Reporting 2021

Opportunity and Risk Report

Opportunity and risk management principles

Corporate activity is accompanied by opportunities and risks. For BLG LOGISTICS, the responsible management of possible opportunities and risks is a core element of sound corporate governance. Our opportunities and risks policy aims to increase the company’s value without taking any inappropriately high risks.


Opportunities

Uncertain events that increase the company’s value and may be the outcome of developments that are more favorable than planned.

Risks

Possible future developments that are unfavorable to the attainment of short-term strategic goals or that are hazardous or even threaten the existence of the company through a reduction in the company’s value.



BLG LOGISTICS’ risk management is mainly derived from the goals and strategies of the individual business areas. It aims to recognize potential risks in good time, take suitable countermeasures to avert the threat of damage to the company and eliminate any threat to the company’s continued existence.

The strategic orientation of BLG LOGISTICS, which operates both within Germany and internationally, is highly diversified. Thus the structure of having three divisions together with a number of associated business areas leads to a certain degree of autonomy. Significant capital expenditure is mainly substantiated and backed up through contracts with customers.

Opportunity and risk management system

The Board of Management is responsible for the opportunity and risk management system. The Supervisory Board and the Audit Committee monitor and examine the system to ensure it is appropriate and effective. Responsibility for identifying and managing significant risks and opportunities is managed centrally within BLG LOGISTICS. Different levels and organizational units are integrated into the system.

The relationship between expertise and frequency of decision-making can be seen in the following diagram:

Communication channel and responsibilities within the opportunity and risk management system of BLG LOGISTICS


Communication channel and responsibilities in BLG LOGISTICS’ opportunity and risk management system

In order for us to achieve our goals, measured by earnings before taxes (EBT), the broad spectrum of our logistics services requires the early identification of potential opportunities and risks. The Board of Management, the managers and the Supervisory Board receive monthly reports on the management indicators of BLG LOGISTICS. This is intended to place the focus on sustainable value creation and to prevent any threat to the company’s continued existence. Central components of the opportunity and risk management system are therefore the planning and management process, intragroup rules and regulations, and reporting. We give special consideration to opportunities and risks arising from strategic decisions, from the markets, from the operating activities and from financing and liquidity.

Opportunity and risk management at BLG LOGISTICS

Opportunity and risk management at BLG LOGISTICS

BLG LOGISTICS’ principles of risk management are documented and published in a guideline. Risk officers at management level and risk management coordinators have been appointed in the divisions and central departments to make sure the risk management system runs efficiently. This ensures that risks and risk mitigating measures (risk avoidance and reduction, or the transfer of risk through insurance) and opportunities are identified and evaluated in the area of the business where they actually arise. Centrally implemented risk management is responsible for coordinating the Group-wide identification, assessment and documenting of opportunities and risks. An IT-supported risk management system serves as the basis for this.

The risks and the related measures defined within the strategy which we currently believe could have a material adverse effect on our financial position, financial performance and cash flows are identified, assessed and monitored on an ongoing basis in the sense of a permanent inventory. These are not necessarily the only risks to which BLG LOGISTICS is exposed. Other influences of which we are not yet aware or which we do not yet consider to be significant may also affect our business activities.

The Internal Audit department is also integrated in risk communication within BLG LOGISTICS as a process-independent monitoring entity.

As an internationally operating logistics company, performance and infrastructure risks as well as financial risks make up the majority of the overall risks to which BLG LOGISTICS is exposed. Insurance policies are taken out where available and economically viable in order to minimize the financial effects of possible damage. The cover provided and amount insured under these policies is examined on an ongoing basis.

In order to counteract potential risks which could arise in particular under a wide range of geographic, employment, cartel, customs, capital market, tax, contractual, environmental and competition regulations and legislation, BLG LOGISTICS bases its decisions and the design of its business processes on comprehensive legal advice, as well as on input from in-house and external experts. To the extent that legal risks relate to past circumstances, necessary accounting provisions are created and their appropriateness examined at regular intervals.

Aims and methods of financial risk management

The principal financial instruments used to finance the Group include non-current borrowings, current loans and cash, including short-term deposits with banks. BLG LOGISTICS has access to a range of other financial instruments, such as trade receivables and payables, that arise directly as part of its operations.

Financial risk management is the responsibility of the Treasury department, whose tasks and objectives are described in a guideline approved by the Board of Management. This includes preparing and analyzing financing and hedging strategies and contracting hedging instruments.

The material risks for the Group resulting from financial instruments are credit risks, foreign currency risks, liquidity risks and interest rate risks. The Board of Management creates risk management guidelines for each of these risks, which are summarized below, and verifies compliance with these guidelines. At Group level, the existing market price risk for all financial instruments is also monitored.

