Risk Report

Risks and opportunities

In the course of its business activities, the Beiersdorf Group is exposed to a multitude of risks and opportunities. These risks and opportunities result, among other things, from its activities that seek to develop and make use of opportunities to improve the company’s competitiveness. Risks and opportunities encompass specific events and developments with a certain probability of occurrence that may have material negative or positive financial and/or non-financial effects on the achievement of the Beiersdorf Group’s objectives. Beiersdorf uses an integrated risk and opportunity management system to identify and evaluate material risks at an early stage and to consistently limit them using counteractive measures. This system is coordinated at Group headquarters.

Beiersdorf Risk Radar

Schematic diagram

Integrated risk and opportunity management system

The risk and opportunity management system at Beiersdorf is an integral part of the central and local planning, management, and control processes in the individual companies, management units, and regions, at Consumer and tesa Business Segment levels, and at Group level. Risk and opportunity management is complemented by the accounting-related internal control systems, the various internal and external monitoring bodies – supported by Internal Audit – and external auditors. Compliance management, which is also relevant in this context, is described extensively in the chapter “Non-financial Statement.”

Risk and opportunity management is closely aligned with corporate strategy and helps Beiersdorf to identify its potential and to analyze and make optimal use of this potential while always taking risks into account. Regularly performing analyses of customers and the competition, for example, enables a swift response to dynamic market developments. Specific market opportunities and risks are derived from the information obtained.

Beiersdorf actively incurs risks only if there is a corresponding opportunity for an appropriate increase in value, and only if they can be managed using established methods and measures within the relevant organization. In cases where the full avoidance of risks is not possible or reasonable, risks are mitigated using appropriate measures, or are transferred to third parties such as insurance companies.

Within the risk management process, periodic inventories are carried out to identify, evaluate, document, and subsequently communicate the material risks in a structured way along with the measures to manage these risks. The corresponding principles, reporting and feedback processes, and responsibilities are laid out in a directive that applies across the Group. This is updated regularly.

Beiersdorf Risk Presentation

Beiersdorf distinguishes between strategic, functional, and operational risks. Strategic risks encompass fundamental frameworks, developments, and events that could have a substantial impact on the Group’s business model or its business segments. Functional risks are challenges inherent to the business model. The various specialist functions generally work at the global or regional level to counter these risks, with sustainable actions relating to the design of operational and organizational structures as well as with specific individual measures. The opportunities and risks associated with climate change are also particularly integrated into strategic and functional risk management. Operational risks and opportunities are those that may influence short-term sales and profits of our corporate affiliates. Appropriate observation periods are assigned to these risk categories.

A period of five years generally applies for strategic risks. For functional risks, the period is two years as a rule, and for short-term operational risks one year.

In the Group’s internal risk reporting, individual risks are uniformly presented by positioning them on the Beiersdorf Risk Radar. The various fields of the radar reflect, in summarized form, the relevant areas for the company both inside and outside the Group that may give rise to risks. The graph on the previous page (Beiersdorf Risk Radar) shows the structure of the risk radar for strategic risks. By combining financial, sustainability-related, and legal compliance topics in a single system, the radar has been expanded from 8 to 16 topics.

For each category, the risks are also classified based on their probability and the potential financial and non-financial impact of their occurrence. The likelihood of occurrence and impact of risks are determined on a net basis, assuming that risk-mitigation measures have already been implemented or at least that specific plans for them exist.

The Executive Board and supervisory bodies are regularly updated on the risk situation at Consumer and tesa Business Segment levels and at Group level. Besides this, direct lines of communication ensure that suddenly occurring material risks are also reported immediately to management. Continuous information sharing with the Corporate Development function additionally encourages the consideration of risk aspects in the support provided to management. Central risk management is also in constant communication with topic-specific task forces, which are created by the Executive Board as necessary.

