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Dassault Aviation

Quarterly Report Jul 23, 2020

1245_ir_2020-07-23_08ba74d5-1e77-4ff7-a1c5-319e09dbf4a6.pdf

Quarterly Report

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2020 first half-year financial report

The English language version of this report is a free translation from the original, which was prepared in French language. All possible care has been taken to ensure that the translation is an accurate presentation of the original. However, in all matters of interpretation, views or opinion expressed in the original language version of the document in French take precedence over the translation.

General

Declaration of the person responsible for the report Group structure as of June 30, 2020

Business report

  • 1 Key figures for the first half of 2020
  • 2 A first half marked by Covid-19
  • 2.1 Dassault Aviation Parent Company's crisis management
  • 2.2 Contribution to national effort in France
  • 2.3 Aeronautics support plan

3 2020 outlook

4 Group activities

  • 4.1 Programs development
  • 4.2 Make in India
  • 4.3 Customer support

5 Risks

6 First half 2020 adjusted consolidated results

  • 6.1 Order intake
  • 6.2 Adjusted net sales 6.3 Backlog
  • 6.4 Adjusted results

7 Financial structure

7.1 Available cash 7.2 Balance sheet (IFRS data)

  • 8 Shareholder information
  • 9 Related-party transactions
  • 10 Conclusion

Consolidated financial statements

Condensed financial statements as of June 30, 2020

Auditors' report

I hereby certify that, to my knowledge, the interim condensed financial statements in this report have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets and liabilities, financial position and income or loss of the Dassault Aviation Group, and that the half-yearly activity report presents a fair representation of the important events of the first six months of the financial year and their effect on the half-yearly financial statements, the main transactions between related parties and a description of the main risks and uncertainties for the remaining six months of the financial year.

Paris, July 23, 2020

Eric TRAPPIER Chairman and Chief Executive Officer

Group structure as of June 30, 2020

The Dassault Aviation Group is an international group that encompasses most of the aeronautical business of the Groupe Industriel Marcel Dassault. The main Group companies are as follows:

The list of consolidated entities is presented in Note 2, "Scope of consolidation", of the Appendix to the interim condensed consolidated financial statements.

1. KEY FIGURES FOR THE FIRST HALF OF 2020

H1 2020 H1 2019
€ 984 million
2,900 million
Order intake 5 Falcon 7 Falcon
Rafale OCM RAVEL
€ 2,641 million € 3,058 million
(
)
Adjusted
net sales
*
7 Rafale Export
16 Falcon
10 Rafale Export
17 Falcon
as of June 30, 2020 as of December 31, 2019

16,193
million

17,798
million
Backlog 68 Rafale
of which
28 Rafale France
40 Rafale Export
42 Falcon
75 Rafale
of which
28 Rafale
France
47 Rafale Export
53 Falcon
H1 2020 H1 2019
(
)
Adjusted
operating income
*
Adjusted
operating margin
€ 55 million
2.1% of net sales
€ 250 million
8.2% of net sales
Research & Development
262
million
9.9% of net sales
€ 258 million
8.4% of
net sales
(
)
Adjusted
net income
*

87
million
€ 286 million
Adjusted
net margin
3.3% of net sales 9.3% of net sales
as of June 30, 2020 as of December 31, 2019
Available cash € 3,921 million € 4,585 million

Note: Dassault Aviation recognizes Rafale Export contracts in their entirety (including the Thales and Safran parts).

Main aggregates under IFRS in € million (see reconciliation table in appendix)
(
) Consolidated net sales
*
2,646 3,066
(
) Consolidated operating income
*
57 259
(
) Consolidated net income
*
32 254

2. A FIRST HALF MARKED BY COVID-19

2.1 COVID-19: CRISIS MANAGEMENT

2.1.1 Dassault Aviation Parent Company's crisis management

The coronavirus epidemic triggered an unprecedented sanitary and economic crisis that forced Dassault Aviation Parent Company to suspend its production activities on March 18 and its tertiary activities on March 23 for the protection of its employees, with an ongoing dialogue with the employees' representative bodies (Central Economic and Social Committee and Health, Safety and Working Conditions Committee).

We set up multidisciplinary crisis units to carry out the day-to-day supervision of the implementation of emergency measures and the preparation for a gradual resumption of business activity. They have organized:

  • specific on-site arrangements for employees unable to work from home,
  • keeping home employees with health issues,
  • keeping home parents for childcare purposes,
  • the implementation of remote working whenever possible (remote working policy to be renegotiated),
  • the repatriation of expatriate staff where and when necessary.

On-site activity resumed in successive steps from April 3, with ongoing emergency measures, the implementation of health protocols (preventative measures, maximum occupancy capacity, etc.), continued widespread implementation of remote working (from 500 people 1 or 2 days per week up to 4,700 people 5 days per week), and the implementation of temporary furlough when unavoidable.

The following measures were taken to support those on furlough:

  • payment of full salary up to April 2,
  • signature of an agreement with staff representative bodies,
  • payment of 92% of net salary (compared to 84% guaranteed by the French law) from April 3 for employees under temporary furlough,
  • vacation days for employees under temporary furlough,
  • neutralization of the effects of the temporary furlough scheme, particularly on the calculation of profit sharing and incentive schemes (fixed and proportional components), as well as in terms of healthcare and pension contributions and provisions,
  • implementation of a solidarity fund to enable employees not affected by temporary furlough to donate vacation days in order to reduce the number of partially unpaid non-working days.

On April 3, around 12% of Parent Company's staff had returned on site, then 18% on April 29 and 35% on May 11. From June 8, following phase 2 of the national lockdown lifting, we continued implementing progressive on-site presence of staff, by combining a permanent or intermittent on-site working alternated with remote working, in order to comply with the maximum occupancy capacity for the premises. We have significantly reduced our use of furloughing, keeping it only for specific cases such as for those requiring childcare and those at high health risk.

In addition, despite the numerous challenges spurred by this crisis, we have ensured compliance with our contractual and ethical commitments to our customers and our suppliers (in particular by prioritizing payments to SMEs and ISEs).

Lastly, special efforts were made to maintain connections with our employees by providing them with information on a continuous basis.

On May 15, 2020, Florence Parly, French Minister of Armed Forces, visited our Saint-Cloud site in support of the Defense Industrial Base where she was told about the Group's position and our resumption process roadmap . By tele-conferencing with various sites, we were able to demonstrate to Florence Parly, French Minister of Armed Forces, how we are aligning the continuation of essential tasks with the safety of all our employees.

2.1.2 Subsidiaries' crisis management

Our subsidiaries have also been impacted:

  • Dassault Falcon Jet (United States):
  • Teterboro, NJ: implementation of sanitary measures, remote working, temporary furlough,
  • Little Rock, AK: no shutdown, but reorganization of production to comply with local rules (sanitary measures) and implementation of temporary furlough,
  • Wilmington, DE: confirmed Covid cases requiring a 15 days shutdown,
  • Dassault Reliance Aerospace Ltd (India): suspension of activities for 1 month in March / April followed by a partial resumption of production (80% of activity but French technical assistants still in France) with implementation of sanitary measures. An enhanced scrutiny is required due to the high level of new cases in big cities (New Delhi, Mumbai, Chennai…),
  • Dassault Falcon Service (France): no shutdown, implementation of sanitary measures, use of temporary furlough when unavoidable, reorganization of shifts in workshops,
  • Sogitec: implementation of remote working to avoid temporary furlough and 100% of workforce back on site since June 20,
  • Tag Maintenance Services, ExecuJet:
  • Switzerland and South Africa harshly impacted, Asia less affected,
  • Implementation of sanitary measures, remote working, large use of temporary furlough.

2.2 CONTRIBUTION TO NATIONAL EFFORT IN FRANCE

We also contributed to the national effort in France, particularly in the frame of:

  • Operation called "Résilience":
  • by providing the French Ministry of Armed Forces with 2 Falcons operated by our subsidiary Dassault Falcon Service,
  • by flying healthcare workers and medical equipment within France and worldwide,
  • the operation organized by "Aviation Without Borders" (ASF) for the repatriation and transportation of healthcare personnel or medical equipment on request.

In addition, we have:

  • distributed masks to regional health agencies and hospitals in the Paris area,
  • produced and distributed 3D-printed visors to hospitals, clinics, dental surgeons and medical centers, and to CAP Sciences Bordeaux, a scientific research center,
  • used our company restaurant in Saint-Cloud to provide meals for healthcare workers at the Foch hospital in Suresnes.

2.3 AERONAUTICS SUPPORT PLAN

On June 9, 2020, the French government launched a support plan for the aeronautics industry. In addition to providing support to Air France, this plan includes:

  • support for companies in difficulty and the social protection of their employees: loans guaranteed by the French government and evolution of the temporary furlough scheme,
  • investment in SMEs and ISEs to support the modernization and transformation of the sector. An investment fund has been created (target: €1 billion) with contributions from Airbus, Safran, Thales and Dassault Aviation, which will contribute for €13 million. A modernization fund including a €300 million "digitalization" component was also launched for SMEs and ISEs,
  • investment in the aircraft of the future, particularly with the Civil Aviation Research Council (CORAC): €1.5 billion of public aid over three years focused on R&T dedicated to "decarbonized" future aircraft. Dassault Aviation will take part.

This plan provides decisive support to the French supply chain, which has been severely impacted by the crisis. Dassault Aviation Group is taking an active part in all the working groups that have been set up by the Association of French Aeronautical and Space Industries (GIFAS) in particular to ensure the effective implementation of this plan.

3. 2020 OUTLOOK

On April 1, Dassault Aviation Group decided to suspend its 2020 targets (announced on February 27, 2020).

In an uncertain Covid-19 context, and its economic consequences, on July 23, 2020, Dassault Aviation Group published the following new guidance for 2020:

  • delivery of 30 Falcons (vs 40 planned before the Covid-19) and 13 Rafale (equal to the pre-Covid-19 forecast),
  • decrease in net sales.

4. GROUP ACTIVITIES

4.1 PROGRAMS DEVELOPMENT

4.1.1 Defense programs

Rafale

2020 first half was marked by the delivery of 7 Rafale Export (India and Qatar), the continued performance on the existing Rafale contracts with Egypt, Qatar and India, the start of negotiation of an additional batch for France and ongoing prospecting activities for new export contracts despite an expected delay caused by Covid.

Regarding Rafale France, we continued performing works on the F4-standard.