Capital risk management

An important capital management goal for BLG LOGISTICS is to ensure the ability of the company to continue as a going concern in order to provide earnings to shareholders and to provide other stakeholders with the benefits to which they are entitled. Additional goals are to optimize liquidity security and maintain an optimum capital structure in order to reduce the costs of capital in general and the refinancing risk in particular in the long term.

BLG LOGISTICS monitors its capital on the basis of the equity ratio and other indicators. Assurances have been made to all partner banks with regard to equal treatment and the change-of-control clause.

Description of the main features of the internal control and risk management system with regard to the accounting process in accordance with Section 315 (4) HGB

Definition and elements of the internal control and risk management system

The internal control system of BLG LOGISTICS with regard to the accounting process includes all principles, procedures and measures to ensure the correct and legally compliant recognition, measurement and presentation of business transactions in the financial statements. The aim is to avoid any material misstatements in accounting and external reporting. Since the internal control system is an integral component of risk management, it is presented in a condensed form.

The internal management and monitoring systems are components of the internal control system. The Board of Management of BLG LOGISTICS has assigned responsibility for the internal management system in particular to the Financial Services department (incl. financial controlling, finance and accounting), which cooperates closely under one management and with a focus on processes.

The internal monitoring system comprises controls that are both integrated into and independent of the accounting process. The controls integrated into the process particularly include the dual control principle, the separation of functions between related departments (particularly creditor and treasury management) and IT-supported controls, as well as the involvement of internal departments such as Legal or Tax departments and of external experts.

Controls that are independent of the process are carried out by the Internal Audit department, the Quality Management department and the Supervisory Board, in the latter case principally through its Audit Committee. The Audit Committee concerns itself in particular with the accounting, including reporting and monitoring of the audit. The activities of the Audit Committee also focus on the risk situation, the further development of risk management and compliance issues. This also includes the effectiveness of the internal control system.

Process-independent audit activities are also performed by external auditing bodies such as the auditing company or the external tax auditor.

Accounting-related risks

Accounting-related risks can arise, for example, through the conclusion of unusual or complex business dealings or the processing of non-routine transactions.

Potential risks also result from discretionary scope in the recognition and measurement of assets and liabilities, or from the effect of estimates on the annual financial statements, such as for provisions or contingent liabilities.

Accounting process and measures to ensure its correctness

Business transactions are generally accounted for in the separate financial statements of the subsidiaries of BLG LOGISTICS using the standard software SAP R/3. The consolidated financial statements are prepared using the SAP consolidation module EC-CS. The separate financial statements of foreign subsidiaries and domestic subsidiaries not integrated into the SAP system are included on the basis of the standardized, Excel-based reporting packages audited by audit firms, which are transferred into the EC-CS consolidation system.

To ensure consistent recognition and measurement, BLG LOGISTICS has issued accounting guidelines for financial reporting in accordance with International Financial Reporting Standards (IFRSs) as well as guidelines for uniform Group accounting. Impairment tests for the Group’s cash-generating units are carried out centrally. This ensures that consistent and standardized measurement criteria are used. The same applies to the specification of the parameters to be used for the measurement of pension provisions and other provisions based on expert opinions.

When preparing the consolidation of intragroup balances, internal balances are regularly reconciled in order to clarify and remedy any differences in a timely manner. At Group level, in addition to a validation by the system of the data reported in the separate financial statements, the reporting packages in particular are tested for plausibility and adjusted if necessary.

In addition, disclosure management software is used for preparing the separate financial statements and the consolidated financial statements, which uses a uniform data pool and includes validations, history verifiability and a clearly defined workflow. A high degree of automation significantly reduces the risk of error and increases efficiency.

Special software is used for tax accounting. Current and deferred taxes are calculated at the level of the individual subsidiaries and the recoverability of the deferred tax assets is tested.

Qualifying notes

The internal control and risk management system ensures the correctness of the accounting process and compliance with the relevant legal requirements. Discretionary decisions, erroneous controls or fraudulent acts may, however, limit the effectiveness of the internal control and risk management system, with the effect that the systems established cannot guarantee with absolute certainty that risks will be identified and managed.

Opportunities

Our business model

As an international Group with three divisions and their business areas, BLG LOGISTICS is exposed to a wide range of trends in the various national and international markets. Based on the business development described in this report and the company’s position, the current macroeconomic conditions present various potential opportunities. The effects of sustainable positive economic trends are of overriding importance here. The development of innovative solutions for our customers in the context of future-oriented research projects also has a high priority. For further information, please refer to the Research and development section.

We also want to make optimum use of opportunities in the various fields of activity that open up to us in future. The premise for this remains our network, and the innovative intermodal offering in the AUTOMOBILE Division. The established business models in the trade and industrial logistics business areas offer the CONTRACT Division sales and acquisition opportunities combined with additional automation and digitalization activities in Germany and the rest of Europe. The individual business areas benefit from a continuing growth market because our customers want to improve their own cost structures and make them more flexible through increased outsourcing.

