2018 integrated report - safran€¦ · financial performance is in line with our enhanced scale....
TRANSCRIPT
SAFRAN AT A GLANCE
p. 01
EDITORIAL
GROUP PROFILE
p. 02
p. 04
ECOSYSTEM
STRATEGY AND BUSINESS MODEL
p. 14
p. 22
RISK MANAGEMENT
CORPORATE GOVERNANCE
PERFORMANCE AND VALUE CREATION
p. 42
p. 46
p. 52
CONTENTS
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T0 1
Become the world’s leading aircraft equipment supplier within the next 15 years
Worldwide aerospace group, excluding airframers3rd
Worldwide aerospace equipment supplier2nd
2018 KEY FIGURES OUR ACTIVITIES
€780 millionCAPEX (TANGIBLE ASSETS)
92,639EMPLOYEES (at December 31, 2018)
2022 OBJECTIVES
ORGANIC REVENUE GROWTH(2)
4% to 6% annually
RECURRING OPERATING MARGIN trending to a 16%-18% range by 2022
CONVERSION OF RECURRING OPERATING INCOME TO FREE CASH FLOW trending above 60% in 2022
SHAREHOLDER RETURN
75% of cumulated free cash flow over the period 2018-2022 through dividends(3) and share buybacks
€21,050 millionREVENUE (adjusted data)(1)
€3,023 millionRECURRING OPERATING INCOME (adjusted data)
€1,781 millionFREE CASH FLOW
€1,472 millionTOTAL R&D (including customer-funded R&D)
SAFRAN AT A GLANCE
AEROSPACE PROPULSION
AIRCRAFT EQUIPMENT, DEFENSE &
AEROSYSTEMS
AIRCRAFT INTERIORS
(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).
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 0 2
EDITORIAL
ROSS McINNES CHAIRMAN OF THE BOARD OF DIRECTORS
PHILIPPE PETITCOLINCHIEF EXECUTIVE OFFICER
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T0 3
Driven by the belief that sustainably successful businesses are those able to deal with the issues of today and tomorrow, Safran is currently ranked in the top three worldwide aerospace groups (excluding airframers).
Our excellent 2018 operating and financial performance is in line with our enhanced scale. With revenue exceeding €21 billion and recurring operating income of over €3 billion (59% of which was converted into free cash flow), the historic production ramp-up of the new LEAP® engine and the acquisition of Zodiac Aerospace, Safran has strong assets to fulfil its mission: sustainably contribute to more open, comfortable, safe and clean access to the skies.
Strengthened by our fundamentals, our values and our industrial and technological know-how, we are pursuing with confidence our objective to become the world’s leading aircraft equipment supplier.
We are, however, not short of challenges, if we are to satisfy our customers and sustainably create value for all our stakeholders in a constantly changing aerospace and defense sector.
Our development model, that we are pleased to present in this report, fully integrates the environmental challenges facing air transport.
Thanks to the inventiveness of our employees, technological innovation and operating excellence and building on responsible, long-term relations with our suppliers and customers, Safran invents, develops and manufactures high value-added solutions, tailored to the needs of its customers.
Innovation, whether in products or methods, continuous or disruptive, is at the heart of Safran’s identity. This is why it plays a key role in our strategy and our investment. New architectures and propulsion hybridization in the move towards more electric aircraft, composite materials, digitization and connected cabins: we are doing everything necessary to define the next aerospace state of the art.
Our operating excellence, whether in terms of product quality, constant cost control or meeting lead times, has also enabled us to excel in project performance and be the preferred partner of our customers. This success required the mobilization of our entire supply chain. Our know-how will be fully mobilized to ensure former Zodiac Aerospace businesses return to world class operating and financial performance levels.
As a responsible group, we have worked with conviction and determination for professional equality and youth training and to limit our environmental footprint through an ambitious, transparent and measurable strategy covering both our products and our production methods.
This first integrated report therefore shows that we have successfully created value for all our stakeholders for which we are extremely proud!
We can assure you of our total commitment to continuing to guide Safran towards excellence and success and to keeping our corporate social responsibility commitments.
“Safran has strong assets to fulfil its
mission: sustainably contribute to more open, comfortable,
safe and clean access to the sky.”
MESSAGE FROM THE CHAIRMAN OF THE BOARD OF DIRECTORS
AND THE CHIEF EXECUTIVE OFFICER
Ross McInnes and Philippe Petitcolin
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 0 4
A BALANCED BUSINESS PORTFOLIO FOCUSED ON AEROSPACE
AND DEFENSEPresent in all aircraft components, Safran strives to build the future of the global aerospace sector
and be the preferred partner of airframers and airlines.
AvionicsInertial navigation systemsFlight data acquisition units
CockpitControl systems Panels & displaysSeats
Cabin interiorsSeatsIFEC (In-Flight Entertainment & Connectivity)
Electric flight control actuators
Power & data wiring
Oxygen systems
APU (Auxiliary Power Units)
Galleys & equipment
Landing gearBraking & landing
control systemsWheel and carbon brakes
Nacelles & componentsPower transmission systems
Inerting & fuel systems
Lavatories, water & waste systems
Exterior lighting
EnginesEngine control systems (FADEC)Power distribution and generation
Anti-icing & de-icing
Exit slide
SAFRAN: A COMPREHENSIVE OFFERING
Safran is an international high-technology group specialized in the aerospace and defense sector, where it is ranked third worldwide
(excluding airframers), either alone or in partnership. The world’s oldest aircraft engine manufacturer and heir to France’s rich aerospace industrial
past, Safran has constantly adapted and renewed itself in response to the sector’s technological and economic challenges.
GROUP PROFILE
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T0 5
LEADERSHIP POSITIONS IN OUR BUSINESS SEGMENTS
Since the disposal of the Identity and Security businesses in 2017 and the acquisition of Zodiac Aerospace in the first quarter of 2018, Safran is entirely focused on the aerospace and defense markets. Safran is a
global leader in its main markets. In a favorable context, shaped by an expected twofold increase in air traffic over the coming twenty years and the introduction of new generations of aircraft, this portfolio
focused on the aerospace and defense sector and this tier-one supplier position, will enable the Group to capture the strong growth in its business sectors.
AE
RO
SPA
CE
PR
OP
UL
SIO
NA
IRC
RA
FT
EQ
UIP
ME
NT
/
DE
FE
NS
E /
AE
RO
SY
ST
EM
SA
IRC
RA
FT
IN
TE
RIO
RS
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
N°1 worldwide for onboard water and waste 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
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)
(1) With GE Aviation, within the joint venture, CFM International.(2) With Arianespace, a subsidiary company of ArianeGroup, a joint venture with Airbus.
GROUP PROFILE
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I
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.
56 9 25
AMERICAS28%
25,601 EMPLOYEES
65 18 13
FRANCE48%
44,492 EMPLOYEES
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 0 6
GROUP PROFILE
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T
25 3 7
EUROPE (excluding France)
12%10,983 EMPLOYEES
9 3
AFRICA MIDDLE EAST
7%6,701 EMPLOYEES
7 6
ASIA OCEANIA
5%4,862 EMPLOYEES
Geographic spread of employees and sites
Percentage of employees
% of employees in the total Group workforce
Number of sites(1)
R&D and production activities
Service and maintenance activities
Commercial and administrative activities
(1) Each site corresponds to a legal entity covering one or more tertiary, production, service or maintenance sites.
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T0 7
GROUP PROFILE
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 0 8
Long-term prospectsThe propulsion business generates significant service activities, mainly comprising the sale of spare parts and maintenance, repair and overhaul services (MRO). With the increasing size of the engine fleet in service, Safran has substantial growth potential. The Group has developed Rate Per Flight Hour (RPFH) contracts for a number of years, in response to customer demand. These contracts now apply to the LEAP engine. After market services for this engine will gradually take over from the CFM56 engine from 2025.
Full-fledged engine manufacturerA 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, the world’s leading engine manufacturers develop their engine programs in partnership. Safran has primarily partnered with GE Aviation since the 1970s, when they set up the 50/50 joint venture, CFM International, which develops the CFM56® and LEAP engines.
CFM ENGINE DELIVERIES P.A. CFM56 IN OPERATION(2)
0
500
1,000
1,500
2,000
2,500
“Year #” stands for the number of production years for each engine.For instance, after 5 years of production, ~600 CFM56 were delivered(in 1985) vs ~2,000+ LEAP (in 2020).
Year 1
Year 7
Year 1
3
Year 1
9
Year 2
5
Year 3
1
Year 3
7
LEAP
CFM56
35,000
33,000
31,000
29,000
27,000
25,000
23,000
21,000
19,000
17,000
15,0002008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Weighted average annual
growth rate+5.5% p.a.
LEAP DELIVERIES FROM 2020
2,000+ENGINES ANNUALLY
4.4MILLION AGGREGATE
LEAP FLIGHT HOURS SINCE ENTRY INTO SERVICE
LEAP BACKLOG
15,329ENGINES AT
MARCH 31, 2019
49.7% of adjusted
Group revenue
€10.5 billionadjusted
revenue in 2018
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.
AEROSPACE PROPULSION: A FULL-FLEDGED ENGINE MANUFACTURER
CFM56 in operation(2)
2016 29,395
2017 30,822
2018 31,500
LEAP Deliveries
2016 77 2017 459
2018 1,118
(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.
GROUP PROFILE
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T0 9
BUSINESS AIRCRAFT
Safran develops the Silvercrest engine in the mid/high-end engine range (10,000 pounds of thrust) for Cessna’s (Textron Group) Hemisphere. In October 2018, the US private jet company, NetJets, announced a purchase option for up to 150 aircraft powered by the Silvercrest engine.
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. Highly innovative, the LEAP engine reduces fuel consumption by 15% relative to the last generation of CFM56 engines. At the end of March, 2019, the LEAP engine has an order backlog of 15,329 engines, representing seven years’ output at current production rates.It has been selected for three aircraft:
LEAP-1A for the Airbus A320neo (59% market share); LEAP-1B for the Boeing 737 Max (100% market share); LEAP-1C for the COMAC C919 (China, exclusive Western source).
WIDEBODIES
Safran is a risk and revenue sharing partner(1) of GE Aviation. Participation rates vary from 7% to 24% in several high-thrust civil engine programs, and particularly the GE90 powering the Boeing 777 and its successor, the GE9X powering the future Boeing 777X.
MILITARY AIRCRAFTSafran is present in all three sectors: fighter aircraft (notably with the M88 engine powering the Rafale), training aircraft, and patrol, tanker and transport aircraft. In the coming years, the Group will be one of the main pillars of the European Defense and is actively preparing the Future Combat Air System (FCAS) in partnership with MTU.
HELICOPTERS
In ten years, Safran has completely renewed its range of turbines in the 500 to 3,200 shp category, with best-in-class engines. Safran’s market share is 27% (between 2014 and 2018).
SPACE
ArianeGroup (a 50/50 joint venture between Safran and Airbus) is prime contractor for Ariane 5 and Ariane 6 European space launchers. It is responsible for design, the entire production chain and commercialization by its subsidiary, Arianespace.
REGIONAL TRANSPORT AIRCRAFT
Safran is the prime contractor for 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.