Future Combat Air System (FCAS)

2020 first half was marked by the award of the initial framework contract (phase 1A), which launches the demonstrator phase for the Future Combat Air System, including the launch of the demonstrator of the New Generation Fighter (NGF), to Dassault Aviation, Airbus, together with their partners MTU Aero Engines, Safran, MBDA and Thales, on February 20. This framework contract covers a period of 18 months being the first step of ambitious technological demonstrator program aiming maiden flight in 2026.

The next major milestone in the program will be the integration of Spain and the involvement of additional suppliers, which will require further government notifications in 2021.

As of today, first works performed in partnership with Airbus Defence and Space on the project of NGF demonstrator have been focused on the aerodynamic design.

Eurodrone

Final contract negotiations are ongoing between the OCCAR (Organization for Joint Armament Cooperation) and Airbus Defense & Space (lead contractor), Leonardo and Dassault Aviation (main subcontractors).

4.1.2 Mission aircraft

Multi-mission Falcon

  • launch of development works further to the order placed at the end of 2019 for 2 Falcons 8X "Archange" strategic intelligence aircraft, with an option for a third aircraft,
  • continued work to define the "Albatros" maritime surveillance and intervention aircraft (AVSIMAR) contract, based on the Falcon F2000LXS, further to the announcement by the French Minister of Armed Forces at the Paris Air Show 2019,
  • delivery of the 3 rd Falcon 50SurMar out of 4 aircraft ordered by France, retrofitted with hatches for dropping SAR (Search and Rescue) kits,
  • delivery of the Falcon 2000LX to the DLR (German Aerospace Research Center).

Maritime Patrol Aircraft (PATMAR)

The 3 rd upgraded ATL2 was delivered to the French Navy; 4 other aircraft upgrade works will be carried out by Dassault Aviation out of the 18 aircraft to be upgraded, the remainder being carried out by the SIAé (the French naval aircraft maintenance service).

4.1.3 Falcon programs

Travel restrictions due to the Covid-19 epidemic and the serious economic consequences of the health crisis are deeply impacting the business jet market.

During the crisis, we have prioritized:

  • continuity of customer support,
  • aircraft deliveries,
  • Falcon 6X ongoing development.

Aviation activity in the United States went up and business jet flight safety could be an opportunity. Nevertheless orders and deliveries are lagged and tensions rise up on prices. Global economic conditions evolution is to be examined and we have to ensure the Falcon 6X is on time for the crisis recovery.

This semester's highlights are:

  • the delivery of 16 Falcons,
  • 5 new Falcons orders,
  • the nominal progress of the Falcon 6X program for an entry into service in 2022 (maiden flight planned in 2021) despite the impact of the Covid-19 crisis:
  • assembly of aircraft #1 was completed in Mérignac; it was powered-up for the first time,
  • ground testing of aircraft #1 has begun,
  • aircraft #2 and #3 are in the process of being assembled,
  • nominal development of the PW812D engine:
    • o more than 2,000 hours of tests and more than 16,000 hours of tests on the high-pressure system,
    • o 2 nd batch of flying test bench in progress with aircraft #1 engine,
    • o full compliance with the CO2 emissions' regulation and largely above noise performance requirements.
  • the Future Falcon
  • Pursuing the development of the Falcon family. Future Falcon announcement postponed.

4.2 MAKE IN INDIA

Dassault Reliance Aerospace Ltd (DRAL) in Nagpur has also been impacted by the Covid-19 pandemic; activities were stopped for one month followed by a partial resumption.

Nevertheless, we are continuing to ramp up production, particularly the production and assembly of Falcon 2000 and Rafale components (engine brackets). DRAL has been incorporated into our Falcon Production Certifications and has passed its first audit by the airworthiness authorities. We are also continuing to develop an Indian supply chain (primary parts, tools, pylons, tanks, etc.), the engineering center in Pune and the "Dassault Skill Academy" (program of professional training for aeronautical fitters and high level excellence programs between Indian and French academics).

4.3 CUSTOMER SUPPORT

4.3.1 Military customer support

Supporting our military customers remained a priority. To this end, we reorganized our on-site and on-base teams, and maintained continuous logistical liaison.

In addition to the handling of the Covid-19 crisis, first half main events were:

  • performance of the RAVEL contract, which continued with the set up, early this year, of our local technical and logistical services teams on site at the Saint-Dizier, Mont-de-Marsan and Landivisiau bases,
  • the development of the Dassault Aviation/Dassault Systèmes Big Data platform in the frame of performance of the RAVEL contract,
  • continued training for Indian pilots and mechanics at our "Conversion Training Center" in Mérignac,
  • continued delivery of support to the first Indian air base at Ambala, which will receive its Rafale aircraft at the end of July 2020.

4.3.2 Falcon customer support

With respect to Falcon customer support, in the first half of 2020, we:

  • provided our clients with support throughout the Covid-19 crisis:
  • through rapid reorganization to ensure continuity of our service quality levels (Command Center, Falcon Response, spare parts, network of service centers);
  • by maintaining close contact with them through conference calls and e-learning training sessions,
  • continued to consolidate our network of service centers with the closing of the acquisition of ExecuJet Dubai in January,
  • reconfigured Dassault Falcon Service's maintenance facilities at Le Bourget to increase its Falcon 7X and 8X capacity. The renovated hangar came into service at the beginning of 2020,
  • increased our pilot training capacity with the commissioning of a new Falcon 2000LXS/900LX simulator at FlightSafety in Teterboro,
  • marketed operational and documentation apps on iPad for our customers.

5. RISKS

The consequences of the crisis in the aircraft business were harsh and will probably have long term effects over the next years:

  • uncertainty over demand in the business aviation market,
  • uncertainty over a new Rafale Export contrat and an additional batch for France in 2020,
  • a significant drop in business among our partners and suppliers in the aerospace sector, resulting in a potential weakening of their financial position (entailing potential risks of continuity, consolidation or restructuring), and therefore for our procurement policy,
  • risk of epidemic worsening that might impact our ability to deliver aircraft in second half.

6. FIRST HALF 2020 ADJUSTED CONSOLIDATED RESULTS

6.1 ORDER INTAKE

Order intake for the first half of 2020 was €984 million, compared to €2,900 million for the first half of 2019. The Export order intake component stood at 80%.

The change in order intake was as follows, in € million:

H1 2020 % H1 2019 %
Defense 315 32% 2,273 78%
Defense Export
Defense France
132
183
180
2,093
Falcon 669 68% 627 22%
Total order intake 984 2,900
% Export 80% 27%

The order intake item is entirely composed of firm orders.

Defense programs

Defense order intake stood at €315 million during the first half of 2020 vs €2,273 million during the first half of 2019.

The Defense Export component stood at €132 million for the first half of 2020 vs €180 million for the first half of 2019.

The Defense France component stood at €183 million for the first half of 2020, vs €2,093 million for the first half of 2019, which mainly included notification of the RAVEL contract for the Operational Condition Maintenance of Rafale France over 10 years.

Falcon programs

During the first half of 2020, 5 Falcon orders were made vs 7 in the first half of 2019.

Falcon order intake represented €669 million in the first half of 2020 vs €627 million in the first half of 2019.

6.2 ADJUSTED NET SALES

Adjusted net sales for the first half of 2020 was €2,641 million compared to €3,058 million for the first half of 2019. The export component of net sales stood at 89% in the first half of 2020.

The change in net sales was as follows, in € million:

H1 2020 % H1 2019 %
Defense 1,581 60% 2,072 68%
Defense Export
Defense France
1,319
262
1,537
535
Falcon 1,060 40% 986 32%
Total net sales 2,641 3,058
% Export 89% 82%

Defense programs

7 Rafale Export (India and Qatar) were delivered during the first half of 2020 vs.10 Rafale Export for the first half of 2019.

Defense net sales for the first half of 2020 amounted €1,581 million vs €2,072 million for the first half of 2019.

The Defense Export component stood at €1,319 million for the first half of 2020 vs €1,537 million for the first half of 2019. This decrease was mainly due to a fall in the number of Rafale aircraft delivered between the two semesters (7 vs 10).

The Defense France component stood at €262 million for the first half of 2020, vs €535 million for the first half of 2019. During the first half of 2019, the development works on upgrading the combat system for the ATL2 and the first upgraded aircraft had been delivered to the French government and had a positive impact on net sales.

Falcon programs

16 Falcon were delivered in the first half of 2020 vs 17 in the first half of 2019.

Falcon net sales for the first half of 2020 amounted €1,060 million, vs €986 million for the first half of 2019. It should be noted that there is a positive scope effect associated with the acquisition of service centers acquired in 2019 and early 2020.

****

The "book-to-bill ratio" (order intake/net sales) is 0.37 for the first half of 2020.

6.3 Backlog

The consolidated backlog as of June 30, 2020 was €16,193 million compared to €17,798 million as of December 31, 2019. It consists of:

  • the Defense Export backlog, which stood at €9,538 million vs €10,725 million as of December 31, 2019. It consists primarily of 40 Rafale Export vs 47 Rafale Export as of December 31, 2019,
  • the Defense France backlog, which stood at €4,661 million, vs €4,740 million as of December 31, 2019. It specifically includes 28 Rafale (same as December 31, 2019) and the RAVEL contract for the Rafale,
  • the Falcon backlog, which stood at €1,994 million, vs €2,333 million as of December 31, 2019. It specifically includes 42 Falcons vs 53 as of December 31, 2019.

6.4 ADJUSTED RESULTS

Operating income

Adjusted operating income for the first half of 2020 is €55 million, compared to €250 million in the first half of 2019.

Operating margin stood at 2.1% vs 8.2% for the first half of the previous year. This decrease is mainly due to the under-activity due to the Covid-19 crisis (hours furloughed and cost of sanitary measures being recognized as expenses), the weight of self-funded R&D expenses in proportion of net sales (9.9% compared to 8.4% in 2019 first half-year), and lower absorption of fixed costs due to the decrease of sales. SG&A savings and the various governmental aid packages (in France, United States and Switzerland), consisting in alleviating charges and furlough measures, partially offset these negative impacts.

The hedging rate for the first half of 2020 was \$/€1.18, same as 2019 first half and full year.

Net financial income

The adjusted financial income for the first half of 2020 was € - 19 million vs. € - 26 million for 2019 first half. This financial loss was due to accounting principle of the long-term military contracts' financing component.

Net income

Adjusted net income for the first half of 2020 came to €87 million, compared to €286 million in the first half of 2019. The contribution of Thales to the Group's net income was €58 million, compared to €141 million during the first half of 2019.

