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Other Disclosures

(42) Related-party disclosures

Related parties in respect of the Group are E. Merck KG, Darmstadt, Germany, Emanuel-Merck-Vermögens-KG, Darmstadt, Germany, and E. Merck Beteiligungen KG, Darmstadt, Germany. Furthermore, direct or indirect subsidiaries of Merck KGaA, Darmstadt, Germany, associates of the Group, jointly controlled companies where the Group is involved, as well as pension funds that are classified as defined benefit plans in accordance with IAS 19 are also related parties within the meaning of IAS 24. Members of the Executive Board and the Supervisory Board of Merck KGaA, Darmstadt, Germany, the Executive Board and the Board of Partners of E. Merck KG, Darmstadt, Germany, as well as close members of their families are also related parties, as are companies controlled by this group of persons.

As of December 31, 2018, there were liabilities by Merck Financial Services GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany, Merck KGaA, Darmstadt, Germany, and Merck & Cie, Altdorf, Switzerland, to E. Merck KG, Darmstadt, Germany, in the amount of € 1,331.6 million (December 31, 2017: € 1,349.2 million). The balances result mainly from mutual profit transfers between Merck KGaA, Darmstadt, Germany, and E. Merck KG, Darmstadt, Germany, as well as the profit transfer by Merck & Cie, Altdorf, Switzerland, a subsidiary of Merck KGaA, Darmstadt, Germany, to E. Merck KG, Darmstadt, Germany. These included financial liabilities of € 820.8 million (December 31, 2017: € 764.8 million), which were subject to standard market interest rates. As of December 31, 2017, Merck KGaA, Darmstadt, Germany, had receivables from E. Merck Beteiligungen KG, Darmstadt, Germany, in the amount of € 140.9 million and Merck Financial Services GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany, had receivables from Merck Pensionstreuhandverein e.V., Darmstadt, Germany, a related party of Merck KGaA, Darmstadt, Germany, in the amount of € 0.1 million. They included receivables of € 0.1 million that were subject to standard market interest rates. Neither collateral nor guarantees existed for any of the balances either in favor or to the disadvantage of the Group.

From January to December 2018, Merck KGaA, Darmstadt, Germany, performed services for E. Merck KG, Darmstadt, Germany, with a value of € 1.0 million (2017: € 0.9 million) and for E. Merck Beteiligungen KG, Darmstadt, Germany, with a value of € 0.3 million (2017: € 0.1 million); in the previous year, Merck KGaA, Darmstadt, Germany, performed services for Emanuel-Merck-Vermögens-KG, Darmstadt, Germany, with a value of € 0.2 million. During the same period, E. Merck KG, Darmstadt, Germany, performed services for Merck KGaA, Darmstadt, Germany, with a value of € 0.5 million (2017: € 0.5 million).

As of December 31, 2018, there were no receivables or liabilities from the Venezuelan entities deconsolidated as of February 29, 2016 (December 31, 2017: receivables with a carrying amount of € 22.7 million after impairment losses and liabilities with a carrying amount of € 21.5 million).

As of December 31, 2018, there were receivables of € 12.0 million (December 31, 2017: € 8.3 million) and liabilities of € 10.1 million (December 31, 2017: € 9.1 million) vis-à-vis non-consolidated subsidiaries. From January to December 2018, the Group generated revenues of € 0.1 million (December 31, 2017: € 0.1 million) with these companies. During the same period, expenses amounting to € 0.3 million (December 31, 2017: € 0.8 million) were incurred as a result of transactions with these companies.

Between January and December 2018, sales of € 0.7 million (2017: € 0.6 million) from supplies of goods resulted from transactions with Altmann-Analytik GmbH & Co. KG, Munich, which is controlled by a member of the Supervisory Board of Merck KGaA, Darmstadt, Germany, who also served as a member of the Board of Partners of E. Merck KG, Darmstadt, Germany, until January  27, 2019. As of December 31, 2018, there were receivables of € 0.1 million vis-à-vis this company (December 31, 2017: € 0.1 million).

Information on pension funds that are classified as defined benefit plans in accordance with IAS 19 can be found in Note (25) ‟Provisions for pensions and other post-employment benefits”.

Information on Executive Board and Supervisory Board compensation can be found in Note (43) ‟Executive Board and Supervisory Board compensation”. Activities above and beyond those set forth in Note (43) such as, for example, the provision of services or the granting of loans, between companies of the Group and members of the Executive Board or the Supervisory Board of Merck KGaA, Darmstadt, Germany, the Executive Board or the Board of Partners of E. Merck KG, Darmstadt, Germany, or members of their immediate families took place neither in 2018 nor 2017.

