Sika : Corporate Governance - Annual Report 2021

SIKA

BUSINESS YEAR

2021

WWW.SIKA.COM/ANNUALREPORT

SIKA ANNUAL

CORPORATE GOVERNANCE

CORPORATE GOVERNANCE

COMMITMENT TO OPENNESS AND TRANSPARENCY

Good Corporate Governance safeguards the sustainable development and performance of the company. Sika is committed to openness and transparency and provides information on structures and processes, areas of responsibility and decision procedures, as well as rights and obligations of various stakehold- ers. Reporting at Sika follows the SIX Swiss Exchange guidelines.

Group structure and shareholders

Sika AG, headquartered in Baar, is the only listed company of the Sika Group. Sika AG's shares are listed on SIX Swiss Exchange under Swiss security no. 41879292 and ISIN CH0418792922. At the end of the year under review, the market capitalization of Sika AG was CHF 54,385.70 million. In the year under review, the Sika Group encompassed unlisted subsidiaries in 101 countries. 225 companies are included in the scope of con- solidation. Companies of which Sika holds 50% or less of the voting rights are not consolidated. These are namely HPS North America, LLC, USA, Condensil SARL, France, as well as Chemical Sangyo Ltd., and Seven Tech Co. Ltd., Japan. Detailed information on the Group companies can be found on page 237 et seqq. of this report (available at https://www.sika.com/en/investors/reports-publications/financial-reports.html).

Sika conducts its worldwide activities according to countries that have been classed into regions with area- wide managerial functions. The heads of the regions are members of Group Management. The regional and national management teams bear full profit and loss responsibility, and - based on the Group strategy - set country-specific growth and sustainability targets and allocate resources.

Furthermore, Sika has geared its internal organization towards eight Target Markets, from the construction industry and from industrial manufacturing. These Target Markets are represented by one member of Group Management. Target Market responsibility is well defined in the regional management teams and the national subsidiaries as well. The relevant managers are responsible for the definition and launch of new prod- ucts, the implementation of best demonstrated practices, and the product-line policies for Group products, i.e., those offered worldwide, rather than only in one particular country.

The heads of the central Finance, Innovation and Sustainability, as well as Human Resources and Compliance departments are likewise members of Group Management, which consists of eight members. All Group business is consolidated in Sika AG, the holding company, which itself is under the supervision of the Board of Directors. The organizational structures are presented on pages 149 to 153 of the download version of this report (available at https://www.sika.com/en/investors/reports-publications/financial-reports.html).

As of the balance sheet date of December 31, 2021, Sika had received notification of four significant shareholders whose voting rights reached at least 3%: (1) BlackRock Inc., which owned 7.7% of all voting rights. (2) William H. Gates and Melinda French Gates, who held 5.3% of all voting rights via Cascade Investment L.L.C. and Bill & Melinda Gates Foundation Trust. (3) The Capital Group Companies, which held 5.0% of all voting rights via Capital Research and Management Company, Capital Bank and Trust Company, Capital International Limited, Capital International, Inc., and Capital International Sarl. (4) Norges Bank (the Central Bank of Norway), which held 3.01% of all voting rights. A list of changes in significant shareholdings reported to the Disclosure­ Office of SIX Swiss Exchange during the year under review can be found at https://www.ser-ag.com/en/resources/notifications-market-participants/significant-shareholders.html#/.

There are no cross-shareholdings exceeding 3%, either in terms of capital or votes.

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Capital structure

According to the commercial register entry, the issued share capital as of December 31, 2021 totaled CHF 1,417,811.60 and was divided into 141,781,160 fully paid-in registered shares, each with a nominal value of CHF 0.01. Taking into account the new shares that were issued as of December 31, 2021 from conditional capital due to partial conversion of the convertible bonds, the share capital issued as of December 31, 2021, but not yet fully reflected in the commercial register, amounted to CHF 1,430,449.67, divided into 143,044,967 fully paid-in registered shares with a nominal value of CHF 0.01 each. One share represents one vote at the General Meeting.

In addition, there is a conditional share capital of CHF 143,255.13 as of December 31, 2021, unrestricted in time, ­divided into 14,325,513 fully paid-in registered shares with a nominal value of CHF 0.01 each, which represents 10.0% of the share capital issued as of December 31, 2021, but not yet fully reflected in the commercial register. These shares are reserved for the exercise of option or conversion rights. The shareholders' subscription rights are excluded.

Further information on the conditional capital can be found in art. 2 para. 4 of the Sika Articles of Association (avail- able at https://www.sika.com/en/investors/corporate-governance-risk-management/articles-of-association.html)Sika AG does not have an authorized capital.

Sika has not issued any participation certificates, dividend right certificates, or stock options.

Option plans do not exist for members of the Board of Directors, Group Management, or employees.

In 2019 and 2020, neither the ordinary nor the conditional capital has changed. In the reporting year, 1,263,807 new fully paid-in registered shares with a par value of CHF 0.01 each were issued from conditional capital. Accordingly, the ordinary share capital was increased by CHF 12,638.07 from CHF 1,417,811.60 to CHF 1,430,449.67 and the conditional capital was decreased from CHF 155,893.20 to CHF 143,255.13. These changes have not yet been entered in the Commercial Register. According to the law, such changes must be submitted by the Board of Directors for entry in the Commercial Register no later than three months after the close of the financial year.

