Kloeckner & Co SE

Quarterly Report • Apr 27, 2017

Interim Management Statement for Q1 2017

January 1, 2017 - March 31, 2017

• Operating income (EBITDA), at €77 million, more than quadrupled relative to prior-year period and slightly above guidance range of €65 million to €75 million
• Net income back into positive figures at €36 million, compared with €14 million net loss in prior-year quarter
• Shipments slightly up on prior-year level (up 1.7%) despite the sale of the Spanish activities at the end of January
• Sales growth of 15.6% to €1.6 billion, mainly due to higher price level compared with prior-year quarter
• Proportion of Group sales generated via digital channels further increased to 14%
• Investment in technology startup and 3D printer producer BigRep
• EBITDA guidance of €60 million to €70 million for second quarter
• Noticeable rise in EBITDA and additional improvement in net income expected for full year

SIGNIFICANT INCREASE IN EARNINGS

Operating income (EBITDA) more than quadrupled, from €16 million in the prior-year period to €77 million in the first quarter of 2017. Key earnings drivers were the strongly positive price environment as well as the completed restructuring and optimization measures. There was a corresponding increase in the gross profit margin, from 22.0% in the first quarter of 2016 to 22.9% in the period under review. Net income was €36 million, compared with a net loss of €14 million in the prior-year quarter. Earnings per share improved accordingly from €-0.14 to €0.36.

SHIPMENTS STABLE DESPITE RESTRUCTURING EFFECTS; SUBSTANTIAL RISE IN SALES

Thanks to stronger demand, the shipments of 1,582 million tons showed a slight gain (up 1.7%) on the prioryear quarter despite the sale of the Spanish activities. Sales growth was 15.6%, mainly due to the increased price level. As there was no proportionate rise in cost of materials, the gross profit of €367 million was significantly higher than the figure for the prior-year quarter ( $\epsilon$ 304 million, an increase of 20.5%).

FURTHER INCREASE IN EARNINGS IN BOTH SEGMENTS

In the Europe segment, the positive market environment combined with earnings contributions from the One Europe program and the KCO WIN+ program (a combined total of €6 million) caused EBITDA to increase by €43 million to €54 million. Shipments grew by 2.4%; sales went up by 13.3% to €985 million. Performance was similarly positive in terms of gross profit (up €40 million to €235 million) and the gross profit margin (up 1.4%p to 23.8%).

In the Americas segment, EBITDA improved from €11 million in the prior-year quarter to €30 million in the period under review. Due to an even stronger improvement in the price environment than for the Europe segment, sales went up even more strongly by 19.5% to €617 million while shipments remained near-constant (up 0.7%). There was an increase in both gross profit (by €23 million to €132 million) and the gross profit margin (by 0.2%p to 21.4%).

VERY SOLID FINANCIAL POSITION SUSTAINED

Mainly as a result of the positive net income (€36 million), equity increased by €35 million to some €1.2 billion. Despite this increase the equity ratio decreased due to higher net working capital, but was still at a solid level of 37.8% (December 31, 2016: 39.6%).

In line with the seasonal trend and as a consequence of higher average procurement prices, net working capital grew relative to the 2016 year-end by €176 million to €1.3 billion. This increase was the main reason for the rise in net financial debt from €444 million as of December 31, 2016 to €475 million as of the end of the first quarter despite the cash received from the sale of the Spanish activities completed in January 2017 (a cash inflow of €56 million).

The above-mentioned effects involved in the increase in net working capital led to a cash outflow from operating activities of €-78 million for the first quarter. After taking into account the cash inflow from the sale of the Spanish activities (€56 million) and the cash outflow from other investing activities (€17 million), free cash flow stood at €-39 million (Q1 2016: €-4 million).

STABLE FINANCING

After the end of the reporting period, our syndicated loan was prolonged ahead of term in April by one year until May 2020. This further improves the maturity profile of Klöckner & Co's Group finances. The revised contractual terms once again incorporate the option to extend the maturity in two steps to May 2022 with prior approval of the banks. In light of the ample headroom for borrowing under the available lines of credit, the facility – being currently undrawn – was reduced in size from €360 million to €300 million. In addition, the minimum equity covenant was adjusted in Klöckner & Co's favor from €800 million to €600 million in order to provide further strategic leeway.

SALE OF SPANISH ACTIVITIES COMPLETED

As part of the One Europe program to further enhance Klöckner & Co SE's focus on its core markets, the Company has sold its Spanish activities to Hierros Añón S.A., A Coruña, Spain. An agreement for the acquisition of Klöckner & Co's Spanish companies - including the operating business unit Kloeckner Metals Ibérica S.A. - was put into effect by both parties in January 2017.

