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TAG overview

Results

Report of the Supervisory Board

The Supervisory Board again properly executed its duties in 2020 in accordance with the law as well as the company’s Articles of Association and rules of procedure. In particular, the Supervisory Board monitored the work of the Executive Board diligently and regularly.

Cooperation with the Executive Board

The cooperation with the Executive Board was characterized by intensive, trustworthy exchange. During fiscal 2020, the Executive Board provided the Supervisory Board with regular written and verbal reports on the business development of Merck KGaA, Darmstadt, Germany, and the Group. In particular, the Supervisory Board was informed about the current and potential impact of the Covid-19 pandemic, the market and sales situation of the company against the background of macroeconomic development, and the financial position of the company and its subsidiaries, along with their earnings development and corporate planning. Within the scope of quarterly reporting, the sales and operating results were presented for the Group as a whole, and broken down by business sector. Aside from the Supervisory Board meetings, the Chairman of the Supervisory Board also maintained, and continues to maintain, a regular exchange of information with the Chairman of the Executive Board.

Key topics of the Supervisory Board meetings

Four Supervisory Board meetings were held in fiscal 2020. At these meetings, the Supervisory Board intensely discussed the reports of the Executive Board as well as, together with the Executive Board, company developments and strategic issues.

At the meeting held on February 28, 2020, the Executive Board first intensively addressed the Annual Financial Statements and Consolidated Financial Statements for 2019, the Combined Management Report, the audit report of the auditor on the separate non-financial (Group) report for fiscal 2019, and the proposal for the appropriation of the net retained profit. The auditor explained the audit reports including the focus areas of the audit. The Executive Board and the Head of Accounting reported on the financial statements and discussed the impact of the acquisition of Versum Materials in particular. Furthermore, the Supervisory Board resolved upon the report and the objectives of the Supervisory Board with respect to its composition and the profile of skills and expertise, the Declaration of Conformity with the German Corporate Governance Code, and the Statement on Corporate Governance, which simultaneously includes the joint report on Corporate Governance of the Executive Board and Supervisory Board. The Supervisory Board also approved the proposals to be made to the Annual General Meeting. The Executive Board reported on business performance in 2019 and presented the plans for fiscal 2020 as well as the forecast impact of the Covid-19 pandemic on our global business, which it discussed in detail with the Supervisory Board. The Supervisory Board also took note of the written risk report as well as the report from Group Internal Auditing for 2019. In addition, the Supervisory Board discussed the mandatory change of auditor.

The meeting held on May 13, 2020, again focused on the Covid-19 pandemic. In particular, the Executive Board reported on the global pandemic situation, our crisis strategy (safety and business continuity) and the impact in terms of the financial forecast, which also required the preparation of supplementary reports on the Annual Financial Statements and Consolidated Financial Statements for fiscal 2019 and the Combined Management Report. After intensively addressing the current and potential impact of the Covid-19 pandemic and the supplementary reports, the Supervisory Board approved the supplementary reports and drew up the proposed resolution to be made to the Annual General Meeting recommending the adoption of the Annual Financial Statements (including the supplementary report). The Executive Board also discussed the current business development in the first quarter of 2020 and provided an outlook concerning the expected business development in 2020 as a whole. The report of the Research and Development Committee of the Board of Partners of E. Merck KG, Darmstadt, Germany, for Life Science/Performance Materials was a further focus of the meeting. The Supervisory Board also discussed the Compliance and Data Protection Report for 2019. Another special topic discussed was the organization of the Annual General Meeting on May 28, 2020, in virtual form. Finally, the Supervisory Board dealt with the pre-selection of potential auditors in connection with the mandatory change of auditor.

At the meeting on July 30, 2020, the Executive Board provided an overview of the continued development of the Covid-19 pandemic and our strategies, concepts, projects, and partnerships for dealing with the pandemic, which it discussed with the members of the Supervisory Board. The Supervisory Board elected Sascha Held as Vice Chairman of the Supervisory Board after Michael Fletterich stepped down as a member of the Supervisory Board and Vice Chairman during the Annual General Meeting on May 28, 2020. At the meeting, the Supervisory Board also focused intensively on the report of the Executive Board on business performance in the second quarter of 2020. In addition, the auditors reported on the results of their review of the half-yearly financial report. Risk management within the company was a further topic. The Head of Risk Management presented the status report for the first half of 2020. No risks that could threaten the continued existence of the company were identified. Moreover, the list of permitted non-audit services was updated, and an external audit of the non-financial declaration was resolved upon. In addition, a formal amendment to the Articles of Association of Merck KGaA, Darmstadt, Germany, was resolved to reflect the departure of the former Executive Board member Udit Batra. The Head of Legal informed the Supervisory Board about new legal provisions concerning transactions with related parties and recapitulated the organization of the virtual Annual General Meeting.

At its fourth meeting on November 11, 2020, the Supervisory Board started by discussing the current development of the Covid-19 pandemic and the report of the Executive Board on the third quarter of 2020. Additional topics focused on by the meeting were the 2020 status reports of Group Internal Auditing, status reports on compliance and data protection, and the report of the Research and Development Committee for Healthcare. Transactions of Merck KGaA, Darmstadt, Germany, with related parties within the meaning of section 111a et seq. of the German Stock Corporation Act (AktG) were also presented and discussed by the Supervisory Board. A procedure was established to regularly assess whether the conditions of section 111a (2) sentence 1 AktG have been met for such transactions. There were no transactions requiring the approval of the Supervisory Board in accordance with section 111b (1) AktG. Furthermore, the Group Executive Conference and the status of the mandatory change of auditor were discussed. A resolution on preparing for the mandatory change of auditor for Merck KGaA, Darmstadt, Germany, for the fiscal 2023 audit was adopted. In addition, a transformation project in the Healthcare business sector was discussed. Finally, the results of the self-assessment of the Supervisory Board were presented by the Head of Legal and discussed by the Supervisory Board.

