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Capital Structure, Investments, and Financing Activities

(34) Equity

Accounting and measurement policies
Accounting treatment of the general partner’s equity

As a partnership limited by shares, Merck KGaA, Darmstadt, Germany, has two different shareholder groups who have contributed to the company: the general partner E. Merck KG, Darmstadt, Germany, as the personally liable partner; and the shareholders.

From an accounting perspective, the contributions of both shareholder groups are treated as equity, regardless of the general partner’s option to terminate its capital share. This treatment is based on the provision in the Articles of Association of Merck KGaA, Darmstadt, Germany, stating that the limited liability shareholders may decide on the conversion of the company into a stock corporation and thus limit the general partner’s settlement claim to fulfillment in equity instruments.

Equity capital/Capital reserves

The equity capital of the company consisted of the subscribed capital composed of shares and the equity interest held by the general partner E. Merck KG, Darmstadt, Germany (general partner’s equity). As of the balance sheet date, the company’s subscribed capital amounting to € 168 million was divided into 129,242,251 no-par value bearer shares plus one registered share. Each share therefore corresponded to € 1.30 of the subscribed capital. The amount resulting from the issue of shares by Merck KGaA, Darmstadt, Germany, exceeding the nominal amount was recognized in the capital reserves. The equity interest held by the general partner amounted to € 397 million. As in the previous year, there were no changes in subscribed capital in fiscal 2023.

Retained earnings

Retained earnings developed as follows:

€ million

 

Retained earnings/net retained profit

 

Remeasurement of defined benefit plans

 

Fair value reserve for equity instruments

 

Retained earnings

Jan. 1, 2022

 

16,610

 

-1,539

 

63

 

15,134

Profit after tax

 

3,326

 

 

 

3,326

Gains/losses recognized in equity

 

 

1,140

 

-31

 

1,109

Comprehensive income

 

3,326

 

1,140

 

-31

 

4,435

Dividend payments

 

-239

 

 

 

-239

Capital increases

 

 

 

 

Profit transfer to/from E. Merck KG, Darmstadt, Germany, including changes in reserves

 

-868

 

 

 

-868

Transactions with no change of control

 

 

 

 

Change in scope of consolidation/Other

 

-19

 

-2

 

21

 

Dec. 31, 2022

 

18,811

 

-401

 

53

 

18,463

 

 

 

 

 

 

 

 

 

Jan. 1, 2023

 

18,811

 

-401

 

53

 

18,463

Profit after tax

 

2,824

 

 

 

2,824

Gains/losses recognized in equity

 

 

-187

 

160

 

-28

Comprehensive income

 

2,824

 

-187

 

160

 

2,796

Dividend payments

 

-284

 

 

 

-284

Capital increases

 

 

 

 

Profit transfer to/from E. Merck KG, Darmstadt, Germany, including changes in reserves

 

-746

 

 

 

-746

Transactions with no change of control

 

-1

 

 

 

-1

Change in scope of consolidation/Other

 

31

 

-4

 

-27

 

Dec. 31, 2023

 

20,635

 

-592

 

186

 

20,228

Gains/losses recognized in equity

Gains/losses recognized in equity developed as follows (see also Note (39) “Derivative financial instruments”):

€ million

 

Cash flow
hedge reserve

 

Cost of
cash flow
hedge reserve

 

Currency translation difference

 

Gains/losses recognized in equity

Jan. 1, 2022

 

-145

 

-23

 

1,992

 

1,824

Profit after tax

 

 

 

 

Gains/losses recognized in equity

 

91

 

11

 

1,159

 

1,261

Fair value adjustment

 

-98

 

-15

 

1,230

 

1,117

Reclassification to profit or loss

 

194

 

16

 

-71

 

139

Reclassification to assets

 

 

 

 

Tax effect

 

-5

 

10

 

 

5

Dec. 31, 2022

 

-54

 

-12

 

3,151

 

3,086

 

 

 

 

 

 

 

 

 

Jan. 1, 2023

 

-54

 

-12

 

3,151

 

3,086

Gains/losses recognized in equity

 

-2

 

5

 

-1,016

 

-1,013

Fair value adjustment

 

98

 

-17

 

-1,001

 

-920

Reclassification to profit or loss

 

-95

 

22

 

-15

 

-88

Reclassification to assets

 

 

 

 

Tax effect

 

-5

 

 

 

-5

Dec. 31, 2023

 

-56

 

-7

 

2,136

 

2,073

Share of net profit of E. Merck KG, Darmstadt, Germany

E. Merck KG, Darmstadt, Germany, and Merck KGaA, Darmstadt, Germany, engage in reciprocal net profit transfers. This makes it possible for E. Merck KG, Darmstadt, Germany, the general partner of Merck KGaA, Darmstadt, Germany, and the shareholders to participate in the net profit/loss of Merck KGaA, Darmstadt, Germany, in accordance with the ratio of the general partner’s equity interest and the subscribed capital (70.274% or 29.726% of the equity capital).

