Kloeckner & Co SE

Quarterly Report • Nov 6, 2014

Klöckner & Co SE Klöckner & Co SE

A Leading Multi Metal Distributor A Leading Multi Metal Distributor

Interim Report as of September 30, 2014

KLÖCKNER & CO GROUP FIGURES	3
INTERIM GROUP MANAGEMENT REPORT	4
KLÖCKNER & CO SHARE	18
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE-MONTH PERIOD ENDING
SEPTEMBER 30, 2014	20
STATEMENT OF COMPREHENSIVE INCOME FOR THE NINE-MONTH PERIOD ENDING
SEPTEMBER 30, 2014	21
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF SEPTEMBER 30, 2014	22
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE-MONTH PERIOD ENDING
SEPTEMBER 30, 2014	24
SUMMARY OF CHANGES IN EQUITY	25
SELECTED EXPLANATORY NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS OF KLÖCKNER & CO SE FOR THE NINE-MONTH PERIOD ENDING
SEPTEMBER 30, 2014	27

	Q3			9M
	2014	2013	Variance	2014	2013	Variance
Shipments and income statement
	1,690			5,043
	1,675			4,927
	325			952
	19.4			19.3
	59			160
	3.5			3.2
	36			92
	22			45
	15			27
	15			27
	0.15			0.27
	0.15			0.27
Cash flow statement/Cash flow
	58			– 90
	– 14			– 106
	44			– 196
	September 30, 2014	September 30, 2013	Variance	September 30, 2014	December 31, 2013	Variance
Balance sheet
	1,479			1,479
	557			557
	1,463			1,463
	38.9			38.9
	3,764			3,764

Employees
	9,784		9,784

Highlights in the first nine months of 2014 and outlook

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Corporate strategy

	Klöckner & Co 2020
Stabilization	Restructuring	Finished by implementation of KCO 6.0
Growth and	External & internal growth	External growth with focus on higher value-added business Internal growth with focus on US market
optimization	Operations	Improvements through KCO WIN
	Sourcing	Realization of higher scale-effects through expansion of partnerships with specific suppliers
Differentiation	Products and services	Broad product range and accelerated expansion of higher value-added processing and services
	Digitalization	Digitalization of supply chain
	Management & pers. development	Increased effort in management capabilities and measurability of people management
Enabling activities	Controlling & IT systems	Deployment of most modern controlling and IT systems

Growth and optimization

External and internal growth

Having completed the restructuring program KCO 6.0, we are now pushing growth notably in higher-margin business. In this regard, acquiring companies with appropriate product ranges and/or higher value-added services is once again an option.

In terms of regional growth prospects, our assumption that steel demand in the US market would continue to significantly outperform that in Europe is coming to pass. Having boosted US shipments to 43% of total shipments in 2013, we now aim to raise this to over 50% in the medium term.

Operations

We combined the measures designed to improve workflows and processes in our business operations in the KCO WIN program. KCO WIN already contributed €10 million to EBITDA in the first nine months of 2014. Due to additional restructuring measures in France, some of the measures under the program originally scheduled for implementation in 2014 cannot be carried out until next year. Accordingly, the amount the program is expected to contribute drops to €16 million (previously: €20 million) for the current year and rises to €34 million (previously: €30 million) for the coming year.

Amounting to a total of €39 million, the knock-on effects from the completed KCO 6.0 restructuring program and the initial contributions from the KCO WIN optimization program were the main drivers behind the increase in EBITDA from €108 million in the first nine months of 2013 to €160 million:

* Including - €13m pension adjustment NL 2013 and - €9m Riedo.

Differentiation

To enhance our differentiation, primarily from the many small and mid-size competitors, we are pursuing three core elements: Sourcing, products and services, and digitalization.

Sourcing

We are seeking to consolidate our procurement volumes to an even greater extent and place them with suppliers who are prepared to grant us terms that appropriately reflect those volumes. If unsuccessful, we may turn more to global producers. Based on the economies of scale that can be achieved by doing so, the further consolidation of the distribution level could also pick up pace.

Products and services

We intend to increase the percentage of sales from higher value-added products and services from 30% at present to 45% in 2017. In doing so, we will concentrate primarily on customers who offer us greater potential to sell such products and services due to a high degree of vertical integration.

Digitalization

We continue to step up our supply chain digitalization activities. Our primary objective is to enhance benefits to the customer. With this in mind, we join with our customers in generating a number of new ideas and incorporate these into the development of new solutions at an early stage. We see considerable potential on this front, as the traditional supply chain in steel and metal distribution is too inefficient. Given that the flow of information is not end-to-end, production often fails to reflect demand, steel and metal products are too frequently shifted between stockyards, and the process from production through to delivery to the customer is too time-consuming. In addition, inefficiencies are offset by holding too much inventory, exacerbating the problem. Firstly, we plan to gradually reduce the inefficiencies by increasingly linking up with suppliers online and making Group-wide use of tools and webshops when selling to our customers.