In parts of its meetings, the Supervisory Board regularly meets without the members of the Executive Board being present.

Annual Financial Statements

The Annual Financial Statements of Merck KGaA, Darmstadt, Germany, the Consolidated Financial Statements of the Group, and the Combined Management Report for Merck KGaA, Darmstadt, Germany, and the Group, including the accounts, were audited by KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin.

The auditors issued an unqualified audit opinion on the Annual Financial Statements of Merck KGaA, Darmstadt, Germany, in accordance with German Auditing Standards.

For the Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards and for the Combined Management Report, the auditors issued the unqualified auditor’s report reproduced in the Annual Report of the Group.

In addition, the auditor audited the calculation of the participation of Merck KGaA, Darmstadt, Germany, in the profit of E. Merck KG, Darmstadt, Germany, in accordance with article 27 (2) of the Articles of Association, as well as the separate combined non-financial (Group) report. The annual financial statements of Merck KGaA, Darmstadt, Germany, the Consolidated Financial Statements of the Group, the Combined Management Report for Merck KGaA, Darmstadt, Germany, and the Group, the proposal of the Executive Board for the appropriation of net retained profit, and the separate combined non-financial (Group) report were submitted to the Supervisory Board together with the auditor’s report.

In accordance with article 14 (2) of the Articles of Association, the Supervisory Board also examined the Annual Financial Statements of Merck KGaA, Darmstadt, Germany, the proposal for the appropriation of net retained profit, and the auditor’s report presented in accordance with article 27 (2) of the Articles of Association. It also examined the Consolidated Financial Statements of the Group as well as the Combined Management Report for Merck KGaA, Darmstadt, Germany, and the Group, and took note of the auditor’s report of KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin. It focused particularly on the key audit matters of particular importance in the audit opinion, on the resulting risks for the financial statements, the approach adopted during the audit as described, and the conclusions drawn by the auditor. Furthermore, the Supervisory Board also examined the separate combined non-financial (Group) report and the memorandum on a limited assurance engagement prepared by the auditor on behalf of the Supervisory Board. The discussion of the relevant agenda item at the Supervisory Board’s meeting on February 26, 2021, to approve the financial statements was also attended by the auditors who sign the audit opinion on the Annual Financial Statements of Merck KGaA, Darmstadt, Germany, and the Consolidated Financial Statements of the Group as well as the separate combined non-financial (Group) report. The auditors also reported on their audit at this meeting. The Supervisory Board took note of and approved the results of the audit. On completion of its examination, the Supervisory Board raised no objections and thus approved the Annual Financial Statements for Merck KGaA, Darmstadt, Germany, the Consolidated Financial Statements of the Group, the Combined Management Report of Merck KGaA, Darmstadt, Germany, and the Group prepared by the Executive Board, the report presented by the auditor in accordance with article 27 (2) of the Articles of Association, and the separate nonfinancial (Group) report. The Supervisory Board gave its consent to the proposal of the Executive Board for the appropriation of net retained profit after conducting its own review.

Corporate governance and Declaration of Conformity

Corporate governance is a topic of high priority for the Supervisory Board. In its own estimation, the Supervisory Board has an adequate number of independent members. There were no conflicts of interest, as defined by the German Corporate Governance Code, involving Supervisory Board members during the year under review. In fiscal 2020, the Chairman of the Supervisory Board was prepared to hold talks with investors on topics pertaining to the Supervisory Board as appropriate, and remains willing to do so. In fiscal 2020, the Chairman of the Supervisory Board conducted an investor discussion with the shareholders’ association Deutsche Schutzvereinigung für Wertpapierbesitz (DWS) on the nomination of new candidates for the Supervisory Board. No other discussions were requested by investors. Following the most recent self-assessment in fiscal 2020, the next self-assessment of the Supervisory Board is scheduled to take place in fiscal 2022.

After discussing corporate governance issues in detail, the Executive Board (on February 16, 2021) and the Supervisory Board (on February 26, 2021) adopted the updated Declaration of Conformity and issued it jointly on February 26, 2021, in accordance with section 161 AktG. The statement is permanently available on the website of Merck KGaA, Darmstadt, Germany (www.emdgroup.com/en/investors/corporate-governance/reports.html). More information about corporate governance at Merck KGaA, Darmstadt, Germany, including the compensation of the Executive Board and Supervisory Board, is given in the Statement on Corporate Governance of the Annual Report.

Committees

Apart from the Nomination Committee, the Supervisory Board of Merck KGaA, Darmstadt, Germany, currently has no further committees on account of the special features that apply to the Supervisory Board of a corporation with general partners (KGaA) under German company law, and because a corresponding need for this has not emerged to date. In the coming fiscal year, the Supervisory Board will address the formation of an Audit Committee at Supervisory Board level. The members of the Nomination Committee did not convene in fiscal 2020. No report is required on the work of other committees.

Personnel matters

All the Supervisory Board meetings were attended by all Supervisory Board members. The composition of the Supervisory Board changed as follows in 2020: Michael Fletterich stepped down as a member of the Supervisory Board during the Annual General Meeting on May 28, 2020, and was replaced by Alexander Putz as a substitute employee representative. Mr. Putz was inducted by Merck KGaA, Darmstadt, Germany, with onboarding activities and continuing education on topics such as corporate governance, the internal organization, and applicable regulations and legal requirements. The members of the Supervisory Board are responsible for undertaking the training and continuing education required for their tasks, such as on changes in the legal framework, with regular support from the company.

Darmstadt, February 26, 2021

The Supervisory Board of Merck KGaA, Darmstadt, Germany

Wolfgang Büchele

Chairman