Capital Structure, Investments, and Financing Activities

(34) Equity

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 the fiscal year.

Retained earnings

Retained earnings developed as follows:

Gains/losses recognized in equity

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

The 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.

Appropriation of profits

The profit distribution to be resolved upon 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 brought 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 of 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.

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:

The result of E. Merck KG, Darmstadt, Germany, on which the appropriation of profits adjusted for trade tax is based, amounted to € 19 million (2020: € -44 million). This resulted in a profit/loss transfer to Merck KGaA, Darmstadt, Germany, of € 6 million (2020: € -13 million). The net income of Merck KGaA, Darmstadt, Germany, adjusted for corporation tax, on which the appropriation of its profit is based, amounted to € 1,065 million (2020: € 721 million). Merck KGaA, Darmstadt, Germany, transferred a profit in the amount of € 748 million to E. Merck KG, Darmstadt, Germany (2020: € 506 million). In addition, an expense from corporation tax charges was reported in the amount of € 33 million (2020: expense of € 20 million).

A dividend of € 1.40 per share was distributed for fiscal 2020. The dividend proposal for fiscal 2021 will be € 1.85 per share. The proposed dividend payment to shareholders amounts to € 239 million (2020: € 181 million). On this basis, the amount E. Merck KG, Darmstadt, Germany, is entitled to withdraw is € 644 million (2020: € 474 million).

Appropriation of profits and changes in reserves

Based on the assumed appropriation of profits, the profit/loss transfer to E. Merck KG, Darmstadt, Germany, for fiscal 2021, including changes in reserves, amounted to € -716 million. This consisted of the profit transfer to E. Merck KG, Darmstadt, Germany (€ -748 million), the profit/loss transfer from E. Merck KG, Darmstadt, Germany, to Merck KGaA, Darmstadt, Germany (€ 6 million), the change in profit carried forward by E. Merck KG, Darmstadt, Germany (€ 117 million) and the profit transfer from Merck & Cie, Altdorf, Switzerland, a subsidiary of Merck KGaA, Darmstadt, Germany, to E. Merck KG, Darmstadt, Germany (€ -90 million). In the previous year, the profit/loss transfer to E. Merck KG, Darmstadt, Germany, including changes in reserves amounted to € -567 million. This consisted of the profit transfer to E. Merck KG, Darmstadt, Germany (€ -506 million), the profit/loss transfer from E. Merck KG, Darmstadt, Germany, to Merck KGaA, Darmstadt, Germany (€ -13 million) and the profit transfer from Merck & Cie, Altdorf, Switzerland, a subsidiary of Merck KGaA, Darmstadt, Germany, to E. Merck KG, Darmstadt, Germany (€ -48 million) and was paid to E. Merck KG, Darmstadt, Germany, in fiscal 2021. Merck & Cie, 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, and Merck Ltd., Thailand, a subsidiary of Merck KGaA, Darmstadt, Germany, and in the listed company PT Merck Tbk., Indonesia, a subsidiary of Merck KGaA, Darmstadt, Germany.