CONTINUED PROGRESS ON DIGITALIZATION

Digitalization of the supply and value chain constitutes a core component of the "Klöckner & Co 2020" strategy with the aim of building a web-based industry platform. Major progress has already been made in implementing the strategy: The proportion of sales generated through digital channels further increased to 14% in the first quarter of 2017 (Q4 2016: 12%). Integration of an initial selection of complementary distributors into the Klöckner & Co online platform is planned for the second quarter. This will mark another important step on the road to an industry platform.

In April, we acquired a minority share in technology startup BigRep through our venture capital subsidiary kloeckner.v, thus entering the growth market of additive manufacturing using 3D printers. BigRep is the developer and producer of the world's biggest commercially available 3D printer. It also provides consulting on additive manufacturing system solutions. As well as taking a financial stake, Klöckner & Co plans to deploy BigRep's industrial-scale 3D printers in the future across its location network in Europe and the USA. The investment in BigRep is consistent with both components of the Klöckner strategy - digitalization and higher value-added products and services. The outlook for this market segment is also generally highly promising, with annual growth of some 20% expected through to 2020.

INVESTMENT IN BUSINESS WITH HIGHER VALUE-ADDED PRODUCTS AND PROCESSING SERVICES

At Becker Stahl-Service in Bönen, North Rhine-Westphalia, Germany, the slitting line for processing aluminum flat products for the European automotive and manufacturing industries will go into operation in the current quarter. Construction of the planned cut-to-length line has already begun. The aluminum service center is set to reach its full capacity totaling 80,000 tons of aluminum per year in the course of 2018.

POSITIVE OUTLOOK FOR REMAINDER OF YEAR

Whereas earnings in the first quarter were also aided by rising prices, we expect that price levels will remain stable in the current quarter. Overall, we anticipate operating income (EBITDA) of €60 million to €70 million and once again positive net income in the second quarter. Notably in view of the significantly better first quarter, a slight uptick in demand and this year's impact of the One Europe program, we forecast a noticable increase in EBITDA and net income for the year as a whole.

Klöckner & Co SE Financial information

for the three-month period ending March 31, 2017

Shipments and income statement		O1 2017	Q1 2016	Variance
Shipments	Tto	1,582	1,556	$+26$
Sales	$\epsilon$ million	1,602	1,386	$+216$
Gross profit	$\epsilon$ million	367	304	$+63$
Gross profit margin	%	22.9	22.0	$+0.9%p$
Earnings before interest, taxes, depreciation and amortization (EBITDA)	$\epsilon$ million	77	16	$+61$
EBITDA margin	%	4.8	1.2	$+3.6%p$
Earnings before interest and taxes (EBIT)	$\epsilon$ million	54	-8	$+62$
Earnings before taxes (EBT)	$\epsilon$ million	46	$-16$	$+62$
Net income	$\epsilon$ million	36	$-14$	$+50$
Net income attributable to shareholders of Klöckner & Co SE	$\epsilon$ million	36	$-14$	$+50$
Earnings per share (basic)	€	0.36	$-0.14$	$+0.50$
Earnings per share (diluted)	€	0.34	$-0.14$	$+0.48$

Cash flow statement		O1 2017	O1 2016	Variance
Cash flow from operating activities	$\epsilon$ million	-78		-83
Cash flow from investing activities	$\epsilon$ million	39	-9	+48
Free cash flow*)	$\epsilon$ million	-39		-35

Balance sheet		March 31, 2017	December 31, 2016	Variance
Net Working Capital**)	$\epsilon$ million	1,296	1,120	$+176$
Net financial debt	$\epsilon$ million	475	444	$+31$
Gearing***)	%	41.2	39.7	$+1.5%p$
Equity	$\epsilon$ million	1.183	1.148	$+35$
Equity ratio	%	37.8	39.6	$-1.8%p$
Total assets	$\epsilon$ million	3,132	2,897	$+235$

Employees		March 31, 2017 December 31, 2016	Variance
Employees as of the end of the reporting period	8.698	9.064	$-366$

*) Free cash flow = Cash flow from operating activities plus cash flow from investing activities.
**) Net working capital = Inventories plus trade receivables less trade liabilities.

***) Gearing = Net financial debt / (Equity ./. non-controlling interests ./. goodwill resulting from acquisitions subsequent to May 23, 2013).

