Annual Report 2014 Annual Report 2014
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(55) Derivative financial instruments

Merck uses derivative financial instruments (hereinafter “derivatives”) exclusively to hedge and reduce risks from currency and interest rate positions. Merck uses marketable forward exchange contracts, options and interest rate swaps as hedging instruments. Depending on the nature of the hedged item, changes in the fair values of derivatives are recorded in the income statement either in the operating result or in the financial result. The strategy to hedge interest rate and foreign exchange rate fluctuations arising from forecast transactions and transactions already recognized in the balance sheet is set by a Merck Group risk committee, which meets on a regular basis. Extensive guidelines regulate the use of derivatives. There is a ban on speculation. Derivative transactions are subject to continuous risk management procedures. Trading, settlement and control functions are strictly separated. Derivatives are only entered into with banks that have a good credit rating. Related default risks are continuously monitored.

The following derivatives were held as of the balance sheet date:


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Nominal volume Fair value
€ million Dec. 31, 2014 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2013
         
Cash flow hedge 10,041.8 4,073.5 313.4 82.2
Interest 650.0 650.0 – 99.9 – 39.9
Currency 9,391.8 3,423.5 413.3 122.1
Fair value hedge
Interest
Currency
No hedge accounting 3,682.6 2,042.5 9.4 5.3
Interest
Currency 3,682.6 2,042.5 9.4 5.3
13,724.4 6,116.0 322.8 87.5

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The nominal volume corresponds to the total of all nominal values of currency hedges (translated at the closing rate into euros) as well as all the nominal values of interest rate hedges. The fair value results from the actuarial valuation of the derivatives on the basis of quoted prices or current market data as of the balance sheet date provided by a recognized information service and the application of a discount for own credit risk or counterparty credit risk. Any offsetting effects from hedged items are not taken into account in the derivatives’ fair value. The maturities of the derivatives (nominal volume) were as follows as of the balance sheet date:


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€ million Remaining maturity less than 1 year Remaining maturity more than 1 year Total
Dec. 31, 2014
Remaining maturity less than 1 year Remaining maturity more than 1 year Total
Dec. 31, 2013
             
Foreign exchange contracts 11,942.6 433.9 12,376.5 3,763.2 1,244.9 5,008.1
Currency options 653.1 44.8 697.9 297.2 160.7 457.9
Interest rate swaps 100.0 550.0 650.0 650.0 650.0
12,695.7 1,028.7 13,724.4 4,060.4 2,055.6 6,116.0

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Currency hedging serves to economically protect the company from the foreign exchange risks of the following types of transaction:

  • Forecast transactions in non-functional currency, the expected probability of which within the next 36 months is very high,
  • Off-balance sheet firm purchase commitments of the next 36 months in non-functional currency,
  • Intragroup financing in non-functional currency as well as
  • Receivables and liabilities in non-functional currency

Exchange rate fluctuations of mainly the following currencies against the euro were hedged:

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Nominal volume € million Dec. 31, 2014 Dec. 31, 2013
     
USD 10,233.5 3,219.9
JPY 920.8 465.2
CHF 431.2 603.4
GBP 383.6 347.3
TWD 255.5 215.3

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Forecast transactions and firm purchase commitments in non-functional currency are hedged using forward exchange transactions and currency options which are due within the next 36 months. Overall, forecast transactions and firm purchase commitments in non-functional currency were hedged in the amount of € 9,044.6 million (2013: € 1,318.2 million). One of the major components is the hedge entered into in 2014 in relation to the expected U.S. dollar-denominated purchase price payment for the proposed acquisition of the Sigma-Aldrich Corporation, USA.

All hedging transactions for forecast transactions and firm purchase commitments in non-functional currency represent cash flow hedges.

Intragroup financing as well as receivables and payables in non-functional currency are hedged exclusively and fully using forward exchange contracts. Overall, balance sheet items amounting to € 4,029.8 million (2013: € 4,147.9 million) were hedged. In this context, the hedging transactions are largely purely economic hedges for which hedge accounting is not applied.

Interest hedges serve to economically protect the company from the interest rate risks from the forecast and highly probable refinancing of a bond maturing in 2015 as well as from an existing variable interest private placement.

The planned refinancing was hedged to fix the interest rate level using forward started payer interest rate swaps with a nominal volume of € 550.0 million and interest payments from 2015 to 2022. The existing variable interest private placement was hedged using a payer interest rate swap with a nominal volume of € 100.0 million and interest payments until 2015. All interest hedging relationships represented cash flow hedges.

Overall, income of € 411.7 million (2013: € 125.5 million) from the fair value measurement of derivatives designated as cash flow hedges was recognized in equity in 2014. € 43.0 million was transferred from equity and recognized as income (2013: € 26.5 million recognized as income). In 2014, no ineffectiveness resulted from hedge accounting.

(56) Management of financial risks

Market fluctuations with respect to foreign exchange and interest rates represent significant profit and cash flow risks for Merck. Merck aggregates these Group-wide risks and steers them centrally also by using derivatives. Merck uses scenario analyses to estimate existing risks of foreign exchange and interest rate fluctuations. Merck is not subject to any material risk concentration from financial transactions. The Report on Risks and Opportunities included in the Group Management Report provides further information on the management of financial risks.

Foreign exchange risks

Owing to its international business focus, Merck is exposed to foreign exchange-related transaction risks within the scope of both ordinary business and financing activities. Different strategies are used to limit or eliminate these risks. Foreign exchange risks from recognized transactions are eliminated as far as possible through the use of forward exchange contracts. Foreign exchange risks arising from forecast transactions are analyzed regularly and reduced if necessary through forward exchange contracts or currency options by applying the hedge accounting rules.

The following table presents the net exposure of the Merck Group in relation to exchange rate fluctuations of the major currencies against the euro:


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€ million CHF CNY JPY TWD USD
           
Net exposure Dec. 31, 2014 – 246.6 355.8 121.6 260.0 753.0
           
Net exposure Dec. 31, 2013 – 233.0 251.4 107.9 169.0 690.4

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Net exposure per currency consists of the following components:

  • Balance sheet items in the respective currency, unless such currency corresponds to the functional currency of a company;
  • forecast cash flows for the next twelve months in the respective currency; and
  • derivatives used to hedge the abovementioned balance sheet items and forecast cash flows for the next twelve months.

