2018 INTEGRATED REPORT CONTENTS

p. 01 p. 14

SAFRAN ECOSYSTEM AT A GLANCE

p. 22 p. 02 STRATEGY AND EDITORIAL BUSINESS MODEL

p. 04 p. 42

GROUP PROFILE RISK MANAGEMENT

p. 46

CORPORATE GOVERNANCE

p. 52

PERFORMANCE AND VALUE CREATION SAFRAN AT A GLANCE

rd Worldwide aerospace nd Worldwide aerospace group, excluding equipment supplier 3 airframers 2

2018 KEY FIGURES OUR ACTIVITIES €21,050 million €3,023 million REVENUE RECURRING (adjusted data)(1) OPERATING INCOME AEROSPACE (adjusted data) PROPULSION

€1,781 million €1,472 million FREE CASH FLOW TOTAL R&D AIRCRAFT EQUIPMENT, (including customer- DEFENSE & funded R&D) AEROSYSTEMS

€780 million 92,639 CAPEX EMPLOYEES AIRCRAFT (TANGIBLE ASSETS) (at December 31, 2018) INTERIORS

2022 OBJECTIVES

ORGANIC REVENUE GROWTH(2) 4% to 6% annually Become the RECURRING OPERATING MARGIN world’s leading trending to a 16%-18% range by 2022 aircraft equipment CONVERSION OF RECURRING OPERATING supplier within INCOME TO FREE CASH FLOW the next 15 years trending above 60% in 2022

SHAREHOLDER RETURN 75% of cumulated free cash flow over the period 2018-2022 through dividends(3) and share buybacks

(1) Please refer to the 2018 Registration Document (page 52), for a reconciliation of the consolidated income statement with the adjusted income statement and a breakdown of the adjustment. (2) Based on an estimated average spot rate of US$1.25 for €1 in 2019-2022. (3) Based on the existing dividend practice (40% payout ratio).

01 I SAFRAN 2018 INTEGRATED REPORT EDITORIAL

PHILIPPE PETITCOLIN ROSS McINNES CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD OF DIRECTORS

SAFRAN 2018 INTEGRATED REPORT I 02 MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE CHIEF EXECUTIVE OFFICER

Driven by the belief Our operating excellence, whether that sustainably successful “Safran has strong in terms of product quality, businesses are those able to deal assets to fulfil its constant cost control or meeting with the issues of today and lead times, has also enabled us to tomorrow, Safran is currently mission: sustainably excel in project performance and ranked in the top three worldwide contribute to more be the preferred partner of our aerospace groups (excluding customers. This success required airframers). open, comfortable, the mobilization of our entire supply safe and clean access chain. Our know-how will be fully Our excellent 2018 operating and mobilized to ensure former Zodiac financial performance is in line with to the sky.” Aerospace businesses return to our enhanced scale. With revenue world class operating and financial exceeding €21 billion and recurring performance levels. operating income of over €3 billion (59% of which was converted into As a responsible group, we have free cash flow), the historic worked with conviction and production ramp-up of the new determination for professional LEAP® engine and the acquisition equality and youth training and of Zodiac Aerospace, Safran has to limit our environmental footprint strong assets to fulfil its mission: Thanks to the inventiveness through an ambitious, transparent sustainably contribute to more of our employees, technological and measurable strategy covering open, comfortable, safe and innovation and operating excellence both our products and our clean access to the skies. and building on responsible, production methods. long-term relations with our Strengthened by our fundamentals, This first integrated report suppliers and customers, Safran our values and our industrial and therefore shows that we have invents, develops and manufactures technological know-how, we are successfully created value for all high value-added solutions, tailored pursuing with confidence our our stakeholders for which we to the needs of its customers. objective to become the world’s are extremely proud! leading aircraft equipment supplier. Innovation, whether in products or We can assure you of our total methods, continuous or disruptive, We are, however, not short of commitment to continuing to is at the heart of Safran’s identity. challenges, if we are to satisfy our guide Safran towards excellence This is why it plays a key role in customers and sustainably create and success and to keeping our our strategy and our investment. value for all our stakeholders in corporate social responsibility New architectures and propulsion a constantly changing aerospace commitments. hybridization in the move towards and defense sector. more electric aircraft, composite Our development model, that we materials, digitization and are pleased to present in this report, connected cabins: we are doing fully integrates the environmental everything necessary to define Ross McInnes and challenges facing air transport. the next aerospace state of the art. Philippe Petitcolin

03 I SAFRAN 2018 INTEGRATED REPORT GROUP PROFILE

A BALANCED BUSINESS PORTFOLIO FOCUSED ON AEROSPACE AND DEFENSE

Present in all aircraft components, Safran strives to build the future of the global aerospace sector and be the preferred partner of airframers and airlines.

Safran is an international (excluding airframers), either alone past, Safran has constantly adapted high‑technology group specialized or in partnership. The world’s oldest and renewed itself in response in the aerospace and defense sector, aircraft engine manufacturer and heir to the sector’s technological where it is ranked third worldwide to France’s rich aerospace industrial and economic challenges.

SAFRAN: A COMPREHENSIVE OFFERING

Avionics Cabin interiors Power Inertial navigation systems Seats & data wiring Flight data acquisition units IFEC (In-Flight Entertainment & Connectivity)

Cockpit Electric flight Oxygen APU (Auxiliary Control systems control actuators systems Power Units) Panels & displays Seats

Lavatories, water Exterior Engines Exit slide Galleys & & waste systems lighting Engine control equipment systems (FADEC) Power distribution and generation

Landing gear Braking & landing control systems Nacelles & components Inerting & Anti-icing Wheel and carbon brakes Power transmission systems fuel systems & de-icing

SAFRAN 2018 INTEGRATED REPORT I 04 GROUP PROFILE

LEADERSHIP POSITIONS IN OUR BUSINESS SEGMENTS

Since the disposal of the Identity global leader in its main markets. focused on the aerospace and and Security businesses in 2017 and In a favorable context, shaped defense sector and this tier-one the acquisition of Zodiac Aerospace by an expected twofold increase supplier position, will enable in the first quarter of 2018, Safran in air traffic over the coming twenty the Group to capture the strong is entirely focused on the aerospace years and the introduction of new growth in its business sectors. and defense markets. Safran is a generations of aircraft, this portfolio

N°1 worldwide for engines for 100+ seater commercial aircraft(1) N° 1 worldwide for helicopter turbine engines N°4 worldwide for military aircraft engines N°1 worldwide for launch vehicles for commercial launches into geostationary orbit (GEO)(2) AEROSPACE PROPULSION AEROSPACE

N°1 worldwide for landing gear N°1 worldwide for wheels and carbon brakes for 100+ seater aircraft N°1 worldwide for wiring N°2 worldwide for nacelles N°3 worldwide for inertial navigation systems N°1 worldwide for helicopter flight controls N°1 European for optronic and inertial navigation systems N°1 worldwide for evacuation slides and oxygen systems

AIRCRAFT EQUIPMENT / N°1 worldwide for onboard water and waste DEFENSE / AEROSYSTEMS management systems N°1 European for tactical drones

N°1 worldwide for galleys, lateral partition panels, carts, containers and cabin interiors for regional and business aviation 22% market share for cabin interiors for commercial aircraft 30% market share for commercial aircraft passenger seats AIRCRAFT INTERIORS

(1) With GE Aviation, within the joint venture, CFM International. (2) With Arianespace, a subsidiary company of ArianeGroup, a joint venture with Airbus.

05 I SAFRAN 2018 INTEGRATED REPORT GROUP PROFILE

A LEADING GLOBAL PLAYER

Since its creation in 2005, Safran has expanded internationally. With over 92,000 employees in 26 countries, the Group has extended its footprint beyond its European base and is now present in the American continent, Africa, the Middle East, Asia and Oceania. This global presence enables it to establish strong and sustainable relationships with the majority of aeronautic players and airlines. It reflects its desire to promptly deliver local services to customers.

FRANCE 48% 44,492 EMPLOYEES

65 13 18

AMERICAS 28% 25,601 EMPLOYEES

56 25 9

SAFRAN 2018 INTEGRATED REPORT I 06 GROUP PROFILE

Geographic spread of employees and sites

Percentage of employees % of employees in the total Group workforce

Number of sites(1)

R&D and Service and Commercial and production activities maintenance activities administrative activities

EUROPE (excluding France) 12% 10,983 EMPLOYEES

25 7 3

ASIA OCEANIA 5% 4,862 EMPLOYEES

AFRICA 7 6 MIDDLE EAST 7% 6,701 EMPLOYEES

9 3

(1) Each site corresponds to a legal entity covering one or more tertiary, production, service or maintenance sites.

07 I SAFRAN 2018 INTEGRATED REPORT GROUP PROFILE

AEROSPACE PROPULSION: A FULL-FLEDGED ENGINE MANUFACTURER

Thanks to its complete range of civil and military engines and the partnership formed nearly half a century ago with GE Aviation, Safran has become a global leader in propulsion.

Long-term prospects LEAP BACKLOG The propulsion business generates significant service activities, mainly €10.5 billion 49.7% comprising the sale of spare parts adjusted of adjusted 15,329 and maintenance, repair and revenue in 2018 Group revenue ENGINES AT overhaul services (MRO). With the MARCH 31, 2019 increasing size of the engine fleet in service, Safran has substantial growth potential. The Group Full-fledged engine manufacturer has developed Rate Per Flight Hour A full-fledged engine (RPFH) contracts for a number manufacturer(1), Safran supplies LEAP DELIVERIES of years, in response to customer airframers with engines for FROM 2020 demand. These contracts now apply commercial aircraft, military aircraft, to the LEAP engine. After market regional transport aircraft, business services for this engine will gradually jets and helicopters. To increase take over from the CFM56 engine cost efficiency and share risks, 2,000+ from 2025. the world’s leading engine ENGINES ANNUALLY manufacturers develop their CFM56 in operation(2) engine programs in partnership. Safran has primarily partnered 2016 29,395 with GE Aviation since the 1970s, 2017 30,822 when they set up the 50/50 joint 2018 31,500 venture, CFM International, which develops the CFM56® 4.4 LEAP Deliveries and LEAP engines. MILLION AGGREGATE 2016 77 LEAP FLIGHT HOURS SINCE 2017 459 ENTRY INTO SERVICE 2018 1,118

CFM ENGINE DELIVERIES P.A. CFM56 IN OPERATION(2)

2,500 35,000 LEAP 2,000 33,000 31,000 1,500 29,000 1,000 27,000

500 25,000 Weighted average annual CFM56 23,000 0 growth rate 21,000 +5.5% p.a. 19,000 Year 1 Year 7 Year 13 Year 19 Year 25 Year 31 Year 37 17,000 “Year #” stands for the number of production years for each engine. For instance, after 5 years of production, ~600 CFM56 were delivered 15,000 (in 1985) vs ~2,000+ LEAP (in 2020). 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

(1) A full-fledged engine manufacturer is present in all engine components and all propulsion market segments. (2) In operation base is equal to engines delivered less engines dismantled or scrapped. It differs from the operated base which does not integrate the removed and repaired engines.

SAFRAN 2018 INTEGRATED REPORT I 08 GROUP PROFILE

SAFRAN EXCELS IN THE FULL RANGE OF PROPULSION TECHNOLOGIES

NARROWBODIES In this segment, which represents 60% of global aircraft deliveries, CFM International has a market share of around 80% thanks to forty years of commercial success. With an in operation base of over 31,500 engines at the end of 2018, the CFM56 is the biggest commercial success in the history of civil aviation: every two seconds, a CFM56 engine takes-off somewhere in the world. It will continue to generate service activities for Safran over the next twenty years, which are expected to peak around 2025. The CFM56’s successor, the new LEAP engine, is already a commercial success. Produced since 2016, its ramp-up is the steepest ever known in the aviation industry: 1,118 LEAP engines were delivered in 2018. WIDEBODIES BUSINESS AIRCRAFT Highly innovative, the LEAP engine reduces fuel consumption by 15% Safran is a risk and revenue sharing Safran develops the Silvercrest relative to the last generation partner(1) of GE Aviation. Participation engine in the mid/high-end engine of CFM56 engines. At the end of rates vary from 7% to 24% in several range (10,000 pounds of thrust) for March, 2019, the LEAP engine has high-thrust civil engine programs, Cessna’s (Textron Group) Hemisphere. an order backlog of 15,329 engines, and particularly the GE90 powering In October 2018, the US private jet representing seven years’ output the Boeing 777 and its successor, company, NetJets, announced a at current production rates. the GE9X powering the future purchase option for up to 150 aircraft It has been selected Boeing 777X. powered by the Silvercrest engine. for three aircraft: LEAP-1A for the Airbus A320neo (59% market share); REGIONAL TRANSPORT LEAP-1B for the Boeing 737 Max AIRCRAFT (100% market share); LEAP-1C for the COMAC C919 Safran is the prime contractor for (China, exclusive Western source). the SaM146 program, in partnership with the Russian engine manufacturer, UEC Saturn. The SaM146 is the sole engine for the Superjet 100, the 70-to 95-seater aircraft made by Russian manufacturer Sukhoi.

HELICOPTERS In ten years, Safran has completely renewed its range of turbines in the 500 to 3,200 shp category, MILITARY AIRCRAFT with best-in-class engines. Safran’s market share is 27% Safran is present in all three sectors: (between 2014 and 2018). fighter aircraft (notably with the M88 engine powering the Rafale), training aircraft, and patrol, tanker and transport aircraft. In the coming SPACE years, the Group will be one of the main pillars of the European Defense ArianeGroup (a 50/50 joint venture between Safran and Airbus) and is actively preparing the Future is prime contractor for Ariane 5 and Ariane 6 European space launchers. Combat Air System (FCAS) It is responsible for design, the entire production chain and commercialization in partnership with MTU. by its subsidiary, Arianespace.

