# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_SCL_2020/NYSE_SCL_2020.mmd` · pages 2-8_

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Dear Fellow Shareholders

2020 was a challenging year for our world, our country and Stepan Company, in many respects, but it was also a rewarding year. Our Company pulled together with determination and commitment to keep each other healthy and safe, to keep our plants running and to support a surge in consumer driven demand. In 2020 we did Work Together for a Safer, Cleaner World.

In response to the Covid-19 crisis, we took action to ensure the health and safety of our employees by implementing recommended safety procedures and protocols in our global operations, and organizing work from home for most of our administrative employees. Our team took great pride in making products that contributed to the fight against the virus, and we were able to support our customers' growing requirements for cleaning, disinfection and personal wash products.

While 2020 had its challenges, it was a good year for Stepan. Reported net income for 2020 was \(126.8 million and adjusted net income was a record \)132.0 million, up 11 percent from last year. \( ^{1} \)  Earnings per share were \(5.68, also up 11 percent from adjusted 2019. Our Surfactant business grew significantly, based on higher consumer cleaning, disinfection and personal wash volumes due to Covid-19. Our Polymer results decreased due to a first quarter power outage at our Millsdale facility and lower volumes resulting from pandemic-related construction delays. Specialty Product results were slightly down from the previous year. Total Company volume increased 3 percent. Our adjusted EBITDA margin increased from 12.4 percent to 14.1 percent this year. \)^{2} Net sales of \(1.9 billion were essentially flat with 2020, but included an improved customer and product mix.
Surfactants made \(169.1 million in operating income in 2020, up 38 percent from 2019. Because of the pandemic-related change in consumer habits, we expect growth to continue in cleaning, disinfecting and personal wash products globally, with some moderation as the vaccines reduce the health threat. Growth in the industrial and institutional cleaning markets should improve as economies around the world reopen. Record earnings in Brazil and Mexico were driven by strong volume growth, progress that is expected to continue with expanded capabilities in Mexico and the recent acquisition of Clariant's anionic surfactant business. To support increased demand for disinfection and sanitization products we have debottlenecked and are expanding production of biocidal actives and amphoterics in France, Mexico and the United States.

The Company advanced its customer and product diversification strategy with the addition of over 1,000 customers globally. Sales to these customers significantly contributed to the record Surfactant results in North America and Europe. We are investing to further enhance our digital customer engagement tools to efficiently reach Tier 2 and Tier 3 customers around the globe.

## Stepan Manufacturing Locations

NORTH AMERICA

Northfield, Illinois, USA

Corporate Headquarters

Anaheim, California, USA

Columbus, Georgia, USA

Fieldsboro, New Jersey, USA

Maywood, New Jersey, USA

Millsdale (Joliet), Illinois, USA

Wilmington, North Carolina, USA

Winder, Georgia, USA

ASIA PACIFIC

Bauan, Batangas, Philippines

Jurong Island, Singapore

Nanjing, China

EUROPE

Brzeg Dolny, Poland

Stalybridge, England, UK

Vlissingen, the Netherlands

Voreppe (Grenoble), France

Wesseling (Cologne), Germany

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In the agricultural and oilfield markets, surfactant volumes were down in 2020, driven by lower crop and petroleum prices. We expect these markets to recover, supported by the development of new products and service offerings. Despite the near-term volatility, we have increased market share in our base oilfield business, and we will continue to expand our production chemical portfolio globally with our patent-pending oilfield technologies, flowback modifiers and friction reducer boosters, which help customers improve production yields. We are also planning to relaunch the recently acquired KMCO demulsifier portfolio.

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Our team took great pride in making products that contributed to the fight against the virus, and we were able to support our customers' growing requirements for cleaning, disinfection and personal wash products.

In 2020, Polymer operating income was \(68.2 million, down 2 percent from 2019, primarily due to lower sales volume of phthalic anhydride and rigid polyol, as well as lower polyol margins in North America. We expect demand to gradually improve for polyols as consumers embrace energy conservation and pandemic labor supply issues subside. We expect that the development of next-generation products that enable customers to produce more energy-efficient boards, with lower density, and improved flammability and insulation performance will ensure our success in these markets. In China, cold storage and insulation for livestock structures are attractive growing markets for polyols.

Specialty Products delivered \(14.0 million of operating income in 2020, down \)2.4 million, or 15 percent, from the previous year, primarily due to lower margins within our medium chain triglycerides (MCT) product line. We anticipate improved margins in our flavor business and higher volumes in MCT's as their nutritional value and health benefits are utilized more widely in consumer goods.

Capital spending was \(125.8 million, up \)20.2 million from last year, due to production capacity expansions, as well as plant maintenance and efficiency improvements. Our balance sheet continues to be strong, and we finished the year with no net debt. We plan to use our financial strength to make complementary and new platform acquisitions, as well as internal investments to grow our business and support our infrastructure.

In 2020, Stepan returned \(40.7 million to shareholders via dividends and stock repurchases. We increased our quarterly cash dividend by 10 percent, marking the 53rd consecutive year the Company has increased its cash dividend to shareholders.

We also took significant strides during the year on our sustainability journey, and in particular, our progress to convert energy purchases to renewables and reducing our water consumption. Enhanced sustainability performance of our products is a key driver of our internal innovation and acquisition activities. We were pleased that The Wall Street Journal recognized our progress and in 2020 listed Stepan as the 45th Most Sustainably Managed Company in the World.

During 2020, we were pleased to announce several key promotions, effective January 1, 2021. Scott Behrens was named President and Chief Operating Officer after serving in a series of leadership positions at Stepan for 28 years. Other promotions include Art Mergner to Executive Vice President, Supply Chain; Sean Moriarty to Vice President and General Manager, Surfactants; and Richard Stepan to Vice President and General Manager, Polymers.

I believe we can be proud of how our team responded to the challenges of 2020 and captured the opportunities that were available. We thank all of our employees for their dedicated service and for their contributions to our success.

We are also enthusiastic about our future and the opportunities, both organic and inorganic, that we have to grow our business and improve our efficiency and performance. It is an exciting time to be at Stepan. We believe that we can continue to deliver value to you, our shareholders.

Thank you for your investment in Stepan Company. We appreciate your support.

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F. Quinn Stepan, Jr.
Chairman & CEO

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