The Corporate Risk Board (CRiB), which was newly established in 2022, continued its work in the reporting year and is a key body advising the Executive Board on risk management matters. The CRiB continues to consist of the heads of important, mostly globally responsible corporate departments comprising multiple areas of responsibility (Marketing, Quality Management, Internal Audit, Communication, Sustainability, Group Accounting, IT Security, Legal). The task of this body is to collate the various risks – both those already known and those newly identified by the Corporate Risk Board – using a broad-based approach and to analyze them in depth and present them in summarized form. By bringing together many different perspectives, it provides Beiersdorf with important collective intelligence, further improving and complementing the existing analysis of material risks.

As in the previous year, in analyzing the material risks and opportunities, the Executive Board and Supervisory Board looked at the comparison of the qualitatively and quantitatively aggregated risk portfolio with the updated financial total risk-bearing capacity. The aim was again to determine whether there was any need for a change in the overall assessment of the risk situation (see below) on this basis.

To ensure maximum transparency and accountability, Beiersdorf’s financial risk-bearing capacity is calculated based on average net liquidity. The available free cash flow to be used for the development of net liquidity in the multi-period perspective is adjusted solely for the previously deducted investments in securities and effects from past M&A transactions. The calculation of risk-bearing capacity is therefore based on a very conservative approach, as it deliberately does not take into account potentially significant short-term increases in our liquidity, which could be used in actual crisis situations.

These increases could include, for example, new and/or increased credit lines, the release of hidden reserves, the sale of fixed assets, individual business units, or own shares from our portfolio, the temporary suspension of dividend payments, or the reduction of planned investments in the market or in maintaining/expanding our fixed assets. Lastly, for net liquidity and cash flow, we have used only the average for the last five years, rather than the higher recent figures for 2023.

As a result of comparing the risk situation with risk-bearing capacity, it can be concluded that, over the relevant observation period of the next two years, the current risk portfolio, revalued during the reporting year, would still not give rise to a financial situation even remotely endangering the Beiersdorf Group’s continued existence, even given the full and simultaneous occurrence of all the individual risks.

Description of the material risks and opportunities

Strategic risks and opportunities

All strategic risks that already existed in 2022 or newly emerged in the 2023 reporting year were again subjected to a comprehensive review. Where necessary, we adjusted the precise definitions of these risks and our assessment of their probability and/or impact. This analysis showed no material year-on-year change in the overall risk situation. Increased risk in some areas, such as climate-related effects along the entire value chain, were offset by lower risks in others, for example in relation to the energy supply situation. In addition, in line with our cautious approach, we have currently completely removed opportunities beyond our medium-term planning from the quantitative net calculation of the risk portfolio. This approach was also taken in the previous year. We have also removed some risk aspects, that, we regard as part of the day-to-day challenges we continuously face as part of our business model, from the definition of strategic risks, since these are generally already captured by our financial planning. These include, for example, recurring disputes with retailers over pricing, diverse attacks on our brands and products by competitors, and, in particular, the defense of our trademarks and product claims.