The following table presents the effect of exchange rate fluctuations in the key currencies versus the euro on net income and Group equity:


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€ million
Dec. 31, 2014
CHF CNY JPY TWD USD
           
Exchange rate +10 % (Appreciation vs. EUR) Consolidated income statement 0.0 0.0 0.1 0.0 0.0
Total equity 0.0 0.0 – 14.2 – 10.8 844.1
Exchange rate -10 % (Depreciation vs. EUR) Consolidated income statement 0.0 0.0 32.1 0.0 0.0
Total equity 0.0 0.0 9.2 9.1 – 681.7

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€ million
Dec. 31, 2013
CHF CNY JPY TWD USD
           
Exchange rate +10 % (Appreciation vs. EUR) Consolidated income statement 0.0 0.0 0.0 0.0 0.0
Total equity 0.0 0.0 – 26.3 – 9.8 – 94.4
Exchange rate -10 % (Depreciation vs. EUR) Consolidated income statement 0.0 0.0 0.0 0.0 0.0
Total equity 0.0 0.0 19.0 6.7 69.8

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In addition to the previously described transaction risks, the Merck Group is also exposed to currency translation risks since many Merck companies are located outside the eurozone. The financial statements of these companies are translated into euros. Exchange rate differences in the assets and liabilities of these companies resulting from currency translation are recognized directly in Group equity.

Interest rate risks

The Merck Group’s exposure to interest rate changes comprises the following:


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€ million 2014 2013
     
Short-term or variable interest rate monetary deposits 5,131.9 3,236.3
Short-term or variable interest rate monetary borrowings – 2,169.0 – 403.3
Net interest rate exposure 2,962.9 2,833.0

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The effects of a parallel shift in the yield curve by +100 or –100 basis points on the income statement as well as on equity relative to all variable interest rate balance sheet items, all available-for-sale securities as well as all derivatives with a hedging relationship are presented in the following table:

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€ million 2014 2013
         
Change in market interest rate +100 basis points – 100 basis points +100 basis points – 100 basis points
thereof in the consolidated income statement 21.3 – 1.3 11.6 – 2.4
thereof recognized in equity 40.5 – 22.9 33.4 – 38.9

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The scenario calculations assumed that the interest rate cannot fall below 0 %.

Share price risks

The shares in publicly listed companies amounting to € 1.3 million (2013: € 5.0 million) are generally exposed to a market value risk. A 10 % change in the value of the stock market would impact equity by € 0.1 million (2013: € 0.5 million). This change in value would be recognized in profit or loss at the time of disposal.

Liquidity risks

The liquidity risk, meaning the risk that Merck cannot meet its payment obligations resulting from financial liabilities, is limited by establishing the required financial flexibility and by effective cash management. Apart from cash and cash equivalents of € 5,077.9 million (2013 € 3,391.3 million), Merck had at its disposal a multi-currency revolving credit facility of € 2 billion with a term running until 2019 and one extension option of one year as well as bilateral credit facilities and various bank credit lines of € 11,748.0 million (2013: € 267.2 million), mainly intended for the expected purchase price payment for the proposed acquisition of the Sigma-Aldrich Corporation, USA. There were no indications that the availability of credit facilities already extended was restricted. Moreover, a commercial paper program with a volume of € 2 billion and a debt issuance program with a volume of € 15 billion were available. Information on bonds issued by the Merck Group can be found in Note [44].

Liquidity risks are monitored and reported to management on a regular basis. No liens or similar forms of collateral are provided for financial liabilities of the Merck Group. The loan agreements do not contain any financial covenants.

Trade payables amounting to € 1,539.4 million (2013: € 1,364.1 million) had a remaining term of less than one year. With respect to liabilities from operating derivatives amounting to € 35.4 million (2013: € 2.1 million), € 29.0 million (2013: € 1.5 million) was short-term. Out of other financial liabilities amounting to € 696.1 million (2013: € 581.1 million), € 692.9 million (2013: € 578.9 million) was due within one year.

The following tables present the contractual cash flows such as repayments and interest on financial liabilities and derivative financial instruments with a negative fair value:


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Cash flows
< one year
Cash flows
1 – 5 years
Cash flows
> 5 years
€ million
as of Dec. 31, 2014
Carrying amount Interest Repayment Interest Repayment Interest Repayment
               
Bonds and commercial paper 4,624.2 170.9 1,450.0 442.3 342.1 197.6 2,850.0
Liabilities to banks 267.4 5.1 67.4 2.8 200.0
Liabilities to related parties 501.4 1.6 501.4
Loans from third parties and
other financial liabilities
84.5 5.8 18.6 11.8 61.6 4.3
Liabilities from derivatives (financial transactions) 153.0 2.5 36.0 63.7 17.3 40.7
Financing leasing liabilities 6.5 0.2 2.8 0.2 3.7
5,637.0 186.1 2,076.2 520.8 624.7 238.3 2,854.3

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Cash flows
< one year
Cash flows
1 – 5 years
Cash flows
> 5 years
€ million
as of Dec. 31, 2013
Carrying amount Interest Repayment Interest Repayment Interest Repayment
               
Bonds and commercial paper 3,142.7 127.8 333.8 1,722.1 124.5 1,420.0
Liabilities to banks 42.2 4.7 42.2
Liabilities to related parties 361.9 0.2 361.9
Loans from third parties and
other financial liabilities
84.0 6.0 24.0 11.1 56.0 4.0
Liabilities from derivatives (financial transactions) 59.4 2.4 10.0 27.6 9.5 14.7
Financing leasing liabilities 7.7 0.4 2.3 0.1 5.0 0.4
3,697.9 141.5 440.4 372.6 1,792.6 139.2 1,424.4

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Credit risks

Merck is only subject to a relatively low credit risk, meaning the unexpected loss of payment funds or income. On the one hand, financial contracts are only entered into with banks and industrial companies with good credit ratings and on the other hand, due to the broad-based business structure of the Merck Group, there is no particularly high concentration of credit risks with respect to either customers or individual countries. The credit risk from financial contracts is monitored daily on the basis of rating information as well as market information on credit default swap rates. In the case of derivative transactions, credit risk is taken into account in the fair value determination by means of a discount (so-called credit valuation adjustments and debit valuation adjustments).