Secondly, we intend to standardize the systems on a B2B platform so as to ensure end-to-end digitalization of the supply chain. By using uniform interfaces, we aim to make linking up with suppliers easier. This will enable interim storage of steel and metal products to be further reduced and delivery times to be cut. The initial plan is to offer our customers full online access to our products and services through webshops.

Enabling activities

Management and personnel development, controlling and IT systems

The goals outlined can only be attained with a motivated and highly qualified workforce. Management and personnel development is therefore a key supporting function within our strategy. State-of-the-art controlling and IT systems are likewise mission-critical when it comes to making business decisions in our volatile markets, at all times on the basis of full and current information.

By implementing the measures that form part of the "Klöckner & Co 2020" strategy, we aim to lift the EBITDA margin to more than 5% over the next three years.

Economic environment

Macroeconomic situation

Following a slow start to 2014, the global economy continued to expand in the third quarter to reach 2.8%. A stronger growth in the USA and the slight growth in Europe contributed to this. However, the sanctions enforced in connection with the Ukraine crisis have had an increasingly detrimental effect on some European economies.

In the eurozone, economic growth in the third quarter remained slow, expanding by just 0.7% year-on-year. Growth momentum varied widely from country to country. Whereas the economy in the United Kingdom picked up substantially and Spain also continued the upward trend seen in the preceding quarters, France showed only minimal growth rates.

The US economy has emerged from the dent in growth experienced at the start of the year primarily due to the harsh weather conditions. Driven by rising consumer spending and strong industrial production, economic output increased by 2.1% in the third quarter.

In China, economic growth, at 7.3%, again proved weaker in the third quarter than in the preceding quarters. Growth was hurt by the sustained slowdown of the real estate market. Even though the country continues to pursue a more consumer-based economy, economic activity in China was still dominated by government investment.

The Brazilian economy stagnated in the third quarter. Companies' propensity to invest was negatively impacted by the central bank's move to ward off inflation by increasing the base rate. Even the hosting of the FIFA World Cup was not able to revive the economy to any notable extent.

Development of GDP in our core countries (in percent)	U3 ZU 14 VS U3 ZU 13
Europe *)	0.7
Germany	1.3
United Kingdom	3.0
France	0.3
Spain	1.5
Switzerland	1.6
China	7.3
Americas
United States	2.1
Brazil	0.0

Source: Bloomberg; experts' estimates (in some cases provisional).

*) Eurozone.

Industry-specific situation

Global production of raw steel increased by 2.1% year-on-year in the first nine months of 2014 to 1,231 million tons. However, considerable regional differences persisted. According to information from the World Steel Association, in the EU, almost all countries recorded substantial rates of growth, as a result of which production volumes increased by 2.9% overall. Manufactured quantities in the USA rose by 1.6% in the reporting period. Production in China increased by 2.3%, whereas in Brazil it declined by 1.3%.

In Europe, Eurometal reports that shipments in steel distribution increased by 3.0% in the first nine months of the current year. In the USA, shipments in steel distribution grew by 4.4% according to the Metals Service Center Institute (MSCI).

The steel industry still faces the problem of massive excess capacity, most of all in China and Europe, with the current demand level continuing to result in structural underutilization. At the end of September, the capacity utilization of steel producers in Europe and the USA stood at just around 73% and 77% respectively. Worldwide, considerable excess capacities exist also at distribution level, with competition remaining fierce as a result.

Trend in key customer industries

Construction industry

As the largest processor of steel, the construction industry is key to the global trend in steel consumption. According to estimates from the steel association Eurofer, European construction activity increased by 2.7% overall in the first nine months. Continued strong demand in the United Kingdom was a key driver of growth. Higher investments for rehabilitation and renovation also fueled the rise in construction spending. In the USA, the number of building permits issued and construction starts increased. The US Census Bureau puts the growth in construction spending at 6.1% during the reporting period.

Machinery and mechanical engineering

Demand in machinery and mechanical engineering showed a predominantly positive trend. According to Eurofer, the sector grew by 1.4% in the first nine month year-on-year in Europe. Whereas momentum declined in export growth, domestic demand improved perceptibly. Demand also picked up in the USA, while only moderate growth was reported in China.

Automotive industry

In the first nine months, the economic situation in the international automotive industry varied from region to region. According to the German Association of the Automotive Industry (VDA), automotive demand in Europe increased by some 6% year-on-year. Demand in Ireland, Portugal and Greece - countries heavily impacted by the European sovereign debt crisis - recovered with growth rates of double digit percentage. The USA recorded a rise of

Results of operations, financial position and net assets

(€ million)	Q3 2014	Q3 2013	9M 2014	9M 2013
	1,690		5,043
	1,675		4,927
	325		952
	19.4%		19.3%
	59		160
	3.5%		3.2%

(€ million)	September 30, 2014	September 30, 2013	December 31, 2013
	1,479
	557

(€ million)	September 30, 2014	September 30, 2013	December 31, 2013
	39%
	2.8x

Shipments and sales

Shipments increased by 1.8% to 5.0 million tons in the first nine months of fiscal year 2014. Performance continued to vary across the Europe and Americas operating segments:

The Europe segment increased shipments by 4.6% compared with the first nine months of 2013, with shipments sharply up on the prior-year level at Becker Stahl-Service (BSS) and $-$ due to acquisitions $-$ the Swiss country organization in particular. Shipments in France and Spain continued to decline as market conditions there remained difficult. The KCO 6.0 program's restructuring measures also caused shipments to fall, although these declines were more than offset by the inclusion of Riedo, the Swiss company fully acquired in April. In total, segment shipments were increased despite the overall positive effects of restructuring and acquisition.

