Kloeckner & Co SE

Quarterly Report • May 14, 2019

Q1 Quarterly Statement 2019

January 1, 2019 - March 31, 2019

• Operating income (EBITDA) of €34 million, above guidance range of between €20 million and €30 million
• Sales up due to higher average prices by 4.6% to €1.7 billion
• · Proportion of Group sales generated via digital channels further raised to 27% (Q1 2018: 19%)
• · EBITDA guidance of €50 million to €60 million for second quarter

EBITDA ABOVE GUIDANCE RANGE BUT SIGNIFICANTLY DOWN ON PRIOR YEAR

First-quarter operating income (EBITDA), at €34 million, was above the guidance range of between €20 million and €30 million but significantly down on the prior-year quarter. While we benefited disproportionately from a very positive price environment in the first quarter of the prior year, earnings in the first three months of 2019 were impacted by negative price effects. Demand was also down, primarily due to the weakness of the European automotive sector. EBITDA consequently decreased, despite the (€12 million) positive effect from the introduction of the new IFRS 16 leasing standard, from €56 million in the prior-year quarter to €34 million.

Net income was a negative €10 million, compared with a positive €21 million in the first three months of 2018. As a result, earnings per share came to -€0.10 (Q1 2018: €0.21).

SHIPMENTS DOWN; SUBSTANTIAL SALES GROWTH

At 1.5 million tons, shipments were below the 1.6 million tons recorded in the prior-year quarter, with varied segmental performance. While volumes were more or less constant in the Kloeckner Metals Switzerland and Kloeckner Metals US segments, shipments were significantly down in the Kloeckner Metals Services Europe segment (by 12.7%) and the Kloeckner Metals Distribution Europe segment (by 11.5%). The Kloeckner Metals Services Europe segment was impacted here by the weakness of the automotive sector and Kloeckner Metals Distribution Europe by the economic slowdown in Germany as well as by portfolio changes in France.

Higher average prices made for an increase in sales from €1.7 billion, mainly driven by the US segment with sales growth of 22.0%. Sales also rose in Switzerland (by 4.3%), while sales in the Kloeckner Metals Services Europe and Kloeckner Metals Distribution Europe segments decreased by 10.8% and 6.7% respectively despite the higher average prices.

EARNINGS BY OPERATING SEGMENT

Due to negative price effects, operating income in the Kloeckner Metals US segment was €14 million, compared with €32 million a year earlier. Introduction of the new leasing standard (IFRS 16) and the efficiency programs had a positive impact on EBITDA of €3 million and €2 million respectively.

EBITDA in the Kloeckner Metals Switzerland segment went up from €5 million in the prior-year quarter to €10 million, €2 million of which relates to the introduction of IFRS 16. Earnings were also positively affected by continuous improvement measures (€1 million) and slightly lower OPEX.

In the Kloeckner Metals Services Europe segment, EBITDA decreased from €16 million to €9 million due to the weak demand in the automotive sector.

The operating environment for Kloeckner Metals Distribution Europe remains challenging. That segment's EBITDA, at €6 million, was €5 million down on the prior-year figure, despite the positive impact of IFRS 16. This was mainly due to negative volume and price effects in Germany and impacts of portfolio streamlining in France. The efficiency programs made a positive contribution of €2 million in the first quarter.

VERY SOLID FINANCIAL POSITION SUSTAINED

In line with the seasonal trend and given higher average input prices, net working capital went up relative to the year-end 2018 by €0.3 billion to €1.5 billion. Due to this increase and the €0.2 billion rise in financial liabilities resulting from IFRS 16, net debt went up from €383 million as of December 31, 2018 to €820 million at the end of the quarter.

Equity stood at approximately €1.3 billion and was thus only slightly down on December 31, 2018. The equity ratio decreased due to the higher net debt but was still a solid 37.5% (December 31, 2018: 41.9%).

The increase in net working capital led to a cash outflow from operating activities of €229 million in the first quarter of 2019. Deducting cash outflow from investing activities (€5 million) resulted in a free cash flow of -€234 million (Q1 2018: -€155 million without IFRS 16).

STABLE FINANCING

In April, our syndicated loan was prolonged ahead of term by one year to May 2022 in an "amend & extend" process. This further improves the maturity profile of Klöckner's Group financing. An option to extend the term in two steps up to May 2024 with prior approval of the banks was also once again incorporated in the credit documentation. The volume of the facility remained unchanged at €300 million.