(1) Sharing of risks and revenues in proportion to his level of participation.

09 I SAFRAN 2018 INTEGRATED REPORT GROUP PROFILE

AIRCRAFT EQUIPMENT, DEFENSE AND AEROSYSTEMS: LEADERSHIP POSITIONS

Safran’s legacy businesses (Aircraft equipment, Defense) and Aerosystems are reported separately in 2018 financial communication. With the acquisition of Zodiac Aerospace, Safran proposes a strengthened range of equipment.

AIRCRAFT EQUIPMENT AEROSYSTEMS

internal and external engine airflows, helps reduce noise, incorporates safety components €5.4 billion 25.6% and provides additional braking. €1.8 billion 8.5% adjusted of adjusted Safran benefits from the ramp-up adjusted of adjusted revenue in 2018 Group revenue of nacelle delivery rates for the revenue in 2018 Group revenue A320neo and A330neo and growth in service activities. In mechanical power transmission, Safran Landing and braking systems. proposes an extensive range Technology requirements are high, for civil and military engines. as aircraft must bear extreme loads when landing. With nearly Electrical systems and related 9,700 aircraft fitted with Safran engineering. Safran covers wheels and carbon brakes, onboard electricity generation the Group enjoys substantial and distribution systems, wiring prospective revenue streams. and ventilation. Safran is actively preparing the shift towards electric Engine systems and equipment onboard aircraft systems, a major include, on the one hand, nacelles structural trend. In the longer term, and thrust reversers and, on the backing gas turbines with electric other hand, power transmission engines will help reduce the carbon systems. The nacelle is a complex footprint of each aircraft. piece of equipment which optimizes Safran is a global leader in aircraft aerosystems, following the acquisition of Zodiac Aerospace. Aerosystems encompass equipment performing functions essential DEFENSE to aircraft and their security: (i) security systems (slides, lifejackets and rafts, oxygen systems and masks); €1.4 billion 6.6% (ii) cockpit systems (switching, adjusted of adjusted wheel-steering; wiper systems; revenue in 2018 Group revenue external lighting solutions; electromechanical actuator systems for secondary flight controls, door opening and In this niche sector, Safran provides solutions, under optimal conditions closing mechanisms, etc.); solutions and services in optronics, of security, for land, sea, air and (iii) control systems (fuel control; avionics, navigation systems, tactical space applications. With the measurement instruments; ice drones, electronics and critical acquisition at the beginning of 2019 detection and protection solutions); software for civil and defense of ElectroMechanical Systems from (iv) onboard fluid and waste markets. Prime expertise in these Collins Aerospace, Safran recently management systems; technologies enables Safran to offer strengthened its position in electric (v) in-flight entertainment systems, its customers observation, and flight controls. where Safran proposes an innovative decision‑support and orientation range with its RAVE™ system.

SAFRAN 2018 INTEGRATED REPORT I 10 GROUP PROFILE

AIRCRAFT INTERIORS: A NEW BUSINESS

Initially from Zodiac Aerospace, these activities are currently being restructured to bring them to the same standards of quality and competitiveness as the Group’s other businesses.

With the aim of ensuring requirements on appearance passenger security while and quality, because airlines use maximizing their comfort, them as part of their brand image. €2 billion 9.6% the aircraft interiors business targets In addition, the arrangement of cabin adjusted of adjusted not only airframers, but also airlines, interiors impacts profitability, where revenue in 2018 Group revenue particularly for seats. Cabin it enables occupation of the space interiors must meet demanding to be maximized while reducing the weight of equipment and aircraft fuel consumption. While the majority of aircraft systems and equipment are generally defined by the airframer (“SFE” model(1)), commercial aircraft internal fittings are mainly decided by airlines (“BFE” model(2)). Safran also offers customers cabin retrofits. Given their service life (five to ten years), cabins will need retrofitting two or three times during the aircraft’s lifetime.

CABINS SEATS Safran is a global leader in cabin In 2018, Safran has 30% of the interiors, with a market share of 22% global market for passenger seats. and an extensive product portfolio Its expertise covers the whole seat (overhead bins, kitchens and galleys, manufacturing chain, from design trolleys, wash-hand basins, and certification through to assembly. lavatories, etc.). Safran has technical This expertise is applied to offer (high‑technology molding, proficiency customers a full range of innovative in advanced composite materials), and customized seats combining industrial and commercial expertise, ergonomics, comfort, aesthetics enabling it to offer customers an and cabin space optimization. extensive range of interior fittings Safran also proposes seats for all types of aircraft (commercial for flight and cabin crew and business aircraft, VIP aircraft, and helicopter seats. freight aircraft).

(1) SFE (Supplier Furnished Equipment): equipment specified and purchased by the airframer, which offers airlines one or more configurations from catalogue. (2) BFE (Buyer Furnished Equipment): equipment specified and purchased by the airline. For new equipment, fitting is usually delegated to the airframer.

11 I SAFRAN 2018 INTEGRATED REPORT GROUP PROFILE

A LOOK BACK AT OUR HISTORY

With a rich history of over a century, Safran has made high technology its hallmark.

1 9 0 5 TRENDS IN THE SAFRAN SHARE PRICE Société des Moteurs Gnome AND THE EURO STOXX 50 INDEX is founded in the Paris suburb (In %) (May 11, 2005 – April 8, 2019) of Gennevilliers. Gnome rotary engines become the standard 800 for planes around the world.

1 9 1 2 Creation of Société des SAFRAN: +696.12% moteurs Le Rhône, Gnome’s EURO STOXX 50: +15.74% main competitor before being taken over.

1 9 2 4 600 2 0 0 8 Creation of Société d’applications Extension of générales d’électricité et de the partnership mécanique (Sagem), that will with GE Aviation mainly manufacture cameras until 2040. and artillery equipment and go on to design the world’s first infrared guidance system for air-to-air missiles. 400 1 9 4 5 Gnome & Rhône are nationalized and renamed 2 0 0 5 Snecma (Société nationale Safran is formed d’étude et de construction from the merger of de moteurs d’aviation). Snecma and Sagem.

1 9 4 5 - 2 0 0 2 Several aeronautic companies 200 join Snecma: Hispano-Suiza, a specialist in power transmission for aircraft engines, followed by Messier-Hispano-Bugatti, a specialist in landing gear. In 2000, the wiring specialist, Labinal, and its helicopter engine manufacturer subsidiary, Turbomeca, join Snecma. 0 Finally, in 2002, it is the turn of the nacelles specialist, Hurel‑Dubois, to join Snecma.

1 9 7 4 Snecma becomes a civil aircraft Trend in the Safran share price since May 2005 Trend in the Euro Stoxx 50 index since May 2005 engine manufacturer through a cooperation agreement with -200 GE Aviation for the manufacture of the CFM56 engine.

05/11/2005 01/01/2006 01/01/2007 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015 01/01/2016 01/01/2017 01/01/2018 01/01/2019

SAFRAN 2018 INTEGRATED REPORT I 12 GROUP PROFILE

2 0 1 8 Takeover SHAREHOLDING STRUCTURE and merger- (In %) absorption of Zodiac Aerospace Share capital at December 31, 2018 Number of shares: 435,767,951 by Safran. Rebranding under the Safran 6.9 0.3 2 0 1 7 name of all Employees Treasury shares Business combination former Zodiac agreement between Aerospace 11.0 Safran and Zodiac businesses. French State Aerospace. Disposal of the Identity and 81.8 Security businesses. Free float

800

2 0 1 6 Inclusion of “Safran” in the corporate 600 name of all its subsidiaries. 2 0 1 3 Creation of the Acquisition ArianeGroup of Goodrich’s with Airbus. electrical systems business.

400

200

0

Trend in the Safran share price since May 2005 Trend in the Euro Stoxx 50 index since May 2005

-200

05/11/2005 01/01/2006 01/01/2007 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 01/01/2014 01/01/2015 01/01/2016 01/01/2017 01/01/2018 01/01/2019

13 I SAFRAN 2018 INTEGRATED REPORT ECOSYSTEM

CONSTRUCTIVE RELATIONSHIPS WITH OUR STAKEHOLDERS

To contribute to more open, comfortable, safe and clean access to the sky, Safran develops relationships with all stakeholders and incorporates their concerns into its business model.

BUSINESS COMMUNITY Customers (airframers, airlines, etc.) Suppliers and sub-contractors Partners (industrial companies, research laboratories, etc.)

Main expectations Group contribution Customers: reliability Operational excellence, and efficiency of products, relationship of trust renewed S T with related services. with each generation of aircraft, A reliable products that create Suppliers and sub-contractors: value (increased availability, K relationship based on reciprocal operating gains, weight G E long-term commitments. H reduction, etc.). N

I O

Partners: search for constant Rapid payment periods. P L innovation and control of Team work, each day, with P

intellectual property for D

suppliers and sub-contractors, A

these innovations. E

to deliver the best to our M

R

customers at competitive prices.

S

’

Organizational agility and

capacity to form sustainable

industrial and commercial

partnerships.

PUBLIC PARTNERS Government bodies and local authorities European and international bodies Certification authorities

Main expectations Group contribution Ethical business conduct, Systematic communication internal and external Corporate of the business ethics culture Social Responsibility to all our employees and commitments. suppliers, sustained R&D Safe products that comply and quality of our products with international standards. at the highest level.

SAFRAN 2018 INTEGRATED REPORT I 14 ECOSYSTEM

CIVIL SOCIETY Academia, local community, associations/ Non-Governmental Organizations (NGOs)

Main expectations Group contribution Youth training, on-site Renewed commitment in favor of apprenticeships environmental measures, and the employment basins where the Group absence of noise pollution, is present, sustained R&D to prepare the future effective management of the aerospace industry and the development of social and environmental of new products and equipment. challenges in the value chain. Implementation of a low-carbon policy notably to reduce greenhouse gas emissions from the Group’s products.

EMPLOYEES AND EMPLOYEE S T REPRESENTATIVES A

K

G E Main expectations Group contribution N H

I

O Compensation consistent More employees, trained

P with individual commitment throughout their career, L

P and Group results, motivating steadily decreasing accident D

A career paths, skills rates, profit sharing, payment

E

M development, commitment of an exceptional bonus

R

to workplace health and in 2019 (in France) to

S

’ safety and compliance stimulate purchasing power,

with international labor calm and constructive labor

conventions. relations, development

of employee dialogue

at global level.

FINANCIAL COMMUNITY Institutional investors, individual shareholders and employee shareholders, financial analysts, non-financial rating agencies

Main expectations Group contribution Transparency in Accurate, precise and fair the management of the information accessible to company, compliance with the financial community, our financial commitments, regular presentation of the the long‑term strategy and Group’s multi-year objectives its implementation and at Capital Markets Days, consideration of corporate availability for the entire social and environmental financial and non-financial responsibility (CSR) criteria. community.

15 I SAFRAN 2018 INTEGRATED REPORT ECOSYSTEM

MATERIALITY MATRIX OF SAFRAN CHALLENGES

MANAGING CHALLENGES AND STAKEHOLDER DIALOGUE

4 Anti-corruption and business ethics

Responsible relationships with suppliers

Continuity of business and procurement Quality of products and services Transparency and dialog Customer with stakeholders relationships Intellectual property and access to technology Socio-environmental impact Safety of products and services 3 of procurement

Socio-economic Human rights Corporate governance development Control of exports Well-being at work (safety and security, quality of life) Energy eciency Protection of personal Support for research data and privacy Employer/ Greenhouse gas emissions Innovation durable employee relations Diversity Image of the Group, attractiveness and equal and employer brand Waste and recycling opportunities Managerial relations

Human capital development and talent management Water consumption 2

Expectations of Safran’s stakeholders Support to local populations Compensation, employee and employee engagement benefits and social protection

in society Consumption of Local disturbance natural resources

Biodiversity

1

1 2 3 4

Importance for Safran

PRODUCTS AND SERVICES GOVERNANCE EMPLOYEES AND MANAGEMENT ENVIRONMENT SOCIETY

CSR CHALLENGES OPERATIONAL CHALLENGES

The long-standing dialogue into consideration Safran’s They contribute to attaining the between Safran and its businesses and their impacts. undertakings given by the Group stakeholders enabled the Group The challenges identified impact to the United Nations (UN) when to map its CSR and operational strategic discussions. Actions it signed up to the UN Global challenges in a “materiality matrix” plans have been drafted and key Compact in 2013 and are aligned as early as 2015. Using this performance indicators developed. with the UN’s Sustainable materiality analysis, the main They are presented in Chapter 5 Development Goals (SDG). challenges were ranked taking of the 2018 Registration Document.

SAFRAN 2018 INTEGRATED REPORT I 16 ECOSYSTEM

Safran and the United Nations’ Sustainable Development Goals SAFRAN AND SUSTAINABLE DEVELOPMENT GOALS Through these SDG, in 2015 the UN reviewed its blueprint for the global population and the 4 planet for 2030. This approach primarily aims to eradicate poverty, fight climate change, provide access to quality education 3 and fight for justice and peace. Safran’s actions, together with its stakeholders, follow on from this approach. 2 Expectations of external stakeholders

1 2 3 4 Impact on Safran's businesses

Safran is a responsible business partner (page 38). In 2018, Safran was the first European company in its sector awarded the GEEIS label (Gender Equality European Safran is ranked in the top three French & International Standards) (page 40). companies for the number of patents filed since 2011 (page 26). Safran takes the environmental impact into consideration when designing As an aircraft equipment supplier, Safran its products (page 30). helps reduce the environmental footprint of its customers (page 27). Safran’s health, safety and environment (HSE) approach is founded on a holistic policy and guidelines (page 35). Safran has stepped-up its low-carbon strategy for its sites since 2018 (page 35).

The Group pays close attention to water Safran signed the UN Global Compact and waste treatment at its sites (page 35). in 2013 and was recognized from the following year in the Advanced category (page 38). Each year, Safran welcomes interns and Safran signed a global framework apprentices representing at least 10% page 39 agreement on working conditions, CSR of its workforce ( ). and sustainable development in 2017 (page 41).