By contrast, shipments in the Americas segment decreased by 1.7% year-on-year as a result of the long and difficult winter in the USA, the consolidation of locations toward the end of last year, margin-based pricing in sales and the drive to scale back low-margin business. The portfolio restructurings mainly impacted the unprofitable beam business for the construction industry. By the third quarter 2014, shipments already showed a sharp year-on-year increase of 2.6%.

Group sales held steady at €4.9 billion in the first nine months of 2014 compared to previous year. Overall, the rise in shipments was offset by the effects of the deterioration in the USD/€ exchange rate as well as falling prices in the Europe segment. Sales increased by 1.4% and therefore at a weaker pace than shipments in the Europe segment, while declining by 2.2% in the Americas segment. Excluding the effect of the weaker USD/€ exchange rate, sales in the Americas segment would have risen slightly.

Results
$(e)$ (E million)	Q3 2014	Q3 2013	9M 2014	9M 2013
Sales	1,675	1,600	4,927	4,922
Gross profit	325	296	952	904
$OPEX^*$	$-266$	$-260$	$-792$	$-796$
EBITDA**)	59	36	160	108
EBIT	36	10	92	30
EBT	22	$-8$	45	$-26$
Net income	15	$-11$	27	$-31$

*) Personnel expenses plus other operating expenses less other operating income.

**) Prior year incl. restructuring expenses in the amount of €2m (9M) resp. €3m (Q3).

The gross profit margin climbed from 18.4% in the previous year to 19.3 % in the first nine months of fiscal year 2014. In addition to positive contributions from the scaling-back of low-margin business, the measures under the KCO WIN program also had an increasing impact. The first-time inclusion of Riedo and the positive trend in prices in the USA first seen at the start of the year helped to lift the margin. Overall, gross profit increased significantly, rising by 5.3% to €952 million.

Buoyed by the contributions to earnings of €29 million from the KCO 6.0 program and €10 million from the KCO WIN program, EBITDA for the first nine months increased sharply, from €108 million to €160 million, with only slightly decreasing OPEX remaining almost unchanged. It should also be noted that the prior-year figure includes €13 million in non-recurring income from the reversal of pension provisions at our Dutch country organization. This effect was fully offset by Riedo's contributions and by asset disposals. The EBITDA margin increased by 1.0 percentage points to 3.2%.

EBITDA by segments

$\epsilon$ million)	Q3 2014	Q3 2013	9M 2014	9M 2013
Europe	33	26	91	68
Americas	29	17	81	58
Headquarters	-3	$-\overline{7}$	$-12$	$-18$
Klöckner & Co Group	59	36	160	108

In the Europe segment, EBITDA climbed from $668$ million to $691$ million despite the fact that market conditions remained very difficult, particularly in France and Spain. The €13 million from the reversal of pension provisions in the Netherlands in the previous year was offset by the first-time inclusion of Riedo and by income from asset disposals.

Cost savings from the KCO 6.0 restructuring program and the initial effects of the KCO WIN program were the main drivers of the increase in EBITDA. The EBITDA margin improved accordingly, rising by 0.7 percentage points to 2.9%. BSS and the Swiss country organization continued to constitute the main drivers of segment EBITDA.

The structural measures, the drive to scale back low-margin business and the effects of the KCO WIN program also had an impact in the Americas segment. EBITDA therefore climbed from €58 million to €81 million, while the EBITDA margin improved by 1.3 percentage points to 4.5%.

Headquarters EBITDA improved to a negative €12 million (2013: negative €18 million), mainly due to cost savings and a change to more accurately allocate segment-related costs according to their origin.

Group EBIT for the first nine months of the fiscal year benefited from acquisition-related amortization coming to an end, EBIT rising at an even sharper rate than EBITDA from €30 million to €92 million.

The financial result likewise improved, from a negative €56 million to a negative €47 million. The redemption of promissory notes and the repayment of the 2009 convertible bond had the effect of alleviating interest expense in particular.

EBT improved from a negative €26 million in the prior-year period to a significantly positive €45 million in the first nine months of the current year.

The inability to offset tax losses between countries combined with restrictive recognition rules for deferred taxes resulted in an income tax expense of €17 million for the first nine months (2013: €5 million). Despite the comparatively high tax liability, net income thus amounted to a positive €27 million compared with a net loss of €31 million in the prior year.

Basic earnings per share came to €0.27 compared with a negative €0.31 in the prior year.