The credit risk with customers is continuously monitored by analyzing the age structure of trade accounts receivable. Merck continuously reviews and monitors open positions vis-à-vis all trading partners in the affected countries and takes risk-mitigating measures and accounts for impairments as necessary. On the reporting date, the theoretically maximum default risk corresponded to the carrying amounts.

(57) Other disclosures on financial instruments

The following table presents the reconciliation of the balance sheet items to categories of financial instruments pursuant to the disclosures required by IFRS 7 and provides information on the measurement of fair value:

Net gains and losses on financial instruments mainly include measurement results from currency translation, fair value adjustments, impairments and reversals of impairments as well as the recognition of premiums and discounts. Dividends and interest are not recognized in the net gains and losses on financial instruments, except for dividends and interest in the category “held for trading”. At Merck, the category “held for trading” only includes derivatives not in a hedging relationship.

The net gains and losses on financial instruments by category on the reporting date were as follows:


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Net gains or losses
€ million
2014
Interest Impairments Reversals of impairment Fair value adjustments Disposal gains/losses
           
Financial instrument of the category          
Held for trading – 90.8
Held to maturity 1.4
Loans and receivables 18.2 – 41.9 41.8
Available-for-sale 10.0 – 4.4 0.2
Other liabilities – 141.4

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Net gains or losses
€ million
2013
Interest Impairments Reversals of impairment Fair value adjustments Disposal gains/losses
           
Financial instrument of the category          
Held for trading 131.7
Held to maturity 2.5
Loans and receivables 10.3 – 47.2 42.1
Available-for-sale 15.1 – 4.1 1.6
Other liabilities – 163.3

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In 2014, foreign exchange gains of € 53.3 million resulting from receivables and payables in operating business, their economic hedging, as well as hedging of forecast transactions in operating business were recorded (2013: gains of € 26.0 million). Foreign exchange losses of € – 13.0 million resulting from financial balance sheet items, their economic hedging as well as fair value fluctuations of option contracts to hedge forecast transactions were recorded (2013: losses of € – 4.3 million).

The fair value of financial assets and liabilities is based on the official market prices and market values quoted on the balance sheet date (Level 1 assets and liabilities) as well as mathematical calculation models with inputs observable in the market on the balance sheet date (Level 2 assets and liabilities). Level 1 assets comprise stocks and bonds and are classified as “available-for-sale”, Level 1 liabilities comprise issued bonds and are classified as “other liabilities”. Level 2 assets and liabilities are primarily liabilities to banks classified as “other liabilities”, interest-bearing securities classified as “available-for-sale” as well as derivatives with and without hedging relationships. The fair value of interest-bearing securities is determined by discounting future cash flows using market interest rates. The fair value measurement of forward exchange contracts and currency options uses spot and forward rates as well as foreign exchange volatilities applying recognized mathematical principles. The fair value of interest rate swaps is determined with standard market valuation models using interest rate curves available in the market.

Level 3 assets comprise investments in equity instruments classified as available-for-sale. These include interests in InfraServ GmbH & Co. Wiesbaden KG, Germany, which were acquired in the context of the acquisition of AZ Electronics Materials S.A. The fair values of these interests were determined using a discounted cash flow method where expected future cash flows from dividends are taken into account.

Counterparty credit risk is taken into consideration for all valuations. In the case of non-derivative financial instruments, such as other liabilities or interest-bearing securities, this is reflected using risk-adequate premiums on the discount rate, while discounts on market value (so-called credit valuation adjustments and debit valuation adjustments) are used for derivatives.

The fair value of available-for-sale investments in equity instruments with a carrying amount of € 66.9 million (2013: € 52.3 million) could not be reliably determined. They were measured at cost. There is no intention to sell these financial instruments.

The fair values of the financial instruments disclosed in the balance sheet and the fair values deviating substantially from the carrying amount were determined as follows:


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€ million
as of Dec. 31, 2014
Assets Liabilities
     
Fair value determined by official prices and quoted market values (Level 1) 1,178.6 4,970.2
thereof available-for-sale 1,178.6
thereof other liabilities 4,970.2
Fair value determined using inputs observable in the market (Level 2) 1,470.1 1,053.8
thereof available-for-sale 958.9
thereof derivatives with a hedging relationship 470.7 157.3
thereof derivatives without a hedging relationship 40.5 31.1
thereof other liabilities 865.4
Fair value determined using inputs unobservable in the market (Level 3) 11.3
thereof available-for-sale 11.3

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€ million
as of Dec. 31, 2013
Assets Liabilities
     
Fair value determined by official prices and quoted market values (Level 1) 1,396.5 3,414.3
thereof available-for-sale 1,396.5
thereof other liabilities 3,414.3
Fair value determined using inputs observable in the market (Level 2) 1,069.6 563.8
thereof available-for-sale 920.6
thereof derivatives with a hedging relationship 139.3 57.1
thereof derivatives without a hedging relationship 9.7 4.4
thereof other liabilities 502.3
Fair value determined using inputs unobservable in the market (Level 3)

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The changes of financial assets allocated to Level 3 and measured at fair value were as follows:

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€ million 2014 2013
     
Net book value as of January 1
Additions due to the acquisition of AZ Electronic Materials S.A. 10.8
Transfers into Level 3 out of Level 1 / Level 2
Fair value changes
Gains (+) / losses (–) recognized in profit or loss
Gains (+) / losses (–) recognized in other comprehensive income 0.5
Sales
Transfers out of Level 3 into Level 1 / Level 2
Net book value as of December 31 11.3

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Gains and losses from Level 3 assets are reported in other comprehensive income in the consolidated statement of comprehensive income under the item “fair value adjustments” related to available-for-sale financial assets. If the discount factor used for fair value determination was higher by one percentage point, other comprehensive income would decrease by € 2.1 million.

