Good afternoon. I am Sang Yun Han, 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 Hanwha Aerospace's financial performance for the fourth quarter and the whole year 2024, as well as business outlook by segment for 2025. Please refer to pages six to nine of the presentation. In 2024, annual revenue reached KRW 11 trillion 246.2 billion, marking a 43% increase year-on-year, while operating profits surged approximately threefold to KRW 1 trillion 724.7 billion. This was a milestone year for the company, as it surpassed KRW 10 trillion in annual revenue and KRW 1 trillion in operating profit for the first time.
In Q4 2024, consolidated revenue reached KRW 4 trillion 831.1 billion, reflecting a 56% year-on-year increase, while operating profits surged more than threefold to KRW 892.5 billion compared to the same period last year. For the full year, both revenue and operating profit grew, driven by strong performance in the Land Systems division and Hanwha Systems. I will share more details in the performance by segment. In Q4, pre-tax income reached KRW 2 trillion 122.3 billion, while net income amounted to KRW 2 trillion 52.3 billion. Please turn to page 10 for financials. As a result of Hanwha Ocean's consolidation as of the end of 2024, total assets stood at KRW 42 trillion 900 billion, total liabilities at KRW 31 trillion 900 billion, and the net debt ratio at 64%, which is an increase from that of the end of 2023. Now, I will present the performance by segment.
Please turn to page 11 for the Land Systems. The Q4 revenue was KRW 3 trillion 364.7 billion, a 75% growth from the same period last year. The domestic revenue was KRW 1 trillion 514.7 billion, or a 25% growth from the same period last year, and the overseas revenue was KRW 1 trillion 850 billion, or a 159% growth from the same period last year. The operating profit was KRW 869.8 billion, or a 172% growth from the same period last year. As mentioned in the previous earnings call, the domestic business continues its solid growth, driven by the mass production of key defense programs such as the 120 mm self-propelled mortar, CBR reconnaissance vehicle, and wheeled anti-aircraft gun, along with increased domestic order volumes and improved productivity. For the overseas business, revenue growth was driven by increased export volumes, greater regional diversification, and favorable foreign exchange effects.
Revenue was recognized for 40 K9 howitzers and 12 Chunmoo MLRS units delivered to Poland, and revenues from Egypt's K9 development project began to be recognized in Q4. In 2025, the Land Systems is expected to achieve approximately 20% revenue growth, driven by continued strength in domestic mass production and increased export volumes. Based upon publicly available information regarding contract duration, contract volumes, and remaining orders, the Poland K9 deliveries in 2025 are expected to exceed the 70 units delivered in 2024, while Poland Chunmoo deliveries are projected to increase to at least 50 units, surpassing the 2024 figures. Additionally, deliveries for the Australia K9 and Egypt K9 contracts will begin in earnest, further supporting continued growth backed by a strong domestic and international order backlog. Please turn to page 12 for Land Systems order backlog.
As of the end of 2024, the total backlog for the Land Systems stood at KRW 32 trillion 400 billion, which has grown from that of the end of last year. Last year, the company secured multiple contracts, further expanding its order backlog, including phase two execution contract for Poland Chunmoo and K9 supply contract for Romania. In Q4, the company also signed major contracts such as Saudi Arabia M-SAM launchers and components worth KRW 950 billion, the phase four mass production of K21 infantry fighting vehicles worth KRW 700 billion, and phase three mass production of 230 multiple rocket launchers worth KRW 340 billion, demonstrating a steady increase in its order backlog. As geopolitical tensions persist and defense budgets continue to rise worldwide, the global defense market is expected to expand, creating new opportunities for orders.
Leveraging the company's diversified weapons system lineup, we are actively engaging in marketing efforts across Europe, the Middle East, and the Asia-Pacific region, while closely monitoring procurement announcements from various countries. Furthermore, as confirmed through domestic and international media reports, interest and inquiries from existing customers regarding our weapons systems remained steady. Building on the accumulated export expertise and diverse product portfolio, the company will continue to pursue a strategy focused on expanding new orders and diversifying export markets. Please turn to page 13 for performance of aerospace segment. Q4 revenue was KRW 595.2 billion, or 39% growth year-on-year, and the operating profit was negative KRW 46 billion. While the revenue has grown due to increased volume, the operating loss associated with the GTF RSP slightly increased from the same period last year.
