Safran : 2020 Integrated report

2020

INTEGRATED REPORT

CONTENTS

SAFRAN

AT A GLANCE

P. 01

EDITORIAL	RISK
MANAGEMENT
P. 02	P. 40
GROUP	CORPORATE
PROFILE	GOVERNANCE
P. 04	P. 42
ECOSYSTEM	PERFORMANCE
AND VALUE
P. 10
CREATION
		P. 50
STRATEGY
AND BUSINESS
MODEL
P. 18

SAFRAN AT A GLANCE

2020 KEY FIGURES

3rd Global aerospace group, excluding airframers*

REVENUE(1)

€16,498 million down 33.0% (down 32.5% on organic basis) on 2019

RECURRING OPERATING

€1,686 million INCOME(1)

down 55.9% (down 58.6% on organic basis) on 2019

PROFIT(1)

€844 million (Group share) down 68.3% on 2019

Long-termcredit rating: BBB+ (with stable outlook)

€1,073 million

FREE CASH FLOW

€2,792 million

NET DEBT

€449 million

CAPEX

€1,213 million

TOTAL R&D

(including customer-funded R&D)

78,892

EMPLOYEES

(at December 31, 2020)

Our activities

	AEROSPACE	AIRCRAFT	AIRCRAFT
	PROPULSION	EQUIPMENT/	INTERIORS
		DEFENSE/
	€7,633 million	AEROSYSTEMS	€1,922 million
REVENUE(1) BY SEGMENT	€6,893 million
BREAKDOWN OF
BREAKDOWN OF	€1,192 million	€687 million	€(174) million
RECURRING OPERATING
INCOME(1) BY SEGMENT
BREAKDOWN OF	15.6%	10.0%	(9.1)%
RECURRING OPERATING
MARGIN(1) BY SEGMENT

• Classification criteria: revenue - Source: Safran.

1. Adjusted data. See section 2.1.1 of the 2020 Universal Registration Document for a reconciliation of the consolidated income statement with the adjusted income statement and a breakdown of the adjustment.

1 I S A F R A N 2 0 2 0 I N T E G R AT E D R E P O R T

EDITORIAL

IN 2021, SAFRAN WILL CONTINUE TO DRAW STRENGTH FROM ITS ADAPTABILITY

Safran has robust fundamentals, and the Board of Directors stands firm in its support

of the new Chief Executive Officer on Group-wide efforts to emerge from the crisis in stronger shape and face the future with confidence. The Board of Directors is fully aware of the strategic importance of the climate challenge, and will be working with the Director responsible for monitoring climate issues to ensure the Group achieves its climate roadmap.

ROSS McINNES

EDITORIAL

Message from the Chairman of the Board of Directors

ROSS McINNES

and the Chief Executive Officer

OLIVIER ANDRIÈS

The total mobilization of all teams enabled Safran to tackle

the crisis in 2020. Although uncertainties remain, notably for the first half of 2021, I am determined to push ahead with the ongoing efforts, and I am optimistic for the future of the Group, which will harness full strength from its assets once the recovery is underway. Leadership in low-carbon aviation is a priority, and Safran,

as a leading aircraft engine and equipment manufacturer,

has a central role to play in achieving the aerospace industry's carbon neutrality objectives by 2050.

OLIVIER ANDRIÈS

In 2020, Safran published results that were as good as could be expected given the severe crisis affecting the aerospace industry, confirming the strength of its

business model and the impact of the cost reduction measures taken during the year.

While implementing the necessary health measures to enable a safe return to work for its employees, Safran reacted rapidly by accelerating the streamlining of its sites and demonstrating organizational flexibility.

Our business was heavily impacted by the crisis, with 2020 revenue down by 33.0% on 2019, at €16.5 billion. Despite the decline, Safran posted recurring operating income(1) of

€1.7 billion (for a recurring operating margin(1) of 10.2%) and free cash flow of €1,073 million. Our financial targets for 2020, as reviewed in July 2020, were all reached.

Thanks to the commitment of its employees across the world, Safran swiftly implemented the adaptation plan drawn up in March, showing determination in the face of the crisis and adjusting its capacities to its customers' needs.

The total workforce fell by more than 16,500 people (over 21,000 including temporary staff), from around 95,400 employees at the end of 2019 to around 78,900 at the end of 2020.