SAFRAN EXCELS IN THE FULL RANGE OF PROPULSION TECHNOLOGIES
(1) Sharing of risks and revenues in proportion to his level of participation.
GROUP PROFILE
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 1 0
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, DEFENSE AND AEROSYSTEMS:
LEADERSHIP POSITIONS
internal and external engine airflows, helps reduce noise, incorporates safety components and provides additional braking. Safran benefits from the ramp-up of nacelle delivery rates for the A320neo and A330neo and growth in service activities. In mechanical power transmission, Safran proposes an extensive range for civil and military engines.
Electrical systems and related engineering. Safran covers onboard electricity generation and distribution systems, wiring and ventilation. Safran is actively preparing the shift towards electric onboard aircraft systems, a major structural trend. In the longer term, backing gas turbines with electric engines will help reduce the carbon footprint of each aircraft.
Landing and braking systems. Technology requirements are high, as aircraft must bear extreme loads when landing. With nearly 9,700 aircraft fitted with Safran wheels and carbon brakes, the Group enjoys substantial prospective revenue streams.
Engine systems and equipment include, on the one hand, nacelles and thrust reversers and, on the other hand, power transmission systems. The nacelle is a complex piece of equipment which optimizes
In this niche sector, Safran provides solutions and services in optronics, avionics, navigation systems, tactical drones, electronics and critical software for civil and defense markets. Prime expertise in these technologies enables Safran to offer its customers observation, decision-support and orientation
solutions, under optimal conditions of security, for land, sea, air and space applications. With the acquisition at the beginning of 2019 of ElectroMechanical Systems from Collins Aerospace, Safran recently strengthened its position in electric and flight controls.
Safran is a global leader in aircraft aerosystems, following the acquisition of Zodiac Aerospace. Aerosystems encompass equipment performing functions essential to aircraft and their security:(i) security systems (slides, lifejackets and rafts, oxygen systems and masks); (ii) cockpit systems (switching, wheel-steering; wiper systems; external lighting solutions; electromechanical actuator systems for secondary flight controls, door opening and closing mechanisms, etc.); (iii) control systems (fuel control; measurement instruments; ice detection and protection solutions); (iv) onboard fluid and waste management systems; (v) in-flight entertainment systems, where Safran proposes an innovative range with its RAVE™ system.
AIRCRAFT EQUIPMENT
DEFENSE
AEROSYSTEMS
6.6% of adjusted
Group revenue
€1.4 billionadjusted
revenue in 2018
25.6% of adjusted
Group revenue
€5.4 billionadjusted
revenue in 2018
8.5% of adjusted
Group revenue
€1.8 billionadjusted
revenue in 2018
GROUP PROFILE
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T1 1
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.
AIRCRAFT INTERIORS: A NEW BUSINESS
With the aim of ensuring passenger security while maximizing their comfort, the aircraft interiors business targets not only airframers, but also airlines, particularly for seats. Cabin interiors must meet demanding
requirements on appearance and quality, because airlines use them as part of their brand image. In addition, the arrangement of cabin interiors impacts profitability, where it enables occupation of the space 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.
CABINSSafran is a global leader in cabin interiors, with a market share of 22% and an extensive product portfolio (overhead bins, kitchens and galleys, trolleys, wash-hand basins, lavatories, etc.). Safran has technical (high-technology molding, proficiency in advanced composite materials), industrial and commercial expertise, enabling it to offer customers an extensive range of interior fittings for all types of aircraft (commercial and business aircraft, VIP aircraft, freight aircraft).
SEATSIn 2018, Safran has 30% of the global market for passenger seats. Its expertise covers the whole seat manufacturing chain, from design and certification through to assembly. This expertise is applied to offer customers a full range of innovative and customized seats combining ergonomics, comfort, aesthetics and cabin space optimization. Safran also proposes seats for flight and cabin crew and helicopter seats.
(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.
9.6% of adjusted
Group revenue
€2 billionadjusted
revenue in 2018
GROUP PROFILE
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 1 2
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With a rich history of over a century, Safran has made high technology its hallmark.
A LOOK BACK AT OUR HISTORY
1 9 0 5
Société des Moteurs Gnome is founded in the Paris suburb of Gennevilliers. Gnome rotary engines become the standard for planes around the world.
1 9 1 2
Creation of Société des moteurs Le Rhône, Gnome’s main competitor before being taken over.
1 9 2 4
Creation of Société d’applications générales d’électricité et de mécanique (Sagem), that will mainly manufacture cameras and artillery equipment and go on to design the world’s first infrared guidance system for air-to-air missiles.
1 9 4 5
Gnome & Rhône are nationalized and renamed Snecma (Société nationale d’étude et de construction de moteurs d’aviation).
1 9 4 5 - 2 0 0 2
Several aeronautic companies 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.
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 engine manufacturer through a cooperation agreement with GE Aviation for the manufacture of the CFM56 engine.
2 0 0 5
Safran is formed from the merger of Snecma and Sagem.
2 0 0 8
Extension of the partnership with GE Aviation until 2040.
TRENDS IN THE SAFRAN SHARE PRICE AND THE EURO STOXX 50 INDEX (In %) (May 11, 2005 – April 8, 2019)
SAFRAN: +696.12% EURO STOXX 50: +15.74%
GROUP PROFILE
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T1 3
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2 0 1 3
Acquisition of Goodrich’s electrical systems business.
2 0 1 7
Business combination agreement between
Safran and Zodiac Aerospace. Disposal
of the Identity and Security businesses.
2 0 1 6
Inclusion of “Safran” in the corporate name of all its subsidiaries. Creation of the ArianeGroup with Airbus.
2 0 1 8
Takeover and merger-
absorption of Zodiac Aerospace
by Safran. Rebranding
under the Safran name of all
former Zodiac Aerospace businesses.
SHAREHOLDING STRUCTURE(In %)
Share capital at December 31, 2018Number of shares: 435,767,951
81.8Free float
11.0French
State
0.3Treasury shares
6.9Employees
GROUP PROFILE
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 1 4
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 COMMUNITYCustomers (airframers, airlines, etc.) Suppliers and sub-contractors Partners (industrial companies, research laboratories, etc.)
PUBLIC PARTNERSGovernment bodies and local authoritiesEuropean and international bodiesCertification authorities
Main expectations
Customers: reliability and efficiency of products, with related services.
Suppliers and sub-contractors: relationship based on reciprocal long-term commitments.
Partners: search for constant innovation and control of intellectual property for these innovations.
Group contribution
Operational excellence, relationship of trust renewed with each generation of aircraft, reliable products that create value (increased availability, operating gains, weight reduction, etc.). Rapid payment periods.Team work, each day, with suppliers and sub-contractors, to deliver the best to our customers at competitive prices. Organizational agility and capacity to form sustainable industrial and commercial partnerships.
Main expectations
Ethical business conduct, internal and external Corporate Social Responsibility commitments.Safe products that comply with international standards.
Group contribution
Systematic communication of the business ethics culture to all our employees and suppliers, sustained R&D and quality of our products at the highest level.
STAK
EH
OL
DE
RS’
MA
PP
ING
ECOSYSTEM
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T1 5
CIVIL SOCIETYAcademia, local community, associations/ Non-Governmental Organizations (NGOs)
EMPLOYEES AND EMPLOYEE REPRESENTATIVES
FINANCIAL COMMUNITYInstitutional investors, individual shareholders and employee shareholders, financial analysts, non-financial rating agencies
Main expectations
Youth training, on-site environmental measures, absence of noise pollution, effective management of social and environmental challenges in the value chain.
Main expectations
Compensation consistent with individual commitment and Group results, motivating career paths, skills development, commitment to workplace health and safety and compliance with international labor conventions.
Group contribution
More employees, trained throughout their career, steadily decreasing accident rates, profit sharing, payment of an exceptional bonus in 2019 (in France) to stimulate purchasing power, calm and constructive labor relations, development of employee dialogue at global level.
Main expectations
Transparency in the management of the company, compliance with our financial commitments, the long-term strategy and its implementation and consideration of corporate social and environmental responsibility (CSR) criteria.
Group contribution
Accurate, precise and fair information accessible to the financial community, regular presentation of the Group’s multi-year objectives at Capital Markets Days, availability for the entire financial and non-financial community.
STAK
EH
OL
DE
RS’
MA
PP
ING
ECOSYSTEM
Group contribution
Renewed commitment in favor of apprenticeships and the employment basins where the Group is present, sustained R&D to prepare the future of the aerospace industry and the development of new products and equipment. Implementation of a low-carbon policy notably to reduce greenhouse gas emissions from the Group’s products.
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 1 6
The long-standing dialogue between Safran and its stakeholders enabled the Group to map its CSR and operational challenges in a “materiality matrix” as early as 2015. Using this materiality analysis, the main challenges were ranked taking
into consideration Safran’s businesses and their impacts. The challenges identified impact strategic discussions. Actions plans have been drafted and key performance indicators developed. They are presented in Chapter 5 of the 2018 Registration Document.
They contribute to attaining the undertakings given by the Group to the United Nations (UN) when it signed up to the UN Global Compact in 2013 and are aligned with the UN’s Sustainable Development Goals (SDG).
Exp
ecta
tio
ns o
f S
afra
n’s
stak
eho
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s
Importance for Safran
Anti-corruptionand business ethics
Quality of productsand services
Continuity of businessand procurement
Transparency and dialogwith stakeholders
Customerrelationships
Waste and recycling
Innovation durable
Protection of personaldata and privacy
Intellectual propertyand access to technology
Safety of productsand services
Corporate governance
Support for research
Greenhouse gas emissions
Energy e�ciency
Diversity and equal
opportunities
Employer/employeerelations
Socio-environmental impactof procurement
Human rightsSocio-economicdevelopment
Well-being at work (safetyand security, quality of life)
Image of the Group, attractivenessand employer brand
Managerial relations
Human capital developmentand talent management
Compensation, employeebenefits and social protection
Local disturbanceConsumption ofnatural resources
Biodiversity
Water consumption
Support to local populationsand employee engagement
in society
Responsible relationshipswith suppliers
1
1 2 3 4
2
3
4
PRODUCTS AND SERVICES
CSR CHALLENGES
GOVERNANCE EMPLOYEES AND MANAGEMENT ENVIRONMENT SOCIETY
Control of exports
OPERATIONAL CHALLENGES
MANAGING CHALLENGES AND STAKEHOLDER DIALOGUE
MATERIALITY MATRIX OF SAFRAN CHALLENGES
ECOSYSTEM
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T1 7
Safran and the United Nations’ Sustainable Development GoalsThrough these SDG, in 2015 the UN reviewed its blueprint for the global population and the planet for 2030. This approach primarily aims to eradicate poverty, fight climate change, provide access to quality education and fight for justice and peace. Safran’s actions, together with its stakeholders, follow on from this approach.
In 2018, Safran was the first European company in its sector awarded the GEEIS label (Gender Equality European & International Standards) (page 40).
Safran takes the environmental impact into consideration when designing its products (page 30).
Safran’s health, safety and environment (HSE) approach is founded on a holistic policy and guidelines (page 35).
