estimated residual value, useful lives and the depreciation method are reviewed at least at the end of each reporting period and, if expectations differ from previous estimates, the changes are accounted for as changes in accounting estimates.

 

20

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Borrowing costs

The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Company immediately recognizes other borrowing costs as an expense. To the extent that the Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Company shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Company capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as an having an indefinite useful life and not amortized.

 

Intellectual property rights			5-7 years
Development expense			4 years
Port facilities usage rights			4-75 years
Other intangible assets			4 years

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

 

21

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

Government grants

Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grant’s conditions and that the grant will be received.

 

(a)	Grants related to assets

Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted from the carrying amount of the assets and recognized in profit or loss on a systematic and rational basis over the life of the depreciable assets.

 

(b)	Grants related to income

Government grants which are intended to compensate the Company for expenses incurred are deducted from the related expenses.

 

22

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for considerations.

 

1)	As a lessee

At inception or reassessment of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset of to restore the underlying asset or the site on which it is located.

The right-of-use asset is subsequently depreciated on a straight-line basis from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as that of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The Company determines its incremental borrowing rate by obtaining interest rates from various external sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

Lease payments included in the measurement of the lease liability comprise the followings:

 

•

fixed payments

 

•

variable lease payments that depend on an index or a rate

 

•

amounts expected to be payable under a residual value guarantee; and

 

•

the exercise price under a purchase option that the Company’s is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

 

23

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

The lease liability is measured at amortized cost using the effective interest method. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit of loss if the carrying amount of the right-of-use asset has been reduced to zero. The lease liability is remeasured when there is:

 

•

a revised in-substance fixed lease payment,

 

•

a change in future lease payments arising from a change in an index or rate,

 

•

a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or

 

•

a change in the Company’s assessment of whether it will exercise a purchase, extension or termination option

The Company presents right-of-use assets in the same line item as is presents underlying assets of the same nature that it owns, and lease liabilities are included in other payables on the separate statement of financial position.

The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases, including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

2)	As a lessor

At inception or the effective date of a modification that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. The classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

The Company leases out its investment properties. The Company classified these leases as operating leases.

Impairment for financial assets

The Company recognizes loss allowances for expected credit losses on:

 

•

financial assets measured at amortized cost

 

•

debt instruments measured at fair value through other comprehensive income

 

•

lease receivables, contractual assets, loan commitments, and financial guarantee contracts

If credit risk has increased significantly since the initial recognition, a loss allowance for lifetime expected credit loss is required to be measured at the end of every reporting period. If credit risk has not increased significantly since the initial recognition, a loss allowance is measured based on 12-month expected credit loss.

 

24

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

If the financial instrument has low credit risk at the end of the reporting period, the Company may assume that the credit risk has not increased significantly since initial recognition. However, a loss allowance for lifetime expected credit losses is required for contract assets or trade receivables that do not contain a significant financing component.

 

(a)	Judgments on credit risk

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating expected credit losses, the Company considers reasonable and supportable information that is relevant and available without undue cost or effect. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment and including forward-looking information.

The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the Company to actions such as realizing security (if any is held). The Company considers a debt security to have low credit risk when its credit risk rating is equivalent to investment grade defined by reliable credit rating agencies.

 

(b)	Measurement of expected credit losses

Lifetime expected credit losses are the expected credit losses that result from all possible default events over the expected life of a financial instrument. 12-month expected credit losses are the portion of lifetime expected credit losses that result from default that are possible within the 12 months after the reporting date. The maximum period considered when estimating expected credit losses is the maximum contractual period over which the Company is exposed to credit risk.

Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls such as the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive.

 

25

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Expected credit losses for financial assets measured at amortized cost are recognized in profit or loss. Loss allowances for financial assets measured at amortized cost are deducted from carrying amount of the assets. For debt instruments measured at fair value through other comprehensive income, the loss allowance is charged to profit or loss and is recognized in other comprehensive income.