Balance sheet netting is not possible at Merck. From an economic perspective, netting is only possible with derivatives. This possibility results from the framework agreements on derivatives trading which Merck enters into with commercial banks. Merck does not offset financial assets and financial liabilities in its balance sheet.

The following table presents the potential netting volume of the reported derivative financial assets and liabilities:

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Potential netting volume
€ million
as of Dec. 31, 2014
Gross presentation Netting Net presentation Due to master netting agreements Due to financial collateral Potential net amount
             
Derivative financial assets 511.2 511.2 70.5 440.7
Derivative financial liabilities – 188.4 – 188.4 – 70.5 – 117.9

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Show table
Potential netting volume
€ million
as of Dec. 31, 2013
Gross presentation Netting Net presentation Due to master netting agreements Due to financial collateral Potential net amount
             
Derivative financial assets 149.0 149.0 45.9 103.1
Derivative financial liabilities – 61.5 – 61.5 – 45.9 – 15.6

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(58) Capital management

The objective of capital management is to secure the financial flexibility in order to maintain long-term business operations and to realize strategic options. Maintaining a stable investment grade rating, ensuring liquidity, limiting financial risks as well as optimizing the costs of capital are the objectives of our financial policy and set important framework conditions for capital management. Traditionally, the capital market represents a major source of financing for Merck, for instance via bond issues. In addition, Merck has both a commercial paper program for short-term financing on the capital market as well as a multi-currency working capital credit facility of € 2 billion with a term running until 2019 and one extension option for one year.

The responsible committees decide on the capital structure of the balance sheet, the appropriation of net retained profit and the dividend level. In this context, net financial debt is one of the leading capital management indicators. It was as follows:

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€ million Dec. 31, 2014 Dec. 31, 2013 Change
       
Financial liabilities 5,637.0 3,697.9 1,939.1
less:
Cash and cash equivalents 2,878.5 980.8 1,897.7
Current financial assets 2,199.4 2,410.5 – 211.1
Net financial debt 559.1 306.6 252.5

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(59) Contingent liabilities


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€ million Dec. 31, 2014 thereof affiliates Dec. 31, 2013 thereof affiliates
         
Guarantees 17.1 2.5
Warranties 0.5 0.9
Other contingent liabilities 54.3 32.9

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Other contingent liabilities included, among other things, potential obligations from legal disputes, for which the probability of an outflow of resources did not suffice to recognize a provision as of the balance sheet date.

(60) Other financial obligations

Other financial obligations comprised the following:


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€ million Dec. 31, 2014 thereof affiliates Dec. 31, 2013 thereof affiliates
         
Obligation to purchase the entire share capital of Sigma-Aldrich Corporation 13,975.0
Obligation to purchase the entire share capital of AZ Electronic Materials S.A. 1,876.5
Obligations to acquire intangible assets 1,494.8 2,000.2
Obligations to acquire property, plant and equipment 55.3 44.7
Future operating lease payments 199.7 172.0
Long-term purchase commitments 138.4 151.5
Other financial obligations 30.8 29.0
15,894.0 4,273.9

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In connection with the offer to acquire Sigma-Aldrich Corporation, USA, which was announced by Merck on September 22, 2014, there is a contingent financial obligation in the amount of € 13,975.0 million (US$ 16,985.2 million; € / US$ exchange rate on December 31, 2014: 1.2154) to acquire the entire share capital of Sigma-Aldrich for a cash consideration.

If the merger agreement with Sigma-Aldrich is terminated, Merck will be obligated to pay Sigma-Aldrich a termination fee of € 768.8 million (US$ 934.4. million, €/US$ exchange rate on December 31, 2014: 1.2154).

Obligations to acquire intangible assets existed in particular within the scope of research and development collaborations. Here Merck has obligations to make milestone payments when its partner achieves certain objectives.

In the unlikely event that all contract partners achieve all milestones, Merck would be obligated to pay up to € 1,494.8 million (2013: € 2,000.2 million) for the acquisition of intangible assets.

Our expectations regarding the potential maturities of these obligations were as follows:


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€ million Dec. 31, 2014 Dec. 31, 2013
     
Obligations to acquire intangible assets
within one year 61.2 56.8
in 1 – 5 years 390.2 508.4
more than 5 years 1,043.4 1,435.0
1,494.8 2,000.2

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Other financial obligations were recognized at nominal value.

The maturities of liabilities from lease agreements were as follows:


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€ million
Dec. 31, 2014
within 1 year 1 – 5 years more than 5 years Total
         
Present value of future payments from finance leases 2.8 3.7 6.5
Interest component of finance leases 0.2 0.2 0.4
Future finance lease payments 3.0 3.9 6.9
         
Future operating lease payments 83.7 108.7 7.3 199.7

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€ million
Dec. 31, 2013
within 1 year 1 – 5 years more than 5 years Total
         
Present value of future payments from finance leases 2.3 5.0 0.4 7.7
Interest component of finance leases 0.4 0.1 0.1 0.6
Future finance lease payments 2.7 5.1 0.5 8.3
         
Future operating lease payments 64.9 103.0 4.1 172.0

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Operating lease agreements related mainly to customary leasing arrangements to lease operating and office equipment. The payments resulting from operating lease agreements amounted to € 91.8 million (2013: € 104.0 million) and were recorded as an expense in the reporting period.

(61) Personnel expenses / Headcount

Personnel expenses comprised the following:


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€ million 2014 2013
     
Wages and salaries 2,630.9 2,611.8
Compulsory social security contributions and special financial assistance 376.6 368.0
Pension expenses 157.4 146.6
3,164.9 3,126.4

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As of December 31, 2014, the Merck Group had 39,639 employees (2013: 38,154). The average number of employees during the year was 38,930 (2013: 38,282).

