Capital Structure, Investments, and Financing Activities

(37) Financial debt/Capital management

The composition of financial debt as well as a reconciliation to net financial debt are presented in the following table:

The hybrid bonds issued by Merck KGaA 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 Merck’s credit rating than traditional bond issues. The bonds are recognized in full as financial liabilities in the balance sheet. Although Merck intends to repay them at the earliest possible date, these bonds are principally reported as non-current financial debt for accounting purposes.

A partial buyback of the nominal volume of € 250 million of a hybrid bond issued in 2019 took place on September 9, 2022.

A partial buyback of the nominal volume of € 275 million of hybrid bonds issued in 2019 and 2020 took place on November 20, 2023.

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, 2023, was 2.1 % (December 31, 2022: 1.9 %).

Non-current liabilities to related parties in the amount of € 990 million (December 31, 2022: € 660 million) consisted of liabilities to E. Merck Beteiligungen KG.

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 as well as gearing, calculated as the ratio of EBITDA pre to net financial debt, are important capital management indicators at Merck.

Traditionally, the capital market represents a major source of financing for Merck, for instance via bond issues. As of December 31, 2023, there were liabilities of € 3.9 billion from a debt issuance program most recently renewed in fiscal 2023 (December 31, 2022: € 4.5 billion). In addition, Merck had access to a commercial paper program to meet short-term capital requirements with a volume of € 2.5 billion (December 31, 2022: € 2 billion), none of which was utilized as of December 31, 2023, or the prior-year reporting date.

Loan agreements represent another major source of financing for Merck. On the balance sheet date, the financing commitments from banks in respect of Merck were as follows:

There were no indications that the availability of extended credit lines was restricted.