 

(c)	Credit-impaired financial assets

At each reporting date, the Company assesses whether financial assets measured at amortized cost and debt instrument measured at fair value through other comprehensive income are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Objective evidence that a financial asset or group of financial assets are impaired includes:

 

•

significant financial difficulty of the issuer or borrower- a breach of contract, such as a default or delinquency in interest or principal payments

 

•

the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider

 

•

it becoming probable that the borrower will enter bankruptcy or other financial reorganization

 

•

the disappearance of an active market for that financial asset because of financial difficulties

 

(d)

Write-off

The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations of recovering a financial asset in entirety or a portion. The Company individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery based on continuous payments and extinct prescriptions. The Company expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

Impairment for non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from contract assets, contract assets recognized in accordance with revenue from contracts with customers, employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amount to their carrying amount.

 

26

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Management estimates the recoverable amount of an individual asset. If it is impossible to measure the individual recoverable amount of an asset, then management estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. The value in use is estimated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

Any impairment identified at the CGU level is used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Derivative financial instruments

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives that is not designated as a hedging instrument are measured at fair value, and changes therein are recognized in profit or loss.

Non-derivative financial liabilities

The Company classifies non-derivative financial liabilities into financial liabilities measured at fair value through profit or loss or financial liabilities measured at amortized cost in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Company recognizes financial liabilities in the separate statement of financial position when the Company becomes a party to the contractual provisions of the financial liability.

 

(a)	Financial liabilities measured at fair value through profit or loss

A financial liability is classified as at fair value through profit or loss if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

 

27

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(b)	Financial liabilities measured at amortized cost

Non-derivative financial liabilities other than financial liabilities measured at fair value through profit or loss are classified as financial liabilities measured at amortized cost. At the date of initial recognition, financial liabilities measured at amortized cost are measured at fair value after deducting transaction costs that are directly attributable to the acquisition. Financial liabilities measured at amortized cost are measured at amortized cost using the effective interest method subsequently to initial recognition.

 

(c)	Derecognition of financial liabilities

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.

Employee benefits

 

(a)	Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render the related service. When an employee has rendered service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service as profit or loss. If the Company has a legal or constructive obligation which can be reliably measured, the Company recognizes the amount of expected payment for profit-sharing and bonuses payable as liabilities.

 

(b)	Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods, less the fair value of any related assets. The present value is determined by discounting the expected future cash flows using the interest rate of corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. Any actuarial gains and losses are recognized in profit or loss in the period in which they arise.

 

28

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(c)	Retirement benefits: Defined contribution plans

For defined contribution plans, when an employee has rendered service to the Company during a period, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as an accrued expense, after deducting any contributions already paid. If the contributions already paid exceed the contribution due for service before the end of the reporting period, the Company recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

 

(d)	Retirement benefits: Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of plan assets is deducted. The calculation is performed annually by an independent actuary using the projected unit credit method.

The discount rate is the yield at the reporting date on corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company recognizes all actuarial gains and losses arising from actuarial assumption changes and experiential adjustments in other comprehensive income when incurred.

When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset, to the extent of the total of cumulative unrecognized past service cost and present value of any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of net defined benefit liabilities, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments, net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss in curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

 

29

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision for warranties is recognized when the underlying products or services are sold, based on historical warranty data and a weighting of possible outcomes against their associated probabilities.

Provision for restoration related to contaminated area is recognized when the area meets the Company’s policy and legal standards of contamination.

A provision is used only for expenditures for which the provision was originally recognized.

Emission Rights

The Company accounts for greenhouse gases emission right and the relevant liability as follows pursuant to the Act on Allocation and Trading of Greenhouse Gas Emission which became effective in Korea in 2015.

 

(a)	Greenhouse Gases Emission Right

Greenhouse Gases Emission Right consists of emission allowances which are allocated from the government free of charge and those purchased from the market. The cost includes any directly attributable costs incurred during the normal course of business.

Emission rights held for the purpose of performing the obligation are classified as intangible asset and initially measured at cost and subsequently carried at cost less accumulated impairment losses.

