Hanwha Engine's Q1 2026 results reflect operating cash flow of ₩48.4 billion, free cash flow of ₩23.5 billion, and a ₩5.17 trillion order backlog providing two to three years of production visibility at current run rates; the 14.9% operating margin and positive free cash flow should be treated as the baseline assumptions in near-term financial models.
Cash Flow
| Item | Q1 2025 (₩bn) | Q1 2026 (₩bn) | Change (₩bn) |
|---|---|---|---|
| Operating cash flow | 46.1 | 48.4 | +2.3 |
| Investing cash flow | -65.6 | -265.4 | -199.8 |
| Financing cash flow | +9.4 | -1.0 | -10.4 |
| Net change in cash | — | -218.0 | — |
| Ending cash balance | 123.2 | 50.0 | — |
Earnings quality and working capital
Operating cash flow of ₩48.4 billion against net income of ₩52.9 billion yields a cash conversion ratio of 0.91, indicating high earnings quality with minimal accruals-based inflation of profits. Working capital consumed ₩21.0 billion in cash (versus a ₩17.4 billion source in Q1 2025), as rising inventories and receivables absorbed cash. This reversal is the expected pattern for a capital goods manufacturer accelerating production throughput in an upturn — more steel and components arriving ahead of delivery, more billings outstanding on work nearing completion.
Free cash flow: positive at the core
Capex in the quarter totaled ₩24.9 billion — ₩23.6 billion in PP&E additions and ₩1.3 billion in intangible additions. Free cash flow (operating CF minus capex) = ₩48.4 billion − ₩24.9 billion = ₩23.5 billion, solidly positive. The core business is generating cash. The quarter's net cash decline is entirely a function of the SEAM acquisition advance, not operating deterioration.
Investing: one transaction, one explanation
Investing activities recorded a net outflow of ₩265.4 billion; the gross long-term advance payment for SEAM Topco AS was ₩297.0 billion. This single line item more than accounts for the quarter's ₩218.0 billion net cash decline, with the shortfall covered by short-term instrument maturities partially recycling into cash. No emergency capital raising was required; the financing section contributed only ₩10.0 billion in new long-term borrowings. Funding a near-₩300 billion cross-border acquisition entirely from accumulated cash reserves, while maintaining net-cash status, demonstrates the balance sheet capacity built during the cycle's lower-revenue years.
