CAE : Annual Activity and Corporate Social Responsibility Report for FY20

Annual Activity and Corporate Social Responsibility Report /About this report

About this report

How to use this report

Our approach and scope

This Annual Activity and Corporate Social Responsibility Report consolidates information on our company strategy, corporate social responsibility (CSR)activities and fiscal year 2020 performanceinto one document. It includes all the information typically found in a company's CSR Report and the editorial pages of an Annual Report. Combining our reporting in this way enables us to provide stakeholders with a single source of information in key areas. It also signals that CSR is inseparable from our core business strategy andactivities. All financial data for fiscal year2020 is available in ourFinancial Report.

As you will read in this report, our solutionsgenerate benefits across the three centraldimensions of sustainability: economic, environmental and social. This report covers our global operations and, unless otherwise stated, presents quantitativeand qualitative information for fiscal year2020 (ended March 31, 2020). It has been subject to a formal internal review process and it has been approved by CAE's senior management and Board of Directors. CAE intends to engage in an external assurance process in the coming years. However, the FY20 report has not been subject to anyexternal assurance process. All figures inthis report are in Canadian dollars unless otherwise stated.

Reporting standards

This report references theGRI Sustainability Standards of the Global Reporting Initiative (GRI). An independent institution, the GRI provides a globally accepted framework for sustainability reporting across companiesand industries. You will find a GRI ContentIndex outlining how our reporting aligns with various GRI Standards and references to other relevant information sourceshere.

This year, we have also begun to report on the United Nations Sustainable Development Goals (SDGs), by identifyingfive goals to which our corporate strategyand business model are most aligned. We intend to continue the process of integrating the SDGs and to report on our progress accordingly. We also provideour first Task Force on Climate-relatedFinancial Disclosures (TCFD) reporting in anappendixto this report. CAE also abides by the principles of the United Nations Global Compact as a signatory and reports to the Carbon Disclosure Project.

We have been monitoring the global adoption of the Sustainability Accounting Standards Board (SASB) disclosure standards and assessing their applicability to our business activities. We intend to begin reporting to the SASB standards for the Aerospace & Defense and Professional & Commercial Services industries in FY21.

Feedback

We welcome your views on the topics covered in this report. Please send your comments, suggestions and questions [e-mail].

Interactivity

When opened in Adobe Reader, this PDF document incorporates several interactive features as indicated below.

Annual Activity and Corporate Social Responsibility Report /Table of contents

Table of contents

• 02 About this report

• 04 Message to shareholders

• 12 Overview

• 16 Strategy

Business highlights

19

Civil Aviation Training Solutions

26Defence & Security

32

Appendix

Healthcare

Corporate social responsibility

• 42A message from our CSR Leader

• 43CSR governance and oversight

44People and safety

• 53Ethics and integrity

• 60Innovation and customer experience

• 68Community and environment

79Site certifications

84Global Reporting

Initiative (GRI) indicators

95Task Force on

Climate-related Financial Disclosures Reporting (TCFD)

Feature stories

• 09COVID-19: Pulling together as One CAE

• 24CAE Women in Flight

  Scholarship

• 31Standing beside

  Australia duringbushfire crisis

• 37CAE and McGill

  University Health Centre (MUHC): Making big dreams a reality in healthcare

• 39Employee Resource

  Groups

76Taking the first stepsin our journey to carbon neutrality

Message to shareholders

Marc Parent

President and

Chief Executive Officer

Unprecedented times underscore our agility and culture of innovation

We were leading CAE on a course towards what would havebeen yet another record year when the COVID-19 pandemicimpacted us during what is normally our strongest quarterof the year. Our first response was to take decisive actionto protect the health and safety of our employees and customers - and this continues to be our foremost priority.

We immediately assembled a daily COVID-19 pandemictaskforce and set our business continuity plans into motion. I am exceptionally proud of how our CAE employees responded worldwide. Throughout the past few months of this pandemic, amid lockdown, closed borders and many other complex challenges, our employees havetaken initiative and ownership finding ways to ensure thecontinuity of our customers' most critical operations, and thus ensure we continue to earn the privilege of being our customers' training partner of choice.

We could not stand idly by while fellow citizens of theworld infected by COVID-19 struggled even to breathe,while hospitals became overwhelmed, confronted by dire shortages of critical medical safety equipment, especially ventilators and personal protective equipment. We felt it was our responsibility to expand the aperture of our thinkingand find ways to apply CAE's strengths of innovation andspeed in a meaningful way to the hospitals and front linehealth workers fighting to save lives.

Our employees challenged themselves to use theirengineering and scientific skills to design a critical careventilator. It took a team of 12 CAE engineers and scientists from our civil, defence and healthcare business units just11 days to develop a working prototype. We received Health Canada certification in June, which means from a cold start in mid-March, we were successful in creating, certifying andshipping ventilators within the span of only three months. Today, some 500 CAE employees are working together to deliver on a contract with the Government of Canadato manufacture 10,000 ventilators to help save lives and relieve the strain on hospitals around Canada. Such an accomplishment speaks volumes about who we are.

