2018 1st half | 2017 1st half | ||
Order intake | € 2,807 million | € 1,415 million | |
18 Falcon (incl. F5X cancellation and 1st F6X orders) 12 Rafale (Qatar) | 14 Falcon | ||
Adjusted net sales (*) | € 1,709 million 15 Falcon 2 Rafale (France) | € 2,068 million 17 Falcon 4 Rafale (3 Egypt + 1 France) | |
as of June 30, 2018 | as of December 31, 2017 | ||
Backlog | € 20,532 million 55 Falcon (no F5X) 111 Rafale (82 Export + 29 France) | € 19,460 million 52 Falcon (incl. 5X not canceled) 101 Rafale (70 Export + 31 France) | |
2018 1st half | 2017 1st half | ||
Adjusted operating income (*) Adjusted operating margin (*) | € 111 million 6.5% of net sales | € 121 million 5.9% of net sales | |
Research & Development | € 143 million 8.4% of net sales | € 176 million 8.5% of net sales | |
Adjusted net income (*) | € 186 million | € 166 million | |
Adjusted net income (*) / share Adjusted net margin (*) | € 22.4 per share 10.9% of net sales | € 20.2 per share 8.0% of net sales | |
As of June 30, 2018 | As of December 31, 2017 | ||
Available cash | € 5,029 million | € 4,121 million |
Note : Dassault Aviation recognizes the Rafale Export contracts in their entirety (including the Thales and Safran parts), whereas for France, only the Dassault Aviation part is recognized.
Main aggregates under IFRS
Consolidated net sales (*) | € 1,720 million | € 2,082 million |
Consolidated operating income (*) | € 124 million | € 112 million |
Consolidated net income (*) | € 125 million | € 357 million |
(*) See table of reconciliation between the consolidated income statement and the adjusted income statement in appendix.
The Group confirms its forecasts published on March 8, 2018, namely the delivery of 40 Falcon and
12 Rafale (3 to France and 9 for Export) and 2018 net sales should be close to 2017's.
TRIBUTE TO SERGE DASSAULT
The Board of Directors pays tribute to Serge Dassault, who passed away on May 28 at the age of 93.
Serge Dassault, a graduate of the École Polytechnique and the École Nationale Supérieure de l'Aéronautique, started at the Company's engineering department in 1951 under the direction of Henri Deplante before taking responsibility for flight tests.
In that capacity, he oversaw the development of several aircraft, such as the Super Mystère B2, Mirage III, Etendard and Mirage IV.
After being appointed Military Export Director, he handled the negotiations that led to the purchase of the Mirage III by Switzerland and Australia. He also launched the Mystère 20 sales campaign in the United States.
After his time at Société Electronique Marcel Dassault, which later became Electronique Serge Dassault, he became Chairman and CEO of our Company from the end of 1986 until April 2000.
During that period, under his leadership, our company successfully deployed long-term and large-scale strategies consistent with the long cycles typical of our products.
He was a tenacious and hard worker man with a spirit of conquest.
Aeronautics was his passion.
At last, he anticipated and settled his successorship by appointing Charles Edelstenne, as head of GIMD with the agreement of all of his children.
Falcon programs
Highlights of the first half of 2018 were:
· the order of 18 Falcon including Falcon 5X cancellations and the first Falcon 6X orders, the sale of a 5th Falcon 2000 Maritime Surveillance Aircraft to the Japanese coastguards, and the sale of 1 Falcon 2000LX converted to a testbed airplane to the German Aerospace Research Center (DLR),
· the delivery of 15 Falcon,
· on February 28, 2018, the official launch and start of marketing of the Falcon 6X. The program is unfolding as planned, with the selection of the main partners and the installation of design platforms in Saint-Cloud and Mérignac.
