Sika : Business Year - Annual Report 2021

SIKA

BUSINESS YEAR

2021

WWW.SIKA.COM/ANNUALREPORT

SIKA ANNUAL

CONTENT

Letter to Shareholders	2
AT A GLANCE	6
Facts & Figures 2021	7
Global Presence	9
The Sika Share	10
Dividend Payout	11
STRATEGIC REPORT	12
Business Environment	13
Megatrends	15
Strategy 2023	17
Sika Purpose & Brand	18
Strategic Target Markets	19
Acquisitions & Investments	21
Risk Management and TCFD Recommendations	23
GROUP PERFORMANCE 2021	45
Global	46
Regions	48
Outlook	51

SUSTAINABILITY REPORT	52
Strategic Foundation	54
Our People	68
Suppliers	96
Customers	102
Communities	104
Planet	107
Products	127
Economics	141
Methodological Note	145
Key Partnerships	147
LEADERSHIP	148
Organization & Leadership	149
Organizational Chart	150
Board of Directors	151
Group Management	152
CORPORATE GOVERNANCE	154
COMPENSATION REPORT	165
FINANCIAL REPORT	186
Consolidated Financial Statements	187
Appendix to the Consolidated Financial Statements	192
Report of the Auditor	243
Five-Year Reviews	246
Sika AG Financial Statements	251
Financial Calendar	263
Imprint	264

The 2021 reporting consists of the online report, the complete annual report including the sustainability report as PDF download, and the printed magazine "We add value for everyone". Through this multimedia approach, added value is being created.

SIKA		WE ADD VALUE
BUSINESS YEAR		FOR EVERYONE
	OUR YEAR 2021
2021
		Sika enables circular
		economy in the construction
		industry

More on the 2021 reporting

SIKA ANNUAL REPORT 2021

Content1

LETTER TO SHAREHOLDERS

Record results for sales and profit - EBIT margin increased to 15.0%

Dear Shareholders

Sika performed well in a challenging environment in 2021, once again demonstrating the strengths of its business model. Despite the ongoing COVID-19 pandemic and bottlenecks in the procurement of raw materials, sales rose significantly by 17.5% to a record CHF 9,252.3 million. Operating profit (EBIT) went up by an over-proportional 23.1%, hitting a new record figure of CHF 1,391.4 million. This equates to an EBIT margin of 15.0%. 2021 was expected to be a challenging year and it proved to be a very successful one for Sika. The company is able to harness the potential of various growth platforms to ensure success over the long term.

RECORD FIGURES FOR SALES AND PROFIT

Not only did Sika post record sales but profit also reached an all-time high despite an extremely steep increase in raw material costs. Thanks to price increases, rigorous cost management and economies of scale, efficiency gains, and synergies from acquisitions, Sika was not just able to offset the high raw material costs at EBIT level - it also managed to substantially improve EBIT. This came in at CHF 1,391.4 million, a 23.1% gain on the prior-year figure of CHF 1,130.5 million. The EBIT margin amounted to 15.0% (previous year: 14.4%). In keeping with this development, net profit rose sharply by 27.1% to an overall CHF 1,048.5 million (previous year: CHF 825.1 million). Operating free cash flow came to CHF 908.4 million (previous year: CHF 1,259.4 million) due to increased inventory value and a higher level of investments, and was therefore lower than in the previous year.

UPDATE ON ACQUISITION OF MBCC

Along with seven completed acquisitions in the past year under review, Sika was able to sign a binding agreement for the takeover of MBCC Group (BASF Group's former construction chemicals business) in November 2021. With sales of CHF 2.9 billion, MBCC Group is a leading supplier of construction chemicals and solutions worldwide. This acquisition will complement and broaden Sika's product and solutions offering in four of five core technologies and seven of eight Target Mar- kets, while further strengthening the geographic footprint. The transaction will give rise to a major player supporting greater sustainability.

The market for construction chemical products and solutions is set to grow to around CHF 80 billion in the next years and,

CO2eq emissions per ton sold (scope 1 and 2)

-10.1 %

as it is heavily fragmented, will continue to offer substantial growth opportunities even after Sika's acquisition of MBCC. MBCC generates around 53% of its sales in the construction systems segment and the remaining 47% in the area of concrete admixtures. The acquisition is subject to approval by the authorities. Sika is confident it will receive all required clearances in a timely manner and will cooperate closely with the authorities to this end. The closing of the acquisition remains targeted for the second half of 2022.

SIKA WAS ABLE TO GROW IN ALL REGIONS

In general, the economy in 2021 recovered more quickly than expected from the impact of the pandemic. The fast-growing construction sector played a considerable part in this. In 2021, Sika was able to grow in all regions. Moreover, distribution business posted significant gains in all regions.

