# DEAR FELLOW SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_ESI_2022/NYSE_ESI_2022.mmd` · pages 3-9_

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DEAR FELLOW SHAREHOLDERS,

Your Element Solutions team delivered a record year in 2022 despite a complex macroeconomic environment. They navigated it nimbly. The company delivered growth in sales and earnings and generated the reliable cash flow that we have come to expect no matter the backdrop. The management team proved they have control of the controllable by outgrowing their end-markets, taking price increases, delivering on synergies and managing variable cost as appropriate, all while continuing to invest in long-term growth. We have shown once again that we have a very high-quality business driven by world-class talent that runs deep into the organization.

This past year presented significant headwinds, some unprecedented. Many of our operating currencies fell to record lows against the U.S. dollar. High inflation in raw material, logistics and labor costs came alongside demand weakness in our key end markets. Nevertheless, our business grew. We delivered 5% organic net sales growth and drove absolute dollar growth in adjusted EBITDA (8% growth when adjusting for FX). We managed cost while investing aggressively in growth, focusing on attractive markets like power electronics for electric vehicles, sustainable chemistries and equipment financing in exchange for multi-year contractual revenue at attractive margins. After capex, the business generated over \(250 million of free cash flow, 90% of which was returned to shareholders through opportunistic share repurchases and a steady dividend. This would have been a strong year against any backdrop but is outstanding in context.

The environment from the second half of 2022 has carried over into the first part of 2023. There are reasons, however, to be optimistic about a recovery later in the year. This business has proven, historically, that it accelerates as conditions improve. We saw this in the second half of 2020. The company is prepared for when the recovery comes; but we should all be confident it can continue healthy performance if the current

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## THE ELEMENTS OF OUR CULTURE

Our employees embody the 5 C's of our culture in their interactions with customers, colleagues and other counterparties to drive sustainable financial performance and create a rewarding environment.

## CHALLENGE

WE ESTABLISH AMBITIOUS GOALS,
TAKE CALCULATED RISKS, MAINTAIN HIGH
STANDARDS AND SEEK TO EXCEED EXPECTATIONS.

## COLLABORATE

WE VALUE TEAMWORK, WITH OUR CUSTOMERS AND OUR COLLEAGUES, IN PURSUIT OF EXCELLENCE AND IMPROVEMENT IN EVERYTHING WE DO.

## CARE

WE CARE ABOUT OUR CUSTOMERS, OUR COLLEAGUES, OUR ENVIRONMENT AND OUR PLACE IN THE WORLD AT LARGE.

## COMMIT

WE MAKE COMMITMENTS AND HOLD OURSELVES ACCOUNTABLE, INDIVIDUALLY AND AS TEAMS, TO DELIVER ON THEM.

## CHOOSE

WE EMPOWER OUR EMPLOYEES TO MAKE CHOICES AND TAKE CALCULATED RISKS; WE CHOOSE TO HIRE, RECOGNIZE AND REWARD PEOPLE WHO DEMONSTRATE GOOD JUDGMENT AND CHOOSE TO HAVE GOOD ATTITUDES AND STRONG WORK ETHICS.

environment drags on longer than expected. We have sticky customers, variable operating costs, limited capital requirements, a great management team and healthy customers in diversified long-term growth markets. We can be patient.

As a significant shareholder and from my perspective as Executive Chairman, I am as excited as ever about this company's ability to continue to outperform its end-markets, grow cash flows and drive long-term shareholder value. My increased ownership of Element Solutions shares in 2022 underscores my confidence in this business. I have always focused on markets with long-term secular growth and identifiable, defensible moats that earn strong margins and cash flows. Element Solutions personifies these criteria. The business continues to be at the cutting edge of customer development programs that I believe create demand for many years to come and has many avenues to deploy capital at high returns.
Of course, none of this success would be possible without our dedicated employees around the world. I am incredibly proud of the resilience and immense teamwork displayed by our over-5,000-strong global workforce during these past three years. They continue to work hard executing on the vision and they are clearly well qualified for the task. Finally, I want to thank our customers, OEM partners, suppliers, shareholders and other stakeholders for their commitment and support.

Faithfully yours,

![](images/4_0.jpg)

Sir Martin E. Franklin

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![](images/5_0.jpg)

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BENJAMIN GLIKLICH
President & CEO

# LETTER FROM OUR
PRESIDENT & CEO

DEAR FELLOW SHAREHOLDERS,

In late December 2021, I was having dinner with my wife, remarking on the productive year past. Element Solutions had an outstanding 2021. The phone rang. We had discovered a cyber-intrusion. While it was remediated quickly and with little impact thanks to the efforts of our outstanding people, this was the first of several challenges to herald 2022. In February, on the morning of our first investor day in three years, Russia invaded Ukraine. Over the course of the year, the U.S. dollar hit record strength. Tin prices spiked to all-time highs. So did gas prices in Europe. The electronics market rolled over. COVID-related lockdowns persisted in China. Many of our key end-markets suffered. These 2022 events in the context of our record 2021 bring to mind Churchill's saying: "Success is not final." With this macro maelstrom, one could be excused for feeling unlucky. On the contrary, at Element Solutions, we should never lose sight of how lucky we actually are.
We participate in great markets with strong long-term growth trends. Our customers rely on us—on our exceptional products and our world-class service. We have deep relationships with key decision-makers in our supply chains and deeply entrenched positions in high-value production processes. For more than a century, our technology has enabled critical functionality in high-performance end products from brass manufacturing in the early days to leading edge semiconductor manufacturing today. The barriers to entry around our business are high. The moats are wide. We are lucky to work at a company that has been sufficiently invested in and driven by dedicated people for multiple generations before us.