		Q1 2016
Operating result	54,454	-8,069
Financial result	-8,233	-8,077
Income before taxes	46,221	-16,146
Net income	35,926	-13,705

$\,$ 6 $\,$

Statement of comprehensive income

for the three-month period ending March 31, 2017

$(\epsilon$ thousand)	Q12017	O1 2016
Net income	35,926	$-13,705$
Other comprehensive income not reclassifiable
Actuarial gains and losses (IAS 19)	5,461	$-63,773$
Related income tax	$-1,305$	8,778
Total	4,156	$-54,995$
Other comprehensive income reclassifiable
Foreign currency translation	$-2,796$	$-14,342$
Gain/loss from net investment hedges		$-372$
Related income tax		116
Gain/loss from cash flow hedges	173	22
Total	$-2,623$	$-14,576$
Other comprehensive income	1,533	$-69,571$
Total comprehensive income	37,459	$-83,276$
thereof attributable to
- shareholders of Klöckner & Co SE	37,149	$-83,432$
-non-controlling interests	310	156

Consolidated statement of financial position

as of March 31, 2017

Assets

$(\epsilon$ thousand)	March 31, 2017	December 31, 2016
Non-current assets
Intangible assets	198,066	206,317
Property, plant and equipment	661,506	661,548
Non-current investments	5,906	5,732
Other assets	9,925	10,162
Current income tax receivable	8,415	8,415
Deferred tax assets	4,084	4,855
Total non-current assets	887,902	897,029
Current assets
Inventories	1,134,664	1,006,255
Trade receivables	851,362	653,784
Current income tax receivable	21,107	19,725
Other assets	65,025	97,606
Cash and cash equivalents	162,603	134,228
Assets held for sale	9,661	87,909
Total current assets	2,244,422	1,999,507

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$\bf{8}$

Liabilities

March 31, 2017 $(\epsilon$ thousand)	December 31, 2016
Equity
Subscribed capital 249,375	249,375
Capital reserves 682,412	682,412
Retained earnings 237,302	201,687
Accumulated other comprehensive income 7,256	5,722
Equity attributable to shareholders of Klöckner & Co SE 1,176,345	1,139,196
Non-controlling interests 6,769	8,757
Total equity 1,183,114	1,147,953
Non-current liabilities
Provisions for pensions and similar obligations 348,615	358,887
Other provisions and accrued liabilities 22,741	22,614
Financial liabilities 537,250	527,494
Other liabilities 263	275
Deferred tax liabilities 44,043	39,308
952,912 Total non-current liabilities	948,578
Current liabilities
Other provisions and accrued liabilities 125,998	137,737
Income tax liabilities 18,188	14,422
Financial liabilities 94,580	44,013
Trade payables 690,472	540,130
Other liabilities 67,060	41,296
Liabilities of disposal groups	22,407
Total current liabilities 996,298	800,005
Total liabilities 1,949,210	1,748,583
Total equity and liabilities 3,132,324	2,896,536

$\mathsf g$

Consolidated statement of cash flows

for the three-month period ending March 31, 2017

$(\epsilon$ thousand)	Q1 2017	Q1 2016
Net income	35,926	$-13,705$
Income taxes	10,295	$-2,441$
Financial result	8,233	8,077
Depreciation and amortization	22,107	24,182
Other non-cash income/expenses	34	556
Gain on disposal of non-current assets	$-64$	$-698$
Change in net working capital
Inventories	$-133,118$	13,470
Trade receivables	$-200,588$	$-91,979$
Trade payables	153,194	49,649
Change in other operating assets and liabilities	35,772	26,072
Interest paid	$-5,942$	$-4,477$
Interest received	445	176
Income taxes paid	$-3,803$	$-3,641$
Cash flow from operating activities	$-77,509$	5,241
Proceeds from the sale of non-current assets and assets held for sale	416	2,956
Proceeds from the sale of consolidated subsidiaries (incl. businesses)	56,256
Payments for intangible assets, property, plant and equipment (incl. financial assets)	$-17,916$	$-12,501$
Cash flow from investing activities	38,756	$-9,545$
Repayment convertible bond		$-24,850$
Net change of other financial liabilities	67,268	36,397
Cash flow from financing activities	67,268	11,547
Changes in cash and cash equivalents	28,515	7,243
Effect of foreign exchange rates on cash and cash equivalents	$-140$	$-3,775$
Cash and cash equivalents at the beginning of the period	134,228	164,853
Cash and cash equivalents at the end of the reporting period as per statement of financial position	162,603	168,321

Europe		Americas		Headquarters/ Consolidation		Total
	Q1 2016		Q1 2016		Q1 2016		Q1 2016

Europe		Americas		Headquarters/ Consolidation		Total
	FY 2016		FY 2016		FY 2016		FY 2016

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 management statement 2017 Conference call with journalists Conference call with analysts

Klöckner&Co SE

Christina Kolbeck

Christian Pokropp

This Report 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 & 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.