Significant events related to capital structure having occurred after the balance sheet date are described at the end of this chapter under "Significant changes since balance sheet date".

The purchase of Sika registered shares is open to all legal persons and individuals. The company maintains a share register for the registered shares in which the legal owners and usufructuaries are registered with their name and address. Vis-à-vis the company, the person who is registered in the share register is deemed to be the shareholder or usufructuary. The company may deny registration in the share register if, upon the company's request, the acquirer does not explicitly declare that the shares have been acquired in their own name and for their own account. After consulting the party concerned, the company may cancel the registration in the share register if the registration is the result of false information provided by the acquirer. The acquirer must be informed of the cancellation immediately. The acquirer must provide a statement declaring that the registered shares were transferred to him in due form. It is the company's current practice to register Nominees, i.e., shareholders who acquire shares in their own name but on the account of third parties, as shareholders with voting rights up to a maximum of 3% of the total share capital outstanding at the time. Above this limit of 3%, the Board of Directors decides on a case-by- case basis. In 2021, the Board of Directors has not registered any Nominees with voting rights exceeding 3%.

Convertible Bonds

As of December 31, 2021, Sika AG had the following convertible bonds outstanding:

1. Sika AG had a convertible bond listed on the SIX Swiss Exchange (security no.: 41399024, ISIN: CH0413990240, ticker: SIK185) with an original nominal amount of CHF 1,650,000,000.

Principal		Current	Current
	Conversion	Conversion		Maturity
Amount		Ratio	Price		Date	Coupon
Nominal value	105.76415	CHF 189.10	5.6.2025	0.15%
of CHF 20,000		registered					payable
each		shares with					annually on
		a nominal					June 5
		value of
		CHF 0.01

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When conversion rights are exercised, new or existing shares of the company may - at Sika AG's discretion - be delivered. The respective maximum number of registered shares of the company to be delivered upon conversion or, respectively, the maximum increase of the company's share capital upon conversion, correspond to 6.15% of the issued registered shares as of December 31, 2020, respectively, the company's share capital immediately issued before the convertible bond was issued taking into account the company's capital reduction of 2018.

As of December 31, 2021, a total of CHF 241,000,000 of the nominal amount of the convertible bonds have been early converted into 1,262,387 shares.

Sika may call the bonds at any time:

• after the settlement date at the net principal amount, if less than 15% of the aggregate principal amount of the bonds are outstanding at the time of the notice;
• on or after the 21st calendar day after the 5th anniversary of the settlement date at the relevant net prin- cipal amount, if the VWAP of the Sika AG's shares is at least 130% of the conversion price on at least 20 out of 30 consecutive trading days.

1. In January 2019, Sika AG has issued a subordinated mandatory­convertible note listed on the SIX Swiss Exchange (security no.: 45929742, ISIN: CH0459297427, ticker: SIK19) with a total outstanding nominal amount of CHF 1,300,000,000.

Principal		Current	Current
	Conversion	Conversion	Maturity
Amount		Ratio	Price	Date	Coupon
Nominal value		Minimum	Minimum	30.1.2022	3.75%
of CHF 200,000	1,420.25280		CHF 125.17			payable
each								annually on
		Maximum	Maximum			January 30
	1,597.82696	CHF 140.82

The notes will be mandatorily converted into new or existing registered shares of Sika AG at maturity. The maximum number of registered shares of the company to be delivered upon mandatory conversion of the notes, respectively, the maximum in- crease of the company's share capital upon mandatory conversion of the notes, correspond to 7.33% of the issued registered shares as of December 31, 2020, respectively, the company's share capital immediately issued before the convertible notes were issued (based on the minimum conversion price of CHF 125.17). The conversion period for noteholders began on July 1, 2021. As of ­December 31, 2021, a total of CHF 200,000 of the nominal amount of the mandatory convertible notes have been early converted into 1,420 shares.

Sika may, at its sole discretion, elect to defer (in whole or in part) any payment of interest on the notes.

Further information on the convertible bonds can be found on page 156 and 157 of this report (available at https://www.sika.com/en/investors/reports-publications/financial-reports.html).

Board of Directors

The Board of Directors is Sika's highest governing body and is mainly responsible for the:

• Definition of the corporate mission statement and corporate policies
• Decisions on corporate strategy and organizational structure
• Appointment and dismissal of members of Group Management
• Structuring of finances and accounting
• Assessment of the risk management
• Establishment of medium-term planning as well as the annual and investment budgets.

The members of the Board of Directors are elected by the Annual General Meeting for a term of office of one year. They can be reelected. Detailed information on individual members of the Board of Directors as per the balance sheet date of December 31, 2021, is listed on page 151 of the download version of this report (available at https://www.sika.com/en/investors/reports-publications/financial-reports.html). The curricula vitae of the members of the Board of Directors over the last five years can be found in the Annual Report 2020 on

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