1. Reputational risks to brands and the company
   Maintaining and increasing the value of our major consumer brands with their broad appeal remains of decisive importance to Beiersdorf’s business development. The trust of our customers and, in particular, of the consumers of our products, is essential to this and cannot be taken for granted. We have designed our risk management system to fully justify this trust and to provide enduring, successful protection to the value of our brands. We continuously review our internal processes in all areas of the company in order that we can respond appropriately, correctly, and effectively to any events that could harm or threaten our reputation. Combined with the activities described below in relation to the quality of our products and overall market image, we expect this to help prevent any potential reputational problems from escalating into critical issues. This applies equally to our brands and to our company as a whole. Our extensive operational and communication measures in relation to sustainability, diversity, and other aspects of Corporate Social Responsibility (CSR) also help to limit the risks. In the short term, however, we see a slight increase in net risk as a result of the new Lieferkettensorgfaltspflichtengesetz (German Supply Chain Due Diligence Act, LkSG), despite all the measures already implemented. We categorize the risks to the reputation of our brands and our company as medium and possible overall.
2. Critical ingredients
   For a clearer distinction and risk assessment, we have presented the risk arising from the use of critical ingredients separately from general procurement risks in this report. Our research and development department, with its broad expertise and geographical coverage, ensures that we always comply with all local legal requirements. It is supported in this by a specialized regulatory affairs function. We are also in permanent dialogue with the relevant authorities so that we can react in good time when changes to product formulation requirements begin to emerge. As a member of the relevant associations, particularly at the European level, we as a company receive early notice of emerging changes. This also includes our regular dialogue with the key suppliers. In the reporting year, we made further improvements to our internal process for dealing with critical ingredients. However, we note that challenges are growing with the further spread of digital applications and channels critical of the ingredients used in the cosmetics industry. We continue to categorize the risk as medium and possible.
3. Accelerating digitalization
   The penetration of digital technology in consumer interaction all along the marketing and sales process is still constantly increasing. Beiersdorf therefore continues to work hard at planning and implementing these interactions in a way that makes them as specific to the target group as possible. We made considerable efforts in precision marketing in 2023, enabling us to invest significantly more effectively. At the same time, we put in place organizational measures for even more integrated working, across all brands, between the functions and IT in close collaboration with the business. Specifically in e-commerce, we further increased our resourcing to reflect the growing importance of this channel. Recruiting and retaining suitable talent remains a big challenge. This is particularly the case in the field of data analysis, which is crucially important for generating fast and accurate information to guide our actions, including in close dialogue with our customers. Another aspect is ensuring the full protection of private data. Our data protection management system, globally steered and locally implemented, helps us ensure that sensitive data of our company, business partners, and consumers is handled securely at all times. This includes, for example, the development and use of our social media presence and the development of new software solutions. These efforts are complemented by clear internal rules of conduct, transparent management structures, extensive training and monitoring activities, and, in the case of data protection, further work on global roll-out. In this reporting period, as a result of our various measures, we regard the risk as medium and possible.
4. Growing political and economic uncertainty
   The global political situation remained very fraught in the reporting period. Alongside the war in Ukraine, the new military conflict in the Middle East is causing uncertainty, as it is unclear whether it will spread to the wider region. Any such spread could then also have somewhat larger direct impacts on our business in this region. While the US-China relationship has not deteriorated further in recent months, it continues to represent significant uncertainty.
   The outlook for the world economy is difficult to assess overall, since the effects of the very sharp interest rate hikes of the last 18 months may take some time to be fully reflected in the economic figures. Highly indebted countries in particular are at high risk if materially higher borrowing costs weigh on current budgets. The same applies to highly indebted individual companies with which Beiersdorf has a direct or indirect business relationship. The real estate crisis in China is potentially a not-to-be-underestimated factor in this regard. At the same time, Beiersdorf remains geographically relatively well balanced across all its divisions, without extreme dependency on a particular market. Potential market entries in new countries are comprehensively evaluated in their economic and political context. In the case of Russia, care is taken to strictly comply with all sanctions. Nevertheless, we categorize the risk from the impact of an escalating military conflict or economic crisis in a market relevant to Beiersdorf as major and possible overall.
5. Shortage of raw materials, natural resources, and energy
   The general procurement situation has improved in recent months with the easing of COVID-19-related restrictions in the global supply chain. This is also evident in falling prices for some important raw materials and packaging materials, even though many categories have not reached the price level seen before the pandemic. The same applies to the energy supply, which is regarded as largely secure at the current time. To allow us to respond swiftly and appropriately to potential future supply crises, we are continuously monitoring our markets and suppliers and use appropriate contract management. Procurement also carefully manages the scope, timing, and frequency of our individual purchases. Strategic partnerships remain an important element of actively managing our supplier portfolio, as do internal programs designed to ensure the agility of the supply chain as a whole and its resilience to disruption. In addition, we are intensively seeking potential cost reductions throughout the value chain as part of the continuation of our broad-based value engineering project. While we see overall positive trends, this area remains one of significant uncertainty. Therefore, we regard the strategic and functional risks in relation to availability and price trends on the procurement side as medium and possible given the volatile environment.
