GLOSSARY: KLÖCKNER & CO DIGITAL STRATEGY

Business-to-business (B2B)
General term describing business relationships between companies.

Business-to-consumer (B2C)
General term describing business relationships between companies and private consumers/customers.
 

Cap
With a cap derivative financial instrument floating rate interest payments on bond liabilities can be limited to a defined maximum rate. If the maximum amount is exceeded, compensating payments in the amount of the difference between the maximum interest rate and the actual interest rate are made to the holder of the instrument.

Cash Flow Hedge
A hedge of the exposure to the variability of cash flow that is attributable to a particular risk associated with a recognized asset or liability, such as all or some future interest payments on variable rate debt or a highly probable forecast transaction that could affect profit or loss. If the hedge is considered highly effective, income effects of such instruments can be directly recorded in equity bypassing the income statement.

Cash flow from operating activities
The amount of cash and cash equivalents generated from operating activities within a specific time frame. This key performance indicator forms an objective basis for measuring the business performance of Klöckner & Co.

Cash pooling system
The Group uses an international cash pooling system to facilitate inter-company settlements and manage liquidity. Our country organizations in Switzerland and the United Kingdom as well as the Americas segment are not part of the system as they have their own credit facilities.

CO2e
CO₂ equivalents (CO₂e) is a unit of measurement to unify the climate impact of different greenhouse gases. The unit indicates the climate impact of the individual greenhouse gases (e.g. methane (CH₄) or nitrous oxide (N₂O), but also carbon dioxide (CO₂)) in the reference quantity of an equivalent amount of carbon dioxide (CO₂).

Conduits
Conduits are special-purpose entities of banks in ABS programs that refinance themselves on the money market based on the purchase of receivables.

Contorion
An online platform that offers craft and industrial products for sale to craftsmen and individual customers. Klöckner & Co supplies small lots of plates, pipes, profiles and the like.

Contract
An agreement, normally in writing, between at least two parties. A contract generally comprises a number of clauses setting down the goods to be supplied, date and place of delivery as well as payment terms. It may also include a fixed quantity to be purchased at a fixed price in a specific period.

Conversion Rate
Metric used to measure the success of an online marketing campaign. The figure depicts how many users (measured against the total number of visitors to a page = unique visitors) took a specific action on the page (e.g. made a purchase, registered, clicked on something).

Contractual Trust Arrangements (CTA)
With a Contractual Trust Arrangement (CTA), pension obligations are outsourced from the company balance sheet and the assets are transferred to a trust company. By outsourcing the pension obligations, the balance sheet is relieved.

Counterparty risk
Counterparty risk is the risk that a professional market participant defaults, i.e., is not paying its obligation when they become due. In addition to the regular credit risk it also includes in particular default risks of derivative financial instruments.

Corporate Carbon Footprint (CCF)
The Corporate Carbon Footprint determines all CO₂e emissions of a Company over a period of one year along the entire value chain and displays them in a balance.

Cradle-to-Customer Entry Gate
The amount of all greenhouse gases, expressed in CO₂e, produced in the value chain of the individual product - from raw material extraction and production through processing and warehousing to delivery to the customer's factory gate, i.e. including transport emissions from Klöckner & Co to the customer.

Cradle-to-Klöckner Exit Gate
The amount of all greenhouse gases, expressed in CO₂e, generated in the value chain of the individual product - from raw material extraction and production, through processing and warehousing, to the exit gate of Klöckner & Co, i.e. excluding transport emissions from Klöckner to the customer.

Cross Currency Swap
Foreign exchange agreement between two parties to exchange a principal amount and the respective periodic interest payment of one currency for another and, after a specified period of time, to transfer back the original amounts swapped.

Culture of failure
To meet the challenges presented by digitalization and become more innovative, Klöckner & Co is adopting a modified form of the culture of failure. Employees are encouraged to try new things, which also means allowing them to make mistakes.