17 I SAFRAN 2018 INTEGRATED REPORT ECOSYSTEM

STRONG MARKET GROWTH

The global commercial aircraft fleet (36 passengers and over) and passenger traffic are expected to double in the next 20 years.

CIVIL AVIATION: SIGNIFICANT INCREASE IN TRAFFIC

Several factors contribute to this momentum: the increasing popularity of air travel spurred by falling prices; pressure on capacity, with load factors reaching new highs in the majority of airlines; demand in regions enjoying strong economic and demographic growth (in particular China, South-East Asia and India) and the renewal of the existing fleet (mainly in North America and Europe). 41,400 new aircraft are expected in the next twenty years, particularly in the narrow body segment (24,800 aircraft). Furthermore, aircraft interior refurbishment requirements are accelerating, with several retrofit cycles in an aircraft’s lifespan.

SCHEDULED PASSENGER NETWORK, WORLDWIDE

2018 21,000

18,000 +4.2% +4.3% 84.1% ASK Trac ASK average annual RPK average annual 82.1% RPK Trac 15,000 Growth until 2038 Growth until 2038 Load Factor 12,000 RPK: Revenue Passenger Kilometers (in billions) 62.8% (number of seats occupied by passengers 9,000 multiplied by the distance traveled by the global fleet). 6,000 ASK: Available Seat Kilometers (in billions) Air trac expected to double (number of available seats multiplied 3,000 by the distance traveled by the global fleet). Air trac has doubled Source: Safran Aircraft Engines. 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

SAFRAN 2018 INTEGRATED REPORT I 18 ECOSYSTEM

DEFENSE: PROJECTED INCREASE IN BUDGETS

After several years of downward including the European Defense trends, defense budgets are Fund (EDF). On a financial front, increasing steadily across the aim is to mobilize over the globe, in a context marked €35 billion in community credits by several areas of armed conflict between 2021 and 2027 for and geopolitical tension. In Europe, defense and space initiatives, joint defense initiatives were including €13 billion comprising kick-started in the summer of 2017 €4.1 billion for R&T and with the launch of several projects, €8.9 billion for R&D.

FOCUS ON SAFRAN’S MILITARY ACTIVITIES

Over and above the electronic activities of Safran Electronics & Defense, all Group subsidiaries are present in the military sector, which accounts for approximately 15% of Group revenue. Products notably include the M88 engines powering the Rafale, military helicopter turbines, TP400 engines powering the A400M transport plane, electrical wiring for the Rafale, landing gear, tactical drones and auxiliary power units (APU). Safran also supplies deterrent equipment, but not munitions.

BUSINESS AVIATION AND HELICOPTERS

The business aviation market is stable. In 2018, there were around 21,000 business aircraft in service. The helicopter market is restructuring, after several years marked by the crisis faced by players in the oil and oil‑related sectors.

19 I SAFRAN 2018 INTEGRATED REPORT ECOSYSTEM

TRANSFORMATION OF THE AEROSPACE INDUSTRY

Safran operates in a changing industrial landscape.

RAPID CHANGES 1 Long-term environmental issues

CO2, NOx, Noise, etc.

5 2 Growing global competition Technological upheaval Newcomers (start-up, Towards electrical plane emerging markets, etc.)

4 3 Equipment manufacturer OEM consolidation alliances, supply base and repositioning consolidation

1 LONG-TERM ENVIRONMENTAL ISSUES

CO2 and NOx emission and noise The expected strong growth The various players, including reduction objectives are a major in air traffic should result Safran, are committed to technological challenge for the in a 3.5‑fold increase in effectively managing the sector’s aviation sector. The global aviation passenger traffic by 2050. environmental footprint using industry generates around 2% Air transport players (equipment four levers: of global CO2 emissions. manufacturers such as Safran, introducing new technologies; airframers, airlines, air traffic progressively using renewable control and airports) have been or alternative fuels; CO2 REDUCTION CHALLENGE assigned extremely ambitious environmental requirements. improving aviation operations These objectives were documented and infrastructures; No action in the CORSIA agreement signed creating a carbon offset with the civil aviation organization mechanism (transitional 2 (ICAO) in 2016, following measure). on from the Paris Agreements Carbon- Environmental and economic neutral in December 2015: growth objectives are well aligned 2 1 between 2009 and 2020, in the aviation sector, as each 1 improving fleet fuel efficiency

Million tonnes of CO improvement in an aircraft’s fuel -50% for CO2 by 1.5% annually; efficiency not only has an impact emissions 3 2 from 2021 to 2035, capping net on CO2 emissions avoided, but emissions at 2020 levels to also has an immediate economic 2005 2010 2020e 2030e 2040e 2050e ensure carbon-neutral growth; impact on operating costs, as Impact of new Improved operating fuel represents 20% to 40% technologies eciency 3 from 2050, target reduction Better Additional of an airline’s recurring costs. infrastructure use technologies in net aviation emissions of 50% and biofuels relative to 2005 levels.

SAFRAN 2018 INTEGRATED REPORT I 20 ECOSYSTEM

3 OEM CONSOLIDATION AND REPOSITIONING

Since 2017, airframers have consolidated around the traditional duopoly: alliance between Bombardier and Airbus around the CSeries program renamed A220 (finalized in 2018) and alliance currently under negotiation between Boeing and Embraer. In addition, the emergence of new players continues, in particular in China and Russia. Airframers are also considering a change in their business scope, bringing certain activities back in-house and increasing their range of services.

4 EQUIPMENT 2 TECHNOLOGICAL UPHEAVAL MANUFACTURER ALLIANCES, SUPPLY Innovation is in the aerospace New areas of innovation in short-, BASE CONSOLIDATION sector’s DNA since its beginning. medium- and long-haul aviation Today’s aircrafts are five times have appeared: digital (big data, Encouraged by airframers and more fuel efficient than their artificial intelligence), connectivity, airlines, suppliers and equipment counterparts in the 1950s, mainly autonomy, hybrid and/or electric manufacturers in the supply thanks to engine improvements. propulsion, materials, processes, chain have also consolidated. In addition, numerous innovations low-carbon fuels, hydrogen, etc. Major combinations include, have enabled considerable These innovations open the in 2018, the acquisition of Zodiac progress in aircraft safety, making way for new engine architectures, Aerospace by Safran and the civil aviation one of the safest new concepts, new production acquisition of Rockwell-Collins means of transport in the world. methods, new services, new players by UTC, in turn preceded by the and new uses (particularly VTOL(1)). acquisition of B/E Aerospace.

5 GROWING GLOBAL COMPETITION

Newcomers have appeared among by geopolitical tension. the equipment manufacturers, For airlines, the sector is marked attracted by the strong sector growth. by strong growth in Middle-East Airframers are furthermore subject and South‑East Asian companies. to intense competition and put The ramp-up of low cost players substantial pressure on their is also significant in short- and equipment manufacturers to medium-haul transport. Finally, reduce prices, with major cost investors, finance companies reduction programs. Certain key and aircraft leasing companies materials are also rare resources are becoming major players worldwide (titan, rare earths, etc.) in the aviation ecosystem. and their supply can be disrupted

(1) VTOL: Vertical Take-Off and Landing aircraft.

21 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

OUR AMBITIONS

The major trends in the ecosystem described above suggest sustainable sector growth, but also a sector that will be more competitive and required to face technological and environmental challenges.

Safran aims to become the world’s By focusing both on operating placed to reach a new milestone leading aircraft equipment supplier excellence and the investment in business growth and value within the next 15 years. To achieve needed to define the technological creation. this goal, the Group draws state of the art, the Group is ideally in particular on: its business model; a clear strategy founded on the Group’s assets: sustainable innovation, operating excellence, agility and responsible conduct.

AEROSPACE PROPULSION

Consolidate the position of full‑fledged engine manufacturer(1) Prepare the propulsion technologies of the future AIRCRAFT EQUIPMENT/ Profit from growth in service activities DEFENSE/AEROSYSTEMS thanks to a large in operation base of civil engines Become the world’s leading aircraft equipment supplier Be the leader in equipment for more electrical aircraft A CLEAR Capitalize on Defense niche businesses ROADMAP Draw on the Aerosystems portfolio to strengthen our equipment positions

AIRCRAFT INTERIORS

Restore the operational excellence and competitiveness of this new activity Propose innovative solutions for our customers Return to world-class financial performance

(1) Safran is present in all engine components and all segments of the propulsion market.

SAFRAN 2018 INTEGRATED REPORT I 22 STRATEGY AND BUSINESS MODEL

OUR RESOURCES

Safran has the main resources portfolio, the performance necessary to its development: of its industrial tool, its responsible primarily human, intellectual, conduct in the sector where industrial and financial capital. it plays a key role, are today These resources are the fruit the main sources of the Group’s of several decades of success. Safran’s financial constant investment in line performance also enables with the Group’s strategy. it to prepare its future while The talent of its 92,000 employees, guaranteeing its independence the richness of its technology and the sustainability of jobs.

OUR BUSINESS MODEL

The Group’s strength lies in its balanced business portfolio: ECONOMIC LIFE CYCLE OF AN AIRCRAFT ENGINE PROGRAM the business cycles for Safran’s (ILLUSTRATIVE) products are uncorrelated and they have different maturities Services and aftermarket (including spare parts and (from just a few years for an long-term contracts) aircraft seat to more than 40 years for an engine); Entry into in addition to the initial sale in a service new aircraft (Original Equipment), and first deliveries the Group proposes services and aftermarket (including spare parts and long-term contracts), Initial sales 40 years+ that now generate nearly half its (Original Equipment) revenue. These services provide Development recurring revenue streams and and testing margins, spread over time; the Group is present in all sub-segments of the aerospace and defense sector (regional Safran products also aircraft, short-medium haul, long INITIAL SALES have common features that haul, business jets, helicopters, (ORIGINAL EQUIPMENT): contribute to the resilience military aircraft), making it less of its business model: sensitive to changes in their business cycles. 54% position as a tier-one supplier OF 2018 to airframers and, for some ADJUSTED REVENUE products, to airlines; high technology content, notably reflecting the high levels of investment inherent SERVICES in our products; AND AFTERMARKET: high demand, whether in original equipment sales (ramp-up of products equipping 46% the new generation of narrow OF 2018 body aircraft and visibility ADJUSTED REVENUE provided by the order backlog) or after sales services, with strong growth expected.

23 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

CREATE VALUE FOR ALL OUR STAKEHOLDERS

TRENDS IN THE AEROSPACE INDUSTRY

A FAST-GROWING MARKET LONG-TERM ENVIRONMENTAL TECHNOLOGICAL UPHEAVAL Passenger demand expected CHALLENGES Shift to hybrid and electric propulsion, to double in 20 years. Limiting CO2 and NOx emissions additive manufacturing, composite and noise. materials, big data, AI, etc.

OUR RESOURCES(1) OUR BUSINESS MODEL SERVING OUR CUSTOMERS

HUMAN CAPITAL • Over 92,000 employees in 26 countries • 4% of payroll spent on training • 13,050 recruitments OUR BUSINESS INNOVATION, • Recognized governance MODEL DESIGN

INTELLECTUAL CAPITAL • € 1.5 billion of total R&D expenditure • Approximately 1,200 PhD graduates • 16% of Group employees work in R&D 2018 R&D (including R&T) expenditure: €1.5 billion

INDUSTRIAL CAPITAL • 246 sites in the world serving our customers • €740 million in industrial investment • Structuring alliances and partnerships, including the CFM International joint venture formed with GE Aviation A BALANCED in 1974 and renewed until 2040 BUSINESS PORTFOLIO FINANCIAL CAPITAL • A full order backlog (over 7 years for LEAP) • A growing base in operation (approximately +5.5% annually for short- and medium-haul engines) • One of the strongest financial signatures in the industry • A stable shareholders base (employees, French State, French industrial families, long-term institutional investors) • A strong financial structure (net debt / EBITDA(2) of 0.9) • A foreign exchange risk hedging policy providing visibility OUR STRENGTH:

SOCIAL AND SIMULTANEOUSLY PREPARING ENVIRONMENTAL CAPITAL THE SHORT- AND LONG-TERM • 75% of our R&T investment focuses on reducing our environmental footprint • Training in responsible purchasing and good conduct charter

(1) All figures refer to 2018 except where noted. (2) EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is equal to a company’s profits before deduction of loan interest, taxes and duties and charges to depreciation, amortization and provisions on fixed assets.

SAFRAN 2018 INTEGRATED REPORT I 24 STRATEGY AND BUSINESS MODEL

CREATE VALUE FOR ALL OUR STAKEHOLDERS

TRENDS IN THE AEROSPACE INDUSTRY

OEM CONSOLIDATION EQUIPMENT MANUFACTURER GROWING GLOBAL AND REPOSITIONING ALLIANCES, SUPPLY BASE COMPETITION CONSOLIDATION With newcomers, new markets, new uses.