Additionally, one-time costs, including the provisions related to the defense business and the year-end performance bonuses, also had an impact on earnings. The operating loss related to the GTF RSP in Q4 2024 was KRW 24 billion. In Q4, the number of GTF engine units sold was 264, bringing the total for 2024 to 990 units, reflecting a steady increase from 648 units in 2022 and 863 units in 2023. Regarding the aviation market, the total number of commercial aircraft delivered globally by Boeing and Airbus in 2024 was 1,114 units, reflecting a decline compared to 1,141 units in 2022 and 1,263 units in 2023. However, Airbus delivered 766 aircraft in 2024, marking its highest annual delivery volume since 2019.
Additionally, according to the International Air Transport Association, or IATA, the average global fleet age reached 14.8 years in 2024, the highest on record, suggesting that demand for new aircraft deliveries is expected to increase further. In 2025, the aerospace division is expected to see revenue growth and profit improvement driven by increased military and LTA volumes. However, the rise in GTF engine deliveries is also expected to lead to an increase in RSP-related operating losses. Please turn to page 14 for the performance of Hanwha Systems. In Q4, the revenue was KRW 933.5 billion, or 19% growth year-on-year, and the operating profit was KRW 29.1 billion, or 60% growth year-on-year. As for the detailed performance, outlook, and progress of new businesses of Hanwha Systems, please refer to the earnings release of Hanwha Systems, which happened on February 7th.
Next, please turn to page 15 for the performance of Satrec I , which is included in the others. The Q4 revenue reached KRW 48.4 billion, reflecting a 28% year-on-year increase, while operating profit was KRW 1.2 billion, marking a return to profitability compared to the same period last year and achieving two consecutive quarters of positive earnings. Looking ahead, Satrec I is expected to sustain its revenue growth and profit improvement throughout the year, supported by solid order backlog. Lastly, I will explain the additional Hanwha Ocean stake acquisition, which was disclosed after the market closed yesterday. Through a board resolution, the company has acquired an additional 7.3% stake in Hanwha Ocean from Hanwha Impact Partners and other group affiliates at KRW 51,100 per share, the closing price as of yesterday. The total acquisition amount is approximately KRW 1.3 trillion.
As a result of this acquisition, the company's direct ownership of Hanwha Ocean will increase from 23.1% to 30.4%, while the consolidated ownership will rise from 34.7% to 42%. Additionally, separate from this acquisition, following the discussions with the auditor, we have reclassified Hanwha Ocean as a consolidated subsidiary at the end of last year after previously applying the equity method to reflect its financial performance. As a result, starting from the end of last year, Hanwha Ocean's assets, liabilities, and equity have been fully consolidated into our financial statements. Furthermore, from the first quarter of 2025, Hanwha Ocean's revenue, earnings, and cash flow will also be incorporated into the consolidated financial statements.
Through the additional stake acquisition and consolidation of Hanwha Ocean as a subsidiary, the company aims to achieve the following: first, enhancing synergy with Hanwha Ocean's defense and naval shipbuilding businesses, particularly in alignment with past strategic joint investments such as the acquisition of Philly Shipyard and Dyna-Mac Holdings. Two, strengthening our control over Hanwha Ocean, further solidifying our influence over its operations and strategic direction. Three, translating Hanwha Ocean's expected enterprise value growth into increased corporate value for Hanwha Aerospace. With the launch of the second Trump administration, there is a growing momentum for the U.S.-Korea cooperation in the shipbuilding sector. In the midst of this development, the additional stake acquisition and consolidation of Hanwha Ocean positions the company to actively enter the U.S. shipbuilding market and pursue U.S. Navy programs. Through these efforts, we aim to establish ourselves as a comprehensive defense, shipbuilding, and marine group.
This concludes the earnings briefing, and now we will have the Q&A.
For smooth operation, I'd like to ask you to ask one question per turn. First question is from Shinhan Investment Securities.
Congratulations on the great performance. I have a question about the margin ratio of the Land Systems. I can understand the margin ratio for the third quarter of last year, but considering the whole year of 2024, it seems that the margin for Australia, Egypt, and also for the domestic supply might be not as high as your highest margin area. So the question is that, do you believe that there is additional room for the margin to go even further up overall? And the additional question is that, would that be any impact from the fluctuating exchange rate?
