The tables that follow show the carrying amounts of financial instruments in each category defined in IAS 39 and state their fair values together with the source of the valuation used for each class of financial instruments:

The IAS 39 categories in the Demag Cranes Group correspond to the IFRS 7 classes of financial instruments.

Cash and cash equivalents, trade receivables and other financial assets mostly have short residual maturities. Their carrying amount at the balance sheet date therefore approximates to fair value. The same applies to trade payables and other financial liabilities. Where other investments are traded on an active market, their fair value is the quoted market price. The fair value of long-term debt not traded on an active market and of interest-bearing loans and borrowings is measured by discounting the respective expected future cash flows. The discount rate used is the prevailing market rate of interest for the applicable term to maturity. Individual features of financial instruments are taken into account by applying market credit and liquidity spreads when measuring fair value. Investments in associates are not carried at fair value because their future cash flows cannot be reliably determined and it is not possible to determine a fair value from comparable transactions. The fair value of derivatives is based in the case of foreign exchange contracts on the European Central Bank reference rates adjusted for the applicable interest rate differential (premium or discount). The fair value of interest rate derivatives is measured using generally accepted interest rate yield curves.

The tables that follow show the undiscounted contractual interest payments and payments on principal for financial liabilities within the scope of IFRS 7:

For interest-bearing loans and borrowings with variable rates of interest, interest payments in future reporting periods are based on the interest rates prevailing at the balance sheet date. Financial liabilities that can be repaid at any time are assigned to the earliest time band.

The net gains or losses on each IAS 39 category are as follows:

Interest income on impaired financial assets came to EUR 15,000 (2007/2008: EUR 82,000).

Interest on financial instruments and currency translation gains and losses on interest-bearing payables and receivables are contained in “interest and similar income” and “interest and similar expenses”. Currency translation gains and losses on trade payables and receivables and other financial assets and liabilities are contained in “other operating income” and “other operating expenses”. “Interest and similar income” and “interest and similar expenses” also contain gains and losses on the “at fair value through profit and loss” category, which comprises both interest and currency translation gains and losses. Impairments on trade receivables in the loans and receivables category are included in the selling, general and administrative expenses item.

Derivative Financial Instruments

The Group uses derivative financial instruments in the management of financial risk to hedge its risk exposure on assets and liabilities, contractual claims and obligations, and planned transactions. Hedge accounting in accordance with IAS 39 is used to hedge exposure to variability in cash flows (cash flow hedges) and is primarily used in connection with large orders. The risk of adverse exchange rate changes is hedged with foreign exchange contracts that even out the cash flows on foreign currency orders not yet settled or accepted. Derivative financial instruments to which cash flow hedge accounting is applied are measured at fair value. The gain or loss on such instruments is divided for accounting purposes into an effective and an ineffective portion. The portion of the gain or loss that is determined to be an effective hedge in offsetting changes in cash flows due to the hedged risk is recognised directly in equity after allowing for deferred tax. The ineffective portion is recognised in profit or loss. As in the previous year, no portion of the gain or loss on such instruments was determined to be ineffective in financial year 2008/2009. The hedged item or transaction is accounted for using general accounting policies. On termination of the hedge, the portion of the gain or loss previously recognised directly in equity is recognised as income or expense in profit or loss to the extent that the cash flows from the hedged item affect profit or loss.

The fair value of cash flow hedges at 30 September 2009 was EUR 122,000 (assets) / EUR 38,000 (liabilities) (2008: EUR 38,000 (assets) / EUR 333,000 (liabilities)). The hedged foreign currency cash flows are expected, and will therefore affect profit or loss, in financial year 2009/2010.

Income – before deferred taxes – of EUR 892,000 (2007/2008: expenditure of EUR 1,336,000) was recognised directly in equity for gains or losses on foreign exchange contracts used to hedge foreign currency cash flows. This amount is presented in the Statement of Recognised Income and Expense. An amount of EUR 417,000 (2007/2008: EUR 509,000) was removed from equity and included in profit or loss in financial year 2008/2009.