The Group pays close attention to water and waste treatment at its sites (page 35).
Each year, Safran welcomes interns and apprentices representing at least 10% of its workforce (page 39).
Safran is a responsible business partner (page 38).
Safran is ranked in the top three French companies for the number of patents filed since 2011 (page 26).
As an aircraft equipment supplier, Safran helps reduce the environmental footprint of its customers (page 27).
Safran has stepped-up its low-carbon strategy for its sites since 2018 (page 35).
Safran signed the UN Global Compact in 2013 and was recognized from the following year in the Advanced category (page 38).
Safran signed a global framework agreement on working conditions, CSR and sustainable development in 2017 (page 41).
SAFRAN AND SUSTAINABLE DEVELOPMENT GOALS
1
Impact on Safran's businesses
Exp
ecta
tio
ns o
f ex
tern
al s
take
hold
ers
2
2
3
3
4
4
ECOSYSTEM
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 1 8
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.
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
SCHEDULED PASSENGER NETWORK, WORLDWIDE
RPK: Revenue Passenger Kilometers (in billions) (number of seats occupied by passengers multiplied by the distance traveled by the global fleet).ASK: Available Seat Kilometers (in billions) (number of available seats multiplied by the distance traveled by the global fleet).
Source: Safran Aircraft Engines.0
62.8%
+4.2%
3,000
6,000
9,000
12,000
15,000
18,000
21,000
1980
ASK Tra�c
Load Factor
RPK Tra�cASK average annualGrowth until 2038
+4.3%RPK average annualGrowth until 2038
Air tra�c has doubled
Air tra�c expected to double
1985 1990 1995 2000 2005 2010 2015
2018
2020 2025 2030 2035
84.1%82.1%
ECOSYSTEM
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T1 9
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.
After several years of downward trends, defense budgets are increasing steadily across the globe, in a context marked by several areas of armed conflict and geopolitical tension. In Europe, joint defense initiatives were kick-started in the summer of 2017 with the launch of several projects,
including the European Defense Fund (EDF). On a financial front, the aim is to mobilize over €35 billion in community credits between 2021 and 2027 for defense and space initiatives, including €13 billion comprising €4.1 billion for R&T and €8.9 billion for R&D.
DEFENSE: PROJECTED INCREASE IN BUDGETS
BUSINESS AVIATION AND HELICOPTERS
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.
ECOSYSTEM
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 2 0
TRANSFORMATION OF THE AEROSPACE INDUSTRY
Safran operates in a changing industrial landscape.
RAPID CHANGES
CO2 and NOx emission and noise reduction objectives are a major technological challenge for the aviation sector. The global aviation industry generates around 2% of global CO2 emissions.
The expected strong growth in air traffic should result in a 3.5-fold increase in passenger traffic by 2050.Air transport players (equipment manufacturers such as Safran, airframers, airlines, air traffic control and airports) have been assigned extremely ambitious environmental requirements. These objectives were documented in the CORSIA agreement signed with the civil aviation organization (ICAO) in 2016, following on from the Paris Agreements in December 2015: 1 between 2009 and 2020,
improving fleet fuel efficiency by 1.5% annually;
2 from 2021 to 2035, capping net emissions at 2020 levels to ensure carbon-neutral growth;
3 from 2050, target reduction in net aviation emissions of 50% relative to 2005 levels.
The various players, including Safran, are committed to effectively managing the sector’s environmental footprint using four levers:
introducing new technologies;
progressively using renewable or alternative fuels;
improving aviation operations and infrastructures;
creating a carbon offset mechanism (transitional measure).
Environmental and economic objectives are well aligned in the aviation sector, as each improvement in an aircraft’s fuel efficiency not only has an impact on CO2 emissions avoided, but also has an immediate economic impact on operating costs, as fuel represents 20% to 40% of an airline’s recurring costs.
1 LONG-TERM ENVIRONMENTAL ISSUES
Technological upheavalTowards electrical plane
OEM consolidation and repositioning
Equipment manufacturer alliances, supply base
consolidation
Growing global competition Newcomers (start-up,
emerging markets, etc.)
Long-term environmental issuesCO2, NOx, Noise, etc.
CO2 REDUCTION CHALLENGE
2005 2010
Impact of new technologies
2020e
No action
Carbon-neutralgrowth
-50% for CO2 emissions
Mill
ion
tonn
es o
f C
O2
2030e 2040e 2050e
Improved operating e�ciency
Better infrastructure use
Additional technologiesand biofuels
1
2
3
1
5
4 3
2
ECOSYSTEM
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T2 1
Innovation is in the aerospace sector’s DNA since its beginning. Today’s aircrafts are five times more fuel efficient than their counterparts in the 1950s, mainly thanks to engine improvements.In addition, numerous innovations have enabled considerable progress in aircraft safety, making civil aviation one of the safest means of transport in the world.
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.
Newcomers have appeared among the equipment manufacturers, attracted by the strong sector growth.Airframers are furthermore subject to intense competition and put substantial pressure on their equipment manufacturers to reduce prices, with major cost reduction programs. Certain key materials are also rare resources worldwide (titan, rare earths, etc.) and their supply can be disrupted
by geopolitical tension. For airlines, the sector is marked by strong growth in Middle-East and South-East Asian companies. The ramp-up of low cost players is also significant in short- and medium-haul transport. Finally, investors, finance companies and aircraft leasing companies are becoming major players in the aviation ecosystem.
2 TECHNOLOGICAL UPHEAVAL
3 OEM CONSOLIDATION AND REPOSITIONING
5 GROWING GLOBAL COMPETITION
New areas of innovation in short-, medium- and long-haul aviation have appeared: digital (big data, artificial intelligence), connectivity, autonomy, hybrid and/or electric propulsion, materials, processes, low-carbon fuels, hydrogen, etc. These innovations open the way for new engine architectures, new concepts, new production methods, new services, new players and new uses (particularly VTOL(1)).
4 EQUIPMENT MANUFACTURER ALLIANCES, SUPPLY BASE CONSOLIDATION
Encouraged by airframers and airlines, suppliers and equipment manufacturers in the supply chain have also consolidated. Major combinations include, in 2018, the acquisition of Zodiac Aerospace by Safran and the acquisition of Rockwell-Collins by UTC, in turn preceded by the acquisition of B/E Aerospace.
(1) VTOL: Vertical Take-Off and Landing aircraft.
ECOSYSTEM
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 2 2
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.
AIRCRAFT EQUIPMENT/ DEFENSE/AEROSYSTEMS
Become the world’s leading aircraft equipment supplier
Be the leader in equipment for more electrical aircraft
Capitalize on Defense niche businesses
Draw on the Aerosystems portfolio to strengthen our
equipment positions
A CLEAR ROADMAP
Safran aims to become the world’s leading aircraft equipment supplier within the next 15 years. To achieve this goal, the Group draws in particular on:
its business model; a clear strategy founded on the Group’s assets: sustainable innovation, operating excellence, agility and responsible conduct.
By focusing both on operating excellence and the investment needed to define the technological state of the art, the Group is ideally
placed to reach a new milestone in business growth and value creation.
STRATEGY AND BUSINESS MODEL
(1) Safran is present in all engine components and all segments of the propulsion market.
AEROSPACE PROPULSION
Consolidate the position of full-fledged engine manufacturer(1)
Prepare the propulsion technologies of the future
Profit from growth in service activities thanks to a large in operation base
of civil engines
AIRCRAFT INTERIORS
Restore the operational excellence and competitiveness of this new activity
Propose innovative solutions for our customers
Return to world-class financial performance
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T2 3
ECONOMIC LIFE CYCLE OF AN AIRCRAFT ENGINE PROGRAM (ILLUSTRATIVE)
The Group’s strength lies in its balanced business portfolio:
the business cycles for Safran’s products are uncorrelated and they have different maturities (from just a few years for an aircraft seat to more than 40 years for an engine);
in addition to the initial sale in a new aircraft (Original Equipment), the Group proposes services and aftermarket (including spare parts and long-term contracts), that now generate nearly half its revenue. These services provide recurring revenue streams and margins, spread over time;
the Group is present in all sub-segments of the aerospace and defense sector (regional aircraft, short-medium haul, long haul, business jets, helicopters, military aircraft), making it less sensitive to changes in their business cycles.
Safran has the main resources necessary to its development: primarily human, intellectual, industrial and financial capital. These resources are the fruit of several decades of constant investment in line with the Group’s strategy.The talent of its 92,000 employees, the richness of its technology
portfolio, the performance of its industrial tool, its responsible conduct in the sector where it plays a key role, are today the main sources of the Group’s success. Safran’s financial performance also enables it to prepare its future while guaranteeing its independence and the sustainability of jobs.
Safran products also have common features that contribute to the resilience of its business model:
position as a tier-one supplier to airframers and, for some products, to airlines;
high technology content, notably reflecting the high levels of investment inherent in our products;
high demand, whether in original equipment sales (ramp-up of products equipping the new generation of narrow body aircraft and visibility provided by the order backlog) or after sales services, with strong growth expected.
OUR BUSINESS MODEL
OUR RESOURCES
Entry into serviceand firstdeliveries
Services and aftermarket(including spare parts and
long-term contracts)
Developmentand testing
Initial sales (Original Equipment)
40 years+
INITIAL SALES (ORIGINAL EQUIPMENT):
54%OF 2018
ADJUSTED REVENUE
SERVICES AND AFTERMARKET:
46%OF 2018
ADJUSTED REVENUE
STRATEGY AND BUSINESS MODEL
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 2 4
A FAST-GROWING MARKETPassenger demand expected to double in 20 years.
LONG-TERM ENVIRONMENTAL CHALLENGESLimiting CO2 and NOx emissions and noise.
TECHNOLOGICAL UPHEAVALShift to hybrid and electric propulsion, additive manufacturing, composite materials, big data, AI, etc.
OUR RESOURCES(1)
A BALANCED BUSINESS PORTFOLIO
OUR STRENGTH: SIMULTANEOUSLY PREPARING THE SHORT- AND LONG-TERM
OUR BUSINESS MODEL
HUMAN CAPITAL • Over 92,000 employees
in 26 countries • 4% of payroll spent on training• 13,050 recruitments• Recognized governance
INTELLECTUAL CAPITAL• €1.5 billion of total R&D expenditure• Approximately 1,200 PhD graduates• 16% of Group employees work in R&D
(including R&T)
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 in 1974 and renewed until 2040
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
SOCIAL AND ENVIRONMENTAL CAPITAL• 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.
STRATEGY AND BUSINESS MODEL
INNOVATION, DESIGN
2018 R&D expenditure:€1.5 billion
TRENDS IN THE AEROSPACE INDUSTRY
CREATE VALUE FOR ALL OUR STAKEHOLDERS
OUR BUSINESS MODEL SERVING OUR CUSTOMERS
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T2 5
OEM CONSOLIDATION AND REPOSITIONING
EQUIPMENT MANUFACTURER ALLIANCES, SUPPLY BASE CONSOLIDATION
GROWING GLOBAL COMPETITION With newcomers, new markets, new uses.
