[39] 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 used in accordance with IFRS 9 (2017: in accordance with 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 IFRS 9 or IAS 39 measurement categories and are therefore not included in > TABLES 108 – 109. The lease receivables, lease liabilities, liabilities from procurement leases and liabilities from short-term rental fleet financing shown in these tables fall within the scope of IFRS 16 and are therefore not assigned to any of the IFRS 9 and IAS 39 measurement categories.

The net gains and losses on financial instruments in 2018 are broken down by IFRS 9 categories as shown in > TABLE 110. The measurement categories shown for 2017 are based on the categorisation rules in IAS 39. 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 [41]).

In 2018, the measurement at fair value of the equity instruments in the FVOCI category led to a loss of €6.4 million that was recognised in other comprehensive income; accumulated gains and losses from these financial instruments will not be reclassified to profit or loss upon disposal.

The net gains and losses include interest income of €6.2 million (2017: €7.8 million) and interest expenses of €57.7 million (2017: €72.9 million) that result from financial instruments measured at amortised cost (AC category) and are recognised within net financial income / expenses. 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 documented hedge and other measurement effects are also included in the net gains and losses.

As at the reporting date, the KION Group’s trade receivables of €1.3 million (31 December 2017: €0.4 million) were offset by trade payables of the same amount. In addition, there was a potential offsetting volume of €4.6 million in connection with derivative financial instruments as at 31 December 2018 (31 December 2017: €3.1 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, and trade receivables and trade payables recognised at amortised cost 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, of promissory notes and of liabilities from financial services 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, 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 classification levels as defined by IFRS 7 for financial instruments measured at fair value. > TABLES 111 – 112

Level 1 essentially 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 transaction price is largely influenced by 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 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.

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 also been the case in 2017, no financial instruments were transferred between the levels of the fair value hierarchy in 2018.