Consolidated balance sheet

(€ million)	September 30, 2014	December 31, 2013
	1,081
	1,296
	883
	123
	381
Total assets	3,764	3,595
	1,463
	803
	432
	127
	700
	239
Total equity and liabilities	3,764	3,595

Net working capital

(€ million)	September 30, 2014	September 30, 2013	December 31, 2013
Inventories	1,296	1,168	1,166
Trade receivables	883	843	687
Trade payables	$-700$	$-606$	$-637$
Net working capital	1,479	1.405	1,216

At €1,479 million, net working capital was up on the end of fiscal year 2013 (€1,216 million) due to seasonal factors and acquisitions. A further €58 million of the increase is currency-related.

Net financial debt

$\epsilon$ (€ million)	September 30, 2014	September 30, 2013	December 31, 2013
Net financial debt	557	462	325
Gearing (Net financial debt/shareholders' equity *)	39%	31%	23%

*) Equity attributable to shareholders of Klöckner & Co SE less goodwill from business combinations subsequent to May 23, 2013.

Net financial debt amounted to €557 million at the end of the third quarter of 2014 and therefore surpassed the figure as of December 31, 2013 (€325 million). This was due to the seasonal increase in resources tied up in net working capital, the higher USD/€ exchange rate and the Riedo acquisition. At 39%, gearing remained well below the 150% maximum applicable for financing purposes.

The Group continues to have a comfortable amount of financial leeway following the early extension of the European ABS program (€360 million) and utilization of the option to extend the syndicated loan (€360 million), both until May 2017.

Consolidated statement of cash flows

$(\epsilon$ million)	O3 2014	O3 2013	9M 2014	9M 2013
Cash flow from operating activities	58	44	$-90$	$-2$
Cash flow from investing activities	$-14$	$-11$	$-106$	$-25$
Free cash flow	44	33	$-196$	-27
Cash flow from financing activities	$-18$	$-44$	$-25$	-21

Due to the increase in net working capital, there was a cash outflow from operating activities of €90 million in the first nine months compared with an outflow of €2 million in the prior-year period. The cash outflow from investing activities amounted to €106 million in the first nine months of 2014 (2013: outflow of €25 million). The primary reason for this was the completion of the Riedo acquisition, which led to a net cash outflow of €82 million.

In total, this resulted in a negative free cash flow of €196 million, compared with a negative €27 million in the prior-year period. Cash flow from financing activities amounted to a negative €25 million in the first nine months of 2014 (2013: negative €21 million). This figure takes account of payments made to service the 2009 convertible bond (€98 million) as well as promissory notes (€50 million), most of which were offset by the increased use of ABS and bilateral facilities.

Subsequent events

Macroeconomic outlook including key opportunities and risks

Expected development of GDP in our core countries (in percent)	2014
Europe*)	0.8
Americas

Expected trend in our core customer sectors

Construction industry

Driven by the upturn in residential construction, the European construction industry will grow by 1.5% in 2014 according to Euroconstruct estimates. In the USA, the construction sector is forecast to expand by 5%. This trend will be mainly driven by the stronger commercial construction sector. By contrast, the order situation will remain weak in the area of infrastructure due to the restrictive stance on allocating public funds. In China, demand for residential housing remains unabated on the back of advancing urbanization, with growth of 5.1% now projected. The Brazilian construction industry is slowly beginning to trend upward again after a major cooling-off period, driven by increasing housing demand, low-interest mortgage loans and a shift from consumption spending to real estate buying.

Machinery and mechanical engineering

The German Engineering Federation (VDMA) so far projects 6% growth for the sector worldwide in 2014. In Europe, the market is still expected to grow by 3%, but the sanctions initiated against Russia and the uncertainty surrounding the conflict in Ukraine having an increasingly detrimental effect. In light of this, the VDMA has already adjusted the growth forecast for the German machinery and mechanical engineering industry from 3% to just 1%. As regards the USA, the VDMA anticipates growth of 5% in the current year. Much stronger growth of 9% is expected for China, the world's largest machinery producer by far. In Brazil, however, growth is expected to soften to just 2% in 2014.

Automotive industry

The German Association of the Automotive Industry (VDA) is projecting growth of around 4% for the global automotive market in the current year. Growth of 4% is also anticipated for the automotive markets in both Europe and the USA, thanks in part to favorable financing options. According to VDA estimates, China is forecast to register a much sharper increase of 15%. The Brazilian automotive industry should - after the strong decline in the first nine months - also shrink for the year as a whole.

Current assessment of opportunities and risks

The detailed information provided in the Opportunities and Risks section on pages 59 to 69 of the 2013 Annual Report continues to apply for the most part. For a detailed description of the risk management system in the Klöckner & Co Group, please see pages 60 et seq. of the 2013 Annual Report.

Klöckner & Co faces market risk primarily due to demand and price developments. The persistent surplus capacity and volatile commodities prices make it impossible to rule out a renewed decline in prices, which would impact negatively on our earnings performance.

