# LETTER FROM THE
EXECUTIVE CHAIRMAN

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_ESI_2021/NYSE_ESI_2021.mmd` · pages 3-9_

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LETTER FROM THE
EXECUTIVE CHAIRMAN

DEAR FELLOW SHAREHOLDERS,

Our company had another outstanding year in 2021. We executed at a high level through the unusual backdrop of record demand in our end markets coupled with severe disruptions in raw material supply, logistics and labor. Through these challenges, we continued to ensure the reliable supply of our products to numerous essential industries, grew net sales 13% organically and grew free cash flow by 12%. In the three years of our journey as Element Solutions, this company has faced and managed through a myriad of headwinds related to the COVID-19 pandemic and subsequent supply chain disruptions. These experiences have both forged our leadership team's capabilities and proven them out. The results speak for themselves. In 2021, we delivered adjusted EPS that exceeded our initial five-year goal in just three years, and we recently set an ambitious new adjusted EPS target for the next five years.

As I have said in the past, as Executive Chairman, I focus my energy on three primary topics: people, culture and capital allocation. We continue to make clear progress in all three areas. Building on a strong 2020, we further increased investment in employee development, improved our commitment to diversity, equity and inclusion, and enhanced our health and safety focus. We continue to recruit, develop, and promote a high-quality group of next-generation industry leaders throughout the organization. Our most important assets go home every night, and we are investing to reflect that. We have built a performance-driven culture that balances ambitious goal setting, delivering on commitments and caring for all stakeholders. This culture is a solid foundation for continued outperformance.

Consistent, strong cash flow generation is a hallmark of this business and we have stayed committed to prudently and opportunistically deploying cash in ways that we believe offer attractive risk-adjusted returns. In 2021, we capitalized on two compelling acquisition opportunities with high expected returns in strategic markets that we know well. The acquisitions of Coventry and HK Wentworth brought exceptional people and increased product breadth while positioning our business for higher growth in core markets and providing expansion opportunities into attractive adjacencies. We funded these acquisitions without additional equity and finished the year with the same leverage ratio as we entered it.

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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.

Over the past three years, Element Solutions has doubled adjusted EPS and the share price has more than doubled since 2018. The capital markets have also been supportive of many of our peers over the same period, but the sources of share price appreciation vary meaningfully across comparable companies to ours. At the median among our peers over the past three years, about 60% of share price appreciation was attributable to multiple expansion. For us, on the other hand, 90% of the price appreciation was attributable to earnings growth. While our shares have appreciated, our earnings multiple has been roughly flat, and we continue to trade at a meaningful discount to peers on free cash flow metrics. With exciting revenue growth prospects ahead of us and a proven track-record of delivering cash generation in a variety of operating environments, I believe it is only a matter of time before the market realizes how great this business is.

Having not sold a share since my initial investment in this company eight years ago, my conviction in the growth potential of this business, the opportunities to deploy capital effectively and the quality of its management team has never been higher. This organization has made tremendous progress over the past three years and has established a solid foundation on which to grow. This is outstanding to see and exciting to be a part of.

I want to thank all our employees, partners and shareholders once again for supporting Element Solutions on its journey to be the best-in-class specialty chemicals company in our industry.

Faithfully yours,

![](images/4_0.jpg)

Sir Martin E. Franklin

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![](images/5_0.jpg)

BENJAMIN GLIKLICH
President and Chief Executive Officer

# LETTER FROM THE
CHIEF EXECUTIVE OFFICER

DEAR FELLOW SHAREHOLDERS,

Our company had a terrific 2021. We set records in sales, profits, and cash flow. We achieved our initial five-year target to double our earnings per share in just three. At the same time, our actions embodied our 2021 mantra "Winning Now, Winning Later" as we invested energy and capital to continue developing the capabilities that will allow us to extend our success. The results in the period and the outlook beyond are encouraging. As we turn to 2022, we have closed the first chapter in the Element Solutions story, while laying the groundwork for an equally productive and rewarding second.

Beginning in 2019, we re-envisioned our strategy and culture, repositioned our company and navigated COVID with its unfortunately lingering, expansive fallout. This was all character-building for our organization. As Franklin Roosevelt said, "A smooth sea never made a skilled sailor." With these challenges at these pivotal moments, we grew our competencies, expanded our comfort zones and seized opportunities. While we defined our vision and culture conceptually in early 2019, it congealed over three years of repeated testing.

Since we launched Element Solutions, each year our company has improved. We have delivered on our commitments and with that established a track record of performance reflective of our business quality. We have outgrown our markets in good times and more challenging ones. We have earned strong incremental margins, converting sales growth into higher profit growth, and we have converted those profits into cash flow at a high rate despite increasing our investment in the business. That cash flow has been deployed prudently and adjusted EPS has grown at a 27% CAGR from 2018 through 2021, or more than 3 times faster than adjusted EBITDA.

To deliver outsized EPS growth, we have invested over $1 billion in high-returning acquisitions, share buybacks and refinancings. This has not required stretching our balance sheet. On the contrary, we have reduced our leverage ratio, while also paying out approximately 20% of our free cash flow in the form of dividends in 2021.