Customer journey
In order to meet customers’ needs when developing products, tools and services, customer feedback is documented and  visualized from first contact with the product through to permanent use.

Derivatives
Contractual agreement based on an underlying value (e.g., reference interest rate, securities prices, foreign exchange rates) and a nominal amount. Little or no payment is necessary at the time the agreement is concluded.

Design Thinking
An approach aimed at resolving problems and developing new ideas. The goal is to find solutions that work best from a user/ customer perspective. The development process is generally carried out in heterogeneous groups and includes the following phases: understanding, observation, synthesis, idea development, creating a prototype and testing.

DigiDesk
This name was coined to describe a digital workstation. It is an interactive intranet based on interactive SharePoint communication sites / Office 365.

Digital Academy
The Group-wide personal development academy offers employees in-house, job-specific training and language courses. This enables them to take part in online training on a voluntary basis during office hours at our premises or from a home office. To enhance IT skills, for instance, online courses on topics such as digital leadership and coding have been developed.

Digital sales
Sales generated via digital channels. The company aims to generate over 60% of sales digitally by 2022.

Dilution
Describes the reduction in amount earned per share in an investment due to an increase in the total number of shares (e.g., due to convertible bonds). As the number of shares outstanding increases the proportional share embodied in each share decreases (i.e., dilutes).

Discounted Cash Flow Method (DCF)
Valuation technique used to estimate the value of individual assets or group of assets. Under the approach all future cash flows are discounted to their present value as of the valuation date. The interest rate is determined using the Capital Asset Pricing Model (CAPM), a widely known approach in the financial  asset portfolio theory.

Disruption
Innovation with the potential to replace existing technologies, products or services. Example of a disruptive technology: digital photography which almost completely replaced analog cameras.

EBIT
Earnings before interest and taxes is a metric that is used to evaluate profitability.

EBITDA
Earnings before interest, taxes, depreciation and amortization (EBITDA) is a metric that is used to evaluate profitability.

EBITDA before material special effects
(Alternatively, adjusted EBITDA) Earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted for special effects such as major restructuring programs, significant non-operating effects or effects relating to prior periods.

E-commerce
Electronic commerce, in most cases using the Internet.

Electronic Data Interchange (EDI)
Electronic data interchange (EDI) enables communication between ERP systems and thus automates both core business processes and the exchange of information, especially in contract business.

Enterprise Resource Planning (ERP) module
A system designed to help an organization manage its resources. SAP is an example.

ERP to ERP
The exchange of data between two ERP systems. In this case between Klöckner SAP and an external ERP system.

EU Taxonomy
Based on the requirements of the (EU) 2020/852 Taxonomy Regulation under the European Green Deal, companies must review their business activities and assess whether and to what extent they fall under the definition of a "sustainable business".

Fair Value
The price at which assets, liabilities and derivative financial instruments are transferred from a willing seller to a willing buyer, each having access to all the relevant facts and acting freely.

Floor
Financial instrument between two parties under which compensating payments are made to the holder of the instrument if the value of the underlying financial instruments falls under a defined threshold.

Foreign Currency Swap
Financial instrument that combines a spot foreign exchange transaction and a forward foreign exchange transaction.

Free Cashflow
Sum of cash inflows/outflows from operating activities and cash inflow/outflows from investing activities. Measure to assess financial funds generated to repay financial debt or pay dividends to shareholders.

FTE
(full time equivalent) FTE is a measurement from human resources management that expresses the time value that a full-time employee (100 percent employment level) provides within a period of time (day, week, month, year)

Gearing
Defined as net financial debt divided by equity, this key financial indicator expresses a company’s debt levels.

Goodwill
Goodwill represents the amount by which an acquirer of a business is willing to pay in excess of all tangible and intangible less identifiable liabilities taking into consideration further earning potential.