The breakdown of personnel by function was as follows:


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Average number of employees 2014 2013
     
Production 10,176 9,985
Logistics 2,207 1,779
Marketing and Sales 12,113 12,214
Administration 6,342 5,106
Research and Development 4,738 4,433
Infrastructure and Other 3,354 4,765
38,930 38,282

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In 2013 and 2014, Merck substantially increased transparency by assigning all positions to a standardized job profile. In this way, positions that were previously not assigned to specific functional areas were assigned according to function.

(62) Material costs

Material costs in 2014 amounted to € 1,516.8 million (2013: € 1,473.2 million) and were reported under cost of sales.

(63) Auditors‘ fees

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


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2014 2013
€ million Merck Group thereof KPMG Germany Merck Group thereof KPMG Germany
         
Audits of financial statements 5.4 1.6 5.2 1.5
Other audit-related services 0.6 0.5 0.4 0.2
Tax consultancy services 0.6 0.3 0.8 0.7
Other services 0.3 0.2 0.4 0.3
6.9 2.6 6.8 2.7

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(64) 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 our website www.merckgroup.com/investors/corporate governance in March 2014 and thus made permanently available.

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

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

Allergopharma GmbH & Co. KG, Reinbek
Allergopharma Verwaltungs GmbH, Darmstadt
Biochrom GmbH, Berlin
Chemische Fabrik Lehrte Dr. Andreas Kossel GmbH, Lehrte
Chemitra GmbH, Darmstadt
heipha Dr. Müller GmbH, Eppelheim
Litec-LLL GmbH, Greifswald
Merck Accounting Solutions & Services Europe GmbH, Darmstadt
Merck Chemicals GmbH, Schwalbach
Merck Consumer Health Holding GmbH, Darmstadt
Merck Export GmbH, Darmstadt
Merck Selbstmedikation GmbH, Darmstadt
Merck Serono GmbH, Darmstadt
Merck Versicherungsvermittlung GmbH, Darmstadt

(66) Related-party disclosures

Related parties in respect of the Merck Group are E. Merck KG as well as Emanuel-Merck-Vermögens-KG and E. Merck Beteiligungen KG. In principle, direct or indirect subsidiaries of Merck KGaA, associates of the Merck Group, jointly controlled companies where the Merck Group is involved, as well as pension funds that are classified as funded 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, the Executive Board and the Board of Partners of E. Merck KG as well as close members of their families are also related parties.

As of December 31, 2014, there were liabilities by Merck Financial Services GmbH, Merck KGaA, and Merck & Cie, Altdorf, Switzerland, to E. Merck KG in the amount of € 926.9 million (2013: € 734.7 million) as well as by Merck Financial Services GmbH to Merck Capital Asset Management, Malta, and Merck Capital Asset Management Holding, Malta, amounting to € 0.1 million (2013: € 0.2 million) and € 0.0 million (2013: € 0.1 million), respectively. In addition, as of December 31, 2014, Merck KGaA had receivables from E. Merck Beteiligungen KG in the amount of € 76.5 million (2013: € 32.5 million). The balances result mainly from the profit transfers by Merck & Cie to E. Merck KG as well as the reciprocal profit transfers between Merck KGaA and E. Merck KG. They included financial payables of € 501.4 million (2013: € 361.9 million) which 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 Merck.

From January to December 2014, Merck KGaA performed services for E. Merck KG with a value of € 1.2 million (2013: € 1.2 million), for Emanuel-Merck-Vermögens-KG with a value of € 0.3 million (2013: € 0.4 million) and for E. Merck Beteiligungen KG with a value of € 0.3 million (2013: € 0.3 million). During the same period, E. Merck KG performed services for Merck KGaA with a value of € 0.5 million (2013: € 0.5 million).

Business transactions with major subsidiaries were eliminated during consolidation. Information on pension funds that are classified as funded defined benefit plans in accordance with IAS 19 can be found under Note [49]. There were no further material transactions with these pension funds.

From January to December 2014, there were no transactions between companies of the Merck Group and associates, as was the case in 2013. As in the previous year, companies of the Merck Group had no receivables or liabilities vis-à-vis associates as of December 31, 2014.

There were no material transactions such as, for example, the provision of services or the granting of loans, between companies of the Merck Group and members of the Executive Board or the Supervisory Board of Merck KGaA, the Executive Board or the Board of Partners of E. Merck KG or members of their immediate families.

(67) Executive Board and Supervisory Board compensation

The compensation of the Executive Board of Merck KGaA is paid by the general partner, E. Merck KG, and recorded as an expense in its income statement. For the period from January to December 2014 fixed salaries of € 5.3 million (2013: € 4.9 million), variable compensation of € 18.3 million (2013: € 17.6 million), and additional benefits of € 0.2 million (2013: € 0.2 million) were recorded for members of the Executive Board of Merck KGaA. Furthermore, additions to the provisions of E. Merck KG for the Long-Term Incentive Plan totaled € 12.7 million (2013: € 8.0 million), and additions to the pension provisions of E. Merck KG include current service costs of € 2.1 million (2013: € 2.5 million) for members of the Executive Board of Merck KGaA.

The compensation of the Supervisory Board amounting to € 882.1 thousand (2013: € 847.4 thousand) consisted of a fixed portion of € 823.6 thousand (2013: € 599.5 thousand), meeting attendance compensation of € 58.5 thousand (2013: € 45.7 thousand), as well as a variable portion of € 0.0 thousand (2013: € 202.2 thousand).

Further individualized information and details can be found in the Compensation Report.

(68) Information on preparation and approval

The Executive Board of Merck KGaA prepared the consolidated financial statements on February 18, 2015 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.

(69) Subsequent events

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

(70) List of shareholdings

The shareholdings of Merck KGaA as of December 31, 2014 are presented in the following table.