OUR IMPACTS(1)
4 ASSETS
SUSTAINABLE INNOVATION (page 26)
OPERATIONAL EXCELLENCE (page 32)
AGILITY (page 36)
RESPONSIBLE CONDUCT (page 38)
Product lifetime (illustrative)
0 5 10 15 20 25 30 35 40 years
Aerospace Propulsion
Aircraft interiors
Aircraft Equipment, Defense and Aerosystems
HUMAN CAPITAL • A favorable and attractive social
model: profit-sharing, incentive schemes, employee share ownership and employee savings funds
• 67% of employees (excluding Zodiac Aerospace) are Company shareholders and together hold 6.9% of the share capital
INTELLECTUAL CAPITAL• 40,000 intellectual property titles• Safran ranked in the global top 100
most innovative groups
INDUSTRIAL CAPITAL• €250 million of synergies expected
in 2022, following the acquisition of Zodiac Aerospace
• A robust supply chain enabling the ramp-up of LEAP production (dual active source for all specific engine parts)
FINANCIAL CAPITAL• Average organic adjusted revenue
growth: mid-single digit annually between 2019 and 2022
• Recurring operating margin between 16% and 18% in 2022
• Disciplined M&A policy• EBIT(3) to FCF conversion rate trending
above 60% in 2022• Debt reduction objective targeting a
net debt / EBITDA ratio of 0.5 by 2022• Stock market performance
(+696% since 2005)
SOCIAL AND ENVIRONMENTAL CAPITAL• LEAP: -15% CO2 emissions
and -50% N0x emissions• “RESPONSIBLE SUPPLIER
RELATIONS” label • 1st CAC 40 company certified
“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.
STRATEGY AND BUSINESS MODEL
INNOVATION, DESIGN
2018 R&D expenditure:€1.5 billion
2018 revenue:€11.6 billion
54%
2018 revenue:€9.5 billion
46%
INITIAL SALES (Original Equipment)
SERVICES AND AFTERMARKET
TRENDS IN THE AEROSPACE INDUSTRY
CREATE VALUE FOR ALL OUR STAKEHOLDERS
OUR BUSINESS MODEL SERVING OUR CUSTOMERS
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 2 6
SUSTAINABLE INNOVATION: DEFINE THE NEXT AEROSPACE
STATE OF THE ARTIn 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 of sectors such as electric taxiing, composite 3D woven fan blades and hemispheric resonator gyros. With the support of the Board 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. It is also based on a dedicated R&T management system and an internal organization providing a balance for Group subsidiaries between own development and shared activities. The R&T plan comprises a limited number of roadmaps tied to the strategic challenges facing the companies and coordinated by the Group.Innovation projects aimed at preparing the main disruptive products, processes and systems are motivated and led under
placed on protecting intellectual property. The Group is one of the leading French filers with INPI, the French patents office and has been consistently ranked during the past eight years by Clarivate Analytics, among the world’s hundred most innovative companies.Overall, the Group’s patent portfolio protects close to 10,000 inventions and encom-passes over 40,000 intellectual property titles.
a “proof of concept” approach, closely associating the Group companies. Finally, interactions with the scientific, technological and innovation ecosystem are organized around strategic partnerships, scientific networks and chairs, collaborative innovation in the supply chain and investments in the share capital of young innovative companies. The number of patents filed bears witness to the creativity of the teams and their capacity to innovate, as well the importance
+€600 million
R&T and innovation expenditure internally
funded in 2022
3,000 R&T employees
STRATEGY AND BUSINESS MODEL
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T2 7
4 R&T PRIORITIES:
optimize the aircraft energy and propulsion chain
develop high-performance materials and processes
design the cabin of tomorrow
develop autonomous systems
75%OF R&T
INVESTMENT FOCUSEDON ENVIRONMENTAL
EFFICIENCY
+1,050 INITIAL PATENT REQUESTS
FILED BY SAFRANWORLDWIDE IN 2018
1,200PhD GRADUATES
IN THE GROUP
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 environmental objectives.
Group efforts therefore focus on 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 from composite materials and a high-efficiency low-pressure turbine. R&T work has already been launched to ensure continued performance improvements. The Arrano engine, selected by Airbus Helicopters as the sole engine to power its H160, incorporates technologies validated by the Tech 800 demonstrator in the Clean Sky European Research program;
disruptive technology in engine architecture and aircraft integration: several avenues are being explored such as the Open Rotor concept, as well as high bypass ratio ducted turbofans under national and Clean Sky programs. In 2017, this work led to ground tests for the open-rotor demonstrator at the open-air test stand in Istres (France);
OPTIMIZE THE AIRCRAFT ENERGY AND PROPULSION CHAIN
DEMONSTRATION PARTNERSHIP WITH AIRFRAMERS
Safran is working with airframers on vertical take-off and landing (VTOL) demonstrators, with Safran supplying innovative hybrid and/ or electric propulsion systems.
STRATEGY AND BUSINESS MODEL
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 2 8
analysis of potential gains from alternative fuels and adaptation of propulsion systems: low-carbon fuels, hydrogen, which has shown to be compatible with current engines at high incorporation rates, synthetic fuels and liquefied natural gas.
exploration of different hybridization approaches in the energy chain: scenarios considering the emergence of hybrid or even fully electric propulsion are being studied for smaller aircraft, “commuters” or vertical take-off and landing aircraft associated with new uses
over short distances and in urban areas. Safran’s hybrid electric propulsion system was selected by the US manufacturer, Bell, for its Nexus demonstrator. Evaluations and simulations are also being carried out to identify the potential contribution of propulsion hybridization for narrow bodies.
TOWARDS MORE ELECTRIC AIRCRAFT: NEW USES PROGRESSIVELY DEPLOYED
Electrical Power/Voltage
100 kW
500 kW
1 MW
10 MW
Storage systems'energy density
(batteries and other)
<1,000 V
Bi-turbine HelicopterMicro-Hybridization
VTOLAir taxior Logistic
Commuter10 Seats
>1,000 V
Electrically assisted Turbofanfor futurenarrow body aircraft
40 Seats Regional
DistributedPropulsion for 200 SeatsCommercial aircraft
2022 2025 2040+2025+ 2030+
Long term technology challengesfor largeaircraftE-taxiing(1)
(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.
STRATEGY AND BUSINESS MODEL
Optimization concerns the entire energy chain, with innovations such as Electric Taxiing(1) for moving planes on the ground 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
with the laboratories of the CNRS (French National Scientific Research Center), ONERA (French National Office for Aerospace
Studies and Research) and major industrial companies at the cutting edge of their sector, such as Alstom or EDF.
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T2 9
The need to reduce the weight of planes, helicopters and their equipment leads to an increased use of composite materials. Safran engines and equipment, whether nacelles, landing gear or brakes, are characterized by heavy mechanical loads. To develop these solutions, Safran set up the Safran Composites Center, part of the Group’s R&T center, Safran Tech,
Under Safran’s 4.0 industry roadmap, automatic imaging solutions (based on “machine learning”) are already deployed in the Group’s plants for the non-destructive control of complex parts.
Additive manufacturing provides an opportunity to improve costs, cycles and performance for numerous engine and aircraft equipment components, by reducing the number of parts and tooling and introducing new methods of optimizing design. 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.
with resources and expertise in organic matrix composites. To target extreme temperatures, major research work is carried out on composite ceramics by Safran Ceramics. This Group technology specialist subsidiary, inaugurated a unique platform in Europe in 2018. Other research focuses on new metal alloys, and on high-performance coatings
compliant with European REACh(1) regulations. Increasing operating temperatures is a key factor in improving engine performance. A specific focus is therefore placed on materials for very high temperatures. A platform for developing new monocrystalline casting techniques for turbine fans was inaugurated at the beginning of 2019.
DEVELOP HIGH-PERFORMANCE MATERIALS AND PROCESSES
AMBITIOUS POTENTIAL GAINS THANKS TO ADDITIVE MANUFACTURING: THE ENGINE EXAMPLE
15%REDUCTION IN MANUFACTURING COSTS
UP TO 50COMPONENTS REPLACEDBY A SINGLE PART
LEAD TIME DIVIDED BY
625%WEIGHT REDUCTION
(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.
STRATEGY AND BUSINESS MODEL
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 3 0
The cabin of tomorrow will offer passengers an improved experience and comfort by innovating, integrating and optimizing its systems. It will also offer airlines a distinctive signature and an economic competitive advantage.
Safran’s design studio (ZEO) based in Huntington Beach (California), has developed a cabin product range that goes beyond the mere supply of equipment, proposing integrated and connected solutions: connectivity for InFlight Entertainment (IFE)(1)
and services, passive and active noise control, ambient lighting, air conditioning, etc. Efforts to make equipment modular provide optimal flexibility in the use of space. The supply of passenger 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.
DESIGN THE CABIN OF TOMORROW
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).
(1) InFlight Entertainment refers to the activities and entertainment available to passengers during a flight. It has become a major competitive advantage for airlines.
STRATEGY AND BUSINESS MODEL
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T3 1
Air, land, sea, satellite and military navigation markets are constantly evolving. The integration of mobile units into cooperative groups, increasing autonomy requirements and the required land-onboard continuum via secure links are driven by major operational or economic gains. Safran is actively preparing the shift to autonomous systems for civil and defense applications based on technologies developed in optronic sensors, inertial 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.
Proficiency in navigation data merger and environment perception technologies also enables the development of piloting assistance applications for all types of aircraft. Safran has also expanded its technology sources by integrating new sensor families in complex and smart systems, working in partnership with Valeo at their joint laboratory in Magny-les-Hameaux (Yvelines, France), on autonomous vehicle technologies.
DEVELOP AUTONOMOUS SYSTEMS
“Safran is actively preparing the shift
to autonomous systems for civil
and defense applications.”
STRATEGY AND BUSINESS MODEL
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 3 2
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.
Customer confidence and satisfaction is founded on the Group meeting its commitments to quality-cost-lead time and the safety of products and services delivered. Performance quality in the delivery of products is only possible thanks to excellent control over the supply chain. Safran’s purchasing policy 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 needs (cost, quality and lead time) and enables Safran to provide its customers with innovative, value-creating solutions. To promote an agile supply chain, the Group involves suppliers from the development of its products and services, offering them the opportunity to put forward their innovations and contribute their expertise. Safran has also implemented a policy to diversify supplier sources, by systematically qualifying multiple sources for critical materials and parts.
Performance quality for services is founded on constantly listening to customer expectations. Maintenance centers have been located to ensure maximum proximity to customers and the Group has also developed remote maintenance solutions to enable rapid and efficient troubleshooting and action.
PERFORMANCE QUALITY
OPERATING EXCELLENCE SERVING LEAP
Since production of the LEAP engine was launched in 2016, its ramp-up has been a challenge. Over and above the high level of innovation and the use of new manufacturing procedures (additive manufacturing, composite materials, etc.), the ramp-up of LEAP production has been the fastest ever known in civil aviation industry history, with 1,118 engines delivered in 2018. To sustain this fast pace, Safran invested to increase its production capacity and adapted the entire production chain:
introduction of three pulse lines, transforming assembly at the Group’s plants;
active double source supplier policy and introduction of a 3rd and potentially 4th source for the most critical engine components;
set-up of dedicated teams to share its development and industrialization expertise and accompany production ramp-up by suppliers of the most critical parts.
