Quarterly Report • Sep 15, 2016
Quarterly Report
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Interim Report
as of June 30, 2016
| Klöckner & Co Group Figures | |
|---|---|
| Interim Group Management Report | |
| l Klöckner & Co Share |
| Consolidated statement of income | 24 |
|---|---|
| Statement of comprehensive income ______ | 25 |
| Consolidated statement of financial position Consolidated statement of financial position | 26 |
| Consolidated statement of cash flows and consolidated statement of cash flows | 28 |
| Summary of changes in equity and the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract of the contract | 29 |
| Selected explanatory notes to the condensed interim consolidated financial statements for the six-month period ending June 30, 2016 |
30 |
| Review Report_____ | 41 |
| Responsibility Statement Fig. 1.1 The State State Inc. | 42 |
| Shipments and income statement | Q2 2016 | Q2 2015 | Variance | HY1 2016 | HY1 2015 | Variance | |
|---|---|---|---|---|---|---|---|
| Shipments | Tto | 1,643 | 1.645 | $-2$ | 3,199 | 3,306 | $-107$ |
| Sales | $\epsilon$ million | 1,517 | 1,693 | $-176$ | 2,903 | 3,391 | $-488$ |
| Gross profit | $\epsilon$ million | 362 | 320 | $+42$ | 666 | 630 | $+36$ |
| Gross profit margin | % | 23.8 | 18.9 | $+4.9%p$ | 22.9 | 18.6 | $+4.3%p$ |
| Earnings before interest, taxes, depre- ciation and amortization (EBITDA) |
$\epsilon$ million | 72 | $-17$ | $+89$ | 88 | $-7$ | $+95$ |
| EBITDA before restructuring expenses | $\epsilon$ million | 72 | 36 | $+36$ | 88 | 46 | $+42$ |
| EBITDA margin | % | 4.8 | $-1.0$ | $+5.8%p$ | 3.0 | $-0.2$ | $+3.2%p$ |
| EBITDA margin before restructuring | % | 4.8 | 2.1 | $+2.7%p$ | 3.0 | 1.4 | $+1.6%p$ |
| Earnings before interest and taxes (EBIT) |
$\epsilon$ million | 49 | $-44$ | $+93$ | 41 | $-59$ | $+100$ |
| Earnings before taxes (EBT) | $\epsilon$ million | 42 | $-56$ | $+98$ | 26 | $-84$ | $+110$ |
| Net income | $\epsilon$ million | 33 | $-55$ | $+88$ | 19 | $-76$ | $+95$ |
| Net income attributable to sharehold- ers of Klöckner & Co SE |
$\epsilon$ million | 32 | $-54$ | $+86$ | 18 | $-75$ | $+93$ |
| Earnings per share (basic) | € | 0.32 | $-0.54$ | $+0.86$ | 0.18 | $-0.75$ | $+0.93$ |
| Earnings per share (diluted) | € | 0.32 | $-0.54$ | $+0.86$ | 0.18 | $-0.75$ | $+0.93$ |
| Cash flow statement/Cash flow | Q2 2016 | O2 2015 | Variance | HY1 2016 | HY1 2015 | Variance | |
| Cash flow from operating activities | $\epsilon$ million | 22 | 96 | $-74$ | 27 | $-15$ | $+42$ |
| Cash flow from investing activities | $\epsilon$ million | $-18$ | 7 | $-25$ | $-27$ | 6 | $-33$ |
| Free cash flow*) | $\epsilon$ million | 4 | 102 | $-98$ | $\mathbf 0$ | $-9$ | $+9$ |
| December 31. | June 30, | ||||||
|---|---|---|---|---|---|---|---|
| Balance sheet | June 30, 2016 | 2015 | Variance | June 30, 2016 | 2015 | Variance | |
| Net working capital**) | $\epsilon$ million | 1.168 | 1.128 | $+40$ | 1,168 | 1.452 | $-284$ |
| Net financial debt | $\epsilon$ million | 435 | 385 | $+50$ | 435 | 571 | $-136$ |
| Equity | $\epsilon$ million | 1.049 | 1.113 | $-64$ | 1.049 | 1.407 | $-358$ |
| Equity ratio | % | 36.9 | 39.2 | $-2.3%p$ | 36.9 | 37.9 | $-1.0\%$ p |
| Balance sheet total | $\epsilon$ million | 2,842 | 2.841 | $+1$ | 2.842 | 3.714 | $-872$ |
| December 31. | June 30, | |||||
|---|---|---|---|---|---|---|
| Employees | lune 30, 2016 | 2015 | Variance | lune 30, 2016 | 2015 | /ariance |
| Employees at end of period | 9.166 | 9.592 | $-426$ | 9.166 | 9 719 | $-553$ |
*) Free cash flow: Cash flow from operating activities plus cash flow from investing activities.
**) Net working capital: Inventories plus trade receivables less trade liabilities.
$\Bigg| 4$
Key developments in the first six months of 2016 and outlook
Steel distribution in our European and American core markets is highly fragmented, with a large share of commodity products and hence also strong competition. We are increasingly setting ourselves apart from competitors with our "Klöckner & Co 2020" strategy. The two main thrusts of this strategy are digital integration and the accelerated expansion of business involving higher value-added products and processing services. In this way, we are increasingly breaking free from the environment of sector-wide overcapacity and steel price volatility while leveraging new options for growth.
We were very early movers in the digital integration that will redraw the face of many industries in the years ahead. Internetbased platforms will gradually supersede traditional cascading value chains. This process will be driven forward by the more distributed production that follows from enhanced digitalization, and also by the leaps and bounds being made in artificial intelligence. The future belongs to open platforms that link market players by plug and play. Platforms that succeed in integrating the greatest possible numbers of market participants will generate substantial value - not through assets as in the past, but by orchestrating physical and digital resources as well as by capitalizing on data. There is no stopping this trend, even if much of the technical groundwork is yet to be laid. But converting linear value chains into integrated platforms is not just technically challenging. It will also profoundly alter organizations traditionally marked by hierarchical structures. And as if that were not enough, digitalization - most of all when driven by artificial intelligence - will also radically change the way we work.
It is hard to tell how fast these changes will take place. But one thing is for sure: Only the early movers can hope to shape them. For this purpose we have initiated the following activities and change processes:
Today we have already digitally linked up with several producers, wholesalers and other business partners. Initial digital tools, including contract portals and web shops, are already being used successfully by customers. All the tools introduced so far will be integrated into the Klöckner Service Platform during 2016 and further enhanced. This will give customers and business partners one-stop access to all digital services and all relevant data. Further on, from 2017, we plan to launch the first version of our Industry Platform that will also be open to competitors and others in the market.
$\sqrt{6}$
The second quarter of this year also saw us make further progress in our digital transformation. In sales, we continued the rollout of digital pricing tools. These enabled us to benefit more strongly than in the past from rising prices for steel and metal products.
The Klöckner & Co contract portals and our web shops quickly ramped up sales. In total, some 10% of Group sales were generated via digital channels.
We have set ourselves ambitious goals for the ongoing implementation of our digitalization strategy: As early as 2019, we aim to generate more than half of Group sales online and cut net working capital by about a third relative to the 2014 year-end.
Alongside digitalization, our second source of strategic leverage for setting ourselves apart from competitors is by boosting the share of higher value-added products and processing services. There is huge market potential here as many of our customers are highly vertically integrated and still carry out tasks we could perform more efficiently by consolidating orders. A good example is our investment in 3D lasers, which we can use to combine several conventional customer tasks such as drilling, sawing and slotting at an attractive price and with significant gains in precision. We will also be undertaking a major expansion of higher-margin business with higher value-added products. At our Bönen location in North Rhine-Westphalia, Germany, for example, we recently celebrated the groundbreaking ceremony for a service center to process aluminum flat products for the European automotive and manufacturing industries. Slated for completion in the coming year, the facility will have an annual capacity of around 50,000 tons.
$\mid$ 7
In total, we plan to further increase the percentage of sales accounted for by higher value-added products and processing services to 45% by 2017, having already raised it from 34% to 39% in 2015. By 2020, we aim to generate the lion's share of sales with such higher-margin products and services.
The restructuring measures under the KCO WIN+ optimization program were completed in the second quarter of 2016. These measures saw a total of 16 persistently unprofitable locations closed and the headcount reduced by over 600. The main focus was on France, where eleven locations were shuttered. In other European countries, another four locations were closed and the country headquarters downsized. Due to the poor outlook for the local steel market, closures also included Klöckner & Co's only service center in China, with 35 employees affected.