The allocation of net profit/loss is based on the net income of both E. Merck KG, Darmstadt, Germany, and Merck KGaA, Darmstadt, Germany, determined in accordance with the provisions of the German Commercial Code. These figures are adjusted for trade tax and/or corporation tax and create the basis for the allocation of net profit/loss. The adjustment for corporation tax is made to compensate for the difference in the tax treatment between the general partner and the limited liability shareholders. Corporation tax is only calculated on the income received by the limited liability shareholders. Its equivalent is the income tax applicable to the partners of E. Merck KG, Darmstadt, Germany, which must be paid by them directly. The adjustment thus ensures that the share in net profit corresponds to the respective interests held by the two shareholder groups.

The reciprocal net profit/loss transfer between E. Merck KG, Darmstadt, Germany, and Merck KGaA, Darmstadt, Germany, as stipulated by the Articles of Association was as follows:

 

 

 

 

2023

 

2022

€ million

 

 

 

E. Merck KG, Darmstadt, Germany

 

Merck KGaA, Darmstadt, Germany

 

E. Merck KG, Darmstadt, Germany

 

Merck KGaA, Darmstadt, Germany

Result of E. Merck KG, Darmstadt, Germany, before reciprocal profit transfer, adjusted for trade tax

 

 

 

-12

 

 

23

 

Net income of Merck KGaA, Darmstadt, Germany, before reciprocal profit transfer

 

 

 

 

980

 

 

919

Corporation tax

 

 

 

 

4

 

 

54

Basis for appropriation of profits

 

(100%)

 

-12

 

985

 

23

 

974

Profit transfer to E. Merck KG, Darmstadt, Germany, (ratio of general partner’s equity to equity capital)

 

(70.274%)

 

692

 

-692

 

684

 

-684

Profit/loss transfer to Merck KGaA, Darmstadt, Germany (ratio of subscribed capital to equity capital)

 

(29.726%)

 

4

 

-4

 

-7

 

7

Corporation tax

 

 

 

 

-4

 

 

-54

Net income

 

 

 

683

 

285

 

700

 

242

The result of E. Merck KG, Darmstadt, Germany, adjusted for trade tax, on which the appropriation of profits is based, amounted to € ‑12 million (2022: € 23 million). This resulted in a profit/loss transfer to Merck KGaA, Darmstadt, Germany, of € -4 million (2022: € 7 million). The net income of Merck KGaA, Darmstadt, Germany, adjusted for corporation tax, on which the appropriation of its profit is based, amounted to € 985 million (2022: € 974 million). Merck KGaA, Darmstadt, Germany, transferred a profit of € 692 million to E. Merck KG, Darmstadt, Germany (2022: € 684 million). In addition, an expense from corporation tax charges was reported in the amount of € 4 million (2022: expense of € 54 million).

Appropriation of profits

The profit distribution to be resolved by shareholders also defines the amount of that portion of net profit/loss freely available to E. Merck KG, Darmstadt, Germany. If the shareholders resolve to carry forward or to allocate to retained earnings a portion of the net retained profit of Merck KGaA, Darmstadt, Germany, to which they are entitled, E. Merck KG, Darmstadt, Germany, shall be obliged to allocate to the profit carried forward/retained earnings of Merck KGaA, Darmstadt, Germany, a comparable sum determined according to the ratio of subscribed capital to general partner’s equity. This ensures that the retained earnings and the profit carried forward by Merck KGaA, Darmstadt, Germany, correspond to the ownership ratios of the shareholders on the one hand and E. Merck KG, Darmstadt, Germany, on the other hand. Consequently, for distributions to E. Merck KG, Darmstadt, Germany, the available amount is the amount that results from netting the profit transfer of Merck KGaA, Darmstadt, Germany, with the amount either allocated or withdrawn by E. Merck KG, Darmstadt, Germany, from retained earnings/profit carried forward. This amount corresponds to the sum paid as a dividend to the shareholders and reflects their pro rata shareholding in the company.

