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.

Aggregated by IAS 39 categories:

Aggregated by IAS 39 categories:

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.

There were no reclassifications between hierarchy levels in the past financial year.

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 2,000 (2008/2009: EUR 15,000).

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

Demag Cranes AG 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. 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.

To the extent that Demag Cranes AG uses cash flow hedges to hedge exposure to variability in cash flows, particularly in connection with large orders, it partly applies the rules on hedge accounting. 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. When cash flow hedge accounting is applied, 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.

There are no hedges that qualify for cash flow hedge accounting at 30 September 2010. Demag Cranes AG will not be applying hedge accounting in accordance with IAS 39 in the future.

Income before deferred taxes of EUR 90,000 (2008/2009: EUR 892,000) was recognised directly in equity for gains or losses on foreign exchange contracts used to hedge foreign currency cash flows. The effective portion of changes in the fair value of derivative financial instruments used to hedge cash flow risk is shown in the Statement of Comprehensive Income under “effective portion of changes in the fair value of cash flow hedges”. An amount of EUR 201,000 was removed from equity and included in profit or loss in financial year 2009/2010 (2008/2009: EUR 417,000).

The table below shows the notional amounts and fair values of derivative financial instruments held at the balance sheet date.

Positive fair values of derivative financial instruments are included in the Statement of Financial Position 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.

Financial Risk Management

Demag Cranes AG 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 Demag Cranes AG’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 Combined Management Report.

Currency Risk

The Group maintains global business relationships and 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 accounting treatment of hedges and the impact of valuation of derivative financial instruments are described in Note 4.

Credit Risk

Demag Cranes AG 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 0,000 (2009: EUR 3,882,000).

Demag Cranes AG 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 credit risk based on collection experience and other information. Demag Cranes AG 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 18,524,000 (2009: EUR 13,403,000) was held in security at 30 September 2010. 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 26 ("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 expired on 30 September 2010.

Sensitivity Analysis

The types of market risk to which Demag Cranes AG is exposed are currency risk and interest rate risk. The Company has prepared a sensitivity analysis for each of these two types of risk showing how profit or loss for the financial year and equity at the balance sheet date would have been affected by changes in the relevant risk variable. The Company assumes for these purposes that the risk situation 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 Demag Cranes AG has significant exchange rate exposure are the USA (USD), the UK (GBP), South Africa (ZAR), the Czech Republic (CZK) and China (CNY). A ten percent appreciation or depreciation of the EUR relative to these source currencies at the balance sheet date would have resulted in a EUR 317,000 decrease (2008/2009: EUR 1,343,000 decrease) or a EUR 208,000 increase (2008/2009: EUR 1,388,000 increase) in net income after tax.

Demag Cranes AG no longer held any cash flow hedging instruments at the balance sheet date, hence there would have been no increase or decrease in equity at the balance sheet date (2009: EUR 521,000 increase or EUR 635,000 decrease).

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 723,000 (2008/2009: EUR 707,000) or increased it by EUR 723,000 (2008/2009: EUR 705,000).