Adjustments were also made to the loan terms in order to neutralize the effects of first-time application of IFRS 16. This notably included an adjustment to the gearing ratio, which is of key importance as a "financial covenant". The newly negotiated contractual documentation now stipulates that gearing, calculated as net financial debt divided by equity attributable to shareholders of Klöckner & Co SE less goodwill resulting from acquisitions subsequent to May 23, 2019, may not exceed 165% (previously 150%).

FURTHER PROGRESS IN DIGITALIZATION

Digitalization of the supply and value chain as well as expansion of the XOM Materials independent industry platform are core components of the "Klöckner & Co 2022" strategy. The proportion of sales generated via digital channels further increased to 27% in the first quarter of 2019 (Q1 2018: 19%). Drawing on the excellent progress achieved in digitalizing Klöckner & Co, the Group's digital unit kloeckner.i began providing services to external companies during the reporting period. An initial consulting project is already underway with a DAX 30 company. XOM Materials, the independent industry platform, has likewise continued to grow dynamically, with 17 distributors and 230 customers under contract on the platform in April. Additionally, XOM Materials was launched in the USA in the first quarter.

OUTLOOK FOR REMAINDER OF YEAR

Against the background of unexpected high negative price effects and declining demand development – especially in the automotive business – we expect an operating income (EBITDA) of €50 million for the second quarter and – contrary to previous guidance – an EBITDA of €180 million before material special effects for the full year.

With regard to the EBITDA including material special effects these negative impacts will be mainly compensated by the sale of one site in the United Kingdom with an expected effect of €30 million.

Klöckner & Co SE Financial information

Shipments and income statement		Q1 2019	Q1 2018	Variance
Shipments	Tto	1,499	1,584	-85
Sales	€ million	1,703	1,628	+75
Gross profit	€ million	303	331	-28
Gross profit margin	%	17.8	20.4	-2.6%p
Earnings before interest, taxes, depreciation and amortization (EBITDA)	€ million	34	56	-22
EBITDA margin	%	2.0	3.4	-1.4%p
Earnings before interest and taxes (EBIT)	€ million	2	35	-33
Earnings before taxes (EBT)	€ million	-9	28	-37
Net income	€ million	-10	21	-31
Net income attributable to shareholders of Klöckner & Co SE	€ million	-10	21	-31
Earnings per share (basic)	€	-0.10	0.21	-0.31
Earnings per share (diluted)	€	-0.10	0.20	-0.30

Cash flow statement		01 2019	01 2018	Variance
Cash flow from operating activities	€ million	-229	-143	-86
Cash flow from investing activities	€ million	-5	-12	+7
Free cash flow 7	€ million	-234	-155	-79

Balance sheet		March 31, 2019	December 31, 2018	Variance
Net Working Capital**)	€ million	1,501	1,229	+272
Net financial debt	€ million	820	383	+437
*** Gearing in	%	65.4	30.5	+34.9%p
Equity	€ million	1,259	1,282	-23
Equity ratio	%	37.5	41.9	-4.4%D
Total assets	€ million	3,355	3,061	+294

		December 31,
Employees	March 31, 2019	2018	Variance
Employees as of the end of the reporting period	8,529	8.579	-50

^*) Free cah flow = Cah flow fom operative splus sash fow from inesting stress
** Networking cartal enveriendes less tradeliabilites.
**) Gearing (syncate don) = Net finan (March 31, 2019: goodwill resulting from acquisitions subsequent to May 23, 2019)).

Consolidated statement of income

(€ thousand)	Q1 2019	Q1 2018
Sales	1,702,692	1,628,139
Other operating income	6,249	6,857
Changes in inventory	-7,344	ਰੇਰੇ
Own work capitalized	291
Cost of materials	-1,393,134	-1,296,835
Personnel expenses	-152,408	-147,283
Depreciation and amortization	-31,697	-20,487
Impairments		-238
Other operating expenses	-122,836	-133,905
Impairment losses trade receivables	-7	-1,477
Operating result	1,806	34,870
Finance income	766	757
Finance expenses	-11,156	-7,731
Financial result	-10,390	-6,974
Income before taxes	-8,584	27,896
Income taxes	-1,177	-6,730
Net income	-9,761	21,166
thereof attributable to
-shareholders of Klöckner & Co SE	-10,022	20,853
- non-controlling interests	261	313
Earnings per share (€/share)
- basic	-0.10	0.21
- diluted	-0.10	0.20