 

30

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

The Company derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government when the future economic benefits are no longer expected to be probable.

 

(b)	Emission liability

Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. Emission liability is recognized when there is a high possibility of outflows of resources in performing the obligation and the costs required to perform the obligation are reliably estimable. Emission liability is an amount of estimated obligation for emission rights to be submitted to the government for the performing period. The emission liability is measured based on the expected quantity of emission for the performing period in excess of emission allowance in possession, and the unit price for such emission rights in the market as of the end of the reporting period. The emission liability is derecognized when submitted to the government.

Equity instruments

 

(a)	Share capital

Common stock is classified as equity and the incremental costs arising directly attributable to the issuance of common stock less their tax effects are deducted from equity.

If the Company reacquires its own equity instruments, the amount of those instruments (“treasury shares”) are presented as a contra equity account. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of its own equity instruments. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase to equity, and the resulting surplus or deficit on the transaction is recorded in capital surplus.

 

(b)	Hybrid bonds

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and an equity instrument. When the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the instruments are classified as equity instruments.

 

31

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Revenue from contracts with customers

Revenue is measured based on the consideration promised in the contract with the customer. The Company recognizes revenue when the control over a good or service is transferred to the customer. The following are the revenue recognition policies for performance obligations in the contracts with customers in accordance with K-IFRS No. 1115.

 

(a)	Steel products

For domestic sales, the control of the product is usually transferred to the customer when the product is delivered to the customer, at which point in time revenue is recognized. Invoices are generally due within 10 to 90 days. When a customer makes payment prior to the due date, they are offered a discount at certain percentage of the invoice amount. Only when the price discount period has passed, only the amount of the cumulative revenue that has already been recognized, income recognized including income.

For export sales, revenue is recognized at the time when control of the product is transferred to the customer based on the “International Incoterms for Interpretation of Trade Terms” prescribed in the respective contracts, and the Company’s export contract generally transfers control to the customer at the shipping of the product. Invoices are usually issued at the date of bill of lading and revenues are recognized based on the terms of Letter of Credit (L / C), Acceptance Condition (D / A), Payment Condition (D / P), Telegraphic Transfer (T / T) and others.

 

(b)	Transportation services

For the performance obligation for transportation services included in the Company’s product sales contracts, revenue is recognized over the period when the services are provided and the revenue is measured by reference to the degree to which the service has been completed. The billing date and payment terms for the service charge are the same as the billing date and payment terms for sale of steel products.

 

32

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Finance income and finance costs

The Company’s finance income and finance costs include:

 

•

interest income;

 

•

interest expense;

 

•

dividend income;

 

•

the foreign currency gain or loss on financial assets and financial liabilities;

 

•

the net gain or loss on financial assets measured at fair value through profit or loss;

 

•

the net gain or loss on the disposal of investments in debt securities measured at fair value through other comprehensive income.

Interest income or expense is recognized using the effective interest method. Dividend income is recognized in profit or loss on the date on which the Company’s right to receive payment is established. The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

 

•

the gross carrying amount of the financial asset; or

 

•

the amortized cost of the financial liability.

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortized cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.

Income tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or in other comprehensive income.

The Company recognizes interest and penalties related to corporate tax as if it is applicable to the income taxes, the Company applies K-IFRS 1012 “Income Taxes”, if it is not applicable to the income taxes, the Company applies K-IFRS 1037 “Provisions Contingent Liabilities and Contingent Assets”.

 

(a)	Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit of future periods, and non-taxable or non-deductible items from the accounting profit.

 

33

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

The Company offsets current tax assets and current tax liabilities if, and only if, the Company:

 

•

has a legally enforceable right to set off the recognized amounts, and

 

•

intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.

