Safran : 2021 Capital Markets Day (CMD’21) Driving innovation for sustainable growth

PRESS RELEASE

Safran 2021 Capital Markets Day (CMD'21)

Driving innovation for sustainable growth

Paris, December 2, 2021

CMD'18 roadmap achieved despite Covid crisis.

Safran is well positioned to meet accelerating trends of the aerospace industry thanks to its global leadership positions, unique technology portfolio, operational excellence, commitment of talented people and solid financials.

Leaner organization to deliver increased profitability

1. Organic revenue growth: 10+% CAGR 2021-2025 (at a €/$ spot rate of 1.20), including civil aftermarket revenue growing around 15% CAGR over the period,

1. Recurring operating income margin: 16-18% by 2025 (at a €/$ hedge rate of 1.16),

1. Strong cash generation driven by growing EBITDA and a good control of working capital needs: EBIT to FCF conversion of 70% on average during 2021-2025.

Priorities for capital allocation

1. Investing for organic growth with increasing R&T effort towards sustainable aviation and selective resumption of Capex spending,

1. Active portfolio management: assessment of Zodiac Aerospace legacy businesses: 70% confirmed as core and 30% under review,

1. Keeping low leverage (net debt/EBITDA ratio) for full flexibility to fund development of any new programs and/or additional working capital needs,

1. Target to resume historical practice of 40% dividend payout ratio related to fiscal year 2022 (paid in 2023).
   In addition and beyond 2023, the Board of directors will review its practice in order to ensure growing and attractive returns to shareholders.

All figures in this press release represent adjusted data, except where noted (for definitions see Notes).

Executive commentary

CEO Olivier Andriès commented:

"Safran has demonstrated agility, resilience and discipline during the crisis. Our business model is anchored on solid foundations and strong leadership positions. We are accelerating our pace of investment for decarbonization to meet net-zero carbon emissions by 2050. Safran is rebounding from the crisis with strong profitable growth at the forefront of sustainable aviation."

Safran (Euronext Paris: SAF) is today hosting its 2021 Capital Markets Day at Safran Campus with investors and financial analysts.

Ross McInnes, Chairman of the Board of Directors, will open the event hosted by Olivier Andriès, Chief Executive Officer, with the participation of some members of Safran's Executive Committee.

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Main topics discussed during this event:

1. Perspectives and strategy

The roadmap set at Safran Capital Markets Day in 2018 was achieved despite the Covid crisis and the earlier grounding of the Boeing 737 MAX: the first ramp-up to 1,700 LEAP engines delivered in 2019 was executed, Zodiac Aerospace integration was completed, synergies delivered and R&T efforts were maintained notably thanks to public funding.

Safran is well positioned to benefit from air traffic growth and new aircraft deliveries notably in narrowbody applications. A young and active fleet of aircraft powered with CFM engines (CFM56 and LEAP) is a key driver of future aftermarket revenue. Safran also has strong positions on aircraft programs that will constitute the bulk of deliveries over the next decade.

Safran is committed to contribute to net-zero carbon emissions for aviation by 2050 with a dedicated roadmap and an accelerated pace of investment in R&T.

In Defense and Space, Safran enjoys strong market positions (notably M88 engines for the Rafale jet fighter, turbines for military helicopters, inertial navigation systems and optronics), and facilitates access to space through its 50% stake in ArianeGroup. These national sovereignty activities, which reinforce Safran's dual nature and nurture its technological roots, have demonstrated their resilience during the crisis.

Safran will leverage on its operational excellence notably through accelerated digitalization and a leaner organization to deliver increased profitability and manage the forthcoming ramp-up in OE build rates and services. Key talent management will continue to be an area of focus through recruitment and upskilling.

A portfolio review, conducted after three years of experience since their acquisition, concluded that 70% of the former Zodiac Aerospace businesses are core and 30% under assessment.

2. Research & Technology

Research and technology is at the core of Safran's answer to customer needs and its response to the climate challenge as the industry moves towards sustainable aviation.

Transition to new energy sources and propulsion architecture will be key to enable aviation decarbonization, notably through the RISE disruptive technology program for a future narrowbody engine, an increase in drop-in fuels usage, hydrogen technologies, hybridization and electrification.

Materials and processes will bring differentiation in additive manufacturing, new metals, advanced ceramics and polymer composites.

Digital technology will allow increased productivity and enable more competitive and enhanced products and services.

Safran is therefore making a continuous and growing investment in technologies, with a self-funded R&T effort of €2.8bn and €1.4bn expected in public funding from 2021 to 2025.

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3. Financial framework

Organic revenue growth over 2021-2025 is expected to reach 10+% CAGR (at a €/$ spot rate of 1.20) driven by higher OE build rates and a recovery in aftermarket activities. LEAP deliveries will ramp again up to 2,000 engines from 2023. Civil aftermarket revenue should grow at around 15% CAGR over the period.

Recurring operating income margin should reach 16% to 18% by 2025 (at a €/$ hedge rate of 1.16), representing more than 5 points margin expansion from 2021 mainly driven by growth in services across all divisions.

Safran's breakeven point has been improved over the past 18 months with lasting structural improvements to its fixed cost base mainly through rationalizing the industrial footprint and adapting the headcount. At least €500M per annum of the savings generated through the crisis will be preserved through to 2025, embedded in the 16% to 18% margin target range.