The answer is that we expect the revenue from the Land Systems to grow at around 20%. As for the margins, we expect the volume to continue to flow into Poland and other regions. Looking at the whole year, the margin will be in the same range as that of last year. As for the FX ratio, it is less than 10% of the total operating profit, and it is not a major driver.
Next question is from Daol Investment & Securities.
That is to do with the acquisition of additional shares from Hanwha Ocean. Would you require additional fundraising for this initiative?
The answer is there is no need to raise additional funds because we have the continuous influx of operating cash flow, and on top of that, when we utilize our existing cash reserves, then it should be sufficient to fund the share acquisition from Hanwha Ocean.
The next question is from Shinhan Investment Securities.
I'd like to know more about the export pipeline and overall direction of this year's order.
The answer is that it would not be appropriate for me to actually disclose what kind of weapon systems are being exported to which country, but you might find some information from the domestic and international media as to what kind of weapon systems of ours are being asked or interested by the global customers. So they are generally in line with our marketing initiatives. Looking into the geographical division, we are focused on three major areas, including Europe, the Middle East, and Asia-Pacific region, and we are actively marketing our key weapon systems of K9, Chunmoo, and Redback.
As long as there is no major change in the global trend of increased defense spending, we still see that there is a constant possibility of new orders, and we'll try to communicate with the market with the disclosure.
The next question is from Nomura Financial Investment.
I'd like to know more about 2025 guidance figures. So you said earlier that you expect the sales from the Land Systems to grow by 20% from that of last year. Can you give us the breakdown between the export volume and the domestic consumption? And in case of 2024, we were able to witness the quarter-on-quarter performance growth in terms of export. Then can we expect the same trend to sustain in 2025?
The answer is that we cannot share with you the guidance that consolidates Hanwha Systems and Ocean together, but if I may share with you the guidance for the Land Systems, which accounts for the largest portion when it comes to the revenue and the net profit. Well, the 20% actually includes both domestic and the international volumes, and we expect the exports to further grow than that of 2024. So when you look into the order backlog and the share of the export, then it is even higher than what we have realized last year. So it is only natural that export and the share of it grows. When we look into some of the key drivers of the performances, the Poland K9. Well, we have delivered 70 units last year, and we expect that the delivery volume will exceed that. And same is true for Chunmoo.
Then we will deliver more than the 2024 performance of 50 units. And as per the quarterly performance, of course, the yearly performance is much more important, but looking into the performance of 2024, we did better in the second half than we did in the first half. And it is the trend or the seasonality that the domestic sales are concentrated in the fourth quarter. So it is likely that there could be some degree of concentration of performance in the fourth quarter, but we expect the quarterly performance will be even for the year 2025.
Next it's from Shinhan Investment Securities.
So I'd like to know more about any additional one-time expenses for the Land Systems for the fourth quarter. Was there any other performance bonuses or settlement gain from the domestic business?
The answer is the performance bonus for the Land Systems is something that we set reserves for on a quarterly basis instead of setting it aside on the fourth quarter. So we do not believe that any particular increase in the fourth quarter for the Land Systems' performance bonuses, and there was a slight elevation of the net effects than other quarters.
The next question is from Nomura Financial Investment.
This is the follow-up question from my earlier question. So you said that the margin will be in the same range as that of 2024 for the Land Systems. So can I expect the operating profit will also grow as the revenue grows in 2025?
The answer is, as for the margin, that we would not expect that to go further down than that of 2024 because the share of export is continued to increase from that of last year, so as long as the profit or profitability of the domestic business does not decline, then we do not expect the profitability to improve for the whole year 2025.
Next question is from Shinhan Investement Securities.
I'd like to know about the overall annual investment for the Land Systems. I know that there is a project going on to extend the munitions plant and also you are building plants overseas. As you are acquiring additional shares from Hanwha Ocean, I was wondering, was there any strains in fundraising?