Additional risks could arise from the continued financial market uncertainty rooted in the persistently high sovereign debt levels in a number of European countries. This could lead to restrictions on lending or make obtaining credit more expensive for customer industries, which in turn could cause investment activity to wane. Furthermore, the economic trend in Europe and the USA could turn out to be softer than generally expected. The current crisis in Ukraine and other geopolitical conflicts could also negatively impact economic recovery in Europe and thus Klöckner & Co's business performance as well - if not directly, at least indirectly. Klöckner & Co continues to act with heightened caution in light of the above and is reacting rapidly to changes in expectations regarding the economic environment.

We are relatively optimistic about the Americas segment on account of developments in the USA, including the reindustrialization resulting from low energy costs. A moderating effect could come from increasingly restrictive monetary policy on the part of the US Federal Reserve.

In summary, the Management Board is confident that the systems for managing opportunities and risks in the Klöckner & Co Group are working well. Sufficient allowance has been made and adequate provisions recognized to cover all risks identifiable at the time of preparing the interim financial statements and required to be accounted for.

Steps have been taken as necessary to cushion the impact of impending market risks. Given the current financing structure, no liquidity shortfalls are to be expected. There are no identifiable risks that raise doubt about the Company's ability to continue as a going concern.

Outlook

In Europe, we expect steel demand to increase by 2% this year. Our growth forecast is therefore at the lower end of the previously predicted range of 2% to 3%, in light of the fact that economic indicators have weakened recently.

For the USA, we are raising our growth forecast for steel demand in 2014 as a whole to 5% to 6% (previously: 4% to 5%) due to the still very robust state of the automotive industry and the upturn in commercial construction, which continues to gain momentum.

We expect fourth-quarter shipments to be down on the third quarter. Alongside the seasonal decline in demand in December, we believe the main reason for this will be the recent darkening of the economic outlook for Europe. In addition, falling steel prices in the USA are adversely affecting earnings in our Americas segment. We therefore expect EBITDA of between €30 million and €40 million in total in the final quarter and are fine-tuning our EBITDA guidance for the year as a whole to between €190 million and €200 million.

The main drivers of the targeted improvement in earnings will be the incremental contributions to EBITDA from the completed KCO 6.0 restructuring program and the KCO WIN optimization program.

At the same time, interest cost is decreasing due to the repayment of financial liabilities. Amortization from business combination is also declining. Overall, we still expect to achieve a positive net income and to pay a dividend for fiscal year 2014.

Our objective is to further increase the EBITDA margin from the 3.2% achieved in the first nine months of 2014 to over 5.0% by 2017. We expect our KCO WIN optimization program to contribute to this along with new procurement structures, the expansion of our business in higher-margin products and services, and the digitalization of our business processes. This is based on the assumption that the macroeconomic environment will not change crisis-prone.

Duisburg, November 6, 2014

Klöckner & Co SE

The Management Board

®

Share price performance

	Q3 2014	Q3 2013	9M 2014	9M 2013
	99,750,000		99,750,000
	10.89		10.89
	1,086		1,086
	100.0		100.0
	11.54		12.66
	9.63		9.63
	582,227		640,301

Capital Market Day 2014

Ownership structure

Capital market communications

(€ thousand)	Q3 2014	Q3 2013	9M 2014	9M 2013
	1,674,568		4,926,576
	9,843		26,718
	8,047		7,544
	5		42
	– 1,357,496		– 3,982,379
	– 143,044		– 430,092
	– 23,093		– 67,784
	– 133,323		– 388,788
Operating result	35,507	10,386	91,837	29,860
	791		1,772
	– 14,426		– 48,626
Financial result	– 13,635	– 18,536	– 46,854	– 56,173
Income before taxes	21,872	– 8,150	44,983	– 26,313
	– 7,358		– 17,487
Net income	14,514	– 11,358	27,496	– 31,031
	14,484		27,145
	30		351
Earnings per share (€/share)
– basic	0.15	– 0.11	0.27	– 0.31
– diluted	0.15	– 0.11	0.27	– 0.31

(€ thousand)	Q3 2014	Q3 2013	9M 2014	9M 2013
Net income	14,514	– 11,358	27,496	– 31,031
	– 27,383		– 49,902
	3,779		5,551
Total	– 23,604	15,551	– 44,351	54,859
	25,143		31,916
	544		944
	1,706		5,106
	-		-
	– 645		– 1,786
Total	26,748	– 6,610	36,180	– 14,170
Other comprehensive income	3,144	8,941	– 8,171	40,689
Total comprehensive income	17,658	– 2,417	19,325	9,658
	17,794		18,852
	136 –		473

Non-current assets 430,774 613,444 10,486 1,328 16,023 9,059 Total non-current assets 1,081,114 Current assets 1,295,731 883,344	976,749
10,190
99,847
380,522
12,920
Total current assets 2,682,554	2,617,936

Total assets 3,763,668 3,594,685

(€ thousand)	September 30, 2014	December 31, 2013
Equity
	249,375
	900,759
	294,070
	4,207
Equity attributable to shareholders of Klöckner & Co SE	1,448,411	1,429,559
	14,697
Total equity	1,463,108	1,445,472
Non-current liabilities
	285,745
	17,271
	802,649
	25,206
	104,467
Total non-current liabilities	1,235,338	1,076,773
Current liabilities
	126,129
	10,499
	127,409
	700,467
	100,718
Total current liabilities	1,065,222	1,072,440
Total liabilities	2,300,560	2,149,213
Total equity and liabilities	3,763,668	3,594,685