In France, the Group Activity Transformation Agreement signed in July brought in measures including long-termshort-time working (covering up to 40% of working time), in order to preserve skills in production as well as research

and technology. Safran also streamlined its industrial footprint, with a number of site closures and production transfers in several regions of the world.

Safran is committed to offering an effective response to the major challenge of climate change, which will prove an essential factor in the ongoing acceptability of air transport. Its strategy seeks to reduce greenhouse gas emissions from

its operations and its products.

Innovation is a central feature of the major shift under way. With its broad coverage of aircraft systems, and propulsion systems in particular, Safran is capable of offering technological solutions.

Our priorities are to contribute to the development of a new generation of ultra-efficient short- and medium-haul aircraft for 2030- 2035, powered by an ultra-efficient engine consuming 20% less fuel than the present-day LEAP® and running on up to 100% sustainable fuels. Another development area that will prove essential in meeting carbon neutrality objectives is that of electric and hybrid propulsion systems for short-distance flights.

In late February, Safran released its financial targets for 2021, a year of gradual recovery with back-end loaded in terms of business and profitability.

Air traffic at the start of the year confirms the need for caution in the first half of 2021, especially

in service and spare parts activities, where a gradual pick-up is expected from the third quarter. In view of airframers' new production rates, especially on long-haul programs, Safran foresees a slight organic dip in original equipment sales for 2021.

The long-term outlook for Safran remains bright, because we are convinced that people will continue to need and want to travel.

In connecting people and countries, aviation is an accelerator of human and trading links.

Safran will leverage the quality of its many assets, which will together help to drive the recovery:

• LEAP, the engine of choice of airlines for fleet renewal and new investments;
• a young in-service fleet of second-generation CFM56® engines, widely used by airlines even in times of crisis, and the first to benefit from the coming recovery;
• leading global positions in the systems that will equip aircraft in the recovery phase, as customers' aircraft return to the air;
• technical and industrial credibility in Aircraft Interiors, which has restored customers' trust in the business despite being hard hit by the crisis;
• proven organizational agility (as with the introduction of long-termshort-time working and teleworking).

We would like to thank you

for your trust and hope you enjoy reading this report.

Regards,

Ross McInnes and Olivier Andriès

1. Adjusted data.

S A F R A N 2 0 2 0 I N T E G R AT E D R E P O R T I 2

3 I S A F R A N 2 0 2 0 I N T E G R AT E D R E P O R T

GROUP PROFILE

SAFRAN'S RESPONSE TO

THE COVID-19 CRISIS

The magnitude and duration of the unprecedented Covid-19 crisis will have

a lasting impact on the aerospace industry. The central scenario points to a very

gradual recovery, driven by the short- and medium-haul segment, with air traffic expected to be back to 2019 levels by 2025.

2

	Increased liquidity and sound
	balance sheet to navigate the crisis
	and finance ongoing business
	SECURING LONG-TERM FINANCING
	At end-2020, the bridge facility set up at the start of the crisis
	(April 22, 2020) for a maximum maturity of two years remained
	undrawn, and the initial amount of €3.0 billion was reduced
	to €1.4 billion*, with Safran refinancing more than 50% of the
	undrawn short-term facility with long-term debt (at 7-12 year
	terms):
	May 15, 2020: issue of €800 million of convertible bonds
	due May 15, 2027.
	June 29, 2020: issue of senior unsecured notes in euros
	and US dollars on the US private placement market (USPP),
	for the equivalent of €564 million (€282 million at 10 years
	and €282 million at 12 years).
1	October 12, 2020: tap issue of €200 million in convertible
bonds due May 15, 2027.
Employee	Safran also has a €2.52 billion undrawn credit facility available
until December 2022.
protection against Covid-19
and business continuity

GROUP PROFILE

3

Rapid, proactive implementation of adaptation plan,

lowering Safran's breakeven point

Action	Achievements (in 2020)
Workforce resized	Global workforce reduction of more than 16,500 people, over 21,000 including temporary staff,
in line with Company	at end-2020.
needs	In France, signature of the Activity Transformation Agreement in July 2020 with all trade unions
	at Group level, running to the end of 2021 and renewable:

• Rollout of long-termshort-time working, with potential worktime reductions of up to 40-50% in France, granting more flexibility
• Wage restraint
• Promotion of mobility
• Cap of profit-sharing and savings schemes

	On average from April to December 2020, short-time working concerned 21% of employees
	worldwide and 23% in France (excluding public holidays and days off)
Industrial footprint	Closure of sites in Seats (Camberley in the United Kingdom, Santa Maria in the United States),
streamlined	Cabin (Sterling in the United States) and Electrical & Power (Eatontown in the United States)
Purchasing programs	-43%	purchases of raw materials and supplies	-48%	subcontracting
scaled back	(excluding impact of change in inventories)	expenses
Operating expenses	-25%
reduced(1)

R&D expenses reduced	-35%
Capex commitments	-67%	and a €246m reduction in cash outflow from 2019 to 2020
reduced

The Group crisis management unit formed in January 2020

set two initial priorities: provide optimally safe working

conditions for Safran employees, and ensure the continuity

4

Support for the supply chain

▲

In 2020, Safran withstood the crisis thanks to its rapid response capability and resilient business model, drawing on

of essential businesses.
Safran adapted its work organization in rigorous compliance
with the requirements set by governments in its host countries,
applying strict health standards and social distancing measures,
and even temporarily shutting down some sites for varying
durations.
Safran managed to continue serving its customers, while
ensuring the protection of its employees. Temporarily closed
MAIN FINANCIAL
sites were reopened swiftly, with four sites remaining closed
RATIOS (2)
on October 16, 2020 (down from 14 on July 17 and 30 on
May 18)(1).	Net debt/EBITDA(3)
		1.13
		Net debt/total equity
(1)	Including sites closed because of a decline in business.	21.9%
(2)	Calculated on the basis of aggregates published in Safran financial communications.
(3)	EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is the sum of recurring operating
	income plus net recurring and non-recurring amortization, provisions and depreciation.

ATTENTIVE MONITORING

OF SAFRAN SUPPLIERS

To weather the crisis, Safran set up a watch tower for monitoring and supporting its strategic suppliers, with the following aims:

identify the suppliers most at risk, with a potential impact on Safran businesses; determine the impact of the crisis on these suppliers and their capacity to

sustain business;

examine possible measures (payment term adjustments, advance orders, etc.), and the impact of government support, and, where applicable, guide suppliers towards more structural solutions (backing from other industrial companies, investment funds, etc.).

INDUSTRY-SPECIFIC RELIEF FUND

In 2020, Safran invested €58 million in the Ace Aéro Partenaires fund set up under the French aerospace industry support plan. With contributions from the French State, major industrial contractors and asset management firm Tikehau Capital, initial funds of €630 million were raised in July 2020 (subsequently increased to €730 million), the aim being a total of €1 billion. In contributing to the financing of businesses hit by the crisis, Safran is actively participating in the restructuring and consolidation of the industrial fabric of the French aerospace sector.

its long-standing presence

in the civil engine aftermarket and the short- and medium-haul aircraft segment.

In the longer term, the growth fundamentals behind Safran's business remain unchanged.

Safran's technological roadmap remains appropriate thanks to the French government's large-scale support plans (current roadmap pushed back just less than a year behind the pre-Covid-19 roadmap). Climate change will be a central challenge in the recovery process: Safran is committed to green aviation, which will emerge as a major post-crisis trend.

• The bridge facility was fully canceled on March 16, 2021 following the March 4, 2021 signature of a long-term €500 million loan with the European Investment Bank, and the March 16, 2021 issue of €700 million in five-year bonds and €700 million in ten-year bonds.

S A F R A N 2 0 2 0 I N T E G R AT E D R E P O R T I 4

1. Excluding purchases, including R&D expenditure and government aids on short-time working measures.

5 I S A F R A N 2 0 2 0 I N T E G R AT E D R E P O R T

GROUP PROFILE

SAFRAN:

A COMPREHENSIVE OFFERING

GROUP PROFILE

A balanced portfolio across

the aerospace and defense sector

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.

