# To the Shareholders, Associates and Customers of RPM

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_RPM_2021/NYSE_RPM_2021.mmd` · pages 2-8_

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To the Shareholders, Associates and Customers of RPM:

As I reflect on the last year, I do so with an immense feeling of gratitude. Despite the personal and professional challenges unleashed by an unprecedented global pandemic, our associates showed a level of resilience, determination and leadership that was, in a word, astounding.

While the total impact of Covid-19 may never be fully measured, I do know that it affected RPM in myriad ways. Despite implementing stringent health and safety protocols, more than 1,600 RPM associates around the world contracted the virus over the past 15 months. This led to more than 15,000 lost associate days for recovery and quarantine and over 1,000 days of manufacturing and distribution facility closures due to quarantine and disinfecting protocols. This impact is multiplied when considering the repercussions the pandemic had on our supply chain and customers.

While we can assign some metrics to the impact the pandemic had on our company, it is impossible to calculate the personal toll this past year had on so many of our associates. Sadly, we lost more than a dozen individuals to the virus and know that the burden it placed on family and friends across the globe is immeasurable. Despite these hardships, our associates performed in a combined effort that can only be described as heroic.

Because of this dedication, we saw an extraordinary year of performance and also experienced firsthand how the trust that has been built over decades between our companies, customers and suppliers paved the way for goodwill efforts that allowed us all to tackle the challenges we faced together.

## A Successful Conclusion to MAP to Growth

As of May 31, we successfully concluded our MAP to Growth operating improvement program, which we initiated in 2018. At its onset, we had achieved decades of success under our decentralized business model and, over this time, RPM grew in size, scale and complexity. We recognized that the company had reached the point where a center-led approach in select areas of the business was required to get it to the next level of growth.

The primary elements of the MAP to Growth program were to increase the efficiency of our operations – particularly in the areas of manufacturing, procurement and administration – and to streamline our operating structure and leadership, all while maintaining our successful entrepreneurial growth culture. The plan focused on scale in order to unlock more resources to better serve our customers, while creating greater value for our shareholders.

Our manufacturing facilities had historically been managed by our individual operating companies. Through the MAP to Growth program, we looked at these fixed assets from a more holistic view. In the process, we formed a center-led manufacturing and continuous improvement team that has created a lasting culture of manufacturing excellence and continuous improvement disciplines across the organization. This team launched our MS-168 manufacturing system, which is allowing us to produce better products more quickly, cost effectively and sustainably. Additionally, we reduced our global manufacturing footprint by 28 facilities and consolidated production at more strategically advantageous plants.

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MAP
TO
GROWTH

STRATEGIC
PRIORITIES

Focus purchasing
Optimize manufacturing and warehousing
Increase operational efficiency

INCREASE OPERATIONAL EFFICIENCY

WHAT WE ACCOMPLISHED

Through implementation of its MAP to Growth initiative, RPM focused on scale in order to unlock more resources and drive greater efficiencies across the enterprise.

PURPOSE: To position RPM for sustained, profitable growth, thereby creating superior value for its customers, entrepreneurs, associates and shareholders.

VISION: To transform RPM into a more connected and efficient company focused on operational excellence and continuous improvement, while maintaining the strengths of its entrepreneurial growth culture.

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ORGANIZE TO EXECUTE

WAVES PLAN
Annualized Run Rate
$ in millions

Cost Savings Target
Exceeded by $30 Million

WAVE 2
6/2019 - 5/2020

GROWTH + EFFICIENCY

Throughout RPM's history, the company has been exceptional at growing top-line sales. Now, as a result of the MAP to Growth program, the business is much more operationally efficient as well. This is a very powerful combination that makes RPM even more formidable in terms of its ability to compete and win in the markets it serves. The company is well positioned for decades of growth and success.

WAVE 1
9/2018 - 5/2019

INITIAL TARGET ACTUAL INITIAL TARGET ACTUAL INITIAL TARGET ACTUAL

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With stronger supplier partnerships and longer-term contracts, we are much better positioned to secure necessary raw materials and control costs through the current supply chain challenges.

We also created a center-led procurement team that has consolidated material purchasing across our operating companies and negotiated improved payment terms with our supplier base that helped us reduce working capital. These initiatives have created millions in cost savings. With stronger supplier partnerships and longer-term contracts, we are much better positioned to secure necessary raw materials and control costs through the current supply chain challenges.

