CAE : Annual Activity and Corporate Social Responsibility Report for FY21

Annual Activity and

Corporate Social

Responsibility Report

Fiscal year 2021

Annual Activity and Corporate Social Responsibility Report / About this report

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About this report

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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 2021 performance into 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 and activities. All financial data for fiscal year 2021 is available in our Financial Report.

As you will read in this report, our solutions generate benefits across the three central dimensions of sustainability: economic, environmental and social. This report covers our global operations and, unless otherwise stated, presents quantitative and qualitative information for fiscal year 2021 (ended March 31, 2021). 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 FY21 report has not been subject to any external assurance process. All figures in this report are in Canadian dollars unless otherwise stated.

Reporting standards

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

For the first time this year, we are reporting to the Sustainability Accounting Standards Board(SASB) disclosure standards for the Aerospace & Defense and Professional & Commercial Services industries. You will find this disclosure in our SASB index.

We also provideTask Force onClimate-relatedFinancial Disclosures(TCFD) reporting in an appendix to 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 also begun to report on the United Nations Sustainable Development Goals(SDGs), by identifying five goals to which our corporate strategy and business model are most aligned. We intend to continue the process of integrating the SDGs and to report on our progress accordingly.

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Annual Activity and Corporate Social Responsibility Report / Table of contents

Table of contents

02About this report

1. Message to shareholders

1. Overview

1. Strategy

Business highlights

17Civil AviationTraining Solutions

26Defence & Security

37Healthcare

Appendix

Corporate social responsibility

1. A message from our CSR Leader

1. CSR governance and oversight

60People and safety

76Ethics and integrity

87Innovation and customer experience

101Community and environment

Feature stories

25Airside™, empowering and connecting pilots everywhere

33CAE OneWorld 2021

46CAE steps up in the humanitarian fight against COVID-19

49CAE's 10,000 employees choose triumph over adversity

57Prioritizing our Sustainable Development Goals

113	Site certifications	118	Global Reporting	130	SASB index
			Initiative (GRI)
			indicators
136	Task Force on Climate-	144	Non-GAAP and other	150	Caution regarding
	related Financial		financial measures		forward-looking
	Disclosures (TCFD)				statements
03	reporting

108CAE meets commitment to become carbon neutral

Message to shareholders

Annual Activity and Corporate Social Responsibility Report / Message to shareholders

Despite the headwinds,

CAE is emerging stronger and better

CAE began its fiscal year confronting industry reversals unlike any before in its 74-year history. We were deeply concerned about the rapid global spread of COVID-19, and remained resolute about ensuring the safety of our employees, our customers and our suppliers, while challenging our thinking about the future.

Who could have foreseen the plummeting 90% drop in global air travel and border closures worldwide

• all of which served instant sharp blows to Civil, our biggest business unit - and the aftereffects of the pandemic that swept across the defence and healthcare markets? In these unsettling circumstances, we swiftly mobilized to take the necessary immediate measures to secure CAE's stability.

Marc Parent, C.M.

President and Chief Executive Officer

While seizing on the first and secondary challenges of COVID-19, we identified opportunities to apply our innovative skills and agility in the midst of these disruptions. We lent a strong hand to our customers around the world, offering critical support, often gratis or at cost, in this shared crisis of humanity. In parallel, we identified ways to emerge stronger and position the company even more solidly for higher growth and profitability.

In a market that levelled the same or similar challenges to our competitors, CAE responded differently. We raised equity for the first time in nearly 20 years, using the proceeds to heighten our positioning in our civil and defence key markets. We acquired four companies in core and related markets in Civil and became a defence training systems integrator with a pending acquisition in Defence. We launched new products and expanded into new growth adjacencies while embarking on numerous initiatives to lower our cost structure. We leveraged highly connected, digitally enabled software solutions to address our customers' urgent needs and advance their competitive advantage amidst the morass of global health, social and financial turbulence. All the while, we stayed connected with our teams working dispersed and in far flung regions.

Our Civil acquisitions provided the building blocks necessary to jump-start our vision of providing an end-to- end offering of crew performance software that extends from training through optimized crew operations. We believe these connected capabilities will soon become unrivalled in the industry. We also positioned ourselves in advanced air mobility, a rapidly blossoming market with over 200 Original Equipment Manufacturers (OEMs). We recognize this market as a potential secular driver for a new kind of pilot training, with CAE's expertise in modeling and simulation playing a pivotal role in its acceptance and success. To execute our adjacent market strategy, we succeeded in securing acquisitions at uniquely attractive value and optimal use of capital.

