Annual Report 2021

Capital market-related parameters

Net income, earnings per share (EPS), and earnings per share pre (EPS pre)

Earnings per share are calculated by dividing profit after tax attributable to the shareholders of Merck KGaA, Darmstadt, Germany (net income) by the weighted average number of theoretical shares outstanding. The use of a theoretical number of shares takes into account the fact that the general partner’s capital is not represented by shares. To provide an alternative view, we also report earnings per share pre, in which the effects of integration expenses, IT expenses for selected projects, restructuring expenses, gains/losses on the divestment of businesses, acquisition expenses, and other adjustments are eliminated. Moreover, amortization of acquired intangible assets as well as impairment losses on property, plant & equipment, and intangible assets are eliminated. The adjustment excludes impairment losses on intangible assets for acquired research and development (R&D) projects below a threshold value of € 50 million. Income tax is calculated on the basis of the company’s underlying tax rate. The following table presents the reconciliation of net income to net income pre for the calculation of EPS pre.

Reconciliation net income to net income pre1

 

 

 

 

 

 

Change

€ million

 

2021

 

2020

 

€ million

 

in %

Net income

 

3,055

 

1,987

 

1,067

 

53.7%

Non-controlling interest

 

10

 

7

 

4

 

58.5%

Income tax

 

859

 

637

 

222

 

34.9%

Amortization of acquired intangible assets

 

803

 

857

 

-54

 

-6.3%

Adjustments1

 

210

 

407

 

-197

 

-48.5%

Income tax on the basis of the underlying tax rate1

 

-1,135

 

-974

 

-162

 

16.6%

Non-controlling interests to be adjusted

 

-10

 

-7

 

-4

 

58.5%

Net income pre1

 

3,791

 

2,914

 

876

 

30.1%

Earnings per share pre1 in €

 

8.72

 

6.70

 

2.02

 

30.1%

1

Not defined by International Financial Reporting Standards (IFRS).

Credit rating

The rating of our creditworthiness by external agencies is an important indicator of our ability to raise debt capital at attractive market conditions. The capital market makes use of the assessments published by independent rating agencies in order to assist debt providers in estimating the risks associated with a financial instrument. We are currently assessed by Moody’s, Standard & Poor’s, and Scope. The most important factor for the credit rating is the ability to repay debt, which is determined in particular by the ratio of operating cash flow to net- or gross financial debt.

Dividend ratio

We pursue a reliable dividend policy with a target payout ratio based on EPS pre (see definition above) with the aim of ensuring an attractive return for our shareholders.

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