[35] 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 088–089

Carrying amounts broken down by class and category 2013

>> TABLE 088

Classes

Carrying amount

Change in valuation allowances		>> TABLE 090

Valuation allowances as at 01/01/	50.5	49.6
Group changes	–0.2	–0.5
Additions (cost of valuation allowances)	9.4	12.0
Reversals	–7.5	–2.8
Utilisations	–9.2	–7.6
Currency translation adjustments	–0.7	–0.2
Valuation allowances as at 31/12/	42.4	50.5

Net gains and losses on financial instruments broken down by category	>> TABLE 091

Loans and receivables (LaR)	11.0	–1.6
Financial assets held for trading (FAHfT)	3.6	9.0
Financial liabilities held for trading (FLHfT)	–17.8	–11.9
Financial liabilities carried at amortised cost (FLaC)	–152.9	–179.2

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 H1 and H₂), 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 092-095

Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements					>> TABLE 092
				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 assets subject to offsetting, enforceable master netting arrangements and similar agreements					>> TABLE 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	31/12/2012

Trade receivables	627.9	–2.5	625.5	–	–	625.5
Derivative financial assets	23.9	–	23.9	–3.3	–	20.6
Total	651.9	–2.5	649.4	–3.3	–	646.1

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements					>> TABLE 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

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

Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements					>> TABLE 095
				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	31/12/2012

Financial liabilities	2,352.4	–	2,352.4	–	–566.3	1,786.1
Trade payables	648.5	–2.5	646.0	–	–	646.0
Derivative financial liabilities	43.6	–	43.6	–3.3	–	40.3
Total	3,044.5	–2.5	3,042.0	–3.3	–566.3	2,472.5

Fair value measurement

The majority of the cash and cash equivalents, loans, 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 available-for-sale assets, 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 096–097

Financial instruments measured at fair value			>> TABLE 096
	Fair Value Hierarchy
in € million	Level 1	Level 2	Level 3	2013

Financial assets				20.2
thereof available-for-sale	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

Financial instruments measured at fair value			>> TABLE 097
	Fair Value Hierarchy
in € million	Level 1	Level 2	Level 3	2012

Financial assets				24.7
thereof available-for-sale	0.8			0.8
thereof derivative instruments		4.2	19.7	23.9

Financial liabilities				43.6
thereof derivative instruments		27.1	16.5	43.6

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

All 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. There were no longer any material interest-rate hedging instruments 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 remaining shares in Linde Hydraulics. The Black-Scholes model is used to calculate the fair value of the put option and the two call options. At 31 December 2013, the material changes in fair value and the impact on the income statement were as follows. >> Tables 098–099

Development of financial assets / liabilities classified as level 3	>> TABLE 098
in € million	2013

Value as at 1/1/2013	3.2
Losses recognised in net financial expenses	–14.7
Value as at 31/12/2013	–11.5
Losses of the period relating to financial assets / liabilities held as at 31/12/2013	–14.7
Change in unrealised losses for the period relating to financial assets / liabilities held as at 31/12/2013	–14.7

Significant unobservable inputs of level 3		>> TABLE 099
Financial assets / liabilities	Input	2013

Put-Option	Initial exercise price (in € million)	77.4
	Fair value of the remaining shares in Linde Hydraulics (in € million)	116.1
	Residual time (in years)	1.49–3.49
Call-Option 1	Initial exercise price (in € million)	77.4
	Fair value of the remaining shares in Linde Hydraulics (in € million)	116.1
	Residual time (in years)	3.99
Call-Option 2	Initial exercise price (in € million)	38.7
	Fair value of the remaining shares in Linde Hydraulics (in € million)	116.1
	Residual time (in years)	1.49–3.99

The fair values are measured using probability-weighted scenario analysis, on which the key, unobservable input parameters in the table above are based.

As at 31 December 2013, the net value calculated for the options on the remaining shares in Linde Hydraulics came to minus €11.5 million (31 December 2012: €3.2 million). If the fair value of the shares had been 10 per cent lower on the reporting date, the net value arising from the options would have increased by €9.4 million (31 December 2012: €8.3 million) to minus €2.1 million (31 December 2012: €11.5 million) and the expense would have decreased by €9.4 million (31 December 2012: additional gain of €8.3 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 €9.4 million (31 December 2012: €9.0 million) to minus €20.9 million (31 December 2012: minus €5.8 million) and led to an additional expense of €9.4 million (31 December 2012: €9.0 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 2013.

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[35] Information on financial instruments

Offsetting of financial instruments

Fair value measurement