This control over the production chain has enabled commissioning 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.
STRATEGY AND BUSINESS MODEL
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T3 3
Increasing Group competitiveness is founded on constant efforts to reduce production costs. These efforts have contributed to improving the Group’s margin since 2015, with an increase of at least 100 basis points annually in the recurring operating margin. Thanks to constant productivity gains (optimization of industrial sites and Group locations, modernization of the production tool), recurring purchasing gains and annual synergies of €250 million expected by 2022 following the combination with Zodiac Aerospace, the recurring operating margin should continue to improve.
Safran is constantly improving its processes, notably through research and the implementation of innovative concepts, by developing cooperation with suppliers to increase sharing of best practice within the Group. This methodology know-how is mobilized, in particular, for the integration of the former Zodiac Aerospace businesses.
Permanent, cross-Group initiatives are carried out:
participative innovation initiatives, enabling all employees to put forward ideas for improving the Company. Nearly 130,000 employee ideas were applied in 2018;
lean-Sigma, which structures and standardizes project management;
CONSTANT IMPROVEMENT
COST CONTROL AND COMPETITIVENESS
QRQC(2) which has been rolled out across industrial and technical operations in all Group companies.
ONE SAFRAN, KEY SUCCESS FACTOR
One Safran is a management system encompassing the main processes applicable to all Group entities and proposing common methods and tools based on shared experience and best practices. Over 500 operational excellence projects were launched in 2018, with 300 completed, compared with 100 projects launched and 50 completed in 2017. The results of these projects are very tangible, as regards both their impact on performance and buy-in by the teams.
(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.
2022 RECURRING OPERATING MARGIN OBJECTIVES > FOR THE GROUP
2019
e
2020
e
2021
e
2022
e
2010
2011
2012
2013
2014
2015
2016
2017
2018
5%
10%
14.4%
16-18%
IAS 18(1) IFRS 15(1)
15%
20%
> BY BUSINESS
- Aerospace Propulsion > 20%- Aircraft Equipment > 16%- Defense > 10%- Aerosystems and Aircraft Interiors approximately 15%
(including all acquisition synergies)
STRATEGY AND BUSINESS MODEL
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 3 4
Safran invests in and adapts its production sites to ensure they are always of the highest industrial standard. This constant strive for excellence has enabled Safran to confirm its position as a leader in France and Europe in the implementation of technologies and processes relating to the digital transformation of industry. The Factory of the Future is the preferred method for obtaining the best possible profitability from investments and a disruptive competitiveness tool producing remarkable productivity gains. It is a major asset for the Group’s current activities and is at the very heart of its strategy. Projects for the production lines of the future were identified and planned by all companies from 2017. They encompass industrial manufacturing activities (46%), assembly (40%), repair/ MRO activities (12%), processes (2%) and technical activities covering the advancing maturity of innovative technologies and their impact on industrialization. 65 production lines at over 30 sites are concerned. The emergence of new production technologies motivated the creation of a specific roadmap in Safran’s R&T plan, to coordinate company efforts in industrial R&T areas.
This roadmap covers five main sectors: Controls of the future, Cobotics, New manufacturing processes, Connectivity of resources and Cognitive operator assistance.
Part of this industrial R&T roadmap is carried out in partnership with other industrial companies and scientific laboratories:
Safran is a stakeholder in the Factory Lab ecosystem in Saclay. Since the end of 2016, this hub brings together industrial companies, universities, small and medium-sized companies and start-ups, on a limited number of projects, with strong leverage thanks to implementation synergies; Safran is also working with the French Atomic Energy Commission (CEA) on an industrial cobotic initiative. This joint CEA-Safran initiative uses the CEA’s TROPIC hub in Pessac and is supported by the New Aquitaine region for the acquisition of equipment. A portfolio of 70 projects are planned over three years.
Finally, at the end of 2018, Safran launched a project for controls of the future, to prepare the replacement of non-digital techniques (die penetrant, magnetoscopy) with digital techniques. This project will cover not only control techniques, but also all other components of the chain: automation, analysis, computerization system and related software.
INDUSTRIAL INNOVATION AND DIGITALIZATION: THE FACTORY OF THE FUTURE
“The Factory of the Future
is a major asset, at the very heart
of the Group’s strategy.”
65PRODUCTION LINESAT OVER 30 SITES
SAFRAN AIRCRAFT ENGINES
SAFRAN LANDING SYSTEMS
SAFRAN HELICOPTER ENGINES
SAFRAN NACELLES
Villaroche (France) Bidos (France) Bordes (France) Le Havre (France)
STRATEGY AND BUSINESS MODEL
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T3 5
SEEKING OPERATING EXCELLENCE IN HEALTH, SAFETY AND THE ENVIRONMENT (HSE)
The roll-out of Safran’s HSE operational excellence approach is based on a policy, a management commitment, expertise and holistic guidelines. The Group drives a proactive, prevention culture at the highest level, to protect the health and safety of all and the environment. Over and above the requirements of ISO 14001 and OHSAS 18001, the uniqueness of Safran’s HSE guidelines lies in an original management system. This comprises standards setting tangible and specific requirements in four categories: regulatory prerequisites, managerial
leadership, commitment of “all players” to best practice and technical excellence.The proper roll-out and application of guideline requirements is audited annually, enabling operational performance to be measured and supported through the level of HSE maturity attained by the sites. The guidelines and audits are monitored and validated by expert third parties with an ambitious objective: certification of all Group industrial sites at the highest level by 2025 (including Zodiac Aerospace entities).
FOCUS ON THE FALL IN THE ACCIDENT FREQUENCY RATE
Reducing the lost-time accident frequency rate is the main health and safety policy indicator in recent years.
2.72015
2.2
2018
FOCUS ON OUR ENVIRONMENTAL APPROACH
Through its HSE policy, the Group has developed a proactive, prevention culture to control the risks of impacting the environment. In its production and service activities and product design, Safran limits the use of chemical substances of concern, optimizes its manufacturing cycles and works to reduce greenhouse gas emissions.
In May 2018, Philippe Petitcolin, Safran’s Chief Executive Officer, undertook to implement a low-carbon policy. Already actively reducing greenhouse gas emissions by its products, the Group wishes to go further, through a comprehensive strategy encompassing infrastructures, supplies, production cycles, etc. A project comprising several Executive Committee representatives was launched at the end of 2018, to steer this strategy.
The work undertaken will enable us to reduce CO2 emissions while optimizing our competitiveness. A number of examples support our view that it is possible to combine performance with cost savings: the Safran Landing Systems biodiesel power plant (renewable fuel) in Gloucester, United Kingdom; guided and optimized management of clean room air (where inertial systems are produced) at the Safran Electronics & Defense Montlucon site; the Safran Helicopter Engines wood-fueled biomass power plant in Bordes.
In addition, a dedicated structure has been set up. Each company now has a Carbon Officer, to identify emission sources and solutions for reducing consumption and greenhouse gas emissions.
Another environmental issue of importance to Safran is managing risks associated with chemical substances.
Safran has drawn up a list of substances, materials and processes that can be used, with or without restrictions, and others that are banned. In addition, before being approved for use in a production facility, each new chemical is analyzed in depth by a panel of stakeholders. Although programs deployed in the product cycle upstream can substantially attenuate the hazards at the workstation, residual risks remain and must be managed. In addition to a dedicated auditable and annually audited standard applied at every facility and a network of more than 120 highly skilled, specially trained chemical risk correspondents on every major site, Safran carries out scientific and technical studies and issues recommendations for managing these chemical risks.
Finally, Safran has also implemented innovative and shared solutions within the Group for waste management and water resources preservation (see page 240 of 2018 Registration Document).
Greenhouse gas emissions
2018, Safran worldwide(1)
Scope 1 direct emissions (t CO2-eq/employee)
3.3
Scope 2 indirect emissions from the consumption of energy (t CO2-eq/employee)
4.55
(1) Excluding the Bellevue, Homberg, Sell Burg, Seminole, Verulam, Xedel and Wessling sites.
STRATEGY AND BUSINESS MODEL
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 3 6
AGILITY: A KEY TO THE GROUP’S SUSTAINABILITYAgility is founded on three major fundamentals.
While meeting its financial discipline criteria, priority is given to transactions rationalizing the existing business portfolio, notably with regards to former Zodiac Aerospace businesses, and to focused acquisitions strengthening the Group’s positions in sectors where it can attain critical mass.
Safran has a long experience of alliances and targeted partnerships. With a long timeframe and a win-win approach, these partnerships accompany the Group’s strategy. They are relevant given the investment levels associated with each new program.
3 – FOCUSED AND DISCIPLINED M&A POLICY
1 – ABILITY TO FORM TARGETED PARTNERSHIPS
Thanks to the richness of its business portfolio, the Group is able to understand and anticipate changes in customer needs, markets, technologies and uses. The Group builds a lasting relationship with its customers, by offering them innovative solutions and constantly ensuring their satisfaction and compliance with its commitments. This long-term approach is particularly adopted to the typical lengths of aeronautic cycles.
2 – CUSTOMER PROXIMITY AND LASTING CONFIDENCE
Focus on the joint venture with GEThe most emblematic of these alliances is very certainly the partnership with GE to develop engines for short and medium-haul fleets. It was established in 1974 and renewed in 2008 until 2040, within the joint venture, CFM International. This alliance helped redefine international cooperation and contributed to changing the course of commercial aviation. CFM International is currently the world’s leading supplier of commercial aviation engines, with a product line (CFM56 and LEAP) that is the sector reference for efficiency, reliability and low production costs.
Initium Aerospace: joint venture with BoeingSafran and Boeing teamed up in 2018 to design, build and service auxiliary power units (APU), within the joint venture, Initium Aerospace. This long-term partnership will enable the companies to develop a competitive offer for upcoming civil aviation programs.
Focus on the Valeo – Safran partnershipValeo and Safran are globally recognized equipment manufacturers in their respective sectors – automobile and aviation – for their cutting-edge technology and ability to innovate. They have been working together since 2013 in a research partnership focusing on assisted steering and autonomous vehicles.
Safran Corporate Ventures Created in 2015 with €50 million in funding, Safran Corporate Ventures is the Group’s investment subsidiary tasked with financing start-ups, 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.
AGI partnership with Rolls-RoyceSince 2015, Safran and Rolls-Royce are equal partners in Aero Gearbox International (AGI), a specialist in power transmission systems for civil aircraft powered by Rolls-Royce engines. This company makes the power transmission systems for the Trent 7000 engines that power the Airbus A330neo and will have exclusive coverage of the whole range of Rolls-Royce’s forthcoming civil aircraft engines.
RESEARCH AND INNOVATION
VENTURE CAPITAL
INDUSTRIAL AND COMMERCIAL
STRATEGY AND BUSINESS MODEL
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T3 7
TYPES OF PARTNERSHIP ARRANGEMENTS
R&T R&D Original Equipment Services and aftermarket
Air
fram
ers
Air
lines
Shared demonstrators
BFELinefit
SFEBTS BTP
Joint ventures
RRSP Agreements
Rateper flight
hour
Spareparts
BFERetrofit
Per-usebilling
Arrangement Explanation Example
Shared demonstrators Innovation cooperation.