Further measures under KCO WIN+ target business process improvements. After €11 million in the first half year, KCO WIN+ is budgeted to deliver an incremental EBITDA contribution of €20 million for 2016 as a whole, with another €10 million earmarked for 2017.
Over the last few years, we have restructured the European distribution business at country level, downsized capacity and pooled operations, and further stepped up cross-border procurement. Under the "One Europe" program, we are now bringing the activities of our country organizations in Austria, Belgium, Germany, France, the Netherlands, Spain and the United Kingdom even closer together. In this way, we not only aim to reap cost savings and synergies more easily, but to enable even faster and more efficient implementation of the "Klöckner & Co 2020" strategy. "One Europe" is set to deliver an incremental EBITDA contribution of in total some €30 million in the next three years.
Our key organic growth drivers are the expansion of higher value-added products and processing services along with digitalization.
In terms of regional growth opportunities, we see the USA as our most attractive market over the medium and long term, despite the slump in steel prices last year. This market is especially attractive for us because of the far better match between steel demand and local supply compared with Europe, coupled with the strict separation of producers and distributors. We aim to increase the US share of shipments from 41% in 2015 to more than 50% in the medium term.
When it comes to strengthening higher-margin business, we target a mix of organic and external growth. Consequently, alongside a marked increase in capital expenditure in this area - and following the acquisition of American Fabricators, Inc. in the USA and Riedo in Switzerland - we envisage further acquisitions of companies that offer a wide range of higher value-added products and processing services.
The development of the global economy was affected during the reporting period by political uncertainties and increasing risks on the financial markets. Growth in the euro zone slowed due to continued high unemployment and low investment activity. Gross Domestic product (GDP) in the region grew by 1.5% in total during the second quarter compared with the prior-year quarter.
In the USA, a noticeable increase in private consumption and a slight rise in industrial production toward the end of the first half year were the main factors contributing to the solid overall economic growth of 1.7% compared with the second quarter of 2015.
China saw a further slowdown in export growth. The stimulus measures recently implemented by the government took effect, however, and the services sector, too, picked up more speed, resulting in second-quarter growth of 6.6%.
By contrast, the difficult economic situation in Brazil continued. Higher unemployment resulted in a further fall in consumer spending in the second quarter. In total, GDP was down 3.7% on the prior-year quarter.
| Development of GDP (in percent) | Q2 2016 vs. Q2 2015 |
|---|---|
| Europe *) | 1.5 |
| Germany | 1.5 |
| United Kingdom | 1.7 |
| France | 1.6 |
| Spain | 2.9 |
| Switzerland | 0.9 |
| China | 6.6 |
| Americas | |
| United States | 1.7 |
| Brazil | $-3.7$ |
Source: Bloomberg; experts' estimates (in some cases provisional). *) Eurozone.
Although overall economic conditions are good, the market environment in the steel industry remains challenging. Global crude steel production dropped by about 2% in the first six months to some 795 million tons. According to the World Steel Association, production volumes fell by around 6% in the European Union and by around 1% in North America and China. Eurometal reports that shipments in Europe grew by around 3% during the period under review. According to the Metals Service Center Institute (MSCI), the decline in the USA was roughly 7%.
Persistently large surplus capacity in China and Europe poses huge challenges for the steel industry. At the end of June 2016, the capacity utilization of steel producers in Europe and the US stood at just 76% and 75% respectively. There is also considerable surplus capacity at distribution level, fueling sustained fierce competition.
As the largest processor of steel, the construction industry is key to the global trend in steel consumption. On Eurofer estimates, European construction activity increased by about 1% in the first half of the year compared with the prioryear period. Residential construction - most of all in large cities - remains the main growth driver. The pickup in residential construction was likewise the main factor behind construction industry growth in the USA.
Demand in machinery and mechanical engineering showed a checkered picture in the first six months of 2016. According to Eurofer, sales for the European industry evolved only slightly positively in comparison with the prior-year period due to restrained investment and lower demand from China. In the USA, by contrast, the sector as a whole suffered a slight decrease in sales despite stable demand for construction machinery and machine tools.
The economic situation in the international automotive industry varied from region to region in the first half of the year. According to the German Association of the Automotive Industry (VDA), the Western European market grew by a substantial 9% in the first six months relative to the prior-year period. While growth of around 1% was observed in the USA, shipments in China were up by 12%.
The key figures for the results of operations, financial position and net assets in the second quarter and the first half of 2016 are as follows:
KEY FIGURES RESULTS OF OPERATIONS
| $(\epsilon$ million) | Q2 2016 | O 2 2015 | HY1 2016 | HY1 2015 |
|---|---|---|---|---|
| Shipments (Tto) | 1,643 | 1,645 | 3,199 | 3,306 |
| Sales | 1,517 | 1,693 | 2,903 | 3,391 |
| Gross profit | 362 | 320 | 666 | 630 |
| Gross profit margin | 23.8% | 18.9% | 22.9% | 18.6% |
| EBITDA | 72 | $-17$ | 88 | $-7$ |
| EBITDA before restructuring expenses | 72 | 36 | 88 | 46 |
| EBITDA margin | 4.8% | $-1.0%$ | 3.0% | $-0.2%$ |
| EBITDA margin before restructuring | 4.8% | 2.1% | 3.0% | 1.4% |
| $(\epsilon$ million) | June 30, 2016 |
lune 30. 2015 |
December 31.2015 |
|---|---|---|---|
| Net working capital | 1.168 | 1.452 | 1.128 |
| Net financial debt | 435 | 571 | 385 |
OTHER KEY FIGURES
| lune 30. 2016 |
lune 30. 2015 |
December 31.2015 |
|
|---|---|---|---|
| Gearing (Net financial debt/shareholders' equity *) ) | 43% | 41% | 36% |
| Leverage (Net financial debt/EBITDA**)) | 3.4x | 4.1x | 4.5x |
*) Consolidated shareholders' equity less non-controlling interests and less goodwill from business combinations subsequent to May 23, 2013.
**) EBITDA calculation based on the last 12 months; 2015: before restructuring ex
Group shipments totaled 3.2 million tons in the first half of 2016, 3.2% down on the comparative period (3.3 million tons).
In the Europe segment, shipments fell by 4.9% relative to the first half of 2015. This was mainly down to the KCO WIN+ restructuring and optimization program for the closure of unprofitable locations in France and the United Kingdom. Adjusted for the effects of the restructuring measures, shipments increased by 4.6%. Shipments showed especially healthy growth in Germany via Klöckner & Co Deutschland GmbH and Becker Stahl-Service GmbH.
Shipments in the Americas segment were slightly down on the prior-year period (by0.8%). US shipments dropped at the start of the year due to our customers' reluctance to buy in expectation of further falls in prices. A recovery set in during the second quarter, however, leaving second-quarter shipments in the USA 3.2% higher than in the second quarter of 2015. The market environment in Brazil, on the other hand, further deteriorated, and shipments fell significantly as a result.
EBITDA BY SEGMENTS
RESULTS
| $(\epsilon$ million) | O 2 2016 | O 2 2015 | HY1 2016 | HY1 2015 |
|---|---|---|---|---|
| Europe | 963 | 1.054 | 1.832 | 2,079 |
| Americas | 554 | 639 | 1.071 | 1,312 |
| Group sales | 1.517 | 1.693 | 2.903 | 3,391 |
Due to the lower price levels in the first half year, Group sales went down more steeply than shipments, falling by 14.4% to €2.9 billion.
Compared with the first half of 2015, sales in the Europe segment decreased by 11.8%. This affected all country organizations; in France and the United Kingdom especially, the decrease was driven not only by the lower price level, but also by the restructuring and optimization programs already mentioned.
Because of a steeper drop in the price level than in Europe, sales in the Americas segment fell by an even more substantial 18.4%, although steel prices began to recover sharply in the course of the second quarter.
| $(\epsilon$ million) | Q2 2016 | Q2 2015 | HY1 2016 | HY1 2015 |
|---|---|---|---|---|
| Sales | 1,517 | 1,693 | 2,903 | 3,391 |
| Gross profit | 362 | 320 | 666 | 630 |
| Gross profit margin (in %) | 23.8 | 18.9 | 22.9 | 18.6 |
| $OPEX^*$ | $-290$ | $-337$ | $-578$ | $-636$ |
| EBITDA | 72 | $-17$ | 88 | $-7$ |
| EBITDA before restructuring expenses | 72 | 36 | 88 | 46 |
| EBIT | 49 | $-44$ | 41 | $-59$ |
| EBT | 42 | $-56$ | 26 | $-84$ |
| Net income | 33 | $-55$ | 19 | $-76$ |
*) OPEX = other operating income less personnel expenses less other operating expenses.
