Good afternoon. I am Han Sang-Yun , the head of investor relations with Hanwha Aerospace. First of all, I'd like to thank everyone for joining the call. Now, I will brief you on the 2024 Q3 performance of Hanwha Aerospace. On September 27th, the listing change of the company and the relisting of Hanwha Industrial Solutions, which was a spinoff from the company, was completed, marking the completion of the spinoff between the company and Hanwha Industrial Solutions. Therefore, the performance of Hanwha Vision and Hanwha Precision Machinery, which were spun off this time, will be classified as discontinued operations in Q3 and reflected in the financial statement accordingly. Please take that into consideration. I will brief you on the 2024 Q3 performance. Please refer to pages six and seven of the presentation.
Consolidated sales for Q3 are KRW 2 trillion 631.2 billion, which is a 62% increase year-on-year, and the operating profit was KRW 477.2 billion, which is more than a five-fold increase year-on-year. Due to improved performance of both Land Systems Division of the company and Hanwha Systems, both sales and operating profit increased year-on-year. Details will be shared in the performance by segment. Pretax profit for Q3 is KRW 375.2 billion, a turnaround from a loss in the same period last year. Net profit significantly increased to KRW 330.4 billion compared to the same period last year. This is due to growth in performance and the base effect resulting from the one-time cost of approximately KRW 140 billion related to the GTF engine defect, which was reflected in the same period last year. Please turn to page 8 for financials.
After the spinoff, as of the end of the third quarter, the total assets are KRW 20 trillion 915.5 billion, liabilities KRW 16 trillion 689.8 billion, and the net debt-to-equity ratio is around 100%. I will share with you the performance by segment. Please turn to page 9 for Hanwha Systems. Q3 sales are KRW 1 trillion 656 billion, which has grown by more than two times from the same period last year. Domestic sales are KRW 682.9 billion, or 20% growth year-on-year, and the overseas sales are KRW 973.1 billion, or about a five-fold growth year-on-year. The operating profit is KRW 439.9 billion, recording a substantial year-on-year growth. The domestic sales continue to grow as the volume from domestic mass production, which has a relatively higher profit margin, began to be fully reflected in the second half of this year.
As for the overseas sales, revenue was recognized from 24 K9 howitzers and 19 Chunmoo multiple rocket launchers for Poland, along with an increase in other export volumes compared to the same period last year, which contributed to the rise in overall performance. Based on the scheduled domestic and international deliveries in the fourth quarter, Hanwha Systems is expected to continue its growth trend. Please turn to page 10 for Hanwha Systems order backlog. As of the end of Q3, the total backlog for Hanwha Systems amounted to approximately KRW 29.9 trillion, which includes the K9 contract with Romania worth approximately KRW 1.4 trillion signed in July. In September, the company signed an MOU with the WB Group, Poland's largest private defense company, related to the local production of Chunmoo multiple rocket launcher system as part of its efforts to strengthen localization.
The company plans to continuously expand exports by actively responding to global security demands. Please turn to page 11 for performance of aerospace segment. Q3 sales are KRW 477.9 billion, or 22% growth year-on-year, and the operating profit was negative KRW 6 billion. While the sales have grown from the previous year, the increase in the number of GTF engines sold drove the year-on-year RSP operating loss higher. The operating loss related to the GTF in Q3 2024 was KRW 23.3 billion. The number of GTF engines sold in Q3 was 254 units, showing a steady increase compared to 189 units in Q3 2022 and 231 units in Q3 2023. On aircraft deliveries, the number of global aircraft deliveries in Q3 2024 was 290, showing an increasing trend compared to 252 in Q3 2022 and 277 in Q3 2023.
Please turn to page 12 for the performance of Hanwha Systems. Q3 sales were KRW 639.2 billion, showing a slight increase year-on-year, and the operating profit was KRW 57 billion, a 44% increase year-on-year. As for the detailed performance, outlook, and progress of new business of Hanwha Systems, please refer to the earnings release of Hanwha Systems, which happened on October 30th. Lastly, I will briefly share with you the performance of Setrec Eye, which is included in the others. During Q3, Setrec Eye recorded KRW 43.7 billion in sales, or a 75% growth year-on-year, and turned around with KRW 0.8 billion in operating profit. This concludes the earnings briefing, and now we will have the Q&A. From KB Securities about the recent announcement of the CapEx.
I understand that you have announced the CapEx on Propellant Smart Factory worth KRW 700 billion, which is quite sizably larger than your existing investment plan on the munition area. Considering the total sales and the profit size, when do you expect that the revenue will be generated in the new facility that you have announced the investment of, and can that be produced? The production can happen even before the completion of the construction. The answer is the Smart Factory for the propellant will be completed in 2027, and we expect that to be the time that we start recognizing revenue coming out of it. The reason for us to make investment ahead is because we believe that there is a very solid demand in the mid to long term, but we do not have any customers. We do not have any committed volume so far.