6. Cybersecurity
   As part of the review of our strategic risks, we have now returned to reporting the risk from threats to our IT system and the IT systems of our direct business partners as a specific individual risk. This reflects the special and further increasing significance of this risk. This year, the risk of physical unavailability of critical infrastructure excluding IT (chiefly production and storage centers, including transport) has been allocated to risks from climate change. With regard to cybersecurity, we successfully defended ourselves again in 2023 against direct and indirect attacks on our own IT systems. We achieved further improvements in IT infrastructure, particularly in cloud services. We used technical and training-based measures to reduce the particular risk arising from increased working from home. We also repeated our ISO 27001 certification as an important independent confirmation of our efforts. In addition, we began to even better protect our operational systems along the value chain. In light of the growing overall number of threats, we categorize the risk as medium and possible, despite all the progress achieved.
7. Growing ESG requirements
   Regulatory requirements in this area are constantly increasing. This is due particularly to the European Green Deal, which is implemented through national law, and to the Lieferkettensorgfaltspflichtengesetz (German Supply Chain Due Diligence Act, LkSG). Irrespective of legal requirements, Beiersdorf has been setting very high goals. This is evident from our own specific sustainability targets in relation to packaging reduction and avoidance, as well as climate protection. We are continuing to follow through on implementing our new plastics cycle strategy, first announced in 2021, along with our efforts to develop and use sustainable packaging and applications. We have continuously increased our ability to transparently measure progress against interim targets. In 2023, we again held various events in different formats that were designed to help improve the awareness and understanding of our employees and managers around the topics of the environment and sustainability. We also organized a global diversity and inclusion week in 2023 to share our progress and announce ambitious new targets, for example in relation to people with disabilities. To meet the requirements of the new LkSG, we held training programs primarily on aspects related to human rights, both internally and for our suppliers. At the same time, we began assessing and auditing suppliers in relation to this legislation. Given their large number, it will take an extended period of time for this process to cover all our business partners. We anticipate that expectations on the part of the public, NGOs, and our customers will continue to grow in relation to both our environmental protection efforts and our actions as a responsible corporate citizen. We therefore still categorize this risk as major and possible.
8. Climate change-related effects along the value chain
   In this new risk category, we include all the possible impacts of climate change on our entire value chain – from procuring crucial raw materials and packaging to transporting products to end customers. In 2023, we arranged for an extensive external study on risk trends at our own locations between now and 2040. The resulting insights are now being translated into appropriate packages of measures. We have also begun to set up continuous monitoring of these risks, including for critical ingredients. Particular attention is being paid to the water supply at our production sites. We are also constantly updating our emergency plans for critical infrastructure and supplies so that we can swiftly and fully respond to such situations. At the current time, we categorize this risk as medium and possible.
9. Shortage of talent and skills
   Another risk, which we are now upgrading from a functional risk to a strategic risk, relates to the growing challenge of recruiting and retaining suitable talent and providing all of our individuals with appropriately swift and comprehensive training on new technologies. This risk affects both our German locations and our national companies, particularly in relation to all activities with a strong digital component. Beiersdorf is competing here not only with other players in our industry but also especially also with technology firms both large and small. As our most important measure, we therefore worked urgently in the reporting year on a new employer branding program, which we will shortly roll out worldwide. We have also stepped up our presence on social media, including by involving all senior managers in our external communications, so as to raise Beiersdorf’s profile and increase awareness of us as an attractive employer. Partnerships and contacts with universities also serve to build links with qualified potential new employees so that we can prepare them for a career at Beiersdorf through special trainee programs. As in previous years, we reviewed our employees’ satisfaction using an external, standardized, and anonymous survey, comparing the results both to our own track record and the wider market. The results showed a further slight improvement on the previous year’s very high satisfaction level. The even greater focus internally on regular, high-quality personal development meetings and measures should have contributed to this. We have launched training programs to tailor employees’ skills to the constantly growing requirements, particularly in relation to digital technology. These cover general and function-specific skills for which our various academies are responsible. Given our current competitive strength, we currently assess this risk to be low and possible.
10. Generative artificial intelligence
    We have listed this risk, which also represents an incredible opportunity, separately from the risk of general digital acceleration in order to reflect the very rapid pace of developments in this area. As a brand owner, Beiersdorf is also exposed to particular challenges here. We distinguish between two types of risks: firstly, risks arising from the feeding of data to external models, and secondly, risks arising from the use of these models’ output. In response to the rapid growth of Chat GPT and similar tools, we quickly published binding legal guidance that all Beiersdorf employees must follow when using these applications. This is designed in particular to avoid errors in the handling of copyrights and data protection. We have also put our own Beiersdorf GPT environment in place, where the models can be trained securely on our own data. The insights from the first large-scale application cases are being communicated in such a way that they can be applied to other trials. Alongside research and development, we have begun particularly in marketing to intensively explore the risks and opportunities as part of a task force. This work is looking at both creative opportunities and productivity-boosting aspects of the new technology. We will continue to work on shaping the framework for the safe use of these tools. At the current time, and partly because the application cases are still limited, we categorize the risk as low and unlikely.

