Report of the Supervisory Board
The Supervisory Board again properly executed its duties in 2024 in accordance with the law, the Articles of Association of Merck KGaA, Darmstadt, Germany, and its 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 an intensive dialog on the basis of mutual trust. During fiscal 2024, 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 Executive Board also informed the Supervisory Board about the market and sales situation of the company in the context of macroeconomic developments, 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. The Chair of the Supervisory Board also maintained a regular exchange of information with the Chair of the Executive Board outside the Supervisory Board meetings.
Key topics of the Supervisory Board meetings
A total of eight Supervisory Board meetings were held in fiscal 2024 (five of them in person). This comprised six regular meetings and two ad hoc meetings on current projects. At four of the eight meetings, the Supervisory Board intensively addressed the reports of the Executive Board and discussed company developments and strategic issues together with the Executive Board. The Chair of the Audit Committee reported comprehensively on the previous meetings of the Audit Committee at these meetings of the Supervisory Board. Information on the outcome of a medical trial was also offered to the Supervisory Board (in virtual form) in fiscal 2024.
After the long-standing Chair of the Supervisory Board, Wolfgang Büchele, stepped down from this position, an extraordinary meeting in January 2024 elected Michael Kleinemeier as the new Chair of the Supervisory Board until the Annual General Meeting on April 26, 2024.
At the meeting in February 2024, the Supervisory Board intensively addressed the Annual Financial Statements and Consolidated Financial Statements for 2023, the Combined Management Report, the reports of the auditor (Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich, “Deloitte”), including the audit report on the non-financial statement for fiscal 2023, and the proposal for the appropriation of net retained profit. The auditor (Deloitte) explained the audit reports including the focus areas of the audit. The Executive Board and the Head of Group Financial Reporting reported on the financial statements. Furthermore, the Supervisory Board approved the report and the objectives of the Supervisory Board with respect to its composition and the profile of skills and expertise including the qualification matrix, the Declaration of Conformity with the German Corporate Governance Code, and the Statement on Corporate Governance. The Supervisory Board also adopted the proposals to be made to the Annual General Meeting, including the changes to Supervisory Board compensation and the proposals for the new election of Supervisory Board members. The Executive Board reported on business performance in 2023 and outlined the plans for fiscal 2024.
The newly elected Supervisory Board held a constituent meeting in April 2024 at which it elected its Chairman and Vice Chair and the members of the Audit Committee, including its Chair.
The meeting in May 2024 focused on the report of the Executive Board on business performance in the first quarter and the forecast for fiscal 2024. The Executive Board discussed developments in the first quarter of 2024 and provided an outlook concerning the expected business performance in 2024 as a whole. The Supervisory Board extensively discussed the contributions of the individual business sectors to the financial performance. The presentation of the Healthcare, Life Science and Electronics business sectors was an additional focus of the meeting. The Supervisory Board also discussed the results of the Employee Engagement Survey 2023.
At the meeting in July 2024, the Executive Board reported on business performance in the second quarter of 2024 and the increase in the forecast for the Group as a result. Another topic was the audit of the compensation report by the auditor (Deloitte), who was commissioned to conduct the formal and material audit of the compensation report for fiscal 2024. The July meeting of the Supervisory Board intensively addressed the process solutions strategy.
At the Supervisory Board meeting in November 2024, the Executive Board provided an overview of business performance in the third quarter of 2024. The background to this business performance was then discussed in detail by the Supervisory Board. Other topics discussed included the corporate strategy and the report on the Global Leadership Summit (GLS). The Head of Group Financial Reporting then reported on the transactions of Merck KGaA, Darmstadt, Germany, with related parties within the meaning of section 111a et seq. AktG. There were no transactions requiring the approval of the Supervisory Board in accordance with section 111b (1) AktG. The members of the Nomination Committee were also newly elected. Ahead of its November meeting, the Supervisory Board was given extensive training on sustainability and sustainability reporting by internal and external experts.
The Supervisory Board regularly concludes its meetings without the members of the Executive Board being present. Additionally, the employee representatives gather for a preparatory meeting ahead of each Supervisory Board meeting. The employee representatives also gather immediately after each Supervisory Board meeting to discuss the topics addressed at the meeting. Among other things, this includes a discussion of which topics should be put on the agenda for the next Supervisory Board meeting.
Annual Financial Statements and Consolidated Financial Statements
The Annual Financial Statements of Merck KGaA, Darmstadt, Germany, prepared in accordance with German commercial law, 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 Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich.
The auditor 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 (IFRS) and for the Combined Management Report, the auditor issued the unqualified auditor’s report that is 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 of Merck KGaA, Darmstadt, Germany. 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, and the proposal of the Executive Board for the appropriation of net retained profit were submitted first to the Audit Committee and then to the Supervisory Board together with the auditor’s reports.