(€ thousand)	Q3 2014	Q3 2013	9M 2014	9M 2013
	14,514		27,496
	7,358		17,487
	13,635		46,854
	23,093		67,784
	234		– 178
	– 3,900		– 7,182
	– 11,796		– 64,115
	56,280		– 150,217
	– 13,003		31,431
	– 18,562		– 18,221
	– 3,799		– 30,031
	326		1,983
	– 6,292		– 12,811
Cash flow from operating activities	58,088	44,416	– 89,720	– 2,564
	3,241		11,700
	15		5,354
	-		-
	– 17,314		– 40,986
	-		– 82,022
Cash flow from investing activities	– 14,058	– 10,733	– 105,954	– 24,733
	– 1,689		– 1,689
	-		– 97,900
	-		– 50,000
	– 16,443		124,663
Cash flow from financing activities	– 18,132	– 44,282	– 24,926	– 21,312
Changes in cash and cash equivalents	25,898	– 10,599	– 220,600	– 48,609
	4,661		5,729
	349,963		595,393
Cash and cash equivalents at the end of the reporting period as per statement of financial position	380,522	559,103	380,522	559,103

(€ thousand)	Subscribed capital of Klöckner & Co SE	Capital reserves of Klöckner & Co SE	Retained earnings
Balance as of January 1, 2013	249,375	900,759	368,376
Other comprehensive income
Total comprehensive income
Balance as of September 30, 2013	249,375	900,759	321,550
Balance as of January 1, 2014	249,375	900,759	266,925
Other comprehensive income
Total comprehensive income
Balance as of September 30, 2014	249,375	900,759	294,070

Accumulated other comprehensive income

Currency translation adjustment	Actuarial gains and losses (IAS 19)	Fair value adjust ments of financial instruments	Equity attributable to shareholders of Klöckner & Co SE	Non–controlling interests	Total
93,945	– 127,267	– 5,557	1,479,631	22,740	1,502,371
					– 15,486
					– 2,311
					4,619
					69,689
					– 15,807
					– 15
			41,875	– 1,186	40,689
					– 31,031
			11,117	– 1,459	9,658
79,667	– 56,377	– 4,226	1,490,748	21,281	1,512,029
72,912	– 56,648	– 3,764	1,429,559	15,913	1,445,472
					31,916
					944
					5,106
					– 49,902
					3,765
			– 8,293	122	– 8,171
					27,496
			18,852	473	19,325
					– 1,689
104,587	– 100,880	500	1,448,411	14,697	1,463,108

Selected explanatory notes to the condensed interim consolidated financial statements of Klöckner & Co SE for the nine-month period ending September 30, 2014

(1) BASIS OF PRESENTATION

The condensed interim consolidated financial statements of Klöckner&Co SE for the nine-month period ending September 30, 2014 were prepared for the interim presentation in accordance with Sec. 37x para. 3 WpHG in connection with Sec. 37w, para. 2 no. 1 and 2, para. 3 and para. 4 WpHG as well as International Financial Reporting Standards (IFRS) and the respective interpretations issued by the International Accounting Standards Board (IASB) as adopted for use within the EU.

The condensed interim consolidated financial statements were not reviewed by an independent auditor.

Except for the changes discussed in note 2 below, the accounting policies applied to the interim financial statements as of September 30, 2014 are generally consistent with those used for the consolidated financial statements of Klöckner & Co SE as of December 31, 2013 under consideration of the IAS 34 regulations (Interim Financial Reporting). A detailed description of those policies is provided in the notes to the consolidated financial statements on pages 82 to 95 of the 2013 Annual Report.

As part of the preparation of an interim consolidated financial statement in accordance with the IAS 34 for the period ending September 30, 2014, Klöckner&Co SE's management is required to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities as well as income and expenses. The actual amounts may differ from these estimates.

In the opinion of the Management Board, the interim consolidated financial statements reflect all adjustments deemed necessary to provide a true and fair view of the results. The results for the period ending September 30, 2014 are not necessarily indicative of future results.

The present interim consolidated financial statements for the nine-month period ending September 30, 2014 were authorized for issuance by the Management Board after discussion with the Audit Committee of the Supervisory Board on November 6, 2014. Unless otherwise indicated, all amounts are stated in million euros (€ million). Discrepancies to the unrounded figures may arise.

(2) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS

The following table summarizes accounting standards and interpretations that were initially applied in fiscal year 2014:

Standard/Interpretation
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
Amendments to IFRS 10, IFRS 11 and IFRS 12 Transition Guidance
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities
Amendments to IAS 27 Separate Financial Statements
Amendments to IAS 28 Investments in Associates and Joint Ventures
Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)

IFRS 10 introduced a new and comprehensively revised definition of control. If an entity has control over another entity, the parent company must consolidate its subsidiary. Under the revised concept, control is deemed to exist when the potential parent company has the power to direct decisions of the subsidiary via majority voting rights or by other means, when the parent company participates in variable positive or negative returns, and is able to influence these returns with its decision power.