OUR BUSINESS MODEL SERVING OUR CUSTOMERS OUR IMPACTS(1)

HUMAN CAPITAL • A favorable and attractive social model: profit-sharing, incentive schemes, employee share ownership INNOVATION, INITIAL SALES SERVICES AND and employee savings funds DESIGN (Original Equipment) AFTERMARKET • 67% of employees (excluding Zodiac Aerospace) are Company shareholders and together hold 6.9% of the share capital

2018 R&D 2018 revenue: 2018 revenue: INTELLECTUAL CAPITAL expenditure: €11.6 billion €9.5 billion • 40,000 intellectual property titles €1.5 billion 54% 46% • Safran ranked in the global top 100 most innovative groups

INDUSTRIAL CAPITAL • €250 million of synergies expected in 2022, following the acquisition Product lifetime (illustrative) of Zodiac Aerospace • A robust supply chain enabling the ramp‑up of LEAP production Aerospace (dual active source for all specific Propulsion engine parts)

Aircraft Equipment, FINANCIAL CAPITAL Defense and • Average organic adjusted revenue Aerosystems growth: mid‑single digit annually between 2019 and 2022 Aircraft • Recurring operating margin interiors between 16% and 18% in 2022 • Disciplined M&A policy (3) 0 5 10 15 20 25 30 35 40 • EBIT to FCF conversion rate trending years above 60% in 2022 • Debt reduction objective targeting a net debt / EBITDA ratio of 0.5 by 2022 4 ASSETS • Stock market performance (+696% since 2005) SUSTAINABLE AGILITY INNOVATION (page 36) SOCIAL AND (page 26) ENVIRONMENTAL CAPITAL • LEAP: -15% CO2 emissions and -50% N0x emissions OPERATIONAL RESPONSIBLE • “RESPONSIBLE SUPPLIER EXCELLENCE CONDUCT RELATIONS” label • 1 st CAC 40 company certified (page 32) (page 38) “anti‑corruption” by ADIT(4)

(3) EBIT (Earnings Before Interest ans Taxes) is equal to company’s profit before deduction of loan interest and taxes. (4) French Agency for the Diffusion of Technological Information.

25 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

SUSTAINABLE INNOVATION: DEFINE THE NEXT AEROSPACE STATE OF THE ART

In this rapidly changing environment, success depends notably on managing disruptive innovation and technological excellence, to provide customers with a critical advantage.

Our innovation capabilities are demonstrated across a breadth +€600 of sectors such as electric taxiing, composite 3D woven fan blades million 3,000 R&T and innovation R&T employees and hemispheric resonator gyros. expenditure internally With the support of the Board funded in 2022 of Directors’ Innovation and Technology Committee, the Group is implementing an innovation strategy firmly focused on efficient R&T serving all its businesses. This strategy is founded on considerable investment, budgeted to increase over the coming years. a “proof of concept” approach, placed on protecting intellectual It is also based on a dedicated R&T closely associating the Group property. The Group is one of the management system and an companies. Finally, interactions leading French filers with INPI, internal organization providing with the scientific, technological the French patents office and has a balance for Group subsidiaries and innovation ecosystem are been consistently ranked during between own development and organized around strategic the past eight years by Clarivate shared activities. The R&T plan partnerships, scientific networks Analytics, among the world’s comprises a limited number and chairs, collaborative innovation hundred most innovative of roadmaps tied to the strategic in the supply chain and investments companies. challenges facing the companies in the share capital of young Overall, the Group’s patent and coordinated by the Group. innovative companies. portfolio protects close to Innovation projects aimed at The number of patents filed 10,000 inventions and encom- preparing the main disruptive bears witness to the creativity passes over 40,000 intellectual products, processes and systems of the teams and their capacity property titles. are motivated and led under to innovate, as well the importance

SAFRAN 2018 INTEGRATED REPORT I 26 STRATEGY AND BUSINESS MODEL

OPTIMIZE THE AIRCRAFT ENERGY AND PROPULSION CHAIN

Improvements to propulsion have already more than halved the fuel consumption of commercial aircraft if we compare the LEAP engine with engines in the 1970s. Relative to the last‑generation CFM56, the LEAP engine reduces fuel consumption by 15% and NOx emissions by 50%. Further optimization of the energy + chain is necessary to attain sector 1,050 environmental objectives. INITIAL PATENT REQUESTS FILED BY SAFRAN Group efforts therefore focus on WORLDWIDE IN 2018 several aspects at the same time: optimizing performance and reducing the weight of jet engine and turbofan components. The LEAP engine is already equipped with a highly innovative lightweight fan made 75% from composite materials and disruptive technology in engine OF R&T a high-efficiency low-pressure architecture and aircraft INVESTMENT FOCUSED ON ENVIRONMENTAL turbine. R&T work has already integration: several avenues are EFFICIENCY been launched to ensure being explored such as the Open continued performance Rotor concept, as well as high improvements. The Arrano engine, bypass ratio ducted turbofans selected by Airbus Helicopters as under national and Clean Sky the sole engine to power its H160, programs. In 2017, this incorporates technologies work led to ground tests for validated by the Tech 800 the open‑rotor demonstrator 1,200 demonstrator in the Clean Sky at the open-air test stand European Research program; in Istres (France); PhD GRADUATES IN THE GROUP

DEMONSTRATION PARTNERSHIP WITH AIRFRAMERS

Safran is working with airframers on vertical take-off and landing (VTOL) demonstrators, 4 R&T PRIORITIES: with Safran supplying innovative hybrid and/‌or electric propulsion systems. optimize the aircraft energy and propulsion chain develop high‑performance materials and processes design the cabin of tomorrow develop autonomous systems

27 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

analysis of potential gains exploration of different over short distances and in urban from alternative fuels hybridization approaches areas. Safran’s hybrid electric and adaptation of propulsion in the energy chain: scenarios propulsion system was selected systems: low‑carbon fuels, considering the emergence by the US manufacturer, Bell, for its hydrogen, which has shown of hybrid or even fully electric Nexus demonstrator. Evaluations to be compatible with current propulsion are being studied for and simulations are also being engines at high incorporation smaller aircraft, “commuters” carried out to identify the potential rates, synthetic fuels and or vertical take-off and landing contribution of propulsion liquefied natural gas. aircraft associated with new uses hybridization for narrow bodies.

TOWARDS MORE ELECTRIC AIRCRAFT: NEW USES PROGRESSIVELY DEPLOYED

Electrical Power /Voltage <1,000 V >1,000 V 10 MW

1 MW 500 kW

100 kW Storage systems' energy density (batteries and other)

2022 2025 2025+ 2030+ 2040+

Long term technology challenges for large E-taxiing(1) Bi-turbine Helicopter VTOL Commuter Electrically 40 Seats Distributed aircraft Micro-Hybridization Air taxi 10 Seats assisted Regional Propulsion or Logistic Turbofan for 200 Seats for future Commercial narrow body aircraft aircraft

Optimization concerns the entire with the laboratories of the Studies and Research) and major energy chain, with innovations CNRS (French National Scientific industrial companies at the cutting such as Electric Taxiing(1) for Research Center), ONERA (French edge of their sector, such as moving planes on the ground National Office for Aerospace Alstom or EDF. without using the main engines, and power generation, distribution and wiring technologies to enable the implementation on-board aircraft of the substantial power required for hybridization. These technological developments are founded on collaborative programs with airframers in a national or European context and on partnerships

(1) Taxiing is the movement of an aircraft on the ground using its propulsion system. Electric Taxiing (also known as “e-taxiing”) is the replacement of engines during taxiing

with electric technology, generating fuel savings and significant reductions in CO2 and NOx emissions.

SAFRAN 2018 INTEGRATED REPORT I 28 STRATEGY AND BUSINESS MODEL

DEVELOP HIGH-PERFORMANCE MATERIALS AND PROCESSES

The need to reduce the weight with resources and expertise compliant with European REACh(1) of planes, helicopters and their in organic matrix composites. regulations. Increasing operating equipment leads to an increased To target extreme temperatures, temperatures is a key factor in use of composite materials. Safran major research work is carried out improving engine performance. engines and equipment, whether on composite ceramics by Safran A specific focus is therefore nacelles, landing gear or brakes, Ceramics. This Group technology placed on materials for very high are characterized by heavy specialist subsidiary, inaugurated temperatures. A platform for mechanical loads. To develop these a unique platform in Europe developing new monocrystalline solutions, Safran set up the Safran in 2018. Other research focuses casting techniques for turbine Composites Center, part of the on new metal alloys, and fans was inaugurated at the Group’s R&T center, Safran Tech, on high‑performance coatings beginning of 2019.

Under Safran’s 4.0 industry roadmap, automatic imaging solutions (based on “machine AMBITIOUS POTENTIAL GAINS THANKS TO ADDITIVE learning”) are already deployed MANUFACTURING: THE ENGINE EXAMPLE in the Group’s plants for the non‑destructive control of complex parts. 15% UP TO 50 Additive manufacturing provides REDUCTION IN COMPONENTS REPLACED an opportunity to improve costs, MANUFACTURING COSTS BY A SINGLE PART cycles and performance for numerous engine and aircraft equipment components, by LEAD TIME reducing the number of parts 25% DIVIDED BY and tooling and introducing new WEIGHT REDUCTION methods of optimizing design. 6 Certification has already been obtained for parts produced by these processes, including fuel injector nozzles and combuster swirlers for helicopter engines produced via selective laser melting, where an assembly of 15 components can be replaced by a single part. Safran Tech’s Safran Additive Manufacturing hub, along with partnerships such as the one with Saclay’s Additive Factory Hub, help accelerate the development of these processes for their future use in serial production and repairs.

(1) REACh (Registration, Evaluation, Authorisation and Restriction of Chemicals) is a European regulation that came into effect on June 1, 2007. It seeks to improve protection of human health and the environment, against risks relating to chemical substances.

29 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

FOCUS ON ECODESIGN OF PRODUCTS

Safran adopted audited eco-design standards in 2016, to reduce the environmental footprint of its products during the main stages in their life cycles. To ensure compliance with these standards, Safran has set up a dedicated organization in each of its tier-one companies: skills, training, design rules, control processes, etc. In addition to applying ISO standards, Safran systematically incorporates environmental concerns from the design phase of its new programs and in the development of its technological bricks. Reducing the environmental impact has therefore become central to the Group’s selection process for materials and manufacturing processes. The Group is also looking to increase the percentage of recycled materials in its products, taking into account the forecast journal of fleet withdrawals in the coming years. At the same time, it supports recycling channels aimed at maintaining a near identical level of use characteristics in recycled materials (e.g. titanium alloys with Ecotitanium, additive manufacturing metal powders with Metafensch).

DESIGN THE CABIN OF TOMORROW

The cabin of tomorrow will Safran’s design studio (ZEO) and services, passive and active offer passengers an improved based in Huntington Beach noise control, ambient lighting, experience and comfort (California), has developed a cabin air conditioning, etc. Efforts by innovating, integrating and product range that goes beyond to make equipment modular optimizing its systems. It will also the mere supply of equipment, provide optimal flexibility offer airlines a distinctive signature proposing integrated and in the use of space. and an economic competitive connected solutions: connectivity The supply of passenger advantage. for InFlight Entertainment (IFE)(1) communication infrastructure also offers airlines the possibility of additional revenue. Moreover, Safran develops innovative solutions for automating ground operations, refueling and preparing the cabin prior to take-off and in flight prior to landing. In addition, connected equipment enable dysfunctions to be moni- tored, in order to reduce their negative impact on operations.

(1) InFlight Entertainment refers to the activities and entertainment available to passengers during a flight. It has become a major competitive advantage for airlines.

SAFRAN 2018 INTEGRATED REPORT I 30 STRATEGY AND BUSINESS MODEL

DEVELOP AUTONOMOUS SYSTEMS

Air, land, sea, satellite and military Proficiency in navigation navigation markets are constantly data merger and environment evolving. The integration of mobile perception technologies also units into cooperative groups, enables the development increasing autonomy requirements “Safran is actively of piloting assistance applications and the required land-onboard for all types of aircraft. Safran has continuum via secure links are preparing the shift also expanded its technology driven by major operational to autonomous sources by integrating new sensor or economic gains. families in complex and smart Safran is actively preparing the systems for civil systems, working in partnership shift to autonomous systems and defense with Valeo at their joint laboratory for civil and defense applications applications.” in Magny‑les-Hameaux (Yvelines, based on technologies developed France), on autonomous vehicle in optronic sensors, inertial technologies. navigation, critical onboard electronic systems and image processing and analysis. Specific research focuses on robust and reliable artificial intelligence for autonomous functions, working closely with the scientific community. Thanks to eRider, the autonomous vehicle demonstrator for military applications, the Group won a demonstration program contract with the French Armed Forces Ministry, associating autonomous vehicles, small land robots and drones working collaboratively.

31 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

OPERATIONAL EXCELLENCE: AT THE HEART OF OUR DNA

Safran aims to become the leading supplier of its customers by proposing world-class products and services. The Group’s operational know-how is mobilized to ensure the turn-around of the Aircraft Interiors businessess from Zodiac Aerospace.

PERFORMANCE QUALITY

Customer confidence and Performance quality for services satisfaction is founded on the is founded on constantly listening Group meeting its commitments to customer expectations. to quality-cost-lead time and Maintenance centers have the safety of products and been located to ensure maximum services delivered. proximity to customers and the Performance quality in the delivery Group has also developed remote of products is only possible thanks maintenance solutions to enable to excellent control over the supply rapid and efficient troubleshooting chain. Safran’s purchasing policy and action. is designed to meet its objectives of excellence in seamless alignment with its manufacturing strategy. Safran has successfully built a supplier panel that meets its present and future performance OPERATING EXCELLENCE SERVING LEAP needs (cost, quality and lead time) and enables Safran to provide its Since production of the LEAP engine was launched in 2016, its ramp-up customers with innovative, value- has been a challenge. Over and above the high level of innovation and the use of new manufacturing procedures (additive manufacturing, creating solutions. To promote composite materials, etc.), the ramp-up of LEAP production has been an agile supply chain, the Group the fastest ever known in civil aviation industry history, with 1,118 engines involves suppliers from the delivered in 2018. To sustain this fast pace, Safran invested to increase development of its products its production capacity and adapted the entire production chain: and services, offering them the introduction of three pulse lines, transforming assembly opportunity to put forward their at the Group’s plants; innovations and contribute active double source supplier policy and introduction of a 3rd th their expertise. Safran has also and potentially 4 source for the most critical engine components; implemented a policy to diversify set-up of dedicated teams to share its development and industrialization expertise and accompany production ramp-up supplier sources, by systematically by suppliers of the most critical parts. qualifying multiple sources for This control over the production chain has enabled commissioning critical materials and parts. schedules to be met (August 2016 for the LEAP-1A engine powering the Airbus A320neo family, May 2017 for the LEAP-1B engine powering the Boeing 737 Max) and the technical specifications to be respected (15% reduction in fuel consumption and 50% reduction in NOx emissions and noise). The LEAP engine is now in operation in 100 airlines and has over 4.4 million flight hours at the end of April 2019. It is the most reliable new generation civil engine in its category.