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However, somewhere in the above paragraph luck blurs with skill. A good year or two can be attributable to luck. To deliver over the long term, we must choose the right people and invest in the right capabilities to sustain profit growth and value creation. Yes, many of our prime attributes are inherent, but the compounding of our daily decisions materially enhances or erodes business quality and performance over time. We run a business with stable and solid cash flows, and our ability to improve them rests in our hands. We do so through diligent, deliberate strategy implementation and thoughtful, disciplined capital allocation.

Talent acquisition and development also lie somewhere between luck and skill. We are lucky to have outstanding, dedicated people, but our culture and incentives will either retain and motivate those people or undermine them. Our people build and enhance our customer relationships and our technology pipeline. They support our customers' and our own production processes. The people at ESI, every day, maintain and improve business quality. Luck is not enough.

In 2022, we suffered from macro events that undermined short-term results. We made hard decisions to support profits while at the same time making investments to drive the business forward. Yes, our end-markets suffered, but our P&L looks roughly flat year over year. Through pricing actions, we grew our top-line by mid-single-digits, both organically and on a reported basis, and we delivered high-single digit constant currency adjusted EBITDA growth in a declining market. We outperformed our markets in terms of both revenue growth and margins.

We also continued to invest steadfastly in future growth. We acquired HSO in January, enhancing our capabilities and breadth in the global metal finishing industry. We began to invest in emerging materials technology companies to gain access to exciting new breakthroughs in our market and build partnerships to support future growth. All told, we deployed approximately $80 million in capex, acquisitions and technology investments.

We saw the benefits of our prior investments as well. Our investment in our commercial teams, technology and selling processes resulted in our businesses closing more new commercial opportunities in number and dollar value in 2022 than in any year before. Our new wins in emerging technology applications—whether earning process-of-record in advanced packaging for next generation semiconductors or partnering with customers for water treatment systems around the world—demonstrate the opportunities we are creating in the adjacencies around our historical core businesses. The integration and synergy realization from the Coventry acquisition are ahead of plan and contributed meaningfully in 2022. Finally, our willingness to use our balance sheet to support customer growth in attractive win-win partnerships has also driven strong market outperformance in several of our businesses. When our peers in certain markets or geographies are retrenching due to short-term macro dynamics, we are proudly open for business. Over time, this stability and long-term orientation will continue to accrue to our benefit.
We actively invest in sustainability and are reaping the rewards of that focus. Commercially, our sales of sustainable solutions continue to grow steadily, reaching nearly $700 million in 2022, up 8% from 2021. We set sustainability goals early last year and are on track to achieve each of them. We published our second sustainability report in March 2023. In it, you will see this progress. Sitting at the intersection of sustainability and profitability, we believe our investments in these areas will be a long-term value driver for ESI shareholders.

In 2022, Element Solutions completed its third biennial culture survey. This is a key gauge for our performance against one of the pillars of our vision—becoming the best company in our industry to work for. The 2022 survey had the highest participation yet—more than 80%—and the best results. Despite inflation, unstable geopolitics and ongoing COVID lockdowns impacting significant portions of our workforce, our people are happier at ESI than in 2020. The level of performance we are driving is not coming at the expense of our people. On the contrary, all of our stakeholders are benefiting from the work we have done since our founding in 2019.

We returned $230 million to shareholders in 2022. We took advantage of macro turmoil to improve per share intrinsic value, reducing the denominator by 8 million shares or 3% of our shares outstanding at year-end. The headwinds—or bad luck—in 2022 did not impact ESI exclusively or even disproportionately. Inflation drove higher interest rates. Perceived risk combined with faster rate increases drove investors to the U.S. dollar. While share prices, including ours, declined due to these dynamics, our long-term growth expectations are unchanged. Our intrinsic value has changed only insofar as rates are higher and FX has moved against us. Bad luck. We know both will change over time.

All of this is not to say that we enter a stable, supportive macro environment in 2023. We expect a difficult start to the year and are prepared should the second half remain soft. We believe, however, that recovery in our end-markets is inevitable. The markets we support, from electric vehicles and proliferating computing power to sustainable manufacturing will grow over time. Yet, while we look forward to that recovery, we are not waiting idly for it. In 2023, expect your management team to deliberately balance disciplined cost management with continued investment to drive long-term outperformance. We will not deviate from diligently executing against our long-term oriented, business-specific strategies. As Benjamin Franklin said, "Diligence is the mother of good luck."

On behalf of your dedicated leadership team,

Benjamin Gilklich

Benjamin Gilklich