[36] 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 table shows the measurement categories defined by IAS 39. In line with IFRS 7, the table shows the carrying amounts and fair values of financial assets and liabilities: > TABLES 089–090

Carrying amounts broken down by class and category 2014

089

Classes

Carrying
amount

Change in valuation allowances	091
Valuation allowances as at 01/01/	42.4	50.5
Group changes	–	–0.2
Additions (cost of valuation allowances)	7.1	9.4
Reversals	–4.6	–7.5
Utilisations	–5.1	–9.2
Currency translation adjustments	0.3	–0.7
Valuation allowances as at 31/12/	40.2	42.4

Net gains and losses on financial instruments broken down by category	092
Loans and receivables (LaR)	–4.8	11.0
Financial instruments held for trading (FAHfT, FLHfT)	54.6	–14.2
Financial liabilities carried at amortised cost (FLaC)	–103.5	–152.9

Offsetting of financial instruments

The potential offsetting volume essentially arises from netting arrangements in framework agreements governing derivatives trading that the KION Group concludes with commercial banks. The potential offsetting volume reported in connection with financial collateral issued relates to collateral provided in the context of the SFA serving as collateral in case of default for the creditors of all SFA tranches (including H₂a), subject to the usual limitations and agreed recovery principles. The following tables show actual offsetting and potential offsetting volumes for financial assets and financial liabilities. > TABLES 093–096

Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements						093
				Potential net 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	31/12/2014
Trade receivables	598.3	−0.1	598.2	−0.0	−	598.2
Derivative financial assets	43.7	−	43.7	−5.8	−	37.9
Total	642.0	−0.1	641.9	−5.8	−	636.2

Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements						094
				Potential net 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	31/12/2013
Trade receivables	560.8	−2.1	558.7	−	−	558.7
Derivative financial assets	19.4	−	19.4	−0.9	−	18.5
Total	580.1	−2.1	578.1	−0.9	−	577.2

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements						095
				Potential net 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	31/12/2014
Financial liabilities	909.6	−	909.6	−	−340.8	568.8
Trade payables	564.7	−0.1	564.6	−0.0	−	564.6
Derivative financial liabilities	13.3	−	13.3	−5.8	−	7.5
Total	1,487.6	−0.1	1,487.5	−5.8	−340.8	1,140.9

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements						096
				Potential net 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	31/12/2013
Financial liabilities	1,198.6	−	1,198.6	−	− 348.7	849.9
Trade payables	552.6	− 2.1	550.5	−	−	550.5
Derivative financial liabilities	29.1	−	29.1	− 0.9	−	28.2
Total	1,780.3	− 2.1	1,778.2	− 0.9	− 348.7	1,428.7

Fair value measurement

The majority of the cash and cash equivalents, loans receivable, 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 bonds issued, calculated for disclosure in the notes to the financial statements, is determined using publicly quoted prices in an active market and is therefore classified as level 1 of the fair value hierarchy. The calculation is based on the middle rate applicable on the reporting date.

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.

With the exception of derivative financial instruments and long-term securities, all financial assets and liabilities are measured at amortised cost.

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 097–098

Financial instruments measured at fair value				097
	Fair Value Hierarchy
in € million	Level 1	Level 2	Level 3	2014
Financial assets				44.5
thereof non-current securities	0.8			0.8
thereof derivative instruments		9.0	34.7	43.7

Financial liabilities				13.3
thereof derivative instruments		10.3	3.0	13.3

Financial instruments measured at fair value				098
	Fair Value Hierarchy
in € million	Level 1	Level 2	Level 3	2013
Financial assets				20.2
thereof non-current securities	0.8			0.8
thereof derivative instruments		3.6	15.7	19.4

Financial liabilities				29.1
thereof derivative instruments		1.9	27.2	29.1

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

Interest-rate swaps and currency forwards are classified as Level 2. The fair value of derivative financial instruments is determined using appropriate valuation methods on the basis of the observable market information at the reporting date. The default risk for the Group and for the counterparty is taken into account on the basis of gross figures. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. Both contractually agreed payments and forward interest rates are used to estimate the future cash flows, which are then discounted on the basis of a yield curve that is observable in the market. The KION Group no longer had any material interest-rate hedging instruments in 2014 or as at 31 December 2013. The fair value of currency forwards is calculated by the system using the discounting method based on forward rates on the reporting date.

The financial assets and liabilities allocated to Level 3 relate to a put option held by Linde Material Handling GmbH, Aschaffenburg, and two call options held by Weichai Power on the shares in Linde Hydraulics. The Black-Scholes model and probability-weighted scenario analysis are used to calculate the fair value of the put option and the two call options. The measurement is based on the following significant, unobservable input parameters as at 31 December 2014. An amount of €64.1 million has been recognised as the fair value of the shares in Linde Hydraulics, both for the put option and for the two call options (31 December 2013: €116.1 million). A base exercise price of €77.4 million (31 December 2013: €77.4 million) and a term to maturity of 0.49 – 2.49 years (31 December 2013: 1.49 – 3.49 years) have been assumed for the put option. For the measurement of call option 1, a base exercise price of €77.4 million (31 December 2013: €77.4 million) and a term to maturity of 2.99 years (31 December 2013: 3.99 years) were used, while a base exercise price of €38.7 million (31 December 2013: €38.7 million) and a term to maturity of 0.49 – 2.99 years (31 December 2013: 1.49 – 3.99 years) were used for call option 2. The following table shows the material changes in fair value and the impact on the income statement. > TABLE 099

Development of financial assets / liabilities classified as level 3		099
in € million	2014	2013
Value as at 01/01/	–11.5	3.2
Gains / losses recognised in net financial expenses	43.2	–14.7
Value as at 31/12/	31.7	–11.5
Gains / losses of the period relating to financial assets / liabilities held as at 31/12/	43.2	–14.7
Change in unrealised gains / losses for the period relating to financial assets / liabilities held as at 31/12/	43.2	–14.7

As at 31 December 2014, the net value calculated for the options on the shares in Linde Hydraulics came to €31.7 million (31 December 2013: minus €11.5 million). If the fair value of the shares had been 10.0 per cent lower on the reporting date, the net value arising from the options would have increased by €5.3 million (31 December 2013: €9.4 million) to €37.1 million (31 December 2013: minus €2.1 million) and led to an additional gain of €5.3 million (31 December 2013: lower expense of €9.4 million). A 10.0 per cent rise in the fair value of the shares in Linde Hydraulics would have reduced the net value arising from the options by €5.6 million (31 December 2013: by €9.4 million) to €26.2 million (31 December 2013: minus €20.9 million) and the gain would have decreased by €5.6 million (31 December 2013: additional expense of €9.4 million).

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 as a different level, they are reclassified at the end of a reporting period. No financial instruments were transferred between Levels 1, 2 or 3 in 2014.

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[36] Information on financial instruments

Offsetting of financial instruments

Fair value measurement