Sika is exposed to a variety of risks on a daily basis. Early identification of these risks are crucial to ensure the Group's freedom of action, protection of its image, and the invested capital. Risk Assessment may also lead to the identification of new opportunities and help generate added value. Therefore, Sika has put in place a comprehensive risk management system at Group level and for all its subsidiaries.
Sika’s Group Management regularly reviews the processes underlying risk management, whilst 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?
Risk-based approach along the entire value-chain
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 procurement 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 Sika, suppliers are required to sign the Supplier Code of Conduct, which includes the Sustainability, Ethics, and Fair Competition principles.
Suppliers are regularly evaluated by a comprehensive supply risk management process to achieve continuous uninterrupted material availability, quality, cost competitiveness, and compliance, essential for business success. The corresponding findings are incorporated into the risk assessment, along with the suppliers’ self-assessments 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 expected functionality of the latter’s internal risk management system.
The raw materials that Sika processes into superior-grade products are the Group’s biggest cost factor. This is why they are high on the risk assessment agenda. Approximately two-thirds of the materials used by Sika in production, such as 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.
Raw materials are systematically evaluated within Sika to identify potential risks and to determine relevant measures, such as maintaining safety stocks, and/or securing long-term supply contracts. 2019 saw the successful execution of an improved risk management process, allowing the company to better identify potential risks and secure well-structured mitigation practices. Sika continues to use this risk management process stringently to ensure any potential impact on the company and its customers are mitigated.
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 minimal requirements and best practices; for example processes and guidelines in the areas of safety, health, environment, quality, sourcing, manufacturing, and logistics. The “Sika Corporate Management System” is accessible to all employees of the Sika Group. Together with the local regulatory requirements, these standards are subsequently documented in individually maintained Sika management systems of the local Sika companies. Additionally, Sika production companies are certified to ISO 9001:2015 (quality management) and ISO 14001:2015 (environmental protection), and many also to ISO 45001:2018 (occupational health and safety management) and IATF 16949:2016 (automotive quality management). A growing number of larger facilities are also certified to ISO 50001:2018 (energy management).
Audits and inspections are core elements of Sika’s comprehensive management system. They provide management at Group, regional, and local company levels with a regular, independent assessment of compliance with official requirements, as well as with Sika’s internal risk management guidelines and principles. These audits and inspections ensure the effectiveness of processes and related controls. Quality, environment, health, safety, property loss prevention and business interruption, product development and technology, legal matters, application risks, IT security, suppliers, and product performance are all subject to audit. In 2019, Sika conducted 181 centrally documented audits throughout the organization.
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 increasing. In 2019, 69 supplier audits were executed, and supplier audit trainings for more than 20 purchasing and quality assurance employees were conducted.
Sika also regularly audits production and logistics operations at local companies. This includes recording any risks that may result in personal injury, incidents, production downtime, 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 to enhance operational safety. Sika is also insured against production losses.
Over recent years, Sika has succeeded in significantly reducing the number of accidents and is constantly working on further improvements. The company is focusing more closely on systematical accident and incident prevention.
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 2.5% of Sika’s turnover – is another stabilizing factor. As a further safeguard against economic fluctuations, Sika operates both in the newbuild sector, and in the less cyclical renovation and maintenance market.
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 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.
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 and a long-term revolving credit facility.
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. In this context, the A-/stable rating of Standard & Poor’s must be taken into account.
Internal Audit carries out audits as set out in the annual audit plan, approved by the Audit Committee. The internal audits are primarily for Group companies in the areas of sales, accounts receivable and accounts payable management, product development, purchasing, production, quality control, inventory management, financial and operational reporting, payroll processes, 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 headquarter functions and Group-wide support processes. Internal Audit is an instrument of the Board of Directors and reports to the Audit Committee.