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General Disclosures

(2) Reporting principles

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) effective at the end of the reporting period and adopted by the European Union and the additional provisions of section 315e (1) of the German Commercial Code (HGB). The fiscal year is the calendar year. These consolidated financial statements have been prepared in euros, the reporting currency. The values presented in the consolidated financial statements have been rounded. This may lead to individual values not adding up to the totals presented.

The Executive Board of Merck KGaA, Darmstadt, Germany, prepared these consolidated financial statements on February 14, 2024, and approved them to be forwarded to the Supervisory Board. The Supervisory Board is responsible for examining the consolidated financial statements and declaring whether it approves them.

The accounting and measurement policies used in the consolidated financial statements are presented in the respective Notes and are indicated there.

Standards and amendments to standards effective for the first time in fiscal 2023

Standard/Interpretation

 

Title

 

Date of
publication

 

Date of endorsement by
EU law

 

Impact on the consolidated financial statements

Amendments to IAS 1

 

Disclosure of Accounting Policies

 

February 
12, 2021

 

March 2, 2022

 

No material impact

Amendments to IAS 8

 

Definition of Accounting Estimates

 

February 
12, 2021

 

March 2, 2022

 

No material impact

Amendments to IAS 12

 

Deferred Tax related to Assets and Liabilities arising from a Single Transaction

 

May 7, 2021

 

August 11, 2022

 

No material impact

Amendments to IAS 12

 

International Tax Reform –
Pillar Two Model Rules

 

May 23, 2023

 

November 8,
2023

 

See below

IFRS 17; Amendments to IFRS 17

 

IFRS 17 Insurance Contracts
Amendments to IFRS 17
Initial Application of IFRS 17 and IFRS 9 –
Comparative Information

 

May 18, 2017 
June 25, 2020
December 9, 
2021

 

November 19,
2021
November 19,
2021
September 8,
2022

 

No material impact

Amendments to standards effective for the first time from fiscal 2024

Standard/ Interpretation

 

Title

 

Date of publication

 

Date of endorsement by EU law

 

Required date of first-time application1

 

Expected impact on the consolidated financial statements

Amendments to IFRS 16

 

Lease Liability in a Sale and Leaseback

 

September 22, 
2022

 

November 20,
2023

 

January 1,
2024

 

No material impact

Amendments to IAS 1

 

Classification of Liabilities
as Current or Non-current
Classification of Liabilities
as Current or Non-Current
— Deferral of Effective Date

 

January 23,
2020 
July 15, 2020

 

December 19,
2023

 

January 1,
2024

 

No material impact

Amendments to IAS 1

 

Non-current Liabilities with Covenants

 

October 31,
 2022

 

December 19,
2023

 

January 1,
2024

 

No material impact

1

None of the regulations was applied early.

Regulations published but not yet endorsed by the European Union

Standard/ Interpretation

 

Title

 

Date of publication

 

Expected to be effective for the first time for financial years beginning on or after

 

Expected impact on the consolidated financial statements

Amendments to IAS 7

 

Supplier Finance Arrangements

 

May 25, 2023

 

January 1, 2024

 

No material impact

Amendments to IAS 21

 

Lack of Exchangeability

 

August 15, 2023

 

January 1, 2025

 

Currently under review

Amendments to IFRS 7

 

Supplier Finance Arrangements

 

May 25, 2023

 

January 1, 2024

 

No material impact

Impact of efforts to achieve international convergence on taxation

Based on the information currently available, the Group expects the efforts to achieve international convergence on tax rules as part of the OECD’s Inclusive Framework to have an impact on the Group’s taxation. Although the tax rules apply to the ultimate parent company of the Group, E. Merck Kommanditgesellschaft, Darmstadt, Germany, top-up taxes could be payable in a number of jurisdictions, and this could have an impact on the Group.

Allocation of taxing rights (Pillar I)

The planned allocation of taxing rights between jurisdictions as part of the OECD rules is currently still being negotiated. An analysis of the available drafts found that the rules are likely to apply to the Group. Due to the status of the negotiations and the lack of clarity concerning the participation of key nations, it is not currently possible to make a reliable statement about the expected impact.

Ensuring global minimum taxation within the OECD (Pillar II)

The legislation on global minimum taxation was published in the German Federal Law Gazette on December 27, 2023, and came into force on January 1, 2024. The exception provided by IAS 12 for the recognition and disclosure of information about deferred tax assets and liabilities in connection with income taxes relating to global minimum taxation was applied for fiscal 2023. 