This new aircraft will have a range of 5,500 NM, unequaled comfort with a cabin width of 2.7 m and a volume of 52.2 m3. This twinjet will be equipped with Pratt & Whitney PWC 812D engines and will reach a maximum speed of Mach 0.9,
· the completion of flight tests for the certification of the Falcon Eye system operational gains for the Falcon 8X,
· the announcement of the new Falcon Connect service, an integrated solution for communications management and data exchange between aircraft and ground networks. This service will be available on new aircraft and as a retrofit early 2019,
· concerning mission aircraft, the February 28, 2018 decision by the French Government to choose the Epicure mission Falcon to handle Universal Electronic Warfare Capacity (CUGE), and replace, from 2025 on, the two TRANSALL C-160 Gabriel currently in service,
· the ongoing future Falcon specification.
DEFENSE programs
Rafale
Highlights of the RAFALE program in the first half of 2018 were:
· the entry into force of the option for 12 additional Rafale for Qatar following the receipt of the first down payment on March 27, 2018,
· delivery of 2 Rafale to France, bringing the total Rafale delivered to the French Forces to 151 out of the 180 aircraft ordered,
· the delivery of the 9th Naval Rafale retrofitted from the F1 to the F3 standard,
· the ongoing development of the F3-R standard,
· the launching of preliminary studies for the development of the F4 standard,
· continued fulfillment of Rafale contracts for Egypt, Qatar and India,
· training of pilots and implementation of support for Qatar prior to the start of the 1st aircraft deliveries,
· the continuation of promotional and prospecting activities related to Rafale Export.
Mirage 2000
For Mirage 2000, it should be noted that in the 1st half of 2018:
MARitime SURveillance and MARitime PATrol aircraft
In addition to the sale of a 5th Falcon 2000 Maritime Surveillance Aircraft to the Japanese coastguards, and the choice by the French Government for the Epicure Falcon mission, the 1st half of 2018 was marked by:
Drones:
For drones, highlights in the first half of 2018 included:
Finalization of the "Invitation To Tender" by the OCCAR (Organization for Joint Armament Cooperation) is now expected for the second half of 2018,
We have now to establish the roadmap that shall begin with the studies. Our goal is to obtain the launch of a demonstrator,
India
Indian needs for combat aircraft are material (Request For Information for 110 aircraft for its Air Force and 57 aircraft for the Navy), the "Make in India" success is a priority.
In this context, the civil and military aeronautical activities of the Dassault Reliance Aerospace Limited Joint Venture (JV DRAL), created in 2017, should enable us to meet our offsets commitments provided for in the contract signed to supply 36 Rafale, to build the foundations to reach our commercial goals with India, and to improve our competitiveness in manufacturing Falcon 2000 parts in India.
JV DRAL industrial operations were launched in April 2018 in the presence of Loïk Segalen, Chief Operating Officer of Dassault Aviation, and Suresh Kakani, Vice Chairman & Managing Director of the supervisory authority for the development of the free zone where JV DRAL is located.
The ramp-up will take place gradually according to a milestoned industrial plan to ensure the performance of JV DRAL at each stage of the transfer.
We have also launched the construction of the initial infrastructure and have begun to recruit and train Indian employees. The first Falcon 2000 subassemblies are expected to come out of production in 2018.
When the Dassault Aviation Executive Committee meeting was held in New Delhi in April 2018, the Directors and Chief Executives of the company went to India to acknowledge the development of JV DRAL and reaffirm Dassault Aviation's commitment to "Make in India".
The GIFAS visit to India led by Eric Trappier, Chairman of GIFAS, also gave a large delegation of French industry leaders the opportunity to go to Nagpur to interact with the JV DRAL management team and promote the development of partnerships between Indian and French Supply Chains. We have also continued to establish a production line in India with the implementation of a local supply chain for pylons, drums, primary parts and engineering.
Civil customer support:
With respect to Falcon customer support, in the first half of 2018, we:
Military customer support:
As regards military customer support, we:
It should be noticed that, in June 2018, the Mirage 2000N was retired from operational service after 30 years in the French forces.
Order intake in the first half of 2018 was EUR 2,807 million, compared with EUR 1,415 million in the 1st half of 2017 (IFRS 15 pro forma). Export represented 92%.