Functional risks and opportunities

We once again had all functional risks and opportunities evaluated by the global functions during the reporting period. Given the strong overlap with the strategic risks and opportunities in some cases, separate quantification is not useful for the most part. This particularly applies to the topics of reputation, climate change, sustainability, and procurement. For all these topics, however, we take additional compensatory measures from a purely functional perspective, which in the case of strategic risks are limited to the main activities. One example is the use of procurement contracts with protective clauses to reduce the volatility affecting important raw materials and packing materials in uncertain markets.

We have classed non-conformity in relation to European capital markets law as only a functional risk, for example, specifically as it concerns the risk of insider trading or non-compliance in terms of required adhoc reporting. Here we have been providing regular, target-specific training since many years. We also ensure continuous internal information sharing on potentially relevant ad hoc facts. An ad hoc committee evaluates and documents the information. We assess the risk to be medium and possible.

Another purely functional risk concerns market risk from investments. Potential default risks relating to the investment of the Group’s liquid funds are limited by only making investments with defined reliable counterparties. Counterparty risk is monitored daily based on ratings and the counterparties’ liable capital as well as continuously updated risk indicators. These parameters are used to determine maximum amounts for investments with partner banks and securities issuers (counterparty limits), which are compared with the investments actually made throughout the Group. We have invested most of our liquidity in low-risk investments (such as government/corporate bonds and Pfandbriefe). The investment strategy, which is documented in writing, is regularly agreed with our internal supervisory body and with the Supervisory Board. Our risk management process includes looking at the conditional value at risk so that even extreme market situations can be simulated, understood, and factored into investment decisions. Our financial risk management is characterized by the clear allocation of responsibilities, central rules for limiting financial risks as a matter of principle, and the conscious alignment of the instruments deployed with the requirements of our business activities. Specific, additional information on the extent of the currency, interest rate, default, and liquidity risks described above can be found in Note 29 of the notes to the consolidated financial statements, “Additional Disclosures on Financial Instruments, Financial Risk Management, and Derivative Financial Instruments.” The higher interest rates make our cautious strategy easier to implement. We therefore categorize this risk as medium but unlikely.

Lastly, there is a risk from tax and customs audits in a challenging economic environment, particularly in the context of some important changes in our global transfer pricing model. Here, we see the specific risk that local affiliates may not be able to provide the relevant documentation, leading to non-acceptance of our transfer pricing and thus higher taxes. We have therefore stepped up our efforts in tax training and our general communication on tax-related topics. At the same time, we are working to develop digital applications for more transparency and common global standards, for example in relation to tax calculation and documentation. We have also increased the support from third-party experts on certain issues. Overall, we consider the risk to be major and unlikely.

