Good afternoon, I am Han Sang-yoon, Head of IR at Hanwha Aerospace. I'd like to thank everyone for joining the call today.

For today's earnings call for the second quarter, we will report on the business highlights and financial performance, and open for Q&As with the participants. Now, we will brief you on Hanwha Aerospace financial performance for the second quarter of 2026.

Good afternoon, I am Kim Chul-hong, CFO of Hanwha Aerospace. Let me present the earnings highlights for the second quarter.

Please turn to pages 6 and 7. The consolidated revenue posted 9 trillion 292.9 billion won, up 47% year-on-year, and the operating profit was 1 trillion 365.5 billion won, up 59% year-on-year.

Both sales and operating profit increased on an year-over-year basis, driven by earnings growth of the Land Systems, as well as Hanwha Ocean and Hanwha Systems. Quarterly consolidated operating profit surpassed a 1 trillion mark for the first time in Q2.

Further details will be provided in the section for performance by segment. Q2 pre-tax profit recorded 1 trillion 246.7 billion won, and net profit was 1 trillion 80.5 billion won.

Please turn to page 8 for financials. Total assets were 58 trillion 741.2 billion won, total liabilities were 38 trillion 504.1 billion won, and the net debt-to-equity ratio was 31%.

I will share performance by segment. Please turn to page 9 for the Land Systems.

Q2 sales were 2 trillion 107.5 billion won, up 19% year-on-year. Domestic sales recorded 875.1 billion won, up 27% year-on-year, and export sales amounted to 1 trillion 232.4 billion won, up 14% year-on-year.

Operating profit posted 533 billion won, up 2% year-on-year. The growth of domestic sales was driven by volume increases on the back of mass production of Cheonho anti-aircraft gun wheeled vehicle system and missile systems, including Cheongung.

Exports expanded as scheduled deliveries to various regions such as Poland, Egypt, and the Middle East proceeded smoothly. As a result, the Land Systems produced better results on an year-on-year basis.

As has been reported in the domestic and local media, Poland K9 EC2 mass production is expected to ramp up in earnest in the second half of the year. The K9 business with Egypt and Australia is proceeding as scheduled.

Against this backdrop, the Land Systems division is anticipated to deliver solid results in the second half of the year based on the scheduled deliveries for Korea and overseas. Please turn to page 10 for Land Systems order backlog.

As of the end of Q2, the total order backlog for the Land Systems is approximately 38 trillion 300 billion won, reflecting an approximately 940 billion won of follow-on contract to supply K9 units to Finland signed in April, and an agreement to provide additional Chunmoo multiple rocket launchers to Estonia signed in May. Regarding new orders, as was announced by Indra during its earnings call on July 23rd, we are discussing with the customer details regarding Spain's self-propelled howitzer modernization project.

We will communicate further details through official disclosures or press releases. Please turn to page 11 for the performance of the Aerospace division.

Q2 sales were 760 billion won, up 17% year-on-year, and operating profit posted 37 billion won, turning a profit on an year-on-year basis. Both sales and operating profit improved year-over-year, driven by an increase in defense volumes and a higher proportion of revenue from relatively higher-margin business.

Operating loss related to GTF RSP in the second quarter of 2026 decreased by 37.3 billion won year-on-year to 10.2 billion won, partly due to the base effect of one-off cost recognition in the second quarter of 2025. In Q2, the number of GTF engine units sold was 261, up from 227 units sold during the same period last year.

As for the number of aircraft delivered, Boeing and Airbus delivered a combined total of 408 units, up from 320 units in the second quarter of 2025. Earlier this month, the company unveiled first prototypes of two long life-cycle UAV engine designs that it developed with proprietary domestic technology in collaboration with the Agency for Defense Development and commenced ground testing.

Unlike short life-cycle engines used for missiles, long life-cycle UAV engines are designed to operate for thousands of hours. This is the first time that such engines have been developed using domestic technology and prototypes have been completed.

With the successful development of prototypes, the company has proven its aero-engine development capabilities. Going forward, we aim to participate actively in government-led domestic aircraft engine development programs such as 10,000-pound thrust class turbofan engines and advanced aircraft engines, thereby contributing to promoting self-sufficiency and export competitiveness of the Korean aviation industry.