What we have is an internal prediction, which I do not believe is appropriate to share in this earnings call. We don't know what will be the volume and by whom, so it is too early to share. If anything becomes more tangible, if you know any better idea as to who the customer will be and the volume, then we might be able to share them with you, hopefully in the next or the following earnings call. The next question is Shinhan Investment Securities. I understand that the net debt has increased significantly, so I'd like to understand more about it. Can you share with us the structure of the cash flow or the money flowing into the company? The answer is, let me share with you the basic structure of how we collect the payment from our customers.
In case of an export, then we have a down payment of 10%-30% depending on who the customer is and how the arrangement is made, and the remainder will be actually paid in line with the delivery schedule, and with your question about the increase in the debt, is that, as you are aware, that we have witnessed a sudden increase in the volume of delivery in a very limited period of time, so that means that there is a very high demand of the working capital, so versus the second quarter of this year, the requirement for the working capital in the third and fourth quarter has increased quite significantly because of the stronger delivery volume or the higher delivery volume in the second half. For 2025, the delivery volume will remain steady quarter on quarter.
That means that there will not be any sudden increase of working capital. So in terms of the net debt, it will peak in some time in 2024 and will gradually go down in the coming years. The next question is from Daol Investment & Securities. I have a follow-up question about the net debt. So I believe that the payment is yet to be made with a Dynamic, and the Smart Factory, the KRW 700 billion investment, so throughout the whole period of investment, it will shape in a form of something like an S curve. So I'd like to understand more about your future cash flow. The answer is, so the initial subscription period will end on November 6th for Dynamic, so we are waiting for our shareholder response for this initiative.
As for the Smart Factory investment for the propellant, well, this is something that is reflected in the 2026 CapEx. I've told you that from the second to fourth quarter, we expect the operating profit to increase, and this is something that we expect to happen in 2025 and 2026. With the strong performance, I believe that the increase in the net debt will be offset from the better influx of the operating cash flow. The next question is from KB Securities, and it is to do with the Poland contract. After the signing of the MOU, I believe that you have had two rounds of contracts, but you still have about 300 units left.
What has been reported by the media in terms of the speculation is that, meanwhile, the first two rounds of the contract are to do with the sales of the finished goods, but the third round of contract is more about offering the parts and supplies for the K9 self-propelled howitzers. So I'd like to understand how would you plan to actually dispose of the remaining volume with the Polish contract? The answer is, so with regard to the contract 2-3. Should I say this extension of the second contract? Well, that is to do with the K9 self-propelled howitzer, and K9 and the K9 self-propelled howitzer are two completely different things, and the contract 2-3 is about the local manufacturing of K9.
So, also in the scope of 2-3 contract is how we can further utilize the site that we will have for the local manufacturing for the greater European market. Next question is about the delivery to Poland. It seems that on a quarterly basis, quarter to quarter basis, it seems that there is a bit of a swing to the delivery of Poland. So is it based upon the request from the Poland and other customers that you manufacture and deliver per their request? The answer is, of course, that it is per the customer's request that we deliver the finished products. Of course, that it is not just Poland, that there are other customers, so that's why we established the annual production schedule.
There is some quarterly swing, we understand, because on a quarterly basis, depending on the particular period, a month or two weeks, it might spill over into the next quarter, but all in all, on an annual basis, we are keeping in line with our plan. In 2025, we do not believe that there will be as big of a swing that you must have experienced in this year because we expect that quarterly delivery will continuously increase for both K9 and Chunmoo. There is no issue whatsoever with regard to the capacity. We have expanded the facility for K9, and our utilization is not 100%, so we do have some room to further increase the utilizations to cater to the increased demand if there is any such demand coming in. So as for the production, there is no bottleneck, no particular issue that has been reported so far.
Next question is from Daol Investment & Securities. I understand that the profit is increasing, so I'd like to understand more about your dividend and the shareholder return policy. The answer is, for last year, the DPS was increased by 80% and the EPS by 70%, but because our share price has increased, it seems that the dividend profit or the dividend income ratio seems to have gone down. But in terms of the total shareholder return, I believe that we were able to deliver a definite profit to our shareholders. In terms of our dividend policy, I believe that the third quarter will be a bit too early to discuss any such plan or strategy, so I believe that we can share that with you at a later time with the complete value of strategy as well.
Next question is also from Shinhan Investment Securities, and it is about the order pipeline. Is there any updates coming from Middle East and Romania or any other country? The answer is, with regard to the order intake for the fourth quarter in 2025 and 2026, well, there are some marketing activities that are still ongoing, and we are covering primarily three regions, namely Europe, Middle East, and Asia-Pacific for such products as K9, Chunmoo, and Redback, and the munition as well. So all of those marketing activities are ongoing in those areas with the products that I've shared with you. For example, last quarter, there was an announcement of Australia's Redback, and after the announcement, there was some increased inquiries, and we are in the process of following those inquiries up.
