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Capital Structure, Investments, and Financing Activities

(37) Financial debt/Capital management

Accounting and measurement policies
Financial debt/capital management

Except for lease liabilities and derivatives with negative market values, financial debt is initially recognized at fair value and subsequently measured at amortized cost using the effective interest method.

The accounting and measurement policies for lease liabilities and derivatives are presented in Notes (21) “Leasing” and (39) “Derivative financial instruments”.

The composition of financial debt as well as a reconciliation to net financial debt are presented in the following table:

 

 

 

 

 

 

 

 

 

 

Nominal value

 

 

Dec. 31, 2023
€ million

 

Dec. 31, 2022
€ million

 

Maturity

 

Interest rate %

 

million

 

Currency

Eurobond 2019/2023

 

 

600

 

Dec. 2023

 

0.005

 

600

 

Bonds (current)

 

 

600

 

 

 

 

 

 

 

 

Bank loans

 

277

 

203

 

 

 

 

 

 

 

 

Liabilities to related parties

 

206

 

259

 

 

 

 

 

 

 

 

Loans from third parties and
other financial debt

 

20

 

11

 

 

 

 

 

 

 

 

Liabilities from derivatives
(financial transactions)

 

77

 

30

 

 

 

 

 

 

 

 

Lease liabilities (IFRS 16)

 

122

 

125

 

 

 

 

 

 

 

 

Current financial debt

 

702

 

1,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USD bond 2015/2025

 

1,444

 

1,498

 

March 2025

 

3.250

 

1,600

 

USD

Eurobond 2020/2025

 

748

 

747

 

July 2025

 

0.125

 

750

 

Eurobond 2022/2026

 

499

 

498

 

July 2026

 

1.875

 

500

 

Eurobond 2019/2027

 

598

 

598

 

July 2027

 

0.375

 

600

 

Eurobond 2020/2028

 

748

 

747

 

July 2028

 

0.500

 

750

 

Eurobond 2022/2030

 

497

 

497

 

July 2030

 

2,375

 

500

 

Eurobond 2019/2031

 

797

 

797

 

July 2031

 

0.875

 

800

 

Hybrid bond 2014/2074

 

499

 

499

 

Dec. 20741

 

3,375

 

500

 

Hybrid bond 2019/2079

 

499

 

498

 

June 20792

 

1.625

 

500

 

Hybrid bond 2019/2079

 

632

 

749

 

June 20793

 

2.875

 

750

 

Hybrid bond 2020/2080

 

840

 

998

 

Sep. 20804

 

1.625

 

1,000

 

Bonds (non-current)

 

7,802

 

8,126

 

 

 

 

 

 

 

 

Bank loans

 

7

 

 

 

 

 

 

 

 

 

Liabilities to related parties

 

990

 

660

 

 

 

 

 

 

 

 

Loans from third parties and other financial debt

 

47

 

48

 

 

 

 

 

 

 

 

Liabilities from derivatives
(financial transactions)

 

 

 

 

 

 

 

 

 

 

Lease liabilities (IFRS 16)

 

393

 

366

 

 

 

 

 

 

 

 

Non-current financial debt

 

9,239

 

9,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial debt

 

9,941

 

10,428

 

 

 

 

 

 

 

 

less:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

1,982

 

1,854

 

 

 

 

 

 

 

 

Current financial assets5

 

459

 

247

 

 

 

 

 

 

 

 

Net financial debt6

 

7,500

 

8,328

 

 

 

 

 

 

 

 

1

The Group has the right to prematurely repay this tranche of the hybrid bond issued in December 2014 for the first time in December 2024.

2

The Group has the right to prematurely repay this tranche of the hybrid bond issued in June 2019 for the first time in December 2024.

3

The Group has the right to prematurely repay this tranche of the hybrid bond issued in June 2019 for the first time in June 2029.

4

The Group has the right to prematurely repay this hybrid bond issued in September 2020 for the first time in September 2026.

5

Excluding current derivatives (operational) and contingent considerations, which are recognized in the context of business combinations according to IFRS 3.

6

Not defined by International Financial Reporting Standard (IFRS).

The hybrid bonds issued by Merck KGaA, Darmstadt, Germany, are bonds for which the leading rating agencies have given equity credit treatment to half of the issuances, thus making the issuances more favorable to the Group’s credit rating than traditional bond issues. The bonds are recognized in full as financial liabilities in the balance sheet. Although the Group intends to repay them at the earliest possible date, these bonds are principally reported as non-current financial debt for accounting purposes.

A partial buyback of the nominal volume of € 250 million of a hybrid bond issued in 2019 took place on September 9, 2022.

A partial buyback of the nominal volume of € 275 million of hybrid bonds issued in 2019 and 2020 took place on November 20, 2023.

The financial debt was not secured by liens or similar forms of collateral. The loan agreements do not contain any financial covenants. The average borrowing cost on December 31, 2023, was 2.1% (December 31, 2022: 1.9%).

Non-current liabilities to related parties in the amount of € 990 million (December 31, 2022: € 660 million) consisted of liabilities to E. Merck Beteiligungen KG, Darmstadt, Germany, a related party of E. Merck KG, Darmstadt, Germany.

Information on liabilities to related parties can be found in Note (45) “Related party disclosures”.

Capital management

The objective of capital management is to ensure the necessary financial flexibility in order to maintain long-term business operations and realize strategic options. Maintaining a stable investment grade rating, ensuring liquidity, limiting financial risks, as well as optimizing the cost of capital are the objectives of our financial policy and set important framework conditions for capital management. In this context, net financial debt as well as gearing, calculated as the ratio of EBITDA pre to net financial debt, are important capital management indicators in the Group.

Traditionally, the capital market represents a major source of financing for the Group, for instance via bond issues. As of December 31, 2023, there were liabilities of € 3.9 billion from a debt issuance program most recently renewed in fiscal 2023 (December 31, 2022: € 4.5 billion). In addition, the Group had access to a commercial paper program to meet short-term capital requirements with a volume of € 2.5 billion (December 31, 2022: € 2 billion), none of which was utilized as of December 31, 2023, or the prior-year reporting date.

Loan agreements represent another major source of financing for the Group. On the balance sheet date, the financing commitments from banks in respect of the Group were as follows:

 

 

Dec. 31, 2023

 

Dec. 31, 2022

 

 

 

 

€ million

 

Financing commitments from banks

 

Utilization

 

Financing commitments from banks

 

Utilization

 

Interest

 

Maturity of financing commitments

Syndicated loan

 

2,500

 

 

2,500

 

 

variable

 

2027

Bilateral credit agreement with banks

 

375

 

 

375

 

 

variable

 

<3 Jahre

Various bank credit lines

 

277

 

277

 

203

 

203

 

variable

 

< 1 year

Project financing

 

7

 

7

 

 

 

fix

 

2027

 

 

3,158

 

284

 

3,078

 

203

 

 

 

 

There were no indications that the availability of extended credit lines was restricted.

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