Please turn to page 12 for the performance of Hanwha Systems. Q2 sales were 1 trillion 117.6 billion won, up 45% year-on-year, and the operating profit was 103.7 billion won, up 219% year-on-year.

For more detailed performance, outlook, and progress of business of Hanwha Systems, please refer to Hanwha Systems earnings release dated July 28th. Please turn to page 13 for the performance of Hanwha Ocean.

Q2 sales were 5 trillion 443.2 billion won, up 65% year-on-year and 70% Q-on-Q. The operating profit recorded 736.1 billion won, up 98% year-on-year and 67% Q-on-Q, posting record high quarterly results since it was acquired by Hanwha Aerospace.

For more detailed performance, outlook, and progress of business of Hanwha Ocean, please refer to the earnings release of Hanwha Ocean dated July 27th. Lastly, please turn to page 14 for the performance of Satrec I, which is included in the others in the performance by segment.

Q2 sales were 51.1 billion won, up 15% year-on-year, but the operating profit was 1.4 billion won, down slightly year-on-year, mainly because of 3.3 billion won of one-off expense from recognizing an inventory valuation allowance. This concludes the earnings briefing, and we will now have a Q&A session.

The first question is from Kiwoom Securities. I'd like to get some color on your defense business in Q2 as well as the second half of the year.

What was Poland K9 and Chunmoo volume for the second quarter, and what will be the timeline for the second half of the year? You mentioned that K9 EC2 will be carried out in earnest starting from the second half.

Is it according to the schedule or accelerated ahead of schedule? The answer is: As we mentioned during our first quarter earnings call, our annual volume outlook for this year is to deliver more than 30 K9 units and 40 Chunmoo units.

Please understand that we cannot provide quarterly breakdown due to the Polish security guidelines. In the second quarter, we delivered K9 basic issue items only, and main K9 deliveries will be made starting from the second half.

We also have Chunmoo deliveries in the second quarter, as well as scheduled for the second half, in addition to volumes for Poland, Egypt, and Australia. Therefore, we expect enhanced results for the second half of the year compared to the first.

The next question is from Samsung Securities. I have two questions.

First, can you provide us with updates on export order pipeline this year? Second, what is the proportion of business with Poland among export sales?

The answer is: As we communicated previously, and as Indra has mentioned about SPH for Spain, our consultations and discussions are going very well. Also, regarding the US SPH modernization project, we are waiting for the preferred bidder announcement, which has been delayed slightly, but is expected to be made in August.

As for our business in the Middle East, geopolitical tensions have been very high, which is acting as an obstacle in creating demand in a very short term, but we do hope that more concrete discussions can be made within the current quarter. Moving on to your second question, Poland takes up more than half of the export sales for Q2.

The next question is from Merrill Lynch. Regarding Q2 performance of the Land Systems, I understand that you do not provide margin breakdown of your domestic sales, but if we infer from the past margin range data that we have, it seems that exports contribute to high operating profit.

While the volume from Poland has gone down, profitability is expected to go up in the second half of the year. I'd like to also know if there are other factors that contribute to margin improvement, maybe your business with Egypt or any other factors.

Assuming that volume for Poland increases in the second half and the next year, do you believe that the current profitability levels are sustainable? The answer is: There is little variability in the profitability of domestic sales, with a mid and high single-digit range of operating profit margin, which is similar to Q1.

You can infer export business margin by back calculation, which has not changed much in the second quarter. While Q2 saw deliveries of K9 basic issue items to Poland and exports to Egypt and Australia, K9 deliveries to Poland will begin in earnest from the second half of the year.

As was the case in the first quarter, deliveries to Egypt and Australia have similar profitability with those for Poland, we expect profitability to be sustained into the second half of the year as well. We still have scheduled volumes of the K9 for Poland next year, and given exports to other regions, we believe that we can maintain this level of profitability.

The next question is from Hankook Investment & Securities. I'd like to ask you about the production disruptions at your Daejeon facility.