The change in order intake was as follows, in EUR millions:
Defense | Falcon | Total | % Export | ||
France | Export | ||||
2017 1st half | 221 | 172 | 1,022 | 1,415 | 83% |
28% | 72% | ||||
2018 1st half | 231 | 1,354 | 1,222 | 2,807 | 92% |
56% | 44% |
The order intake item is entirely composed of firm orders.
Falcon programs
During the 1st half of 2018, 18 Falcon were ordered including Falcon 5X cancellations and 1st Falcon 6X orders, compared to 14 orders over the 1st half of 2017.
Falcon orders represented EUR 1,222 million in the 1st half of 2018, compared with EUR 1,022 million in the 1st half of 2017 (IFRS 15 pro forma). This rise results from an increase in orders for new aircraft.
Defense programs
Defense orders stood at EUR 1,585 million during the first half of 2018, compared to EUR 393 million during the first half of 2017 (IFRS 15 pro forma).
The increase in Defense Export orders, EUR 1,354 million during the first half of 2018 compared with EUR 172 million during the first half of 2017 (IFRS 15 pro forma) is mainly due to the entry into force of the 12 Rafale option of Qatar.
Adjusted consolidated net sales for the first half of 2018 were EUR 1,709 million, compared to EUR 2,068 million for the first half of 2017 (IFRS 15 pro forma). Export represented 80% in the first half of 2018.
The change in net sales was as follows, in EUR millions:
Defense | Falcon | Total | % Export | ||
France | Export | ||||
2017 1st half | 226 | 693 | 1,149 | 2,068 | 86% |
44% | 56% | ||||
2018 1st half | 288 | 234 | 1,187 | 1,709 | 80% |
31% | 69% |
Falcon programs
15 Falcon were delivered in the 1st half of 2018, compared to 17 in the 1st half of 2017.
Falcon net sales for the 1st half of 2018 were EUR 1,187 million, compared to EUR 1,149 million for the 1st half of 2017 (IFRS 15 pro forma).
Defense programs
2 Rafale were delivered to France in the 1st half of 2018, compared to 3 Rafale to Egypt and 1 Rafale to France in the 1st half of 2017.
Defense net sales for the 1st first half of 2018 were EUR 522 million, compared to EUR 919 million for the 1st first half of 2017 (IFRS 15 pro forma).
****
The "book to bill" ratio (order intake/net sales) was 1.64 in the first half of 2018.
The consolidated backlog as of June 30, 2018 was EUR 20 532 million, compared to EUR 19,460 million as of December 31, 2017 (IFRS 15 pro forma). The increase is mainly due to the entry into force of the 12 Rafale option of Qatar
The Falcon backlog stood at EUR 2,466 million, compared to EUR 2,457 million as of December 31, 2017 (IFRS 15 pro forma). In particular, it includes 55 Falcon with no more Falcon 5X (compared with 52 as of December 31, 2017, including Falcon 5X not canceled).
The French Defense backlog stood at EUR 2,982 million, compared to EUR 3,039 million as of December 31, 2017 (IFRS 15 pro forma). It includes in particular 29 Rafale (compared to 31 as of December 31, 2017).
The Defense Export backlog stood at EUR 15,084 million, compared to EUR 13,964 million as of December 31, 2017 (IFRS 15 pro forma). It includes, in particular, 10 Rafale Egypt, 36 Rafale Qatar and 36 Rafale India (compared to 10 Rafale Egypt, 24 Rafale Qatar and 36 Rafale India as of December 31, 2017).
IFRS 15 impacts - Revenue Recognition
The financial statements for the first half of 2017 were restated in accordance with the application of IFRS 15, which sets out standards for revenue recognition.
The most material impact of applying this standard is the inclusion of a financing component when it is significant, to reflect a "cash sale price" for the service provided. The financing component exists when there is, for a given contract, a significant difference between the moment when cash is received and the moment when the revenue is recognized.