The answer is there is no particular issue with regards to our cash flow and the fundraising with regards to the acquisition of Hanwha Ocean's additional shares because we have sufficient cash reserve and there is a constant influx of operating cash flow. As for the CapEx, it is generally in the range of KRW 300-400 billion for the whole company, including the Land Systems. But next year, on top of that, we are building the additional facility in Poland for the Smart MCS modular charge system that will cost an additional KRW 200-300 billion for the whole year. So for the 2025, we expect the CapEx for the whole company to be in the range of KRW 500-600 billion.
The next question is from Nomura Financial Investment.
This is to do with the Value-up plan. Conventionally, the domestic listed companies have a very low payout ratio. We offer about 70% discount for the value of listed subsidiaries, and same goes for the Hanwha Corporation. I was wondering, would there be any change in the payout ratio for the subsidiaries to go up, such as through the mergers or the change in the corporate governance structure?
The answer is for Hanwha Aerospace when it comes to the dividend. The paid basis, it went up as the profit went up for last year. Of course, this year's dividend is something that needs to be approved by the board and also passed at the general meeting of shareholders. We expect the dividend to go up from that of last year.
I interpreted your question to ask me or that's the company if there is any additional plan for the share ownership change or the restructuring for the subsidiaries, and we do not have any particular plan to do so.
Next question is from iM Securities.
I have a question in terms of the number of deliveries and the speed of delivery of K9 to Poland. In Q4 of last year, the volume was larger than expectations, and the speed of delivery for the whole year 2024 has been faster than many predicted. Some suspected that that is because you have expedited some of the volume that was set aside for 2025, but it seems that is not the case according to the guidance that you have given us early on.
But considering the total volume that you are delivering to Poland, will there be any possibility for the final delivery timing will be expedited and also the delivery schedule for the part two of the contract will be also expedited?
The answer is that we are delivering the products on schedule that has been prescribed by the customers. So I have not heard anything about expedition of the schedule for the second phase of the contract. So in line with the guidance, then we expect more volumes to be delivered to Poland for K9 and Chunmoo.
Then it is from Shinhan Investement Securities.
I have a question about the possible issues with the delivery and the potential end of war. If the war ends, will that impact the speed of the contract completion, and will that create a possibility that the current level of margin cannot be sustained?
The answer is the delivery has not been an issue in the past, currently, and in the future because the delivery, on-time delivery is one of our key competitive advantages, so we will make sure that we sustain that. The possibility of the end of war and what would proceed afterwards, we will know for sure once if and when that happens. I believe that the events that are more associated with the order for the defense purchase are the defense spending that is based upon more longer-term defense initiative. I believe that that is the case for many countries around the world. Unless there is any massive change in the geopolitical scene globally due to the possible end of war, then I do not expect that the situation will change anytime soon.
And the consensus not just among the current experts, but the US and the European expert is that it is more likely that the current geopolitical tension will prolong. So we will be able to continue winning the orders in various regions around the globe based upon our competitive advantage utilizing our key weapon system.
This question is from Korea Investment & Security.
I understand that from 2026, you will be manufacturing the finished products and some parts in other customer countries or the other foreign countries. Will that impact your profitability?
The answer is when it comes to the total size of the revenue, because of the localization of some parts, well, versus the whole products being exported out after being fully manufactured in Korea, well, the size of the revenue might slightly decline.
But then we will export some of the key products, which are the centerpiece of the profitability. So even though total size of the revenue might go down, the size of the profit and also the share of the profit out of the total revenue is likely to go up. And that has been partially reflected into these revenue predictions. But this localization and associated revenue is not a major portion out of the total revenue. So we do not expect any major shift in the total ratio between the revenue and the profitability.
Next question is from Korea Investment & Securities.
So it seems that the non-operating profit and loss has increased quite significantly. Can you tell me what is the reason behind it?
The answer is so the net profit before tax increased quite significantly.
That is to do with the change in the Hanwha Ocean's position into the consolidation. So what was once captured as the investment into the subsidiary has been treated as a gain under disposition of equity-method investment share, and that amount is KRW 1.1 trillion. And there is nothing else in particular.
The next question is from Hanwha Investment Securities.
I have a question regarding the Poland K9. So when about 40 units of K9s were delivered to Poland in Q4, then I'd like to understand what is the remaining volume for the first round of contract. Will that be in the mid-70s?
The answer is, so your estimation is correct. So the remaining volume for the first round of contract is in its 70s.