What will be its impact on your delivery schedules for next year and in the medium to long run? How much of an impact are you anticipating, and what is your response plan?

The answer is: An investigation is currently underway to identify the cause and other relevant matters around the accident, and we will share more details once the investigation is concluded. However, the company is taking this accident very seriously, and has recently established a Workplace Safety Culture Innovation Committee to promote workplace safety and systematically review and improve safety across the company.

The accident did not impact Q2 results. With the ongoing investigation, suspension of production may lead to some delay in revenue realization, but we will do our best to normalize operation to minimize its impact on our earnings.

It is still too early to evaluate any potential financial impact. The next question is from IM Securities.

I would like to know whether there were meaningful results with respect to munitions, and your outlook on demand trends as it relates to your capacity expansion plan. The answer is: In the second quarter, we delivered Chunmoo munitions and 155-millimeter artillery to Korea and overseas.

While their share cannot be disclosed, there continues to be demand for them in Korea and also overseas, including continued munition exports to Europe, which is why we plan to expand MCS capacity as scheduled in the second half of 2027. This is how we're planning to respond to market demand.

We will have more long-term visibility for such demand at the time of capacity expansion. The next question is from Daishin Securities.

I'd like to get an update on your business in the US and the Polish JV, as well as guided missile production facilities. The answer is: Regarding the US next-generation SPH project, as I mentioned earlier, we are waiting for the announcement of a preferred bidder in August.

As for our Chunmoo missile JV in Poland, we started construction already with a goal of completing construction in 2029 and beginning production in 2030. The project is proceeding as scheduled.

The next question is from Eugene Investment & Securities. I would like to get an update on the third execution contract with Poland for K9.

I wonder if the localization plans and EC3 will become more concrete by the end of the year. The answer is: As you mentioned, K9 EC3 assumes localization, and we are currently discussing details, and we hope to finalize them by the end of the year.

The next question is from Nomura Securities. I understand that you are reviewing a munitions factory construction in Arkansas.

Can you share with us more details such as the timeline and revenue expectation? The answer is: To make investment in the localization of munitions business in the US, we are at a stage just before the final site selection.

We hope that the decision will be made in the second half of the year so that contracting can be done. The next question is from J.P.

Morgan. Are there any changes to the second K9 contract with Romania?

Can you also update us on Chunmoo and munitions business opportunities in Europe? The answer is: We are still delivering on the first contract with Romania, it is too early to discuss the second contract.

As you can see from the case of a third contract with Poland, the next round of contract can be discussed only after deliveries on the previous contract are completed, you can say that we are on track with these cases. We continue to export MCS to Europe, and the planned expansion of the MCS production capacity targets the European market.

We continue to see an increase in demand for Chunmoo from Estonia and the K9 in Northern and Eastern Europe. We hope to win additional orders from Europe for Chunmoo and the K9.

Given the nature of our business, we can only disclose such demand when an actual contract is signed, we will make sure to share with you when future contracts are signed. The next question is from IM Securities.

I would like to ask a question about your order backlog. The order backlog for the second quarter is similar to the first quarter, and considering the size of revenue, we can infer that new orders are about 2 trillion won, but you only disclosed your contract with Finland, which is valued at around 900 billion won.

The undisclosed orders seem to be around 1 trillion won. Can you give a breakdown of this amount between domestic and export orders?

The answer is: New orders in the second quarter were worth 1.5 trillion won. While the share of exports increased Q-on-Q, there was also the impact of exchange rate changes.

We continue to maintain 37 to 38 trillion won of Land Systems order backlog, which guarantees revenue for more than 3 years, thereby providing visibility for financial and business planning. The next question is from Samsung Securities.

With growing geopolitical tensions in the Middle East, our investors would like to know if demand for ground weapon systems declines while demand for guided weapons and missile systems increases. Have you noticed any changes in demand for each segment as well as changes in defense spending?

The answer is: As I mentioned before, tensions in the region remain high, which is making it challenging to carry out any administrative procedures in a month or two. Therefore, it is difficult to estimate changes to demand for land weapon systems by segment or category.

Based on the past trends as well as current discussions, you can say that demand for air defense systems will increase. However, demand for other land defense systems will persist as well because of the ongoing tensions.

