Operating income

Adjusted operating income for the first half of 2019 came to € 250 million, up 125% from € 111 million in the first half of 2018.

Operating margin was 8.2%, vs 6.5% for the first half of 2018. This improvement is mainly due to the sharp increase in net sales (+79%), which led to a better absorption of fixed costs. Self-financed research and development costs rose sharply to € 258 million, as a result of the simultaneous development of 2 Falcon programs, vs € 143 million last year first half (+80%). This accounts for 8.4% of net sales, as in the previous year.

The hedging rate was $/€1.18 in the first half of 2019, vs $/€1.19 in the first half of 2018.

Net financial result

Adjusted financial income in the first half of 2019 stood at € -26 million vs € -38 million in the first half of 2018. This net financial expense is the result of the financing component recorded under long-term military contracts, which was lower in the first half of 2019 due to the resumption of down-payments for the delivery of the Rafale Qatar.

Net income

Adjusted net income in the first half of 2019 was € 286 million, up 54% from € 186 million in the first half of 2018. The contribution of Thales to the Group’s net income was € 141 million (4.6% of net sales) vs € 132 million (7.7% of net sales) during the first half of 2018.

Adjusted net margin stood at 9.3% in the first half of 2019, vs 10.9% in the first half of 2018. Net margin is impacted by the fall in the relative weight of Thales in the Group’s net sales.

2.  FINANCIAL STRUCTURE

2.1  Available cash

The Group uses a specific indicator called “Available cash”, which reflects the amount of total liquidities available to the Group, net of financial debts. It includes the following balance sheet items: cash and cash equivalents, available-for-sale marketable securities (at market value) and financial debts; it excludes the impact on financial debts of the application of IFRS 16 “Leases”.

The Group’s available cash stood at € 4,756 million as of June 30, 2019, down € 455 million from € 5,211 million as of December 31, 2018. This is mainly due to the increase in working capital, with cash flows from operations being offset by investments made during the period and dividend payments.

Note: Over the next few years, the performance of the Rafale export contracts, the development of the two Falcon programs and the significant investments as part of the transformation plan are expected to reduce available cash.

2.2  Balance sheet (IFRS)

Total equity amounted to € 4,084 million as of June 30, 2019 vs € 4,277 million as of December 31, 2018. The € 193 million variation is mainly due to the negative impact of the actuarial difference accounted in pension liabilities. These actuarial discrepancies, booked as “other income and expense recognized directly through equity”, are related to the decline of the discount rates used to assess the pension obligations.

Borrowings and financial debts amounted to € 1,151 million as of June 30, 2019, vs € 991 million as of December 31, 2018. The increase is due to the initial recognition as of June 30, 2019 of lease liabilities, recognized following the application of IFRS 16 “Leases”. They also include loans taken out by the Group in 2014 and 2015 for € 850 million as of June 30, 2019 (€ 25 million having been paid back during the first half of 2019) and locked-in employee profit-sharing funds.

Inventories and work-in-progress increased by € 82 million to € 3,485 million as of June 30, 2019.

Advances and down-payments received from customers net of advances and down-payments paid to suppliers fell by € 552 million as of June 30, 2019, primarily due to the resumption of downs-payments following the delivery of the Rafale Qatar in the first half of 2019.

Derivative financial instruments had a market value of € -31 million as of June 30, 2019, vs € 14 million as of December 31, 2018. This fall is due to changes in the $/€ exchange rate between June 30, 2019 and December 31, 2018 ($/€1.14 vs $/€1.15).

APPENDIX

Financial reporting

IFRS 8 “Operating Segments” requires the presentation of segment information according to internal management criteria.

The entire activity of the Dassault Aviation Group relates to the aviation and aerospace domain. The internal reporting made to the Chairman and CEO, and to the Chief Operating Officer, as used for the strategy and decision-making, includes no performance analysis, under the terms of IFRS 8, at a level subsidiary to this domain.

Definition of alternative performance indicators

To reflect the Group’s actual economic performance, and for monitoring and comparability reasons, the Group presented an adjusted income statement:

• gains and losses resulting from the exercise of hedging instruments which do not qualify for hedge accounting under IFRS standards. This income, presented as financial income in the consolidated income statement, is reclassified as net sales and thus as operating income in the adjusted income statement,
• the value of foreign exchange derivatives which do not qualify for hedge accounting, by neutralizing the change in fair value of these instruments (the Group considering that gains and losses on hedging should only impact income as commercial flows occur), with the exception of derivatives allocated to hedge balance-sheet positions whose change in fair value is presented as operating income,
• the amortization of the Thales purchase price allocation (PPA),
• the adjustments made by Thales in its financial reporting.

The Group also presents the “available cash” indicator which reflects the amount of the Group’s total liquidities, net of financial debt. It covers the following balance sheet items:

• cash and cash equivalents,
• other current financial assets (essentially available-for-sale marketable securities at their market value),
• financial debt, except for lease liabilities recognized following the application of IFRS 16 “Leases”.

Only the consolidated financial statements are audited by the statutory auditors. The adjusted financial data are subject to the verification procedures applicable to all information provided in the annual report.

 

Impact of the adjustments

The impact on the first half of 2019 of the adjustments to income statement aggregates is presented below:

(in € thousands)	Consolidated income statement H1 2019	Foreign exchange  derivatives		Thales PPA	Adjustments applied by Thales		Adjusted income statement  H1 2019
		Foreign exchange gain/loss	Change in fair value
Net sales	3,065,636	-7,216	-555			3,057,865
Operating income	258,939	-7,216	-1,596				250,127
Net financial income/expense	-45,322	7,216	11,744				-26,362
Share in net income of equity associates	118,194			20,636	4,125		142,955
Income tax	-78,106		-2,950				-81,056
Net income	253,705	0	7,198	20,636	4,125		285,664
Group share of net income	253,667	0	7,198	20,636	4,125		285,626
Group share of net income per share (in euros)	30.5						34.4

The impact on the first half of 2018 of the adjustments to income statement aggregates is presented below: