[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 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 094 – 095

Carrying amounts broken down by class and category 2015

094

Classes

Carrying amount

Change in valuation allowances	096
Valuation allowances as at 01/01/	40.2	42.4
Group changes	–1.8	–
Additions (cost of valuation allowances)	11.7	7.1
Reversals	–3.7	–4.6
Utilisations	–7.4	–5.1
Currency translation adjustments	–0.5	0.3
Valuation allowances as at 31/12/	38.5	40.2

Net gains and losses on financial instruments broken down by category		097
Loans and receivables (LaR)	–9.1	–4.8
Available-for-sale investments (AfS)	9.7	1.4
Financial instruments held for trading (FAHfT, FLHfT)	18.2	54.6
Financial liabilities carried at amortised cost (FLaC)	–89.6	–103.5

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 098 – 101

Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements						098
				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	−0.0	−	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 assets subject to offsetting, enforceable master netting arrangements and similar agreements						099
				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	31/12/2014
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 liabilities subject to offsetting, enforceable master netting arrangements and similar agreements						100
				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	−0.0	−	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

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements						101
				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	31/12/2014
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

Fair value measurement

The majority of the cash and cash equivalents, loans, 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 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, long-term securities and shares in non-consolidated subsidiaries recognised at fair value, 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 102 – 103

Financial instruments measured at fair value				102
	Fair Value Hierarchy
in € million	Level 1	Level 2	Level 3	2015
Financial assets				25.7
thereof investments in non-consolidated subsidiaries and financial investments			19.6	19.6
thereof non-current securities	0.8			0.8
thereof derivative instruments		5.3		5.3

Financial liabilities				12.4
thereof derivative instruments		11.9	0.6	12.4

Financial instruments measured at fair value				103
	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

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

All currency forwards are classified as Level 2. In the previous year, Level 2 had also included interest-rate swaps on an insignificant scale. 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 currency forwards is calculated by the system using the discounting method based on forward rates on the reporting date. 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 shares in non-consolidated subsidiaries allocated to Level 3 relate to the shares in Moden Diesel S.p.A. (formerly MODEN DIESEL S.R.L.), which were acquired in October 2015, and the shares in LR Intralogistik GmbH, which were acquired at the end of October 2015. Because the acquisitions took place shortly before the reporting date, the purchase consideration reflects the fair value.

The derivative financial liabilities allocated to Level 3 relate to a call option of Weichai Power on the 10.0 per cent of the shares in Linde Hydraulics remaining as at 31 December 2015. The Black-Scholes model and probability-weighted scenario analysis are used to calculate the fair value of the call option. The measurement is based on the following significant, unobservable input parameters as at 31 December 2015. An amount of €21.4 million has been recognised as the fair value of the underlying portion of the shares in Linde Hydraulics (31 December 2014: €21.4 million). A base exercise price of €38.7 million (31 December 2014: €38.7 million) and a term to maturity of 2.54 years (31 December 2014: 0.49–2.99 years) have been assumed for call option 2.

In the prior year, a put option held by Linde Material Handling GmbH, Aschaffenburg, and Weichai Power’s call option 1 on some of the shares in Linde Hydraulics had also been allocated to Level 3. On 20 July 2015, the KION Group exercised the put option that it held via Linde Material Handling GmbH, Aschaffenburg, on 20.0 per cent of the shares in Linde Hydraulics. This eliminated the corresponding call option 1 held by Weichai Power. The following table shows the material changes in fair value and the impact on the income statement. > TABLE 104

Development of financial assets / liabilities classified as level 3		104
in € million	2015	2014
Value as at 01/01/	31.7	–11.5
Gains recognised in net financial expenses	2.4	43.2
Disposals	–34.7	–
Value as at 31/12/	–0.6	31.7
Gains for the period relating to financial assets / liabilities classified as Level 3	2.4	43.2
Change in unrealised gains for the period relating to financial assets / liabilities held as at 31/12/	0.1	43.2

As at 31 December 2015, the fair value calculated for call option 2 on the shares in Linde Hydraulics came to minus €0.6 million (31 December 2014: net value arising from the options of €31.7 million). If the fair value of the shares had been 10.0 per cent lower on the reporting date, the fair value of call option 2 (31 December 2014: net value arising from the options) would have increased by €0.2 million (31 December 2014: by €5.3 million) to minus €0.3 million (31 December 2014: €37.1 million) and led to an additional gain of €0.2 million (31 December 2014: gain of €5.3 million). A 10.0 per cent rise in the fair value of the shares in Linde Hydraulics would have reduced the fair value of call option 2 (31 December 2014: net value arising from the options) by minus €0.3 million (31 December 2014: by €5.6 million) to minus €0.9 million (31 December 2014: €26.2 million) and led to an expense of €0.3 million (31 December 2014: €5.6 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. As had been the case in 2014, no financial instruments were transferred between Levels 1, 2 or 3 in 2015.

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[38] Information on financial instruments

Offsetting of financial instruments

Fair value measurement