# To the Stockholders of Northern Technologies International Corporation

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NASDAQ_NTIC_2018/NASDAQ_NTIC_2018.mmd` · pages 2-8_

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To the Stockholders of Northern Technologies International Corporation (NTIC),

Fiscal 2018 was a tremendous year for NTIC, that not only culminated in record annual net sales and profitability, but also saw the initiation of a quarterly cash dividend. This success is attributable to strong demand across many of our global markets and the effective execution of our business plan. Furthermore, as we continue to reinforce our infrastructure to support NTIC's multiple growth opportunities, we believe we should be well positioned to achieve our long-standing fiscal 2019 twin-goals of exceeding $60 million in net sales coupled with $2.00 per diluted share in net income.

NTIC's consolidated net sales for fiscal 2018 increased 30%, to a record \(51,425,000 with growth across most operating segments and geographies. Sales of ZERUST \( ^{\circledR} \)  industrial products increased 27% to an annual record of \)35,399,000, sales of ZERUST \( ^{\circledR} \)  oil and gas increased 78% and sales of Natur-Tec \( ^{\circledR} \)  products jumped approximately 48%, compared to fiscal 2017.

The momentum at NTIC China and Natur-Tec continued to accelerate, as these business units capitalized on favorable market demand and the investments we've made building their respective growth platforms. Between fiscal 2015 and fiscal 2018, annual Natur-Tec sales increased 129% from \(4,278,000 to \)10,051,000, while NTIC China sales increased from \(1,070,000 to \)12,507,000, leading both NTIC China and Natur-Tec to profitability during fiscal 2018. This transformation at NTIC China and Natur-Tec has also beneficially impacted NTIC's overall profitability and we expect these businesses to make significant contributions to our continued success going forward.

The 78% increase in ZERUST \( ^{®} \)  oil & gas sales during fiscal 2018 has also been extremely encouraging, as sales to this large and growing market are an important component of NTIC's strategic plan as sales to this sector also enjoy higher margin characteristics than other business units and incremental sales here have the potential to significantly contribute to future earnings.

Net income attributable to NTIC increased nearly 96% for fiscal 2018 to a record \(6,701,000, compared to \)3,442,000 last fiscal year. On a per diluted share basis, net income attributable to NTIC increased over 91% for fiscal 2018 to a record $1.43 per diluted share, compared to $0.75 per diluted share last fiscal year.

At the end of fiscal 2018, NTIC had \(7,463,000 of cash, cash equivalents, and available for sale securities, compared to \)10,127,000 at the end of fiscal 2017. In addition, NTIC has over \(12,800,000 of additional cash at our joint ventures. Maintaining such a strong balance sheet and capital structure, enabled the company to self-finance growth-generating initiatives. This foundation also not only allowed NTIC to pay \)1,816,000 in cash dividends to stockholders during fiscal 2018, but also enabled us to raise the company's quarterly cash dividend payment 20% from \(0.10 to \)0.12 per share.

## ZERUST \( ^{®} \)  Industrial Corrosion Prevention

Growth in worldwide sales of ZERUST \( ^{®} \)  industrial products stepped up during fiscal 2018 compared to the prior fiscal year, driven by strong global demand for our products and solutions, improved market share, and a significant contribution by NTIC China. Sales by our joint ventures increased approximately 19% to over \(120,000,000 during fiscal 2018, compared to nearly \)101,000,000 last fiscal year, and \(90,600,000 in fiscal 2016. NTIC has strong, committed JV partners and we are optimistic that the trends across our global joint venture network should remain strong in fiscal 2019, driven by anticipated improvements in market share, enhanced operating performance, and global economic growth.

NTIC China sales were \(12,507,000, marking a 73% increase over \)7,226,000 in sales from last fiscal year. NTIC is well positioned in China, as we have continued to aggressively obtain new customers across this large, diverse, and growing market.

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## ZERUST \( ^{®} \)  in the Oil & Gas Industry

With energy on the rise again, NTIC enjoyed a 78% increase in ZERUST \( ^{®} \)  oil & gas sales. 2018 fiscal year sales within this category were 3,067,000, compared to just 1,720,000 for the previous fiscal year. Growth was driven by higher demand and broader industry acceptance of several ZERUST \( ^{®} \)  solutions, including corrosion protection for storage tank bottoms and pipelines.

The global oil & gas market remains compelling to NTIC, due to its size and profit potential. The ZERUST \( ^{®} \)  oil & gas team has developed quite a sizable funnel of sales opportunities that, in the current business climate, is closing orders at a much more favorable pace. That said, we recognize that it will take a little more time for us to smooth out the choppy pace at which we've been logging new business in the past.

## Natur-Tec \( ^{®} \)  Bioplastics

Sales of Natur-Tec \( ^{®} \)  products grew to a record 10,051,000 during fiscal 2018, representing a 48% increase over fiscal 2017. With this increase, Natur-Tec \( ^{®} \)  represented nearly 20% of NTIC's consolidated net sales for fiscal 2018, compared to 17% of fiscal 2017's net sales. Favorable regulations, corporate green initiatives, and changing consumer preferences have all had a positive influence on global demand for Natur-Tech's bioplastics. We expect these trends will continue to benefit Natur-Tec \( ^{®} \)  throughout fiscal 2019 and beyond.

## Closing

In closing, I want to thank all the members of NTIC's global family of employees, joint venture partners, friends and colleagues for their hard work and dedication during this great year. Our fiscal 2018 results demonstrate the growing strength of the compelling business model we have created. I am extremely pleased with the direction in which we are headed and know that we believe we are well positioned to fulfill our fiscal 2019 vision of $60 million in sales and $2.00 per diluted share in earnings.

Sincerely,

![](images/3_0.jpg)

G. Patrick Lynch
President & CEO, NTIC

![](images/3_1.jpg)

G. Patrick Lynch