 

(b)	Deferred tax

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred tax asset for deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

A deferred tax asset is recognized for the carryforward of unused tax losses tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, tax credits and deductible temporary differences can be utilized. The future taxable profit depends on reversing taxable temporary differences. When there are insufficient taxable temporary differences, the probability of future taxable profit (including the reversal of temporary differences) should be considered.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

 

34

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Earnings per share

Management calculates basic earnings per share (“EPS”) data for the Company’s common shares, which is presented at the end of the statement of comprehensive income. Basic EPS is calculated by dividing profit attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period, adjusted for own shares held. Diluted earnings per share is calculated by adjusting basic EPS and weighted average number of common shares, concerning the effect of all dilutive potential common shares.

New standards and interpretations not yet adopted

A number of new standards are effective for annual periods beginning after January 1, 2021 and earlier application is permitted but the Company has not early adopted the new or amended standards in preparing these financial statements.

 

(a)	K-IFRS No. 1016 “Property, Plant and Equipment” - Proceeds Before Intended Use

The amendment prohibits an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while the entity is preparing the asset for its intended use. Instead, the entity will recognize the proceeds from selling such items, and the costs of producing those items, in profit or loss. The amendment is effective for annual periods beginning on or after January 1, 2022. Early application is permitted. The Company does not expect the effect of the amendments to the financial statements to be significant.

 

(b)	K-IFRS No. 1012 “Income Tax”

The amendment clarifies the coverage of initial recognition exemptions accounting for deferred tax related to both assets and liabilities arising from a single transaction. If temporary differences arise, which are offsetting the same amount at the time of transaction, the Company would recognize deferred tax if it is not a business combination and affects neither accounting profit nor taxable profit(tax loss). The amendment is effective for annual periods beginning on or after January 1, 2023. Early application is permitted. The Company does not expect the effect of the amendments to the financial statements to be significant.

 

35

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(c)	K-IFRS No. 1001 “Presentation of Financial Statements” - Classification of Liabilities as Current or Non-current

The amendment clarifies that in order for the debtor to have the “right to defer settlement of the liability”, the condition of complying with the contract must be met at the end of the reporting period, and the possibility of exercising the right to defer settlement of the liability for more than 12 months after the end of the reporting period does not affect the classification of debt liquidity. The amendment is effective for annual periods beginning on or after January 1, 2023. Early application is permitted. The Company does not expect the effect of the amendments to the consolidated financial statements to be significant.

4. Financial Risk Management

The Company has exposure to the following risks from its use of financial instruments:

 

•

Credit risk

 

•

Liquidity risk

 

•

Market risk

 

•

Capital risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these separate financial statements.

(a) Financial risk management

 

1)

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

 

36

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

2)

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. In addition, credit risk arises from finance guarantees.

The Company implements a credit risk management policy under which the Company only transacts business with counterparties that have a certain level of credit rate evaluated based on financial condition, historical experience, and other factors. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of a nation or an industry in which a customer operates its business does not have a significant influence on credit risk. The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness.

The Company establishes an allowance for impairment that represents its estimate of expected losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for companies of similar assets in respect of losses that have been incurred.

Credit risk also arises from transactions with financial institutions, and such transactions include transactions of cash and cash equivalents, various deposits, and financial instruments such as derivative contracts. The Company manages its exposure to this credit risk by only entering into transactions with banks that have high international credit ratings. The Company’s treasury department authorizes, manages, and overseas new transactions with financial institutions with whom the Company has no previous relationship.

Furthermore, the Company limits its exposure to credit risk of financial guarantee contracts by strictly evaluating their necessity based on internal decision making processes, such as the approval of the Board of Directors.

 

3)

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company’s cash flow from business, borrowing or financing is sufficient to meet the cash requirements for the Company’s strategic investments. Management believes that the Company is capable of raising funds by borrowing or financing if the Company is not able to generate cash flow requirements from its operations. The Company has committed borrowing facilities with various banks.

 

4)

Market risk

Market risk means that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The goal of market risk management is optimization of profit and controlling the exposure to market risk within acceptable limits.