The Audit Committee examined the Annual Financial Statements of Merck KGaA, Darmstadt, Germany, the proposal for the appropriation of net retained profit and the auditor’s report. 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 acknowledge the auditor’s reports of Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich. In particular, the Audit Committee focused on the key audit matters of particular importance in the audit opinion, the resulting risks for the financial statements, the approach adopted during the audit as described, and the conclusions drawn by the auditor. Upon completion of its assessment, the Audit Committee raised no objections and recommended that the Supervisory Board approve 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, and the report presented by the auditor in accordance with Article 27 (2) of the Articles of Association of Merck KGaA, Darmstadt, Germany.
In accordance with Article 14 (2) of the Articles of Association of Merck KGaA, Darmstadt, Germany, the Supervisory Board 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 of Merck KGaA, Darmstadt, Germany, at its meeting in February 2025 to approve the financial statements. 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 acknowledge the auditor’s reports of Deloitte GmbH Wirtschaftsprüfungsgesellschaft, Munich. The discussion of the relevant agenda item at this meeting 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. The auditors also reported on their audit at this meeting. This was also the case for the meeting of the Audit Committee. Based on the recommendation of the Audit Committee and its own review, the Supervisory Board 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, and the report presented by the auditor in accordance with Article 27 (2) of the Articles of Association of Merck KGaA, Darmstadt, Germany. 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 high-priority topic 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. Dialog with the stakeholder groups set out in the German Corporate Governance Code is an important aspect of opinion-forming within the company. Among other things, this takes the form of surveys in connection with the materiality analysis as well as direct discussions. For example, the Supervisory Board takes the related investor suggestions extremely seriously. In fiscal 2024, the Chair of the Supervisory Board held around ten discussions with investors on Supervisory Board-specific topics. At the start of the year, the discussions with Dr. Büchele focused on exploratory talks ahead of the Annual General Meeting. As the new Chair of the Supervisory Board, Mr. Kleinemeier, continued the investor dialogues. During the course of the year, he discussed Supervisory Board-specific topics relating to corporate governance with JO Hambro and DWS Investment GmbH, for example. With a view to the forthcoming vote on the compensation system at the 2025 Annual General Meeting, Mr. Kleinemeier, who is also a member of the Personnel Committee, discussed the Executive Board compensation system and the planned changes. The focus was on the explanation of profit sharing, which is a special features of our compensation system, as well as a detailed discussion of the structure of the key performance indicators for the long-term component of the compensation system. Topics such as the virtual format of the Annual General Meeting and the issue of mandates and sustainability expertise on the Supervisory Board were also discussed.
The Supervisory Board has an onboarding process aimed at enabling the quick and efficient induction of new members. Most recently, the members of the Supervisory Board received corresponding training in May 2024.
After discussing corporate governance issues in detail, the Executive Board and the Supervisory Board adopted the updated Declaration of Conformity in accordance with section 161 AktG and issued it jointly in February 2025. The statement is permanently available on the website of Merck KGaA, Darmstadt, Germany (https://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, can be found in the Statement on Corporate Governance.
Committees
The Supervisory Board of Merck KGaA, Darmstadt, Germany, had a Nomination Committee and an Audit Committee in fiscal 2024.
Audit Committee
The Audit Committee meets four times a year. Further meetings are convened as and when necessary. The Audit Committee is generally responsible for accounting and auditing matters. This includes sustainability reporting and auditing the sustainability reports. In particular, its responsibilities include auditing the Annual Financial Statements, the Consolidated Financial Statements, and the respective reports of the auditor, as well as the half-year financial report and the quarterly statements. The Audit Committee discusses the assessment of audit risk, the audit strategy and audit planning and the results of the audit with the auditor. The Chair of the Audit Committee regularly discusses the progress of the audit with the auditor and reports back to the committee. The other responsibilities of the Audit Committee include assessing the performance of the auditor, and especially the auditor in charge of the engagement. The Audit Committee is also tasked with sustainability. This topic was assigned to it at the Supervisory Board meeting in April 2023. The Chair of the Audit Committee has particular expertise in the area of sustainability and hence can be considered an expert.
The Audit Committee prepares the negotiations and resolutions of the Supervisory Board on the approval of the Annual Financial Statements and Consolidated Financial Statements and the proposal to the Annual General Meeting on the election of the auditor. The adoption of the Annual Financial Statements is not the responsibility of the Audit Committee or the Supervisory Board, but of the Annual General Meeting. The Audit Committee also ascertains the independence of the auditor, determines the focus areas of the audit and concludes the fee agreement. Furthermore, the Audit Committee monitors the accounting process, the effectiveness of the internal control system, the risk management system, the internal auditing system, and compliance. The Chair of the Audit Committee and the auditor also engage in a regular dialog outside of the meetings of the Audit Committee.