The margin profile will not be linear throughout the period with an accelerated margin expansion anticipated at the end of the period (2024-2025), notably thanks to LEAP OE gross margin breakeven and IS/IT expenses decreasing as percentage of sales, compared to 2022-2023.

By division, Safran's recurring operating margin ambition by 2025 is:

1. above 20% for Propulsion,

1. around 15% for Equipment & Defense,
   o above 10% for Aircraft Interiors.

Free cash flow (FCF) generation should reach around €10Bn on a cumulated basis over 2021- 2025, notably driven by a doubling of EBITDA. Change in working capital is expected to be non- material over the period due to a slight increase of advance payments at the beginning of the period, a decrease in inventory days and a strong increase of the cash contribution from Rate Per Flight Hours contracts (RPFH), notably LEAP.

Tangible Capex should grow from 3% to 3.5% of sales over 2021-2025 and be allocated to areas generating growth and cost savings, as well as Safran's digital transformation and low carbon projects.

R&D spending should increase with a strong uptick in R&T effort over 2021-2025 and growing support from government funding. Development expenses will stabilize and decrease from 3.5% to 2% of sales over the period. Overall, the impact of R&D expenses on P&L will represent an average of around 4.5% of sales from 2021 to 2025.

As a result, FCF is expected to grow every year with recurring operating income to FCF conversion rate of 70% on average for 2021-2025.

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Safran maintains its discipline on capital allocation:

1. The portfolio review could lead to further divestments and bolt-on acquisitions,

1. Safran is pursuing low leverage for full flexibility to fund development of any new programs and/or additional working capital needs,

1. Target to resume historical practice of 40% dividend payout ratio related to fiscal year 2022 (paid in 2023)1.
   In addition and beyond 2023, the Board of directors will review its practice in order to ensure growing and attractive returns to shareholders.

4. Civil engines

4.1 Execute new LEAP engine ramp-up

With an undisputed reputation and reliability, the LEAP engine has a 72%2 market share of the entire narrowbody market. Safran is ready to deliver the second ramp-up of the LEAP with a doubling of production from 2021 to 2023.

The LEAP cost of sales will continue to decrease, reaching OE gross margin breakeven at the latest in 2025, after the first few years of ramp-up at negative margins.

4.2 A robust engine aftermarket outlook

CFM56 and LEAP engines will remain the core drivers of the profitable and fast growing civil aftermarket business of Safran. With a young fleet in service of second generation CFM56 engines, the flow of spare parts consumption on these engines will be significant for 10+ years, with a return to 2019 levels around 2024 and a prolonged plateau over 2025-2028.

Over 2021-25, civil aftermarket revenue (ie civil aftermarket index) should grow at around 15% CAGR.

On a longer term, over 2022-2030, the sole contribution of CFM56 and LEAP engines (excluding high thrust engines) to civil aftermarket index should grow at high single digit CAGR.

The aftermarket business model will gradually evolve from a predominantly Time & Materials (T&M) model, based on the CFM56 fleet in service, to a model based on rate per flight hour (RPFH) contracts for the LEAP. At this stage, as a matter of prudence, Safran does not recognize any margin on RPFH contracts. This accounting method will be reviewed from 2026 onwards, once sufficient experience has been acquired on the actual cost of LEAP shop visits.

5. Aircraft Interiors margin recovery

Within Aircraft interiors, Safran Seats and Safran Cabin are both set to reach breakeven in 2022 and double-digit profitability by 2025.

With strong market shares, innovation-driven growth and customer confidence restored, both businesses are ready to take advantage of the recovery of a severely hit market.

The successful transformation achieved in both businesses has allowed to drastically improve their breakeven points through site closures, an increased share of cost competitive countries and headcount reduction.

1. Subject to Board's proposal and shareholders' approval
2. Based on net cumulative orders and commitments

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6. ESG

Safran's ESG strategy is organized through 4 pillars and 12 commitments with 2025 objectives to track yearly progress:

1. Decarbonize aeronautics, with a target of 30% reduction in Safran's CO2 emissions from operations (scope 1&2) by 2025 compared to 2018. In 2022, Safran will declare all categories of scope 3 emissions and disclose its reduction objective,

1. Be an exemplary employer, with a focus on an inclusive culture, gender diversity (target of 22% of women in senior management by 2025, from 15% in 2021) and skills development,

1. Embody responsible industry, with a commitment to a culture of ethics and integrity and a target to engage Safran's supply chain on responsibility and sustainability,

1. Contribute to a safer world, thanks to Safran's defense & space activities.

A dedicated governance led by the Executive Committee and monitored by the Board of Directors is in place to ensure that Safran's ESG strategy is successfully deployed across the Group through the engagement of all employees.

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Live webcast and replay

The event will start at 13:00 CET in Vilgénis on December 2, 2021 and will be live webcasted at the following address: https://www.safran-group.com/calendar/capital-markets-day-2021

The presentation and press release may be downloaded and subsequently a replay will be made available at: www.safran-group.com/finance

Agenda
FY 2021 earnings	February 24, 2022
Q1 2022 revenue	April 29, 2022
Annual General Meeting	May 25, 2022
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