5.2       Balance sheet

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 1^st 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).

6.   Shareholder information

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.

Due to the option exercised by certain shareholders to receive payment of the dividend in shares, the Chairman and Chief Executive Officer recorded on June 22, 2018 the creation of 36,782 new shares. The capital of the Company has therefore increased from EUR 66,495,368 to EUR 66,789,624. These transactions took effect on June 27, 2018.

Capital structure

The Company's share capital totaled EUR 66,789,624 as of June 30, 2018. It is divided into 8,348,703 shares, each with a par value of EUR 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.

As of June 30, 2018, Dassault Aviation shareholders are as follows:

It should be noted that by law, shares held in registered accounts for more than two years have been entitled to double voting rights since April 3, 2016.

7.   Conclusion

The global economic environment in the first half of 2018 was marked by sharp trade tensions between the United States and China and between the United States and Europe, the United States' withdrawal from the agreement with Iran, conflicts in the Middle East, and instability in Europe, which included Brexit, the volatility of the dollar, and rising oil prices.

Besides, the French Defense Procurement 2019-2025 law was discussed and voted in the 1^st half of 2018, the military partnership between France and Germany was reaffirmed and the European Defense Fund was launched by European Union.

The positive trend in the business jet market was confirmed, with a recovery in North America and the Asia Pacific region for new aircraft (despite continued competitive pressure) and a decrease in the pre-owned aircraft available for sale (but still at low prices).

In this context, Dassault Aviation is to face four major challenges: establishment in India, preparation for the Future Air Combat System (SCAF), development of the Falcon 6X, and enhancement of the Company's transformation.

"Make in India" shall be our priority with ambitious goals: obtaining new Rafale orders, gaining competitiveness in business aviation, multiplying high technology projects.

We are also fully engaged in SCAF project, which aims to create a network combat system based on a combat aircraft that combines drones and surveillance devices. We are starting to develop this aircraft, with Airbus, as part of a Franco-German cooperative effort.

The implementation of the Dassault Systèmes 3DEXPERIENCE(TM) collaborative engineering platform will be one of the solutions for meeting our future challenges, in the frame of our transformation plan "Leading our Future".

We confirm the objectives for 2018 as they appeared in the annual publication in March 2018:

• obtain qualification of the F3-R standard,
   
• conclude a contract for the Rafale F4 standard,
   
• sign with France the CUGE order for the Epicure mission Falcon,
   
• contribute in the definition of the proposal for a contract to launch the MALE program before the end of 2018,
   
• pursue nEUROn development and tests (additional batch of works),
   
• launch technico-operational studies to define the roadmap for the airborne warfare of the future,
   
• conclude with United Arab Emirates the upgrade of their Mirage 2000-9,
   
• continue promotion and sale of our Falcon and Rafale,
   
• perform the Falcon and Rafale contracts in terms of quality, time and cost objectives,
   
• pursue our efforts in fleet support, key to customers' loyalty,
   
• develop the Falcon 6X,
   
• design and engineer the future Falcon (phase A),
   
• make the start of the "Make in India" industrial line successful, from the production of the very first parts,
   
• ensure good execution of the Transformation Plan.

We also confirm our 2018 guidance : 40 Falcon deliveries, 12 Rafale deliveries (9 Export and 3 France) and 2018 net sales close to 2017's.