Under the regulations on global minimum taxation, the Group is obliged to determine the effective tax rate for each country in which its business units operate within the meaning of the legislation and, where the effective tax rate is lower than the minimum tax rate of 15%, to pay a top-up tax in the amount of the difference. Jurisdictions where the Group has material operating activities and where the nominal tax rate is below 15% are Ireland and Switzerland. The Group is currently taking action to ensure that it satisfies the reporting obligations and tax compliance requirements arising from the legislation. When it comes to determining the effective tax rate, the legislation provides for numerous specific adjustments that can lead to effective tax rates that differ from those calculated in accordance with IAS 12.86. The complexity of applying the legislation, the extensive additional data requirements as a result and changes to the tax rules of individual nations meant that it was not yet possible to quantify the impact precisely and fully at the reporting date. For example, it is possible that the specific adjustments provided for the calculation of minimum taxation will not result in a tax burden for the Group even though the effective tax rate calculated in accordance with IAS 12.86 is lower than 15%. Conversely, minimum taxation may apply even if the effective tax rate is higher than 15%.

Based on a preliminary calculation and taking account of the data available as of the reporting date, the Group anticipates an additional annual tax expense in a mid-double-digit million-euro amount.

Change in the recognition of liabilities and provisions

In order to increase transparency, the tranche of the Long-Term Incentive Plan of Merck KGaA, Darmstadt, Germany, that is payable in the months following the reporting date has been reported in other current non-financial liabilities rather than current provisions for employee benefits since January 1, 2023. This resulted in a reclassification in the amount of € 158 million. The changes in provisions and other assets and liabilities in the operating cash flow were adjusted by € 166 million accordingly.

For the same reason, liabilities in connection with wages and salaries have been reported in other non-financial liabilities rather than other financial liabilities since January 1, 2023. With regard to the comparative period (December 31, 2022), this resulted in the reclassification of € 127 million to other non-financial liabilities (of which € 121 million to other current non-financial liabilities).

Accounting and measurement policies
Currency translation

Functional currency

The subsidiaries of Merck KGaA, Darmstadt, Germany, conduct their business largely in the respective local currency, which they use as their functional currency.

However, some subsidiaries, particularly in the Electronics business sector, use the U.S. dollar as their functional currency rather than the local currency.

Transactions in non-functional currency

When the financial statements of consolidated companies are prepared, business transactions that are conducted in currencies other than the functional currency are translated using the exchange rate on the date of the transaction.

Translation of financial statements into the reporting currency (Euro)

The financial statements of consolidated companies not using the euro as their functional currency are translated into the reporting currency, the euro. Assets and liabilities are measured at the closing rate while income and expenses are translated at average monthly rates. Any currency translation differences arising during consolidation of Group companies are recognized in equity.

Hyperinflation

Argentina (since 2018) and Türkiye (since April 2022) are classified as hyperinflationary economies in accordance with IAS 29 “Financial Reporting in Hyperinflationary Economies.” Accordingly, business activities in these countries are no longer reported at historical cost but are presented adjusted for inflation. In Argentina, the Group uses a combination of the wholesale index IPIM (Índice de precios internos al por mayor) and the consumer price index IPC (Índice de precios al consumidor). The index applied stood at 37,078.3 as of the balance sheet date (December 31, 2022: 14,227.31/January 1, 2022: 7,396.8). In Türkiye, the Consumer Price Index (CPI) published by the Turkish Statistical Institute is applied retrospectively with effect from January 1, 2022. The index applied stood at 1,859.4 as of the balance sheet date (December 31, 2022: 1,128.5/January 1, 2022: 686.9). In accordance with the requirements of IAS 21 “The Effects of Changes in Foreign Exchange Rates” for financial statements in non-hyperinflationary reporting currencies, the prior-year amounts have not been restated.

The respective loss from the net position of the monetary items is recognized within other operating expenses and reported separately as a loss from hyperinflation accounting (see Note (14) “Other operating expenses”).

After adjusting the amounts for inflation, the balance sheet items and income and expenses are translated into the reporting currency, the euro, at the closing rate in accordance with IAS 21.42.

Exchange rates of most significant currencies

The exchange rates of the most significant currencies in these consolidated financial statements were as follows:

 

 

Average rate

 

Closing rate

€ 1 =

 

2023

 

2022

 

Dec. 31, 2023

 

Dec. 31, 2022

Chinese renminbi (CNY)

 

7.667

 

7.088

 

7.854

 

7.420

Japanese yen (JPY)

 

151.913

 

137.989

 

156.462

 

140.716

Swiss franc (CHF)

 

0.972

 

1.005

 

0.931

 

0.985

South Korean won (KRW)

 

1,412.674

 

1,357.642

 

1,428.798

 

1,342.189

Taiwan dollar (TWD)

 

33.695

 

31.336

 

33.845

 

32.728

U.S. dollar (USD)

 

1.082

 

1.054

 

1.107

 

1.065

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