For the CONTAINER Division, the adjustment of the shipping channel already completed in the River Elbe and still outstanding deepening of the Outer Weser fairway was and is of great importance for securing and positioning the German ports in the North Range to allow ever larger container vessels to call at Bremerhaven and Hamburg without hindrance. The nautical problems caused by the continuing increase in the number of ever larger container ships in particular in Hamburg saw a relative improvement following implementation of the adjustment measures.

If the outstanding measure to deepen the Outer Weser fails or is delayed indefinitely, this could have a not inconsiderable negative impact on future cargo handling development at the Bremerhaven location.

However, the CONTAINER Division can offer its customers an excellent alternative with Germany’s only deep-water port, EUROGATE Container Terminal Wilhelmshaven, and its facilities for the handling of container ships with corresponding deep-water access. The acquisition of an investment by Hapag-Lloyd marks another important step in the further development of this location.


Strategic opportunities

AUTOMOBILE Division: BLG LOGISTICS and Hyundai Glovis form joint venture for AutoTerminal Bremerhaven

One of the world’s largest RoRo shipping companies, Hyundai Glovis, and BLG LOGISTICS, one of the leading automotive logisticians in Europe, have entered into a strategic partnership for the purpose of handling car transshipments in Bremerhaven. Following the successful cooperation in the CONTAINER Division, this is the first joint venture for car transshipments at a BLG seaport terminal.

Within the scope of the joint venture, Hyundai Glovis will from January 2022 use BLG AutoTerminal Bremerhaven in the coming years as a European hub for its automobile transports between Asia and Europe. The aim of the joint venture is to consolidate volumes and thus optimize the logistics chains of automobile manufacturers, taking into account transit times, costs and environmental impacts.

BLG LOGISTICS has thus gained a strong partner in a difficult market environment. This should secure volumes and strengthen the port location of Bremerhaven and forms a good basis for further strategic development. Our AutoTerminal Bremerhaven remains open to all shipping companies as a universal port.

AUTOMOBILE Division: Third multi-story car park at BLG AutoTerminal Kelheim goes into operation

The third multi-story car park (“P3”) at BLG AutoTerminal Kelheim has been successfully completed.

P3 is designed to ensure even more efficient use of driving space and was built to the latest construction standards. These include a planned photovoltaic system on the roof. It will be the second PV system at the location. Kelheim also re-uses water. Waste water is recycled so that a share of just 20 percent of fresh water is required for all work at the terminal.

The P3 was built exclusively for a key account customer. It increases the number of covered parking spaces on the terminal site, which customers especially value for new vehicle storage. The capacity expansion was also an opportunity for BLG LOGISTICS to conclude a long-term contract governing further cooperation with the customer.

CONTRACT Division: BLG LOGISTICS as strong logistics architects

Our customers are currently facing huge challenges and opportunities. Advancing digitalization is opening up new opportunities in all areas of the value chain. At the same time, global competition is stepping up the pace. To an increasing extent, logistics processes are also determining how competitive companies are.

As logistics architects, the teams of experts from BLG LOGISTICS plan, design, configure and implement customized logistics centers, ranging from conventional to highly automated.

We have a large staff of our own experts who bring extensive experience from a wide range of projects and industries of various sizes. This cross-industry logistics know-how has already enabled us to develop outstanding and innovative concepts and large-scale logistics projects, and we see this as a strong argument for our existing and new customers in the future.

BLG Group: Our Mission Climate and sustainable logistics center (CONTRACT Division) as flagship projects

The topic of climate change mitigation is right at the top of the agenda – in politics as well as in many companies. We are no exception. In the reporting year, the German government tightened its climate change mitigation targets once again and set Germany the goal of net zero emissions by 2045. As a logistics company, we want to play our part – and at the same time support our customers in improving their own climate footprint.

We are on a shared mission to protect our climate. Our target is to make BLG LOGISTICS a climate-neutral company by 2030. We have had our absolute target (-30 percent CO2e) across the company (Scope 1+2) and -15 percent along the supply chain (Scope 3) assessed and certified by the independent Science Based Targets initiative (SBTi). BLG LOGISTICS is thus the first German logistics provider with scientifically recognized climate protection targets.

For example, BLG LOGISTICS is continuing to improve its carbon footprint by championing rail transport. BLG AutoRail can transport more than 200 cars per train, and operates in the German and Austrian rail network using green electricity every kilometer of the way.

At the Güterverkehrszentrum (GVZ) in Bremen, Germany’s largest cargo distribution center, BLG LOGISTICS is planning a new location for industrial logistics. From “C3 Bremen”, BLG LOGISTICS will provide sustainable and efficient supplies to the foreign assembly plants of a major car manufacturer.