Show table
Country Company Registered office Equity interest (%) thereof
Merck KGaA (%)
 
I. Fully consolidated companies
         
Germany
Germany Merck KGaA Darmstadt Parent company
Germany AB Allgemeine Pensions GmbH & Co. KG Zossen 100.00 100.00
Germany Allergopharma GmbH & Co. KG Reinbek 100.00
Germany Allergopharma Verwaltungs GmbH Darmstadt 100.00 100.00
Germany AZ Electronic Materials (Germany) GmbH Wiesbaden 100.00
Germany Biochrom GmbH Berlin 100.00
Germany Chemische Fabrik Lehrte Dr. Andreas Kossel GmbH Lehrte 100.00 100.00
Germany Chemitra GmbH Darmstadt 100.00 100.00
Germany Emedia Export Company mbH Gernsheim 100.00
Germany heipha Dr. Müller GmbH Eppelheim 100.00 100.00
Germany IHS - Intelligent Healthcare Solutions GmbH Frankfurt/Main 100.00
Germany Litec-LLL GmbH Greifswald 100.00 100.00
Germany Merck 12. Allgemeine Beteiligungs-GmbH Darmstadt 100.00 100.00
Germany Merck 13. Allgemeine Beteiligungs-GmbH Darmstadt 100.00
Germany Merck 15. Allgemeine Beteiligungs-GmbH Darmstadt 100.00
Germany Merck Accounting Solutions & Services Europe GmbH Darmstadt 100.00 100.00
Germany Merck Chemicals GmbH Schwalbach 100.00
Germany Merck China Chemicals Holding GmbH Darmstadt 100.00
Germany Merck Consumer Health Holding GmbH Darmstadt 100.00 100.00
Germany Merck Export GmbH Darmstadt 100.00 100.00
Germany Merck Financial Services GmbH Darmstadt 100.00 100.00
Germany Merck Financial Trading GmbH Gernsheim 100.00 100.00
Germany Merck Holding GmbH Gernsheim 100.00 100.00
Germany Merck International GmbH Darmstadt 100.00 100.00
Germany Merck Internationale Beteiligungen GmbH Darmstadt 100.00
Germany Merck Schuchardt OHG Hohenbrunn 100.00 100.00
Germany Merck Selbstmedikation GmbH Darmstadt 100.00
Germany Merck Serono GmbH Darmstadt 100.00 100.00
Germany Merck Versicherungsvermittlung GmbH Darmstadt 100.00 100.00
Germany Merck Vierte Allgemeine Beteiligungsgesellschaft mbH Gernsheim 100.00
         
Other European countries
Austria Allergopharma Vertriebsgesellschaft m.b.H. Vienna 100.00
Austria Merck Chemicals and Life Science GesmbH Vienna 100.00
Austria Merck Gesellschaft mbH Vienna 100.00
Austria Merck KGaA & Co. Werk Spittal Spittal 100.00 99.00
Belgium Merck Chemicals N.V./S.A. Overijse 100.00
Belgium Merck Consumer Healthcare N.V.-S.A. Overijse 100.00
Belgium Merck N.V.-S.A. Overijse 100.00
Bulgaria Merck Bulgaria EAD Sofia 100.00
Croatia Merck d.o.o. Zagreb 100.00
Czech Republic Merck spol.s.r.o. Prague 100.00
Denmark Merck A/S Hellerup 100.00
Denmark Merck Life Science A/S Hellerup 100.00
Denmark Survac ApS Frederiksberg 100.00 100.00
Estonia Merck Serono OÜ Tallinn 100.00
Finland Merck OY Espoo 100.00
Finland Millipore OY Espoo 100.00
France AZ Electronic Materials France S.A.S. Trosly-Breuil 100.00
France Laboratoire Médiflor S.A.S. Lyon 100.00
France Merck Biodevelopment S.A.S. Lyon 100.00
France Merck Chimie S.A.S. Fontenay s/Bois 100.00
France Merck Médication Familiale S.A.S. Lyon 100.00
France Merck S.A. Lyon 99.83
France Merck Santé S.A.S. Lyon 100.00
France Merck Serono S.A.S. Lyon 100.00
France Millipore S.A.S. Molsheim 100.00
Greece Merck A.E. Maroussi, Athens 100.00
Hungary Merck Kft. Budapest 100.00
Ireland Merck Millipore Ltd. Carrigtwohill 100.00
Ireland Merck Serono (Ireland) Ltd. Dublin 100.00
Ireland Millipore Cork Carrigtwohill 100.00
Ireland Millipore Dublin International Finance Company Dublin 100.00
Italy Allergopharma S.p.A. Rome 100.00
Italy Istituto di Ricerche Biomediche Antoine Marxer RBM S.p.A. Colleretto Giacosa 100.00
Italy Merck S.p.A. Vimodrone 100.00
Italy Merck Serono S.p.A. Rome 99.74
Latvia Merck Serono SIA Riga 100.00
Lithuania Merck Serono, UAB Vilnius 100.00
Luxembourg AZ Electronic Materials (Luxembourg) S.a.r.l. Luxembourg 100.00
Luxembourg AZ Electronic Materials Group S.a.r.l. Luxembourg 100.00
Luxembourg AZ Electronic Materials S.A. Luxembourg 100.00
Luxembourg AZ Electronic Materials TopCo S.a.r.l. Luxembourg 100.00
Luxembourg Merck Chemicals Holding S.a.r.l. Luxembourg 100.00
Luxembourg Merck Finance S.a.r.l. Luxembourg 100.00
Luxembourg Merck Holding S.a.r.l. Luxembourg 100.00
Luxembourg Merck Re S.A. Luxembourg 100.00
Luxembourg Merck-Finanz AG Luxembourg 100.00 100.00
Luxembourg Millilux S.a.r.l. Luxembourg 100.00
Luxembourg Millipart S.a.r.l. Luxembourg 100.00
Luxembourg Millipore International Holdings, S.a.r.l. Luxembourg 100.00
Luxembourg Ridgefield Acquisition S.a.r.l. Luxembourg 100.00
Luxembourg Ridgefield Holdco S.a.r.l. Luxembourg 100.00
Malta Merck Capital Holding Ltd. Pietà 100.00
Malta Merck Capital Ltd. Pietà 100.00
Netherlands Merck B.V. Schiphol-Rijk 100.00
Netherlands Merck Chemicals B.V. Amsterdam Zuidoost 100.00
Netherlands Serono Tri Holdings B.V. Schiphol-Rijk 100.00
Norway Merck Life Science AS Oslo 100.00
Poland Merck Sp.z o.o. Warsaw 100.00
Portugal Merck, S.A. Algés 100.00
Romania Merck Romania S.R.L. Bucharest 100.00
Russia Merck LLC Moscow 100.00
Slovakia Merck spol.s.r.o. Bratislava 100.00
Slovenia Merck d.o.o. Ljubljana 100.00
Serbia Merck d.o.o. Beograd Belgrade 100.00
Spain Merck Chemicals and Life Science S.A. Madrid 100.00
Spain Merck, S.L. Madrid 100.00
Sweden Merck AB Solna 100.00
Sweden Merck Chemicals and Life Science AB Solna 100.00
Switzerland Allergopharma AG Therwil 100.00
Switzerland Ares Trading SA Aubonne 100.00
Switzerland AZ Electronic Materials (Schweiz) AG Zurich 100.00
Switzerland Merck & Cie Altdorf 51.63 51.63
Switzerland Merck (Schweiz) AG Zug 100.00
Switzerland Merck Biosciences AG Läufelfingen 100.00
Switzerland Merck Serono SA Coinsins 100.00
Switzerland Millipore AG Zug 100.00
Switzerland SeroMer Holding SA Chéserex 100.00
Turkey Merck Ilac Ecza ve Kimya Ticaret AS Istanbul 100.00
United Kingdom AZ Electronic Materials (UK) Ltd. Stockley Park 100.00
United Kingdom AZ Electronic Materials Services Ltd. Stockley Park 100.00
United Kingdom Lamberts Healthcare Ltd. Tunbridge Wells 100.00
United Kingdom Merck Chemicals Ltd. Nottingham 100.00
United Kingdom Merck Consumer Health Care Ltd. Hull 100.00
United Kingdom Merck Cross Border Trustees Ltd. Hull 100.00
United Kingdom Merck Holding Ltd. Feltham 100.00
United Kingdom Merck Investments Ltd. Hull 100.00
United Kingdom Merck Ltd. Hull 100.00
United Kingdom Merck Pension Trustees Ltd. Hull 100.00
United Kingdom Merck Serono Europe Ltd. London 100.00
United Kingdom Merck Serono Ltd. Feltham 100.00
United Kingdom Millipore (U.K.) Ltd. Feltham 100.00
United Kingdom Millipore UK Holdings LLP London 100.00
United Kingdom Seven Seas Limited Hull 100.00
         