Statement of comprehensive income

(€ thousand)	Q1 2019	Q1 2018
Net income	-9,761	21,166
Other comprehensive income not reclassifiable
Actuarial gains and losses (IAS 19)	-23,156	18,651
Related income tax	228	-3,956
Total	-22,928	14,695
Other comprehensive income reclassifiable
Foreign currency translation	9,887	-10,717
Gain/loss from cash flow hedges	-16	-139
Total	9,871	-10,856
Other comprehensive income	-13,057	3,839
Total comprehensive income	-22,818	25,005
thereof attributable to
-shareholders of Klöckner & Co SE	-23,095	24,692
-non-controlling interests	277	313

Consolidated statement of financial position

as of March 31, 2019

Assets

Non-current assets Intangible assets 144,244 Property, plant and equipment 817,939 Non-current investments 8,704 Other financial assets 8,684 Other non-financial assets 5,179 Current income tax receivable 6,155 Deferred tax assets 16,260 Total non-current assets 1,007,165 Current assets Inventories 1,270,058 Trade receivables 906,828 Contract assets 28,523 Current income tax receivable 10,324 Other financial assets 57,008 Other non-financial assets 24,288 Cash and cash equivalents 50,805 Total current assets 2,347,834	(€ thousand)	March 31, 2019	December 31, 2018
			147,945
			638,914
			8,574
			7,961
			5,215
			6,156
			17,502
			832,267
			1,242,209
			716,492
			23,453
			6,327
			78,195
			21,068
			141,344
			2,229,088

ા 1 asse	254 999 20 ت ان تاريخ التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي التي ال	3 061 355

(€ thousand)	March 31, 2019	December 31, 2018
Equity
Subscribed capital	249,375	249,375
Capital reserves	682,412	682,412
Retained earnings	314,661	324,638
Accumulated other comprehensive income	5,738	18,935
Equity attributable to shareholders of Klöckner & Co SE	1,252,186	1,275,360
Non-controlling interests	6,638	6,282
Total equity	1,258,824	1,281,642
Non-current liabilities
Provisions for pensions and similar obligations	280,825	260,180
Other provisions and accrued liabilities	16,865	16,422
Financial liabilities	809,670	500,845
Other financial liabilities	140	156
Other non-financial liabilities		3
Deferred tax liabilities	46,577	45,876
Total non-current liabilities	1,154,077	823,482
Current liabilities
Other provisions and accrued liabilities	103,911	114,444
Income tax liabilities	8,504	12,156
Financial liabilities	57,240	19,740
Trade payables	703,982	752,770
Other financial liabilities	23,126	21,118
Other non-financial liabilities	45,335	36,003
Total current liabilities	942,098	956,231
Total liabilities	2,096,175	1,779,713
Total equity and liabilities	3,354,999	3,061,355

Consolidated statement of cash flows

(€ thousand)	01 2019	01 2018
Net income	-9,761	21,166
Income taxes	1,177	6,730
Financial result	10,390	6,974
Depreciation and amortization	31,697	20,725
Other non-cash income/expenses	-505	-1,274
Gain on disposal of non-current assets	-661	-1,246
Change in net working capital
Inventories	-15,484	-70,299
Trade receivables	-184,470	-183,644
Trade payables	-57,859	60,933
Change in other operating assets and liabilities	13,050	11,601
Interest paid	-9,653	-6,918
Interest received	297	192
Income taxes paid	-7,012	-7,935
Cash flow from operating activities	-228,794	-142,995
Proceeds from the sale of non-current assets and assets held for sale	1,288	1,789
Payments for intangible assets, property, plant and equipment (incl. financial assets)	-6,650	-13,880
Cash flow from investing activities	-5,362	-12,091
Net change of financial liabilities	142,561	85,170
Cash flow from financing activities	142,561	85,170
Changes in cash and cash equivalents	-91,595	-69,916
Effect of foreign exchange rates on cash and cash equivalents	1,056	-1,078
Cash and cash equivalents at the beginning of the period	141,344	153,561
Cash and cash equivalents at the end of the reporting period as per statement of financial position	50,805	82,567

