- Risks and opportunities systematically explored on all levels

- Supply chain risks managed actively

- Products and market risks included in the development and marketing process 

 

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 acted 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:

If a risk is rated critical in the overall assessment, effective measures are then taken to reduce the probability 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.

Supplier management and raw material procurement

The raw materials that Sika processes into superior-grade products are the Group's biggest cost factor. Therefore, they are high on the risk assessment agenda. Almost 70% of the materials used by Sika in production – e.g. polyols, epoxy resins, acrylic dispersions, and polycarboxylates – are based on fossil fuels or their derivatives. Purchase prices consequently vary according to the supply and demand situation for each raw material and fluctuations in the price of oil. To reduce its dependency on crude oil, Sika is increasingly relying on renewable raw materials such as sugar derivatives, bioethanol derivatives, and natural oils. Moreover, recycled raw materials are used wherever possible, and many production plants implement their own or externally operated recycling loop systems. Mineral substances, such as calcium carbonate, sand, and cement, make up the remaining raw materials.

Sika purchases its base chemicals in accordance with strict quality requirements from certified suppliers offering the best value for money. In the case of key raw materials with limited availability or large purchase volumes, Sika mandates at least two suppliers whenever possible. For unique, highly innovative technologies, the Group seeks to manufacture raw materials itself or source them in close collaborative partnerships with innovative suppliers. In respect of all the materials used, compliance with the relevant statutory registration requirements (e.g. REACH or TSCA) is monitored and ensured by a network of global and local specialists as well as external consultants.

Sika’s purchasing specialists and technical experts work closely with suppliers’ technical units to fully understand the raw material flows and continually optimize costs, quality, availability, and sustainability. Potential suppliers are closely screened by Sika. Before working with the company, they are required to sign the Supplier Code of Conduct, which covers all principles of sustainability.

Suppliers are regularly evaluated by Sika. The corresponding findings are incorporated into the risk assessment, along with the suppliers' self-appraisals and data available in the public domain. If a relevant risk is identified, Sika will conduct an audit of the supply company in question to ensure the functionality of the latter's internal risk management system. Potential risks are systematically identified and addressed, particularly in the case of local suppliers.

Raw materials are systematically evaluated within Sika to assess possible risks relating to quality and availability, and to determine relevant measures such as maintaining safety stocks or securing long-term supply contracts.

Production and logistics

Sika sets defined standards for risk provisions that are binding for its production and logistics operations. These standards form part of the Group-wide “Sika Corporate Management System” and determine, for example, processes and guidelines in the areas of purchasing, quality, environment, health, and safety. Following the launch in 2016 of Sika's new (SikaWorld) intranet platform, the “Sika Corporate Management System” is accessible to employees all round the world. Together with the statutory regulations, the standards are also documented in the management systems of local Sika companies. Additionally, Sika production companies are certified to ISO 14001 (Environmental Management) and ISO 9001:2015 (Quality), and many also to OHSAS 18001 (Occupational Health and Safety Assessment ). A growing number of larger facilities are also certified to ISO 50001 (Energy Management).

Audits and inspections are core elements of the comprehensive management system. They provide management at Group, regional, and local company level with a regular, independent assessment of compliance with official requirements as well as with Sika's internal risk management guidelines and principles. The audits and inspections ensure the effectiveness of processes and related controls. Quality, environment, safety and risk factors, technology, legal matters, IT security, suppliers, and products are all subject to audit. Group-wide, Sika conducted over 160 audits in 2016.

Supplier audits are carried out by the purchasing and quality assurance departments on the basis of the risk assessment, and the number of reviews is steadily being increased. Over 60 purchasing and quality assurance employees have undergone training in audit methods since 2015.

Sika also regularly audits production and logistics at local companies. This includes recording any risks that may result in production downtime, personal injury, property damage, or liability claims. The probability and significance of these risks are assessed, and measures are subsequently defined and implemented to minimize the risk potential at the site and enhance safety. Sika is insured against losses like property damage and business interruption.

Over recent years, Sika has succeeded in reducing the number of accidents significantly and is constantly working on further improvements. The company is focusing more closely on accident prevention and, since 2015, has also operated a global, web-based emergency notification and crisis management service solution.

Product development and marketing

For products and services, Sika implements a structured Product Development Process that factors in potential risks. The Group monitors ecological and safety aspects during the development, production, and product handling stages. For this purpose, it has introduced the specific checking of new developments against a sustainability profile. Sika also focuses on market opportunities and risks, product sustainability performance, and the protection of intellectual property.

Over a period of many years, Sika has had a global program in place to minimize the risks in advisory and sales activities that could provide grounds for liability and product complaints. Thanks to a host of additional measures, including the regular training of employees, clearly formulated standards, detailed causal analyses, and stricter controls, expenditure for product-related claims is steadily being reduced. To avoid the risk of customers using Sika’s products incorrectly, Sika provides systematic instructions, application training, and support to customers, as well as extensive documentation and quality control.

Customers and markets

Sika has a policy of strategic diversification to limit market and customer-related risks. Geographical diversification is specifically important in the locally based construction industry given the sometimes contrary business trends 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.

Financial risks

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 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

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.