Safran Electrical & Power joined Boeing’s ecoDemonstrator flight test program for new technologies, which aims to improve the environmental performance of commercial aircraft throughout their life cycle.
Build to Spec’ (BTS)Developments based on functional specifications (significant added value contributed by engineering).
Jet engines designed to airframer specifications (e.g. thrust, consumption, weight, dimensions, etc.).
Build to Print (BTP)Developments based on plans (lower engineering contribution). Wiring plans provided by the airframer.
Supplier Furnished Equipment (SFE)
Equipment is specified and purchased by the airframer, which offers operators one or more configurations from catalogue.
Circulation, fuel management and inertial systems. Emergency evacuation systems for civil aircraft (slides, lifejackets and rafts), oxygen systems and masks for the cockpit and passengers, etc.
Buyer Furnished Equipment (BFE)• Linefit• Retrofit
Equipment is specified and purchased by the operator. For new equipment, fitting is usually delegated to the airframer.
Linefit: Equipment selected and delivered on delivery of the aircraft.
Retrofit: Equipment selected and delivered during the aircraft’s lifecycle.
When a new aircraft is ordered, commercial aircraft passenger seats are nearly systematically chosen by the airlines (key to their brand image and economic efficiency) and installed on the airframer’s final assembly line.
Joint Venture (JV) Pooling of resources within a dedicated entity.
CFM International (Safran – GE aviation); Initium Aerospace (Safran – Boeing) for auxiliary power units; Aero Gearbox International (Safran – Rolls-Royce); AES Aerospace Embedded Solutions (Safran – MTU) for the development of programs and electronic equipment for civil and military applications.
Risk and Revenue Sharing Partnership (RRSP)
Sharing of risks and revenue in proportion to one’s level of participation.
High-thrust engines (e.g. GE90 engine powering the Boeing 777. Safran has a 23.7% stake in the program for the -115 version currently in production).
Time & Material (T&M)Supply of spare parts and labor for maintenance activities. Spare parts and labor for the CFM56 engine.
Rate Per Flight Hour (RPFH)
Long-term maintenance contracts based on the number of flight hours. Flight-hour contracts for the LEAP engine.
Per-Use billingService contracts generating billing each time the product is used by the customer.
Service contracts for brakes, with the customer billed for each landing.
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.
STRATEGY AND BUSINESS MODEL
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 3 8
The countries where Safran operates apply strict production and commercialization controls. Safran ensures its activities are conducted to the highest standards of honesty, integrity and professional conduct. The Compliance, Ethics and Anti-Fraud Committee supervises compliance by Safran employees with the general compliance framework defined in the Group’s Ethical Guidelines.
COMMERCIAL COMPLIANCE, A DECISIVE FACTOR
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.
External service providers contribute to the production of Safran’s products and services. Given the Group’s purchasing volumes, relations with suppliers and sub-contractors are also based on the principle of a sustainable and responsible relationship.Under our Duty of care plan, our general purchasing conditions lead our suppliers to sign-up to the Group’s corporate responsibility approach.
Suppliers therefore complete a self-assessment questionnaire on their environmental practices and respect for human rights.Implementation of Safran’s Purchasing, Quality, Safety and Environmental policies concerns its entire supply chain and the supply chains of services providers. Their commitment must be formally documented by the signature of the Responsible Purchasing Charter.
A RESPONSIBLE RELATIONSHIP WITH EXTERNAL SERVICE PROVIDERS (SUPPLIERS AND SUB-CONTRACTORS)
PURCHASES
~60% OF ADJUSTED REVENUE
53%OF PURCHASING
VOLUME SOURCED IN FRANCE, INCLUDING 85% SOURCED FROM SME AND MID-SIZED
COMPANIES
SAFRAN WAS AWARDED THE RESPONSIBLE SUPPLIER
RELATIONS AND SUSTAINABLE PROCUREMENT LABEL
IN 2017 AND IN 2018
SAFRAN IS A MEMBER OF THE SME PACT
SINCE 2010
Risk mapping for 100% of subsidiaries
168 information memos issued internally
22 Trade Compliance Officers
169 Trade Compliance Managers/Correspondents
77 Export Control Officers
427 Export Control Correspondents
41 Customs Managers and Customs Correspondents
9 of the 12 tier one companies certified anti-corruption by ADIT
11 companies certified Authorized Economic Operator by the Customs Authority
40 trade compliance reviews performed in 2018
Prevent the risk of corruption
Internal network
Employees trained in 2018
Export controls
Customs rules
4,600 4,400 1,429
STRATEGY AND BUSINESS MODEL
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T3 9
SAFRAN, A RESPONSIBLE EMPLOYER: 2018 KEY FIGURES
Develop Safran’s attractiveness and diversity
With 42,000 natural departures and 45,000 recruitments planned over the next four years(1), the recruitment, integration and skills management challenges are decisive. In a sector as highly competitive as the aviation sector, Safran’s attractiveness is a key question. Safran therefore implements a proactive and
forward-looking policy to constantly develop its employer brand by:
strengthening ties and a long-term partnership policy with schools and universities training students in the Group’s businesses;
a dynamic network of Safran “Ambassadors” in Belgium and France, bringing together 300 employees who are alumni of target schools and universities.
These ambassadors represent the Group and carry out occasional actions to improve visibility and accompany students in their educational choices;
a welcome policy for young people, through internships and work-study contracts. Each year, Safran (excluding Zodiac Aerospace) welcomes interns and apprentices representing 10% of its workforce.
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.
STRATEGY AND BUSINESS MODEL
92,639 EMPLOYEES,
60% IN EUROPE
96% OF EMPLOYEES
HAVE A SUSTAINABLE JOB
13,050 RECRUITMENTS
IN 2018; 36% WOMEN(1)
84% OF EMPLOYEES
RECEIVED AT LEAST ONE TRAINING SESSION
DURING THE YEAR(1)
28.5% WOMEN
12% WOMEN IN TOP MANAGEMENT
2.6% GLOBAL
ABSENTEEISM RATE(1)
(1) Excluding Zodiac Aerospace.
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 4 0
Safran’s employer brands are highly reputed, as demonstrated by its top ranking among the most attractive companies for students in France: 3rd place in the Universum ranking (6th place six years ago). In addition, Safran was ranked seventh best employer in France in the annual ranking published by the magazine Capital, which draws up a list of the top 500 companies as rated by French employees. Initiatives in favor of diversity also ensure Safran is not deprived of any talent and has balanced male/female representation.
In 2017, Safran was awarded the GEEIS label (Gender Equality European & International Standards) at European level. In addition, the male/female professional equality index in France is 87% for entities with 1,000+ employees. Finally, Safran is deploying a plan to increase the number of women in the workforce and particularly in top management positions. This involves, for example, including female profiles in all succession plans for the Group’s management committees.
STRATEGY AND BUSINESS MODEL
Training for businesses of the future: CampusFabSafran 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 of industrial companies, training centers, the ASTech Paris-Région competitiveness cluster and The Adecco Group and has received funding from the French State and local authorities.CampusFab will allow apprentices, students, interns and trainers to access the industrial and digital means typical of a “Factory of the Future”, with the aim of accompanying the transformation of industry in France.
In particular, it will help satisfy industrial company requirements to recruit technicians trained in new production processes. This center of excellence will include a digital room with design and industrial operation simulation equipment. An additive manufacturing hub, a “model” machining line using robots, cobots and automatic carts, assembly and erection hubs and a maintenance and production means hub will also be available.
A digital management system for industrial operations will enable students to plan, pilot and optimize use of these resources. Over and above technology, this training platform seeks first and foremost to place the operator at the heart of production processes. Safran also plans to make this training platform available to its employees as part of ongoing training initiatives.
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T4 1
Promote social dialogueIn a global survey, the non-financial rating agency, Vigeo, ranked Safran in the top 10 companies worldwide for the quality of its social dialogue in 2018. Safran stands out at several levels:
representative bodies, such as the European works council, Group trade union coordinators and representative bodies in each subsidiary;
collective negotiation policies at global and European level and for each country. The global framework agreement on “working conditions, corporate social responsibility and sustainable development” signed at the end of 2017, confirms the desire to promote open and constructive social dialogue worldwide and to improve and develop good working practices at all Safran sites. A global monitoring committee was created in 2018, to assess 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 talentFor 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.
The manager also contributes each year to drafting the workforce mid-term plan. Based on this information and his vision of the future of the sector, workload and businesses, the manager reflects the impacts on the jobs and expertise of his team (job and skills forward planning). A European company-wide agreement confirms the Group’s policy in this area.
It is based on three objectives: anticipate changes in businesses and ensure the professional development of employees, through a shared approach; develop and secure the professional career paths of Group employees, so they may develop in their current positions and benefit from career opportunities throughout their professional life; encourage professional mobility as an opportunity for employees to develop expertise and an efficient response to the Group’s growing needs.
This approach is accompanied by Group investment in training. Safran University provides 1.5 million training hours each year, organized around three strategic fundamentals: integrating new recruits, upskilling all employees and creating supportive and interactive manager networks.
STRATEGY AND BUSINESS MODEL
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 4 2
SAFRAN’S ENTERPRISERISK 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.
RISK MANAGEMENT
The aerospace industry is historically, naturally and culturally sensitive to risk management. Safran’s ERM system therefore contributes directly to the processes for obtaining the necessary certifications. Furthermore, as the aerospace industry is intrinsically capital intensive, its programs involve extremely costly research and development activities and significant industrial investment.These efforts must be maintained throughout long cycles, potentially of up to 40 years. Safran’s ERM system also participates directly in the efforts deployed by the Group to meet
these challenges. Over time, Safran’s ERM has expanded its scope of action and become progressively more sophisticated and proactive. It is now a comprehensive risk management system which contributes fully to securing the Group’s profitability. Due to its activities throughout the world, Safran is currently exposed to a wide range of risks that could have a significant impact on its results, reputation or share price. Safran’s ERM system has attained a level of maturity that enables it to identify major risk exposures, quantify their impact on attaining its objectives and ensure the implementation
of appropriate mitigating actions to reduce exposure to an acceptable level. It is positioned upstream of decision-making processes and offers a unique competitive advantage, accompanying and supporting key Group decisions and actively contributing to the execution of its strategy. Furthermore, the principles of the comprehensive risk management policy are consistent with the recommendations issued by the French Financial Markets Authority (AMF), the provisions of the AFEP/MEDEF Code (revised version of June 2018) and professional standards (COSO ERM).
The ERM system is rolled-out in all Group activities in compliance with the various governance rules applicable to the different component entities, departments or processes. This comprehensive methodology is therefore broken down harmoniously in all organizations and at all levels, with an initial consolidation level for tier-one subsidiaries(1) and a final consolidation level at the Safran holding company. The risk management policy falls under the responsibility of each entity and of the central corporate departments, and is embedded in all of Safran’s organizational processes.