Based on the profit transfer, the appropriation of profits by Merck KGaA, Darmstadt, Germany, was as follows:

 

 

2023

 

2022

€ million

 

Portion E. Merck KG, Darmstadt, Germany

 

Portion limited liability shareholders

 

Portion E. Merck KG, Darmstadt, Germany

 

Portion limited liability shareholders

Net income

 

683

 

285

 

700

 

242

 

 

 

 

 

 

 

 

 

Profit carried forward previous year

 

80

 

34

 

180

 

76

Withdrawal from revenue reserves

 

 

 

 

Transfer to revenue reserves

 

 

 

 

Retained earnings limited liability shareholders

 

 

 

319

 

 

 

318

 

 

 

 

 

 

 

 

 

Withdrawal by E. Merck KG, Darmstadt, Germany

 

-682

 

 

 

-801

 

 

Profit carried forward E. Merck KG, Darmstadt, Germany

 

81

 

 

 

80

 

 

 

 

 

 

 

 

 

 

 

Dividend proposal

 

 

 

-284

 

 

 

-284

Profit carried forward of limited liability shareholders (preliminary)

 

 

 

34

 

 

 

34

A dividend of € 2.20 per share was distributed for fiscal 2022. The dividend proposal for fiscal 2023 is unchanged at € 2.20 per share. With the proposed dividend payment to shareholders amounting to € 284 million (2022: € 284 million), the profit carried forward of the shareholders after the dividend payment would amount to € 34 million (2022: € 34 million). Based on the proposed dividend payment to the shareholders, E. Merck KG, Darmstadt, Germany, would be entitled to withdraw € 682 million (2022: € 801 million), meaning that E. Merck KG, Darmstadt, Germany, would be entitled to a profit brought forward of € 81 million (2022: € 80 million).

Appropriation of profits and changes in reserves

 

 

2023

 

2022

€ million

 

Merck & Cie KmG, Altdorf, Switzerland, a subsidiary of Merck KGaA, Darmstadt, Germany

 

Merck KGaA, Darmstadt, Germany

 

Total

 

Merck & Cie KmG, Altdorf, Switzerland, a subsidiary of Merck KGaA, Darmstadt, Germany

 

Merck KGaA, Darmstadt, Germany

 

Total

Profit transfer to E. Merck KG, Darmstadt, Germany

 

-52

 

-692

 

-743

 

-90

 

-684

 

-774

Profit/loss transfer to Merck KGaA, Darmstadt, Germany

 

 

-4

 

-4

 

 

7

 

7

Change in profit carried forward of E. Merck KG, Darmstadt, Germany

 

 

1

 

1

 

 

-100

 

-100

Profit transfer to E. Merck KG, Darmstadt, Germany, including changes in reserves

 

-52

 

-694

 

-746

 

-90

 

-778

 

-868

Result of E. Merck KG, Darmstadt, Germany, before reciprocal profit transfer adjusted for trade tax

 

 

 

-12

 

 

 

 

 

23

 

 

Profit transfer to E. Merck KG, Darmstadt, Germany/
withdrawal by E. Merck KG, Darmstadt, Germany

 

-52

 

-682

 

 

 

-90

 

-801

 

 

Based on the proposed appropriation of profits, the profit transfer to E. Merck KG, Darmstadt, Germany, for fiscal 2023, including changes in reserves, amounted to € -746 million. This consisted of the profit/loss transfer to E. Merck KG, Darmstadt, Germany (€ ‑692 million), the profit transfer to Merck KGaA, Darmstadt, Germany (€ -4 million), the change in profit carried forward by E. Merck KG, Darmstadt, Germany (€ 1 million) and the profit transfer from Merck & Cie KmG, Altdorf, Switzerland, a subsidiary of Merck KGaA, Darmstadt, Germany, to E. Merck KG, Darmstadt, Germany (€ ‑52 million). In the previous year, the profit transfer to E. Merck KG, Darmstadt, Germany, including changes in reserves amounted to -868 million. This consisted of the profit transfer to E. Merck KG, Darmstadt, Germany (€ -684 million), the profit transfer to Merck KGaA, Darmstadt, Germany (€ 7 million), the change in profit carried forward by E. Merck KG, Darmstadt, Germany (€ -100 million) and the profit transfer from Merck & Cie KmG, Altdorf, Switzerland, a subsidiary of Merck KGaA, Darmstadt, Germany, to E. Merck KG, Darmstadt, Germany (€ -90 million) and was paid to E. Merck KG, Darmstadt, Germany, in fiscal 2023. Merck & Cie KmG, Altdorf, Switzerland, a subsidiary of Merck KGaA, Darmstadt, Germany, is a partnership under Swiss law that is controlled by Merck KGaA, Darmstadt, Germany, but distributes its operating result directly to E. Merck KG, Darmstadt, Germany. This distribution is a payment to shareholders and is therefore also presented under changes in equity.

Non-controlling interests

The calculation of non-controlling interests was based on the reported equity of the subsidiaries concerned.

The non-controlling interests in consolidated equity and profit or loss essentially related to the non-controlling interests in Versum Materials Taiwan Co., Ltd., Taiwan; Merck Ltd., Bangkok, Thailand, a subsidiary of Merck KGaA, Darmstadt, Germany; and in the listed company PT Merck Tbk., Jakarta, Indonesia, a subsidiary of Merck KGaA, Darmstadt, Germany.

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