Gross Merchandise Volume (GMV)
The term gross merchandise volume describes an important key figure in online retailing that can assess the usage of online marketplaces and platforms. It indicates the total value of sales (including third-party sales) made on a platform in a given period.

Impairment
Additional depreciation or amortization for non-current assets with definite useful lives or only an acceptable method to reduce (“impair”) the value of assets with indefinite useful lives in case of other than temporary decline of value. See also “Impairment Test.”

Impairment Test
Test to assess the recoverable value for long-lived assets including goodwill. IFRS requires periodic assessment as to whether there are indications for other than temporary declines in value of long-lived assets. An impairment test is to be performed if internal or external indications for impairment arise. Regardless of such indications goodwill must be tested annually. In an impairment test the carrying amount of an asset is compared with its recoverable amount. If the recoverable amount is below the asset’s carrying amount an impairment is recognized for the amount of the difference.

Inbound logistics
All aspects of supply chain management relating to transportation, stockholding and delivery of goods entering the business.

Industry 4.0
Stands for the complete digitalization and integration of the industrial value chain. The integration of information and communication technology with automation technology to form the Internet of Things and Services enables ever greater degrees of networking within and between manufacturing facilities, from suppliers through to customers.

Interest Collars
Combination of floor and cap. Derivative financial instrument that provides compensating payments based on an underlying notional amount to the holder of the instrument when either the market interest rate falls under or exceeds the defined threshold.

Interest Rate Swap
An interest rate swap is a derivative in which one party exchanges a stream of interest payments (fixed or variable) for another party’s stream of cash flows.

International Financial Reporting Standards (IFRS)
Under regulations No. 1606/2002 passed by the European Parliament and the European Council as of July 19, 2002, capital-market- oriented companies in the EU such as Klöckner & Co must apply IFRS for compiling their financial statements. Those standards encompass the statements issued by the International Accounting Standards Board (IASB), the International Accounting Standards (IAS) of the International Accounting Standards Committee (IASC) and the respective interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as well as the interpretations of the former Standing Interpretations Committee (SIC).

Internet of Things (IoT)
Refers to the process of linking objects (e.g. production machinery) with the Internet so that they can communicate independently online and perform certain tasks for the owner.

Just-in-time
Just-in-time production is a logistics-driven, decentralized organization
and management approach in which material is produced solely in the quantities and at the time actually needed to meet customer orders. This objective is met using a range of different production and distribution methods.

Kloeckner Assistant
The Kloeckner Assistant is a digital application based on artificial intelligence that enables Klöckner & Co  customers to become digital customers without changing their procurement processes. The Kloeckner Assistant enables,  fully  automated processing of quotation requests and orders via email,  PDF or fax. Customers receive a quote or order confirmation in real time. This not only significantly reduces the manual processing effort, but also extremely accelerates the entire ordering process from the request for quotation through to the order.

kloeckner.i
The Group Center of Competence for Digitization at Klöckner & Co, based in Berlin, now employs around 90 people in the areas of Product Management, Software Development, Data Science & AI, Business Intelligence & Analytics, Online Marketing and User Experience & Design. All projects and initiatives related to digitalization and networking are driven by kloeckner.i. Furthermore, kloeckner.i serves as a platform for internal knowledge transfer

kloeckner.v
Klöckner & Co connects up with external start-ups via its kloeckner.v venture capital company. It invests both through selected venture capital funds and directly in start-ups that support the Klöckner & Co digitalization strategy with disruptive  approaches.

Laser cutting
Laser cutting is a technology used to cut materials such as steel with the help of a laser. It is usually employed in industrial production processes.

Lean startup
Approach for establishing a successful company or the launch of new products and services with the least possible effort and expense and using streamlined processes. Key features of the method include short development cycles and early market testing, i.e. strong focus on actual customer benefit throughout the development process.

Leasing
Method of financing investments whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.

Leverage
This key financial indicator is defined as net financial debt divided by EBITDA.