Adjusted net margin thus stood at 3.3% for the first half of 2020, vs 9.3% for the first half of 2019.

7. FINANCIAL STRUCTURE

7.1 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, current financial assets (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 stands at €3,921 million, lower by €664 million compared to December 31, 2019. This decrease is mainly caused by the raise of working capital (decrease in Export contracts' down payments due to first half deliveries, increase in inventories and work-in-progress), investments being offset by the cash flow generated during the first half year.

7.2 BALANCE SHEET (IFRS data)

Total equity stands at €4,277 million as of June 30, 2020, vs. €4,446 million as of December 31, 2019.

Borrowings and financial debts stand at €322 million as of June 30, 2020 vs. €558 million as of December 31, 2019. €250 million of bank borrowings were reimbursed during the 1st semester. Borrowings and financial debts are mainly composed by locked-in employees' profit sharing plan for €131 million and finance lease liabilities booked following the implementation of IFRS16 for €175 million.

Inventories and work-in-progress increased by €191 million and stand at €3,560 million as of June 30, 2020. The increase of the Falcon and Defense France components was partly offset by the decrease of the Defense Export component linked to Rafale Export deliveries.

Down-payments collected on orders net of down-payments paid lower by €293 million as of June 30, 2020 mainly due to Rafale Export deliveries and associated services during the period.

The market value of derivative financial instruments stands at €-134 million as of June 31, 2020 vs. €-71 million as of December 31, 2019. This decrease is partly due to the variation of the US Dollar exchange rate between June 30, 2020 and December 31, 2019 (1.1198 \$/€ vs. 1.1234 \$/€) and the decrease in US Dollar interest rates (decrease of forward points).

8. SHAREHOLDER INFORMATION

The Company's share capital totaled €66,789,624 as of June 30, 2020. It is divided into 8,348,703 shares, each with a par value of €8. The shares are listed on the regulated "Euronext Paris" market – Compartment A – International Securities Identification Numbers (ISIN Code): FR0000121725. They are eligible for deferred settlement. Following the increase in its free float, in 2016 Dassault Aviation joined the following stock market indices: Sociétés des Bourses Françaises 120 (SBF 120) and the Morgan Stanley Capital International World (MSCI World).

As of June 30, 2020, Dassault Aviation shareholders are as follows:

Shareholders Number of
shares
% Exercisable voting
rights (2)
%
GIMD 5,196,076 62.24% 10,392,152 76.87%
Float 2,291,677 27.45% 2,298,797 17.01%
Airbus SE 827,529 9.91% 827,529 6.12%
Own shares held (1) 33,421 0.40% 0 0.00%
TOTAL 8,348,703 100.0% 13,518,478 100.00%

(1) own shares held in a "directly registered" account, with no voting rights.

(2) in accordance with the "Florange" law and in the absence of provisions contrary to Dassault Aviation's Articles of Association, shares held for more than two years in registered form are entitled to double voting rights. (3) shares underlying bonds redeemable in Dassault Aviation shares issued by Airbus SE as of June 9, 2016.

9. RELATED-PARTY TRANSACTIONS

The related parties in 2020 are identical to those identified as of December 31, 2019 and the transactions during the period are of the same type.

10. CONCLUSION

The Covid-19 epidemic triggered an unprecedented global crisis as to its sanitary and economic consequences, its magnitude, its geographic scope and its duration.

First of all, I would like to thank, from the bottom of my heart, the healthcare workers who took care of all the patients with an admirable devotion, as well as all the employees of the Group for their involvement and the team spirit they made proof of on a daily basis.

We contributed to the national effort in France by providing our Falcons. Dassault Aviation took part in the operation called "Résilience", with the French Ministry of Armed Forces, our Falcons flew healthcare workers and medical equipment within France and worldwide. Besides, in the frame of the operation organized by Aviation Without Borders (ASF), our Falcon repatriated and transported healthcare personnel or medical equipment on request.

During this period, Dassault Aviation Group adapted and reorganized its operations to ensure employee safety, and launched a Business Continuity Plan.

Regarding Dassault Aviation Parent Company, after production activities were suspended on March 18, followed by tertiary activities on March 23, business gradually resumed in successive steps from April 3, in an ongoing dialogue with staff representative bodies (including the Central Economic and Social Committee and the Health, Safety and Working Conditions Committee), in accordance with health and social constraints by focusing on remote working and by deploying temporary furlough measures when this was unavoidable. On June 8, further to the national lockdown lifting, on site presence became the norm, together with remote working to cope with the workspace occupancy rate.

All our subsidiaries adjusted to their local situation with the implementation of sanitary measures, a large use of remote working and temporary furlough when unavoidable. Some sites were temporarily shut down.

As of April 1, the Board of Directors canceled the dividend proposal and we suspended our 2020 guidance.

The Business Continuity Plan prioritized our efforts; we focused on customer support (Armed Forces in priority), on production and delivery of Rafale and Falcons, and on the development of the Falcon 6X. Despite remote working and except for Falcon 6X and Rafale India, programs have been delayed.

Covid-19 crisis results in a decrease of Falcon deliveries which leads to a new forecast for 2020 of 30 Falcons whereas 40 were initially guided. Beyond this lag in net sales, costs associated with unworked hours and sanitary measures have harshly affected the 1st half results and were partially offset by government support, alleviated charges and SG&A reduction at Dassault Aviation Group.

Throughout this crisis, we have supported and assisted our sub-contractors and suppliers. The Aeronautics Support Plan announced by the French government on June 9, drafted in collaboration with GIFAS, structures support to the sector's ecosystem and investment in the future, among which the future "decarbonized" aircraft within the frame of the Civil Aviation Research Council (CORAC).

In terms of activity, in the military domain, we delivered 7 Rafale Export, continued works on the F4-standard for Rafale France, delivered an upgraded ATL2, and continued to support our military customers. The first half also saw the award to Dassault Aviation, Airbus and their partners, of the initial framework contract for the launch of the Future Combat Air System (FCAS) demonstrators, specifically the New Generation Fighter (NGF) demonstrator.

In the civil domain, we continued to support our customers, delivered 16 Falcons, pursued the Falcon 6X program development keeping it in line for a maiden flight in early 2021 and an entry into service in 2022, and continued the development works on the future Falcon.

The effects of the crisis are likely to be long-lasting as numerous economic sectors are impacted. Our Falcon market is directly impacted (the lag in Falcon deliveries and orders leads to a lowering adjustment of Falcon production rates) and a potential new Rafale Export contract is postponed.

In a harsh and uncertain economic environment, our objectives are to:

  • sell and deliver Falcons,
  • Falcon 6X: comply with our schedule (entry into service in 2022),
  • Rafale: negotiate an additional batch for France and pursue export prospection,
  • pursue the development of the future Falcon,
  • pursue developments in the frame of multi-mission Falcon,
  • contribute to CORAC technologies of environmental transition,
  • bring forward the FCAS/NGF program and contribute to the MALE program.

This will be performed in the context of:

  • high self-financed Research and Development,
  • continuity of the Transformation Plan (digital, collaborative engineering platform and sites): rescheduled,
  • adjustment of workforce to the planned workload rescheduled in accordance with our backlog.

In an uncertain Covid-19 context and its economic consequences, new Dassault Aviation full year 2020 guidance is the following:

  • delivery of 30 Falcons (vs 40 planned before the Covid-19) and 13 Rafale aircraft (equal to the pre-Covid-19 forecast),
  • decrease in net sales.

The Board of Directors would like to thank all the personnel for their involvement, efficiency and skills in executing our programs.

APPENDIX

FINANCIAL REPORTING

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

The entire activity of the Dassault Aviation Group relates to the aerospace domain. The internal reporting made to the Chairman and Chief Executive Officer, 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 of:

  • 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 financial statements, 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 or 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,
  • amortization of assets valued as part of the purchase price allocation (business combinations), known as "PPA",
  • 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 recorded following the application of IFRS 16 "Leases".

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

IMPACT OF ADJUSTMENTS

The impact of the adjustments of income statement aggregates for the 1st half 2020 is set out below:

(in EUR thousands) Consolidated
income
Foreign exchange
derivatives
Adjustments Adjusted
income
statement
H1 2020
Foreign
exchange
gain/loss
Change in
fair value
PPA applied by
Thales
statement
H1 2020
Net sales 2,645,678 -4,430 184 2,641,432
Operating income 56,747 -4,430 154 2,484 54,955
Net financial income/expense -37,733 4,430 14,897 -18,406
Share in net income of equity
associates
17,251 1,427 41,249 59,927
Income tax -4,256 -4,404 -454 -9,114
Net income 32,009 0 10,647 3,457 41,249 87,362
Group share of net income 32,009 0 10,647 3,457 41,249 87,362
Group share of net income per
share (in euros)
3.8 10.5

The impact of the adjustments of income statement aggregates for the 1st half 2019 is set out below:

Consolidated Foreign exchange
derivatives
Adjustments Adjusted
(in EUR thousands) income
statement H1
2019
Foreign
exchange
gain/loss
Change in
fair value
PPA applied by
Thales
income
statement
H1 2019
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

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2020

ASSETS

(in EUR thousands) Notes 06/30/2020 12/31/2019
Goodwill 3 65,957 77,452
Intangible assets 51,099 40,931
Property, plant and equipment 870,665 819,416
Equity associates 4 1,687,927 1,841,218
Other non-current financial assets 5 188,395 207,730
Deferred tax assets 15 441,538 438,261
TOTAL NON-CURRENT ASSETS 3,305,581 3,425,008
Inventories and work-in-progress 6 3,559,758 3,368,351
Contract assets 11 13,641 14,788
Trade and other receivables 1,390,426 1,224,369
Advances and progress payments to suppliers 11 2,077,478 2,363,786
Derivative financial instruments 18 761 6,815
Other current financial assets 7 1,109,743 1,433,071
Cash and cash equivalents 7 2,958,149 3,532,883
TOTAL CURRENT ASSETS 11,109,956 11,944,063
TOTAL ASSETS 14,415,537 15,369,071