BREAKDOWN OF 2020 REVENUE BY SEGMENT (ADJUSTED)

(in %)

AI

R

C

R

A

F

T

42%

Avionics

Inertial navigation systems Flight data acquisition unit

Electrical flight actuators

Cockpit

• Pilot control systems
• Panels & displays
• Seats
• Windshield wiper systems

Cabin interiors Seats

IFEC - In-flight entertainment & connectivity Cabin lighting

Air management systems

Oxygen systems

Power & data wiring

Auxiliary

Power Unit (APU)

					I	O	N
			L	S
			U
			P
			O
			R
			P
			E
			C
			A
			P
46%		S
	O
	R
	E
€7,663 MILLION	A
24,204
EMPLOYEES

		E
		Q
		U
		I
		P
		M
		E
			N
					T
	Original					,
					D
Services	equipment						E
61%	69%						F
					E
							N
							S
							E
							A
							N
							D
Original	Services						A
					E
equipment	31%						R
39%	Original				Y	S	O
		S
equipment		T
ME
	75%*
Services
25%		S

€6,893 MILLION

38,471

EMPLOYEES

P

O

R

P

E

C

A

P

12%

			Exterior	Evacuation slides
			and life rafts
Landing gears			lighting	Anti-icing & de-icing
Cargo	Lavatories,
Braking & landing
containers	water & waste
control systems	Inerting & fuel systems
and pallets		Nacelles
Wheels and carbon
		and components	Engines
brakes
	Galleys & equipment	Power transmission	Engine control systems (FADEC)
	systems	Power distribution and generation

Civil	Helicopter	Military
aviation	turbines	aviation
66%	16%	18%

			T
	F
A
AIRCR			S
		R
IO
INTER

€1,922 MILLION

13,928

EMPLOYEES

* including retrofit activities

Leadership positions

in its main business segments

Safran products have common features that contribute to the resilience of its business model:

its position as a tier-one supplier to airframers and airlines; high technology content;

and leadership positions in its main business segments.

▲				▲				▲

NO. 1 WORLDWIDE(1)

AEROSPACE	AIRCRAFT EQUIPMENT/	AIRCRAFT
PROPULSION	DEFENSE/AEROSYSTEMS	INTERIORS
engines powering single-aisle	landing gear	cabin interiors for regional
mainline commercial jets(2)	wheels and carbon brakes	and business aircraft
	cabin liners,
helicopter turbine engines	for 100+ seater civil aircraft
	electrical wiring	galleys,
	trolleys,
	evacuation slides and oxygen systems
	containers,
		onboard water and waste
		management systems

A full-fledged engine manufacturer(1), Safran supplies airframers with engines for commercial aircraft, military aircraft, regional transport aircraft, business jets and helicopters.

To increase cost efficiency and share risks, engine manufacturers develop their engine programs in partnership. Safran has primarily partnered with GE since the 1970s, when they set up the 50-50 joint venture CFM International, which develops the CFM56® and LEAP® engines. This partnership has been extended through to 2040. Safran also contributes to access to space through its 50% stake in the ArianeGroup joint venture, prime contractor for the Ariane 5 and Ariane 6 launchers.

Safran supplies a wide range of aircraft equipment including landing and braking systems, nacelles, and related electrical systems and engineering solutions.

Defense: Safran provides solutions and services in optronics, avionics, navigation systems, tactical drones, electronics and critical software for civil and defense markets.

Aerosystems: Safran is one of the world's leading players in aerosystems, supplying equipment that assures essential aircraft functions and aircraft safety: safety systems (evacuation slides, oxygen masks, etc.); cockpit systems; and fluid management systems (fuel, pneumatic and hydraulic circuits).

To ensure passenger safety and optimize comfort, Safran develops cabin interiors (overhead bins, lavatories, galley and catering equipment, etc.) passenger and crew seats, water and waste management systems, in-flight entertainment systems (RAVE™), and interior refits for commercial aircraft. Safran's aircraft interiors business addresses both airframers (under the SFE(2) model) and airline companies (BFE(3) model).

1. Source: Safran.
2. In partnership with GE, under the CFM International joint venture.

S A F R A N 2 0 2 0 I N T E G R AT E D R E P O R T I 6

(1) A full-fledged engine manufacturer is present in all engine components and all propulsion market segments.

1. Supplier Furnished Equipment: equipment specified and purchased by the airframer.
2. Buyer Furnished Equipment: equipment specified and purchased by the airline.

7 I S A F R A N 2 0 2 0 I N T E G R AT E D R E P O R T