Lost time injury frequency (LTIF)
The number of workplace accidents, which result in lost work time (of one day or more) per million hours worked.

Match! (-function)
Automatic, AI-based assignment functionality. Suppliers, distributors and customers use different article numbers and terms for the same product. This lack of standardization is a major challenge for supply chain digitalization in the steel industry. The Match! software solution uses artificial intelligence to search, match and ultimately assign product information. Match! is used in particular with the Kloeckner Assistant.

Materiality
Within the framework of sustainability management, aspects that are of central importance for the sustainable development of the company are identified according to the principle of materiality. In the narrower sense, in accordance with dual materiality, a sustainability aspect is only considered material if it is central both to value creation within the company and to the impact on the company's environment.

Monte Carlo Simulation
Approach to calculate option values (e.g., virtual stock options). The price of the underlying share is calculated as statistical movement based on a large number of simulations. The individual simulations provide an expected payout to the plan participants based on the individual option agreement. The fair value of a virtual stock option is equal to the present value of the expected payout (average amount).

Multi-currency Revolving Credit Facility
Line of credit that has been issued by a number of participating banks by way of syndication with an initial term of three years allowing Klöckner & Co to draw funds in various amounts, currencies and maturities. This line of credit is primarily used for general-purpose financing.

Net Financial Debt
Net balance of cash and cash equivalents and financial liabilities.

Net investment hedge
A net investment hedge is used to hedge a net investment including long-term loans in a foreign operation.

Net working capital
Net working capital is defined in the Klöckner & Co Group as the sum of inventories and trade receivables less trade payables.

Nexigen^®
Under Nexigen^®, Klöckner & Co offers transparent, CO₂-reduced solutions in the area of materials, services and logistics that help our customers establish sustainable value chains. With Nexigen^®, we support our partners in accelerating their green transformation and making their progress in decarbonization visible.

Nexigen^® PCF Algorithm
With the own developed and independently certified Nexigen^® PCF Algorithm, the individual product carbon footprints are calculated for almost all of Klöckner & Co's approximately 200,000 products, from raw material extraction to the customer's factory gate (cradle to customer entry gate). Thus, CO₂ emissions become transparent and visible. Through the Nexigen^® PCF Algorithm, customers can now reliably and seamlessly incorporate the emissions data they receive into their calculations. The calculation method of the Nexigen^® PCF Algorithm has been certified by TÜV SÜD and complies with ISO standard 14067, ref. 14040 and 14044, as well as the Greenhouse Gas Protocol.

Non-hierarchical
As part of the Klöckner & Co digitalization strategy, we want as many employees as possible to participate in generating ideas and developing digital solutions. Unfiltered communication among all employees plays a key role in achieving this. Yammer, our Group’s internal social network, is the primary tool that makes this non-hierarchical exchange of ideas and information across divisions and countries possible.

Online shop
E-commerce solution that provides all product information as well as configurable processing options, availability and delivery times, and on which products can be purchased digitally. Also includes extensive user-friendly self-service features such as detailed order history, digital documents, and fast ordering options.

Open industry platform
A platform that digitally networks all industry stakeholders, including producers, distributors and processors, with the goal of facilitating transactions.

OPEX
An abbreviation for “operational expenditure,” which is defined as other operating income less personnel expenses, less other operating expenses. EBITDA – one of the key performance indicators for Klöckner & Co – is calculated by deducting OPEX from gross profit.

Option
The right to buy or sell an underlying asset (e.g., securities) on a specific day or during a specified period of time at a predetermined price from or to a counterparty or seller.

Outbound logistics
All aspects of supply chain management relating to transportation, stockholding and delivery of goods leaving the business.

Physical Vapor Deposition (PVD)
Innovative process capable of improving the surface characteristics of various materials.

Product Carbon Footprint (PCF)
The Product Carbon Footprint is an established method for determining the climate impact of a product. The PCF records all CO₂e emissions of a single product down to the kilogram – from raw material extraction to delivery to the customer's factory gate (cradle to customer entry gate).