Short-term operational risks and opportunities

Alongside the possible long-term impacts of the many geopolitical and economic uncertainties highlighted in the strategic risks, we also see ramifications of this volatility for operational risks. Price negotiations with our customers and the reaction of our consumers to changing prices will play an important role. Over the past two years, we have gathered valuable experience that we have used in our analytical tools for simulation purposes. With just a few exceptions, the key assumptions on prices and volumes have therefore already been fully incorporated into the basic plan. We regard the risk of effects exceeding this as improbable and low.

The general risk of a pandemic has been included in our functional risks for the last years along with the corresponding measures. Our short-term assessment changed in the reporting period to the extent that the end of pandemic restrictions in many countries enabled positive catch-up effects, especially in categories such as sun protection and lip care. We have generally included these opportunities in the basic forecast and do not see any further significant effects in the medium term.

The key net operational risks currently remaining arise exclusively from legal and tax proceedings and from tax audits, as in the previous period. These risks are prudently quantified by both internal and external experts to the extent possible. Assessing the course and outcome of legal disputes is associated with considerable uncertainty. Based on the information currently available, no material charges are expected for the Group that would be considered probable.

Further information and details on the extent of the risks described here can be found in Note 30 of the notes to the consolidated financial statements, “Contingent Liabilities, Other Financial Obligations, and Legal Risks.”

Monitoring of risks and opportunities

Formal monitoring of the strategic and functional risks, including corresponding mitigating measures, takes place once a year at division board and full Executive Board level and subsequently in the Audit Committee of the Supervisory Board. Along with adherence to our risk policy principles, this naturally feeds into every business decision taken at the various levels of our company.

In addition to the above monitoring, operational risks and opportunities are continuously monitored as part of the financial planning, forecasting, and reporting process at the local, regional, and central levels. This ensures that all sales and earnings effects regarded as relatively likely are directly and appropriately incorporated into our financial reporting, taking into account the measures implemented and planned (e.g., recognition of provisions). This is supplemented by a monthly review of key financial figures for the Group companies, led by the Group Controlling function together with Risk Management, Internal Audit, and other relevant controlling functions. The review is designed to enable potentially critical developments to be addressed swiftly and precisely with those involved and corrective action to be initiated where appropriate.

The latest information on risk development is thus also fed into the management and planning systems of the corporate units regularly throughout the year and becomes part of the decision-making and control processes. By directly integrating the risk inventory and planning process, the risk management system is continuously developed further, and risk awareness is embedded throughout the company.

Summary of the risk situation

Looking at the individual risks, we assess the likelihood of occurrence for the material existing risks to have increased compared with the previous year only in the case of “reputational risks to brands and the company.” Given that the three new strategic risks were largely covered by the functional risks in the previous period, there is no change to the risk situation as a whole. In some cases (digital acceleration, shortages of materials and energy), we have reduced our estimate of the potential financial impact should the existing strategic risks occur. However, we have added new strategic risks at the same time. We therefore see no overall need for qualitative repositioning specifically for strategic risks.

Even considering the updated estimations, there is currently no fundamental change to our assessment of the overall risk situation. As in the previous year, this assessment was substantiated by comparing the current quantitatively and qualitatively aggregated total risk portfolio with the very conservatively calculated risk-bearing capacity of the Beiersdorf Group. Risk-bearing capacity has slightly increased, partly due to the Group’s further improved liquidity position. This analysis has confirmed Beiersdorf’s view that, at the current time, neither the Beiersdorf Group nor individual segments of the business are exposed to any risks that could endanger their continued existence.

Accounting-related internal control system

The aim of the accounting-related internal control system is to implement appropriate principles, procedures, and controls to ensure the correctness and reliability of accounting and financial reporting in the financial statements and management report of the Beiersdorf Group and Beiersdorf AG in line with the legal regulations and relevant accounting standards.

The scope and orientation of the internal control system have been shaped by the Executive Board based on the Group-specific requirements. The accounting-related internal control system consists of the following components: control environment, risk assessment process, control activities, information, communication, and monitoring.