 

37

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

①

Interest rate benchmark reform risk

A fundamental reform of major interest rate benchmark is being undertaken globally, including the replacement of some interbank offered rates (IBORs) with alternative nearly risk-free rates (referred to as “IBOR reform”). The publication of overnight and 1, 3, 6, and 12 months USD LIBOR will cease on June 30, 2023 and all other LIBOR publication has ceased on December 31, 2021.

As of December 31, 2021, only short-term borrowings with USD LIBOR as the benchmark rate are mostly associated with interest rate benchmark reform risk. All 3 months USD LIBORs are used as interest rate benchmark. As of December 31, 2021, the related short-term borrowings are W457,838 million, since all of their maturities come before June 30, 2023, there is no need for modification to alternative interest rate benchmark.

 

②

Currency risk

The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Company, Korean Won. The Company’s policy in respect of foreign currency risks is a natural hedge whereby foreign currency income is offset with foreign currency expenditures. The remaining net exposures after the natural hedge have been hedged using derivative contracts such as forward exchange contracts. In addition, the Company’s derivative transactions are limited to hedging actual foreign currency transactions and speculative hedging is not permitted. The Company reduces the foreign currency exposure by repayment of foreign currency borrowings subjected to investment in overseas when its maturities come.

 

③

Interest rate risk

The Company manages the exposure to interest rate risk by adjusting of borrowing structure ratio between borrowings at fixed interest rate and variable interest rate. The Company monitors interest rate risks regularly in order to avoid exposure to interest rate risk on borrowings at variable interest rate.

 

④

Other market price risk

Equity price risk arises from fluctuation of market price of listed equity securities. Management of the Company measures regularly the fair value of listed equity securities and the risk of variance in future cash flow caused by market price fluctuations. Significant investments are managed separately and all buy and sell decisions are approved by management of the Company.

 

(b)

Management of capital

The fundamental goal of capital management is the maximization of shareholders’ value by means of the stable dividend policy and the retirement of treasury shares. The capital structure of the Company consists of equity and net borrowings (after deducting cash and cash equivalents) and current financial instruments from borrowings. The Company applied the same capital risk management strategy that was applied in the previous period.

 

38

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

Net borrowing-to-equity ratio as of December 31, 2021 and 2020 is as follows:

 

(in millions of Won)		2021				2020
Total borrowings		W	8,202,132				7,755,336
Less: Cash and cash equivalents			2,042,274				1,822,660
Net borrowings			6,159,858				5,932,676
Total equity		W	49,035,425				45,114,704
Net borrowings-to-equity ratio			12.56	%			13.15	%

5. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2021 and 2020 are as follows:

 

(in millions of Won)		2021				2020
Demand deposits and checking accounts		W	372,915				298,876
Time deposits			713,015				900,700
Other cash equivalents			956,344				623,084
		W	2,042,274				1,822,660

6. Trade Accounts and Notes Receivable

Trade accounts and notes receivable as of December 31, 2021 and 2020 are as follows:

 

39

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(in millions of Won)		2021				2020
Current
Trade accounts and notes receivable		W	6,031,878				3,707,860
Less: Allowance for doubtful accounts			(14,370	)			(14,325	)
		W	6,017,508				3,693,535
Non-current
Trade accounts and notes receivable		W	7,901				3,780
Less: Present value discount			(1,555	)			(344	)
Less: Allowance for doubtful accounts			(671	)			(980	)
		W	5,675				2,456

The Company sold trade accounts and notes receivable with recourse to financial institutions. These trade accounts and notes receivable have not been derecognized from the statement of financial position because the Company retains substantially all of the risks and rewards associated with the transferred assets. The amounts received on transfer have been recognized as secured borrowings. As of December 31, 2021 and 2020, the carrying amount of such secured borrowings are W214,465 million and W520,310 million, respectively, which are presented in the statements of financial position as short-term borrowings.

