Report of the Supervisory Board 

The Supervisory Board again properly executed its duties in 2011 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 2011, the Executive Board provided the Supervisory Board with regular written and verbal reports on the business development of Merck KGaA and the Merck Group. In particular, the Supervisory Board was informed about the market and sales situation of the company against the background of the macroeconomic development, the financial position of the company and its subsidiaries along with their earnings development, as well as corporate planning. Within the scope of quarterly reporting, the sales and operating results were presented for the Merck Group as a whole, and broken down by division and region. 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 2011. At these meetings, the Supervisory Board discussed the reports of the Executive Board in detail and discussed company developments and strategic issues together with the Executive Board.

At the meeting held on February 17, 2011, the Supervisory Board dealt mainly with the annual financial statements and consolidated financial statements for 2010. The Executive Board reported on business developments in 2010 and the key information contained in the 2010 annual financial statements. In addition, the auditor reported on the examination of the financial statements. Lastly, the Supervisory Board approved the proposals to be made to the Annual General Meeting and adopted the statement on corporate governance including the Statement of Compliance with the German Corporate Governance Code in a joint report of the Executive Board and Supervisory Board.

The meeting held on April 27, 2011 focused on current business developments. In addition, the Supervisory Board closely examined the internal auditing system. Furthermore, the head of Group Auditing submitted his report, which the Supervisory Board accepts and discusses on an annual basis. The report included information on the integration of Millipore into the internal auditing system of the Merck Group. The meeting also focused on reporting as well as a discussion on the work of the Research and Development Committee of the Board of Partners of E. Merck KG.

At its meeting held on July 26, 2011, the Supervisory Board discussed business developments in the first half of 2011 as well as the company’s risk management. For this purpose, the company risk manager presented his annual report to the Supervisory Board. He explained the individual risks that had been identified as well as the approach to handling them, and he presented the structure of the risk management process in comparison to the previous risk report. No risks that threaten the continued existence of the company were identified.

The fourth Supervisory Board meeting in fiscal 2011 was held on October 25, 2011. At this meeting, the Supervisory Board discussed the results of the 2011 efficiency audit as well as the report of the Executive Board on the third quarter of 2011. Here, the Executive Board also reported on the realignment of the Merck Group in order to improve processes as well as on the planned program to boost efficiency and reduce costs. In addition, the head of Group Legal & Compliance presented the compliance report for 2011 to the Supervisory Board. This report is a standard part of the October meeting every year. Furthermore, the Supervisory Board adopted new rules of procedure for itself.

Annual financial statements

The annual financial statements of Merck KGaA, the consolidated financial statements of the Merck Group, and the management reports for Merck KGaA and the Merck Group, including the accounts, were audited by KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin. The auditors issued an unqualified audit opinion on the annual financial statements and management report for Merck KGaA in accordance with German Auditing Standards. For the consolidated financial statements prepared in accordance with International Financial Reporting Standards, the auditors issued the auditor’s report, reproduced in the Annual Report of the Merck Group. In addition, the auditors audited the calculation of Merck KGaA’s participation in the profits of E. Merck KG in accordance with Article 27 (2) of the Articles of Association. The annual financial statements of Merck KGaA, the consolidated financial statements of the Merck Group, the management reports for Merck KGaA and the Merck Group, and the proposal by the Executive Board for the appropriation of the net retained profit were presented and distributed to the Supervisory Board, together with the auditor’s reports.

In accordance with Article 14 (2) of the Articles of Association, the Supervisory Board also examined the annual financial statements of Merck KGaA and the management report for Merck KGaA, the proposal for the appropriation of the 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 Merck Group as well as the management report for the Merck Group, and took note of the auditor’s report of KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin.

The discussion of the relevant agenda item at the Supervisory Board’s meeting on February 24, 2012 to approve the financial statements was also attended by the auditors who sign the audit opinion on the annual financial statements of Merck KGaA and the consolidated financial statements of the Merck Group, and who 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 approves the annual financial statements and management report for Merck KGaA, the consolidated financial statements of the Merck Group and the management report for the Merck Group prepared by the Executive Board, as well as the report presented by the auditors in accordance with Article 27 (2) of the Articles of Association. Following its own examination of the situation, the Supervisory Board gave its consent to the proposal for the appropriation of the net retained profit.

Corporate governance and Statement of Compliance

Corporate governance is a topic of high priority for the Supervisory Board. According to its own estimation, the Supervisory Board consists of a sufficient number of independent members. There were no conflicts of interest, as defined by the German Corporate Governance Code, involving Supervisory Board members during 2011. After addressing corporate governance topics in detail, the Executive Board and Supervisory Board resolved to adopt and issue the updated Statement of Compliance on February 14, 2012 (Executive Board) and on February 24, 2012 (Supervisory Board) in accordance with section 161 of the German Stock Corporation Act (Aktiengesetz). The statement is permanently available on the website of Merck KGaA. More information on corporate governance at Merck KGaA, including the compensation of the Executive Board and Supervisory Board, is given in the Statement of Compliance.

Committees

The Supervisory Board of Merck KGaA currently has no 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. Therefore, no report is given on the work of committees.

Personnel matters

No member of the Supervisory Board participated in less than half of the Supervisory Board meetings in fiscal 2011. There were no changes in the composition of the Supervisory Board in 2011. In particular, there were no new elections, new appointments to bodies or formations of new bodies.

Darmstadt, February 24, 2012

The Supervisory Board of Merck KGaA