Each risk factor identified is analyzed and forms the basis for various risk scenarios charted along three lines: impact, probability of occurrence and level of control. The impact and probability of each risk are assessed in terms of their direct and indirect potential impact on the Group’s businesses based on the most realistic, worst-case scenario allocated to the risk. The level of control, essential in characterizing the risk and the way it is to be managed, is then determined.
An owner is designated for each risk identified and is responsible for drafting action plans and ensuring their implementation. These may include steps to be taken, additional controls to be implemented or investigations into financial transfers or transfers of liability, particularly involving regularly updated insurance policies. The objective is to provide continuous risk oversight to ensure optimum treatment. The entire risk management approach is periodically reviewed and events that occurred within the Group over a given period are systematically compared with analyses and risk mappings for the same period. This feedback enables Safran to ensure that all risks have been effectively identified, assessed and managed and to enhance and strengthen the process if necessary.
Lastly, Safran’s ERM system has a crisis management component that enables the Group to anticipate and handle any “abnormal” situation that leaves one or a number of its business oversight parameters exposed. Regardless of the component affected, it seeks to provide the Group with the means for responding in a pragmatic way by delivering the solutions needed to deal with the crisis. The crises in question may range from serious accidents to people of technical, human or natural origin to long-term unavailability of industrial facilities that jeopardizes Safran’s capacity to honor certain commitments to clients and partners. As such, business contingency planning is an integral part of crisis management.
IMPLEMENTATION OF SAFRAN’S ERM SYSTEM
Roll-out at all levels
Risk analysis
Action plans and risk monitoring
Crisis management
(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.
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T4 3
RISK MANAGEMENT
The Risk and Insurance Department reports to the Group Chief Financial Officer. It comprises the Risk and Insurance Department director and Corporate Risk Managers and is responsible for implementing the Group’s ERM system. The Risk and Insurance Department develops methodological techniques and processes to ensure consistent handling of risks by companies and central corporate departments.
Each tier-one company has a risk manager who prepares a risk mapping and liaises constantly with the Risk and Insurance Department.
Tier-one company risk managers 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.
The Audit and Risk Committee reviews the risk mapping and the work related to the main risks faced by the Group, as presented to it twice a year by the Risk and Insurance Department.The Committee reports to the Board of Directors on its risk management work at the same intervals.
CEO
1st Tier entities
Second Tier Entities and JV
Central Functions
Group Risk Committee(CEO + 8 Senior Executive VPs)
Group Risk & Insurance
Informationon risks
to be published
Quarterly Groupindicators
Quarterlyindicators
Annual report onthe organization
of ERM in the Group
Annual reporton ERM
organization
Board of Directors
Audit &Risk Committee
ERM SYSTEMThe Group Risk Committee periodically updates
the identification, appraisal, processing and, therefore, control, of major risks.
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 4 4
MAIN RISKSThe 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 the environment in which the Group operates
Changes in economic conditions Impact of the aviation cycle Competition
Risks relating to the Group’s development
Technological risks Uncertainty regarding returns on investments Acquisition and restructuring risks
Financial market risks
Foreign currency risk Interest rate risk Commodity risk Counterparty risk Liquidity risk
Human Resources risks
Legal and regulatory risks
Risk of negative media coverage
Risks relating to Group business sectors
Aircraft accidents Delays, program development and industrialization Quality and safety of products and services Supplier and partner risks Health, safety and environmental risks Personal safety risks Data confidentiality 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.
OPERATIONAL EXCELLENCE AND AGILITY
• Factory of the future• Health, safety
and the environment• Improve the carbon
footprint
SUSTAINABLE INNOVATION
• Self-funded R&T and R&D
• Patent portfolio
FINANCIAL PERFORMANCE
• Growth in adjusted revenue• Growth in service activities
• Growth in the recurring operating margin
• EBIT to FCF conversion rate• Dividends
RESPONSIBLE CONDUCT
• Responsible purchasing• Recruitment
• Non-discrimination
RISK MANAGEMENT
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 4 6
CORPORATE GOVERNANCE
A BOARD OF DIRECTORS INCORPORATING BEST GOVERNANCE
STANDARDS INTO ITS ACTIVITIESSafran refers to the
“Corporate Governance Code of Listed Corporations”, drawn up jointly by the French companies’ associations, AFEP and MEDEF.
FORMAL ASSESSMENT OF THE BOARD OF DIRECTORS’ OPERATING PROCEDURES CARRIED OUT IN 2018
In 2018, the Board assessed its operating procedures with the assistance of a specialist international firm.In addition to individual interviews with each director, major institutional shareholders were contacted to obtain and analyze their views on Safran’s governance. These shareholders’ views were shown to be positive. They are happy with the separation of the roles of Chairman of the Board of Directors and Chief Executive Officer and have a good understanding of Safran’s governance structure. They are also satisfied with the performances of the Chairman of the Board and the Chief Executive Officer. The following areas for improvement were suggested:
increasing the number of independent directors on the Board to provide greater assurance of a challenge to Executive Management;
reducing the representation of the French State on the Board;
enriching the Board’s membership with more directors from leading companies and in-depth knowledge of international markets;
deepening discussions with shareholders about governance matters.
The changes in the Board’s composition proposed to the 2019 Annual General Meeting contribute to achieving these improvements.
An appraisal of each Director’s actual contribution to the Board’s work was also carried out by the specialist consultancy firm. The Chairman or Lead Independent Director provided individual feedback on this appraisal to each director.
Executive Committee
Board of Directors
Chief Executive Ocer
Chairman of the Boardof Directors
Innovation andTechnology Committee
Audit andRisk Committee
Scientific Committee
Compliance, Ethics andAnti-Fraud Committee
Appointments andCompensation Committee
Separation of the roles of Chairman of the Board of Directors and Chief Executive OfficerSince 2015, the Board has chosen to separate the roles of Chairman of the Board of Directors and Chief Executive Officer.Thanks to this governance structure, the Company benefits from the Chief Executive Officer’s managerial expertise and industry experience, as well as the Chairman’s international standing. The strong strategic fit of their profiles enables the Group to be governed harmoniously, based on transparent relations between the Board of Directors and Executive Management and a balanced and respectful distribution of their roles.
Lead Independent DirectorIn 2018, the Board of Directors decided to appoint Monique Cohen as Lead Independent Director and define her duties. It was considered good practice to create this position, even if it is not indispensable because the Company has separated the roles of Chairman of the Board and Chief Executive Officer.
Independent DirectorsThe aim of having independent directors on the Board is to provide shareholders with assurance that the collegiate body of the Board comprises members who have total independence to analyze, judge, take decisions and act, always in the Company’s interests. Highly engaged and involved in the Board’s work, their freedom of judgment and expression contributes to the quality of the Board’s discussions and decisions. Their professional and personal experience provides an outside view that is beneficial for the Group.
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CORPORATE GOVERNANCE
COMPOSITION OF THE BOARD OF DIRECTORS AND ITS COMMITTEES FOLLOWING THE 2019 ANNUAL GENERAL MEETING(1)
(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.
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
17(1) MEMBERS
61.5% INDEPENDENT(2)
I Independent
C Chairman
Audit and Risk Committee
Appointments and Compensation Committee
Innovation and Technologies Committee
W Woman
M Man
HÉLÈNE AURIOL-POTIER
I W
GÉRARD MARDINE
Director representing employee shareholders
M
ODILE DESFORGES
Chair of the Audit and Risk CommitteeI W
ELIANE CARRÉ-COPIN
Director representing employee shareholdersW
DANIEL MAZALTARIM
Director representing employees
M
DIDIER DOMANGE
M
HÉLÈNE DANTOINE
Director representing the French State
W
SOPHIE ZURQUIYAH
I W
BRIGITTE LESSCHAEVE
Director representing employees
W
JEAN-LOU CHAMEAU
Reappointment proposed to the 2019 AGMI M
PATRICK PÉLATA
Chair of the Innovation and Technology CommitteeI M
LAURENT GUILLOT
Appointment proposed to the 2019 AGMI M
MONIQUE COHEN
Lead Independent Director Chair of the Appointments and Compensation CommitteeI W
ROBERT PEUGEOT
Director representing F&PI M
VINCENT IMBERT
Appointment proposed to the 2019 AGM, at the recommendation of the French State
M
ROSS McINNES
Chairman of the BoardC M
PHILIPPE PETITCOLIN
Chief Executive OfficerM
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Number of directors
Aerospace industry 12
Other industries 14
Innovation, R&T, Development, Engineering 12
International career and experience 11
Strategy, competition and M&A 10
Finance and management control 9
Digital – New technologies 6
Governance and compensation 13
Human Resources – CSR 7
AN EXPERIENCED BOARD OF DIRECTORS, REPRESENTATIVE
OF SHAREHOLDERS
The Board of Directors has a wide range of experience, making it well equipped to deal with strategy and performance challenges. It regularly considers the desired balance and diversity of its composition and that of its committees. Its diversity policy is notably structured around principles and objectives related to the size of the Board, the representation of the Company’s various stakeholders, the proportion of independent directors, the depth and fit of the directors’ skills and expertise, international experience, and gender balance.
A DIVERSE RANGE OF PROFILES, EXPERTISE AND SKILLS WITHIN THE BOARD
BOARD COMPOSITION(1) CONSISTENT WITH SAFRAN SHARE OWNERSHIP
(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.
SHAREHOLDERS – VOTING RIGHTS AT MARCH 31, 2019(in %)
BOARD OF DIRECTORS(number of directors)
2Representatives of the French State(1)
8Independent
Directors
4Employeesand employeeshareholders
1Other
1Chief ExecutiveO�cer1Chairman
18.0French State
71.7Free float
10.3Employees
Experience and specific duties exercised by Directors in different sectors and activities
FOCUS ON THE BOARD OF DIRECTORS FOLLOWING THE 2019 ANNUAL GENERAL MEETING(2)
INTERNATIONAL DIMENSION65% 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 REPRESENTATIONThe Board will comprise 7 women and 10 men. 40% of directors will therefore be women(3).
DIRECTORS REPRESENTING EMPLOYEE SHAREHOLDERS AND DIRECTORS REPRESENTING EMPLOYEESThe 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.
CORPORATE GOVERNANCE
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T4 9
ORGANIZATION AND OPERATING PROCEDURES OF THE BOARD OF DIRECTORS AND THE BOARD COMMITTEES TO MEET
THE GROUP’S STRATEGIC CHALLENGES
5 MEETINGS
4 MEETINGS
2 MEETINGS
96% ATTENDANCE
96% ATTENDANCE
91% ATTENDANCE
5 MEMBERS
7 MEMBERS
5 MEMBERS
75% INDEPENDENT(1)
67% INDEPENDENT(1)
60% INDEPENDENT
BOARD OF DIRECTORS
THREE PERMANENT COMMITTEES – 2018 KEY FIGURES
FOCUS ON THE STRATEGIC WORK OF THE BOARD
Preferring the direct involvement of directors in the Group’s strategy and its objectives, the Board decided in 2015 to no longer have a specific strategy committee. The Board considers the Group’s strategic objectives during strategy seminars. Each year, these seminars examines specific topics and issues reflecting subjects identified as a priority by the Board and Executive Management. The resulting objectives and goals adopted are subject to ongoing monitoring during Board meetings.
