Iljadica: Sika expects another record year

In 1910, Casper Winkler laid the foundations of today’s Sika Group, present in 97 countries around the world. Over time, Sika has become synonymous with top-quality construction chemicals and encompasses as many as 7 main segments: concrete production additives, waterproofing, bonding and sealing, concrete repair, roofing systems, flooring systems, and industry. Sika Croatia has established itself as a leader in our market from the very beginning, achieving excellent results year after year, which we discussed with the company’s general manager for Croatia, Zoran Iljadica.

During the recent crisis, the volume and value of construction work in Croatia halved, 53,000 jobs were lost, and the share of construction in GDP decreased by 3.5%. How have these indicators affected Sika’s business?

Due to the new situation and events in the market, we found ourselves facing a significant challenge – to maintain and strengthen our existing position and continue to achieve successful results. This challenge still follows us today, although after seven years of crisis and declining volume, the construction sector has shown some growth and signs of a slight recovery this year. We believe that the situation will improve over time.

To maintain sales at the desired level, it was necessary to increase the market share, which was already over 20% in most of the Sika program. Our profitability is still above average, and through efficient operations, we have also achieved growth in net operating profit (EBIT). Successful management of working capital has resulted in significant growth in free cash flow. Despite the continuous decline in the market, our sales are growing by 5 to 10% annually.

What is the current situation in the construction market? How does Croatia differ from other EU countries?

Some large construction firms are in bankruptcy or pre-bankruptcy, and time will tell which of them will survive. It seems that a large part of the builders that emerged in the former system has not undergone the necessary restructuring process, so they still struggle with inefficiency and unsuccessful management. There is still too little work for everyone, so projects are being pursued at extremely low prices. In this way, it is impossible to retain qualified and experienced carpenters, reinforcement workers, insulators…, which raises questions about the quality of the completed work. It is clear that there is often an attempt to save on the materials used, project solutions are changed on the fly, cheaper and inadequate products are selected, and smaller quantities than those in the cost estimate are installed, leading to a situation where an unwary investor does not receive what they paid for.

With the entry into the EU, Croatia has adopted European standards, borders have been completely opened, and I believe there is no significant difference in the products and solutions offered in the market, nor in their characteristics and values.

The end of the year is approaching, and results are being summed up. How satisfied are you with the results in 2016 and how do they differ from those in 2015? Were you able to achieve all your plans and goals?

2016 was an exceptionally successful year in which we aimed to achieve very ambitious goals. Despite the challenging market conditions, shares in all our business areas grew, and at the company level, we expect an overall sales growth of 9%. Improved operational efficiency is a goal we continuously work on, and we have managed to elevate it to a new level this year as well.

We know that Sika continuously participates in a whole range of interesting and valuable projects. Can you highlight a few projects from 2016 that you are particularly proud of?

Yes, every year we are part of interesting and large projects, and in 2016, notable projects include waterproofing and flooring at the new airport in Zagreb, the building of the Police Administration in Slavonski Brod whose facade includes the Sika Panel system, we created a new floor in the Pliva building for quality control, we repaired the roof of the hospital in Karlovac…

We are happy to have been part of the story of the Family Hotel Amarin from Rovinj, where Sika systems for waterproofing roofs were installed, as well as leveling and bonding floor coverings, and we are currently participating in two large projects that we are extremely proud of, the University Campus in Varaždin and the University Library in Osijek.

On an international level, in the past two years, Sika has become a target for a hostile takeover. Can you explain in more detail the situation regarding the potential purchase agreement between the Burkard family and Compagnie de Saint Gobain and what the consequences would be for Sika?

The Burkard family (SW holding) decided to sell their ownership stake in Sika, and thus the majority of management rights, to Saint Gobain. To protect Sika from the takeover, the Supervisory Board, in accordance with Sika’s statute, limited the voting rights of the Burkard family to only 5%. The Burkard family initiated legal proceedings, demanding the annulment of the decisions of the Supervisory Board and the assembly. The two-year legal dispute has recently concluded with a decision from the cantonal court in Zug, Switzerland, rejecting all claims from the Burkard family.

What would be the consequences of a takeover of Sika by Saint Gobain, we can only speculate. Management estimates that Sika would lose its independence and that Saint Gobain would likely significantly change Sika’s current strategy, which has been yielding very successful results for many years. Saint Gobain agreed to pay the Burkard family a premium of approximately 70% on the then-current stock price. The contract stipulates that future acquisitions and dividend payments are restricted and that the CEO is obliged to ensure the integration of Sika into the new group as soon as possible. Some legal experts claim that Saint Gobain could delist the shares from the stock exchange and thus acquire the remaining 84% of the shares at a significantly lower price, to the detriment of all minority shareholders. All of this became clear upon reviewing the sales contract, which the court recently publicly disclosed.

The cantonal court in Zug ruled on October 27, 2016, in favor of Sika and dismissed all claims from SW Holding against Sika AG. What does this mean?

The family owns just over 16% of the shares, and the founding act of Sika guarantees them a voting right of nearly 54%. The founding act of Sika does not allow the sale of more than 5% of shares without the approval of the Supervisory Board. The court’s decision confirms that the Supervisory Board correctly decided to limit the voting rights of the Burkard family to protect the interests of the company, all its employees, and public shareholders. It is important to emphasize that the court dismissed all claims from the family, i.e., SW Holding, against Sika, thereby confirming that this transaction would cause Sika to cease being an independent company, although both the Burkard family and Saint Gobain claimed otherwise.

The Burkard family’s first reaction was that they would appeal the ruling, but we believe they will continue to fight. If the dispute continues, what do you expect and foresee?

Although we hope for an agreement with the family and are working on a solution that would satisfy both sides, their reaction to the court’s decision indicates a continuation of the legal battle. However, we fully believe that this ruling gives us an excellent basis for continuing Sika’s successful and independent path. Independent members of the Supervisory Board and all members of the Group Management will continue to act in the best interest of Sika as they have so far.

Finally, what are the plans for 2017?

On a global level, we expect another record year and new initiatives for further investments and growth. In Croatia, we will strive to maintain successful upward sales trends, preserve and expand market shares and positions, and continue to be part of interesting construction projects. We will continue to actively support various cultural, educational, and sports activities at the local and national level as we have done so far. We are also arranging a new Show Room within our building in Lučko, where we will be able to present various innovations, existing and new Sika products and systems to all our partners in the best possible way.