EQUITY AND LIABILITIES

(in EUR thousands) Notes 06/30/2020 12/31/2019
Capital 8 66,790 66,790
Consolidated reserves and retained earnings 4,217,419 4,379,424
Currency translation adjustments 26,034 34,608
Treasury shares 8 -32,753 -34,888
TOTAL ATTRIBUTABLE TO THE OWNERS OF THE PARENT COMPANY 4,277,490 4,445,934
Non-controlling interests 0 151
TOTAL EQUITY 4,277,490 4,446,085
Long-term borrowings and financial debt 7, 9 246,046 216,176
Deferred tax liabilities 15 5,645 3,517
TOTAL NON-CURRENT LIABILITIES 251,691 219,693
Contract liabilities 11 6,893,841 7,375,703
Trade and other payables 894,205 1,075,599
Tax and social security liabilities 362,525 291,985
Short-term borrowings and financial debt 7, 9 75,697 342,042
Provisions for contingencies and charges 10 1,525,102 1,540,323
Derivative financial instruments 18 134,986 77,641
TOTAL CURRENT LIABILITIES 9,886,356 10,703,293
TOTAL EQUITY AND LIABILITIES 14,415,537 15,369,071

INCOME STATEMENT

(in EUR thousands) Notes H1 2020 H1 2019 2019
NET SALES 12 2,645,678 3,065,636 7,370,616
Other revenue (1) 40,814 45,022 60,164
Change in work-in-progress 9,618 -58,892 -311,902
Purchases consumed -1,860,934 -1,972,061 -4,698,415
Personnel expenses (2) -611,995 -646,591 -1,302,723
Taxes -41,639 -40,453 -71,887
Depreciation and amortization -77,483 -66,233 -142,495
Allocations to provisions -702,497 -647,102 -811,240
Reversals of provisions 657,769 579,421 703,819
Other operating income and expenses -2,584 192 315
OPERATING INCOME 56,747 258,939 796,252
Cost of net financial debt -21,885 -31,141 -61,288
Other financial income and expenses -15,848 -14,181 -34,337
NET FINANCIAL INCOME 14 -37,733 -45,322 -95,625
Share in net income of equity associates 4 17,251 118,194 258,673
Income tax 15 -4,256 -78,106 -246,578
NET INCOME 32,009 253,705 712,722
Attributable to the owners of the Parent Company 32,009 253,667 712,704
Attributable to non-controlling interests 0 38 18
Basic earnings per share (in EUR) 16 3.8 30.5 85.7
Diluted earnings per share (in EUR) 16 3.8 30.5 85.7

(1) allocations received under the furlough schemes, which are considered grants under IFRS guidelines (IAS 20), amounted to EUR 6,667 thousand over H1 2020 for the Group.

(2) personnel expenses include incentive schemes and profit-sharing (EUR -10,877 thousand in H1 2020, EUR -70,987 thousand in H1 2019, and EUR -155,581 thousand for 2019).

STATEMENT OF RECOGNIZED INCOME AND EXPENSE

H1 2020

(in EUR thousands) Notes Fully
consolidated
companies
Equity
associates
H1 2020
NET INCOME 14,758 17,251 32,009
Derivative financial instruments (1) 4, 18 -48,706 4,808 -43,898
Deferred taxes 4, 15 13,856 -1,928 11,928
Currency translation adjustments 3,383 -11,957 -8,574
Items to be subsequently recycled to P&L -31,467 -9,077 -40,544
Other non-current financial assets 4, 5 -19,895 -1,976 -21,871
Actuarial adjustments on pension benefit obligations 4, 10 13,194 -144,319 -131,125
Deferred taxes 4, 15 1,543 5,681 7,224
Items that will not be recycled to P&L -5,158 -140,614 -145,772
Income and expense directly recognized under
equity
-36,625 -149,691 -186,316
RECOGNIZED INCOME AND EXPENSE -21,867 -132,440 -154,307
Owners of the Parent Company -21,867 -132,440 -154,307
Non-controlling interests 0 0

H1 2019

(in EUR thousands) Notes Fully
consolidated
companies
Equity
associates
H1 2019
NET INCOME 135,511 118,194 253,705
Derivative financial instruments (1) 4, 18 -33,505 -9,255 -42,760
Deferred taxes 4, 15 10,148 1,805 11,953
Currency translation adjustments 4,807 5,532 10,339
Items to be subsequently recycled to P&L -18,550 -1,918 -20,468
Other non-current financial assets 4, 5 2,729 -1,606 1,123
Actuarial adjustments on pension benefit obligations 4, 10 -73,355 -120,536 -193,891
Deferred taxes 4, 15 17,714 11,016 28,730
Items that will not be recycled to P&L -52,912 -111,126 -164,038
Income and expense directly recognized under
equity
-71,462 -113,044 -184,506
RECOGNIZED INCOME AND EXPENSE 64,049 5,150 69,199
Owners of the Parent Company 64,011 5,150 69,161
Non-controlling interests 38 38

(1) the amounts stated represent the change in the market value over the period for instruments that qualify for hedge accounting. They are not representative of the actual gain/loss that will be recognized when the hedges are exercised.

Consolidated Financial Statements

Year 2019

(in EUR thousands) Notes Fully
consolidated
companies
Equity associates 2019
NET INCOME 454,049 258,673 712,722
Derivative financial instruments (1) 4, 18 -70,654 -17,271 -87,925
Deferred taxes 4, 15 21,246 6,075 27,321
Currency translation adjustments 14,944 11,347 26,291
Items to be subsequently recycled to P&L -34,464 151 -34,313
Other non-current financial assets 4, 5 -2,840 -3,062 -5,902
Actuarial adjustments on pension benefit obligations 4, 10 -133,100 -129,525 -262,625
Deferred taxes 4, 15 32,701 13,999 46,700
Items that will not be recycled to P&L -103,239 -118,588 -221,827
Income and expense directly recognized under
equity
-137,703 -118,437 -256,140
RECOGNIZED INCOME AND EXPENSE 316,346 140,236 456,582
Owners of the Parent Company 316,328 140,236 456,564
Non-controlling interests 18 18

(1) the amounts stated represent the change in the market value over the period for instruments that qualify for hedge accounting. They are not representative of the actual gain/loss that will be recognized when the hedges are exercised.

STATEMENT OF CHANGES IN EQUITY

2019 and H1 2020

Consolidated reserves
and retained earnings
(in EUR thousands) Capital Additional
paid-in
capital,
consolidated
retained
earnings and
other
reserves
Derivative
financial
instruments
Currency
translation
adjustments
Treasury
shares
Total
attributable
to the
owners of
the Parent
Company
Non
controlling
interests
Total equity
As of 01/01/2019 66,790 4,222,877 8,413 8,317 -36,432 4,269,965 554 4,270,519
Net income for the year 712,704 712,704 18 712,722
Income and expense directly
recognized under equity
-221,827 -60,604 26,291 -256,140 -256,140
Recognized income and expense 490,877 -60,604 26,291 456,564 18 456,582
Dividends paid in cash -176,238 -176,238 -176,238
Share-based payment 2,279 2,279 2,279
Movements on treasury shares (1) -1,544 1,544 0 0
Other changes (2) -106,636 -106,636 -421 -107,057
As of 12/31/2019 66,790 4,431,615 -52,191 34,608 -34,888 4,445,934 151 4,446,085
Net income for the year 32,009 32,009 0 32,009
Income and expense directly
recognized under equity
-145,772 -31,970 -8,574 -186,316 -186,316
Recognized income and expense -113,763 -31,970 -8,574 -154,307 0 -154,307
Dividends paid in cash (3) 0 0 0
Share-based payment 2,020 2,020 2,020
Movements on treasury shares (1) -2,135 2,135 0 0
Other changes (2) -16,157 -16,157 -151 -16,308
As of 06/30/2020 66,790 4,301,580 -84,161 26,034 -32,753 4,277,490 0 4,277,490

(1) see Note 8.

(2) for Thales, this mainly represents the change in treasury shares, employee share issues and share-based payments. In 2019, the other changes also included the impact on equity of Thales of the purchase of minority interests after the date of Gemalto's takeover, as Thales chose to determine goodwill according to the partial goodwill method (therefore, the difference between the purchase price of these interests and Thales's share in the net assets acquired had been recorded as a reduction in equity).

(3) due to the health situation, the Annual General Meeting of May 12 approved the Board of Directors' April 1, 2020 proposal not to pay a dividend for 2019 results.

H1 2019

and retained earnings Consolidated reserves
(in EUR thousands) Capital Additional
paid-in
capital,
consolidated
retained
earnings and
other
reserves
Derivative
financial
instruments
Currency
translation
adjustments
Treasury
shares
Total
attributable
to the
owners of
the Parent
Company
Non
controlling
interests
Total equity
As of 01/01/2019 66,790 4,222,877 8,413 8,317 -36,432 4,269,965 554 4,270,519
Net income for the year 253,667 253,667 38 253,705
Income and expense directly recognized
under equity
-164,038 -30,807 10,339 -184,506 -184,506
Recognized income and expense 89,629 -30,807 10,339 69,161 38 69,199
Dividends paid in cash -176,238 -176,238 -176,238
Share-based payment 1,645 1,645 1,645
Movements on treasury shares -1,544 1,544 0 0
Other changes (1) -81,349 -81,349 -81,349
As of 06/30/2019 66,790 4,055,020 -22,394 18,656 -34,888 4,083,184 592 4,083,776

(1) for Thales, this represents in particular the change in treasury shares, employee share issues and share-based payments. In 2019, the other changes also included the impact on equity of Thales of the purchase of minority interests after the date of Gemalto's takeover, as Thales chose to determine goodwill according to the partial goodwill method (therefore, the difference between the purchase price of these interests and Thales's share in the net assets acquired had been recorded as a reduction in equity).