Positive fair values of derivative financial instruments are included in the balance sheet in other financial assets, and negative fair values in other financial liabilities. The derivative financial instruments have a term to maturity of less than one year.

The Group is exposed by its global business operations to various types of risk. These include currency risk, credit risk and interest rate risk. Targeted financial risk management is used to minimise any adverse impact of this risk on the Group’s financial position, financial performance and cash flows. Among other things, this involves the use of derivative financial instruments. The risk management system is described in the Management Report.

Currency Risk

The Group maintains global business relationships and accordingly does business in many different currencies. The risk of adverse exchange rate changes is hedged with foreign exchange contracts that even out the cash flows on foreign currency orders not yet settled or accepted. Derivative financial instruments to which cash flow hedge accounting is applied are measured at fair value. The hedged foreign currency cash flows are expected, and will therefore affect profit or loss, in financial year 2009/2010. The accounting treatment and impact of valuation of derivative financial instruments are described in Note 5.

Credit Risk

The Group is exposed to credit risk equal to the carrying amount of derivative and non-derivative financial assets plus financial guarantees given in the amount of EUR 3,882,000 (2008: EUR 7,662,000).

The Group gives supplier credit in the normal course of business and assesses debtors on an ongoing basis with regard to specific customer financial conditions but does not generally require specific security for receivables. Doubtful debts are accounted for in a doubtful debts allowance, taking into account the credit risk associated with specific customers based on collection experience and other information. The Group counters specific credit risk by only doing business with parties with good credit standing, primarily based on the ratings of national and international trade credit rating agencies, and by rigorously observing the risk limit laid down by the trade credit insurer. An amount of EUR 13,403,000 (2008: EUR 20,007,000) was held in security at 30 September 2009. This mostly consisted of retentions of title.

Interest Rate Risk

Demag Cranes AG has entered into credit facilities at variable interest rates and is exposed to interest rate risk in the amount of facility drawings. Interest is charged on each drawing at the three or six-month EURIBOR rate in force on the day of the drawing. The margin on EURIBOR is set quarterly based on the Company’s financial performance figures as stated in Note 27 "Loans and Borrowings".

Interest rate changes can therefore result in higher interest payments on financial liabilities. The Management Board limits the variability on a portion of interest payments as part of its risk management strategy. For this purpose, an interest rate hedge was entered into on 27 September 2006 for the revolving credit facility taken out on 27 June 2006. The hedge consists of interest rate swap, cap and floor agreements by which variable rate debt averaging 6.7 percent of total drawings on the revolving credit facility for financial year 2009/2010 was converted into debt with a base annual interest rate of 3.00 to 4.25 percent.

The interest rate hedges are derivative financial instruments. Gains and losses on them are recorded in profit or loss.

Sensitivity Analysis

The types of market risk to which the entity is exposed are currency risk and interest rate risk. A sensitivity analysis is prepared for each of these two types of risk showing how profit or loss and equity would have been affected by changes in the relevant risk variable at the balance sheet date. It is assumed for these purposes that the currency and interest rate risk on financial instruments at the respective balance sheet date is representative of risk exposure during the reporting period and the comparative period.

The countries and currencies in relation to which the Group has exchange rate exposure are the USA (USD), the Czech Republic (CZK) and China (CNY). A ten percent (2008: ten percent) appreciation or depreciation of the euro relative to these source currencies would have resulted in a EUR 1,275,000 decrease (2007/2008: EUR 636,000 decrease) or a EUR 1,249,000 increase (2007/2008: EUR 434,000 increase) in net income after tax.

The same appreciation or depreciation would also have resulted in a EUR 521,000 increase (2008: EUR 450,000 increase) or a EUR 635,000 decrease (2008: EUR 368,000 decrease) in equity as at the balance sheet date.

A 100 basis point increase or decrease in market interest rates at the balance sheet date would have decreased net income after tax by EUR 707,000 (2007/2008: EUR 1,600,000) or increased it by EUR 705,000 (2007/2008: EUR 1,600,000).