Segment reporting

(€ million)	Kloeckner Metals US		Kloeckner Metals Switzerland		Kloeckner Metals Services Europe		Kloeckner Metals Distribution Europe
	Q1 2019	Q1 2018	Q1 2019	Q1 2018	Q1 2019	Q1 2018	Q1 2019	Q1 2018
Shipments (Tto)	674	672	134	133	265	304	412	464
External sales	717	588	221	212	211	237	540	578
Gross profit	111	123	61	28	30	38	97	108
Gross profit margin (%)	15.5	21.0	27.4	27.5	14.2	16.1	18.0	18.7
Segment result (EBITDA)	14	32	10	5	9	16	6	11
Earnings before inter- est and taxes (EBIT)	2	23	2	-1	8	14	-2	7
Cash flow from operating activities	-ਰੇਤੋ	-10	-24	-40	-40	-5	-71	-68

	Kloeckner Metals US		Kloeckner Metals Switzerland		Kloeckner Metals Services Europe		Kloeckner Metals Distribution Europe
(€ million)	Q1 2019	FY 2018	Q1 2019	FY 2018	Q1 2019	FY 2018	Q1 2019	FY 2018
Net working capital as of closing date	568	453	264	217	239	192	425	345
Net debt as of closing date	482	321	102	43	191	149	398	239
Employees as of closing date	2,383	2,382	1,667	1,707	596	597	3,446	3,500

	Holding and other group companies		Total
(€ million)	Q1 2019	Q1 2018	Q1 2019	Q1 2018
Shipments (Tto)	14	11	1,499	1,584
External sales	14	13	1,703	1,628
Gross profit	4	4	303	331
Gross profit margin (%)	26.4	27.2	17.8	20.4
Segment result (EBITDA)	-5	-8	34	56
Earnings before interest and taxes (EBIT)	-8	-8	2	35
Cash flow from operating activities	-1	-20	-229	-143

*) including consolidations.

	Holding and other group companies		Total
(€ million)	Q1 2019	FY 2018	Q1 2019	FY 2018
Net working capital as of closing date	5	22	1,501	1,229
Net debt as of closing date	-353	-369	820	383
Employees as of closing date	437	393	8,529	8,579

Financial calendar

May 15, 2019	Annual General Meeting 2019, Düsseldorf, Germany
July 31, 2019	Half-yearly financial report 2019 Conference call with journalists Conference call with analysts
October 30, 2019	Q3 quarterly statement 2019 Conference call with journalists Conference call with analysts

Subject to subsequent changes.

Klöckner&CoSE

Christina Kolbeck Head of Investor Relations & Sustainability

Telephone: +49 203 307-2122 Email: ir@kloeckner.com

Christian Pokropp

Head of Corporate Communications

Telephone: Email:

+49 203 307-2050 pr@kloeckner.com

Disclaimer

This statement contains forward-looking statements that are based on the Klöckner & Co SE management with respect to future events. They are generally identified by the words "expect", "assume", "intend", "estimate", "target", "aim", "plan", "will", "endeavor", "outlook" and comparable expressions, and generally contain information that relates to expectations or targets for economic conditions, sales or other performance measures. Forward-looking statements are based on currently valid plans, estimates and projections and are therefore only valid on the day on which they are made. You should consider them with caution. Such statements are subject to numerous risks and uncertainties (e.g. those described in publications), most of which are difficult to predict and are generally beyond the control of Klöckner & Co SE. The relevant factors include the effects of significant strategic and operational initiatives, including the acquisition or disposal of companies or other assets. If these or other risks or uncertainties materialize or if the assumptions any of the statements turn out to be incorrect, the actual results of Klöckner & Co SE may be materially different from those stated or implied by such statements. Klöckner & Co SE can offer no assurance that its expectations or targets will be achieved. Without prejudice to existing legal obligations, Klöckner & Co SE does not assume any obligation to update forward-looking statements to take information or future events into account or otherwise. In addition to the figures prepared in line with IFRS or HGB (Handelsgesetzbuch - German Commercial Code), Klöckner & Co SE presents non-GAAP financial performance measures, e.g. EBIT, net working capital and net financial debt. These non-GAAP measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with IFRS or HGB. Non-GAAP key figures are not subject to IFRS or HGB, or to other generally applicable accounting regulations. In assess, financial position and results of operations of Klöckner & Co SE, these supplementary figures should not be used in isolation or as an alternative to the key figures presented in the consolidated financial statements and interim management and calculated in accordance with the relevant accounting principles. Other companies may different ways. Please refer to the definitions in the annual report.

There may be rounding differences with respect to the percentages and figures in this report.

This English version of the interim management is a courtesy translation of the original German version; in the event of variances, the German version shall prevail over the English translation.

Evaluating statements are unified and are presented as follows:

+/- 0-1%	+/->1-5%	+/->5%
constant	slight	considerable