CASH FLOW STATEMENT

(in EUR thousands) Notes H1 2020 H1 2019 2019
I – Net cash flows from operating activities
NET INCOME 32,009 253,705 712,722
Elimination of net income of equity associates, net of dividends
received
4 -12,708 -31,927 -140,865
Elimination of gains and losses from disposals of non-current assets 2,022 3,926 415
Change in the fair value of derivative financial instruments 18 14,693 11,716 14,454
Change in the fair value of other current financial assets 7 2,665 -1,656 -1,311
Income tax (including deferred taxes) 15 4,256 78,106 246,578
Allocations to and reversals of depreciation, amortization and
provisions (excluding those related to working capital)
75,211 122,999 210,198
Other items 2,020 1,645 2,279
Net cash from operating activities before working capital
changes and taxes
120,168 438,514 1,044,470
Income taxes paid 3,856 -85,068 -248,008
Change in inventories and work-in-progress (net) 6 -188,134 -79,023 40,317
Change in contract assets 11 1,147 4,416 2,179
Change in advances and progress payments to suppliers 11 286,308 271,108 919,089
Change in trade and other receivables (net) -160,595 -77,675 -113,912
Change in contract liabilities 11 -484,518 -625,701 -1,831,850
Change in trade and other payables -183,278 -26,686 144,585
Change in tax and social security liabilities 69,260 46,825 -23,103
Increase (-) or decrease (+) in working capital -659,810 -486,736 -862,695
Total I -535,786 -133,290 -66,233
II - Net cash flows from investing activities
Purchase of intangible assets and property, plant & equipment -96,274 -72,321 -216,706
Increase in other non-current financial assets 5 -540 -2,451 -6,833
Disposals of or reductions in non-current assets 11,865 4,128 3,826
Net cash from acquisitions and disposals of subsidiaries 2 -13,257 -47,348 -106,201
Total II -98,206 -117,992 -325,914
III - Net cash flows from financing activities
Net change, as an acquisition cost, of other current financial assets 7 320,663 652,038 1,780,208
Increase in financial debt 9 116,383 102,579 107,429
Repayment of financial debt 9 -380,187 -154,690 -783,408
Dividends paid during the year 0 -176,238 -176,238
Total III 56,859 423,689 927,991
IV - Impact of exchange rate fluctuations and others
Total IV
2,399 430 6,898
Change in net cash and cash equivalents (I+II+III+IV) -574,734 172,837 542,742
Opening net cash and cash equivalents 7 3,532,883 2,990,141 2,990,141
Closing net cash and cash equivalents 7 2,958,149 3,162,978 3,532,883

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 Accounting principles

  • 1.1 General principles
  • 1.2 Changes in basis of accounting
  • 1.3 Segment reporting

2 Scope of consolidation

  • 2.1 Scope as of June 30, 2020
  • 2.2 2020 changes in scope
  • 3 Goodwill

4 Equity associates

  • 4.1 Group share in net assets and net income of equity associates
  • 4.2 Change in equity associates
  • 4.3 Share in the net income of Thales
  • 4.4 Impairment

5 Other non-current financial assets

6 Inventories and work-in-progress

7 Cash

7.1 Net cash 7.2 Available cash

8 Equity

  • 8.1 Share capital
  • 8.2 Treasury shares
  • 8.3 Share-based payment

  • 9 Borrowings and financial debt

  • 10 Provisions for contingencies and charges
  • 11 Contract assets and liabilities
  • 12 Net sales
  • 13 Research and development costs
  • 14 Net financial income/expense

15 Tax position

  • 15.1 Deferred tax sources 15.2 Reconciliation of theoretical and recorded tax charge
  • 16 Earnings per share

17 Financial instruments 17.1 Financial instruments (assets)

17.2 Financial instruments (liabilities) 18 Financial risk management

  • 18.1 Cash and liquidity risks 18.2 Credit and counterparty risks 18.3 Other market risks
  • 19 Contingent assets and liabilities
  • 20 Related-party transactions
  • 21 Subsequent events

Note 1 - Accounting principles

1.1 General principles

On July 23, 2020, the Board of Directors closed and authorized the publication of the Dassault Aviation condensed consolidated financial statements as of June 30, 2020.

Dassault Aviation Group prepares its interim condensed consolidated financial statements in accordance with IAS 34 "Interim Financial Reporting". The consolidated financial statements are in accordance with the IFRS standards, amendments, and interpretations, as adopted by the European Union and applicable at the closing date.

The interim financial statements are prepared in accordance with the accounting rules and methods used to prepare the 2019 consolidated financial statements, and take into account the changes in accounting principles mentioned in paragraph 1.2 below.

Impact of the Covid-19 health crisis

The coronavirus epidemic triggered an unprecedented public health and economic crisis that forced the Group to suspend notably its production activities in France on March 18 and its tertiary activities on March 23 for the protection of its employees. Measures taken to curb the spread of Covid-19, such as travel restrictions, have had an impact on the Group's activities.

In this context, Dassault Aviation Group decided to suspend its 2020 targets and to cancel, upon the proposal of the Board, the dividend distribution.

Additional information on the impacts of the health crisis is provided in the business report.

The Group has adopted a targeted approach to present the main impacts deemed relevant to its financial statements. A description of these impacts is provided below.

Impairment test for goodwill and fixed assets

As a result of the deterioration of the economic environment, the Group conducted impairment tests on goodwill, intangible assets and property, plant and equipment (see Note 3).

The tests were implemented on June 30, 2020 using the same methodology as of December 31, 2019. The cash flows used for each of the Cash Generating Units are based on Management's best estimates, which were updated as of June 30, 2020 to take into account the impacts of the pandemic on the Group's activity. The discount rates have been updated to reflect the current health environment.

The Group did not recognize any impairment as a result of these tests.

Investment in Thales

Since the market value of Thales shares exceeds their carrying amount, they were not tested for impairment as of June 30, 2020 (see Note 4).

Listed investments

The market value of the Group's investment in Embraer was impacted by the volatility of the financial markets observed in the first half of the year, which caused the Group to recognize a loss of EUR 20,244 thousand as other income and expense directly recognized under equity (see Note 5).

Inventories and work-in-progress

The Group carried out a review of its inventories and work-in-progress (including pre-owned aircraft inventories). This review did not cause the Group to recognize any significant impairment as of June 30, 2020. Under-activity costs caused by the health crisis, including hours not worked, were excluded from inventories and work-in-progress valuations.

Other assets

The Group carried out a review of the capitalized development costs and of the recoverability of deferred tax assets recognized in the balance sheet. As a result of this work, the Group did not recognize any material impacts as of June 30, 2020.

Cash

The Group has a solid financial structure (see Note 7). No new financing was subscribed by the Group during H1 2020. Since the investment portfolio consists mainly of monetary investments (see Note 18), changes in fair value did not have a significant impact on the results as of June 30, 2020. The health situation had no impact on the classification of these investments.

Derivative financial instruments

The Group maintained the hedge accounting principles set out in the notes to the consolidated financial statements as of the end of December 2019. The Group reviewed the highly probable nature of the cash flows associated with the financial instruments qualifying for hedge accounting and did not detect anything to undermine this position as of the end of June 2020.

Impairment of financial assets

The Group conducted a review of the impairment of financial assets (mainly trade receivables) in view of the potential effects of the pandemic on the credit risk of its debtors. The Group has not been required to recognize significant credit losses, as military trade receivables consist of government customers and the vast majority of Falcon's sales are made on a cash basis.

Specificities of interim consolidated financial statements

Seasonality

In previous fiscal years, a recurring seasonality phenomenon has been observed. As a result, the interim results as of June 30, 2020 are not necessarily representative of what might be expected for the full-year 2020.

Income taxes

In the context of the first-half year closing, the tax expense (current and deferred) is calculated by applying to the accounting result of the period the estimated annual weighted average tax rate expected on the basis of the rates adopted on June 30, 2020.

Provisions for retirement severance payments

Pension costs for the half-year are calculated on the basis of the actuarial valuations performed at the end of the previous fiscal year. If necessary, these valuations are adjusted to take into account curtailments, settlements or other major non-recurring events during the period. Furthermore, amounts recognized in equity and liabilities in respect of defined benefit plans are adjusted, if necessary, in order to reflect material changes impacting the yield of investment-grade corporate bonds issued in the geographic area concerned (the benchmark used to determine the discount rate) and the actual return on plan assets.

1.2 Changes in basis of accounting

Standards, amendments, and interpretations whose application has become mandatory as of January 1, 2020

Since January 1, 2020, the Group has applied the following standards, amendments, and interpretations:

  • amendments to IFRS 3 "Business Combinations",
  • amendments to IAS 1 "Presentation of Financial Statements" and IAS 8 "Accounting Policies, Changes in Accounting Estimates and Errors",
  • amendments to IFRS 9, IAS 39, and IFRS 7 in connection with the reform of interbank reference rates,
  • amendments to the conceptual framework.

These texts have no impact on the Group's consolidated financial statements.

In addition, the Group's analysis of the consequences of the IFRS IC decisions of November 26, 2019 on the assessment of lease terms in the context of the application of IFRS 16 was finalized during the first half of the year. The impact on the Group's financial statements is not material.

Standards, amendments, and interpretations for mandatory application after January 1, 2020

The main text published by the IASB and not yet adopted by the European Union is:

  • amendments to IAS 1 "Presentation of Financial Statements": clarifications regarding the classification of liabilities as current or non-current.

This text was not applied in advance by the Group.

1.3 Segment reporting

IFRS 8, "Operating Segments", requires the presentation of information according to internal management criteria. The activity of the Dassault Aviation Group relates entirely to the aerospace sector. The internal reporting submitted to the Chairman and Chief Executive Officer and to the Chief Operating Officer, which is used for strategy and decision-making, includes no performance analysis, as defined by IFRS 8, at a level lower than this sector.

Note 2 - Scope of consolidation

2.1 Scope as of June 30, 2020

The consolidated financial statements comprise the financial statements of Dassault Aviation and the following entities:

% Interest (1)
Name Country 06/30/2020 12/31/2019 Consolidation
method
Dassault Aviation (3) France Parent
company
Parent
company
(2)
Dassault Aviation Business Services Switzerland 100 100 FC
Dassault Falcon Jet United States 100 100 FC
-
Dassault Falcon Jet Wilmington
United States 100 100 FC
-
Dassault Aircraft Services
United States 100 100 FC
-
Dassault Falcon Jet Leasing
United States 100 100 FC
-
Aero Precision
United States 50 50 EM
-
Midway
United States 100 100 FC
-
Dassault Falcon Jet Do Brazil
Brazil 100 100 FC
Dassault Falcon Service France 100 100 FC
-
Falcon Training Center
France 50 50 EM
ExecuJet
-
ExecuJet MRO Services Australia
Australia 100 100 FC
-
ExecuJet MRO Services New Zealand
New Zealand 100 100 FC
-
ExecuJet MRO Services Belgium
Belgium 100 100 FC
-
ExecuJet Services Malaysia
Malaysia 100 100 FC
-
ExecuJet MRO Services
South Africa 100 100 FC
-
ExecuJet MRO Services Middle East
United Arab Emirates 100 - FC
Sogitec Industries France 100 100 FC
Tag Maintenance Services Switzerland 100 100 FC
- Tag Maintenance Services Le Bourget France 100 100 FC
- Tag Maintenance Services Farnborough England 100 100 FC
- Tag Maintenance Services Portugal Portugal 100 100 FC
Thales France 25 25 EM

(1) the equity interest percentages are identical to the percentages of control for all Group companies except for Thales, for which the Group held 24.62% of the capital, 24.70% of the interest rights and 29.82% of the voting rights as of June 30, 2020.