Additionally, we took significant steps to streamline many of our administrative functions. Through our financial re-alignment, we consolidated 46 accounting locations, improved controls, developed more effective and efficient accounting processes, and reduced costs. Similar initiatives were undertaken in information technology. We have migrated 75% of our organization to one of four group-level ERP platforms, reduced the number of data centers we managed by moving more systems and hardware to the cloud, and created platforms for centralized, data-driven decision making.

As a result of these actions, I'm proud to share that we exceeded our original goal by $30 million, generating annualized cost savings of $320 million.

Aside from a significantly improved profit margin profile and stronger cash generation, as reflected in the industry-leading cumulative total return generated by RPM over the last three years, the lasting legacy of our MAP to Growth program is the operational disciplines we developed that will continue to generate improvements in profitability, cash flow and return on investment metrics. Perhaps more significant was our ability to maintain our unique entrepreneurial, growth-oriented culture—evidenced by the fact that our revenues continued to grow at or above our industry averages throughout the MAP to Growth program.

I attribute the success of our MAP to Growth initiatives to all of our associates worldwide, but in particular to the frontline workers who kept our manufacturing and distribution centers operating during the pandemic. We also owe a debt of gratitude to my good friend and one of RPM's great operating leaders, Steve Knoop, who was

THREE-YEAR CUMULATIVE TOTAL RETURN
Among RPM International Inc., the S&P 500 Index and two Customized Peer Groups

![](images/4_0.jpg)

See footnotes and additional data on page 21.

the architect of the MAP to Growth program and passed away prematurely in 2019. I would also like to recognize Mike Sullivan, vice president of operations and chief restructuring officer, Tim Kinser, vice president of operations–procurement, and Gordy Hyde, vice president of operations–manufacturing, who successfully executed the program with an intense focus and tremendous leadership that were integral to delivering strong results and instilling a permanent focus on operating efficiency and continuous improvement into our culture.

While we have reached the MAP to Growth's conclusion, there's still more work to be done. Our next step is to leverage the lessons learned from the program to chart a course for 2025. RPM has always been exceptional at growing the top line. Now, thanks to MAP to Growth, we are a much more efficient business as well. This is a powerful combination that has us well-positioned for another decade of growth and success.

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DAP employees in Dallas, Texas, celebrate winning the MS-168 Plant Award, earned for significant efficiency gains and cost savings.

## Exceptional Financial Results Achieved During a Challenging Year

RPM maintains a deliberate strategic balance between our consumer and industrial businesses. This balance serves RPM and its shareholders well, particularly during challenging economic times when weakness in one segment will be offset by strength in the others. The benefits of our operating structure were particularly evident this fiscal year. While our Consumer Group led RPM's sales and earnings growth through much of the pandemic, it was our other three segments that led the way during the fourth quarter.

Despite the innumerable and unprecedented challenges presented by a global pandemic, we saw strong results for fiscal 2021. Net sales were \(6.11 billion, an increase of 10.9% compared to \)5.51 billion during fiscal 2020. Organic sales increased 8.1%, while acquisitions added 1.8%. Foreign currency translation increased sales by 1.0%. Net income was \(502.6 million, an increase of 65.1% compared to \)304.4 million in fiscal 2020. Diluted earnings per share (EPS) increased 65.4% to \(3.87 versus \)2.34 a year ago. Income before taxes (IBT) was \(668.4 million compared to \)407.8 million reported in fiscal 2020. Earnings before interest and taxes (EBIT) was \(709.4 million, an increase of 42.2% versus the \)499.0 million reported last year.

![](images/5_1.jpg)

Fiscal 2021 and 2020 included restructuring charges and other items that are not indicative of ongoing operations of \(75.2 million and \)121.3 million, respectively. Excluding those items in both years, RPM's adjusted EBIT was up 26.5% to \(784.6 million compared to adjusted EBIT of \)620.3 million last year. Investment returns resulted in a net after-tax gain of \(31.2 million during fiscal 2021 and a net after-tax gain of \)1.1 million last year. Excluding the restructuring and other items, as well as investment gains and losses, adjusted diluted EPS for fiscal 2021 increased 35.5% to \(4.16 compared to \)3.07 in fiscal 2020.
Our businesses remained focused on growth and continued to develop new, innovative solutions for our customers. We added five new businesses to the RPM family over the course of fiscal 2021 and at the start of fiscal 2022. You can learn more about these market-leading brands on page 12. Our companies also continued to develop new solutions to meet customer demands. You can read more about some of our innovative new products on page 10.