SAFRAN 2018 INTEGRATED REPORT I 32 STRATEGY AND BUSINESS MODEL

2022 RECURRING OPERATING MARGIN OBJECTIVES > FOR THE GROUP

20% 16-18%

15%

14.4%

10%

IAS 18(1) IFRS 15(1)

5% 2011 2017 2012 2015 2013 2018 2016 2014 2010 2021e 2019e 2022e 2020e

> BY BUSINESS - Aerospace Propulsion > 20% - Aircraft Equipment > 16% - Defense > 10% - Aerosystems and Aircraft Interiors approximately 15% (including all acquisition synergies)

ONE SAFRAN, CONSTANT KEY SUCCESS FACTOR IMPROVEMENT One Safran is a management system encompassing the Safran is constantly improving main processes applicable COST CONTROL its processes, notably through to all Group entities and research and the implementation proposing common methods AND COMPETITIVENESS of innovative concepts, by and tools based on shared Increasing Group competitiveness experience and best developing cooperation with is founded on constant efforts suppliers to increase sharing practices. Over 500 operational to reduce production costs. of best practice within the Group. excellence projects were These efforts have contributed This methodology know-how is launched in 2018, with to improving the Group’s margin mobilized, in particular, for the 300 completed, compared since 2015, with an increase of integration of the former Zodiac with 100 projects launched at least 100 basis points annually and 50 completed in 2017. Aerospace businesses. in the recurring operating margin. The results of these projects Permanent, cross-Group initiatives are very tangible, as regards Thanks to constant productivity are carried out: both their impact on gains (optimization of industrial participative innovation initiatives, performance and buy-in sites and Group locations, enabling all employees to put by the teams. modernization of the production forward ideas for improving tool), recurring purchasing the Company. Nearly gains and annual synergies of 130,000 employee ideas €250 million expected by 2022 QRQC(2) which has been rolled were applied in 2018; following the combination out across industrial and lean-Sigma, which structures with Zodiac Aerospace, technical operations in all and standardizes project the recurring operating margin Group companies. management; should continue to improve.

(1) From January 1, 2018, IFRS 15 replaced IAS 18 as the standard governing the recognition of Group revenue. (2) QRQC: Quick Response Quality Control: a fast problem-solving management method that emphasizes constant vigilance and immediate response.

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INDUSTRIAL INNOVATION AND DIGITALIZATION: THE FACTORY OF THE FUTURE

Safran invests in and adapts its Part of this industrial R&T roadmap production sites to ensure they is carried out in partnership are always of the highest industrial with other industrial companies standard. This constant strive for and scientific laboratories: excellence has enabled Safran Safran is a stakeholder in the to confirm its position as a leader “The Factory Factory Lab ecosystem in Saclay. in France and Europe in the of the Future Since the end of 2016, this hub implementation of technologies brings together industrial and processes relating to the digital is a major asset, companies, universities, small transformation of industry. at the very heart and medium-sized companies The Factory of the Future is and start-ups, on a limited the preferred method for obtaining of the Group’s number of projects, with strong the best possible profitability from strategy.” leverage thanks to investments and a disruptive implementation synergies; competitiveness tool producing Safran is also working with remarkable productivity gains. the French Atomic Energy It is a major asset for the Group’s Commission (CEA) on an current activities and is at the very industrial cobotic initiative. heart of its strategy. This joint CEA-Safran initiative Projects for the production lines uses the CEA’s TROPIC hub of the future were identified and 65 in Pessac and is supported by planned by all companies from 2017. PRODUCTION LINES the New Aquitaine region for They encompass industrial AT OVER 30 SITES the acquisition of equipment. manufacturing activities (46%), A portfolio of 70 projects assembly (40%), repair/ MRO are planned over three years. activities (12%), processes (2%) Finally, at the end of 2018, Safran and technical activities covering launched a project for controls the advancing maturity of of the future, to prepare the innovative technologies and replacement of non-digital their impact on industrialization. techniques (die penetrant, 65 production lines at over magnetoscopy) with digital 30 sites are concerned. This roadmap covers five main techniques. This project will cover The emergence of new production sectors: Controls of the future, not only control techniques, but technologies motivated the creation Cobotics, New manufacturing also all other components of of a specific roadmap in Safran’s processes, Connectivity of the chain: automation, analysis, R&T plan, to coordinate company resources and Cognitive operator computerization system efforts in industrial R&T areas. assistance. and related software.

SAFRAN SAFRAN SAFRAN SAFRAN AIRCRAFT ENGINES LANDING SYSTEMS HELICOPTER ENGINES NACELLES

Villaroche (France) Bidos (France) Bordes (France) Le Havre (France)

SAFRAN 2018 INTEGRATED REPORT I 34 STRATEGY AND BUSINESS MODEL

SEEKING OPERATING EXCELLENCE IN HEALTH, SAFETY AND THE ENVIRONMENT (HSE)

The roll-out of Safran’s HSE leadership, commitment of “all operational excellence approach players” to best practice and is based on a policy, a management technical excellence. FOCUS ON THE FALL commitment, expertise and holistic The proper roll-out and application IN THE ACCIDENT FREQUENCY RATE guidelines. The Group drives a of guideline requirements is audited proactive, prevention culture annually, enabling operational Reducing the lost-time at the highest level, to protect performance to be measured and accident frequency rate is the the health and safety of all and supported through the level of HSE main health and safety policy indicator in recent years. the environment. Over and above maturity attained by the sites. The the requirements of ISO 14001 guidelines and audits are monitored and OHSAS 18001, the uniqueness and validated by expert third of Safran’s HSE guidelines lies parties with an ambitious objective: 2.7 in an original management system. certification of all Group industrial 2.2 This comprises standards setting sites at the highest level by 2025 tangible and specific requirements (including Zodiac Aerospace 2015 2018 in four categories: regulatory entities). prerequisites, managerial

FOCUS ON OUR ENVIRONMENTAL APPROACH

Through its HSE policy, the Group has developed Safran has drawn up a list of substances, materials and a proactive, prevention culture to control the risks processes that can be used, with or without restrictions, of impacting the environment. In its production and and others that are banned. In addition, before being service activities and product design, Safran limits approved for use in a production facility, each new the use of chemical substances of concern, optimizes chemical is analyzed in depth by a panel of stakeholders. its manufacturing cycles and works to reduce Although programs deployed in the product cycle greenhouse gas emissions. upstream can substantially attenuate the hazards at the In May 2018, Philippe Petitcolin, Safran’s Chief Executive workstation, residual risks remain and must be managed. Officer, undertook to implement a low-carbon policy. In addition to a dedicated auditable and annually audited Already actively reducing greenhouse gas emissions standard applied at every facility and a network of by its products, the Group wishes to go further, through more than 120 highly skilled, specially trained chemical a comprehensive strategy encompassing infrastructures, risk correspondents on every major site, Safran carries supplies, production cycles, etc. A project comprising out scientific and technical studies and issues several Executive Committee representatives was recommendations for managing these chemical risks. launched at the end of 2018, to steer this strategy. Finally, Safran has also implemented innovative and shared solutions within the Group for waste management The work undertaken will enable us to reduce CO2 emissions while optimizing our competitiveness. and water resources preservation (see page 240 A number of examples support our view that it is of 2018 Registration Document). possible to combine performance with cost savings: the Safran Landing Systems biodiesel power plant (renewable fuel) in Gloucester, United Kingdom; guided Greenhouse 2018, Safran and optimized management of clean room air (where gas emissions worldwide(1) inertial systems are produced) at the Safran Electronics Scope 1 direct emissions & Defense Montlucon site; the Safran Helicopter Engines 3.3 (t CO -eq/employee) wood‑fueled biomass power plant in Bordes. 2 Scope 2 indirect emissions In addition, a dedicated structure has been set up. from the consumption 4.55 Each company now has a Carbon Officer, to identify of energy

emission sources and solutions for reducing consumption (t CO2-eq/employee) and greenhouse gas emissions. (1) Excluding the Bellevue, Homberg, Sell Burg, Seminole, Verulam, Another environmental issue of importance to Safran Xedel and Wessling sites. is managing risks associated with chemical substances.

35 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

AGILITY: A KEY TO THE GROUP’S SUSTAINABILITY

Agility is founded on three major fundamentals.

1 – ABILITY TO FORM TARGETED PARTNERSHIPS 2 – CUSTOMER PROXIMITY Safran has a long experience of alliances and targeted partnerships. AND LASTING With a long timeframe and a win-win approach, these partnerships CONFIDENCE accompany the Group’s strategy. They are relevant given the investment levels associated with each new program. Thanks to the richness of its business portfolio, the Group is able to understand and INDUSTRIAL AND Initium Aerospace: anticipate changes in customer COMMERCIAL joint venture with Boeing needs, markets, technologies Safran and Boeing teamed up in 2018 to design, build and service auxiliary and uses. The Group builds Focus on the joint power units (APU), within the joint a lasting relationship with its venture with GE venture, Initium Aerospace. customers, by offering them The most emblematic of these This long‑term partnership will innovative solutions and alliances is very certainly the enable the companies to develop constantly ensuring their a competitive offer for upcoming partnership with GE to develop satisfaction and compliance engines for short and medium-haul civil aviation programs. with its commitments. fleets. It was established in 1974 and renewed in 2008 until 2040, This long‑term approach within the joint venture, CFM RESEARCH AND is particularly adopted International. This alliance helped INNOVATION to the typical lengths redefine international cooperation of aeronautic cycles. and contributed to changing the course of commercial aviation. Focus on the Valeo – CFM International is currently Safran partnership the world’s leading supplier Valeo and Safran are globally 3 – FOCUSED of commercial aviation engines, recognized equipment AND DISCIPLINED with a product line (CFM56 and manufacturers in their respective LEAP) that is the sector reference sectors – automobile and aviation – M&A POLICY for efficiency, reliability and low for their cutting-edge technology While meeting its financial production costs. and ability to innovate. They have been working together since 2013 discipline criteria, priority in a research partnership is given to transactions AGI partnership focusing on assisted steering rationalizing the existing with Rolls-Royce and autonomous vehicles. business portfolio, notably Since 2015, Safran and Rolls-Royce are equal partners in Aero Gearbox with regards to former Zodiac International (AGI), a specialist in VENTURE Aerospace businesses, power transmission systems for civil CAPITAL and to focused acquisitions aircraft powered by Rolls-Royce strengthening the Group’s engines. This company makes the positions in sectors where power transmission systems for Safran Corporate Ventures it can attain critical mass. the Trent 7000 engines that power Created in 2015 with €50 million in the Airbus A330neo and will have funding, Safran Corporate Ventures exclusive coverage of the whole is the Group’s investment subsidiary range of Rolls-Royce’s forthcoming tasked with financing start-ups, civil aircraft engines. that have developed disruptive technologies or business models with potential application in aerospace and defense industries. A perfect fit with Safran’s innovation and transformation strategy, the portfolio mainly comprises minority stakes in the following companies: Diota, Krono-Safe, Prodays Group, SafetyLine, Kalray, Cailabs, Turbotech and Oxis Energy.

SAFRAN 2018 INTEGRATED REPORT I 36 STRATEGY AND BUSINESS MODEL

Safran’s agility enables it to adapt proactively to the main expectations of its customers. The following diagram summarizes some of the variations that provide Safran today with a balanced and resilient model.

TYPES OF PARTNERSHIP ARRANGEMENTS

Spare Rate parts per flight hour Airlines BFE BFE Per-use Linefit Retrofit billing

Joint ventures

RRSP Agreements

Shared demonstrators

Airframers BTS BTP SFE

R&T R&D Original Equipment Services and aftermarket

Arrangement Explanation Example Safran Electrical & Power joined Boeing’s ecoDemonstrator flight test program Shared demonstrators Innovation cooperation. for new technologies, which aims to improve the environmental performance of commercial aircraft throughout their life cycle. Developments based on functional Jet engines designed to airframer specifications Build to Spec’ (BTS) specifications (significant added value (e.g. thrust, consumption, weight, dimensions, etc.). contributed by engineering). Developments based on plans Build to Print (BTP) Wiring plans provided by the airframer. (lower engineering contribution). Circulation, fuel management and inertial systems. Equipment is specified and purchased by the Supplier Furnished Emergency evacuation systems for civil aircraft airframer, which offers operators one or more Equipment (SFE) (slides, lifejackets and rafts), oxygen systems configurations from catalogue. and masks for the cockpit and passengers, etc. Equipment is specified and purchased by the operator. For new equipment, fitting is usually When a new aircraft is ordered, commercial aircraft Buyer Furnished delegated to the airframer. passenger seats are nearly systematically chosen by Equipment (BFE) Linefit: Equipment selected and delivered the airlines (key to their brand image and economic • Linefit on delivery of the aircraft. efficiency) and installed on the airframer’s final • Retrofit Retrofit: Equipment selected and delivered assembly line. during the aircraft’s lifecycle. CFM International (Safran – GE aviation); Initium Aerospace (Safran – Boeing) for auxiliary power units; Aero Gearbox International (Safran – Rolls-Royce); Joint Venture (JV) Pooling of resources within a dedicated entity. AES Aerospace Embedded Solutions (Safran – MTU) for the development of programs and electronic equipment for civil and military applications. Risk and Revenue High-thrust engines (e.g. GE90 engine powering the Sharing of risks and revenue in proportion Sharing Partnership Boeing 777. Safran has a 23.7% stake in the program to one’s level of participation. (RRSP) for the -115 version currently in production). Supply of spare parts and labor Time & Material (T&M) Spare parts and labor for the CFM56 engine. for maintenance activities.