The EMEA region (Europe, Middle East, Africa) reported a sales increase in local currencies of 16.1% (previous year: 4.4%).

SIKA ANNUAL REPORT 2021	2
Letter to Shareholders

As in 2020, growth in distribution and refurbishment business outstripped growth in the other business segments. Nearly all countries in the region achieved double-digit growth rates. The United Kingdom and the countries in Africa, the Middle East, and Eastern Europe benefited from an upsurge in growth. In general, sales of Sika product solutions via e-commerce platforms saw an above-average increase.

Increase

Gross Dividend in CHF

+0.40

The Americas region recorded growth in local currencies of 21.0% (previous year: 1.0%). In the USA, Sika gained substantial momentum. Growth was driven by large-scale refurbishment and new-build projects in the area of distribution and data centers. Strong growth rates were achieved in Mexico, Colombia, Brazil, Peru, and Chile. In the Americas region the strategic focus of business activities on big cities and metropolitan areas again paid off, as did the concentration on major infrastructure projects and the targeted realization of cross- selling potential.

In the USA, Sika gained substantial momentum. Growth was driven by large-scale refurbishment projects and new-build projects in the area of distribution and data centers

Sales in local currencies in the Asia/Pacific region increased by 19.4% (previous year: 12.6%). China in particular benefited from the ongoing strong growth momentum with double- digit organic growth rates, and successfully expanded its infrastructure and distribution business. India continued to see a dynamic development, while the countries in Southeast Asia recovered from the severe lockdowns in the last quarter of the year. The trend in Japan remains challenging. Investment activity in the country's construction market is still subdued.

In the Global Business segment, Sika posted growth in local currencies of 4.3% (previous year: -11.4%), thus outperforming the market. The automotive industry experienced major bottlenecks in the electronic parts supply chain. Whereas forecasts at the beginning of the year predicted a strong recovery in the volume of new vehicles manufactured compared with the previous year, particularly in the second half there was a sharp decline owing to the lack of availability of semi- conductors. Nevertheless, Sika anticipates continued strong growth stimuli from the megatrends evident in modern automotive production: electromobility and lightweight construc- tion. In particular, the transition from traditional drive systems to electromobility gained momentum during the pandemic and is benefiting from various government support programs in a number of countries.

SIKA AS AN ENABLER OF SUSTAINABLE CONSTRUCTION AND ENVIRONMENTALLY-FRIENDLY MOBILITY

Climate change is presenting society with major challenges. In its growth strategy, Sika has committed to reducing its CO2eq emissions (scope 1 and 2) by 12% by 2023. In 2021 it was once again able to clearly surpass this target, cutting its CO2eq emissions per ton sold by a further -10.1% (previous year: reduction of -25.9%). At the Capital Markets Day scheduled for September 30, 2022, the Group will announce its new sustainability targets, including a net zero roadmap.

Sika sees itself as an enabler: a supplier of innovative products that enable its customers to lower their CO2 emissions, build in a way that conserves resources and make structures safer. Thanks to Sika solutions, they are able to enhance many aspects of their products and processes. These range from admixtures for low-emission concrete, to facade systems for energy-efficient buildings, and adhesives for environmentally -friendly vehicles.

DIVIDEND INCREASE AND OUTLOOK

Given the record results, the Board of Directors will be proposing a 16.0% increase in the gross dividend to CHF 2.90 per share (pre- vious year: CHF 2.50) at the Annual General Meeting on April 12, 2022.

SIKA ANNUAL REPORT 2021	3
Letter to Shareholders

Thanks to its innovative technologies, Sika is the partner of choice for many customers in the construction and industrial sectors. Government-supported investment programs running into the billions will provide further impetus for its business in the coming years. In addition, Sika is making targeted use of the megatrends that drive its key markets.

Dear shareholders: Sika has managed to generate lasting added value in a challenging year, and we are doing our utmost to build on this impressive performance for the future. On behalf of the Board of Directors, the Sika Group Management, and the 27,000 Sika employees, we thank you most warmly for your trust and loyalty.

For fiscal 2022, Sika expects sales to rise by well over 10% in local	Sincerely
currencies - surpassing CHF 10 billion for the first time - and is
anticipating an over-proportional increase in EBIT.
None of these achievements would have been possible without
the countless initiatives and great dedication shown by our em-
ployees around the world. We are highly appreciative of their
excellent performance, and are most grateful for their tireless	DR. PAUL HÄLG	THOMAS HASLER,
efforts and close identification with our company.	Chair of the Board	CEO

SIKA ANNUAL REPORT 2021	4
Letter to Shareholders