“C3” stands for customers, climate and comfort. With intelligent intralogistics planning and efficient workflows, logistics handling will be tailored to customers’ needs. The processes inside the new facility are being designed in line with the lean management principle, supported by cutting-edge automation and digitalization systems. In terms of sustainability, a holistic concept was developed with the goal to obtain certification in Platinum from the Deutsche Gesellschaft für Nachhaltiges Bauen (DGNB – German Association for Sustainable Building) and WELL GOLD certification. Among other things, it is planned to install a photovoltaic system on the entire roof area. The heating system and hot water production is to be supplemented by a solar thermal plant. The new project is not only intended to impress in terms of design. Communal and outdoor areas are being developed according to a well-being concept for employees and the environment in order to create a pleasant working environment. This new building project places a strong focus on employees health at the workplace.

CONTAINER Division: EUROGATE Container Terminal Wilhelmshaven launches automation project

The acquisition of a shareholding in EUROGATE Container Terminal Wilhelmshaven (CTW) by Hapag-Lloyd AG brings positive prospects for the site and creates the framework conditions for automation at CTW. In the coming years, container handling activities at CTW will be converted from manual operations to an automated system. The respective automation project got underway in January 2022. EUROGATE is investing around EUR 150 million in the project over the next three years. Automated operation of a first ship berth is planned for as early as 2024.

As a result of automation, we are anticipating significant growth in throughput in Wilhelmshaven over the medium term and therefore believe the time and general economic parameters are now right to invest in the expansion and modernization of the terminal. We want to develop an extended, upgraded and efficient automated terminal, whose streamlined organization is geared to new operating requirements.

Automation in our industry is continuing at pace. With this project, we are embracing this development and view it as an opportunity to significantly strengthen our customer focus and our competitiveness. This will, in turn, lead to increased handling volumes, enabling us to secure long-term employment and create new, challenging and sustainable jobs.

We are also consistently pursuing our digitalization and innovation strategy at the other BLG LOGISTICS sites. At the Bremen logistics center, for example, two autonomously driving forklifts now assure the end-to-end provision of materials to and removal from a coating line.

Other opportunities

BLG LOGISTICS first developed and set mandatory climate change targets back in the 2012 financial year. These aimed to reduce the company’s carbon footprint by 20 percent up to 2020 compared to 2011 (measured against revenue). We had already surpassed this target in 2019. Motivated by this success and increased demands, we have set new, further-reaching targets. By 2030, we want to reduce our own greenhouse gas emissions by at least 30 percent in absolute terms compared with 2018 and the greenhouse gas emissions in our supply chain by 15 percent. BLG LOGISTICS will offset the remaining emissions through certified climate protection projects. This will make us a climate-neutral company by 2030. You will find more information in our Sustainability Report at reporting.blg-logistics.com

With this, BLG LOGISTICS is increasing transparency with regard to its climate footprint and boosting its credentials in the area of climate-neutral logistics. This also presents the opportunity to offer its target group climate-neutral services that do not burden their climate footprint.

Risks

Ongoing effects of the coronavirus pandemic, war in Ukraine and high energy prices

The coronavirus crisis and the resulting measures introduced by governments are having a significant impact on volumes and earnings in all business divisions and business areas of BLG LOGISTICS. Although the economic consequences have so far been less severe from wave to wave, the current situation remains unclear and planning in this environment difficult. In particular, the shortage of components in industry, disrupted supply chains and the tense personnel situation due to high levels of sick leave are having an impact on our business. We are constantly adapting to changed circumstances through close coordination within the company and with customers.

The war between Russia and Ukraine could lead to renewed disruptions in supply chains and our customers’ production processes. BLG LOGISTICS assesses the situation on a daily basis from a social and financial perspective and initiates steps as necessary.

We also currently expect energy prices to continue to rise as a result of the war. Various measures have been taken to counter these increases. We keep additional costs as low as possible by constantly monitoring the procurement market and planning the deployment of resources with foresight. Furthermore, we are in continuous dialog with our customers and strive to negotiate contracts to offset these increases wherever possible.

Risk categories and individual risks

From the risk types defined for BLG LOGISTICS, the material risks for BLG LOGISTICS by risk category are described in the following sections. In selecting materiality, risks are included that would have a noticeable effect on the company’s financial position, financial performance and cash flows if they were to occur. In principle, the assessment and derivation of measures is made on the basis of scenarios, taking into account all known influencing factors from opportunities and risks.

An overview of material risks is presented in the table.

Risk Potential damage Probability of occurrence Trend compared with previous year
Strategic risks significant unlikely
Market risks existential rather unlikely
Political, legal and social risks medium possible
Performance and infrastructure risks significant possible
Financial risks medium possible

Risk matrix

Materiality matrix

Strategic risks

Risks from acquisitions and investments

In recent years, BLG LOGISTICS has grown through various acquisitions both in Germany and abroad. As part of process and quality management, a uniform M&A guideline on the procedure to be followed for all share purchases has been drawn up for this purpose. This draws on both in-house and external advisers, ensuring that all risks associated with an acquisition or investment are taken into consideration and assessed.

