[38] Information on financial instruments

The KION Group uses both primary and derivative financial instruments. The following section summarises the relevance of these financial instruments for the KION Group.

The following tables show the measurement categories defined by IAS 39. In line with IFRS 7, the tables show the carrying amounts and fair values of financial assets and liabilities. Derivative financial instruments forming part of a documented hedge are not assigned to any of the IAS 39 measurement categories and are therefore not included in > TABLES 100 – 101.

Carrying amounts broken down by class and category 2016

100

Classes:

Carrying amount

Change in valuation allowances	102
Valuation allowances as at 01/01/	38.5	40.2
Group changes	–	–1.8
Additions (cost of valuation allowances)	10.8	11.7
Reversals	–4.1	–3.7
Utilisations	–5.0	–7.4
Currency translation adjustments	0.2	–0.5
Valuation allowances as at 31/12/	40.4	38.5

Net gains and losses on financial instruments broken down by category	103
Loans and receivables (LaR)	3.2	–9.1
Available-for-sale investments (AfS)	6.2	9.7
Financial instruments held for trading (FAHfT, FLHfT)	–17.6	18.2
Financial liabilities carried at amortised cost (FLaC)	–57.1	–89.6

Offsetting of financial instruments

As at the reporting date, the potential offsetting volume essentially arose from netting arrangements in framework agreements governing derivatives trading that the KION Group had entered into with commercial banks. The potential offsetting volume from issued financial collateral, as disclosed in 2015, related to collateral in connection with the syndicated loan of 23 December 2006. This collateral was released in February 2016 because of the redemption of this loan. The following tables show actual offsetting and potential offsetting volumes for financial assets and financial liabilities. > TABLES 104 – 107

Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements						104
				Potential offsetting amount
	Gross amounts of recognised financial assets	Gross amounts of recognised financial liabilities set off in the balance sheet	Net amounts of financial assets presented in the balance sheet	owing to netting agreements	in connection with financial collaterals received	Potential net amount
in € million	31/12/2016
Trade receivables	1,000.6	–1.6	998.9	–	–	998.9
Derivative financial assets	10.3	–	10.3	–4.5	–	5.8
Total	1,010.9	–1.6	1,009.3	–4.5	–	1,004.8

Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements						105
				Potential offsetting amount
	Gross amounts of recognised financial assets	Gross amounts of recognised financial liabilities set off in the balance sheet	Net amounts of financial assets presented in the balance sheet	owing to netting agreements	in connection with financial collaterals received	Potential net amount
in € million	31/12/2015
Trade receivables	670.6	–0.1	670.5	–	–	670.5
Derivative financial assets	5.3	–	5.3	–2.7	–	2.6
Total	675.9	–0.1	675.8	–2.7	–	673.1

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements						106
				Potential offsetting amount
	Gross amounts of recognised financial liabilities	Gross amounts of recognised financial assets set off in the balance sheet	Net amounts of financial liabilities presented in the balance sheet	owing to netting agreements	in connection with financial collaterals pledged	Potential net amount
in € million	31/12/2016
Trade payables	803.8	–1.6	802.2	–	–	802.2
Derivative financial liabilities	22.4	–	22.4	–4.5	–	17.9
Total	826.2	–1.6	824.6	–4.5	–	820.1

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements						107
				Potential offsetting amount
	Gross amounts of recognised financial liabilities	Gross amounts of recognised financial assets set off in the balance sheet	Net amounts of financial liabilities presented in the balance sheet	owing to netting agreements	in connection with financial collaterals pledged	Potential net amount
in € million	31/12/2015
Financial liabilities	676.5	–	676.5	–	–279.7	396.9
Trade payables	574.7	–0.1	574.6	–	–	574.6
Derivative financial liabilities	12.4	–	12.4	–2.7	–	9.7
Total	1,263.7	–0.1	1,263.6	–2.7	–279.7	981.2

Fair value measurement

The majority of the cash and cash equivalents, financial receivables, other non-derivative receivables and liabilities, trade receivables and trade payables held by the Group have short remaining terms to maturity. The carrying amounts of these financial instruments are roughly equal to their fair values. The fair value of liabilities to banks corresponds to the present value of the outstanding payments, taking account of the current interest-rate curve and the Group’s own default risk. This fair value, calculated for the purposes of disclosure in the notes to the financial statements, is classified as Level 2 of the fair value hierarchy.