But of course, that the order, unless it is finalized and reported by the media, we cannot share the progress with you. Next question is about the margin. I understand that the margin coming from Poland is very high. Do you believe that after the localization of the some manufacturing, will the margin go down? The answer is, as I said earlier, 2-3 contract is something that we are discussing about the possible local manufacturing, but many things are still under discussion and negotiation. We don't know what parts will be localized, so we do not have any idea as to how this contract will, what will be the form of this contract, even less the profitability, so we expect the timing of the revenue that is generated from the contract 2-3 will be 2029.
That is about four or five years down the road, so I believe that it will be a bit too early to share with you any details and predictions for that. Next question is from Daol Investment & Securities, and what is the current progress of Egypt and Romania self-propelled howitzer? When do you believe that you will be able to recognize the revenue from that project? The answer is that as for the Egypt K9 project that we have started to recognize the revenue from development, we will do so from the fourth quarter of this year, and in 2025, the revenue will be generated also from the development and the mass manufacturing in 2025. As for Romania, we expect the revenue to be generated as early as 2026, if not from 2027. The next question is from iM Securities.
The question is about the capacity, and not to do with your in-house capacity, but to do with the further down the line and the supply chain management. You said that for the assembly, you don't have any problem with the capacity, but what about the sourcing of the major products? Because the volume has increased significantly in recent months and years. The answer is that we've had these large-scale orders, well, in advance, so that means that we can provide a high degree of visibility to our vendors. So we can utilize the economy of scale coming from this larger scale order, and same is true for our vendors.
We do not believe that there will be any particular problem with the sourcing, the key parts, because we have provided the visibility into our future plan to our vendors, and I believe that they have made the necessary preparations. The next question is from KB Securities. This is to do with any differential in terms of the OPM from the land systems for the businesses that have come from the Hanwha Corporation, then the business area that you have had traditionally. If there are any differences in the OPM, then where does the difference come from for the third quarter? The answer is from Hanwha Corporation. We have brought in the munitions division, and with regard to the Hanwha Corporation's former munitions and the conventional Hanwha Aerospace businesses, there is no difference in terms of the OPM for the domestic business.
As for the exports, the difference is very minimal, and I can safely say that the profitability is in a very similar range between the businesses that have come from Hanwha Corporation versus what we've had traditionally. The next question is from Daol Investment & Securities, and that is to do with the localization of the STX Engine. What is the response so far? Have you experienced any improvement in terms of the cost? The answer is, I believe that it is a bit too early to discuss about the improvement in the profitability. We will require more track record to actually dictate any trend that is happening with regard to this engine localization. But ever since the initiation of the development, we felt it is very easy to actually adjust the overall value chain.
So we have so far identified some of the qualitative benefits instead of the quantitative benefits. We would need more time to understand better. The next question is from Merrill Lynch, and it is to do with the future order. So I understand that your key products, including the munitions, are being marketed in many different regions. I know that the Australian government has announced their plans to purchase about KRW 14 billion worth of the weapon system. And do you believe that there will be any change in the demand for the weapon system in the countries in the South China Sea after the U.S. election? So what is the trend that you are looking at so far and the area that I focus on?
The answer is we were part of an exhibition that was held in Malaysia, and we have marketed Chunmoo as an option for the anti-ship weapon system. So we are flexible and responding to the local defense requirements, and there has been quite a large number of inquiries about the self-propelled mortar and the self-propelled howitzers. The next question is from KB Securities, and it is to do with the recent progress on the K9 in the United States. I'd like to understand about the future schedule. When the contract will be signed, and will that lead to the sales of the equipment?
The answer is that as a part of the modernization project of the U.S., the self-propelled howitzers, five companies, including ourselves, have signed a contract for the demonstration, and it is too early to share any more details because it is yet for the U.S. Army to allocate any budget for that, so we don't have any information about that. But I believe that our technological capability when it comes to the category of the self-propelled howitzer has been recognized by such an esteemed international player as the United States. The next question is from Macquarie. I have a question about the K9 development. So depending on the needs and the requirements from the U.S. and Europe, it seems that there are development efforts for the wheeled self-propelled howitzer, so I'd like to understand the development schedule for that and also for the K9A2 and/or K9A3.
The answer is as for the wheeled self-propelled howitzer, so the internal review and investigation is currently underway. It is not yet part of any national weapon system development plan. As for the K9A2, so it has been part of the national development plan, and as it's been allocated, so we will follow the government's decision and the timeline in terms of the R&D and the mass manufacturing, and the next question is from Shinhan Investment Securities. What is the current schedule of the repair maintenance for the K9 that has been sold to the European countries? The answer is, well, it has not been that long that we require the massive repair maintenance for the K9s that have been sold to the European countries.
Right now, the requirements are for some of the parts for the minor repair, and of course, that volume is increasing, but compared to the increase of the overall revenue, that it is minute, so it does not actually stand out from the other elements. It's not yet visible, but as we have communicated to the market earlier, well, what we have initiated with the weapons sales will come back in due time as an MRO cycle. Of course, there would not be any time soon, but there is a definite cycle of the product sales that are leading to the MRO in the mid to long-term basis. This concludes the Q&A for the third quarter earnings presentation for the Hanwha Aerospace.