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Report of the Supervisory Board

The Supervisory Board again properly executed its duties in 2019 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 2019, 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 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 2019. 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 26, 2019, the Executive Board first intensively addressed the annual financial statements and consolidated financial statements for 2018, the combined management report, the audit report of the auditor on the separate non-financial (Group) report for fiscal 2018, 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. 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 including the proposals for electing new Supervisory Board members. The Executive Board reported on business performance in 2018 and presented the plans for fiscal 2019.

The Supervisory Board also took note of the written risk report as well as the report from Group Internal Auditing for 2018. In addition, the Supervisory Board discussed the mandatory change of auditor and resolved to prepare the public request for tender.

The meeting held on May 9, 2019, focused on current business developments in the first quarter of 2019 and the acquisition of Versum Materials. 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 dealt with the Compliance and Data Protection Report for 2018.

At its meeting on July 31, 2019, the Supervisory Board focused intensively on the report of the Executive Board on business performance in the second quarter of 2019. In addition, the auditor explained the half-year 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 2019. 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. The Executive Board also reported on the status of the “Tolso” project, a restructuring project in the Life Science business sector.

At its fourth meeting on November 8, 2019, the Supervisory Board dealt with the report of the Executive Board on the third quarter of 2019. Additional topics of focus were the 2019 status reports of Group Internal Auditing, status reports on compliance and data protection, and the report of the Research and Development Committee for Healthcare. Furthermore, the Group Executive Conference and the strategy of the Performance Materials business sector were discussed. A resolution on preparing for the mandatory change of auditor for Merck KGaA, Darmstadt, Germany, for fiscal 2023 audit was adopted.

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. The audit opinion for the annual financial statements contained the following key audit matters, i.e. those matters that, in the professional judgment of the auditor, were of most significance in the audit of the annual financial statements:

  • Impairment testing of interests in associates
  • Recognition and measurement of provisions for tax liabilities
  • Balance sheet effects of the termination of the business lease agreement with Merck Healthcare KGaA, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany

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. The audit opinion for the consolidated financial statements contained the following audit topics of special importance:

  • The acquisition of Versum Materials Inc.
  • Recognition and measurement of income tax liabilities and deferred tax liabilities
  • Goodwill impairment tests

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 aforementioned 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 28, 2020, as well as at the meeting on May 13, 2020 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. Furthermore, at this meeting, the auditors reported on their audit. 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 non-financial (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 2019, 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. The Supervisory Board will carry out its next self-assessment in fiscal 2020 on account of this year’s election and resulting new composition of the Supervisory Board.

After discussing corporate governance issues in detail, the Executive Board and the Supervisory Board on February 3, 2020 adopted the updated Declaration of Conformity and issued it jointly on February 3, 2020, 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. The members of the Nomination Committee, which existed until April 26, 2019, did not convene in fiscal 2019. No report is required on the work of other committees.

Personnel matters

With the exception of Helga Rübsamen-Schaeff, who was excused and absent from the meeting on May 9, 2019; Michael Kleinemeier, who was excused and absent from the meeting on May 9, 2019; and Anne Lange, who was excused and absent from the meeting on July 31, 2019, all Supervisory Board members attended all meetings of the Supervisory Board. The composition of the Supervisory Board changed as follows in 2019: Wolfgang Büchele, Michael Kleinemeier, Renate Koehler, Helene von Roeder, Helga Rübsamen-Schaeff, and Daniel Thelen were elected to the Supervisory Board as representatives of the limited liability shareholders by the Annual General Meeting on April 26, 2019. Peter Emanuel Merck and Simon Thelen were appointed to the Supervisory Board. Furthermore, Gabriele Eismann, Michael Fletterich, Edeltraud Glänzer, Jürgen Glaser, Sascha Held, Anne Lange, Dietmar Oeter, and Christian Raabe were elected to the Supervisory Board as employee representatives at the Delegates’ Meeting on April 11, 2019, for a term starting at the end of the Annual General Meeting on April 26, 2019. The members of the Supervisory Board were 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.

Darmstadt, February 28, 2020 / May 13, 2020

The Supervisory Board of Merck KGaA, Darmstadt, Germany

Wolfgang Büchele

Chairman