(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, 2022 € million |
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Dec. 31, 2021 € 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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USD bond 2015/2022 |
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– |
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884 |
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March 2022 |
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2.95 |
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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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550 |
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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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– |
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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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Bonds (current) |
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600 |
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1,434 |
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Bank loans |
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203 |
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36 |
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Liabilities to related parties |
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259 |
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896 |
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Loans from third parties and other financial debt |
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11 |
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13 |
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Liabilities from derivatives (financial transactions) |
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30 |
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35 |
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Lease liabilities (IFRS 16) |
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125 |
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117 |
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Current financial debt |
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1,228 |
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2,531 |
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Eurobond 2019/2023 |
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– |
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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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1,498 |
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1,410 |
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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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747 |
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746 |
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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 2022/2026 |
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498 |
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– |
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July 2026 |
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1.875 |
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500 |
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€ |
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Eurobond 2019/2027 |
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598 |
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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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747 |
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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 2022/2030 |
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497 |
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– |
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July 2030 |
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2.375 |
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500 |
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€ |
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Eurobond 2019/2031 |
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797 |
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797 |
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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. 20741 |
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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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498 |
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497 |
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June 20792 |
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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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749 |
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996 |
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June 20793 |
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2.875 |
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750 |
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€ |
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Hybrid bond 2020/2080 |
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998 |
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997 |
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Sep. 20804 |
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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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8,126 |
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7,886 |
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Bank loans |
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– |
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– |
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Liabilities to related parties |
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660 |
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– |
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Loans from third parties and other financial debt |
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48 |
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42 |
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Liabilities from derivatives (financial transactions) |
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– |
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– |
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Lease liabilities (IFRS 16) |
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366 |
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342 |
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Non-current financial debt |
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9,200 |
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8,270 |
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Financial debt |
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10,428 |
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10,801 |
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less: |
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Cash and cash equivalents |
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1,854 |
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1,899 |
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Current financial assets5 |
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247 |
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149 |
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Net financial debt6 |
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8,328 |
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8,753 |
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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, 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.
A partial buyback of the nominal volume of € 250 million of the hybrid bond issued in 2019 took place on September 9, 2022.
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, 2022, was 1.9% (December 31, 2021: 1.7%).
Non-current liabilities to related parties in the amount of € 660 million relate to loans from E. Merck Beteiligungen KG, Darmstadt, Germany, a related party of E. Merck KG, Darmstadt, Germany.
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 an important capital management indicator 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, 2022, there were liabilities of € 4.5 billion from a debt issuance program most recently renewed in fiscal 2022 (December 31, 2021: € 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 was utilized as of December 31, 2022, or the prior-year reporting date.
Loan agreements represent a further source of financing for the Group. On the balance sheet date, the bank financing commitments in respect of the Group were as follows:
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Dec. 31, 2022 |
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Dec. 31, 2021 |
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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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2,500 |
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– |
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2,000 |
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– |
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variable |
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2027 |
Bilateral credit agreement with banks |
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375 |
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– |
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– |
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– |
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variable |
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< 3 years |
Various bank credit lines |
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203 |
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203 |
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36 |
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36 |
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variable |
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< 1 year |
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3,078 |
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203 |
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2,036 |
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36 |
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There were no indications that the availability of extended credit lines was restricted.