We announced our definitive agreement to acquire L3Harris Technologies' Military Training business, a significant complementary fit with our core military training business that accelerates our Defence growth strategy and brings us into close alignment with U.S. national defense priorities. We expect to close the acquisition in the second half of calendar year 2021.

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Annual Activity and Corporate Social Responsibility Report / Message to shareholders

Healthcare, our smallest business unit, continued to broaden its position as the innovation leader in simulation-based healthcare education and training through the launch of new AI-enhanced training tools and digital management solutions, in support of our customers' training needs during the pandemic. A unique testament to our corporate citizenship, COVID-19 humanitarian efforts and passion for safety, the successful delivery of thousands of CAE Air1™ ventilators to the Government of Canada represents our best at work. We quickly brought together CAE's industrial technological capabilities and deep healthcare subject matter expertise to develop and manufacture this critical care, life-saving medical device.

We took the opportunity this year to further strengthen our leadership with the addition of Daniel Gelston as Defence & Security Group President and Heidi Wood, as President of CAE Healthcare and Executive Vice President, Business Development & Growth Initiatives. We created the business development and growth initiatives role as a new cross-collaboration leadership position to ensure future growth investments, capture joint opportunities across our business units, and accelerate our industrial technology leadership with digitally based solutions. This role, originally created before the pandemic, became all the more important to power up new initiatives as our core civil markets addressed sliced profitability.

We also boosted our presence in the U.S., strengthening our Washington, D.C., operations to gain visibility and representation for our three business units on Capitol Hill.

No one would have predicted or expected our ability to turn adversity into major strategic advantage. But we did. We went through extraordinary measures to protect CAE, our employees and our customers, and I remain extremely proud of how our company performed under challenging circumstances and the nobility with which CAE rose up under such exceptional circumstances. Against the tide, we took bold, forward-thinking, proactive measures to consolidate in our core markets and expand into adjacent markets.

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Turning now to our results, I am especially pleased with what we accomplished financially. Despite the brunt of major global disruptions in all our markets, CAE returned to quarterly profitability and positive free cash flow after our first quarter.

Our recovery continued through the year and into the fourth quarter. On a consolidated basis, we generated $0.22 adjusted earnings per share1 (EPS) in this last quarter and $0.47 adjusted EPS1 for the year. Order intake1 was $928 million for the quarter and $2.7 billion for the year, yielding a solid backlog1 of $8.2 billion. This is striking given the challenges faced by the global aviation industry over this yearlong crisis and the hundreds of millions in defence contracts that slipped into next year or beyond.

We generated strong annual free cash flow1 of $347 million, a singular indicator of CAE's position as a sustainable growth company. In addition to having the benefits of secular tailwinds and a cash generative profile, this year well evidenced that CAE has been and remains a safe port in a storm.

Underscoring our resilience

Today, our strategy and positioning are more favourably aligned with a post-COVID business and geopolitical landscape, with expected secular trends favourable for all three of our business units.

In Civil, we project greater willingness to outsource training by airlines, even higher expected pilot demand (attrition and crisis-induced career shifts) and strong demand for business jet travel, which are enduring positives. Tourist air travel will likely recover more rapidly than business travel, but we project great stimulus on behalf of airlines worldwide and a prevailing need for pilot training.

In Defence, we witnessed a paradigm shift from asymmetric to near-peer threats, coupled with a sharp increase in the demand for immersive, synthetic solutions. These tailwinds strongly favour CAE's Defence

• Security business. Additionally, the complementary fit of L3Harris Technologies' Military Training capabilities in fast jets, bombers and remotely piloted aircraft, atop our cargo and tanker strengths, plus joint helicopter capabilities, position CAE to provide a unique suite of training capabilities for our military customers in the U.S., Canada, NATO and around the world.

We also see an attractive growth outlook for Healthcare through our new digital and virtual learning products, COVID-19 training solutions, and the overall increased recognition of the value of simulation-based preparedness. Investments of the past several years to augment our nursing suite of products have proven to be the right bet, as this last year has only further exacerbated the growing nursing shortage.