The improved level of margins in both operating segments and additional positive inventory effects pushed up the gross profit margin from 18.6% in the prior-year period to 22.9%. Gross profit itself, at €666 million, was likewise above the prior-year figure (HY1 2015: €630 million).
Other operating income and expenses (OPEX) changed as follows:
OPEX $(\epsilon$ million) O2 2016 O2 2015 HY1 2016 HY1 2015 Other operating income 5 $\,$ 8 $\,$ $12$ $20\,$ $-165$ $-327$ $-354$ Personnel expenses $-193$ $-130$ $-152$ $-263$ $-302$ Other operating expenses OPEX $-290$ $-337$ $-578$ $-636$
Interperiod comparability of OPEX is impaired by the €47 million in restructuring expenses included in the prior-year figure (€29 million in personnel measures and €18 million in other costs of closure). The KCO WIN+ program delivered cost savings of €24 million in the first half of 2016.
Taking the aforementioned effects into account, EBITDA was €88 million, compared with €-7 million (or €46 million adjusted for restructuring expenses) in the prior-year period.
EBITDA (2015 BEFORE RESTRUCTURING EXPENSES) BY SEGMENTS
| $(\epsilon$ million) | O 2 2016 | O 2 2015 | HY1 2016 | HY1 2015 |
|---|---|---|---|---|
| Europe | 49 | 29 | 60 | 36 |
| Americas | 30 | 13 | 41 | 20 |
| Headquarters | $\equiv$ | –ხ | $-13$ | $-10$ |
| Klöckner & Co Group | 72 | 36 | 88 | 46 |
In the Europe segment, EBITDA for the first half of 2016 was €60 million, significantly higher than the prior-year figure of €36 million adjusted for restructuring expenses. Except for lower earnings in the Netherlands due to weaker metering business, all country organizations substantially improved earnings. The contribution to earnings from KCO WIN+ was €8 million.
As a result of the improved gross profit, EBITDA in the Americas segment, at€41 million, was well above the prior-year comparative figure of €20 million. The main factor here was the significant recovery in selling prices in the USA over the course of the second quarter. The contribution to earnings from KCO WIN+ amounted to €3 million.
Headquarters EBITDA was a negative €13 million (HY1 2015: negative €10 million). The increase in net expenses results from increased personnel expenses as well as consulting fees associated with the realization of the "One Europe" program.
| $(\epsilon$ million) | HY1 2016 | HY1 2015 |
|---|---|---|
| EBITDA | 88 | - 7 |
| Depreciation and amortization | $-47$ | $-52$ |
| EBIT | 41 | $-59$ |
| Financial result | $-15$ | $-25$ |
| EBT | 26 | $-84$ |
| Income taxes | $-7$ | |
| Net income | 19 | $-76$ |
Due to acquisition-related amortization reaching the end of the amortization period, depreciation and amortization, at €47 million, was below the prior-year figure of €52 million. Prior year figures also included impairments of €3 million.
As a result, EBIT was €41 million, compared with a negative €59 million in the prior-year period.
The financial result improved further, from a negative €25 million to a negative €15 million. The main alleviating factor here lay in interest expense following the redemption of promissory notes and convertible bonds.
EBT was €26 million, compared with a negative €84 million in the prior-year period. An income tax expense of €7 million was recognized under income tax for the first half of 2016 (HY1 2015: tax income of €7 million).
In total, net income was in positive figures at €19 million, compared with a loss of €76 million in the first half of 2015.
Basic earnings per share came to $\epsilon$ 0.18, compared with a negative $\epsilon$ 0.75 in the prior year.
| $(\epsilon$ million) | June 30, 2016 | December 31, 2015 |
|---|---|---|
| Non-current assets | 926 | 945 |
| Current assets | ||
| Inventories | 939 | 961 |
| Trade receivables | 815 | 656 |
| Other current assets | 95 | 114 |
| Liquid funds | 67 | 165 |
| Total assets | 2,842 | 2,841 |
| Equity | 1,049 | 1,113 |
| Non-current liabilities | ||
| Financial liabilities | 292 | 337 |
| Other non-current liabilities | 480 | 469 |
| Current liabilities | ||
| Financial liabilities | 205 | 208 |
| Trade payables | 586 | 489 |
| Other current liabilities | 230 | 225 |
| Total equity and liabilities | 2,842 | 2,841 |
CONSOLIDATED BALANCE SHEET
Total assets as of June 30, 2016 came to €2,842 million, showing virtually no change relative to the 2015 year-end.
Non-current assets decreased from €945 million as of December 31, 2015 to €926 million. €14 million of the reduction is accounted for by intangible assets, mainly relating to amortization. Property, plant and equipment decreased (by €11 million) mostly due to exchange rate changes.
Despite the positive net income, equity went down due to the remeasurement of defined benefit obligations recognized in comprehensive income (a decrease of €89 million) from €1,113 million to €1,049 million. The equity ratio, however, remained a solid 37% (December 31, 2015: 39%).
Net working capital developed as follows:
NET WORKING CAPITAL
| $(\epsilon$ million) | June 30, 2016 | June 30, 2015 | December 31, 2015 |
|---|---|---|---|
| Inventories | 939 | 1.216 | 961 |
| Trade receivables | 815 | 918 | 656 |
| Trade payables | -586 | $-682$ | $-489$ |
| Net working capital | 1,168 | 1,452 | 1.128 |
Digital integration with key suppliers helped avoid the usual marked seasonal increase in net working capital, which, at €1,168 million, was consequently only slightly higher than at the prior year-end (€1,128 million), while active net working capital management kept it well below the figure as of June 30, 2015 (€1,452 million).
Cash and cash equivalents, partly due to payments on derivative financial instruments used for hedging purposes, fell to €67 million (December 31, 2015: €165 million).
| $(\epsilon$ million) | June 30, 2016 | lune 30, 2015 | December 31. 2015 |
|---|---|---|---|
| Net financial debt | 435 | 385 | |
| Gearing (Net financial debt/shareholders' equity *) ) | 43% | 41% | 36% |
*) Consolidated shareholders' equity less non-controlling interests and less goodwill from business combinations subsequent to May 23, 2013.
Net financial debt in the consolidated statement of financial position increased from €385 million as of the prior yearend to €435 million. Besides the slight rise in net working capital, the increase reflects payments on derivative financial instruments used for hedging purposes.
Pension provisions went up because of a further decrease in discount rates from €340 million as of the prior year-end to €420 million.
| $(\epsilon$ million) | O 2 2016 | O2 2015 | HY1 2016 | HY1 2015 |
|---|---|---|---|---|
| Cash flow from operating activities | 96 | -15 | ||
| Cash flow from investing activities | $-18$ | -27 | ||
| Free cash flow | 4 | 102 | ||
| Cash flow from financing activities | $-104$ | $-78$ | $-92$ | -10 |
Contrary to the usual seasonal trend - and helped along by further improvements in working capital management and progress in digitalization - cash flow from operations was positive at €27 million in the first half of 2016 (HY1 2015: cash outflow of €15 million).
A €41 million cash outflow for capital expenditure was partly offset by €14 million in receipts from divestments to produce a cash outflow from investing activities of €27 million (HY1 2015: cash inflow of €6 million).
In total, this resulted in a neutral free cash flow (HY1 2015: €-9 million).
Cash flow from financing activities came to a negative €92 million (HY1 2015: negative €10 million); this includes payments on derivative financial instruments held for hedging purposes.
$|17$
The International Monetary Fund (IMF) estimates growth of 3.2% for the world economy in 2016. However, together with geopolitical tensions, the cyclical slowdown in China and emerging markets combined with an overly hasty retreat from what has been highly expansionary monetary policy in the USA could prove to be factors that weigh down the global economy.
In the euro zone, economic growth is mainly buoyed by a favorable borrowing climate, low energy prices and private consumption. In total, the IMF projects GDP growth for the region of 1.5% in 2016.
The IMF forecasts stronger economic growth of 2.4% for the USA. Positive impetus is mainly expected to come from the construction industry and private consumption.
For China, the IMF expects that economic growth will ease off to 6.5%. The sharpest slowdown is in export growth, and the economy is also hampered by surplus industrial capacity. A more pronounced weakening in the growth rate is prevented by wage rises, a robust labor market and structural reforms supporting private consumption.
The situation in Brazil remains strained. Despite the planned government stimulus programs, the IMF expects GDP to contract by a further 3.8% in 2016.
| Expected development of GDP (in percent) | 2016e |
|---|---|
| Europe *) | 1.5 |
| Germany | 1.5 |
| United Kingdom | 1.9 |
| France | 1.1 |
| Spain | 2.6 |
| Switzerland | 1.2 |
| China | 6.5 |
| Americas | |
| United States | 2.4 |
| Brazil | $-3.8$ |
Source: International Monetary Fund, Bloomberg. *) Eurozone.
The World Steel Association expects that global steel consumption will decrease by 0.8% in 2016. For the European Union, the association expects an increase of 1.4%, while the North American Free Trade Agreement (NAFTA) region is anticipated to grow by 3.2%. South and Central America are forecast to decline by 6.0% and China by 4.0%.
According to Euroconstruct estimates, the European construction industry will grow by about 3% in 2016, with the projected industry growth primarily down to stronger residential construction and the favorable borrowing climate. A slight increase, driven as before by residential construction, is anticipated for the USA. Growth of about 2% is expected for China, with stimulation resulting from infrastructure spending, while demand in residential construction is likely to lose momentum.
The 2016 outlook for the machinery and mechanical engineering sector is only moderately positive. In Europe, the low cost of borrowing and the weak euro are expected to deliver a slight stimulus to demand and make for about 1% growth across the industry. Supported by low oil prices, a small increase is also expected for the USA. A more substantial rise in this export-oriented industry is prevented by the strong US dollar. Slight growth is projected for China, the world's largest machinery producer by far.
The German Association of the Automotive Industry (VDA) anticipates continued global growth of around 3% in 2016. A strong increase of 5% is expected for Western Europe, while the industry is projected to stay flat in the USA. China is expected to record a substantial 8% growth.
The detailed information provided in the Opportunities and Risks section on pages 81 to 92 of the 2015 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 76 et seq. of the 2015 Annual Report.
Market risk for Klöckner & Co is mostly determined by trends in demand and prices. Following the recovery in the second quarter, the ongoing overcapacity means that a renewed drop in prices cannot be ruled out, which would negatively impact our earnings performance.
The continuing uncertainty on the financial markets in the face of high sovereign debt levels in a number of European countries could also pose risks such as a restriction on lending or increased borrowing costs for customer industries and thus a decrease in capital investment. In addition, the impacts of the Brexit decision on the European economy might be more negative than generally expected. Finally, the global economy faces additional risks if the decline in economic growth in China turns out to be stronger than anticipated or if geopolitical risks are further compounded. Klöckner & Co acts with heightened caution in light of the above and is reacting rapidly to changes in expectations regarding the economic environment.
We are comparatively optimistic for the Americas segment given the business-friendly operating conditions. Restrictive monetary policy on the part of the US Federal Reserve could exert a moderating influence.
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.
In July 2016, the European ABS program was prolonged ahead of term by two years to July 2019 in an amend and extend process while retaining the €300 million loan amount. In addition, Becker Stahl Service was included in the existing program. The terms were furthermore amended in Klöckner & Co's favor with effect from the end of July 2016. The transaction enhanced financial stability and flexibility, secured more favorable borrowing terms and improved the maturity profile of the Group's finances.
While European steel demand has picked up tangibly after a sluggish start to the year, the marked fall in US demand during the first half of the year can no longer be made up in the second. For 2016 as a whole, therefore, we anticipate a 3% increase in real steel demand in Europe and a 3% decrease in the USA. Despite the overall weakness of demand in the first half year, a sharp drop in imports has caused steel prices to rise substantially since the beginning of the year. The average was still below the prior year, however.
Although we project a positive demand trend in Europe, we expect a significant reduction in sales for both of our operating segments and hence for the Group over 2016 as a whole. In the Americas segment, this expectation is mainly based on a comparatively low price level in addition to the weak demand trend. For the Europe segment, the lower sales forecast is mostly due - again aside from the likewise lower price level - to the downscaling of low-margin business as part of the KCO WIN+ restructuring measures.
Even with the decrease in sales, we nonetheless expect a moderate rise in gross profit due to a significantly improved gross profit margin. The main factor behind this improvement is the performance in the Americas segment, with a substantial increase in gross profit and the gross profit margin primarily due to a better price trend than in the prior year, particularly for flat steel. Europe, on the other hand, is projected to see only a slight rise in gross profit on account of restructuring, the gross profit margin, as in the Americas segment, is set to show strong growth.
Operating income (EBITDA) and the EBITDA margin, with an added boost from cost improvements, will rise significantly in both segments and at Group level relative to the 2015 figures adjusted for restructuring expenses.
We do not expect any further expense from goodwill impairments. Additional alleviating factors will follow from lower interest expense due to reductions in financial liabilities. Overall, after a loss in 2015, we expect that net income will be visibly back in the positive range this year.
After the marked improvement in earnings in the first half of the year, the upward trend is set to continue in the third quarter of 2016 despite the current steel price consolidation, with EBITDA between €65 million and €75 million (Q3 2015: €28 million). As in the first half year, the anticipated earnings improvement over the prior-year quarter will be helped along not only by better market conditions but also by internal optimization.
Duisburg, August 4, 2016
Klöckner & Co SE
The Management Board
KIÖCKNER & CO SHARE
Klöckner & Co share: Key data
ISIN DE000KC01000 - German Securities Code (WKN) KC0100
Stock exchange symbol: KCO Bloomberg: KCO GY Reuters Xetra: KCOGn.DE Listed in SDAX®
At the start of the reporting period, Klöckner & Co shareholders initially sustained a drop in the share price. The shares reached their lowest point of the year so far at €7.08 on January 20. They then embarked on a marked upward trend that saw the share price reach its highest level in the reporting period at €11.51 on June 7. It then gave up part of the gains over the remainder of the month to close June at €9.92, which represents an increase of about 23% on the 2015 year-end closing price. The DAX® lost around 10% and the SDAX® about 4% in the same period, while the Bloomberg Europe Steel Index® climbed by roughly 11%.
Klöckner & Co SDAX® $\Box$ DAX® 150% Bloomberg Europe Steel Index® 140% 130% 120% 110% $100%$ 90% $80%$ 70% 01/01/2016 02/01/2016 03/01/2016 04/01/2016 05/02/2016 06/01/2016 06/30/2016
PERFORMANCE OF KLÖCKNER & CO SHARES COMPARED WITH DAX®, SDAX® AND BLOOMBERG EUROPE STEEL INDEX® (VALUES INDEXED)
The average trading volume in Klöckner & Co shares during the second quarter was close to €6.1 million per day, an increase on the first quarter (around €5.0 million per day). Klöckner & Co shares consequently ranked 40nd by trading volume and 56th by free float market capitalization in Deutsche Börse AG's ranking for MDAX® and SDAX® stocks in June.
$111422016$
$022015$
KIÖCKNER & CO SHARE
$111422015$
| UL LU IU | UL LU IJ | 1111 LUIU | . | ||
|---|---|---|---|---|---|
| Number of shares | in shares | 99,750,000 | 99,750,000 | 99,750,000 | 99,750,000 |
| Closing price (Xetra, Close) | € | 9.92 | 8.10 | 9.92 | 8.10 |
| Market capitalization | $\epsilon$ million | 990 | 808 | 990 | 808 |
| High (Xetra, Close) | € | 11.51 | 9.87 | 11.51 | 10.12 |
| Low (Xetra, Close) | € | 8.42 | 7.71 | 7.08 | 7.71 |
| Average daily trading volume | in shares | 586.745 | 1,161,981 | 601.936 | 974,261 |
$033016$
The tenth Annual General Meeting of Klöckner & Co SE took place in Düsseldorf on May 13, 2016. Around 300 shareholders and shareholder representatives attended. In all, approximately 56% of the voting capital took part in voting. Shareholders approved all of the resolutions proposed by the Supervisory and Management Boards by large majorities.
At the reporting date, our largest shareholders were SWOCTEM GmbH/Friedhelm Loh with a shareholding of between 25% and 30% and Franklin Mutual Advisors with shareholdings of between 5% and 10%. There followed Franklin Mutual Series Funds, Federated Global Investment Management Corp. and Dimensional Holdings Inc./Dimensional Fund Advisors LP with holdings of between 3% and 5% each. Our free float as defined by Deutsche Börse AG thus totaled 74.75% as of the end of the reporting period.