(2) FC: full consolidation, EM: equity method.

(3) identity of the parent company: Dassault Aviation, a Société Anonyme (limited company) with capital of EUR 66,789,624, listed and registered in France, Paris Trade Register No. 712 042 456 - 9, Rond-Point des Champs-Élysées - Marcel Dassault, 75008 Paris.

2.2 2020 changes in scope

In 2019, the Group has expanded its network of maintenance centers of excellence while increasing its market share in Falcon maintenance through the acquisition of maintenance centers:

  • ExecuJet, with locations in Europe, the Middle East, Africa, Asia and Australia,
  • TAG Maintenance Services, with locations in France, Portugal, the United Kingdom and Switzerland,
  • Dassault Aviation Business Services (formerly RUAG), with locations in Switzerland. The subsidiary's "fixed based operator" activity was also acquired.

The closings for the ExecuJet subsidiaries took place in 2019, with the exception of ExecuJet MRO Services Middle East, for which the closing took place on January 23, 2020.

These companies are fully consolidated. The impacts of these acquisitions on the financial statements are not material.

Note 3 - Goodwill

Goodwill amounted to EUR 65,957 thousand as of June 30, 2020 and to EUR 77,452 thousand as of December 31, 2019:

(in EUR thousands) 06/30/2020 12/31/2019
Dassault Aviation Business Services 6,625 9,640
Dassault Falcon Jet 5,887 5,887
Dassault Falcon Service 3,702 3,702
ExecuJet 34,914 26,683
Sogitec 4,777 4,777
TAG Maintenance Services 10,052 26,763
Goodwill 65,957 77,452

Work on the purchase price allocation of Dassault Aviation Business Services, TAG Maintenance Services, and Execujet MRO Services Middle East was finalized in 2020. This work led the Group to recognize intangible assets in the amount of EUR 9,629 thousand (customer relations and brand), revalue tangible assets (buildings) for EUR 18,961 thousand, and recognize deferred tax liabilities for EUR 6,345 thousand.

Since the tests performed under IAS 36 "Impairment of non-current assets" (Note 1, "Impact of the Covid-19 health crisis") did not indicate any impairment, no provision for goodwill impairment was recognized. A 1-point variation in the discount rate and the long-term growth rate does not call into question the absence of a goodwill impairment.

In accordance with IFRS, goodwill relating to Thales, which is accounted for by the equity method, is included in "Equity associates" (see Note 4).

Note 4 - Equity associates

4.1 Group share in net assets and net income of equity associates

As of June 30, 2020, Dassault Aviation held 24.70% of the interest rights of the Thales Group, compared with 24.69% as of December 31, 2019. Dassault Aviation has significant influence over Thales, especially with regard to the shareholders' agreement between Dassault Aviation and the public sector.

Equity associates Share in net income of equity associates
(in EUR thousands) 06/30/2020 12/31/2019 H1 2020 H1 2019 2019
Thales (1) 1,665,856 1,816,825 15,118 115,799 253,314
Other 22,071 24,393 2,133 2,395 5,359
TOTAL 1,687,927 1,841,218 17,251 118,194 258,673

(1) the value of the securities includes goodwill amounting to EUR 1,101,297 thousand. The Group share in Thales' net income after consolidation restatements is detailed in Note 4.3.

4.2 Change in equity associates

(in EUR thousands) H1
2020
2019
As of January 1 1,841,218 1,924,093
First-time application of IFRS 16 - 1,408
Share in net income of equity associates 17,251 258,673
Elimination of dividends paid (1) -4,543 -117,808
Income and expense recognized directly through equity
- Securities at fair value -1,976 -3,062
- Derivative financial instruments (2) 4,808 -17,271
- Actuarial adjustments on pension benefit obligations -144,319 -129,525
- Deferred taxes 3,753 20,074
- Currency translation adjustments -11,957 11,347
Share of equity associates in other income and expense recognized directly
through equity
-149,691 -118,437
Other movements (3) -16,308 -106,711
At the end of period 1,687,927 1,841,218

(1) Thales did not pay any dividends for 2019 during H1 2020. In 2019, Thales paid the Group EUR 83,000 thousand in dividends for 2018 and EUR 31,519 thousand in interim dividends for 2019.

(2) the amounts stated correspond to the change in the market value of the portfolio over the period. They are not representative of the actual gain/loss that will be recognized when the hedges are exercised.

(3) for Thales, this mainly represents the change in treasury shares, employee share issues and share-based payments. In 2019, the other movements also included the impact on Thales'equity of the purchase of minority interests after the date of Gemalto's takeover, as Thales chose to determine goodwill according to the partial goodwill method (therefore, the difference between the purchase price of these interests and Thales' share in the net assets acquired has been recorded as a reduction in equity).

4.3 Share in the net income of Thales

The breakdown between the Group share of Thales' published net income and that applied by Dassault Aviation is noted below:

(in EUR thousands) H1 2020 H1 2019 2019
Thales net income (100%) 65,100 556,900 1,121,900
Thales net income - Dassault Aviation share 16,080 137,554 276,997
Post-tax amortization of the purchase price allocation (1) -1,427 -20,636 -22,228
Other consolidation restatements 465 -1,119 -1,455
Dassault Aviation share in the net income of Thales 15,118 115,799 253,314

(1) amortization of identified assets for which the modes and periods of depreciation are identical to those used for the year ended December 31, 2019.

4.4 Impairment

Based on the market price of Thales shares as of June 30, 2020 (EUR 71.88 per share), Dassault Aviation's investment in Thales is valued at EUR 3,776 million.

In the absence of any objective indication of impairment (Note 1, "Impact of the Covid-19 health crisis"), the Thales investments were not subject to an impairment test as of June 30, 2020.

Note 5 - Other non-current financial assets

(in EUR thousands) 12/31/2019 Acquisition/
Increase
Disposal/
Decrease
Change in
fair value
Other 06/30/2020
Non-listed securities (1) 120,075 0 -21 349 0 120,403
Embraer shares (1) 29,076 0 0 -20,244 0 8,832
Other financial assets 58,579 540 -324 0 365 59,160
Receivables from equity investments 20,885 126 0 0 0 21,011
Advance lease payments 35,801 364 -259 0 365 36,271
Housing loans and other 1,893 50 -65 0 0 1,878
Other non-current financial
assets
207,730 540 -345 -19,895 365 188,395

(1) Unlisted investments and listed Embraer shares classified as other non-current financial assets are measured at fair value, with a corresponding entry in other income and expenses recognized under equity, which cannot be recycled in profit or loss.

Note 6 - Inventories and work-in-progress

12/31/2019
(in EUR thousands) Gross Impairment Net Net
Raw materials 226,496 -93,216 133,280 115,220
Work-in-progress 2,543,281 -14,631 2,528,650 2,519,099
Semi-finished and finished goods 1,264,315 -366,487 897,828 734,032
Inventories and work-in-progress 4,034,092 -474,334 3,559,758 3,368,351

The Covid-19 health crisis had no material impact on the valuation of inventories (Note 1, "Impact of the Covid-19 health crisis").

Note 7 - Cash

7.1 Net cash

(in EUR thousands) 06/30/2020 12/31/2019
Cash equivalents (1) 2,120,119 2,617,278
Cash at bank and in hand 838,030 915,605
Cash and cash equivalents in assets 2,958,149 3,532,883
Bank overdrafts 0 0
Net cash in the cash flow statement 2,958,149 3,532,883

(1) mainly time deposits and cash equivalent marketable securities. The corresponding risk analysis is described in Note 18.

7.2 Available cash

The Group uses an alternative performance indicator, referred to as "Available cash," which reflects the total liquidities available to the Group, net of any financial debt, except for lease liabilities recognized following the application of IFRS 16. It is calculated as follows:

(in EUR thousands) 06/30/2020 12/31/2019
Other current financial assets (at market value) (1) 1,109,743 1,433,071
Cash and cash equivalents (at market value) 2,958,149 3,532,883
Sub-total 4,067,892 4,965,954
Borrowings and financial debt, excluding lease liabilities (2) -147,193 -380,534
Available cash 3,920,699 4,585,420

(1) other current financial assets, which include in particular Group cash investments in the form of listed marketable securities, are measured at fair value through profit or loss. Given their liquidity, the latter could be disposed of in the short-term.

(2) see Note 9.

The investment portfolio had no significant impairment losses as of June 30, 2020, just as for December 31, 2019 (see Note 1, "Impact of the Covid-19 health crisis"). The corresponding risk analysis is described in Note 18.

Note 8 - Equity

8.1 Share capital

The share capital amounted to EUR 66,790 thousand and consisted of 8,348,703 common shares of EUR 8 each as of June 30, 2020, just as for December 31, 2019.

The distribution of share capital as of June 30, 2020 is as follows:

Shares % Capital % Voting
rights
GIMD (1) 5,196,076 62.24% 76.87%
Float 2,291,677 27.45% 17.01%
Airbus 827,529 9.91% 6.12%
Dassault Aviation (treasury shares) 33,421 0.40% -
Total 8,348,703 100% 100%

(1) the Parent Company, Groupe Industriel Marcel Dassault (GIMD), located at 9, Rond-Point des Champs-Élysées - Marcel Dassault, 75008 Paris, fully consolidates the Group's financial statements.

8.2 Treasury shares

Movements on treasury shares are detailed below:

(in number of shares) H1 2020 H1 2019 2019
Treasury shares at January 1 35,600 37,175 37,175
Purchase of treasury shares 0 0 0
Cancellation of shares 0 0 0
Share-based payment (see Note 8.3) -2,179 -1,575 -1,575
Closing treasury shares 33,421 35,600 35,600

The impact of treasury shares on the Group's consolidated financial statements is detailed in the statement of changes in equity.

The 33,421 treasury shares held as of June 30, 2020 (EUR 980 per share) were allocated to potential allocations of performance share plans and a potential liquidity contract to ensure the market activity.

8.3 Share-based payment

The Group grants performance shares to the Chief Executive Officer and to the Chief Operating Officer. The features of these share plans are described in the 2019 annual financial report.

Grant date Vesting
period
Number of
shares
allocated
Share price
on the grant
date
Number of
shares
delivered in
2020
Number of
shares
canceled (1)
Balance of
performance
shares as of
06/30/2020
02/27/2019 from
02/27/2019
to 02/26/2020
2,179 €1,400 2,179 0 0
02/26/2020 from
02/26/2020
to 02/25/2021
2,250 €1,076 0 0 2,250

(1) shares canceled in the event of partial or total non-achievement of performance conditions.

