Early identification of possible risks
As a global player, Sika is exposed to a variety of risks. Ensuring the Group’s freedom of action at all times, safeguarding its image, and protecting the capital invested in Sika necessitate the timely analysis of potential risks and their integration into strategic decision-making processes.
Risks and opportunities
Flawed risk assessments may seriously impair a company’s reputation, limit its freedom of action or, at worst, lead to insolvency. Well aware of this, Sika reacted years ago by introducing a comprehensive risk management system at Group level and for all its subsidiaries. Risks should be identified at an early stage and integrated into strategic decision-making processes. Risk management may sometimes assist in the identification of new opportunities and thereby help to generate added value.
Group Management and Board of Directors
Whereas Sika’s Group Management regularly reviews the processes underlying risk management, the Board of Directors bears ultimate responsibility for risk assessment. Its duties include the annual reassessment of the risk situation at Group level. All risks are assessed in terms of a few basic questions:
- Is the risk global or regional in scope?
- What implications does the risk have for the Group?
- How high is the probability of losses occurring?
- What measures need to be implemented to prevent the risk or mitigate its consequences?
If a risk is rated critical in the overall assessment, effective measures are then taken to reduce the probability of or prevent its occurrence, or limit its implications.
Sika pursues a risk-based management approach along the entire value chain from procurement and production to marketing.
Customers and markets
Sika has a policy of strategic diversification to limit market and customer-related risks. Geographical diversification is tremendously important in the locally based construction industry given the sometimes contrary business trends witnessed in this sector in different regions of the world. Customer diversification – with no single customer accounting for more than 1.5% of Sika’s turnover – is another stabilizing factor. As a further safeguard against economic fluctuations, Sika operates both in the new-build sector and in the less cyclical renovation and maintenance market.
The purpose of financial risk management is to optimize funding and achieve a liquidity position geared to financial obligations. Liquidity is ensured by means of long-term bonds.
Liquidity is optimized by means of a cash-pooling arrangement. Sika also manages its net working capital with the utmost prudence. For example, the local companies have precisely defined processes for handling accounts receivable. A cost structure dovetailed to the prevailing market conditions ensures adequate cash generation. Sika attaches high priority to open and cost-efficient access to capital markets. Of significance here is the Standard & Poor’s rating of A-/stable (long term). Due to the legal disputes surrounding Saint-Gobain’s hostile takeover bid, the outlook for our rating has been downgraded from “stable” to “negative.”
Internal Audit carries out inspections as set out in the annual audit plan. The audits primarily include inspections of Group companies in the areas of product development, purchasing, production, goods management, financial and operational reporting, sales, payroll processes, accounts receivable and accounts payable management, and IT management. In addition to the global audit of sales and production companies, regular in-depth audits are carried out in the area of headquarters functions and Group-wide support processes. Internal Audit is an instrument of the Board of Directors and reports to the Audit Committee.