During the first half of 2016, the management and members of the IR team of Klöckner&Co SE provided interested capital market participants with information on the Group's results and strategy at eight conferences in Germany and internationally, as well as in many additional one-on-one discussions. Talks with investors focused on the business results and the digitalization strategy.
In the first six months, Klöckner & Co was covered by 25 banks and securities houses in 74 research reports. As of the end of June, seven of these rated Klöckner & Co shares a "buy", nine gave a "hold" recommendation and nine rated the shares a "sell".
Klöckner & Co also provides information on current Group developments at all times in the Investors section of the corporate website, www.kloeckner.com/en/investors.php. This includes information on our financial reports, the financial calendar and corporate governance, together with current data on share price performance. Shareholders and interested parties can also sign up for our newsletter at [email protected].
The Investor Relations team looks forward to your questions and suggestions.
for the six-month period ending June 30, 2016
| $(\epsilon$ thousand) | Q2 2016 | Q2 2015 | HY1 2016 | HY1 2015 |
|---|---|---|---|---|
| Sales | 1,517,011 | 1,693,067 | 2,902,840 | 3,390,532 |
| Other operating income | 5,289 | 7,739 | 11,693 | 19,844 |
| Changes in inventory | 2,110 | $-2,424$ | $-2,473$ | $-7,780$ |
| Own work capitalized | 16 | 21 | ||
| Cost of materials | $-1,157,357$ | $-1,370,623$ | $-2,234,255$ | $-2,753,209$ |
| Personnel expenses | $-164,777$ | $-192,765$ | $-326,890$ | $-354,102$ |
| Depreciation and amortization | $-22,785$ | $-26,758$ | $-46,967$ | $-52,316$ |
| thereof impairment losses | $-188$ | $-3,439$ | $-188$ | $-3,916$ |
| Other operating expenses | $-130,160$ | $-151,780$ | $-262,686$ | $-301,865$ |
| Operating result | 49,331 | $-43,528$ | 41,262 | $-58,875$ |
| Finance income | 437 | 30 | 540 | 908 |
| Finance expenses | $-7,630$ | $-12,777$ | $-15,810$ | $-25,805$ |
| Financial result | $-7,193$ | $-12,747$ | $-15,270$ | $-24,897$ |
| Income before taxes | 42,138 | $-56,275$ | 25,992 | $-83,772$ |
| Income taxes | $-9,536$ | 1,406 | $-7,095$ | 7,341 |
| Net income | 32,602 | $-54,869$ | 18,897 | $-76,431$ |
| thereof attributable to | ||||
| - shareholders of Klöckner & Co SE | 32,141 | $-53,768$ | 18,265 | $-75,250$ |
| - non-controlling interests | 461 | $-1,101$ | 632 | $-1,181$ |
| Earnings per share (€/share) | ||||
| – basic | 0.32 | $-0.54$ | 0.18 | $-0.75$ |
| - diluted | 0.32 | $-0.54$ | 0.18 | $-0.75$ |
$\begin{array}{|c|c|} \hline 24 \ \hline \end{array}$
$\begin{array}{|c|c|} \hline 25 \ \hline \end{array}$
for the six-month period ending June 30, 2016
| $(\epsilon$ thousand) | Q2 2016 | Q2 2015 | HY1 2016 | HY1 2015 |
|---|---|---|---|---|
| Net income | 32,602 | $-54,869$ | 18,897 | $-76,431$ |
| Other comprehensive income not reclassifiable |
||||
| Actuarial gains and losses (IAS 19) | $-25,215$ | 43,881 | $-88,988$ | $-572$ |
| Related income tax | 309 | $-6,166$ | 9,087 | 1,881 |
| Total | $-24,906$ | 37,715 | $-79,901$ | 1,309 |
| Other comprehensive income reclassifiable | ||||
| Foreign currency translation | 10,640 | $-10,347$ | $-3,702$ | 75,465 |
| Gain/loss from net investment hedges | 22 | $-110$ | $-328$ | $-1,742$ |
| Related income tax | 102 | 877 | 218 | 552 |
| Total | 10,764 | $-9,580$ | $-3,812$ | 74,275 |
| Other comprehensive income | $-14,142$ | 28,135 | $-83,713$ | 75,584 |
| Total comprehensive income | 18,460 | $-26,734$ | $-64,816$ | $-847$ |
| thereof attributable to | ||||
| - shareholders of Klöckner & Co SE | 18,007 | $-25,968$ | $-65,425$ | 280 |
| non-controlling interests | 453 | $-766$ | 609 | $-1,127$ |
as of June 30, 2016
| Assets | ||
|---|---|---|
| $(\epsilon$ thousand) | June 30, 2016 | December 31, 2015 |
| Non-current assets | ||
| Intangible assets | 209,823 | 223,624 |
| Property, plant and equipment | 669,498 | 680,491 |
| Investment property | 8,742 | 8,742 |
| Non-current investments | 5,752 | 2,069 |
| Other assets | 12,604 | 13,273 |
| Current income tax receivable | 6,388 | 6,388 |
| Deferred tax assets | 13,290 | 10,829 |
| Total non-current assets | 926,097 | 945,416 |
| Current assets | ||
| Inventories | 938,864 | 961,171 |
| Trade receivables | 814,974 | 655,393 |
| Current income tax receivable | 18,595 | 14,262 |
| Other assets | 75,823 | 99,576 |
| Cash and cash equivalents | 67,371 | 164,853 |
| Assets held for sale | 627 | |
| Total current assets | 1,915,627 | 1,895,882 |
| $\sim$ $\sim$ $\sim$ | |
|---|---|
$\begin{array}{|c|c|}\n27 \
\hline\n\end{array}$
| Equity and liabilities | ||
|---|---|---|
| $(\epsilon$ thousand) | June 30, 2016 | December 31, 2015 |
| Equity | ||
| Subscribed capital | 249,375 | 249,375 |
| Capital reserves | 664,182 | 664,182 |
| Retained earnings | 183,117 | 164,852 |
| Accumulated other comprehensive income | $-57,278$ | 26,412 |
| Equity attributable to shareholders of Klöckner & Co SE | 1,039,396 | 1,104,821 |
| Non-controlling interests | 9,215 | 8,606 |
| Total equity | 1,048,611 | 1,113,427 |
| Non-current liabilities | ||
| Provisions for pensions and similar obligations | 419,841 | 340,112 |
| Other provisions and accrued liabilities | 20,997 | 21,221 |
| Financial liabilities | 291,773 | 337,211 |
| Other liabilities | 386 | 64,385 |
| Deferred tax liabilities | 39,284 | 43,955 |
| Total non-current liabilities | 772,281 | 806,884 |
| Current liabilities | ||
| Other provisions and accrued liabilities | 149,638 | 149,906 |
| Income tax liabilities | 19,193 | 17,420 |
| Financial liabilities | 205,192 | 207,999 |
| Trade payables | 585,592 | 489,048 |
| Other liabilities | 61,217 | 56,614 |
| Total current liabilities | 1,020,832 | 920,987 |
| Total liabilities | 1,793,113 | 1,727,871 |
| Total equity and liabilities | 2,841,724 | 2,841,298 |
for the six-month period ending June 30, 2016
| $(\epsilon$ thousand) | Q2 2016 | Q2 2015 | HY1 2016 | HY1 2015 |
|---|---|---|---|---|
| Net income | 32,602 | $-54,869$ | 18,897 | $-76,431$ |
| Income taxes | 9,536 | -1,406 | 7,095 | -7,341 |
| Financial result | 7,193 | 12,747 | 15,270 | 24,897 |
| Depreciation and amortization | 22,785 | 26,758 | 46,967 | 52,316 |
| Other non-cash income/expenses | $-277$ | $-1,173$ | 279 | $-848$ |
| Gain on disposal of non-current assets | $-168$ | -1,569 | -866 | -4,983 |
| Change in net working capital | ||||
| Inventories | $-10,553$ | 100,018 | 2,917 | 186,229 |
| Trade receivables | $-79,397$ | 30,756 | $-171,376$ | -127,974 |
| Trade payables | 56,601 | $-48,100$ | 106,250 | –106,424 |
| Change in other operating assets and liabilities | $-3,599$ | 49,576 | 22,473 | 71,903 |
| Interest paid | $-9,526$ | $-11,716$ | $-14,003$ | $-16,564$ |
| Interest received | 220 | 311 | 396 | 663 |
| Income taxes paid | $-3,715$ | $-5,560$ | -7,356 | $-10,531$ |
| Cash flow from operating activities | 21,702 | 95,773 | 26,943 | $-15,088$ |
| Proceeds from the sale of non-current assets and assets held for sale | 2,151 | 22,522 | 5,107 | 25,657 |
| Proceeds from the sale of consolidated subsidiaries (incl. businesses) | 9,420 | 9,420 | 12,168 | |
| Payments for intangible assets, property, plant and equipment | $-28,894$ | $-14,738$ | $-41,395$ | $-30,918$ |
| Disbursements for financial investments | $-1,135$ | $-1,135$ | ||
| Cash flow from investing activities | $-17,323$ | 6,649 | $-26,868$ | 5,772 |
| Dividend payments to shareholders of Klöckner & Co SE | –19,950 | $-19,950$ | ||
| Repayment convertible bond | $-24,850$ | |||
| Repayment Syndicated Loan | $-100,000$ | $-100,000$ | ||
| Repayment promissory notes | –133,000 | $-51,500$ | $-133,000$ | -51,500 |