North America
Canada EMD Chemicals Canada Inc. Toronto 100.00
Canada EMD Crop BioScience Canada Inc. Toronto 100.00
Canada EMD Inc. Mississauga 100.00
Canada Millipore (Canada) Ltd. Toronto 100.00
United States Amnis Corp. Seattle 100.00
United States AZ Electronic Materials Holdings U.S. Inc. Wilmington 100.00
United States AZ Electronic Materials USA Corp. Wilmington 100.00
United States EMD Accounting Solutions & Services America, Inc. Quincy 100.00
United States EMD Holding Corp. Rockland 100.00
United States EMD Millipore Corporation Billerica 100.00
United States EMD Serono Holding Inc. Rockland 100.00
United States EMD Serono Research & Development Institute, Inc. Billerica 100.00
United States EMD Serono, Inc. Rockland 100.00
United States Mario Finance Corp. Wilmington 100.00
United States Millipore Asia Ltd. Wilmington 100.00
United States Millipore Pacific Ltd. Wilmington 100.00
United States Millipore UK Holdings I, LLC Wilmington 100.00
United States Millipore UK Holdings II, LLC Wilmington 100.00
United States Serono Laboratories Inc. Rockland 100.00
         
Emerging Markets
Argentina Merck Quimica Argentina S.A.I.C. Buenos Aires 100.00
Brazil Merck S.A. Rio de Janeiro 100.00
Chile Merck S.A. Santiago de Chile 100.00
China AZ Electronic Materials (Hong Kong) Finance Ltd. Hong Kong 100.00
China AZ Electronic Materials (Suzhou) Ltd. Suzhou 100.00
China Beijing Skywing Technology Co., Ltd. Beijing 100.00
China Merck Chemicals (Shanghai) Co., Ltd. Shanghai 100.00
China Merck Display Materials (Shanghai) Co., Ltd. Shanghai 100.00
China Merck Holding (China) Co., Ltd. Shanghai 100.00
China Merck Ltd. Hong Kong 100.00
China Merck Millipore Lab Equipment (Shanghai) Co., Ltd. Shanghai 100.00
China Merck Performance Materials Hong Kong Ltd. Hong Kong 100.00
China Merck Performance Materials Hong Kong Services Ltd. Hong Kong 100.00
China Merck Pharmaceutical (HK) Ltd. Hong Kong 100.00
China Merck Pharmaceutical Manufacturing (Jiangsu) Co., Ltd. Nantong 100.00
China Merck Serono (Beijing) Pharmaceutical Distribution Co., Ltd. Beijing 100.00
China Merck Serono (Beijing) Pharmaceutical R&D Co., Ltd. Beijing 100.00
China Merck Serono Co., Ltd. Beijing 100.00
China Millipore (Shanghai) Trading Co., Ltd. Shanghai 100.00
China Millipore China Ltd. Hong Kong 100.00
China Suzhou Taizhu Technology Development Co., Ltd. Taicang 100.00
Colombia Merck S.A. Bogotá 100.00
Ecuador Merck C.A. Quito 100.00
Guatemala Merck, S.A. Guatemala City 100.00
India Chemtreat Composites India Pvt. Ltd. Sanpada New Mumbai 100.00
India Merck Ltd. Mumbai 51.80
India Merck Specialities Pvt. Ltd. Mumbai 100.00
India Millipore India Pvt. Ltd. Bangalore 100.00
Indonesia P.T. Merck Chemicals and Life Sciences Jakarta 100.00
Indonesia P.T. Merck Tbk. Jakarta 86.65
Israel Inter-Lab Ltd. Yavne 100.00
Israel InterPharm Industries Ltd. Yavne 100.00
Israel InterPharm Laboratories Ltd. Yavne 100.00
Israel Merck Serono Ltd. Herzliya Pituach 100.00
Malaysia Merck Sdn Bhd Petaling Jaya 100.00
Mexico Merck, S.A. de C.V. Mexico City 100.00
Pakistan Merck (Pvt.) Ltd. Karachi 75.00 26.00
Pakistan Merck Pharmaceuticals (Pvt.) Ltd. Karachi 75.00
Pakistan Merck Specialities (Pvt.) Ltd. Karachi 100.00
Panama Mesofarma Corporation Panama City 100.00
Peru Merck Peruana S.A. Lima 100.00
Philippines Merck Inc. Makati City 100.00
Singapore AZ Electronic Materials (Singapore) Pte. Ltd. Singapore 100.00
Singapore Merck Pte. Ltd. Singapore 100.00
South Korea AZ Chem Korea Ltd. Seoul 100.00
South Korea AZ Electronic Materials (Korea) Ltd. Seoul 100.00
