Annual Report 2021

General Disclosures

(2) Reporting principles

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) effective at the end of the reporting period and adopted by the European Union and the additional provisions of section 315e 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 15, 2022, 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 German Corporate Governance Code declaration (declaration of conformity) in accordance with section 161 of the German Stock Corporation Act (Aktiengesetz) was issued and made available to the Group’s shareholders. It can be viewed in the corporate governance section at https://www.emdgroup.com/en/investors.html.

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

Amendments to standards effective for the first time in fiscal 2021

The following regulations are binding as of fiscal 2021:

  • Amendment to IAS 39 “Financial Instruments: Recognition and Measurement”
  • Amendments to IFRS 4 “Insurance Contracts”
  • Amendment to IFRS 7 “Financial Instruments: Disclosures”
  • Amendment to IFRS 9 “Financial Instruments”
  • Amendment to IFRS 16 “Leases”

The regulations listed had no material impact on the consolidated financial statements.

Standards and amendments to standards effective for the first time from fiscal 2022 and 2023

The following regulations are binding as of fiscal 2022:

  • Amendment to IAS 16 “Property, Plant, and Equipment”
  • Amendment to IAS 37 “Provisions, Contingent Liabilities, and Contingent Assets”
  • Amendment to IFRS 3 “Business Combinations”
  • Amendment to IFRS 16 “Leases”
  • Annual Improvements to IFRS 2018 – 2020 Cycle

The following regulations are binding as of fiscal 2023:

  • IFRS 17 “Insurance Contracts”
  • Amendment to IFRS 17 “Insurance Contracts”

We did not opt for early application of any of these regulations.

The impact of IFRS 17 “Insurance Contracts” on Merck Re S.A., Luxembourg, a fully consolidated subsidiary of Merck KGaA, Darmstadt, Germany, is currently being investigated. Based on the information currently available, however, IFRS 17 is not expected to have a material impact on the net assets, financial position, and results of operations of the Group. Furthermore, none of the other changes are expected to have a material impact on the consolidated financial statements.

Regulations published but not yet endorsed by the European Union

As of the balance sheet date, the following regulations were published by the IASB but not yet endorsed by the European Union:

  • Amendment to IAS 1 “Presentation of Financial Statements”
  • Amendment to IAS 8 “Accounting Policies, Changes in Accounting Estimates, and Errors”
  • Amendment to IAS 12 “Income Taxes”
  • Amendment to IFRS 17 “Insurance Contracts”

From today’s perspective, the new regulations are not expected to have any material effects on the consolidated financial statements.

Change in reporting of non-current income tax receivables and income tax liabilities

To improve comparability, the Group amended the reporting of non-current income tax receivables and income tax liabilities in fiscal 2021 and restated the prior-period figures accordingly.

Non-current assets now also include “Non-current income tax receivables”. As of January 1, 2020, € 11 million was reclassified from other non-current non-financial assets in this context.

Non-current liabilities now also include “Non-current income tax liabilities”. There were no non-current income tax liabilities as of January 1, 2020, meaning that the change in reporting did not require any reclassifications as of this date.

Accounting and measurement policies

Currency translation

Functional currency

To a predominant extent, the subsidiaries of Merck KGaA, Darmstadt, Germany, conduct their business independently so that the functional currency is normally the respective local currency.

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

Since 2018, Argentina’s economy has been classified as hyperinflationary in accordance with IAS 29 “Financial Reporting in Hyperinflationary Economies”. Accordingly, business activities in Argentina are no longer reported at historical cost but are presented adjusted for inflation. For this purpose, 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 7,396.8 as of the balance sheet date (December 31, 2020: 4,896.2/January 1, 2020: 3,722.0). The loss on the net monetary position is recognized under remaining other operating expenses in “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. Prior-year comparative figures are not restated.

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 =

 

2021

 

2020

 

Dec. 31, 2021

 

Dec. 31, 2020

Chinese renminbi (CNY)

 

7.634

 

7.872

 

7.206

 

8.000

Japanese yen (JPY)

 

129.848

 

121.756

 

130.189

 

126.801

Swiss franc (CHF)

 

1.081

 

1.070

 

1.034

 

1.083

South Korean won (KRW)

 

1,353.475

 

1,344.968

 

1,345.493

 

1,336.094

Taiwan dollar (TWD)

 

33.062

 

33.589

 

31.285

 

34.548

U.S. dollar (USD)

 

1.183

 

1.141

 

1.131

 

1.230

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