FOCUS ON THE INNOVATION AND TECHNOLOGY COMMITTEE
Given the importance of innovation to the Group, the Board decided to set up a specific permanent committee. The role of this committee is to study:
the Group’s medium- and long-term strategic goals and choices concerning innovation, R&T, and the development of new products and services; technological trends and developments; progress made with roadmaps; the suitability of the organization structures and resources in place.
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.
• Definition of the Group’s strategic objectives
• Compensation policy for corporate officers
• Composition of the Board of Directors and its Committees
• Organization of succession processes
• Approval and monitoring of the annual budget, the Medium-Term Plan and the outlook communicated to the market
• Prior approval of significant projects
ROLES AND RESPONSIBILITIES
10 MEETINGS
95% ATTENDANCE
2018 KEY FIGURES
Audit and Risk Committee
Appointments and Compensation Committee
Innovation and Technology Committee
(1) Excluding directors representing employees and directors representing employee shareholders.
CORPORATE GOVERNANCE
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 5 0
Compliance, Ethics and Anti-Fraud Committee
AN EXECUTIVE COMMITTEE IMPLEMENTING THE GROUP’S STRATEGIC
AND OPERATING PRIORITIESTHE EXECUTIVE COMMITTEE IS IN CHARGE OF CONDUCTING SAFRAN’S BUSINESS IN LINE WITH THE STRATEGY DEFINED BEFOREHAND BY THE BOARD OF DIRECTORS
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.
This Committee is responsible for supervising employee compliance with the rules defined in the Ethical Guidelines (upholding the law, engaging in proper business practices, protecting people and assets, etc.), as well as any updates and revisions.
This approach is sponsored by the Corporate Secretary, and the responsibilities are handled by the relevant departments
(for example, the Group Department of International and Public Affairs manages trade compliance and export control). The Group’s resources mainly include the Ethical Guidelines, anti-fraud policies, internal control procedures, processes and standards, and a fraud prevention, awareness, detection and assessment program.
Led by the Group Director of Innovation, the Scientific Committee is tasked with helping Safran deploy a world-class scientific research policy. It assesses, in particular, the excellence of scientific partnerships and the relevance of the long-term R&T plan. The Committee also contributes to Safran’s technological difference by identifying new areas
of research. The Committee comprises 8 top-level academics and holds 3 plenary meetings a year. Recent work includes approximately 15 theme-based reviews in 3 major areas (software and systems engineering, materials and structures and sensors and signal processing). These reviews ensure the Group is advancing in the right direction.
The Executive Committee ensures that Safran’s strategy is implemented consistently across all Group entities. It also monitors its operational performance and facilitates interaction with the various Group companies.
The Executive Committee comprises the Chief Executive Officer, holding company executives and the heads of the Group’s main operating companies. This membership structure pro vides for balanced representation of the Group’s businesses and cross-business support functions.
Under the authority of the Chief Executive Officer, the Executive Committee meets as often as is necessary and at least once a month. It has 16 members.
Composition of the Executive Committee
STÉPHANE ABRIAL
Senior Executive VP International and Public Affairs
JEAN-PAUL ALARY
CEO Safran Landing Systems
OLIVIER ANDRIES
CEO Safran Aircraft Engines
JEAN-LUC BÉRARD
Executive VP Human Resources
STÉPHANE CUEILLE
Senior Executive VP R&T and Innovation
BERNARD DELPIT
Group Chief Financial Officer
PASCALE DUBOIS
Executive VP Communications
ALEX FAIN
Corporate Secretary
CÉDRIC GOUBET
CEO Safran Nacelles
NORMAN JORDAN
CEO Safran Cabin
VINCENT MASCRÉ
CEO Safran Aerosystems and Safran Seats
JEAN-JACQUES ORSINI
Executive VP Performance and Competitiveness
FRANCK SAUDO
CEO Safran Helicopter Engines
ALAIN SAURET
CEO Safran Electrical & Power
MARTIN SION
CEO Safran Electronics & Defense
PHILIPPE PETITCOLIN
Chief Executive Officer
Scientific Committee
CORPORATE GOVERNANCE
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T5 1
A COMPENSATION POLICY SUPPORTING SHORT- AND
LONG-TERM VALUE CREATION
In the interests of the Group and its stakeholders, the compensation policy must be competitive in order to attract, motivate and retain the best profiles and talent (which may come from within or outside the Group) for key positions.
Chairman of the Board of Directors’ compensation policy and structureIn line with his position as a non-executive Director and the specific duties conferred on him, the Chairman receives a fixed compen sation. He does not receive any variable compensation or compen sation under a long-term incentive plan. He does not receive attendance fees. The Chairman is covered by the supplementary pension schemes and personal risk insurance plan implemented by the Group.
An equivalent variable compensation policy is adapted for certain Group executives and senior managers.
Chief Executive Officer’s compensation policy and structure The Chief Executive Officer’s compensation package comprises fixed compensation, annual variable compensation and performance shares awarded under a long-term incentive plan.He is covered by the supplementary pension schemes and personal risk insurance plan implemented
by the Group. The underlying aim is to closely align the CEO’s interests with those of the Group and its shareholders, by achieving a balance between short-term and long-term performance, as assessed by the Board. Compensation subject to performance conditions accounts for the largest percentage of the overall compensation package.
CORPORATE OFFICER COMPENSATION POLICY
≈31%Not subject toperformance conditions
≈ 69%Subject to performance conditions≈ 38%In performance shares(potential)
≈ 63%In cash
≈38%Target long-term
incentive*≈31%
Target annualvariable compensation
≈ 31%Fixed annual compensation
* Value at grant date in accordance with IFRS.
ANNUAL VARIABLE COMPENSATION
The Chief Executive Officer’s annual variable compensation is contingent on achieving economic and individual, financial and non-financial, quantitative and qualitative performance objectives, consistent with the Group’s overall business. For 2019, the CSR-HR objectives cover measures and priority actions relating to the environment (carbon footprint management system), security (accident frequency rate and ergo-nomics in industrial projects) and human resources (gender balance plan for executive positions).
VARIABLE COMPENSATION OBJECTIVES(2) (in %)
20FCF
7WC
40ROI33
Individual
LT INCENTIVE PLAN – PERFORMANCE SHARES
This mechanism is well adapted to the Chief Executive Officer position given the level of direct contribution expected from him to the Group’s long-term performance. This system helps promote the alignment of management’s interests with those of the Company and shareholders. Performance shares are all awarded to Group top managers. The grant of these shares is subject to the attainment of demanding internal (ROI and FCF)(1) and external (TSR)(1) performance conditions, measured over 3 years.
LT INCENTIVE PLAN PERFORMANCE CRITERIA(3) (in %)
35FCF
30TSR
35ROI
Chief Executive Officer’s recurring compensation structure
(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.
CORPORATE GOVERNANCE
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 5 2
PERFORMANCE AND VALUE CREATION
SUSTAINABLE VALUE CREATION
By generating a positive contribu-tion for all its stakeholders and investing in technologies that will contribute to meeting aviation sector greenhouse gas emission commitments, Safran is preparing the foundations for its future growth.
The Group therefore shares the value that it creates among all its stakeholders: customers benefit from unique and competitive products serving their businesses, employees enjoy attractive working conditions and a social model where they share in profits,
the environment benefits from the Group’s technology portfolio and R&D efforts and shareholders receive an attractive and sustai-nable remuneration thanks to a capital allocation policy that seeks to provide, over the long-term, organic growth in our businesses.
Safran is convinced that in order to sustain prosperity, a company must create and share value
with all its stakeholders.
N.B.: Based on 2018 adjusted data.(1) Raw materials and consumables used + net charges to provisions + asset
impairment + other recurring operating income and expenses + share in profit from joint ventures + other non-recurring operating income and expenses + foreign exchange gain (loss) + other income + change in inventories + capitalized production.
(2) Personnel costs and benefits, excluding employee share ownership.(3) Profit for the year not distributed, plus net charges to depreciation and amortization.(4) Dividend proposed to the Annual General Meeting of May 23, 2019.(5) Income tax and other taxes and duties.(6) Cost of net debt and other financial income and expenses.
6% to 7% of revenue spent
on self-funded R&D between 2018
and 2022
4% of revenue spent on investment
in capex
INVESTMENT IN THE FUTURE(3)
22% Attractive social
model founded on giving employees a vested interest in Group results
EMPLOYEES(2)
59%TSR 2005-2019:
+16.27% per annum
75% of 2018-2022 free cash flow redistributed through share
buybacks and dividends
SHAREHOLDERS(4)
8% Taxes and duties
The world’s best technology serving
national security and dissuasion
FRENCH STATE(5)
10% One of the
best industry financial signatures
worldwide
DEBT HOLDERS(6)
1%
Breakdown of value in 2018
SALES
PURCHASING AND OTHER
COSTS(1)
VALUE GENERATED BY SAFRAN
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T5 3
PERFORMANCE AND VALUE CREATION
KEY PERFORMANCE INDICATORS
Key sustainable innovation indicators 2018
Number of employees in R&T Approximately 3,000
R&D expenditure self-funded€1,226 million
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 responsible conduct indicators 2018
% of buyers trained in responsible purchasing methods 43%
Number of employees% sustainable jobs
92,600 96%
Annual recruitment(4) 13,050
Purchasing volume sourced in France% sourced from small, medium and intermediate-sized companies
53% 85%
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.
Key operational excellence and agility indicators 2018
Number of production lines “of the future” 65
Number of sites certified HSE “Gold” (internal standard) 30
All industrial sites by 2025
Capex (tangible assets)€780 million
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%
Greenhouse gas Scope 1 (t CO2-eq/employee)(2) 3.3
Greenhouse gas Scope 2 (t CO2-eq/employee)(2) 4.55
Total waste recovered and reused metric ton/ Safran employee (World)(3) 0.76
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 5 4
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
EBIT to FCF conversion 58.9% Above 50 % each year between 2019 and 2022 and trending above 60% in 2022
Dividend€1.82/share
(41% distribution rate)The Board of Directors will review
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 to performance conditions in 2018
69%
% of independent directors on the Board of Directors after the 2019 AGM
61.5%(1)
% of women on the Board of Directors after the 2019 AGM 40%(1)
% of Board members with international experience after the 2019 AGM
65%(1)
(1) Subject to the adoption of the resolutions by the Annual General Meeting of May 23, 2019.
PERFORMANCE AND VALUE CREATION
I S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T5 5
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 Department, this report is the result of a cross-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]
2018INTEGRATED REPORT
S A F R A N 2 0 1 8 I N T E G R A T E D R E P O R T I 5 6
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.
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.
OTHER SAFRAN PUBLICATIONS (IN FRENCH AND ENGLISH)
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).
CONTACT
FINANCIAL COMMUNICATIONS DEPARTMENT
Analysts and institutional investors Individual shareholders
> Tel.: +33 (0)1 40 60 80 80
> Email: [email protected]
> Toll-free number (France landline only): 0 800 17 17 17
Monday to Friday, 9 a.m. to 5 p.m.
> Email: [email protected]
SAFRAN2, boulevard du Général-Martial-Valin75724 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.
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Tel.: +33 (0)1 55 32 29 74