Rate Per Flight Hour Long-term maintenance contracts based Flight-hour contracts for the LEAP engine. (RPFH) on the number of flight hours.

Service contracts generating billing each time Service contracts for brakes, with the customer Per-Use billing the product is used by the customer. billed for each landing.

37 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

RESPONSIBLE CONDUCT: STAKEHOLDER REQUIREMENTS

As a socially responsible company, Safran gave a number of commitments when it signed the United Nation’s Global Compact in 2013. These are reflected in a global framework agreement on “working conditions, corporate social responsibility and sustainable development” signed at the end of 2017.

COMMERCIAL COMPLIANCE, A DECISIVE FACTOR

The countries where Safran operates apply strict production Prevent the risk of Export Customs and commercialization controls. corruption controls rules Safran ensures its activities are conducted to the highest Internal network 22 Trade Compliance 77 Export Control Officers 41 Customs Managers standards of honesty, integrity Officers and Customs 427 Export Control Correspondents and professional conduct. 169 Trade Compliance Correspondents Managers/ The Compliance, Ethics and Correspondents Anti-Fraud Committee supervises Employees compliance by Safran employees trained in 2018 with the general compliance 4,600 4,400 1,429 framework defined in the Group’s Ethical Guidelines.

11 companies 9 of the 12 tier 40 trade certified Risk mapping 168 information one companies compliance Authorized for 100% memos issued certified reviews Economic Operator of subsidiaries internally anti-corruption performed by the Customs by ADIT in 2018 53% Authority OF PURCHASING VOLUME SOURCED IN FRANCE, INCLUDING 85% SOURCED FROM SME AND MID-SIZED COMPANIES

A RESPONSIBLE RELATIONSHIP

PURCHASES WITH EXTERNAL SERVICE PROVIDERS (SUPPLIERS AND SUB-CONTRACTORS)

External service providers Suppliers therefore complete ~60% contribute to the production a self-assessment questionnaire OF ADJUSTED REVENUE of Safran’s products and services. on their environmental practices Given the Group’s purchasing and respect for human rights. volumes, relations with suppliers Implementation of Safran’s SAFRAN WAS AWARDED and sub-contractors are also based Purchasing, Quality, Safety and THE RESPONSIBLE SUPPLIER on the principle of a sustainable Environmental policies concerns its RELATIONS AND SUSTAINABLE and responsible relationship. entire supply chain and the supply PROCUREMENT LABEL Under our Duty of care plan, our chains of services providers. IN 2017 AND IN 2018 general purchasing conditions lead Their commitment must be formally our suppliers to sign‑up to the documented by the signature of the Group’s corporate responsibility Responsible Purchasing Charter. approach. SAFRAN IS A MEMBER OF THE SME PACT SINCE 2010

SAFRAN 2018 INTEGRATED REPORT I 38 STRATEGY AND BUSINESS MODEL

FOCUS ON EMPLOYEE SHARE OWNERSHIP

With around 7% of its share capital held by current and former employees (and 10.6% of voting rights) at December 31, 2018, Safran is in the top five major French companies (CAC 40) with the most developed employee share ownership.

Safran successfully encourages the presence of its employees in its share capital through permanent measures such as savings plans receiving employer contributions: 67% of Group employees worldwide (excluding Zodiac Aerospace) hold Safran shares. This share ownership is also reflected by the participation of two representatives of the employee shareholding funds in the activities of the Board of Directors.

In seeking to give employees a vested interest in the growth of the Group’s businesses and improving its results, Safran is looking to strengthen the individual motivation of the teams and their sense of belonging to the Group. A true historic pillar of the corporate culture, employee share ownership enables the Group to rely, over the long‑term, on a stable shareholder base.

SAFRAN, A RESPONSIBLE EMPLOYER: 2018 KEY FIGURES

92,639 13,050 28.5% EMPLOYEES, RECRUITMENTS WOMEN 60% IN EUROPE IN 2018; 36% WOMEN(1) 12% WOMEN IN TOP MANAGEMENT

96% 84% 2.6% OF EMPLOYEES OF EMPLOYEES GLOBAL HAVE A RECEIVED AT LEAST ABSENTEEISM SUSTAINABLE JOB ONE TRAINING SESSION RATE(1) DURING THE YEAR(1)

Develop Safran’s forward-looking policy to constantly These ambassadors represent attractiveness and diversity develop its employer brand by: the Group and carry out occasional actions to improve With 42,000 natural departures strengthening ties and visibility and accompany students and 45,000 recruitments planned a long‑term partnership policy in their educational choices; over the next four years(1), with schools and universities the recruitment, integration training students in the Group’s a welcome policy for young and skills management challenges businesses; people, through internships and are decisive. In a sector as highly a dynamic network of Safran work-study contracts. Each year, competitive as the aviation sector, “Ambassadors” in Belgium Safran (excluding Zodiac Safran’s attractiveness is a key and France, bringing together Aerospace) welcomes interns question. Safran therefore 300 employees who are alumni and apprentices representing implements a proactive and of target schools and universities. 10% of its workforce.

(1) Excluding Zodiac Aerospace.

39 I SAFRAN 2018 INTEGRATED REPORT STRATEGY AND BUSINESS MODEL

Safran’s employer brands are In 2017, Safran was awarded highly reputed, as demonstrated the GEEIS label (Gender Equality by its top ranking among the most European & International attractive companies for students Standards) at European level. in France: 3rd place in the In addition, the male/female Universum ranking (6th place professional equality index six years ago). In addition, Safran in France is 87% for entities with was ranked seventh best employer 1,000+ employees. Finally, Safran in France in the annual ranking is deploying a plan to increase published by the magazine Capital, the number of women in the which draws up a list of the top workforce and particularly 500 companies as rated in top management positions. by French employees. This involves, for example, Initiatives in favor of diversity including female profiles in all also ensure Safran is not deprived succession plans for the Group’s of any talent and has balanced management committees. male/female representation.

Training for businesses of the future: CampusFab Safran already uses virtual/ augmented reality in certain of its training courses. In this context, Safran is part of the CampusFab project, the “Training platform for the industrial mechanics of tomorrow”. Under construction in Bondoufle, it is scheduled to open in 2019. The project is steered by a consortium In particular, it will help satisfy A digital management system of industrial companies, training industrial company requirements for industrial operations will enable centers, the ASTech Paris-Région to recruit technicians trained in students to plan, pilot and optimize competitiveness cluster new production processes. use of these resources. and The Adecco Group and has This center of excellence will Over and above technology, received funding from the French include a digital room with design this training platform seeks first State and local authorities. and industrial operation simulation and foremost to place the operator CampusFab will allow apprentices, equipment. An additive at the heart of production students, interns and trainers manufacturing hub, a “model” processes. Safran also plans to access the industrial and machining line using robots, cobots to make this training platform digital means typical of a “Factory and automatic carts, assembly and available to its employees as part of the Future”, with the aim of erection hubs and a maintenance of ongoing training initiatives. accompanying the transformation and production means hub will of industry in France. also be available.

SAFRAN 2018 INTEGRATED REPORT I 40 STRATEGY AND BUSINESS MODEL

Promote social dialogue The manager also contributes It is based on three objectives: In a global survey, the non-financial each year to drafting the workforce anticipate changes in rating agency, Vigeo, ranked Safran mid-term plan. Based on this businesses and ensure the in the top 10 companies worldwide information and his vision of the professional development of for the quality of its social future of the sector, workload and employees, through a shared dialogue in 2018. Safran stands businesses, the manager reflects approach; out at several levels: the impacts on the jobs and develop and secure the representative bodies, such expertise of his team (job and skills professional career paths of as the European works council, forward planning). Group employees, so they may Group trade union coordinators A European company-wide develop in their current positions and representative bodies agreement confirms the Group’s and benefit from career in each subsidiary; policy in this area. opportunities throughout collective negotiation policies their professional life; at global and European level encourage professional mobility and for each country. The global as an opportunity for employees framework agreement on to develop expertise and “working conditions, corporate an efficient response to social responsibility and the Group’s growing needs. sustainable development” signed This approach is accompanied at the end of 2017, confirms by Group investment in training. the desire to promote open Safran University provides and constructive social dialogue 1.5 million training hours each year, worldwide and to improve and organized around three strategic develop good working practices fundamentals: integrating new at all Safran sites. A global recruits, upskilling all employees monitoring committee was and creating supportive and created in 2018, to assess interactive manager networks. the implementation of this agreement and the appraisal of its commitments. In 2018, 200 company agreements were signed worldwide within the Group. Depending on the country, these agreements covered all employee issues (employment, compensation, working conditions, organization and working hours, etc.). Other agreements covered specific issues (employment, health and safety and working conditions, working hours, flexible working, etc.). In addition, 71% of Group employees have employee representatives through the representative bodies.

Managing talent For Safran, mobility is a sign of agility and it is important to regularly expand the scope of an employee’s expertise and experience. Managers take part in the career management process through team reviews and career committees set-up in their companies. The career prospects of each employee are discussed at least once annually by the manager and an HR manager.

41 I SAFRAN 2018 INTEGRATED REPORT RISK MANAGEMENT

SAFRAN’S ENTERPRISE RISK MANAGEMENT (ERM) SYSTEM

The primary objective of the ERM system is to ensure the security of aeronautical operations involving the Group’s products and services.

The aerospace industry is these challenges. Over time, of appropriate mitigating actions historically, naturally and culturally Safran’s ERM has expanded to reduce exposure to an sensitive to risk management. its scope of action and become acceptable level. It is positioned Safran’s ERM system therefore progressively more sophisticated upstream of decision-making contributes directly to the and proactive. It is now a processes and offers a unique processes for obtaining comprehensive risk management competitive advantage, the necessary certifications. system which contributes fully accompanying and supporting Furthermore, as the aerospace to securing the Group’s profitability. key Group decisions and actively industry is intrinsically capital Due to its activities throughout contributing to the execution intensive, its programs involve the world, Safran is currently of its strategy. Furthermore, the extremely costly research and exposed to a wide range of risks principles of the comprehensive risk development activities and that could have a significant impact management policy are consistent significant industrial investment. on its results, reputation or share with the recommendations issued These efforts must be maintained price. Safran’s ERM system by the French Financial Markets throughout long cycles, has attained a level of maturity Authority (AMF), the provisions potentially of up to 40 years. that enables it to identify major risk of the AFEP/MEDEF Code Safran’s ERM system also exposures, quantify their impact (revised version of June 2018) participates directly in the efforts on attaining its objectives and and professional standards deployed by the Group to meet ensure the implementation (COSO ERM).

IMPLEMENTATION OF SAFRAN’S ERM SYSTEM

Roll-out Risk Action plans and risk Crisis at all levels analysis monitoring management

The ERM system is rolled-out Each risk factor identified is An owner is designated for each Lastly, Safran’s ERM system in all Group activities in analyzed and forms the basis risk identified and is responsible has a crisis management compliance with the various for various risk scenarios for drafting action plans and component that enables the governance rules applicable charted along three lines: ensuring their implementation. Group to anticipate and handle to the different component impact, probability of These may include steps to be any “abnormal” situation that entities, departments or occurrence and level of control. taken, additional controls to be leaves one or a number of its processes. This comprehensive The impact and probability of implemented or investigations business oversight parameters methodology is therefore each risk are assessed in terms into financial transfers or exposed. Regardless of the broken down harmoniously of their direct and indirect transfers of liability, particularly component affected, it seeks in all organizations and potential impact on the Group’s involving regularly updated to provide the Group with at all levels, with an initial businesses based on the most insurance policies. the means for responding in consolidation level for realistic, worst-case scenario The objective is to provide a pragmatic way by delivering tier-one subsidiaries(1) and allocated to the risk. The level continuous risk oversight the solutions needed to deal a final consolidation level of control, essential in to ensure optimum treatment. with the crisis. The crises in at the Safran holding company. characterizing the risk and The entire risk management question may range from The risk management policy the way it is to be managed, approach is periodically reviewed serious accidents to people falls under the responsibility is then determined. and events that occurred within of technical, human or natural of each entity and of the central the Group over a given period origin to long-term corporate departments, and are systematically compared with unavailability of industrial is embedded in all of Safran’s analyses and risk mappings for facilities that jeopardizes organizational processes. the same period. This feedback Safran’s capacity to honor enables Safran to ensure that certain commitments to clients all risks have been effectively and partners. As such, identified, assessed and business contingency planning managed and to enhance is an integral part of crisis and strengthen the process management. if necessary.

(1) Companies formed by business. Their strategic direction is defined by the Board of Directors of the lead company. Executive Management of the lead company ensures the implementation of and compliance with the strategic direction operating plan defined for each business. Tier-one companies steer the management of Tier-two companies for which they have operational responsibility.

SAFRAN 2018 INTEGRATED REPORT I 42 RISK MANAGEMENT

ERM SYSTEM

The Group Risk Committee periodically updates the identification, appraisal, processing and, therefore, control, of major risks.

CEO Board of Directors

Group Risk Committee Audit & (CEO + 8 Senior Executive VPs) Risk Committee

Audit and Risk Committee Information Quarterly Group Annual report on The on risks indicators the organization reviews the risk mapping and to be published of ERM the work related to the main risks in the Group faced by the Group, as presented to it twice a year by the Risk and Insurance Department. Group Risk & Insurance The Committee reports to the Board of Directors on its risk management work at the same intervals.

