[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 101 – 102.

The change in valuation allowances for trade receivables is presented in > TABLE 103.

The net gains and losses on financial instruments are broken down by IAS 39 category as shown in > TABLE 104.

In 2017, the net gains and losses on available-for-sale financial instruments included, for the first time, gains of €8.5 million arising on the measurement of the equity investment in Balyo SA. These gains were recognised in other comprehensive income (loss). Gains and losses on financial instruments do not include gains /losses arising on hedging transactions that are part of a documented hedge (see also note [40]).

As at the reporting date, the KION Group’s trade receivables of €0.4 million (31 December 2016: €1.6 million) were actually offset by trade payables of the same amount. In addition, there was a potential offsetting volume of €3.1 million in connection with derivative financial instruments as at 31 December 2017 (31 December 2016: €4.5 million). 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.

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 and the promissory note 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 lease receivables, lease liabilities 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 105 – 106

Level 1 comprises the equity investment in Balyo SA as well as other financial assets 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 by the system 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 future cash flows. Both contractually agreed payments and forward interest rates are used to calculate the cash flows, which are then discounted on the basis of a yield curve that is observable in the market. The fair value of the currency forwards is calculated by the system using the discounting method based on forward rates on the reporting date.

The derivative financial liabilities allocated to Level 3 relate 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. As at 31 December 2017, the fair value calculated for the call option on the shares in Linde Hydraulics came to minus €0.0 million (31 December 2016: minus €0.3 million). Unrealised gains of €0.3 million in connection with the call option were recognised in net financial income / expenses in 2017 (2016: €0.3 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 2016, no financial instruments were transferred between Levels 1, 2 or 3 in 2017.