## Cash Flow a Record, Financial Position Strong

Our cash from operations increased 40% over last year's record, primarily due to good working capital management and margin improvement initiatives. Cash from operations was \(766.2 million compared to \)549.9 million during fiscal 2020. Because of our strong cash flow, we reinstated our stock buyback program and were able to complete multiple acquisitions, while reinvesting in the growth of our businesses. All working capital metrics improved during the year. Capital expenditures during fiscal 2021 were \(157.2 million compared to \)147.8 million in fiscal 2020. Total debt at the end of fiscal 2021 was \(2.38 billion compared to \)2.54 billion a year ago. RPM's total liquidity at May 31, 2021, including cash and committed revolving credit facilities, was $1.46 billion.

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See footnotes and additional data on pages 22-23.

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## Generating Value for Our Shareholders

In October, our board of directors increased our cash dividend by 5.6% to $1.52 on an annualized basis. This was the 47 \( ^{th} \)  consecutive year we have increased our dividend to shareholders—a record only a handful of other publicly traded companies can match. Increasing our dividend each year is one way we reward our long-term shareholders. The benefit of this practice is reflected in our total shareholder return, made up of share price appreciation and reinvested dividends, which has outpaced the S&P 500 by 33% over the past 10 years (see page 21).

## Building a Better World

Last August, we released our first environmental, social and governance (ESG) report highlighting RPM's safe, ethical and sustainable business practices, which result in value creation for our key stakeholders. The report discusses RPM's approach to addressing a broad range of ESG matters, including our code of conduct; governance practices; talent development and associate benefits; commitment to human rights, diversity and inclusion; health and safety culture; philanthropic and community involvement; and sustainable products and processes.

Since releasing our first report, we have continued to evaluate the significance of RPM's economic, environmental and social impacts; created an ESG webpage to highlight our approach to important matters; and formed an ESG Oversight Committee that reports to our Corporate Governance & Nominating Committee of the Board of Directors to oversee and manage our sustainability efforts going forward. Over the next year, we plan to focus on developing our disclosures around the topics that matter most to the business and our stakeholders. These disclosures will include concrete examples and relevant metrics that demonstrate our track record of taking care of the environment, our associates, customers and communities, which is how we create stockholder value and leave a legacy we can all celebrate.

For more information on how RPM is addressing ESG matters, turn to page 20, or download our ESG report at www.rpminc.com/esg.

I attribute the success of our MAP to Growth initiatives to all of our associates worldwide, but in particular to the frontline workers who kept our manufacturing and distribution centers operating during the pandemic.

## Fiscal 2022 Outlook

Notwithstanding the extraordinary challenges we faced over the last year and a half, the operating environment has become more complicated. We are experiencing unprecedented supply chain and raw material challenges.

We started seeing a rise in raw material prices at the end of the last calendar year, then we were hit with the huge shock of Winter Storm Uri and its resulting impact on the United States' primary chemical production in Texas and the Gulf Coast. This trend has unfortunately continued in recent months as certain raw materials spiked by a factor of 200% to 300%.

While many of these spikes have abated, underlying raw material costs are up over the prior year by 15%-20%. Worse yet are certain raw material availability issues that have caused disruptions to some of our operations, broadly to our supply chains and in some cases interrupted our ability to meet rising demand on a timely basis, particularly in the United States.

We are also seeing rising costs throughout our P&L, from higher wages and compensation levels to significantly higher freight costs across all categories, including ocean, rail and truck transportation—which are further impacted by the higher costs of raw materials and packaging.

As a result, we executed price increases in late spring and early summer, and we will likely pursue additional pricing actions.

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THOMAS C. SULLIVAN
LEAVES
LASTING
LEGACY
FOR RPM

Thomas C. Sullivan, former chairman and CEO of RPM, passed away peacefully on November 30, 2020, at 83 years old. An ardent proponent of RPM's corporate philosophy The Value of 168, Tom made the most of every moment. He was an inspiration and example for so many as a loyal son and brother, a patriotic Naval officer, a dedicated husband, a beloved father, an internationally recognized business leader, a generous philanthropist, a widely respected community figure and a man of faith.

Over his 55-year career at the helm of RPM, Tom made a tremendous impact in shaping the company's growth and success. He joined RPM—then known as Republic Powdered Metals—in 1961 as a division sales manager, before being elected to vice president in 1967 and executive vice president in 1969. Tom assumed leadership of the $11-million company as CEO and chairman in 1971, following the sudden death of his father and RPM founder, Frank C. Sullivan.

![](images/7_0.jpg)

Pictured, clockwise:

Tom Sullivan rings the closing bell at the New York Stock Exchange on July 24, 2006.