Processed steel
Steel that Klöckner & Co not only warehouses but also processes in some way before selling it to customers. At Klöckner & Co, we aim specifically to increase the share of sales generated from higher value-added processed steel because the margins are greater than with standard products.

Processing
Machining of steel and metal products, such as sawing, plasma and flame cutting, 3D laser cutting, sandblasting, priming and bending.

Profiling
This is a technical process in which a profiling machine shapes metal with a specific profile from sheet.

Prototype
"Test model"; redesign of a product or service.

QR code
A quick response (QR) code is a way of coding information so that it can be very quickly found and read by a machine. The method is in widespread use in view of its robustness thanks to built-in error correction.

Rapid Prototyping
Method that provides companies with a simple way to design “test models” (prototypes) before the planning phase is finished – making it possible to identify and correct errors or deficiencies at an early stage.

Regular-way Contracts
A regular-way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

RFQ (Request for Quotation)
A request for quotation in which a company requests a quote from a supplier for the purchase of specific products or services. In addition to the price, it typically includes information on concrete specifications of the products as well as delivery and payment terms.

Sale and Leaseback
Special form of leasing in which usually real estate is sold to a leasing company, which then is leased back by the seller.

SBTi
The Science Based Targets initiative (SBTi) drives climate action in the private sector by enabling companies to set science-based emissions reduction targets. SBTi is a partnership between the Carbon Disclosure Project (CDP), the United Nations Global Compact (UNGC), the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF).

SDGs
17 Sustainable Development Goals (SDGs) were published as part of the 2030 Agenda for Sustainable Development, which was adopted by all United Nations member states in 2015. These 17 goals represent an urgent call for action by all countries as part of a global partnership.

Scaling

In business terms, scalability describes the ability to increase sales without having to make major investments at the same time (for example, in production and infrastructure). Business models are particularly scalable if they can be scaled to the next level without incurring significant additional costs.

Share of Wallet
Share of wallet looks at how big an individual company's share is of the total amount a customer spends on certain products.

Standard formats
Non-specialized, basic products.Surface treatment
Procedure to improve steel products’ surface properties.

Surtsey
With the Surtsey project, Klöckner & Co is taking advantage of the COVID-19 pandemic to significantly accelerate its transformation into a platform company while at the same time implementing necessary structural optimizations.

Training for refugees
As part of its corporate social responsibility, Klöckner sponsors the Berlin-based ReDI School of Digital Integration. The school teaches programming to refugees who are interested in IT and gives them access to a broad network of potential employers. Through its subsidiary kloeckner.i, Klöckner & Co works closely with the school.

TCFD
The recommendations of the expert commission "Task Force on Climate-related Financial Disclosures" (TCFD) of the G20 countries promote uniform climate reporting for companies on the risks and opportunities arising from climate change.

Venture Capital
Temporary capital investments in young, innovative, non-listed companies with above-average growth potential.

Virtual Stock Program
Stock-based compensation program for Management Board members and certain other executives, which is settled in cash. The exercise gain equals the difference between the average share price of Klöckner & Co SE over the last 30 trading days prior to exercise and the strike price.

Well-to-Wheel
The amount of all greenhouse gases, expressed in CO₂e, produced in the value chain of a fuel - from extraction of the raw materials over refining and transport to distribution and use of the fuel.

Working Capital
Klöckner & Co defines working capital as the sum of inventories and trade receivables less trade payables.

XOM eProcurement
Using this application, XOM Materials customers can streamline their procurement processes to a large extent. The eProcurement solution on the XOM Materials industry platform simplifies procurement and requirements planning for customers by automating the reconciliation of materials supply and demand in addition to supporting contract negotiations, data retrieval and access to current information on availability and orders.

Yammer
The company’s internal social network allows staff to communicate and share information across corporate divisions and country borders.