Despite this, in particular political, legal or economic risks associated with share purchases in other European countries cannot be ruled out.

The social environment when sourcing employee capacity and integrating the relevant third-party company culture into the structures and processes of BLG LOGISTICS present specific challenges.

Investments made in the past may entail a requirement for subsequent decisions, assuming continuation of the strategic decisions and statements made with the investments. The required subsequent investments associated with these decisions must be considered and evaluated overall under new premises, due to partly changed market and macroeconomic conditions. If these changed conditions continue in the long term, there may be future requirements for BLG LOGISTICS to write-down the entire investment.

Market risks

Threat to market position and competitive advantages

The contractually agreed prices for seaport cargo handling in the AUTOMOBILE Division, coupled with the persistently strong competitive pressure represent continuous challenges for us. Due to the increasing shareholdings of shipping companies in other seaport terminals, internal optimization measures taken by shipping companies may result in shifts in volumes at the expense of the Bremerhaven seaport terminal. As a consequence of the war between Russia and Ukraine, certain volumes are expected to decline or even come to a complete standstill in these regions.

For break bulk cargo business and project logistics the principal risks lie in high competitive and price pressure.

In the CONTRACT Division, the main risks are rapid replaceability and substitutability as a service provider in connection with standardized as opposed to custom services. The business areas are heavily dependent on major customers. The logistics services they perform are, as a rule, personnel-intensive. In addition, customers are applying significant price pressure. We are meeting these challenges with comprehensive customized solutions and optimizations, longer contract periods and continuous expansion and further diversification of our customer base.

In addition to the macroeconomic trends, the CONTAINER Division is also exposed to further factors and risks associated with future transshipment and transport demand and corresponding handling volumes of our container terminals. As in the previous years, these include

  • commissioning additional terminal handling capacity in the North Range and in the Baltic region,
  • commissioning additional large container vessels and related operational challenges in ship handling (peak situations),
  • changes in the market, network and processes resulting from changes in the structure of the shipping company consortia, and
  • price structures in the market.

The war between Russia and Ukraine will also have consequences for container throughput if these regions are no longer served or ships are stranded.

On the customer side, possible insolvencies could also negatively impact the shipping line consortia as well as the structure of services and volumes. Three major consortia continue to dominate the market:

  • 2M with the individual shipping companies Maersk and MSC
  • Ocean Alliance with the individual shipping companies CMA CGM, COSCO, Evergreen and OOCL
  • THE Alliance with the individual shipping companies Hapag-Lloyd, HMM, ONE and Yang Ming.

The trend on the part of the shipping lines to commission additional large container vessels, in the meantime with capacities of up to 24,000 TEUs, continues unabated. Given this trend, the EUROGATE Group will also see an increase in the number of ultra-large vessels calling at its terminals.

Because the container terminals still have capacity reserves, at least in the medium term, the market power of the remaining consortia or shipping companies is increasing as a result of consolidation, and with it the pressure on earnings and the need to identify and implement sustainable cost reductions and efficiency improvements as well as standardization and automation measures at the container terminals.

If the CONTAINER Division falls short of the planned cost savings as well as the productivity- and efficiency-enhancing targets set out in the transformation program, this would seriously jeopardize the competitiveness and future viability of the EUROGATE Group. However, so far all sides have approached the preparation and conclusion of the negotiations judiciously, and the management remains confident of being able to successfully implement the planned measures and associated positive effects within the foreseen timeframe.

Dependency on the economic cycle and macroeconomic risks

As a logistics service provider with a global focus, BLG LOGISTICS is highly dependent on production and the associated flow of goods in the global economy. The dependency on both the manufacturing industry and on consumer behavior can be viewed as the largest risk. In addition to the impact and constraints resulting from the war in Ukraine and the coronavirus pandemic, other influencing factors on our business in this area are high energy and raw material costs, persistent foreign trade imbalances and the escalation of political conflicts.

It is also possible that we may have to learn to live with new virus mutations and pandemics in the future that could have a recurring impact on economic activity and our planning. A further escalation in the Ukraine conflict cannot be ruled out either.

Changes to legislation and in taxes or duties in individual countries may also have a major impact on international trade and result in considerable risks for BLG LOGISTICS.

Sector risks

Due to the lack of components, supply chain disruptions, the shift to electromobility and weak demand during the coronavirus pandemic, the automotive industry is currently facing extensive challenges, which is impacting the overall volume of our business. The war in Ukraine will further exacerbate this situation and may lead to production cutbacks and stoppages on the part of manufacturers. We are countering this by further optimizing our processes and planning our capacities based on regular dialog with our customers. In addition, we intend to further expand our range of services for the transport and technical processing of used vehicles.