IFRS 11 revises the accounting for joint arrangements. Under the new standard an entity is required to assess whether an arrangement is a joint operation or a joint venture.

IFRS 12 governs disclosure for interests in other entities. The disclosure requirements under the new standard are more comprehensive than those previously listed in IAS 27, IAS 28 and IAS 31.

The amendments to IFRS 10, IFRS 11 and IFRS 12 consider the adoption of the standards; they provide clarification and certain transition alleviations. The additional amendments to these standards provide a definition of investment entities and exclude such entities from the application of IFRS 10.

By issuing IFRS 10, regulations regarding the definition of control and the preparation of consolidated financial statements were removed from IAS 27. As a result, IAS 27 only contains regulations for the accounting of subsidiaries, associates and joint ventures in stand-alone IFRS financial statements from now on.

By issuing IFRS 11, also modifications were made to IAS 28. IAS 28 governs the application of the equity method of accounting. The scope of IAS 28 was significantly extended as it now also includes joint ventures in addition to investments in associates. The proportional method of consolidation is no longer applicable.

The IAS 39 (Financial Instruments Recognition and Measurement) alignment "Novation of Derivatives and Continuation of Hedge Accounting" provides for constant hedge accounting in the case of novation of a hedging instrument provided that specified conditions are met.

The initial application of the new standards and interpretation did not have an impact on the consolidated financial statements.

The amendments to IFRS 11 (Accounting for Acquisitions of Interests in Joint Operations) were published on May 6, 2014. This clarification relates to the acquisition of interests in joint operations if they are classified as a business. The clarification has no effect on the Klöckner & Co SE Group financial statements.

On May 12, 2014, amendments to IAS 16 (Property, Plant and Equipment) and IAS 38 (Intangible Assets) were published. The amendments are a clarification that revenue-based methods for calculating the depreciation may not be applied. This clarification has no effect on the Klöckner & Co SE Group financial statements.

On May 28, 2014, the IASB published the new standard IFRS 15 (Revenue from Contracts with Customers). The standard summarizes regulations for revenue recognition from different standards and requires extended disclosures depending on the kind of business. Provided that it will be endorsed by the EU, the standard is applicable for financial years beginning on or after January 1, 2017. Klöckner&Co is currently analyzing the impact of this standard on the annual financial statements.

On September 25, 2014, the Annual Approvements to IFRSs 2012-2014 were issued. The publication of this project leads to changes in five standards. Provided that it will be endorsed by the EU, the standard is applicable for financial years beginning on or after January 1, 2016. Klöckner&Co is currently analyzing the impact of this standard on the annual financial statements.

(3) BUSINESS COMBINATIONS

In pursuit of the application of the "Klöckner&Co 2020" strategy, the following business combinations were consummated in the first nine months of 2014.

Riedo Bau + Stahl AG, Oberbipp, Switzerland

At the beginning of April, the acquisition of 75% of BST Holding AG, Oberbipp, Switzerland, including its subsidiary Riedo Bau + Stahl AG ("Riedo"), was closed. At the end of the second quarter, the remaining shares were also acquired. Klöckner & Co now holds 100% of the Riedo shares.

With its three locations, Riedo is one of Switzerland's leading specialists in reinforcing steel, generating sales of about €140 million in 2013. The company has a workforce of approximately 180 employees. The acquisition was part of the "Klöckner & Co 2020" growth strategy, which focuses on entities with higher value-added processing services.

The total purchase price amounts to CHF 102 million (roughly €84 million). Riedo has been consolidated since April 1.

(€ million)	Fair values
	19
	20
	17
	2
	40
	10
	14
	8
	5
	2
Total acquired assets	113
	2
	1
	11
	2
	7
	6
Total assumed liabilities	29
Acquired net assets	84
Consideration	84
	84
Reconciliation to transaction volume
	4
	– 2
Transaction volume	86

(€ million)

		9M 2014	9M 2013
		27,145
		99,750
Basic earnings per share	(€/share)	0.27	– 0.31
Diluted earnings per share	(€/share)	0.27	– 0.31

(€ million)	September 30, 2014	December 31, 2013
	1,331
	– 35
Inventories	1,296	1,166

(€ million)	September 30, 2014	December 31, 2013
Non-current financial liabilities
	176
	230
	132
	264
	0
	803	727
Current financial liabilities
	3
	68
	54
	1
	1
	127	184
Financial liabilities as per consolidated balance sheet	930	911

(€ million)	September 30, 2014	December 31, 2013
Financial liabilities as per consolidated balance sheet	930	911
	8
Gross financial liabilities	938	921
	– 381
Net financial debt Klöckner & Co Group	557	325