Future revenue and therefore the operating income, from the relevant contracts will be increased by this financing component, offset by a financial expense recognized along the duration of the contract.
The IFRS 15 impacts on adjusted net income for the 1st half of 2017 are as follows:
In € millions | H1 2017 Adjusted Published | IFRS 15 impact | H1 2017 Adjusted Restated |
NET SALES | 2,050 | 18 | 2,068 |
OPERATING RESULT | 123 | -2 | 121 |
Operating margin | 6.0% | 5.9% | |
FINANCIAL RESULT | 16 | -34 | -18 |
THALES and shares in other equity associate | 106 | -9 | 97 |
INCOME TAXES | -46 | 12 | -34 |
NET RESULT | 199 | -33 | 166 |
Net margin | 9.7% | 8.0% |
Operating income
Adjusted operating income for the 1st half of 2018 was EUR 111 million, compared to EUR 121 million during the 1st half of 2017 (IFRS 15 pro forma).
The operating margin was 6.5%, compared to 5.9% for the 1st half of 2017 (IFRS 15 pro forma). This increase is mainly explained by the improvement of the 1st half hedging rate at 1,19 €/$ compared to 1,23 €/$.
Financial result
Adjusted financial income for the 1st half of 2018 was EUR -38 million, compared to EUR -18 million in the 1st half of 2017 (IFRS 15 pro forma) as a result of the financing component booked related to Rafale contracts.
Net income
Adjusted net income in the 1st half of 2018 was EUR 186 million, compared to EUR 166 million in the 1st first half of 2017. The contribution of Thales to the Group's net income was EUR 132 million, compared to EUR 95 million during the 1st half of 2017 (IFRS 15 pro forma).
Adjusted net margin stood at 10.9% in the 1st half of 2018, compared to 8.0% in the 1st half of 2017 (IFRS 15 pro forma).
The Group uses a specific indicator called "Available Cash" defined in appendix.
The Group's available cash stood at EUR 5,029 million as of June 30, 2018, compared to EUR 4,121 million as of December 31, 2017, up by EUR 908 million mainly due to Rafale Export down payments received partly balanced by the increase of the Rafale export inventories and work-in-progress.
Note that the balance sheet impacts of IFRS 9 and 15 restatements are detailed in the appendix of our consolidated financial statements.
Total equity amounted to EUR 3,819 million as of June 30, 2018, compared to EUR 3,721 million as of December 31, 2017. This increase is mainly explained by the consolidated IFRS net income over the period.
Borrowings and financial debts amounted to EUR 1,046 million as of June 30, 2018, compared to EUR 1,095 million as of December 31, 2017. They include loans taken out by the Group in 2014 and 2015 for EUR 925 million (EUR 25 million having been paid back during the 1st half 2018) and locked-in employee profit-sharing funds.
Inventories and work-in-progress increased by EUR 334 million and stood at EUR 3,806 million as of June 30, 2018. This increase is notably explained by the increase in Rafale Export work-in-progress.
Advances and progress payments received from customers net of advances and progress payments paid to suppliers were up by EUR 1,204 million as of June 30, 2018, due primarily to progress payments received under the scope of Rafale Export contracts.
Derivative financial instruments had a market value of EUR 70 million at June 30, 2018, compared to EUR 161 million as of December 31, 2017. This increase is connected to changes in the €/$exchange rate between June 30, 2018 and December 31, 2017 (€/$ 1.17 vs. €/$ 1.20).
In order to allow the Company to act at any time with regard to its own shares, the General Meeting of May 24, 2018 approved the implementation of a new share buyback program. The program authorizes the acquisition of a number of shares representing up to 10% of the Company's capital at a maximum price of EUR 1,700 per share over a period of 18 months beginning on May 24, 2018. This program enters into force on July 19, 2018.
The General Meeting of May 24, 2018 also decided to offer shareholders the opportunity to opt for a payment in shares of all or part of the dividend to which they were eligible for the year ended December 31, 2017.
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