The main market for BLG LOGISTICS is Western Europe. Due to the opening up of Western Europe to the East, increasing volumes of Eastern European transport capacities are accessing our main market, leading to sustained tough competition and price pressure. There is also a dependency on the volume of exports of the automotive industry in Europe to overseas. In this context, the markets of China, the US, Japan and Korea are of special significance.

Employment in car parts logistics (industrial business area) is dependent on production in the foreign plants of the German original equipment manufacturers (OEMs) that are supplied with parts via our logistics centers worldwide. There is a continued tendency in this area to be dependent on just a few major customers.

Political, legal and social risks

Legal and political environment

It cannot be ruled out that the company could be hit with additional transport costs due to a price increase on the international crude oil markets, tolls, other traffic routing levies or additional tax burdens which cannot be passed on directly to our customers outside profit or loss.

As a result of the war between Russia and Ukraine and the current sanctions, it is possible that we may have to temporarily or permanently suspend our business at sites in this region or that we will lose access to them. The fact that manufacturers are largely suspending production in Russia means that we are able to transport correspondingly fewer vehicles and our basis for doing business is also at risk due to the sanctions. It is therefore possible that the net assets and goodwill of BLG Logistics Automobile St. Petersburg Co. Ltd., St. Petersburg/Russia (100 percent shareholding), and the carrying amount of the investment in BLG ViDi LOGISTICS TOW, Kyiv, Ukraine, (50 percent shareholding, equity valuation), may have to be written down. The revenue of the Russian company amounted to less than 1 percent of Group revenue in 2021.

The implementation of Brexit has not yet had a significant impact on our business. The same applies to the continuing phase of low-interest rates. However, there is currently a risk of an increase, which could lead to a rise in our interest expense.

Contract risks

Contract risks result from the fact that the maturities of contracts with customers sometimes do not match those relating to property leasing. Contracts with customers often have significantly shorter maturities than rental contracts on real estate.

The subsequent change to market conditions and related effects on the logistics processes agreed with customers have an effect on the contractual relationship agreed with the customer. The range of services offered to the customer and the prices calculated may no longer correspond to services requested and contracted by the customer. The resulting differences lead to risks and deviations from the projections, necessitating renegotiation with the customer. Due to the obligation to fulfill the contract and hence to perform, work for the customer continues during negotiations, because otherwise further risks would arise from compensation obligations for downtime.

Risk provisions have been recognized for risks from onerous contracts. The size of the risks may increase significantly as a result of changes in circumstances over time. Based on our current estimation, a risk of this kind should be viewed as low.

Performance and infrastructure risks

Risks from business relationships

In all operating divisions, close customer relationships and the short, demanding contractual periods and conditions, especially with some major customers, make it necessary to monitor changes in economic trends and the demand and product life cycles especially closely.

Risks from high energy prices

Energy prices rose significantly at the end of the 2021 reporting year. Due to the current Ukraine crisis and a possible embargo on energy from Russia, a further significant increase is likely or has already occurred. This could lead to a higher fixed cost burden, which could have a significant impact on earnings if there is a further increase, but also if the payments on account valid at the beginning of 2022 are maintained, insofar as the initiated measures have a delayed effect. We will try to keep the burden as low as possible by conducting talks with our customers and optimizing processes.

Infrastructure capacity and security

Fluctuations in volumes or supply gaps at our customers can lead to temporary capacity bottlenecks in individual cases. We have actively searched the market and have found additional third-party indoor and outdoor capacity. This will be leased for a fee, if required.

In contrast, when there is lower usage of our in-house capacity, no short-term alternative usage is normally generated. This results in a negative effect from fixed costs that is not covered by income. The risks are taken into account when drafting and calculating the contract.

Indoor and outdoor facilities and transport and handling equipment are regularly serviced and repaired at fixed intervals. This ensures that we can provide services on an ongoing basis.

Personnel risks

The high personnel- and capital-intensive nature of our logistics services means that there are, in principle, risks relating to the negative effect of high fixed costs when facilities and personnel are not being used. Due to the current high inflation rates, a high level of sick leave during the pandemic and the shortage of skilled workers, future collective bargaining negotiations may result in higher demands on the employee side. We are countering this, among other things, by integrating price escalator clauses into the contracts with our customers.

Competition among companies for skilled personnel in all areas remains intense. Even today, as a consequence of the increasing shortage of skilled workers, vacancies in the logistics industry and also in the BLG Group cannot always be filled promptly. This situation is further exacerbated by a high rate of sick leave, for example during the coronavirus pandemic, with significant repercussions on the productivity and profitability of our services. We attempt to counter this by continuously developing new recruitment approaches and in our human resources management activities emphasizing the attractiveness of BLG LOGISTICS as an employer. We strive to retain skilled employees and managers in the company over the long term. In addition to performance-related pay and extensive social benefits, we are also focusing particularly on future diversification at BLG LOGISTICS through trainee programs, multi-disciplinary career paths, deployment in different Group companies, and attractive training and development courses. This is aimed at also minimizing personnel risks in respect of socio-demographic change, age structure, and the skills and turnover of the workforce.

