Disclosure 103: Management approach disclosure

Disclosure 103-1: Explanation of the material topic and its Boundary
Financial solidity and long-term profitability ensure that Sika remains a reliable and value-adding partner for all its stakeholders, now and in the future, and they represent important cornerstones to maintain global technology leadership and market penetration, from design and construction, to refurbishment. By evaluating economic impacts, risks and opportunities deriving from investments in assets and innovation, Sika strives to focus on the most promising opportunities that deliver optimized value for its customers in the form of durable solutions, and create returns that benefit shareholders. Further, economic health enables Sika to share value created with its various stakeholders, be a reliable employer, an attractive long-term investment opportunity, a responsible taxpayer, and a good corporate citizen, helping communities to flourish. Eventually, economic value creation simultaneously helps improve the economic, environmental, and social conditions of Sika and its stakeholders, and is therefore an aspect of high importance.

Disclosure 103-2: The management approach and its components
The Sika growth model is synonymous with long-term success and profitable growth. By focusing on market penetration, innovation, expanding emerging markets, and acquisitions – and driven by its strong corporate values – Sika is growing successfully. With the positive development of business, the establishment of one further national subsidiary, and the commissioning of eleven new factories and four acquisitions, Sika took a further major step forward in the implementation of its strategic targets for 2020.

Along with its annual growth target of 6–8%, Sika is seeking to achieve an EBIT margin of 14–16% and operating free cash flow of more than 10% of net sales by 2020. At the same time, the return on capital employed (ROCE) should amount to more than 25%. The Group’s international expansion is to be further driven forward over the same period by 30 additional factories and five new national subsidiaries. The unknown outcome of Saint-Gobain’s hostile takeover attempt remains an element of uncertainty for the future.

The management approach for economic performance within Sika includes the following components:

• Commitment: Sika’s success directly benefits all stakeholders.
• Building Trust: The Sika Growth Model ensures the long-term success and the profitable growth of the company.

GOALS AND TARGETS
Sika has defined financial targets that are tailored to the Group’s strategy of growth. These targets include net sales growth, profit, cash flow, and return on capital employed. With regard to the More Value – Less Impact campaign, Sika’s 5-year target plan for 2014-2018 has been defined in 2013. At group level it includes the following target for profitability, which enables the company to distribute economic value: Sales Growth > 6-8%.

The five strategic pillars market penetration, innovation, emerging markets, acquisitions, and values, are not only the foundation for growth but they also drive improvements in margins, cash flow, and return on capital. Within the framework of the growth model, various initiatives contribute to the achievement of the strategic targets.

Disclosure 103-2: The management approach and its components

• Key investments in the accelerated expansion of the supply chain in growth markets, new national subsidiaries and acquisitions drive growth and margins. Since 2015, Sika has invested in 37 new plants, 11 new national subsidiaries and 20 acquisitions.
• Investments in R&D lead to the launch of a large number of new products in all target markets every year. Sika spends approximately 3% of sales on R&D annually.
• Globally organized procurement coordinates purchasing in all regions, resulting in more price efficient sourcing.
• Focus on pricing with global pricing tools and monthly pricing reporting.
• Transparent performance management focused on well-defined KPIs.
• Strict cost management. Fast efficiency measures in countries which are not growing.
• Operating leverage: Sales growth of 6-8% generates higher margins, as costs increase at a disproportionately lower rate.

RESPONSIBILITIES
Overall responsibility with regards to financial performance at group level, remains with the Group CFO, CEO, and the Board of Directors. Since the  international expansion first began, Sika has organized its global activities by country. The national units were later consolidated into regions with higher-level management functions. The heads of the regions are members of the Group Management. The regional and national management teams bear full profit and loss responsibility, and, based on the Group strategy, set country-specific growth and sustainability targets, and allocate resources.

Disclosure 103-3: Evaluation of the management approach
Sika evaluates its management approach through a process steered by the Board of Directors. The company audits and publishes the results accordingly in the quarterly and annual reports.