# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_SCL_2022/NYSE_SCL_2022.mmd` · pages 2-8_

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Dear Fellow Shareholders,

2022 was a year with unprecedented cost inflation, supply chain constraints and continued human health concerns. Our employees again rose to the challenge and delivered record financial and safety performance while receiving recognition as "The Most Sustainable Chemical Company" by Investor's Business Daily. Stepan's highly motivated team of resilient individuals achieved these successes through their commitment to our Values by Sustainably Investing in Our Customers, People and Future.

Reported net income for 2022 of \(147.2 million and adjusted net income of \)153.5 million were both record results and both up 7% from prior year. Earnings per share was \(6.38, up 8% from 2021, while adjusted earnings per share was \)6.65, also up 8% from 2021. Unprecedented cost inflation drove pricing adjustments that resulted in an increase in net sales, while sales volume declined 7% amidst a slowing global economy in the second half of the year. Surfactant business results were slightly lower than prior year, while the Polymer business generated modest income growth. Specialty Products generated record income, more than doubling 2021 income. EBITDA was a record \(293 million dollars while shareholders' equity was a record \)1.17 billion dollars. The quarterly dividend was raised by 9.6% marking the 55th consecutive year of dividend increases. Our balance sheet remains strong and we are prepared to navigate potential uncertainty while we remain focused on execution of our growth strategy.

Surfactants operating income declined 2% to \(162.7 million versus 2021. Surfactant sales volume declined 6% driven by prolonged inflationary impact on end consumer demand for laundry and cleaning products, especially in developing regions. Surfactant volumes sold into the Agricultural Chemicals and Construction Additives markets grew year over year, driven by strong market demand and share growth. Our acquisition of the business and associated assets of PerformanX Specialty Chemicals further strengthened our strategic position in specialty alkoxylates, supporting our new alkoxylation plant currently under construction in Pasadena, Texas.

In 2022, Stepan's Agricultural Innovation Center hosted over a dozen customer groups for training on formulation technology and surfactant science, leading to new projects and collaborations leveraging our greenhouse, spray characterization and product development services. We continued to develop our agronomic capabilities by establishing lab-based bioassays and expanding our field trial program with thirteen university cooperators. We supported customer needs not only in traditional crop protection technologies, but also in emerging areas of sustainable agriculture including biological solutions.
Stepan's R&D team continues to advance the development of our fermentation-based biosurfactant platform, demonstrating pilot scale production and downstream processing of rhamnolipids to meet performance and specification needs for lead consumer and functional market applications. Our progress was supported through continued investment in microbiology, fermentation research, and process optimization capabilities in our Northfield labs and through external collaborations with partners around the world. We are excited about the expanding range of new uses for bio-based rhamnolipids including for personal care, with performance advantages versus current solutions and biodegradable sustainability benefits.

Polymer operating income in 2022 was \(82.9 million, up 13% compared to 2021, primarily driven by margin recovery and improved product mix. Sales increased by \)75.6 million against lower volume due to inventory destocking across the channel and an overall slowdown in the construction markets in Europe and the United States. We remain confident in the long-term energy efficiency trend of worldwide building codes mandating higher levels of insulation.

Our Polymer innovation efforts are aligned with improved sustainability programs based on a polyester polyol that incorporates bio-based or recycled raw materials. Our commitment to meeting our customers' needs in an evolving, more sustainable world led to the development of patent-pending digital tools that help our Polyol customers improve processing quality and reduce waste during operations. Our diversification efforts of growing our share into the spray foam insulation market resulted in sales more than doubling last year.

## "I am proud to be part of an amazing team as we continue to develop and provide vital products for our customers in a safe and sustainable manner."

Specialty Products delivered record operating income of \(29.9 million in 2022, an increase of \)15.7 million compared to 2021. Improved margins within our Medium Chain Triglycerides (MCTs) product line and a more favorable customer mix drove the performance improvement. Raw material supply also improved, enabling us to meet the growing market demand for MCTs in pharmaceutical and consumer-based applications.

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Sustainability is an integral part of our strategic vision as we continue to focus on safety, our people and reducing our impact on the environment. In 2022, Stepan ranked first in the U.S. Chemical-Specialty sector and eighth overall in Investor's Business Daily's 100 Best ESG Companies Report; we maintained our gold ranking from EcoVadis, placing Stepan in the top 5% of assessed chemical industry manufacturers; and we became a formal supporter of the Task Force on Climate-Related Financial Disclosures (TCFD). These speak to the accomplishments of our people, but perhaps the element of ESG that I am most proud of is our record safety performance in 2022. Ensuring our people go home safely every day to their families is paramount to everything we do.

INVESTOR'S BUSINESS DAILY

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COMPANIES

ENVIRONMENTAL, SOCIAL & GOVERNANCE

Employee engagement and the continued support of their development and professional growth through empowerment and providing new opportunities is critical to the Company's future success. Our 2022 annual Employee Engagement Survey showed Stepan scored above the industry benchmark in every dimension measured. I was pleased to see the output of living our Values through the responses from our employees. Our Values will guide our path in continuing to improve our employees' professional development and experience.

We remain keenly focused on improving operational efficiency across our Company. Newly implemented productivity initiatives and data and analytics will help us identify and capture savings. We tirelessly work towards delivering the best service and quality to our customers, which is a differentiating factor for Stepan and integral to our success.
To meet projected long-term market growth, our Engineering and Operations teams deployed a record $302 million in capital in 2022 against growth and capability investments. Capital was deployed for the continued construction of our new specialty alkoxylation plant (our largest capital project ever), the installation of new Low 1,4-Dioxane production assets at three manufacturing sites in the United States, and enhancing the manufacturing capability for Polyols at our Wilmington, North Carolina site. We expect these projects will have a significant impact on our and our customers' future growth.

I want to thank our management team and our employees for their hard work and dedication, and our Board for their guidance and support. Quinn, who retired last April, helped build the foundation for our success and is continuing to guide our strategic ambition as Chairman of the Board. Additionally, I want to thank Deb Stefanik, former Vice President of Business Enablement, for her 32 years of service and leadership that helped Stepan grow into a successful global specialty chemical company.

I am proud to be part of an amazing team as we continue to develop and provide vital products for our customers in a safe and sustainable manner. I am excited about our future as our teams are energized to deliver sustained value to our customers and to you, our shareholders.

Thank you for your continued investment in Stepan Company.

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Scott R. Behrens
President and Chief Executive Officer
Stepan Company

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