Quarterly Annual report indicators on ERM organization

1st Tier entities Central Functions

Second Tier Entities and JV

The Risk and Insurance Department reports to the Group Each tier-one company has a Chief Financial Officer. It comprises the Risk and Insurance risk manager who prepares a risk Department director and Corporate Risk Managers and is mapping and liaises constantly responsible for implementing the Group’s ERM system. The with the Risk and Insurance Risk and Insurance Department develops methodological Department. techniques and processes to ensure consistent handling Tier-one company risk managers of risks by companies and central corporate departments. are tasked with implementing the risk management process for their entire operational scope, i.e.,in their company as well as in their subsidiaries and investments. Each of Safran’s central corporate departments also prepares a mapping of the main risks in its scope.

43 I SAFRAN 2018 INTEGRATED REPORT RISK MANAGEMENT

MAIN RISKS

The risks identified by Safran as material are grouped into a limited number of categories and ranked by their degree of criticality (in terms of likelihood of occurrence and potential impact).

Risks relating to Group business sectors Aircraft accidents Delays, program development and industrialization Risks relating to the environment Quality and safety of products and services in which the Group operates Supplier and partner risks Health, safety and environmental risks Changes in economic conditions Personal safety risks Impact of the aviation cycle Data confidentiality risks Competition

OPERATIONAL EXCELLENCE SUSTAINABLE AND AGILITY Financial market risks INNOVATION • Factory of the future • Self-funded R&T Foreign currency risk • Health, safety and R&D and the environment Interest rate risk • Patent portfolio Risks relating to the Commodity risk • Improve the carbon footprint Group’s development Counterparty risk Technological risks Liquidity risk Uncertainty regarding returns on investments Acquisition and FINANCIAL restructuring risks PERFORMANCE RESPONSIBLE • Growth in adjusted revenue CONDUCT • Growth in service activities • Responsible purchasing • Growth in the recurring • Recruitment Legal and operating margin • Non-discrimination regulatory risks • EBIT to FCF conversion rate • Dividends

Risk of negative Human media coverage Resources risks

FOCUS ON FOREIGN CURRENCY RISK

Most revenue earned in the civil aviation sector is denominated in US dollars, the benchmark currency used in the industry. The Group is therefore exposed to foreign currency risk. To protect its earnings, the Group implements a hedging policy with the aim of reducing uncertainty factors affecting profitability. Two basic principles underscore the foreign currency risk management policy defined by Safran for most of its subsidiaries: protect the Group’s economic performance from random fluctuations in the US dollar; optimize the quality of hedging whenever possible, without jeopardizing the Group’s economic performance. The hedging policy is based on managing the financial instrument portfolio in order to guarantee a pre-defined minimum parity. At April 12, 2019, Safran’s hedging portfolio totaled US$27.4 billion and provided visibility up to 2022.

SAFRAN 2018 INTEGRATED REPORT I 44 45 I SAFRAN 2018 INTEGRATED REPORT CORPORATE GOVERNANCE

A BOARD OF DIRECTORS INCORPORATING BEST GOVERNANCE STANDARDS INTO ITS ACTIVITIES

Safran refers to the “Corporate Governance Code of Listed Corporations”, drawn up jointly by the French companies’ associations, AFEP and MEDEF.

Separation of the roles of Chairman of the Board of Directors and Chief Audit and Executive Officer Risk Committee Since 2015, the Board has chosen to separate the roles of Chairman Appointments and of the Board of Directors and Compensation Committee Board of Directors Chief Executive Officer. Thanks to this governance structure, Innovation and Technology Committee the Company benefits from the Chairman of the Board Chief Executive Officer’s managerial of Directors expertise and industry experience, as well as the Chairman’s international Chief Executive O cer standing. The strong strategic fit of Scientific Committee their profiles enables the Group to be Executive Committee governed harmoniously, based on Compliance, Ethics and transparent relations between Anti-Fraud Committee the Board of Directors and Executive Management and a balanced and respectful distribution of their roles. Lead Independent Director In 2018, the Board of Directors decided to appoint Monique Cohen FORMAL ASSESSMENT OF THE BOARD OF DIRECTORS’ as Lead Independent Director and OPERATING PROCEDURES CARRIED OUT IN 2018 define her duties. It was considered In 2018, the Board assessed its operating procedures with the assistance good practice to create this position, of a specialist international firm. even if it is not indispensable In addition to individual interviews with each director, major institutional because the Company has separated shareholders were contacted to obtain and analyze their views on Safran’s the roles of Chairman of the Board governance. These shareholders’ views were shown to be positive. They are happy with the separation of the roles of Chairman of the Board and Chief Executive Officer. of Directors and Chief Executive Officer and have a good understanding Independent Directors of Safran’s governance structure. They are also satisfied with the The aim of having independent performances of the Chairman of the Board and the Chief Executive directors on the Board is to provide Officer. The following areas for improvement were suggested: shareholders with assurance that increasing the number of independent directors on the Board to provide greater assurance of a challenge to Executive Management; the collegiate body of the Board reducing the representation of the French State on the Board; comprises members who have total enriching the Board’s membership with more directors from leading independence to analyze, judge, companies and in-depth knowledge of international markets; take decisions and act, always in the deepening discussions with shareholders about governance matters. Company’s interests. Highly engaged and involved in the Board’s work, The changes in the Board’s composition proposed to the 2019 Annual their freedom of judgment and General Meeting contribute to achieving these improvements. expression contributes to the quality of the Board’s discussions An appraisal of each Director’s actual contribution to the Board’s work was also carried out by the specialist consultancy firm. The Chairman and decisions. Their professional or Lead Independent Director provided individual feedback and personal experience provides on this appraisal to each director. an outside view that is beneficial for the Group.

SAFRAN 2018 INTEGRATED REPORT I 46 CORPORATE GOVERNANCE

COMPOSITION OF THE BOARD OF DIRECTORS AND ITS COMMITTEES FOLLOWING THE 2019 ANNUAL GENERAL MEETING(1)

ROSS McINNES PHILIPPE PETITCOLIN Chairman of the Board Chief Executive Officer C M M

(1) HÉLÈNE AURIOL-POTIER ODILE DESFORGES GÉRARD MARDINE Chair of the Audit Director representing I W 17 and Risk Committee employee shareholders MEMBERS I W M

ELIANE CARRÉ-COPIN DIDIER DOMANGE DANIEL MAZALTARIM Director representing Director representing M employee shareholders employees W M I Independent C Chairman JEAN-LOU CHAMEAU LAURENT GUILLOT PATRICK PÉLATA Audit and Risk Committee Reappointment proposed Appointment proposed Chair of the Innovation Appointments and to the 2019 AGM to the 2019 AGM and Technology Committee Compensation Committee I M I M I M Innovation and Technologies Committee MONIQUE COHEN VINCENT IMBERT ROBERT PEUGEOT W Woman Lead Independent Director Appointment proposed Director representing F&P M Man Chair of the Appointments to the 2019 AGM, I M and Compensation at the recommendation Committee of the French State I W M

HÉLÈNE DANTOINE BRIGITTE LESSCHAEVE SOPHIE ZURQUIYAH Director representing Director representing I W 61.5% the French State employees INDEPENDENT(2) W W

PROPOSITIONS PRESENTED TO THE 2019 ANNUAL GENERAL MEETING

Re-appointment of Ross McInnes as a Director and Chairman of the Board of Directors

Re-appointment of Philippe Petitcolin as a Director; he has undertaken to tender his position to the Board of Directors at the time of the expiration of his term as Chief Executive Officer (2020 Annual General Meeting)

Increase in the number of independent directors (independence rate up at 61.5%)

Number of Directors representing the French State on the Board reduced from 3 to 2

(1) Projected composition, subject to the adoption by the Annual General Meeting of May 23, 2019 of the draft resolutions concerning the Board’s composition. (2) Excluding directors representing employees and directors representing employee shareholders.

47 I SAFRAN 2018 INTEGRATED REPORT CORPORATE GOVERNANCE

AN EXPERIENCED BOARD OF DIRECTORS, REPRESENTATIVE OF SHAREHOLDERS

BOARD COMPOSITION(1) CONSISTENT WITH SAFRAN SHARE OWNERSHIP

BOARD OF DIRECTORS SHAREHOLDERS – VOTING RIGHTS (number of directors) AT MARCH 31, 2019 (in %) 4 10.3 Employees 8 Employees and employee Independent shareholders Directors 2 71.7 18.0 Representatives Free float French State of the French State(1) 1 Chief Executive Ocer 1 1 Other Chairman

A DIVERSE RANGE OF PROFILES, EXPERTISE AND SKILLS WITHIN THE BOARD

The Board of Directors has a wide Experience and specific duties exercised by Directors in different sectors range of experience, making it well Number and activities equipped to deal with strategy of directors and performance challenges. It regularly considers the Aerospace industry 12 desired balance and diversity Other industries 14 of its composition and that of its committees. Its diversity policy is Innovation, R&T, Development, Engineering 12 notably structured around principles International career and experience 11 and objectives related to the size Strategy, competition and M&A 10 of the Board, the representation of the Company’s various stakeholders, Finance and management control 9 the proportion of independent Digital – New technologies directors, the depth and fit of the 6 directors’ skills and expertise, Governance and compensation 13 international experience, Human Resources – CSR 7 and gender balance.

FOCUS ON THE BOARD OF DIRECTORS FOLLOWING THE 2019 ANNUAL GENERAL MEETING(2)

INTERNATIONAL DIMENSION 65% of directors (i.e. 11 of 17 directors) and 88% of independent directors (7 of 8 directors) will have spent part of their career outside France, irrespective of their nationality.

GENDER BALANCE – MALE/FEMALE REPRESENTATION The Board will comprise 7 women and 10 men. 40% of directors will therefore be women(3).

DIRECTORS REPRESENTING EMPLOYEE SHAREHOLDERS AND DIRECTORS REPRESENTING EMPLOYEES The Board includes 2 directors representing employee shareholders and 2 directors representing Group employees. Their presence is required by French law and enables the representation of the significant stakeholders group formed by Group employees, who hold 6.9% of the share capital.

(1) One Representative of the French State appointed by way of a ministerial decree and One Director put forward by the French State and appointed by the Shareholder’s Meeting. (2) Projected composition, subject to the adoption by the Annual General Meeting of May 23, 2019 of the draft resolutions concerning the Board’s composition. (3) Pursuant to law, directors representing employees are not included in this calculation.

SAFRAN 2018 INTEGRATED REPORT I 48 CORPORATE GOVERNANCE

ORGANIZATION AND OPERATING PROCEDURES OF THE BOARD OF DIRECTORS AND THE BOARD COMMITTEES TO MEET THE GROUP’S STRATEGIC CHALLENGES

BOARD OF DIRECTORS

2018 KEY FIGURES ROLES AND RESPONSIBILITIES

• Definition of the Group’s strategic objectives 10 • Compensation policy for corporate officers MEETINGS • Composition of the Board of Directors and its Committees • Organization of succession processes • Approval and monitoring of the annual budget, the Medium-Term 95% Plan and the outlook communicated to the market ATTENDANCE • Prior approval of significant projects

THREE PERMANENT COMMITTEES – 2018 KEY FIGURES

Audit and Appointments and Innovation and Risk Committee Compensation Committee Technology Committee 5 4 2 MEETINGS MEETINGS MEETINGS

96% 96% 91% ATTENDANCE ATTENDANCE ATTENDANCE 5 7 5 MEMBERS MEMBERS MEMBERS

75% 67% 60% INDEPENDENT(1) INDEPENDENT(1) INDEPENDENT

The Board is agile and able to mobilize its resources for strategic transactions by setting up temporary committees, where necessary, as on the acquisition of Zodiac Aerospace.

FOCUS ON THE STRATEGIC WORK FOCUS ON THE INNOVATION OF THE BOARD AND TECHNOLOGY COMMITTEE

Preferring the direct involvement of directors Given the importance of innovation to the Group, in the Group’s strategy and its objectives, the Board the Board decided to set up a specific permanent decided in 2015 to no longer have a specific strategy committee. The role of this committee is to study: committee. The Board considers the Group’s strategic the Group’s medium- and long-term strategic goals objectives during strategy seminars. and choices concerning innovation, R&T, and the Each year, these seminars examines specific topics development of new products and services; and issues reflecting subjects identified as a priority technological trends and developments; by the Board and Executive Management. progress made with roadmaps; The resulting objectives and goals adopted are the suitability of the organization structures subject to ongoing monitoring during Board meetings. and resources in place.

(1) Excluding directors representing employees and directors representing employee shareholders.

49 I SAFRAN 2018 INTEGRATED REPORT CORPORATE GOVERNANCE

AN EXECUTIVE COMMITTEE IMPLEMENTING THE GROUP’S STRATEGIC AND OPERATING PRIORITIES

THE EXECUTIVE COMMITTEE IS IN CHARGE OF CONDUCTING SAFRAN’S BUSINESS IN LINE WITH THE STRATEGY DEFINED BEFOREHAND BY THE BOARD OF DIRECTORS

Composition of the Executive Committee  The Executive Committee PHILIPPE PETITCOLIN ensures that Safran’s strategy Chief Executive Officer is implemented consistently across all Group entities. It also monitors STÉPHANE ABRIAL CÉDRIC GOUBET its operational performance Senior Executive VP International CEO Safran Nacelles and facilitates interaction with and Public Affairs the various Group companies. NORMAN JORDAN JEAN-PAUL ALARY The Executive Committee CEO Safran Cabin CEO Safran Landing Systems comprises the Chief Executive VINCENT MASCRÉ Officer, holding company OLIVIER ANDRIES CEO Safran Aerosystems executives and the heads of the CEO Safran Aircraft Engines and Safran Seats Group’s main operating companies. This membership structure pro­vides JEAN-LUC BÉRARD JEAN-JACQUES ORSINI for balanced representation of Executive VP Human Resources Executive VP Performance and Competitiveness the Group’s businesses and STÉPHANE CUEILLE cross-business support functions. Senior Executive VP FRANCK SAUDO Under the authority of the Chief R&T and Innovation CEO Safran Helicopter Engines Executive Officer, the Executive BERNARD DELPIT ALAIN SAURET Committee meets as often as Group Chief Financial Officer is necessary and at least once CEO Safran Electrical & Power a month. It has 16 members. PASCALE DUBOIS MARTIN SION Executive VP Communications CEO Safran Electronics & Defense ALEX FAIN Corporate Secretary

To maximize the Group’s strengths, which are integral to its success (see the previous section), the Executive Committee is supported by a number of committees, including the Compliance, Ethics and Anti-Fraud Committee and the Scientific Committee.

