# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_SCL_2021/NYSE_SCL_2021.mmd` · pages 2-8_

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Dear Fellow Shareholders

2021 was another difficult year for our world, our country and our industry as Covid-19 and weather events created employee, raw material and transportation challenges that impacted global supply chains. At Stepan, our employees' commitment and agility allowed us to meet customer requirements and grow income while taking significant steps to Deliver Our Future Now.

In 2021 we utilized our strong balance sheet to buy INVISTA's Polyester Polyol business, initiated the most significant capital project in our history, a $220 million specialty alkoxylation facility at our Pasadena, Texas site and advanced our development of biosurfactants with the acquisition of a world-scale fermentation plant and the construction of a new laboratory dedicated to fermentation. Each of these projects will have a significant impact on the future growth and profitability of Stepan Company.

## DELIVERING RESULTS

Reported net income for 2021 was \(137.8 million and adjusted net income was \)143.5 million, up 9% from last year, both records. Earnings per share were \(5.92, up 9% from 2020; adjusted earnings per share were \)6.16, up 9% from 2020. Our Surfactant business benefited from sequential growth of our Functional business. Polymer results increased primarily as a result of the INVISTA acquisition. Specialty Product results were up slightly from 2020. Our adjusted EBITDA margin declined 235 basis points due to rapid raw material price inflation and lower margins in our US Rigid Polyol business. Net sales of \(2.3 billion increased 25% over 2020 due to the INVISTA acquisition, a 2% increase in volume and higher selling prices due to the significant raw material and transportation cost inflation. Based on continued strong operating cash flows, our Board of Directors approved a 9.8% increase in our quarterly dividend, marking the 54th consecutive year of increased shareholder dividends.

Surfactants made \(166.0 million in operating income in 2021, down 2% from 2020. Sales volume declined 5% due to lower demand from peak pandemic volumes for cleaning, disinfecting and personal wash products and supply chain disruptions that impacted our ability to fulfill market demand. Despite the supply chain challenges, we experienced strong growth within our Functional markets with Agriculture, Oilfield and Construction Additives volumes growing. Our Oilfield business benefited from increased demand in production chemicals, including biocides. A highlight for the year was the opening of our new Agriculture Innovation Center located in Winder, Georgia. The \)9 million state-of-the-art facility includes greenhouses in which we develop and test prototype formulations and additives for improved crop productivity and soil health.
We are expanding amphoteric capacity in Mexico and the United States to meet growing demand from our Consumer Product customers. The recently completed biocidal quaternary capacity expansions in Mexico and the United States ensure we have capacity to meet growing demand in Consumer, Industrial and Institutional disinfection products and for use in the production and stimulation segments in the Oilfield market. Our Rhamnolipid development plan remains on track including the opening of a new fermentation lab in Northfield, Illinois. We see wide and growing interest for bio-based surfactants and believe Rhamnolipids are a sustainable solution for both our Functional and Consumer Product customer needs.

Customer diversification remains a key growth driver and we added for the second year in a row over 1,000 new customers globally. Our customers rely on our formulation knowledge and extensive product portfolio to assist them in the development of their next generation products. Delivering this value-added service in the new, more virtual world remains a priority. To that end, we further enhanced our digital customer engagement last year with the redesign and launch of our updated website which brought new on-demand technical performance and formulation videos to our customers across the globe. We also created and hosted over 100 live virtual video training sessions for our customers' R&D teams. We believe our technical team, with their capabilities and customer first mindset, is a differentiating factor for the Company and is integral to our success.

2021 Polymer operating income was $73.6 million, up 8% from 2020, primarily due to the successful integration of the INVISTA acquisition and recovery in the building construction market. The INVISTA acquisition strengthened our leading position in the US and European rigid and flex faced insulation board markets while providing capacity to meet 4 to 5% projected market growth. We successfully developed and sold our first aromatic polyester polyol incorporating recycled materials. We remain committed to developing polyols with more bio-based content and assisting our customers in developing circularity within their value chains.

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Our Specialty Products business delivered \(14.2 million of operating income in 2021, up 2%, from the previous year. Raw material and global logistic constraints due to COVID-19 impacted Medium Chain Triglycerides (MCTs) raw material supply throughout 2021. We should see MCT sales recover as raw material supply improves. Underlying market demand for MCTs remains robust and we expect attractive market growth driven by greater use of MCTs in pharmaceutical and consumer based applications.

Over the last 36 years I have been fortunate to work with many talented people who have been passionate about Stepan Company's success. I am proud not only of the opportunities and value that we have created for employees, customers and shareholders but how we have delivered those results.

We continued to invest in improving productivity within operations through the implementation of our Stepan Way program. Our Continuous Improvement Team worked closely with our Millsdale production site to identify inefficiencies within our standard work processes which resulted in over $12 million of cash savings and annualized productivity gains using new diagnostic tools and work streams. Productivity gains remain an important enabler towards improved profitability.

We are proud of what we accomplished last year as a team. We deployed a record $195 million (excluding acquisitions) across multiple investment projects to add capacity, new manufacturing and R&D capabilities and to renew infrastructure. Our team also successfully completed the acquisition and integration of INVISTA's polyester polyol business, the largest acquisition in our history. We invested and enhanced our information systems in Operations, Environmental, Health & Safety, Human Resources and Marketing to meet the growing needs of our employees and customers.

Our employees continue to put our values into action by sharing success and inspiring one another to higher levels of performance. We are particularly proud of the feedback that we received in our employee engagement survey, which highlighted strong personal connections to the Company's vision and purpose, a culture of respect and dignity as well as a collective commitment to safety and well-being.

We continued to make progress towards our 2025 Sustainability targets. 40% of our global energy purchases are now sourced sustainably and we have reduced global water usage by 20% versus 2016 through multiple process improvements. We have used our Materiality Assessment, which includes both internal and external stakeholder perspectives, to develop the next steps on our sustainability journey. We continue working towards an innovation portfolio, which will direct 80% of our R&D investment toward sustainable solutions and products that deliver value to our customers. Our EcoVadis rating improved from Silver to Gold, putting Stepan in the top 6% of the chemical industry and for the second consecutive year Stepan was identified by the Wall Street Journal as one of the Top 100 Most Sustainably Managed Companies in the World.

2022 will bring changes to our Board of Directors as we announce the retirement of Mike Boyce. Mike has served on Stepan's Board since 2010 and the Company has benefited from his wise counsel and advice. Scott Behrens, who will become our next CEO, has been nominated to join the Board.

2022 will continue to challenge our team. Covid will impact the availability of the workforce within the supply chain, raw materials will remain tight but availability should improve from 2021 and transportation will remain difficult and more expensive. We have opportunities to grow with an engaged workforce that is aligned with our values and purpose.

Over the last 36 years I have been fortunate to work with many talented people who have been passionate about Stepan Company's success. I am proud not only of the opportunities and value that we have created for employees, customers and shareholders but how we have delivered those results. I firmly believe the best is yet to come for Stepan Company. Now is a good time for me to retire. Scott is ready, the team is ready.

Thank you for your support of our team and ownership in Stepan Company.

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F. Quinn Stepan, Jr.
Chairman & CEO

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