This staff development, which necessarily has a long-term orientation, harbors certain personnel cost risks in the event that business development does not occur as planned in the medium term. However, flexibility is achieved through the use of blue-collar workers provided by the Gesamt-Hafen-Betriebe (GHBG) employment agency in Bremen and Hamburg and other agency personnel. This ensures that the personnel requirement can, to a certain extent, be adapted flexibly to the development of the business. The changes in the employment market also have a fundamental influence on staffing levels and therefore on the flexibility and availability of qualified personnel at GHBG. These changes can lead to sustained deficits for GHBG, which it may be possible for affiliated member companies, and thus essentially also for BLG LOGISTICS, to offset. We have made appropriate provision for this.

IT risks

Information technology is an important success factor for our logistics and service processes. The systems must be accessible and available at all times, and any unauthorized access to data and data manipulation must be eliminated. New software delivered with defects or not on time must also be avoided. Our services require the use of permanently updated or newly developed software. However, delays and insufficient functionality can never be completely ruled out when developing and putting new, complex applications into operation. Efficient project management from design through to launch reduces this risk. We currently expect this to have only a minor impact on individual business areas.

The increasing frequency of Internet attacks (cybercrime), both globally and on specific targets, is a constant threat and danger for BLG LOGISTICS. BLG LOGISTICS is well positioned to address these risks as it uses the latest antivirus software in conjunction with its own structured IT organization. Ongoing monitoring, control, updating and adaptation of these structures and systems is vital. We also insure ourselves against any damage through appropriate insurance cover.

Financial risks

Credit risk

The Group’s credit risk mainly results from trade receivables and lease receivables. The amounts shown in the consolidated statement of financial position do not include loss allowances for expected credit losses. Due to the ongoing monitoring of receivables at management level and depending on customer creditworthiness, we operate with commercial credit insurance and are thus not currently exposed to any significant credit risk.

The credit risk in respect of cash and derivative financial instruments is limited because these are currently held exclusively at banks that have been awarded high credit ratings by international rating agencies, that are highly secure thanks to a joint liability scheme and/or at which there are offsetting opportunities via non-current borrowings.

The maximum credit risk of the Group is represented by the carrying amounts of the financial assets recognized in the statement of financial position (including derivative financial instruments with positive fair value). The Group is also exposed to credit risk through the acquisition of financial guarantees.

With respect to our long-term equity investments in Ukraine and Russia, we refer to the above remarks under “Political, legal and social risks”.

At the reporting date, there were no further significant credit risk mitigation agreements or hedges.

Foreign currency risk

With very few exceptions, the Group companies operate in the eurozone and invoice only in euros. In this respect, currency risk could only arise in isolated cases, such as from foreign dividend income or the purchase of goods and services from abroad. An interest rate and currency swap has been concluded to hedge against the foreign currency risk from a variable USD loan granted in the context of Group financing.

Due to the current situation, the exchange rate of the ruble and the hryvnia may have isolated negative effects on earnings, which cannot be quantified at present.

Liquidity risk

Liquidity risks may arise from payment bottlenecks and the resulting higher financing costs. The Group’s liquidity is ensured by central cash management at the level of BLG KG. All significant subsidiaries are included in cash management. Due to the centralized management of capital expenditure and credit management, financial resources (loans/leases) can be provided in good time to meet all payment requirements.

The Group’s liquidity needs are covered by cash and credit facilities granted.

In parallel, the BLG Group has been using the non-recourse sale of receivables under a factoring agreement as an off-statement of financial position financing instrument since the reporting year to further optimize the structure of the statement of financial position. The obligations of the factor to purchase existing and future receivables are limited to a total maximum amount of EUR 75 million. BLG LOGISTICS is free to decide to what extent the revolving nominal volume is utilized. The receivables have been derecognized in full.

BLG LOGISTICS additionally has the possibility to participate in the cash pooling facility of the Free Hanseatic City of Bremen in an amount of up to EUR 50 million, as well as to take out a non-current loan of EUR 50 million via a state guarantee through Bremer Aufbau-Bank together with a partner bank.

Assurances have been made to all partner banks with regard to equal treatment and the change-of-control clause.

We counter the financial risks arising from the dynamics of the current situation with a regular forecast process, from which appropriate measures – if necessary – are derived. From the start of the coronavirus pandemic up to the time of preparing this report, BLG LOGISTICS’ liquidity was not at risk in any way.