South Korea Merck Advanced Technologies Ltd. Pyeongtaek-si 100.00
South Korea Merck Ltd. Seoul 100.00
Taiwan AZ Electronic Materials Taiwan Co. Ltd. Taipei 100.00 100.00
Taiwan AZ EM Taiwan Holding Co. Ltd. Taipei 100.00
Taiwan Merck Display Technologies Ltd. Taipei 100.00
Taiwan Merck Ltd. Taipei 100.00
Thailand Merck Ltd. Bangkok 45.11
United Arab Emirates Merck Serono Middle East FZ-LLC Dubai 100.00
Uruguay ARES Trading Uruguay S.A. Montevideo 100.00
Venezuela Merck S.A. Caracas 100.00
Venezuela Representaciones MEPRO S.A. Caracas 100.00
Vietnam Merck Vietnam Ltd. Ho Chi Minh City 100.00
         
Rest of the World
Australia Merck Pty. Ltd. Bayswater 100.00
Australia Merck Serono Australia Pty. Ltd. Sydney 100.00
Egypt Merck Ltd. Cairo 100.00
Japan AZ Electronic Materials IP (Japan) KK Tokyo 100.00
Japan AZ Electronic Materials Manufacturing (Japan) KK Tokyo 100.00
Japan Merck Ltd. Tokyo 100.00 15.89
Japan Merck Performance Materials G.K. Tokyo 100.00
Japan Merck Serono Co., Ltd. Tokyo 100.00
Mauritius Millipore Mauritius Ltd. CyberCity 100.00
New Zealand Merck Ltd. Palmerston North 100.00
South Africa Merck (Pty) Ltd. Halfway House 100.00
South Africa Merck Pharmaceutical Manufacturing (Pty) Ltd. Wadeville 100.00
Tunisia Merck Promotion SARL Tunis 100.00
Tunisia Merck SARL Tunis 100.00
         
II. Companies not consolidated due to secondary importance
         
Germany
Germany AB Pensionsverwaltung GmbH Zossen 100.00 100.00
Germany Merck 14. Allgemeine Beteiligungs-GmbH Darmstadt 100.00
Germany Merck 16. Allgemeine Beteiligungs-GmbH Darmstadt 100.00 100.00
Germany Merck 17. Allgemeine Beteiligungs-GmbH Darmstadt 100.00 100.00
Germany Merck 18. Allgemeine Beteiligungs-GmbH Darmstadt 100.00 100.00
Germany Merck 19. Allgemeine Beteiligungs-GmbH Darmstadt 100.00 100.00
Germany Merck 20. Allgemeine Beteiligungs-GmbH Darmstadt 100.00 100.00
Germany Merck 21. Allgemeine Beteiligungs-GmbH Darmstadt 100.00 100.00
Germany Merck Patent GmbH Darmstadt 100.00
Germany Merck Wohnungs- und
Grundstücksverwaltungsgesellschaft mbH
Darmstadt 100.00 100.00
         
Other European countries
France Gonnon S.A.S. Lyon 100.00
Netherlands Merck Finance B.V. Schiphol-Rijk 100.00 100.00
Netherlands Merck Holding Netherlands B.V. Schiphol-Rijk 100.00 100.00
Netherlands Peer+ B.V. Eindhoven 100.00 100.00
Portugal Laquifa Laboratorios S.A. Algés 100.00
Switzerland Asceneuron SA Lausanne 80.00
Switzerland Calypso Biotech SA Plan-les-Ouates 75.00
Switzerland Prexton Therapeutics SA Plan-les-Ouates 55.00
United Kingdom Nature´s Best Health Products Ltd. Tunbridge Wells 100.00
         
North America
United States EMD Finance LLC Wilmington 100.00
United States Mario II Finance Corp. Wilmington 100.00
United States TocopheRx, Inc. Groton 65.78
         
Emerging Markets
Dominican Republic Merck Dominicana, S.R.L. Santo Domingo 100.00
         
Rest of the World
Australia Biochrom Australia Pty. Ltd. Bayswater 100.00
Morocco Merck Maroc S.A.R.L. Casablanca 100.00
Nigeria Merck Pharmaceutical and Life Sciences Ltd. Lagos 100.00
South Africa Serono South Africa Ltd. Johannesburg 100.00
         
III. Associates not included at equity due to secondary importance
         
Other European countries
Switzerland Vaximm AG Basel 24.66
         
Emerging Markets
Israel Neviah Genomics Ltd. Yavne 69.00 7.75
Israel QLight Nanotech Ltd. Jerusalem 47.73

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Darmstadt, February 18, 2015

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