(43) Executive Board and Supervisory Board compensation

The compensation of the Executive Board of Merck KGaA, Darmstadt, Germany, is basically paid by the general partner, E. Merck KG, Darmstadt, Germany. Furthermore, companies included in these consolidated financial statements recorded expenses for the period from January to December 2018 in the amount of € 3.2 million (2017: € 3.5 million) for services provided by members of the Executive Board of Merck KGaA, Darmstadt, Germany, at those companies.

For the period from January to December 2018, fixed salaries of € 5.9 million (2017: € 6.0 million), variable compensation of € 17.2 million (2017: € 16.3 million), and additional benefits of € 0.4 million (2017: € 0.3 million) were recorded for members of the Executive Board of Merck KGaA, Darmstadt, Germany, by E. Merck KG, Darmstadt, Germany, and by companies included in these consolidated financial statements. Furthermore, additions to provisions for the Long-Term Incentive Plan for members of the Executive Board of Merck KGaA, Darmstadt, Germany, resulted in expense of € 15.9 million from (2017: gains of € 1.8 million from the release of provisions), and additions to the pension provisions for members of the Executive Board of Merck KGaA, Darmstadt, Germany, included current service costs of € 3.1 million (2017: € 3.2 million) and, in 2017, past service costs of € 0.9 million.

The compensation of the Supervisory Board amounting to € 869.0 thousand (2017: € 868.3 thousand) consisted of a fixed portion of € 822.5 thousand (2017: € 822.5 thousand) and meeting attendance compensation of € 46.5 thousand (2017: € 45.8 thousand).

Further individualized information and details can be found in the Compensation Report on pages 168 et seq.

(44) Auditor’s fees

The costs of the auditors (KPMG) of the financial statements of the Group consisted of the following:

24 KB EXCEL

€ million 2018 2017
Group thereof:
KPMG AG
Wirtschafts­prüfungs­gesell­schaft, Germany
Group thereof:
KPMG AG
Wirtschafts­prüfungs­gesell­schaft, Germany
Audits of financial statements 10.0 3.5 8.5 2.4
Other audit-related services 0.4 0.2 0.3 0.2
Tax consultancy services 0.9 0.4 0.6 0.4
Other services 1.0 0.9
11.3 4.1 10.4 3.9

Other audit-related services pertain to various statutory or contractually agreed audits. Tax consultancy services encompass services in connection with the preparation of tax returns for employees delegated abroad.

(45) Corporate governance

The Statement of Compliance in accordance with section 161 of the German Stock Corporation Act (Aktiengesetz) was published in the corporate governance section of the website www.emdgroup.com/investors ➞ Corporate governance in March 2018 and thus made permanently available.

(46) Companies opting for exemption under section 264 (3) HGB or section 264b HGB

The following companies, which have been consolidated in these financial statements, opted for exemption:

  • Allergopharma GmbH & Co. KG, Reinbek
  • Allergopharma Verwaltungs GmbH, Darmstadt
  • Biochrom GmbH, Berlin
  • Chemitra GmbH, Darmstadt
  • Litec-LLL GmbH, Greifswald
  • Merck 12. Allgemeine Beteiligungs-GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck 16. Allgemeine Beteiligungs-GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck 20. Allgemeine Beteiligungs-GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Accounting Solutions & Services Europe GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Chemicals GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Export GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Healthcare KGaA, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Life Science Germany GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Life Science GmbH, Eppelheim, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Patent GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Performance Materials Germany GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Real Estate GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany
  • Merck Serono GmbH, Darmstadt, Germany, a subsidiary of Merck KGaA, Darmstadt, Germany

(47) Information on preparation and approval

The Executive Board of Merck KGaA, Darmstadt, Germany, prepared the consolidated financial statements on February 14, 2019, and approved them for forwarding to the Supervisory Board. The Supervisory Board has the responsibility to examine the consolidated financial statements and to declare whether it approves them.

(48) Subsequent events

On February 5, 2019, the Group signed an agreement with a subsidiary of GlaxoSmithKline plc, United Kingdom, (GSK) to co-develop and co-commercialize the immuno-oncology drug candidate M7824. A bifunctional fusion protein, M7824 is currently an investigational candidate for several types of cancer. Of particular note is a Phase II study to investigate M7824 as a first-line treatment in patients with PD-L1-expressing advanced non-small cell lung cancer (NSCLC).

After receipt of the required anti-trust approvals, the Group will receive an upfront payment of € 300 million from GSK and, depending on data from the lung cancer trial program, is eligible to receive potential payments totaling as much as € 500 million for development milestones. In addition, the Group can receive future payments as high as € 2.9 billion for the achievement of certain milestones related to approval and commercialization. The Group expects that part of the upfront payment in 2019 will be recognized as other operating income.

The two companies will jointly develop and commercialize M7824. In case of regulatory approval, the Group will realize the net sales in the United States and GSK in all other countries. The collaboration partners will evenly split the net result from net sales less defined expense components.

Subsequent to the balance sheet date, no further events of special importance occurred that could have a material impact on the net assets, financial position and results of operations.