| Net change of other financial liablilites | 25,000 | 50,000 | ||
| Net change of other financial liabilities | 4,485 | 93,193 | 15,882 | 161,366 |
| Cash flow from financing activities | -103,515 | $-78,257$ | $-91,968$ | $-10,084$ |
| Changes in cash and cash equivalents | -99,136 | 24,165 | -91,893 | $-19,400$ |
| Effect of foreign exchange rates on cash and cash equivalents | $-1,814$ | -1,096 | $-5,589$ | 7,349 |
| Cash and cash equivalents at the beginning of the period | 168,321 | 281,244 | 164,853 | 316,364 |
| Cash and cash equivalents at the end of the reporting period as per statement of financial position |
67,371 | 304,313 | 67,371 | 304,313 |
$\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c|c$
for the six-month period ending June 30, 2016
| Accumulated other comprehensive income | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| $(\epsilon$ thousand) | Subscribed capital of Klöckner & Co SE |
Capital reserves of Klöckner & Co SE |
Retained earnings |
Currency translation adjustment |
Actuarial gains and losses (IAS 19) |
Fair value adjustments of financial instruments |
Equity attributable to sharehold- ers of Klöck- ner & Co SE |
Non-control- ling interests |
Total |
| Balance as of January 1, 2015 |
249,375 | 900,759 | 289,257 | 114,797 | $-138,862$ | $-625$ | 1,414,701 | 13,984 | 1,428,685 |
| Other comprehensive income | |||||||||
| Foreign currency translation | 75,465 | 75,465 | 75,465 | ||||||
| Gain/loss from net invest- ment hedges |
$-1,742$ | $-1,742$ | $-1,742$ | ||||||
| Actuarial gains and losses | |||||||||
| (IAS 19) | $-626$ | $-626$ | 54 | $-572$ | |||||
| Related income tax | 1,881 | 552 | 2,433 | 2,433 | |||||
| Other comprehensive income | 75,530 | 54 | 75,584 | ||||||
| Net income | $-75,250$ | $-75,250$ | $-1,181$ | $-76,431$ | |||||
| Total comprehensive income |
280 | $-1,127$ | $-847$ | ||||||
| Change of non-controlling inter- ests |
7,432 | $-4,976$ | 2,456 | $-3,591$ | $-1,135$ | ||||
| Dividends | $-19,950$ | $-19,950$ | $-19,950$ | ||||||
| Balance as of June 30, 2015 | 249,375 | 900,759 | 201,489 | 185,286 | $-137,607$ | $-1,815$ | 1,397,487 | 9,266 | 1,406,753 |
| Balance as of January 1, 2016 |
249,375 | 664,182 | 164,852 | 175,109 | $-146,849$ | $-1,848$ | 1,104,821 | 8,606 | 1,113,427 |
| Other comprehensive income | |||||||||
| Foreign currency translation | $-3,703$ | $-3,703$ | 1 | $-3,702$ | |||||
| Gain/loss from net invest- ment hedges |
$-328$ | $-328$ | $-328$ | ||||||
| Actuarial gains and losses (IAS 19) |
$-88,964$ | $-88,964$ | $-24$ | $-88,988$ | |||||
| Related income tax | 9,087 | 218 | 9,305 | 9,305 | |||||
| Other comprehensive income | $-83,690$ | $-23$ | $-83,713$ | ||||||
| Net income | 18,265 | 18,265 | 632 | 18,897 | |||||
| Total comprehensive income | $-65,425$ | 609 | $-64,816$ | ||||||
| Balance as of June 30, 2016 | 249,375 | 664,182 | 183,117 | 171,406 | $-226,726$ | $-1,958$ | 1,039,396 | 9,215 | 1,048,611 |
$\vert$ 29
30
The condensed interim consolidated financial statements of Klöckner & Co SE for the six-month period ending lune 30, 2016 were prepared for the interim presentation in accordance with Sec. 37w 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 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 June 30, 2016 are generally consistent with those used for the consolidated financial statements of Klöckner& Co SE as of December 31, 2015 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 107 to 121 of the 2015 Annual Report. The presentation of the financial statements is basically consistent with prior practice.
| Closing rate | Average rate | |||||
|---|---|---|---|---|---|---|
| $7 \in$ | June 30, 2016 | December 31, 2015 |
$ an, 1 - $ une 30, 2016 |
Jan. 1 - June 30, 2015 |
||
| Brazilian Real (BRL) | 3.5898 | 4.3117 | 4.1296 | 3.3102 | ||
| Pound Sterling (GBP) | 0.8265 | 0.7340 | 0.7788 | 0.7323 | ||
| Swiss Franc (CHF) | 1.0867 | 1.0835 | 1.0961 | 1.0567 | ||
| US Dollar (USD) | 1.1102 | 1.0887 | 1.1160 | 1.1158 |
The translation of foreign subsidiaries is based on the following exchange rates:
As part of the preparation of an interim consolidated financial statement in accordance with the IAS 34 for the period ending June 30, 2016, Klöckner & Co SEs 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 June 30, 2016 are not necessarily indicative of future results.
The present interim consolidated financial statements for the six-month period ending June 30, 2016 were authorized for issuance by the Management Board after discussion with the Audit Committee of the Supervisory Board on August 4, 2016. Unless otherwise indicated, all amounts are stated in million euros (€ million). Discrepancies to the unrounded figures may arise.
The following table summarizes accounting standards and interpretations that were initially applied in fiscal year 2016:
| Standard/Interpretation | |
|---|---|
| Amendments to IAS 27: Equity Method in Separate Financial Statements | |
| Annual Improvements to IFRSs 2010-2012 Cycle | |
| Amendments to IAS 19: Defined Benefit Plans: Employee Contributions | |
| Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations | |
| Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation | |
| Annual Improvements to IFRSs 2012-2014 Cycle | |
| Amendments to IAS 1: Disclosure Initiative |
As part of the Annual Improvement Project, modifications were made to seven (2010-2012) standards. The editorial changes in selected IFRS will clarify existing regulations.
The changes to IAS 19 (Employee Benefits) limit adjustments regarding service cost entries of contributions by employees or third parties.
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.
On May 12, 2014, the Clarifications of Acceptable Methods of Depreciation and Amortisation (amendments to IAS 16 and IAS 38) were published. These amendments are a clarification that revenue-based methods for calculating the depreciation may not be applied.
On September 25, 2014, the Annual Improvements to IFRSs 2012-2014 were issued. The publication of this project leads to changes in five standards. The changes of the standards are applicable for financial years beginning on or after January 1, 2016.
Also on December 18, 2014, the amendments to IAS 1 (Disclosure Initiative) were issued. The amendments contain substantial information regarding the assessment of materiality, clarification of aggregation and disaggregation of items on the balance sheet and the statement of comprehensive income as well as the structure of notes to the consolidated statement of financial position. The amendments are to be initially applied to periods of financial statements beginning on or after January 1, 2016.
Neither the initial application of the modifications and amendments had an impact on the Klöckner & Co SE Group's financial statements, nor the remaining new or revised pronouncements (Amendments to IAS 27: Equity Method in Separate Financial Statements) not discussed individually.
Standard/Interpretation Mandatory application*) IFRS 9 Financial Instruments (final standard) 2018 IFRS 14 Regulatory Deferral Accounts outstanding IFRS 15 Revenue from Contracts with Customers 2018 Amendments to IFRS 10, IFRS 12, IAS 28: Investment Entities - Applying the Consolidation Exception 2016 Amendments to IFRS 10, IAS 28: Sale or Contribution of Assets between an Investor and its Associate outstanding or Joint Venture IFRS 16 Leases 2019 Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses 2017 Amendments to IAS 7: Disclosure Initiative 2017 Clarifications to IFRS 15 Revenue from Contracts with Customers 2018 Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions 2019
*) Related to the financial year of Klöckner & Co SE. The EU endorsement is partly outstanding.