The Group did not grant any stock option plans to its employees and senior executives.

2019 Plan

An expense of EUR 1,648 thousand was recognized in 2020 for this plan, which had a fair value of EUR 2,706 thousand (average of EUR 1,242 per share).

2020 Plan

An expense of EUR 372 thousand was recognized in 2020 for this plan, which had a fair value of EUR 2,171 thousand (average of EUR 965 per share). The expense recorded in the first half of the year takes into account the probability of achievement of targets.

Note 9 - Borrowings and financial debt

(in EUR thousands) Bank
borrowings
Lease
liabilities
Other financial
liabilities (1)
Borrowings and
financial debt
As of December 31, 2019 267,394 177,684 113,140 558,218
Change in scope 0 2,464 0 2,464
Increase 470 24,064 115,913 140,447
Decrease -251,508 -30,137 -98,542 -380,187
Other 326 475 0 801
As of June 30, 2020 16,682 174,550 130,511 321,743

(1) other financial liabilities essentially correspond to the locked-in employee profit-sharing funds. Employee profit-sharing is an "other long-term benefit" and should be measured and discounted in accordance with the principles of IAS 19 (revised). However, given the small historical differences between compensation rates and discount rates, we consider the amortized cost method to be a satisfactory approximation of the debt.

(in EUR thousands) 12/31/2019 Allocations Reversals Other 06/30/2020
Warranties (1) 995,822 45,067 -54,413 122 986,598
Services provision (1) 189,899 33,515 -44,905 271 178,780
Retirement severance payments (2) 344,277 27,867 -9,326 -13,175 349,643
French companies 242,195 19,076 -9,081 -24,115 228,075
US companies 102,082 8,791 -245 10,940 121,568
Others 10,325 777 -1,038 17 10,081
Provisions for contingencies and
charges
1,540,323 107,226 -109,682 -12,765 1,525,102

Note 10 - Provisions for contingencies and charges

(1) provisions take account of changes in the fleet in operation and delivered contracts.

(2) the discount rate used to calculate the provision for retirement severance payments for French companies (determined by reference to the yield for high-quality corporate long-term bonds rated AA) was at 0.80% as of June 30, 2020, compared with 0.70% as of December 31, 2019. The rate used to calculate the provision for retirement severance payments for U.S. companies was 3.35% on June 30, 2020, compared with 3.45% as of December 31, 2019. The actuarial adjustments contributed to the reduction in provisions for retirement severance payments in the amount of EUR 13,194 thousand.

A 0.50 point decrease in the discount rate would increase the total commitment by EUR 80,875 thousand, while a 0.50 point increase in the discount rate would decrease the total commitment by EUR 71,914 thousand.

Note 11 - Contract assets and liabilities

(in EUR thousands) Contract assets Contract liabilities
Contract assets/liabilities as of December 31, 2019 14,788 -7,375,703
Advances and progress payments received -59,012 -6,862,676
Other contract assets/liabilities 73,800 -513,027
Change in customer advances and progress payments 7,733 571,548
Change in other contract assets/liabilities -8,880 -89,686
Contract assets/liabilities as of June 30, 2020 13,641 -6,893,841
Advances and progress payments received -51,279 -6,291,128
Other contract assets/liabilities 64,920 -602,713

The decrease in contract liabilities is mainly the result of the reduction in progress payments received under the Rafale Export contracts, following deliveries during the period.

Since Dassault Aviation is in particular principal on the Rafale Egypt, Qatar and India contracts, the advances received include the co-contractors' parts. The progress payments made reflect the transfer of these parts to the co-contractors:

(in EUR thousands) 06/30/2020 12/31/2019
Advances and progress payments received -6,342,407 -6,921,688
Supplier advances and progress payments 2,077,478 2,363,786
Advances and progress payments received net of advances and
progress payments paid
-4,264,929 -4,557,902

Note 12 - Net sales

Net sales by region breakdown are as follows:

(in EUR thousands) H1 2020 H1 2019 2019
France (1) 301,073 545,574 915,312
Export (2) 2,344,605 2,520,062 6,455,304
Net sales 2,645,678 3,065,636 7,370,616

(1) mainly the French government, with whom the Group generated more than 10% of its total net sales in H1 2019, and in 2019 overall.

(2) more than 10% of the Group's net sales was generated with Qatar and India in H1 2020 and in 2019. More than 10% of the Group's net sales was generated with Qatar in H1 2019. The net sales from the Rafale Export contracts are recognized on a gross basis (including the co-contractors' parts).

Net sales by activity are as follows:

(in EUR thousands) H1 2020 H1 2019 2019
Falcon 1,064,438 993,665 2,222,473
Defense 1,581,240 2,071,971 5,148,143
Net sales 2,645,678 3,065,636 7,370,616

Interim data is not representative of annual net sales.

Note 13 - Research and development costs

Non-capitalized research and development costs are recognized as an expense for the period in which they are incurred and represent:

(in EUR thousands) H1 2020 H1 2019 2019
Research and development costs -262,237 -257,895 -527,287

The Group's research and development strategy and initiatives are described in the Business report.

Note 14 - Net financial income/expense

(in EUR thousands) H1 2020 H1 2019 2019
Income from cash and cash equivalents 2,164 5,658 12,508
Change in fair value of other current financial assets -2,665 1,656 1,311
Cost of gross financial debt (1) -21,384 -38,455 -75,107
Cost of net financial debt -21,885 -31,141 -61,288
Dividends and other investment income 0 15 262
Interest income and gains/losses on disposal of other financial
assets (excluding cash and cash equivalents)
3,479 4,764 8,779
Foreign exchange gain/loss (2) -19,327 -18,960 -43,378
Other financial income and expense -15,848 -14,181 -34,337
Net financial income/expense -37,733 -45,322 -95,625

(1) the financial expense recognized for the financing component of long-term Defense contracts was EUR -18,315 thousand in H1 2020, compared with EUR -31,903 thousand in H1 2019, and EUR -62,066 thousand in 2019.

(2) foreign exchange gain/loss for the period includes the change in market value and gain/loss resulting from the exercise of foreign exchange hedging instruments which do not qualify for hedge accounting under IFRS 9 "Financial Instruments". The amounts are not representative of the real gain/loss that will be recognized when the hedges are exercised.

Note 15 - Tax position

15.1 Deferred tax sources

(in EUR thousands) 06/30/2020 12/31/2019
Temporary differences on provisions (profit-sharing, pension, etc.) 295,520 320,181
Other current and non-current financial assets and cash equivalents -5,474 -2,932
Derivative financial instruments 41,192 21,002
Other temporary differences 104,655 96,493
Net deferred taxes 435,893 434,744
Deferred tax assets 441,538 438,261
Deferred tax liabilities -5,645 -3,517

The Group carried out a review of the recoverability of deferred tax assets recognized in the balance sheet. As a result of this work, the Group did not recognize any material impacts as of June 30, 2020.

15.2 Reconciliation of theoretical and recorded tax charge

(in EUR thousands) H1 2020 H1 2019 2019
Net income 32,009 253,705 712,722
Cancellation of the income tax 4,256 78,106 246,578
Cancellation of the Group share in the net income of equity
associates
-17,251 -118,194 -258,673
Income before tax and equity associates 19,014 213,617 700,627
Theoretical tax expenses calculated at the current rate (1) -6,088 -68,400 -241,226
Effect of tax credits (2) 5,372 5,142 12,562
Effect of differences in tax rates (3) -3,918 -8,503 -9,268
Other 378 -6,345 -8,646
Taxes recognized -4,256 -78,106 -246,578

(1) a rate of 32.02% applies to H1 2020, as well as to H1 2019. In 2019, the tax rate applied was 34.43%.

(2) Research Tax Credit, recognized as other revenue, amounted to EUR 15,500 thousand in H1 2020, compared with EUR 15,350 thousand in H1 2019, and EUR 33,217 thousand for 2019.

(3) includes the impact of the decrease in the corporate tax rate in France.

Note 16 - Earnings per share

Earnings per share H1 2020 H1 2019 2019
Net income attributable to the owners of the Parent Company (in
EUR thousands) (1)
32,009 253,667 712,704
Average number of shares outstanding 8,314,600 8,312,537 8,312,823
Diluted average number of shares outstanding 8,315,725 8,313,550 8,313,836
Basic earnings per share (in EUR) 3.8 30.5 85.7
Diluted earnings per share (in EUR) 3.8 30.5 85.7

(1) net income is fully attributable to income from continuing operations (no discontinued operations).

Earnings per share are calculated by dividing net income attributable to the owners of the Parent Company by the weighted average number of common shares outstanding during the year, minus treasury shares.

Diluted earnings per share correspond to net income attributable to owners of the Parent Company divided by the diluted weighted average number of shares. This corresponds to the weighted average number of common shares outstanding, increased by performance shares granted.

Note 17 - Financial instruments

The valuation method used in the balance sheet (cost or fair value) of financial instruments (assets or liabilities) is detailed in the tables below.

The Group used the following hierarchy for the fair value valuation of the financial assets and liabilities:

  • Level 1: quoted prices in an active market;
  • Level 2: valuation techniques based on observable market data;
  • Level 3: valuation techniques based on non-observable market data.
Balance sheet value as of 06/30/2020
(in EUR thousands) Cost or Fair value
amortized cost
(1)
Impact on
net income
Impact on
equity
Total
Non-current assets
Other non-current financial assets 59,160 129,235 188,395
Current assets
Trade and other receivables 1,390,426 1,390,426
Derivative financial instruments 0 761 761
Other current financial assets 1,109,743 1,109,743
Cash equivalents (2) 2,120,119 2,120,119
Total financial instruments (assets) 1,449,586 3,229,862 129,996 4,809,444
Level 1 (2) 3,229,862 8,832
Level 2 0 761
Level 3 0 120,403

17.1 Financial instruments (assets)

(1) the carrying amount of the financial instruments (assets) recognized at cost or at amortized cost corresponds to a reasonable approximation of the fair value.

(2) including time deposits as of June 30, 2020: EUR 1,616,814 thousand.