Underlying our financial performance are upgraded capabilities. This organization has improved at a remarkable pace, driving better outcomes for our customers, our people and our shareholders. Our progress is not by chance. It is the product of clarity of mission, focus, and high-quality people that together translate to effectiveness. We know that to do better we must get better, so we raise our standards every year. But raising our standards without teaching and investing will only leave us disappointed. We improve processes and invest in people and capabilities.

In 2021, we invested a great deal. We invested in application labs to showcase our capabilities and help solve customer-specific issues. We expanded capacity in several growth areas, and we helped support customers through equipment financings. Not all of our investment is capital. We also invested time and energy in process improvement. We delivered on a multi-year revamp of our accounting organization to leverage technology and shared resources, resulting in better quality at lower cost. And we completed our first full year of Element Strategy Development and Implementation ('ESDI'), which sets the course for long-term outperformance.

ESDI breaks down big picture "breakthrough goals" into near-term deliverables in the form of progress milestones with a plan to develop the capabilities required to achieve them. It can be challenging to create strong linkage from our big picture vision and culture to our long-term business specific goals to clear near-term deliverables that are reinforced by incentives – but that alignment is also very powerful. We believe ESDI has laid a robust foundation for this, and we are already

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reaping the fruits of it. We have clarity and systematic prioritization around the areas where we should invest our resources. Consequently, we can invest with purpose and accountability in support of outsized organic growth.

ESDI has laid a foundation, but we cannot realize our goals without commercial excellence, which is the theme of this year's annual report.

Our consultative selling model means that we do not merely deliver a product to our customers—we provide solutions. In other words, our technology and product attributes are not the only value ESI provides. Customer needs are different in every location, even if the ultimate products are the same, so our applications expertise and problem-solving are core to our value proposition and figure significantly in commercial excellence. Our progress in commercial excellence is empirically evident in our new business wins, which have grown each of the past three years, and in our new opportunity pipeline, which has grown faster than sales. We are winning more business than before and creating more opportunities to build on that trend.

To support our commitment to commercial excellence, we added new capabilities and talent in 2021 with terrific, strategic acquisitions. We did so at high returns. These businesses improved our portfolios in existing markets, and gave us access to excellent and complementary customer offerings, providing new solutions our customers are excited to buy from us.

We also invested in sustainability to improve our supply chain's environmental footprint, develop outcomes to improve our customers' impact on the planet and support the communities in which we operate. The growing global focus on ESG is a tailwind for Element Solutions. Sustainability is a value-driven for our company. It sits at the intersection of the three vectors of our vision: Our customers want more sustainable manufacturing. Our people benefit from investment in their communities. And our shareholders want to support more sustainably oriented companies. All across our business, our investment in sustainability is driving customer preference and commercial execution. Whether it is our ability to provide recycled metal, our elimination of hazardous chemistries, our less water-intensive and energy-intensive plating solutions or any number of other solutions, we are differentiating ourselves through sustainability. This is a major theme both on a macro and micro level in our business, and one that we can capitalize on.

Unsurprisingly, our track record in our first three years as Element Solutions, together with our increasing investment in the future, leaves us very excited for the next chapter. We have a compelling path forward, and the goals we have set reflect it. In February 2022, we introduced our five-year target to achieve $2.50 in adjusted earnings per share by 2026. This translates to compound annual growth at 13% over that period. The path to achieve that target must be through the same balance of operational excellence and prudent capital allocation we have driven thus far. This is not achievable solely through organic growth. Nor can we reach this goal through share buybacks or acquisitions alone while staying within our targeted leverage construct. We must both run our great businesses better and deploy their strong cash flows accretively. Fortunately, our toolkit in both areas is growing. Between strategic vision, increasing capabilities and market expansion, we have the ability to improve our businesses in an array of circumstances. Surely there will be a whole new set of challenges and commensurate opportunities in the five years to come. We are ready for them.

While we celebrate our accomplishments since 2019, the past three years have also shown us the fragility of many aspects of our lives we had taken for granted. At the same time, these years have also shown us the power and durability of technology. Innovation accelerated along with the adoption of new technologies during the global pandemic. We relish the persistent advance of technology that drives improved outcomes in all aspects of our lives from productivity to public health to the environment. It will also result in improved outcomes for Element Solutions. As technologies move ahead enabled by electronics and more sustainable solutions, we enable our customers to lead the way. We provide enabling materials to the biggest and most exciting companies in the world today. We enable dramatic technology shifts.

Our more than 5,000 employees are the protagonists in the Element Solutions story. Our success to date and in the future is completely attributable to them. The challenges we have overcome and the results we have delivered in our first three years are the culmination of their individual, personal accomplishments. Not only does our company rely on them but so do our customers and broader supply chains. I am incredibly grateful to our team all over the world who enable our enabling technologies. Our simple vision is to be the best in our industry in providing value to customers, opportunities for our people and value for shareholders. This vision demands the most of that second constituency. Our people are rising to this challenge to the benefit of all three.

On behalf of your dedicated leadership team,

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Benjamin Gliklich