An analysis was used to identify the items and positions containing the material risks for the financial statements. The underlying processes were then assigned to these. Preventive, monitoring, and detective measures designed to ensure security and control in accounting, information processing, and the operational functions have been defined Group-wide for these processes. Among other things, the measures include the separation of functions, manual and IT-based approval processes using the dual control principle, IT checks, access restrictions and authorization concepts for the IT system, and systems-based processes for handling Group accounting data. These measures are updated regularly.

Internal and external shared service centers provide uniform handling of the core accounting processes at Beiersdorf AG and most of its affiliates. In some cases, they achieve this with the help of fully automated processes. Standardized IT systems are used to support financial reporting for the affiliates included in the consolidated financial statements and consolidation. Procedural instructions, standardized reporting formats, and IT-based reporting and consolidation processes support financial reporting.

The consolidated financial statements are based on accounting directives specified by Beiersdorf AG. These guidelines are updated on an ongoing basis through continuous analysis of the relevance and impact of changes in the regulatory environment.

The accounting process and compliance with the control requirements and accounting directives by the companies included in the consolidated financial statements are also regularly reviewed and adjusted if necessary.

It remains the case that even putting in place appropriate, effective systems does not guarantee the correct, complete, and timely recording of information in the accounts with absolute certainty. It is impossible to entirely rule out personal judgments, erroneous controls, criminal acts, or other circumstances. Should these occur, they could limit the effectiveness and reliability of the internal control system.

Adequacy and effectiveness of the internal control and risk management systems¹

In addition to the accounting-related processes, risk early warning and monitoring systems, and related controls, all of which are continuously and systematically audited by internal audit, both centrally and locally, Beiersdorf also has extensive internal rules, regulations, and processes (including interdepartmental processes) in all areas material to ensuring proper and legally compliant operations (e.g., in R&D, production and logistics, quality management, and marketing and sales, and especially in the innovation process, which involves practically all corporate functions). The rules and regulations are regularly communicated and updated as appropriate. Compliance with them is monitored and training continuously provided. We have developed data collection and control mechanisms for sustainability aspects, too. Internal Audit regularly checks that these are being adhered to. We also implemented an integrated IT system for Risk Management in 2023, bringing together risks in the areas of finance, compliance, and sustainability. The Executive Board deals with the monitoring and control of these systems on an ongoing basis, also in close consultation with Internal Auditing. The Executive Board is regularly advised and monitored by the Audit Committee of the Supervisory Board on issues relating to the appropriateness and effectiveness of the internal control system, the risk management system, and the internal auditing system. This has not recently resulted in any significant need for adjustment or improvement with regard to these systems. Beiersdorf therefore has no reason to believe that there are inadequate or ineffective internal control and risk management systems in the relevant business areas or in relation to the relevant topics.

Independent monitoring

The supervisory bodies and the Internal Audit department are integrated into the Beiersdorf Group’s internal control system with audit activities that are independent of the Group’s operations. Internal Audit systematically evaluates the integrity of financial accounting, the effectiveness of the accounting-related internal control system and of the risk and opportunity management system, and compliance. As a process-independent organizational unit, it uses a risk-based approach to reviewing the business processes, the systems and controls that have been put in place, and the financial accounting of transactions. The audit findings are used for ongoing enhancement of the company’s management and of preventive and detective controls. A standardized monitoring system was introduced in 2022, enabling implementation of the controls to be globally monitored, initially in the order-to-cash and purchase-to-pay core business processes. Use of the system was further refined and expanded in 2023.

In accordance with § 317 (4) HGB and § 91 (2) AktG, the Group auditor also evaluates the effectiveness of the risk early warning and monitoring system. Internal Audit and the Group auditor regularly report the audit results to the supervisory bodies.

The Audit Committee of Beiersdorf AG monitors, in particular, the accounting process and the effectiveness of the internal control system, the risk management system, and the internal audit system. Alongside standard reports, in-depth analyses on fundamental and/or currently relevant issues are regularly used for information purposes.

¹ This section of the Combined Management Report is not subject to audit requirements.