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, 2018. Klöckner & Co is currently analyzing the impact of this standard on the annual financial statements. Due the primary business of Klöckner & Co as stockholding distributor it is not expected that the new standard will have a material impact on Klöckner & Co SE Group's financial statements.
On July 24, 2014, the IASB issued the final standard IFRS 9 (Financial Instruments), whereas the previous releases issued in 2009, 2010 and 2013 were integrated partly modified. IFRS 9 introduces new requirements for the classification and measurement of financial assets and liabilities as well as for hedge accounting (excl. macro-hedge accounting, which is addressed in a separate project). The standard will be effective for financial years starting on or after January 1, 2018. Klöckner & Co is currently analyzing the impact of this standard on the annual financial statements.
The amendments to IFRS 10 (Consolidated Financial Statements) and IAS 28 (Investments in Associates and Joint Ventures) issued on September 11, 2014 clarify the gain recognition on a sale or contribution of assets between an investor and its associate or joint venture. A gain or loss is recognized when a transaction represents a business. The adoption of these amendments was postponed indefinitely by the EU. The changes of these standards will not have an impact on the annual financial statements of Klöckner & Co.
The narrow-scope amendments to IFRS 10 (Consolidated Financial Statements), IFRS 12 (Disclosure of Interests in Other Entities) and IAS 28 (Investments in Associates and Joint Ventures) issued on December 18, 2014 introduce clarifications to the requirements of the consolidation exemption for investment entities. The standard will be effective for financial years starting on or after January 1, 2016. The initial application of these additions by the EU is expected for Q3 2016. This clarification will not have an impact on Klöckner & Co SE Group's financial statements.
On January 13, 2016, IFRS 16 (Leases) was published. The new standard replaces the previous standard IAS 17 (Leases) and eliminates the distinction between operating lease contracts and finance lease contracts. Therefore, all lease contracts are to be recognized in the balance sheet. The standard has to be applied to all business periods starting on or after January 1, 2019. Currently, the impact on the annual financial statements are being reviewed.
On January 19, 2016, the IASB published amendments to IAS 12 (Income Taxes) with Recognition of Deferred Tax Assets for Unrealised Losses. This is to particularly clarify the recognition of deferred tax assets for unrealised losses of financial assets measured at fair value, which is applied differently in practice at present. Currently, the impact on the annual financial statements are being reviewed.
On January 29, 2016, the IASB published amendments to IAS 7 (Cash Flow Statement). The disclosure requirements focuses on financial debts creating current or future cash flows relating to a company's financing activity in terms of IAS 7. Currently, the impact on the annual financial statements are being reviewed.
The amendment to IFRS 15 (Clarifications to IFRS 15 Revenues from Contracts with Customers) were published on April 12, 2016 by the IASB, clarifying some of the standard's subjects and allowing for an additional transition relief upon initial application.
On June 20, 2016, the IASB published amendments to IFRS 2 (Share-based Payments), providing clarity regarding individual questions relating to the accounting methods of cash-settled share-based payments. The main amendments and additions are the newly introduced regulations in IFRS 2 regarding the determination of the fair value of the liability incurred in cash-settled share-based payments. In line with the treatment of equity-settled share-based payments only special vesting conditions are included in the determination of the fair value while other vesting conditions impact the quantity structure.
The remaining amendments not described in detail (IFRS 14 Regulatory Deferral Accounts) will not have an impact on Klöckner & Co SE Group's financial statements.
Earnings per share are calculated by dividing net income of the interim period attributable to shareholders by the weighted average number of shares outstanding during the period.
| HY1 2016 | HY1 2015 | ||
|---|---|---|---|
| Net income attributable to shareholders of Klöckner & Co SE |
$(\epsilon$ thousand) | 18.265 | -75,250 |
| Weighted average number of shares | (thousands of shares) | 99.750 | 99,750 |
| Basic earnings per share | (€/share) | 0.18 | $-0.75$ |
| Diluted earnings per share | (€/share) | 0.18 | $-0.75$ |
| June 30, 2016 | December 31, 2015 | |
|---|---|---|
| Inventories | 939 | 961 |
| June 30, 2016 | December 31, 2015 | |
|---|---|---|
| Non-current financial liabilities | ||
| 292 | 337 | |
| Current financial liabilities | ||
| 205 | 208 | |
| Financial liabilities as per consolidated balance sheet | 497 | 545 |
| June 30, 2016 | December 31, 2015 | |
|---|---|---|
| Financial liabilities as per consolidated balance sheet | 497 | 545 |
| Gross financial liabilities | 502 | 550 |
| Net financial debt (before deduction of transaction cost) | 435 | 385 |
$|35$
The carrying amounts and fair values by category of financial instruments are as follows:
| Financial assets as of June 30, 2016 | Measurement in accordance with | ||||||
|---|---|---|---|---|---|---|---|
| IAS 17 | |||||||
| $(\epsilon$ 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 | |||||||
| Non-current investments | 6 | 6 | 6 | ||||
| Loans and receivables | |||||||
| Financial assets available for sale | 6 | 6 | 6 | ||||
| Other non-current assets | 13 | 9 | 4 | 9 | |||
| Loans and receivables | 9 | 9 | 9 | ||||
| Not covered by the scope of IFRS 7 | 4 | 4 | |||||
| Current financial assets | |||||||
| Trade receivables | 815 | 815 | 815 | ||||
| Loans and receivables | 815 | 815 | 815 | ||||
| Other current assets | 76 | 66 | $\mathcal{I}$ | 10 | 66 | ||
| Loans and receivables | 66 | 66 | 66 | ||||
| Derivative financial instruments not designated in hedge accounting (held for trading) |
1 | 1 | 1 | ||||
| Derivative financial instruments designated in hedge accounting |
|||||||
| Not covered by the scope of IFRS 7 | 10 | 10 | |||||
| Liquid funds | 67 | 67 | 67 | ||||
| Loans and receivables | 65 | 65 | 65 | ||||
| Financial assets available for sale | 2 | 2 | $\overline{c}$ | ||||
| Total | 976 | 963 | 13 | 963 |
Other non-current financial assets not covered by the scope of IFRS 7 mainly include pension-related receivables as well as reinsurance claims against pension funds. The current financial assets not covered by the scope of IFRS 7 primarily concern other tax receivables.
36
| Financial liabilities as of June 30, 2016 | Measurement in accordance with | ||||||
|---|---|---|---|---|---|---|---|
| IAS 39 | IAS 17 | ||||||
| $(\epsilon$ 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 | |||||||
| Non-current financial liabilities | 292 | 280 | 12 | 294 | |||
| Liabilities measured at amortized costs | 280 | 280 | 283 | ||||
| Liabilities held under finance leases | 12 | 12 | 12 | ||||
| Other non-current liabilities | |||||||
| Liabilities measured at amortized costs | |||||||
| Derivative financial instruments not designated in hedge accounting (held for trading) |
|||||||
| Derivative financial instruments designated in hedge accounting |
|||||||
| Not covered by the scope of IFRS 7 | |||||||
| Current financial liabilities | |||||||
| Current financial liabilities | 205 | 205 | 1 | 205 | |||
| Liabilities measured at amortized costs | 205 | 205 | 205 | ||||
| Liabilities held under finance leases | $\mathbf{1}$ | 1 | $\mathbf{1}$ | ||||
| Current trade liabilities | 586 | 586 | 586 | ||||
| Liabilities measured at amortized costs | 586 | 586 | 586 | ||||
| Other current liabilities | 61 | 17 | 44 | 17 | |||
| Liabilities measured at amortized costs | 17 | 17 | 17 | ||||
| Derivative financial instruments not designated in hedge accounting (held for trading) |
|||||||
| Derivative financial instruments designated in hedge accounting |
|||||||
| Not covered by the scope of IFRS 7 | 44 | 44 | |||||
| Total | 1,143 | 1.087 | 12 | 44 | 1,102 |
Other current financial liabilities not covered by the scope of IFRS 7 mainly concern liabilities resulting from taxes such as VAT liabilities.