Financial assets

as of September 30, 2014				Measurement in accordance with
				IAS 39	IAS 17
(€ million)	Carrying amount	Amortized costs	Fair value recognized in profit and loss	Fair value recognized in equity	Amortized costs	Not covered by the scope of IFRS 7	Fair value
Non-current financial assets
Current financial assets
Total	1,381	1,360	0	-	-	21	1,361

Financial liabilities as of September 30, 2014 Measurement in accordance with

				IAS 39	IAS 17
(€ million)	Carrying amount	Amortized costs	Fair value recognized in profit and loss	Fair value recognized in equity	Amortized costs	Not covered by the scope of IFRS 7	Fair value
Non-current financial liabilities
Current financial liabilities
Total	1,756	1,648	7	51	1	49	1,719

Financial assets as of December 31, 2013 Measurement in accordance with

				IAS 39	IAS 17
(€ million)	Carrying amount	Amortized costs	Fair value recognized in profit and loss	Fair value recognized in equity	Amortized costs	Not covered by the scope of IFRS 7	Fair value
Non-current financial assets
Current financial assets
Total	1,390	1,374	0	-	-	16	1,374

Financial liabilities as of December 31, 2013 Measurement in accordance with

				IAS 39	IAS 17
(€ million)	Carrying amount	Amortized costs	Fair value recognized in profit and loss	Fair value recognized in equity	Amortized costs	Not covered by the scope of IFRS 7	Fair value
Non-current financial liabilities
Current financial liabilities
Total	1,627	1,569	2	20	2	35	1,608

Derivative financial instruments not designated in hedge accounting include a put liability incurred in the acquisition of the Brazilian Kloeckner Metals Brasil Group (former Frefer Group) for a possible transfer of the remaining non-controlling interests. The value is based on the discounted future profits. The projected results are derived from the business plan. The change in the value of liabilities during the first nine months amounted to €112 thousand and is included in the financial result.

Any assets and liabilities recognized are accounted for at fair value and are regularly remeasured.

The valuation of all financial instruments follows the hierarchy concept of IFRS 13. Financial instruments for which the fair value is obtained from quoted prices for similar instruments are classified as Level 1. If fair values are derived from directly observable market inputs, those instruments are included in Level 2. Financial instruments for which the fair values are not based on observable market data are assigned to Level 3. With the exception of the put liability agreed on in connection with the Kloeckner Metals Brasil Group acquisition (€1.1 million), all financial instruments are allocated to Level 2 of the measurement hierarchy.

(8) SUBSEQUENT EVENTS

There were no subsequent events that require disclosures in the notes to the interim consolidated financial statements.

(9) RELATED PARTY TRANSACTIONS

Within the framework of its ordinary business activities, the Klöckner&Co Group has business relationships with numerous companies. These also include related parties that were accounted for at cost. Business relations with these companies do not fundamentally differ from trade relationships with other companies. No material transactions were conducted with any of these companies in the reporting period.

Certain members of the Supervisory Board were or are members of the Supervisory Board or Management Board of other entities. Klöckner & Co holds business relations to some of these entities. Business with such entities is transacted at arm's length.

		Europe		Americas		Headquarters/ Consolidation		Total
(€ million)	9M 2014	9M 2013	9M 2014	9M 2013	9M 2014	9M 2013	9M 2014	9M 2013
	3,128		1,799		-		4,927
	91		81		– 12		160
	55		51		– 14		92
	893		581		5		1,479
	7,139		2,546		99		9,784

(€ million)	9M 2014	9M 2013
	92
	– 47
Income before taxes	45	– 26

Gisbert Rühl

Marcus A. Ketter Karsten Lork William A. Partalis

Annual Financial Statements 2014 Financial statement press conferenc Analyst conference
Q1 interim report 2015 Conference call with journalists Conference call with analysts
Annual General Meeting 2015 Düsseldorf, Germany
Q2 interim report 2015 Conference call with journalists Conference call with analysts
Q3 interim report 2015 Conference call with journalists Conference call with analysts

Klöckner & Co SE

Christian Pokropp

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Disclaimer

This report (particularly the "Forecast" section) contains forward-looking statements that are based on the current estimates of the Klöckner & Co SE management with respect to future developments. They are generally identified by the words "expect", "anticipate", "assume", "intend", "estimate", "target", "aim", "plan", "will", "endeavor", "outlook" and comparable expressions, and include generally any information that relates to expectations or targets for economic conditions, sales or other performance measures.

Forward-looking statements are based on current plans, estimates and projections. You should consider them with caution. Such statements are subject to risks and uncertainties, most of which are difficult to predict and are generally beyond Klöckner & Co's control. Among the relevant factors are the impacts of important strategic and operating initiatives, including the acquisition or disposal of companies. If these or other risks or uncertainties materialize, or if the assumptions underlying any of the statements prove incorrect, Klöckner & Co's actual results may be materially different from those stated or implied by such statements. Klöckner&CoSE can offer no assurance that its expectations or targets will be achieved.
expectations or targets will be achieved.

Without prejudice to existing legal obligations, Klöckner & CoSE 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., EBITDA, 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 measures are not subject to IFRS or HGB, or to other generally accepted accounting principles. Other companies may define these terms in different ways.

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

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