Tom Sullivan exchanges greetings with Bill Matthews, a longtime sales representative for RPM.

Tom Sullivan shakes hands with former U.S. president Ronald Reagan after RPM was named a bronze medal winner for the chemical industry in Financial World's best-managed companies.
Under his leadership, RPM grew to more than $2 billion in sales before his retirement as CEO in 2002 through a combination of internal growth and acquisitions. In October 2008, Tom retired from a 37-year charge as RPM's board chairman, but continued to serve as chairman emeritus until 2016 when company sales were nearly $5 billion.

Publicly, most would recognize Tom's success as a titan of industry—but privately it was his philanthropic work that gave him sustained joy. Together with his wife Sandy, Tom was a passionate advocate of education initiatives championing the aspirations of underprivileged youth.

Tom's most enduring trait—and perhaps the secret to his success—was his steadfast belief in people. He had a great way of connecting with others, setting high standards for them and believing in their abilities. As a result of his incredible leadership, Tom leaves a lasting legacy within RPM, his community and his family.

## "Buy great companies.
Support them with resources.
Then, let them grow."

~ Acquisition philosophy of Thomas C. Sullivan

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On May 31, 2021, Thomas S. Gross retired from RPM's board of directors after nearly nine years of service to the company. A member of the board's Compensation Committee, Tom also served on the Operating Improvement Committee that oversaw RPM's MAP to Growth initiative.

Since joining RPM as a director in 2012, Gross played an integral role in the company's strong performance, providing counsel across key areas relevant to the business and contributing to its improved efficiency and operational excellence.

In 2015, Gross retired from Eaton Corporation, a diversified global leader in power management, after 12 years with the company. He was most recently vice chairman and chief operating officer for the company's electrical sector, a position he had held since 2009.

We do anticipate that the supply chain disruptions and raw material shortages will result in some margin deterioration in the first half of our 2022 fiscal year, and particularly in the first quarter, in light of last year's extraordinary Consumer Group performance.

Nonetheless, with the continuing benefits of our MAP to Growth program in fiscal 2022, and the pricing actions that were taken earlier this year, we anticipate a return to gross margin and EBIT margin improvement during the second half of the year, and that fiscal 2022 will be another record year of sales and earnings for RPM shareholders.

## Growth Focused for Fiscal 2022

We will sustain the gains of our MS-168 manufacturing system across our operations, pursuing operating efficiencies throughout RPM with a continuous improvement mindset. With confidence in these new competencies, we are refocusing more of our human and financial capital on top-line growth as we see huge opportunities in our future with existing technologies, new product ideas and acquisitions. We will be less focused on generating quarterly results and more focused on the opportunities that can enhance our margin profile further, accelerate our returns and generate outsized growth over the next three to five years.

## A Return to the Fortune 500

On June 2, we announced RPM's return to the prestigious Fortune 500 list in 2021, ranking at number 489. When our company last earned a coveted spot in 1994, the list featured only the largest industrial manufacturers—a very proud moment for my father and

our former chairman and CEO, Tom, who sadly passed away this past November. Soon after, the Fortune 500 expanded to include all public companies in the U.S. I know he would have been ecstatic to learn that RPM has once again achieved the remarkable recognition of being named a Fortune 500 company.
Closing Out a Year Like No Other

This year, we recognize four of the company's veteran leaders for their well-deserved retirements: Terry Horan, president of the Consumer Group, who closes out his 17-year career at RPM having created the blueprint and strategy for the recently formed Consumer Group; Keith Smiley, vice president, finance and controller, who has been an integral member of the RPM family for nearly 30 years; Bill Barrie, president emeritus and 40-year veteran of Mantrose Group; and Nick Simpson, managing director of USL Group, who retires following 30 years of service. Their leadership and vision have played an integral role in the success of this company, and they will be greatly missed.

Never before in my 34-year career at RPM, 18 of which has been as CEO, have I seen or personally felt such emotions—from the extraordinary commitment shown by our associates, despite the burdens Covid-19 placed on them and their families, to the passing of my mentor and father, Tom. Despite all of this, our RPM community demonstrated incredible resilience, commitment and—in too many instances to count—courage. I am grateful to you, our associates, customers, suppliers and shareholders, for the trust and confidence that you put in RPM during this challenging time.

While we successfully completed the MAP to Growth project, the RPM project is never finished. There are a lot of exciting things yet to come, and we look forward to sharing them with you in the years ahead.

Very truly yours,

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Frank C. Sullivan
Chairman and Chief Executive Officer

August 25, 2021