Interest rate risk

The interest rate risk to which BLG LOGISTICS is exposed arises primarily from non-current loans and other non-current financial liabilities. Interest rate risks are managed with a combination of fixed-interest and variable-interest loan capital. The majority of the liabilities to banks have been concluded over the long term or fixed interest rates have been agreed through to the end of the financing term, either originally as part of the loan agreements or via interest rate swaps which have been concluded within micro-hedges for individual variable-interest loans. In addition, against the backdrop of the low interest rate, which is attractive for investments, a portion of the financing requirement of the coming years was hedged by agreeing forward interest rate swaps. It is planned to take out loans from partner banks totaling EUR 90 million in tranches of up to EUR 15 million each within six years, beginning in 2019. Further information is presented in note 32/the “Derivative financial instruments” section of the consolidated financial statements.

Interest rate risks are disclosed via sensitivity analyses in accordance with IFRS 7. These show the effects of changes in the market interest rate on interest payments, interest income and expenses, other income items and on equity. The interest rate sensitivity analyses are based on the following assumptions.

With regard to non-derivative financial instruments with fixed interest rates, market interest rate changes only affect profit or loss if these financial instruments are measured at fair value. All fixed-interest financial instruments measured at amortized cost are not subject to interest rate risks within the meaning of IFRS 7. This applies to all fixed-interest loan liabilities of BLG LOGISTICS, including lease liabilities. When hedging interest rate risks in the form of cash flow hedge-designated interest rate swaps, changes to the cash flows and to the contributions to earnings induced by changes to the market interest rate of the hedged primary financial instruments and the interest rate swaps balance each other out almost completely, effectively eliminating the interest rate risk.

Gains or losses from remeasurement of hedging instruments to fair value are credited or charged directly to the hedging reserve in equity and are therefore included in the equity-related sensitivity calculation. Changes in the market interest rate of non-derivative variable-interest financial instruments whose interest payments are not structured as hedged items as part of cash flow hedges against interest rate risks have an effect on net interest income (expense) and are therefore included in the calculation of income-related sensitivities.

From today’s perspective, the likelihood of the financial risks described arising in BLG LOGISTICS is estimated to be low.

Further disclosures on the management of financial risks can be found in note 32.

Other risks

There are currently no other identifiable risks that could have a long-term negative influence on the company’s development. There are currently no potential risks to the company’s continued existence as a going concern such as excessive indebtedness, insolvency or other risks that could significantly impact on the company’s financial position, financial performance and cash flows.

Assessment of the overall risk situation

The war between Russia and Ukraine, as well as the ongoing coronavirus pandemic, could continue to severely disrupt global goods flows and therefore also logistics processes and services in the future.

There is still a high level of uncertainty over the effects on the associated supply chains of BLG LOGISTICS’ customers. The conflict could again exacerbate the shortage of components in industrial production in 2022. We therefore anticipate temporary volume fluctuations in our business operations for the ongoing financial year.

In this context, the very high energy prices described above also represent a significant risk for 2022. A possible embargo on Russian energy could lead to a further significant increase. The measures described above will be used to counteract this within the limits of contractual feasibility.

In this environment, the sovereign debt crises in the US and Europe, the trade conflict between the US and China, further Brexit negotiations and further geopolitical unrest, with their effects on the real economy, have faded into the background, but are not yet overcome. A renewed exacerbation of the risk situation in these areas cannot be ruled out.

Another major factor is the successful implementation of the transformation, including the related cost savings as well as productivity and efficiency improvements, within the CONTAINER Division. Failure to implement these, or to do so only to a lesser extent, would seriously jeopardize the competitiveness and future viability of the EUROGATE Group.

We have assessed the likely impact of possible effects and initiated necessary steps, and are also monitoring the situation on a daily basis. Through various instruments such as our risk management, the regular risk report, regular exchanges with our customers and a crisis team for special situations, we believe we are adequately positioned to master the challenges.

Based on our risk management system and consistent assessments by the Board of Management, there were no foreseeable risks in the reporting period that could jeopardize the company’s continued existence, either individually or as a whole. Based on our medium-term planning and taking the ongoing pandemic situation and the measures already initiated into account, there are currently no indications of strategic or operational risks for future development that pose a threat to the continued existence of the company.

Management and control

Corporate governance statement

In accordance with German statutory requirements, the auditor only audited the existence of disclosures on corporate governance within the meaning of Section 315d HGB. They are shown with the Corporate governance statement in accordance with Section 315d HGB in Chapter 04 of this financial report.

Takeover-related disclosures in accordance with Section 315a (1) HGB

Takeover-related disclosures are also reported in the Corporate governance statement in Chapter 04 of this financial report.

Remuneration report and remuneration system

The applicable remuneration system of the Board of Management pursuant to Section 87a (1) and (2) sentence 1 of the German Stock Corporation Act (AktG), which was approved by the Annual General Meeting on June 2, 2021, and the system for the remuneration of the members of the Supervisory Board (Section 113 (3) AktG), which was also approved by the Annual General Meeting on June 2, 2021, are publicly available under www.blg-logistics.com/en/investor-relations. The remuneration report, including the auditor’s audit opinion pursuant to Section 162 AktG, is made publicly available in the download area at the same Internet address.