(37) Financial debt/Capital management
Accounting and measurement policies
Financial debt/capital management
Except for lease liabilities and derivatives with negative market values, financial debt is initially recognized at fair value and subsequently measured at amortized cost using the effective interest method.
The accounting and measurement policies for lease liabilities and derivatives are presented in Notes (21) “Leasing” and (39) “Derivative financial instruments”.
The composition of financial debt as well as a reconciliation to net financial debt are presented in the following table:
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Nominal value |
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Dec. 31, 2021 € million |
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Dec. 31, 2020 € million |
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Maturity |
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Interest rate % |
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€ million |
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Currency |
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Hybrid bond 2014/2074 |
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– |
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315 |
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Dec. 20741 |
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2.625 |
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317 |
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€ |
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USD bond 2015/2022 |
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884 |
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– |
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March 2022 |
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2.950 |
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1,000 |
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USD |
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Eurobond 2015/2022 |
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550 |
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– |
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Sept. 2022 |
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1.375 |
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550 |
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€ |
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Bonds (current) |
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1,434 |
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315 |
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Commercial paper |
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– |
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200 |
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Bank loans |
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36 |
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835 |
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Liabilities to related parties |
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896 |
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817 |
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Loans from third parties and other financial debt |
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13 |
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15 |
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Liabilities from derivatives (financial transactions) |
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35 |
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62 |
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Lease liabilities (IFRS 16) |
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117 |
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112 |
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Current financial debt |
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2,531 |
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2,357 |
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USD bond 2015/2022 |
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– |
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812 |
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March 2022 |
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2.950 |
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1,000 |
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USD |
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Eurobond 2015/2022 |
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– |
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549 |
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Sept. 2022 |
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1.375 |
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550 |
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€ |
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Eurobond 2019/2023 |
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600 |
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600 |
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Dec. 2023 |
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0.005 |
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600 |
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€ |
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USD bond 2015/2025 |
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1,410 |
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1,295 |
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March 2025 |
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3.250 |
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1,600 |
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USD |
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Eurobond 2020/2025 |
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746 |
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745 |
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July 2025 |
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0.125 |
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750 |
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€ |
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Eurobond 2019/2027 |
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597 |
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597 |
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July 2027 |
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0.375 |
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600 |
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€ |
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Eurobond 2020/2028 |
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747 |
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746 |
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July 2028 |
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0.500 |
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750 |
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€ |
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Eurobond 2019/2031 |
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797 |
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796 |
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July 2031 |
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0.875 |
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800 |
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€ |
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Hybrid bond 2014/2074 |
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499 |
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499 |
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Dec. 20742 |
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3.375 |
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500 |
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€ |
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Hybrid bond 2019/2079 |
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497 |
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496 |
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June 20793 |
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1.625 |
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500 |
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€ |
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Hybrid bond 2019/2079 |
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996 |
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996 |
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June 20794 |
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2.875 |
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1,000 |
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€ |
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Hybrid bond 2020/2080 |
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997 |
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996 |
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Sept. 20805 |
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1.625 |
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1,000 |
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€ |
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Bonds (non-current) |
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7,886 |
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9,126 |
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Bank loans |
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– |
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250 |
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Loans from third parties and other financial debt |
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42 |
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42 |
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Liabilities from derivatives (financial transactions) |
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– |
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40 |
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Lease liabilities (IFRS 16) |
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342 |
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327 |
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Non-current financial debt |
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8,270 |
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9,785 |
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Financial debt |
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10,801 |
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12,142 |
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less: |
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Cash and cash equivalents |
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1,899 |
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1,355 |
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Current financial assets6 |
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149 |
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28 |
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Net financial debt7 |
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8,753 |
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10,758 |
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The repayment profile of the bonds was as follows:
2 For the hybrid bonds repayment is assumed at the earliest possible date.
The hybrid bonds issued by Merck KGaA, Darmstadt, Germany, and/or some of its affiliates are bonds for which the leading rating agencies have given equity credit treatment to half of the issuances, thus making the issuances more favorable to the Group’s credit rating than traditional bond issues. The bonds are recognized in full as financial liabilities in the balance sheet.
Exercising a right of termination that applied every time there was a change in the interest rate, the KfW loan in the amount of € 250 million that was reported in non-current liabilities to banks in the previous year was repaid ahead of schedule on September 29, 2021.
The financial debt was not secured by liens or similar forms of collateral. The loan agreements do not contain any financial covenants. The average borrowing cost on December 31, 2021, was 1.7% (December 31, 2020: 1.6%).
Information on liabilities to related parties can be found in Note (45) “Related party disclosures”.
Capital management
The objective of capital management is to ensure the necessary financial flexibility in order to maintain long-term business operations and realize strategic options. Maintaining a stable investment grade rating, ensuring liquidity, limiting financial risks, as well as optimizing the cost of capital are the objectives of our financial policy and set important framework conditions for capital management. In this context, net financial debt is one of the leading capital management indicators within the Group.
Traditionally, the capital market represents a major source of financing for the Group, for instance via bond issues. As of December 31, 2021, there were liabilities of € 4.05 billion from a debt issuance program most recently renewed in 2020 (December 31, 2020: € 4.05 billion). In addition, the Group had access to a commercial paper program to meet short-term capital requirements with a volume of € 2 billion, none of which were utilized as of December 31, 2021 (December 31, 2020: € 200 million).
Loan agreements represent a further source of financing for the Group. At the balance sheet date, the bank financing commitments vis-à-vis the Group were as follows:
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Dec. 31, 2021 |
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Dec. 31, 2020 |
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€ million |
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Financing commitments from banks |
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Utilization |
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Financing commitments from banks |
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Utilization |
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Interest |
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Maturity of financing commitments |
Syndicated loan |
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2,000 |
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– |
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2,000 |
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– |
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variable |
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2025 |
Loan agreement with banking syndicate for acquisition financing |
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– |
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– |
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569 |
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569 |
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variable |
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2022 |
Bilateral credit agreement with banks |
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– |
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– |
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250 |
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250 |
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variable |
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2022 |
Various bank credit lines |
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36 |
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36 |
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1,266 |
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266 |
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variable |
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< 1 year |
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2,036 |
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36 |
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4,085 |
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1,085 |
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In fiscal 2020, the Group concluded extensive lines of credit with a term of one year in connection with the Covid‑19 pandemic. These were not renewed in fiscal 2021.
There were no indications that the availability of extended credit lines was restricted.