In addition to air defense systems, non-air defense systems and other ground weapon systems are still in demand, but actual orders will probably be placed when geopolitical tensions ease. In our view, there's no cannibalization between different segments.

The next question is from Eugene Investment & Securities. Can you add some color on your business in Spain and the Middle East?

Is it safe to assume that discussions and negotiations are going on rather than any basic agreement or any contract has been signed? Also, since the start of the Ukrainian War in 2022, there has been a view that the global demand for defense systems has been on the rise.

I would like to know the company's view on demand trends, whether they will continue to be upward. Recently, some policy announcements were made from Europe and NATO, and I wonder if they will constrain your business or whether demand for your products continue despite political changes.

The answer is: There are quite a lot of questions on our order pipeline. We're seeing an upward trend in defense spending in Europe, the Middle East, Asia, as well as the US, including the next-generation SPH project in the US and demand for MCS.

In some regions, efforts are underway to secure local capacity, but they do not have a negative impact on our business. As I mentioned earlier, we have a localization joint venture in Poland for Chunmoo, and we have demand for K9 and K10 from Australia, and the Redback production facility is scheduled to begin operation next year.

There's also demand from Egypt. In the second quarter, we got export orders from Finland for the K9 and Estonia for Chunmoo.

We have demand for K9 and K10 from Australia, and the Redback production facility is scheduled to begin operation next year. There's also demand from Egypt.

In the second quarter, we got export orders from Finland for the K9 and Estonia for Chunmoo. We also export MCS to Europe, and our MCS capacity expansion in the second half of next year aims for Europe.

Regarding your question on the Middle East, we do not see any downward trend in demand for weapons, and we do not see any segment cannibalization while geopolitical issues may slow down the administrative procedures. In short, there's constant demand for diverse products in Europe, the Middle East, and Asia, and the US because of heightened global tensions, and we will continue to respond to demand through exports and localization so that we can maintain the order backlog of more than 38 trillion won going forward.

The next question is from Merrill Lynch. I would like to get some updates on the MOUs you signed in April, one with Northrop Grumman in the US, and the other with Thales in France.

We vaguely understand that they were about guided weapon system. What are potential products or product mix to be involved, and what is the current status?

The answer is: As you mentioned, we signed MOUs with Northrop Grumman and with Thales. While it may be meaningful to discuss target products, but such MOUs reflect unmet demand for certain systems and components in the market due to supply shortage.

The MOU with Northrop Grumman is on solid propellant, and the MOU with Thales is on applying our Chunmoo missiles to their surface-to-surface launching systems. There's growing demand for these products, and we have solutions to respond to demand, and we are at an early stage to work with various partners to approach them through localization.

The next question is from Eugene Investment & Securities. You mentioned that there's growing demand around the world for propellants and MCS, but I wonder if you have any challenges related to sourcing raw materials for domestic production and exports to Europe and the US.

The answer is: We plan to double our MCS production capacity in Korea, and we will also finalize a site for MCS production facility in the US very soon. We have carefully reviewed the value chains for both domestic capacity expansion and new capacity installation in the US, and we have not found any bottleneck or sourcing-related challenges.

Our plans are proceeding smoothly as scheduled. The next question is from J.P.

Morgan. Thank you for adding color on global demand and needs.

Do you see opportunities for Cheongung or L-SAM in Europe? The answer is: I cannot mention any specific region or country, but we've been receiving inquiries from Europe, but I believe that the Middle East is where we expect to see tangible results first.

Our discussions with Europe are going as well, results may be produced there soon. The final question is from Macquarie Securities.

Unlike development projects with DAPA in Korea, when you develop something for export, I understand that you have to spend your own capital to upgrade existing systems. Other companies' earnings seem to be impacted by this type of development capital cost.

How about Hanwha Aerospace? The answer is: The case in point is the Redback project, where system development has been made for export.

The same is for the next-generation SPH project of the US if we are selected to carry out this project. Development costs may be incurred, but their impact on financial performance varies by company, depending on their size of revenue and operating profit.

For Hanwha Aerospace, the impact is not significant.