As a world expert in the business of safety, applyingspeed-to-market, teamwork and innovative capabilities forhumanitarian needs outside of our core expertise stands as testimony to what we are capable of when presented with an urgent, novel requirement. I could not be prouder of our employees' response in this time of crisis - not only for the engineers who worked tirelessly to produce a high quality,certifiable design for the ventilator, for the resourcefulness of our supply chain team finding scarce but crucial parts,but also for our many employees who volunteered to help build ventilators so more could be delivered to the hospitals sooner.Excellence, innovativeness, customer delight, compassion, speed, teamwork- these are all qualities evident in a company built for the long term. We demonstrated these this year. So while we indeed fell short of this year'sfinancial potential due to COVID-19, the pandemic and themyriad of novel business complexities that ensued taught us more about who we are, what we are capable of and we look back on this past year with a proud sense of achievement.

A company built for the long term

Every industry experiences rolls, pitches and yaws and the last several months and most probably, the year ahead will not be steady. But CAE is not only 73 years old, more crucially, its core high technology capabilities become evenmore relevant in the future. The long-term demand for airtravel may be dented for the year or years ahead nearterm, but the long-term propensity to travel - for leisure,business and cargo - will be in an upward trajectory for decades ahead. World air travel is at its best when it isaffordable, safe and ubiquitous - as of this writing, a newkind of safety, biological safety is foremost of concern.

However this pandemic is solved, we are confident it will besolved in time. We'll make the case that when looking back

to this present period, this civil aviation downturn will not prove to be lasting. Air travel has become an even stronger expectation of those of us in the 21stcentury than even 20 years ago, it is an imperative for many global businesses as well as cargo, which likely growsstronger as e-commerce expands. Air travel will recover,it is just a question of when. As a consequence, you canremain confident that CAE's fundamentals are built ona solid foundation, that we remain steadily trained on not only preserving our global leadership position but expanding it. In addition, our revenues come from a high degree of recurring business in highly regulated markets, and our balance across several markets andgeographies contributes to our long-term health.

Notwithstanding the onset of the pandemic during ourlast quarter, CAE delivered a strong financial performance in fiscal 2020 with 10% revenue growth to $3.6 billion, 21% operating income1growth to $590.4 millionand earnings per share1growing 7% to $1.34. I am especially pleased with our 98% conversion of net income to generate $351.2 million in free cash flow1,which underscores the cash-generative profile of CAE's world-leading training solutions. A $3.8 billion annualorder intake1and $9.5 billion order backlog1also help bolster our position for the period ahead.

But perspective gets richer when one looks farther out; one year does not convey the full story. We have been building revenue, Earnings Per Share (EPS) and backlog steadily year upon year with an expectation to deliver consistency, reliability and excellence. CAE has outperformed the Toronto Stock Exchange (TSX)in five of the last six fiscal years, even with COVID-19 and in the last 11 years, CAE stock is up 200% vs. the TSX's 70% move. So clearly, while some years willhave volatility, including managing through a global pandemic, when you examine us over the long term,

1 Before specific items. These terms are non-GAAP and other financial measuresand do not have any standardized meaning under IFRS. Therefore, they are unlikely to be comparable to similar measures presented by other issuers.

Refer to the definitions in "Section 3.7 - Non-GAAP and other financialmeasures" in our Management Discussion and Analysis for the fourth quarter and year ended March 31, 2020.

2

Reflects the adoption of IFRS 1 in 2011, IFRS 11 in 2013, IFRS 15 in 2018 and IFRS 16 in 2019

Average CAE stock price and revenues2

$33.82

2010

2011

2012

2013

2014

2015

2016

CAE performance vs TSX

2017

2018

2019

2020

we have shown and will continue to demonstrate a willingness to make the right decisions in support of abroader long-term vision.

Capital allocation

We completed 12 acquisitions and joint venture transactions in the last 24 months, including Bombardier's Business Aircraft Training (BAT) business, the largest acquisition in CAE's history, which wecompleted in March 2019. We have successfullyintegrated this business and have realized greater revenue and cost synergies than we had originally projected.

In the final month of our fiscal year, we suspended sharerepurchase and dividends, and also moved to secureadditional liquidity given the near-term uncertainties.

M&A activity these past several months has also understandably been more restrained. We continue tobe reflective on the M&A environment as we build on our solid balance sheet and further bolster our financialposition, and will remain alert for potential opportunities ahead.

Civil Aviation Training Solutions

In Civil Aviation Training Solutions―the largest of our three business units―we exceeded our annual outlook, with 37% higher operating income1. Annual order intake1totaled $2.5 billion, including additional airline training outsourcings and 49 full-flight simulator sales. Civil finished the year with a record backlog1of $5.3 billion.

Once again, we delivered more than one million hours of training this year, underscoring CAE's position as the largest Civil aviation training company in the world.

Our performance would have been even better, butas the pandemic set in, Civil experienced a significantdecrease in training services demand following the sharp downdraft in airline and business aircraft operations globally, and the resulting severe disruption to the global air transportation environment. In addition to thedownspike in demand, travel restrictions and local self-isolation measures worldwide resulted in several Civilaviation training location closures. Beyond significantdisruptions to our global training network, we had to suspend the installation and delivery of Civil simulator products, and under local public directives, our Montreal plant paused manufacturing of Civil simulators during the last week of March. Despite these challenges, westill delivered an otherwise impressive 56 Civil full-flightsimulators for the year.

Defence and Security

In Defence and Security, we reported modest revenue growth as the division, too, was impacted by the pandemic. We came up short on our outlook foroperating income growth, which was down 13%1, mainly on lower than expected progress on program milestones, and delays in securing new orders. A range of programs with defence and OEM customers