[39] Information on financial instruments

The measurement categories used in accordance with IFRS 9 are presented below in > TABLES 101 – 102. In line with IFRS 7, the tables show the carrying amounts and fair values of the financial assets and liabilities. Derivative financial instruments that are part of a formally documented hedge are not assigned to any of the IFRS 9 measurement categories. The lease receivables, lease liabilities, liabilities from procurement leases and liabilities from short-term rental fleet financing fall within the scope of IFRS 16 and are therefore also not assigned to any of the IFRS 9 measurement categories.

The net gains and losses on financial instruments in 2019 are broken down by IFRS 9 category as shown in > TABLE 103. Net gains and losses on financial instruments do not include gains / losses arising on hedging transactions that are part of a formally documented hedge (see note [41]).

The net gains and losses include interest income of €4.2 million (2018: €6.2 million) and interest expenses of €70.5 million (2018: €57.7 million) that result from financial instruments measured at amortised cost (AC category) and are recognised within financial income/expenses. In 2019, the measurement at fair value of equity instruments (FVOCI category) led to a loss of €1.9 million that was recognised in other comprehensive income (2018: €6.4 million). Currency translation gains and losses, dividends, valuation allowances for expected and incurred losses, the marking-to-market of derivatives that are not part of a formally documented hedge and other measurement effects are also included in the net gains and losses.

Fair value measurement

The majority of the cash and cash equivalents, financial receivables, trade receivables and trade payables recognised at amortised cost, sundry financial assets and liabilities, and liabilities from accrued interest have short remaining terms to maturity. The carrying amounts of these financial instruments are roughly equal to their fair values.

The fair value of promissory notes, liabilities to banks and liabilities from financial services corresponds to the present value of the outstanding payments, taking account of the current yield 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, liabilities from short-term rental fleet financing and liabilities from procurement 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 levels as defined by IFRS 13 for financial instruments measured at fair value. > TABLES 104 – 105

Level 1 comprises the financial investment in Balyo SA, for which the fair value is calculated using prices quoted in an active market.

The fair value of other financial investments is determined using prices quoted in an active market and other observable inputs. They are assigned to Level 2.

Trade receivables that are recognised at fair value through profit or loss are assigned to Level 2. Their fair value is calculated using the transaction price achievable in an active market. The biggest influence on the transaction price is the default risk of the counterparty.

Interest-rate swaps and currency forwards are also 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 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. In order to eliminate default risk to the greatest possible extent, the KION Group only enters into derivatives with investment-grade counterparties.

Level 3 essentially comprises the financial investment in Zhejiang EP Equipment Co., Ltd. The fair value is determined using appropriate valuation methods that draw on observable inputs to the greatest possible extent. If no observable inputs are available, unobservable inputs are used.