# A Message to Our Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_CBT_2020/NYSE_CBT_2020.mmd` · pages 2-8_

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A Message to Our Shareholders

Fiscal year 2020 has been a year like no other. The world continues to struggle in response to the COVID-19 pandemic and the associated economic downturn has challenged virtually every sector of the economy. Like all companies, we at Cabot were faced with extreme and unexpected circumstances and I am immensely proud of the way our team navigated every challenge with resolve and optimism. Our corporate values of integrity, respect, excellence and responsibility are deeply rooted in our culture and they served as a guide for us as we worked together with our various stakeholders during this unprecedented time.

In our 138-year history, we have overcome many challenges. While the ongoing recovery from COVID-19 is still fragile, I can say with confidence that the power of Cabot Corporation was revealed during this crisis. Our longstanding leadership in safety provided the behavioral foundation to protect our people from the risks of COVID-19 while continuing to serve our customers with the essential performance materials they need for their applications. Our strong balance sheet and enduring commitment to an investment credit rating equipped us with the strength and liquidity to withstand a severe demand disruption during the spring and early summer months. Furthermore, we understand that a robust strategy requires us to make portfolio choices and appropriately allocate both human and financial capital. To that end, during 2020, we took important actions to strengthen our leadership positions and fund targeted growth applications, while maintaining our commitment to a strong dividend.

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Over the past year, I have been inspired by the dedication, resilience, and generosity of our employees across the globe. Our top priority, as always, is to protect the safety and well-being of our employees and communities, and this was particularly crucial in 2020.

## Supporting Our People and Communities

Over the past year, I have been inspired by the dedication, resilience, and generosity of our employees across the globe. Our top priority, as always, is to protect the safety and well-being of our employees and communities, and this was particularly crucial in 2020.

The onset of the global pandemic and the subsequent evolution of government policies and regulations presented a great management challenge. To address this, we established a COVID-19 crisis response team to ensure executive focus and leadership of the key activities required to protect our people and our company. Based on the best available guidance, we quickly took steps to reduce employee density at all sites, enhance our personal protective equipment (PPE) requirements and modify work procedures. We recognized early on that success would require us to do more than simply protect our employees while on Cabot premises. We needed to educate and train our teams and their families about the risks of community spread and how our Cabot work practices should be extended to their homes. By doing so, our employees were able to not only protect themselves and their colleagues, but their families as well as their communities.

The public health crisis has spared no one and we all know family members, friends or colleagues that have been affected. Beyond the direct impact, the stress and anxiety brought on by the demands of protecting and caring for our loved ones and adjusting to new routines has been significant. To support our employees and enable them to be their best during this time, we took timely measures to address their needs through new and expanded policies and benefits, including Emergency Leave and Pay Continuation policies and through the establishment of a global Employee Assistance Program offering a variety of services from financial counseling to confidential mental health support.

## Managing Our Business

As the COVID-19 pandemic sparked a severe global recession and volumes in our core businesses declined sharply, we quickly pivoted to a posture of cost reduction and cash preservation. Speed was essential and our decisions were guided by a philosophy of protecting the company first, while maintaining our ability to emerge from the crisis ready to win.

During the year we undertook a broad range of cost management initiatives, both short-term adjustments and structural actions, which generated savings of $68 million. Included in our structural actions was the establishment of a Global Business Services organization. This new function was designed with a mandate to drive efficiency and effectiveness by bringing end-to-end ownership to our core processes of record-to-report, order-to-cash, source-to-pay and plan-to-deliver. As part of this effort, we consolidated our North American shared service activities into our existing service center in Riga, Latvia, thereby building scale and efficiency. Our next wave of improvement will be driven by the deployment of enhanced digital tools to further streamline, automate and simplify the way we do business.

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Cash preservation was a top priority for us in 2020 and we engaged all employees in our effort to aggressively reduce working capital. In total, we drove a reduction of \(185 million in working capital, which contributed to our strong operating cash flow of \)377 million. We used this cash flow to fund our priority capital expenditures, pay $80 million of dividends and support the strategic acquisition of Shenzhen Sanshun Nano New Materials Co., Ltd (SUSN). In total, our debt level was relatively unchanged, and we maintained our investment grade credit rating and liquidity in excess of $1 billion. Staying true to our prudent balance sheet philosophy gave us the financial and operational flexibility to drive our Advancing the Core strategy.

## Advancing Our Strategy

Despite the global recession of 2020, we never lost focus on our Advancing the Core strategy and we made progress on several fronts during the year. We stayed committed to important investments to grow our core businesses, including the start-up of our new fumed silica plant in Carrollton, KY, USA. We believe that this investment will protect the profitability of this high value product line and provide a long-term growth platform for the business. We also continued to progress the planned upgrade of our new carbon black plant in Xuzhou, China from rubber blacks to specialty carbons.

Driving application innovation in new and attractive markets is a core tenet of our strategy and we made important progress in 2020. With the lithium-ion battery market poised to grow at a 20% – 25% CAGR over the next 10 years, our recent acquisition of SUSN, a leading carbon nanotube producer to the battery sector, will strengthen our position in conductive carbon additives and dispersions to serve this market. Cabot is now the only carbon additive supplier with commercially proven carbon black, carbon nanotubes, carbon nanostructures and dispersions and blends for these critical additives.

In addition, we are seeing great progress in our inkjet business, as the packaging sector begins its conversion from analog to digital printing technology. This strategic transition will be enabled by inkjet printing, thereby creating a new growth application for our inkjet colorants product line. Over the past year, several leading printer OEMs have qualified and adopted our inkjet products and we are excited about the growth potential of this application.

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## Leading in Sustainability

Cabot has a long tradition of leadership in the field of sustainability. For over 10 years we have published a sustainability report consistent with the Global Reporting Initiative (GRI) guidelines and in our most recent report we included information consistent with the recommendations of the Sustainability Accounting Standards Board (SASB) Chemicals Industry Standard. Over the years, we have broadened our view of sustainability to extend beyond a foundation of safety, health and the environment. Consequently, this past year we launched an expanded set of 2025 sustainability goals that address the important areas identified in our materiality assessment. Our 2025 goals are organized under three pillars: Caring for our People and Communities; Acting Responsibly for the Planet; and Building a Better Future Together.

Sustainability is integral to our business strategy at Cabot and we believe these goals serve as a motivational force for our employees and will differentiate our company from competition in the eyes of our customers and other stakeholders. You can learn more about our goals and key progress highlights later in this report.

## Looking Ahead

As we look ahead to the coming year, I am filled with optimism for our company. While uncertainty remains as the world continues to fight the COVID-19 public health crisis, I am encouraged by the performance of our company during such a challenging 2020. The Cabot team rose to the occasion and the strength and potential of our company was revealed. I am proud and inspired by the way our people around the world responded and we are emerging from the crisis ready to win.

Thank you for your continued support of Cabot Corporation.

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Sean D. Keohane

President and Chief Executive Officer

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