At the meeting in February 2024, which was held in person, the Chief Financial Officer and the Head of Group Financial Reporting reported on the 2023 Consolidated Financial Statements and the Annual Financial Statements of Merck KGaA, Darmstadt, Germany, which were then discussed in detail by the Audit Committee. This included a discussion of the sustainability topics contained in the (Group-) Sustainability Statement. The auditor (Deloitte) also reported on the audit of the financial statements and discussed the focus areas of the audit. The declaration of auditor independence was acknowledged and evaluated. The meeting also reviewed and resolved on the proposal on the appropriation of net retained profit to be submitted to the Supervisory Board, including the dividend payment by Merck KGaA, Darmstadt, Germany, for fiscal 2023, and the update on end-to-end reporting (financial health check). Furthermore, the Audit Committee acknowledged and discussed the written risk report. The Head of Group Internal Auditing then presented the report from Group Internal Auditing for 2023. The compliance and data protection report was also presented and discussed, as were the details of the non-audit services approved in fiscal 2023.
At the meeting in May 2024, which was held in person, the new Audit Committee was constituted following the new election of Supervisory Board members at the Annual General Meeting on April 26, 2024, and the report on the net assets, financial position and results of operations of the Group for the first quarter of 2024 was presented and discussed by the Audit Committee in detail. The Audit Committee also discussed the start date of the audit period with the auditor (Deloitte). The auditor provided an overview of the planning for the audit of the financial statements. The status and progress of the implementation of the Corporate Sustainability Reporting Directive (CSRD) was also discussed.
The meeting of the Audit Committee in July 2024, which was held in person, included a detailed discussion of the report on the net assets, financial position and results of operations of the Group for the second quarter of 2024. The auditor (Deloitte) presented the results of the audit review of the half-year financial report. The auditor also provided an update on process planning for the audit of the Annual Financial Statements and the planned focal points. The Audit Committee approved on the list of the individual audit and non-audit services. A further focal point was the risk report for the first half of 2024 and the status report on the internal control system (ICS), which the Audit Committee discussed in detail. The status and progress of CSRD implementation and the IT strategy were also discussed.
At the meeting that was held in person in November 2024, the Head of Group Financial Reporting reported on the net assets, financial position and results of operations of the Group in the third quarter of 2024, which saw net sales returning to organic growth across the entire Group. The Audit Committee discussed the report on the third quarter in detail. It then discussed the guidelines on exceptionals (EBITDA vs. EBITDA pre), reviewed the contractual terms for the annual audit of the financial statements, and evaluated the audit of the financial statements and non-audit services following an extensive presentation by the Head of Group Financial Reporting. The preliminary focus areas for the audit of the Annual Financial Statements and the corresponding schedule were then discussed with the auditor (Deloitte). Finally, the report on Group Internal Auditing and the status report on compliance and data protection were presented, and an overview of the status of cybersecurity was provided.
Nomination Committee
The Nomination Committee did not meet in fiscal 2024.
Personnel matters and training
With the exception of the extraordinary meeting in January 2024, the in-person meeting in November 2024, and the two ad hoc meetings that were held virtually, the Supervisory Board attended all of the meetings in full during the fiscal year. The members of the Audit Committee attended all meetings of the Audit Committee.
To support further targeted training, the Supervisory Board is offered an informational event with internal and external speakers at least once a year. Two training events took place in fiscal 2024. One event was held on July 31, 2024, on the topic “Process Solutions Strategy”. The focus was on viral gene therapies and the strategy for ensuring a robust production model. Additionally, a training event on sustainability and sustainability reporting with internal and external speakers was held on November 12, 2024. The event covered the strategic relevance of sustainability, regulatory dynamics and challenges, and current insights into CSRD implementation in regard to the industry. In particular, aspects and developments of relevance to the Supervisory Board in connection with the CSRD (e.g., dealing with sustainability issues and improving sustainability competence, ensuring the statutory system monitoring, and the Supervisory Board’s audit obligations) were addressed and discussed in detail. The Supervisory Board was also provided with detailed information on the status of the implementation of our climate change plan. The company generally covers the cost of training measures for the Supervisory Board.
The newly elected Supervisory Board members at the Annual General meeting on April 26, 2024, received the planned onboarding, which was prepared and conducted by employees of the Legal department. The onboarding process conducted in May 2024 included not only legal aspects, but also training on the newly introduced corporate management tool for the Supervisory Board and the Audit Committee.
Darmstadt, February 2025
The Supervisory Board of Merck KGaA, Darmstadt, Germany
Michael Kleinemeier
Chair