Compliance, Ethics Scientific and Anti-Fraud Committee Committee

This Committee is responsible (for example, the Group Led by the Group Director of research. The Committee for supervising employee Department of International of Innovation, the Scientific comprises 8 top-level compliance with the rules and Public Affairs manages Committee is tasked with academics and holds 3 plenary defined in the Ethical trade compliance and export helping Safran deploy meetings a year. Recent work Guidelines (upholding the law, control). The Group’s resources a world-class scientific includes approximately engaging in proper business mainly include the Ethical research policy. It assesses, 15 theme-based reviews in practices, protecting people Guidelines, anti-fraud policies, in particular, the excellence 3 major areas (software and and assets, etc.), as well as any internal control procedures, of scientific partnerships systems engineering, materials updates and revisions. processes and standards, and and the relevance of and structures and sensors This approach is sponsored by a fraud prevention, awareness, the long‑term R&T plan. and signal processing). the Corporate Secretary, and detection and assessment The Committee also These reviews ensure the responsibilities are handled program. contributes to Safran’s the Group is advancing by the relevant departments technological difference in the right direction. by identifying new areas

SAFRAN 2018 INTEGRATED REPORT I 50 CORPORATE GOVERNANCE

A COMPENSATION POLICY SUPPORTING SHORT- AND LONG-TERM VALUE CREATION

CORPORATE OFFICER COMPENSATION POLICY

In the interests of the Group and Chief Executive Officer’s by the Group. The underlying aim its stakeholders, the compensation compensation policy and structure is to closely align the CEO’s interests policy must be competitive in order The Chief Executive Officer’s with those of the Group and its to attract, motivate and retain compensation package comprises shareholders, by achieving a balance the best profiles and talent (which fixed compensation, annual variable between short-term and long-term may come from within or outside compensation and performance performance, as assessed by the Group) for key positions. shares awarded under a long-term the Board. Compensation subject incentive plan. to performance conditions accounts Chairman of the Board He is covered by the supplementary for the largest percentage of the of Directors’ compensation pension schemes and personal overall compensation package. policy and structure risk insurance plan implemented In line with his position as a non‑executive Director and the specific duties conferred on Chief Executive Officer’s recurring compensation structure him, the Chairman receives a fixed ≈ 69% compen­sation. He does not receive Subject to performance conditions any variable compensation or ≈38% Target long-term ≈ 38% compen­sation under a long-term incentive* In performance shares incentive plan. He does not receive ≈ 31% (potential) Target annual ≈ 63% attendance fees. The Chairman variable compensation In cash is covered by the supplementary ≈ 31% Fixed annual compensation ≈31% pension schemes and personal Not subject to performance conditions risk insurance plan implemented * Value at grant date in accordance with IFRS. by the Group.

An equivalent variable compensation policy is adapted for certain Group executives and senior managers.

ANNUAL VARIABLE COMPENSATION LT INCENTIVE PLAN – PERFORMANCE SHARES

The Chief Executive Officer’s annual variable This mechanism is well adapted to the Chief Executive compensation is contingent on achieving economic Officer position given the level of direct contribution and individual, financial and non-financial, quantitative expected from him to the Group’s long-term and qualitative performance objectives, consistent performance. This system helps promote the alignment with the Group’s overall business. For 2019, the CSR-HR of management’s interests with those of the Company objectives cover measures and priority actions relating and shareholders. Performance shares are all awarded to the environment (carbon footprint management to Group top managers. The grant of these shares is system), security (accident frequency rate and ergo­ subject to the attainment of demanding internal nomics in industrial projects) and human resources (ROI and FCF)(1) and external (TSR)(1) performance (gender balance plan for executive positions). conditions, measured over 3 years.

VARIABLE COMPENSATION OBJECTIVES(2) LT INCENTIVE PLAN PERFORMANCE CRITERIA(3) (in %) (in %)

40 35 ROI 33 30 ROI Individual TSR

7 WC 20 35 FCF FCF

(1) TSR: Total Shareholder Return (dividends plus the change in the share price). ROI: Recurring Operating Income. FCF: Free Cash Flow. WC: Working Capital. (2) Reference: annual budget. (3) Reference: Group Medium-Term Plan.

51 I SAFRAN 2018 INTEGRATED REPORT PERFORMANCE AND VALUE CREATION

SUSTAINABLE VALUE CREATION

Safran is convinced that in order to sustain prosperity, a company must create and share value with all its stakeholders.

By generating a positive contribu- The Group therefore shares the environment benefits from tion for all its stakeholders and the value that it creates among all the Group’s technology portfolio investing in technologies that will its stakeholders: customers benefit and R&D efforts and shareholders contribute to meeting aviation from unique and competitive receive an attractive and sustai- sector greenhouse gas emission products serving their businesses, nable remuneration thanks to a commitments, Safran is employees enjoy attractive working capital allocation policy that seeks preparing the foundations conditions and a social model to provide, over the long-term, for its future growth. where they share in profits, organic growth in our businesses.

Breakdown of value in 2018

PURCHASING SALES AND OTHER (1) COSTS

VALUE GENERATED BY SAFRAN

EMPLOYEES(2) INVESTMENT SHAREHOLDERS(4) FRENCH STATE(5) DEBT IN THE FUTURE(3) HOLDERS(6) 59% 22% 8% 10% 1%

Attractive social 6% to 7% TSR 2005-2019: Taxes and duties One of the model founded on of revenue spent +16.27% per annum The world’s best best industry giving employees on self-funded R&D 75% of 2018-2022 technology serving financial signatures a vested interest between 2018 free cash flow national security worldwide in Group results and 2022 redistributed and dissuasion 4% of revenue spent through share on investment buybacks in capex and dividends

N.B.: Based on 2018 adjusted data. (1) Raw materials and consumables used + net charges to provisions + asset (2) Personnel costs and benefits, excluding employee share ownership. impairment + other recurring operating income and expenses + share in profit (3) Profit for the year not distributed, plus net charges to depreciation and amortization. from joint ventures + other non-recurring operating income and expenses (4) Dividend proposed to the Annual General Meeting of May 23, 2019. + foreign exchange gain (loss) + other income + change in inventories (5) Income tax and other taxes and duties. + capitalized production. (6) Cost of net debt and other financial income and expenses.

SAFRAN 2018 INTEGRATED REPORT I 52 PERFORMANCE AND VALUE CREATION

KEY PERFORMANCE INDICATORS

Key sustainable innovation indicators 2018

Number of employees in R&T Approximately 3,000

€1,226 million R&D expenditure self-funded Between 6% and 7% of revenue over the period 2018-2022

Number of PhDs in the Group 1,200

Number of initial patent requests More than 1,000

LEAP consumption and emission reductions -15% fuel consumption; -50% NOx emissions and noise

Key operational excellence and agility indicators 2018

Number of production lines “of the future” 65

30 Number of sites certified HSE “Gold” (internal standard) All industrial sites by 2025

€780 million Capex (tangible assets) 4% of revenue over the period 2018-2022

CFM56 in operation 33,100

LEAP backlog(1) 15,329

Lost-time accident frequency rate 2.2%

(2) Greenhouse gas Scope 1 (t CO2-eq/employee) 3.3

(2) Greenhouse gas Scope 2 (t CO2-eq/employee) 4.55

Total waste recovered and reused metric ton/ 0.76 Safran employee (World)(3)

Key responsible conduct indicators 2018

% of buyers trained in responsible purchasing methods 43%

Number of employees 92,600 % sustainable jobs 96%

Annual recruitment(4) 13,050

Purchasing volume sourced in France 53% % sourced from small, medium 85% and intermediate-sized companies

Global absenteeism rate(4) 2.6%

% of women in the workforce 28.5%

% of employees trained(4) 84%

(1) At March 31, 2019. (2) Industrial activities excluding tertiary sector (HSE Indicators). Excluding Bellevue, Homberg, Sell Burg, Seminole, Verulam, Xedel and Wessling sites. (3) Excluding Bidos, Sandayan, Queretaro SAE and Sedziszow sites. (4) Excluding Zodiac Aerospace.

53 I SAFRAN 2018 INTEGRATED REPORT PERFORMANCE AND VALUE CREATION

Key financial performance indicators 2018 Objective

Organic growth in adjusted revenue +10.4% Mid single-digit annually between 2019 and 2022

Growth in civil aftermarket (in US$) +12.2% High single-digit annually on average up to 2022

Recurring operating margin 14.4% 16%-18% of revenue in 2022

Above 50 % each year between 2019 and 2022 EBIT to FCF conversion 58.9% and trending above 60% in 2022

€1.82/share The Board of Directors will review Dividend (41% distribution rate) the shareholder return practice in 2020

Key governance indicators Results

Average attendance rate at Board meetings in 2018 95%

% of Chief Executive Officer compensation subject 69% to performance conditions in 2018

% of independent directors on the Board of Directors 61.5%(1) after the 2019 AGM

% of women on the Board of Directors after the 2019 AGM 40%(1)

% of Board members with international experience 65%(1) after the 2019 AGM

(1) Subject to the adoption of the resolutions by the Annual General Meeting of May 23, 2019.

SAFRAN 2018 INTEGRATED REPORT I 54 ABOUT THIS FIRST INTEGRATED REPORT

With this first report, Safran embarks on an integrated reporting process, aimed at sharing its strategy and business model with a wide public of stakeholders. Our strategy and business model stand at the very heart of the major economic, industrial, technological, social and environmental challenges facing the aerospace industry.

Inspired by the reference framework published by the International Integrated Reporting Council (IIRC), this report presents a comprehensive overview of Safran and its strategic direction, governance, performance and value creation for stakeholders. This report also sets out Safran’s contribution to UN Sustainable Development Goals (SDG) and the societal challenges facing the aerospace industry, such as reducing greenhouse gas emissions.

Under the impetus of Executive Management and coordinated by the Financial Communications 2018 Department, this report is the result of a cross- INTEGRATED REPORT functional approach. Its preparation mainly involved managers in charge of strategy, innovation, programs, communication, risks, human resources and sustainable development. It helps strengthen the emergence of a shared vision of the Group’s main strategic and operational choices.

This report covers the entities included in the Group’s consolidated financial scope (unless otherwise stated). It was published in English and French for the Annual General Meeting of May 23, 2019. It supplements the other financial and non-financial communications issued by the Group and particularly the 2018 Registration Document and all French and European regulatory information. Such communications are available on the Group’s website.

Safran’s integrated reporting trajectory is an incremental progress approach and is intended to be long-term. This first integrated report is therefore a starting point and will be enriched in future editions, notably by taking account of feedback from readers who can send their comments to the following email address: [email protected]

55 I SAFRAN 2018 INTEGRATED REPORT OTHER SAFRAN PUBLICATIONS (IN FRENCH AND ENGLISH)

2018 REGISTRATION DOCUMENT www.safran-group.com/, section Finance Document prepared in accordance with French and European regulations and notably including the annual financial report, the Board of Directors’ report, the consolidated and separate financial statements for the fiscal year, all corporate, social and environmental information concerning Safran and the resolutions presented to the Annual General Meeting for approval.

CAPITAL MARKETS DAY 2018 www.safran-group.com/, section Finance Presentation of the Group’s strategy and mid‑ and long-term financial objectives (2018-2022). ESSENTIALS www.safran-group.com/, section Media/Publications Institutional brochure presenting an overview of Safran’s activities, products, results and commitments.

PRESENTATION OF SAFRAN www.safran-group.com/, section Group Presentation of the Group’s profile, its roles and its governance.

SAFRAN 2018 INTEGRATED REPORT I 56 CONTACT

FINANCIAL COMMUNICATIONS DEPARTMENT

Analysts and institutional investors Individual shareholders >>Tel.: +33 (0)1 40 60 80 80 >>Toll-free number (France landline only): 0 800 17 17 17 Monday to Friday, 9 a.m. to 5 p.m.

>>Email: [email protected] >>Email: [email protected]

SAFRAN 2, boulevard du Général-Martial-Valin 75724 Paris Cedex 15 – France

All financial information pertaining to Safran is available on the Group’s website at www.safran-group.com, in the Finance section. © Photo credits: Front cover: Raphael Soret / Safran • Eric Drouin / Safran • Pascal Le Doare / Safran • Cyril Abad / CAPA Pictures / Safran • Inside photos: Eric Drouin / Safran • Cyril Abad / CAPA Pictures / Safran • Thierry Dosogne / Safran • Thomas Laisne / Safran • Adrien Daste / Safran • Philippe Stroppa / Safran • Remy Bertrand / Safran • Ricardo Funari / CAPA Pictures / Safran • Adam Wiseman / CAPA Pictures / Safran • Pierre Soissons / Safran • Mark Woolcott / CAPA Pictures / Safran • CFM International • Alexandre Paringaux / Safran • Abdellah Azizi / CAPA Pictures / Safran • Marc Detiffe / Safran • Laurent Pascal / CAPA Pictures / Safran • Thierry Mamberti / Safran • Anthony Pecchi / Safran • Christel Sasso / CAPA Pictures / Safran • Frank Rogozienski / CAPA Pictures / Safran • Raphael Olivier / CAPA Pictures / Safran • Bell Helicopter Textron Inc.

Design & production: Tel.: +33 (0)1 55 32 29 74 Safran 2, boulevard du Général-Martial-Valin – 75724 Paris Cedex 15 – France Tel.: +33 (0)1 40 60 80 80 www.safran-group.com