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Dear Shareholders

The Sika success story continued in 2016, another record year. In local currencies, sales increased by 5.5% to CHF 5,747.7 million. Growth momentum coupled with disciplined cost management led to new record figures of CHF 795.3 million (+18.1%) for the operating profit and CHF 566.6 million (+21.8%) for net profit. 17 key investments made in the period under review will drive future growth further forward. Since the targets for Strategy 2018 have been reached ahead of schedule, they are once again being revised upward.

Sika successfully continued its growth strategy in the 2016 business year, with sales up more than 5% and record figures for the operating profit and net profit. All regions managed to lift sales and gain further market share. Strong, aboveaverage growth rates were recorded in the USA, Mexico, the UK, Africa, Southeast Asia, Australia and the automotive segment. In cumulative terms and in local currencies, sales were up 5.5%. The strength of the franc led to conversion effects of -0.8%, and thus to a 4.7% increase in sales in Swiss franc terms to CHF 5,747.7 million.

Record profit achieved

The growth momentum produced disproportionately high increases in operating profit and net profit. The continual margin improvement for the 20th consecutive quarter and sustained cost management were the key positive drivers. As a result, Sika posted record EBIT (CHF 795.3 million, +18.1%) and net profit (CHF 566.6 million, +21.8%) for the 2016 business year. Operating free cash flow totaled CHF 586.5 million (+29.9%).

Growth in all regions

Sales in the EMEA region (Europe, Middle East, Africa) rose by 4.6% in local currencies. The core markets Germany, France, Spain and Italy achieved good growth rates. Strong above-average growth was reported in the UK, Russia, Eastern Europe and Africa.

Sales in the North America region rose by 7.8% in local currencies. This is due in particular to the accelerated expansion of the supply chain and the investments in the sales force in fast-growing metropolitan areas.

The Latin America region recorded a 5.1% sales increase in local currencies. Mexico, Argentina and Chile all developed strongly. By contrast, the continuing economic crisis in Brazil and a significant fall in the value of some local currencies led to a downturn in business activity in several countries in the region.

Growth in the Asia/Pacific region was reported at 3.6% in local currencies. The extremly dynamic performance of the markets in Southeast Asia and the Pacific area translated into substantial sales gains. Sika also posted stable second-half growth rates in China.

17 Key investments as growth drivers

The accelerated expansion into growth markets continued in 2016 as well, with a total of 17 key investments in nine new factories, four further national subsidiaries and four acquisitions.

In the EMEA region, a new concrete admixture plant was opened in the Ethiopian capital Addis Ababa and a mortar factory came on stream in Kyroni, near Athens. New national subsidiaries were established in Kuwait, Cameroon and Djibouti.

With the aim of generating momentum for future growth, three acquisitions were made in the North America region: L.M. Scofield, a leading producer of color additives for readymix concrete, and FRC Industries, a manufacturer of fibers for concrete, both joined the Group. The Rmax acquisition enables the expansion of the portfolio for building envelope, wall and roofing insulation technologies.

Investments in Latin America included a new plant for mortar products in Guayaquil, Ecuador, an automotive factory for adhesives and acoustic solutions in São Paulo, Brazil, as well as the establishment of a new national subsidiary in Nicaragua in the capital Managua.

In the Asia/Pacific region, leading mortar producer Ronacrete Ltd. in Hong Kong was acquired. New factories were also opened in Perth, Australia, in Saraburi, Thailand, in Phnom Penh, Cambodia, and in Yangon, Myanmar.

72 new patents

Our 896 employees in R&D drive our innovative strength, many of them working on basic research and the development of new products at the 20 Global Technology Centers. In the 2016 financial year, 72 new patent applications were filed, and a large number of new products were launched in all target markets.

Growth strategy confirmed - 2020 targets raised

Since the targets of Strategy 2018 had been achieved two years early, Sika's strategic goals were reviewed in the second half of 2016 in conjunction with senior managers worldwide. The Board of Directors subsequently reaffirmed the growth model and raised the targets. Sika is now aiming for an EBIT margin of 14–16% (previously 12–14%) and an operating free cash flow greater than 10% (previously more than 8%). The aim is to achieve a return on capital employed in excess of 25%. By 2020, 30 new factories are to be commissioned and 8 new national subsidiaries established. The annual sales growth target remains at 6–8%. Sika intends to increase EBIT to more than CHF 1 billion by 2020.

Position of the Board of Directors upheld by the court

In its decision of October 27, 2016, the Cantonal Court Zug denied all requests of Schenker-Winkler Holding AG (SWH). The Court held that the share transfer restriction (“Vinkulierung,” art. 4 of Sika’s articles of association) applies to the sale of the Sika shares held by SWH to Saint-Gobain. This clear decision by the court of first instance reinforces the position of the independent members of the Board of Directors and legitimizes Sika’s actions over the last two years.

Dividend increase of 30% proposed

At the Annual General Meeting, the Board of Directors will propose to shareholders a 31% increase in the dividend to CHF 102.00 per bearer share (2015: CHF 78.00) and CHF 17.00 per registered share (2015: CHF 13.00).

The 17 key investments, our well-filled product pipeline and our strong sales organization give us reason to look to the future with optimism. Our thanks go to the global management team and our more than 17,000 employees, whose efforts are responsible for Sika achieving another record year. We would like to thank all of them for their hard work and loyalty over the past year.

A special debt of gratitude is also due to our customers, business partners and suppliers for their outstanding cooperation and the strong business relations we enjoy with them.

We would particularly like to thank our shareholders for their great loyalty to Sika and the continuing trust they place in the Board of Directors and management.

Sincerely,

Signature Haelg

Dr. Paul Hälg

Präsident des Verwaltungsrats

Signature Jenisch

JAN JENISCH

Vorsitzender der Konzernleitung