$\begin{array}{|c|c|}\n37 \
\hline\n\end{array}$
| Financial assets as of December 31, 2015 | Measurement in accordance with | ||||||
|---|---|---|---|---|---|---|---|
| IAS 39 | IAS 17 | ||||||
| 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 | |
| 2 | 2 | 2 | |||||
| 1 | |||||||
| 1 | 1 | ||||||
| 13 | 10 | 4 | 10 | ||||
| 10 | 10 | 10 | |||||
| $\overline{4}$ | 4 | ||||||
| 655 | 655 | 655 | |||||
| 655 | 655 | ٠ | 655 | ||||
| 100 | 84 | 1 | 15 | 85 | |||
| 84 | 84 | 84 | |||||
| 1 | |||||||
| 15 | 15 | ||||||
| 165 | 165 | 165 | |||||
| 163 | 163 | 163 | |||||
| $\overline{c}$ | 2 | 2 | |||||
| 935 | 916 | 18 | 917 | ||||
| Financial liabilities as of December 31, 2015 | Measurement in accordance with | ||||||
|---|---|---|---|---|---|---|---|
| IAS 39 | IAS 17 | ||||||
| $(\epsilon$ 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 | |||||||
| Non-current financial liabilities | 337 | 334 | 3 | 339 | |||
| Liabilities measured at amortized costs | 334 | 334 | 336 | ||||
| Liabilities held under finance leases | 3 | 3 | 3 | ||||
| Other non-current liabilities | 64 | 64 | 64 | ||||
| Liabilities measured at amortized costs | |||||||
| Derivative financial instruments not designated in hedge accounting (held for trading) |
|||||||
| Derivative financial instruments designated in hedge accounting |
64 | 64 | 64 | ||||
| Not covered by the scope of IFRS 7 | |||||||
| Current financial liabilities | |||||||
| Current financial liabilities | 208 | 207 | $\mathbf{1}$ | 208 | |||
| Liabilities measured at amortized costs | 207 | 207 | 207 | ||||
| Liabilities held under finance leases | 1 | $\mathbf{1}$ | |||||
| Current trade liabilities | 489 | 489 | 489 | ||||
| Liabilities measured at amortized costs | 489 | 489 | 489 | ||||
| Other current liabilities | 57 | 16 | $\overline{c}$ | 38 | 18 | ||
| Liabilities measured at amortized costs | 16 | 16 | 16 | ||||
| Derivative financial instruments not designated in hedge accounting (held for trading) |
$\overline{2}$ | $\overline{c}$ | $\overline{c}$ | ||||
| Derivative financial instruments designated in hedge accounting |
|||||||
| Not covered by the scope of IFRS 7 | 38 | 38 | |||||
| Total | 1,155 | 1,047 | 2 | 64 | 4 | 38 | 1,118 |
The fair values of current financial assets are largely identical to their carrying amounts. The fair values of financial liabilities reflect the current market environment as of the balance sheet date for the respective financial instruments. The fair value is not reduced by transaction costs. For current financial liabilities, when not considering transaction costs, the carrying amount approximates fair value.
The fair values of the derivative financial instruments are determined on the basis of banks' quoted market prices or on the basis of financial models commonly used by banks. The fair value calculation also considers counterparty risk at the respective valuation date. If fair values exist, they correspond to the amount third parties would pay for the rights or obligations arising from the financial instruments. The fair values are the market values of the derivative financial instruments, irrespective of any offsetting changes in value in the underlying transactions.
The classification of all financial instruments is carried out according to the level concept of IFRS 13. Financial instruments are classified as Level 1 if the fair value is obtained from quoted prices on active markets. If fair values are derived from directly observable market inputs, they are included in Level 2. Financial instruments with fair values, which cannot be derived from directly observable markets are included in Level 3. Any financial instruments are classified in level 2 of the hierarchy levels.
In July 2016, the European ABS program was prolonged ahead of term by two years to July 2019 in an amend and extend process while retaining the €300 million loan amount. The terms were additionally amended in Klöckner & Co's favor with effect from the end of July 2016. This transaction enhanced financial stability and flexibility, secured more favorable borrowing terms and improved the maturity profile of the Group's finances.
Within the framework of its ordinary business activities, the Klöckner & Co Group has business relationships with numerous companies. These also include related parties. Business relations with these companies do not fundamentally differ from trade relationships with third parties. No material transactions were conducted with any of these related parties in the reporting period.
40
| Headquarters/ Consoli- | ||||||||
|---|---|---|---|---|---|---|---|---|
| Europe | Americas | dation | Total | |||||
| $(\epsilon$ million) | H1 2016 | H1 2015 | H1 2016 | H1 2015 | H1 2016 | H1 2015 | H1 2016 | H1 2015 |
| Segment sales | 1,832 | 2,079 | 1,071 | 1,312 | - | 2,903 | 3,391 | |
| Gross profit | 429 | 424 | 237 | 206 | Ξ. | 666 | 630 | |
| EBITDA (segment result) |
60 | $-16$ | 41 | 19 | $-13$ | $-10$ | 88 | $-7$ |
| EBIT | 36 | $-43$ | 20 | $-4$ | $-15$ | $-12$ | 41 | -59 |
| Net working capital as of June 30, 2016 (December 31, 2015) |
788 | 686 | 378 | 437 | $\overline{2}$ | 5 | 1,168 | 1,128 |
| Employees as of June 30, 2016 (December 31, 2015) |
6,471 | 6,812 | 2,587 | 2,687 | 108 | 93 | 9,166 | 9,592 |
Reconciliation of EBIT to income before taxes:
| $(\epsilon$ thousand) | H 1 2016 | H1 2015 |
|---|---|---|
| Earnings before interest and taxes (EBIT) | 4 | -59 |
| Financial result | $-15$ | |
| Income before taxes | 26 | -84 |
Duisburg, August 4, 2016
Klöckner & Co SE
Management Board
Gisbert Rühl
Chairman of the Management Board
of the Management Board
Marcus A. Ketter
Member
Karsten Lork
Member of the Management Board William A. Partalis
Member of the Management Board
To Klöckner & Co SE, Duisburg
We reviewed the condensed interim consolidated financial statements - comprising the consolidated balance sheet as of June 30, 2016 as well as the consolidated income statement, the statement of comprehensive income, the consolidated cash flow statement and the statement of changes in consolidated equity for the period from January 1 to June 30, 2016 as well as selected notes to the interim consolidated financial statements and selected explanatory notes - and the interim group management report of Klöckner& Co SE as of June 30, 2016 that are part of the semi-annual financial report according to §37w WpHG. The preparation of the condensed interim consolidated financial statements in accordance with those IFRS applicable to interim financial reporting as adopted by the EU, and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports, is the responsibility of the Company's management. Our responsibility is to issue a report on the condensed interim consolidated financial statements and on the interim group management report based on our review.
We performed our review of the condensed interim consolidated financial statements and the interim group management report in accordance with the German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW) as well as in additional consideration of the International Standard on Review Engagements 2410 (ISRE 2410). Those standards require that we plan and perform the review so that we can preclude through critical evaluation, with a certain level of assurance, that the condensed interim consolidated financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU, and that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports. A review is limited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditors' report.
Based on our review, no matters have come to our attention that cause us to presume that the condensed interim consolidated financial statements have not been prepared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by the EU, or that the interim group management report has not been prepared, in material respects, in accordance with the requirements of the WpHG applicable to interim group management reports.
Düsseldorf, August 4, 2016
KPMG AG Wirtschaftsprüfungsgesellschaft
Dr. Markus Zeimes Hélio Rodrigues WIRTSCHAFTSPRÜFER WIRTSCHAFTSPRÜFER (GERMAN PUBLIC AUDITOR) (GERMAN PUBLIC AUDITOR)
RESPONSIBILITY STATEMENT
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim management report of the Group includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year.
Duisburg, August 4, 2016
Management Board
Gisbert Rühl
Chairman of the Management Board
Marcus A. Ketter
Karsten Lork
Member of the Management Board Member of the Management Board William A. Partalis
Member of the Management Board
| November 3, 2016 | Q3 interim report 2016 Conference call with journalists Conference call with analysts |
|---|---|
| March 1, 2017 | Annual financial statements 2016 Financial statements press conference Conference with analysts |
| April 26, 2017 | Q1 interim report 2017 Conference call with journalists Conference call with analysts |
| May 12, 2017 | Annual General Meeting 2017 Düsseldorf |
| July 26, 2017 | Q2 interim report 2017 Conference call with journalists Conference call with analysts |
| October 25, 2017 | Q3 interim report 2017 Conference call with journalists Conference call with analysts |
Subject to subsequent changes
Christian Pokropp Head of Investor Relations & Corporate Communications Telephone: +49 203 307-2050
Fax: +49 203 307-5025
E-mail: [email protected]
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 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 & 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., 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.
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