7. Other Receivables

Other receivables as of December 31, 2021 and 2020 are as follows:

 

(in millions of Won)		2021				2020
Current
Loans		W	—				2,950
Other accounts receivable			506,040				231,051
Others			41,361				50,822
Less: Allowance for doubtful accounts			(2,060	)			(5,268	)
		W	545,341				279,555
Non-current
Loans		W	244,895				52,760
Long-term other accounts receivable			34,260				35,638
Others			4,185				4,001
Less: Allowance for doubtful accounts			(9,087	)			(8,362	)
		W	274,253				84,037

8. Other Financial Assets

(a) Other financial assets as of December 31, 2021 and 2020 are as follows:

 

40

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(in millions of Won)		2021				2020
Current
Debt securities		W	154,750				153,370
Deposit instruments(* 1)			1,436,915				1,337,881
Short-term financial instruments			8,013,857				8,116,381
		W	9,605,522				9,607,632
Non-current
Long-term derivative assets		W	170,471				18,549
Equity securities			1,084,574				980,706
Debt securities			—				6,367
Other securities			71,492				67,161
Deposit instruments(* 2)			28				34
		W	1,326,565				1,072,817

 

(*1)	As of December 31, 2021 and December 31, 2020, W3,915 million and W4,881million, respectively, are restricted in relation to government assigned project.

(*2)	The Company is required to provide deposits to maintain checking accounts and accordingly the withdrawal of these deposits is restricted.

 

41

POSCO HOLDINGS INC. (formerly, POSCO)

Notes to the Separate Financial Statements, Continued

As of December 31, 2021 and 2020

 

 

(b)	Equity securities and available-for-sale securities (equity instruments) as of December 31, 2021 and 2020 are as follows:

 

(in millions of Won)		2021																								2020
		Number of shares				Ownership (%)				Acquisition cost				Fair value				Net changes in fair value of equity securities				Book value				Book value
Marketable equity securities
Nippon Steel Corporation			15,698,500				1.65			W	473,962				303,814				(170,148	)			303,814				219,788
KB Financial group Inc.			3,863,520				0.93				178,839				212,493				33,654				212,493				167,677
Woori Financial Group Inc.			20,280,000				2.81				244,447				257,556				13,109				257,556				197,324
CSN Mineracao S.A. (*1)			102,186,675				1.83				206,265				146,550				(59,715	)			146,550				—
SAMWONSTEEL Co., Ltd.			5,700,000				14.25				8,930				18,041				9,111				18,041				15,020
DONGKUK INDUSTRIES COMPANY			2,611,989				4.82				11,911				9,260				(2,651	)			9,260				8,868
Others (8 companies) (*2)											62,753				51,717				(11,036	)			51,717				35,939
											1,187,107				999,431				(187,676	)			999,431				644,616
Non-marketable equity securities
CSN Mineracao S.A. (*1, 3)											—				—				—				—				246,158
POSCO PLANTEC Co., Ltd.			18,337,912				10.99				19,437				19,437				—				19,437				19,437
Korea Nickel CO.LTD			75,600				14.00				10,194				10,194				—				10,194				10,194
Poongsan Special Metal Corp.			315,790				5.00				7,657				7,657				—				7,657				7,657
HANKUM.CO.LTD			21,000				4.99				4,599				4,599				—				4,599				4,599
Core-Industry Co., Ltd.			490,000				19.84				4,214				4,214				—				4,214				4,214
AJUSTEEL CO.,LTD (*2)											—				—				—				—				4,165
Others (28 companies)											143,571				39,042				(104,529	)			39,042				39,666
											189,672				85,143				(104,529	)			85,143				336,090
										W	1,376,779				1,084,574				(292,205	)			1,084,574				980,706

 

(*1)	During the year ended December 31, 2021, CSN Mineracao S.A. was listed on the Brazilian stock market, and a stock split of 1:30 was carried out at the same time as the listing. On the other hand, the Company sold 7,565,145 shares in the current year after stock split.

(*2)	During the year ended December 31, 2021, AJUSTEEL CO., LTD was listed on the Korea Stock Exchange and classified as marketable equity securities.

(*3)	As of December 31, 2020, fair value is based on an analysis performed by an external professional evaluation agency.

 

42