As of December 31, 2019, the data were as follows:

Balance sheet value as of 12/31/2019
(in EUR thousands) Cost or Fair value
amortized cost
(1)
Impact on
net income
Impact on
equity
Total
Non-current assets
Other non-current financial assets 58,579 149,151 207,730
Current assets
Trade and other receivables 1,224,369 1,224,369
Derivative financial instruments 5,876 939 6,815
Other current financial assets 1,433,071 1,433,071
Cash equivalents (2) 2,617,278 2,617,278
Total financial instruments (assets) 1,282,948 4,056,225 150,090 5,489,263
Level 1 (2) 4,050,349 29,076
Level 2 5,876 939
Level 3 0 120,075

(1) the carrying amount of the financial instruments (assets) recognized at cost or at amortized cost corresponds to a reasonable approximation of the fair value.

(2) including time deposits as of December 31, 2019: EUR 1,677,688 thousand.

17.2 Financial instruments (liabilities)

Balance sheet value as of 06/30/2020
(in EUR thousands) Cost or Fair value
amortized cost
(1)
Impact on
net income
Impact on
equity
Total
Non-current liabilities
Lease liabilities 137,078 137,078
Other financial liabilities (2) 108,968 108,968
Current liabilities
Bank borrowings 16,682 16,682
Lease liabilities 37,472 37,472
Other financial liabilities (2) 21,543 21,543
Trade and other payables 894,205 894,205
Derivative financial instruments 39,381 95,605 134,986
Total financial instruments (liabilities) 1,215,948 39,381 95,605 1,350,934
Level 1 0 0
Level 2 39,381 95,605
Level 3 0 0

(1) the carrying amount of the financial instruments (liabilities) recognized at cost or at amortized cost corresponds to a reasonable approximation of the fair value.

(2) mainly locked-in employee profit-sharing funds.

As of December 31, 2019, data was as follows:

Balance sheet value as of 12/31/2019
(in EUR thousands) Cost or
amortized cost
(1)
Fair value
Impact on
net income
Impact on
equity
Total
Non-current liabilities
Lease liabilities 122,859 122,859
Other financial liabilities (2) 93,317 93,317
Current liabilities
Bank borrowings 267,394 267,394
Lease liabilities 54,825 54,825
Other financial liabilities (2) 19,823 19,823
Trade and other payables 1,075,599 1,075,599
Derivative financial instruments 30,564 47,077 77,641
Total financial instruments (liabilities) 1,633,817 30,564 47,077 1,711,458
Level 1 0 0
Level 2 30,564 47,077
Level 3 0 0

(1) the carrying amount of the financial instruments (liabilities) recognized at cost or at amortized cost corresponds to a reasonable approximation of the fair value.

(2) mainly locked-in employee profit-sharing funds.

Note 18 - Financial risk management

18.1 Cash and liquidity risks

18.1.1 Financial debt

The Group has no significant risk in relation to its financial debt. A breakdown of financial debt appears in Note 9.

18.1.2 Cash, cash equivalents and other current financial assets

The Group investment portfolio is primarily composed of money market investments with no significant risk of impairment.

(in EUR thousands) Market value As %
Cash at bank and in hand, money market investments and time deposits 3,073,479 75%
Investments in bonds (1) 442,314 11%
Unspecified investments (1) 552,099 14%
Total 4,067,892 100%

(1) investments in bonds subscribed by the Group are investments with a short-term management horizon. Unspecified investments as defined by the AMF classification are invested in short-term bond and money market funds.

An exhaustive analysis of the performance of listed marketable securities is made at each balance sheet date. The investment portfolio does not present, on a line-by-line basis, any objective evidence of significant impairment as of June 30, 2020 (just as for December 31, 2019).

The Group can therefore meet its commitments without any liquidity risk due to its cash resources and its portfolio of marketable securities. The Group is not faced with restrictions with regard to the availability of its cash and its portfolio of marketable securities.

Fair value classification:

06/30/2020
(in EUR thousands) Impact on
net income
Impact on
equity
Total
Cash at bank and in hand, money market investments and time
deposits
3,073,479 0 3,073,479
Investments in bonds 442,314 0 442,314
Unspecified investments 552,099 0 552,099
Total 4,067,892 0 4,067,892

18.2 Credit and counterparty risks

18.2.1 Credit risk on bank counterparties

The Group allocates its investments and performs its cash and foreign exchange transactions with recognized financial institutions. The Group has no investments or accounts with financial institutions presenting a significant risk of default.

18.2.2 Customer default risk

The Group limits counterparty risk by completing most of its sales in cash and ensuring that the loans are secured by export insurance guarantees (Bpifrance Assurance Export) or collateral. The share of receivables not covered by these procedures is subject to regular individual monitoring and, if necessary, a provision for impairment.

Given the arrangements in risk mitigation that are in place, and the provisions made in its accounts, the Group's residual exposure to the risk of default by a customer in a country subject to uncertainties is limited. The Covid-19 health crisis had no material impact on the impairment losses recorded by the Group (Note 1, "Impact of the Covid-19 health crisis").

The amount of the Bpifrance Assurance Export guarantees and collateral obtained and not exercised as of June 30, 2020 is comparable to that as of December 31, 2019.

Manufacturing risk is also covered by Bpifrance Assurance Export for major military export contracts.

18.3 Other market risks

18.3.1 Market risks

The Group hedges its foreign exchange risk and interest rate risk by means of derivative financial instruments, the carrying amount of which is presented below:

(in EUR thousands) 06/30/2020 12/31/2019
Assets Liabilities Assets Liabilities
Foreign exchange derivatives 761 134,986 6,815 77,271
Interest rate derivatives 0 0 0 370
Derivative financial instruments 761 134,986 6,815 77,641
Net derivative financial instruments 134,225 70,826

Foreign exchange derivatives

The Group is exposed to a foreign exchange risk through the Parent Company in relation to its Falcon sales, which are virtually all denominated in US dollars. This risk is partially hedged by using forward exchange contracts and foreign exchange options.

The Group partially hedges its cash flows that are considered highly probable. It ensures that the initial future cash flows will be sufficient to use the foreign exchange hedges in place. The hedged amount may be adjusted as a function of changes over time in expected net cash flows.

As a result of the health situation, the Group reviewed the highly probable nature of the cash flows associated with the financial instruments qualifying for hedge accounting and did not detect anything to undermine this position as of the end of June 2020 (see Note 1, "Impact of the Covid-19 health crisis").

The foreign exchange derivative instruments used by the Group are not all eligible for hedge accounting under the terms of IFRS 9 "Financial Instruments". The analysis of the instruments is presented in the table below:

(in EUR thousands) Market value
as of
06/30/2020
Market value
as of
12/31/2019
Instruments which qualify for hedge accounting -94,844 -45,972
Instruments which do not qualify for hedge accounting -39,381 -24,484
Foreign exchange derivatives -134,225 -70,456

Counterparty risk on foreign exchange derivatives (CVA/DVA) is calculated using the lump-sum add-on method using historical default probabilities by rating category communicated by the rating agencies. As of June 30, 2020, this counterparty risk is not material.

The fair value of derivative financial instruments by maturity breaks down as follows:

(in EUR thousands) Less than one
year
More than one
year
Total
Foreign exchange derivatives -84,677 -49,548 -134,225

Interest rate derivatives

The Group is no longer exposed to the volatility of interest rates through its loans contracted at variable rates, as these were repaid during the H1 (see Note 9).

18.3.2 Impacts of derivatives on the Group's financial statements

The impact on net income and equity of the changes in fair value of hedging instruments for the period is as follows:

(in EUR thousands) 12/31/2019 Impact on
equity (1)
Impact on
net financial
income (2)
06/30/2020
Foreign exchange derivatives -70,456 -48,872 -14,897 -134,225
Interest rate derivatives -370 166 204 0
Net derivative financial instruments -70,826 -48,706 -14,693 -134,225

(1) recognized directly through equity, share of fully consolidated companies.

(2) change in fair value of foreign exchange hedging instruments which do not qualify for hedge accounting under IFRS 9 "Financial Instruments".

The change in fair value of foreign exchange derivatives is mainly due to the change in the closing rate between December 31, 2019 (\$1.1234/€) and June 30, 2020 (\$1.1198/€) and the fall in dollar interest rates (reduction in forward points).

18.3.3 Sensitivity test for foreign exchange derivatives

A sensitivity analysis was performed to determine the impact of a 10 cent increase or decrease in the US dollar/euro exchange rate.

Portfolio market value
(in EUR thousands) 06/30/2020
Net balance sheet position -134,225
Closing US dollar/euro exchange rate \$1.1198/€
Closing US dollar/euro exchange rate +/- 10 cents \$1.0198/€ \$1.2198/€
Change in value (1) -302,631 +217,375
Impact on net income -115,046 +60,547
Impact on equity -187,585 +156,828

(1) indicative data calculated based on existing market conditions on the balance sheet dates. The data is not representative of the actual gain/loss to be recognized when the hedges are exercised.

Note 19 - Contingent assets and liabilities

There are no contingent assets or liabilities as of June 30, 2020.

Note 20 - Related-party transactions

The related parties as of June 30, 2020 are identical to those identified as of December 31, 2019 and the transactions during the period are of the same type.

Note 21 - Subsequent events

No events likely to have a material impact on the financial statements occurred between June 30, 2020 and the date of the condensed consolidated financial statements were approved by the Board of Directors.

Statutory auditors' review report on the half-year financial information

For the period from January 1 to June 30, 2020

________

To the Shareholders,

In compliance with the assignment entrusted to us by your annual general meeting and in accordance with the requirements of article L. 451-1-2 III of the French Monetary and Financial Code (code monétaire et financier), we hereby report to you on:

  • the review of the accompanying condensed half-year consolidated financial statements of DASSAULT AVIATION, the period from January 1 to June 30, 2020;
  • the verification of the information contained in the half-year management report.

These condensed half-years consolidated financial statements were prepared under the responsibility of the Board of Directors on July 23, 2020 based on information available at that date and in the evolving context of the Covid-19 crisis and the complexity to assess its impacts and outlook. Our role is to express a conclusion on these financial statements based on our review.

Conclusion on the financial statements

We conducted our review in accordance with professional standards applicable in France.

A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed halfyear consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 - the standard of IFRSs as adopted by the European Union applicable to interim financial information.

Specific verification

We have also verified the information given in the half-year management report dated July 23, 2020 on the condensed half-year consolidated financial statements subject to our review.

We have no matters to report as to its fair presentation and consistency with the condensed half-year consolidated financial statements.

Paris-La Défense and Neuilly-sur-Seine, July 23, 2020

The Statutory Auditors

MAZARS AUDIT

PRICEWATERHOUSECOOPERS AUDIT

Mathieu MOUGARD

Édouard DEMARCQ

This is a free translation into English of the Statutory Auditors' review report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.

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