The fair value of the corporate bond, calculated for disclosure in the notes to the financial statements in 2015, was determined using publicly quoted prices in an active market and was therefore classified as Level 1 of the fair value hierarchy. The calculation was based on the middle rate applicable on 31 December 2015.

The fair value of receivables and liabilities from finance leases corresponds to the present value of the net lease payments, taking account of the current market interest rate for similar leases.

The following tables show the assignment of fair values to the individual classification levels as defined by IFRS 7 for financial instruments measured at fair value. > TABLES 108 – 109

Financial instruments measured at fair value				108
	Fair Value Hierarchy
in € million	Level 1	Level 2	Level 3	2016
Financial assets				10.8
thereof other financial investments	0.5			0.5
thereof derivative instruments		10.3		10.3

Financial liabilities				22.4
thereof derivative instruments		22.1	0.3	22.4

Financial instruments measured at fair value				109
	Fair Value Hierarchy
in € million	Level 1	Level 2	Level 3	2015
Financial assets				25.7
thereof non-consolidated subsidiaries and other financial investments			19.6	19.6
thereof other financial investments	0.8			0.8
thereof derivative instruments		5.3		5.3

Financial liabilities				12.4
thereof derivative instruments		11.9	0.6	12.4

Level 1 comprises long-term financial assets for which the fair value is calculated using prices quoted in an active market.

All currency forwards are classified as Level 2. The fair value of currency forwards is calculated by the system using the discounting cash flow method based on forward rates on the reporting date. The default risk for the Group and for the counterparty is taken into account on the basis of gross figures.

The shares in non-consolidated subsidiaries allocated to Level 3 in 2015 related to the shares acquired in October 2015 in Emhilia Material Handling S.p.A. (formerly Moden Diesel S.p.A.) and the shares in LR Intralogistik GmbH purchased at the end of October 2015. Because the acquisitions took place shortly before the reporting date, the reported fair value was the same as the purchase consideration. These two subsidiaries were included in the KION Group’s basis of consolidation for the first time in January 2016.

The derivative financial liabilities allocated to Level 3 related to a call option of Weichai Power on the 10 per cent shareholding of the KION Group in Linde Hydraulics. The Black-Scholes model and probability-weighted scenario analysis were used to calculate the fair value of the call option.

> TABLE 110 shows the changes in fair value and the impact on the income statement.

Development of financial assets / liabilities classified as level 3		110
in € million	2016	2015
Value as at 01/01/	–0.6	31.7
Gains recognised in net financial expenses	0.3	2.4
Disposals	–	–34.7
Value as at 31/12/	–0.3	–0.6
Gains for the period relating to financial assets / liabilities classified as Level 3	0.3	2.4
Change in unrealised gains for the period relating to financial liabilities held as at 31/12/	0.3	0.1

As at 31 December 2016, the fair value calculated for the call option on the shares in Linde Hydraulics came to minus €0.3 million (31 December 2015: minus €0.6 million). As at the reporting date, a change in the fair value of the shares in Linde Hydraulics would not have had any material effect on profit or loss as a consequence of the change in the fair value of the call option.

In order to eliminate default risk to the greatest possible extent, the KION Group only enters into derivatives with investment-grade counterparties.

If events or changes in circumstances make it necessary to reclassify financial instruments to a different level, they are reclassified at the end of a reporting period. As had been the case in 2015, no financial instruments were transferred between Levels 1, 2 or 3 in 2016.

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[38] Information on financial instruments

Offsetting of financial instruments

Fair value measurement