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.

Risk–rewards culture

The BLG Group aims to achieve profitable growth while giving consideration to sustainability-related objectives.

Our risk–rewards culture as part of the corporate culture of BLG LOGISTICS sets out the company’s basic policy and rules of conduct for managing risks and opportunities. It greatly influences risk awareness when making business decisions and forms the basis for the implementation of appropriate and effective measures to enable us to pursue our opportunities responsibly and sustainably.

Our risk-rewards culture therefore constitutes the basis for the success of our risk management. Risk management works provided that transparency and a willingness to actively communicate and collaborate are practiced as part of an active risk culture.

Dovetailing of the compliance and risk management system and internal control system¹

¹The disclosures in this section are so-called non-management report disclosures and have not been audited by the auditor.

Responsible, continuous and systematic management of operating risks, but also of opportunities, is of fundamental importance for BLG LOGISTICS. To this end, we rely on the close dovetailing of the compliance and risk management systems and the internal control system (ICS). The three systems are described in more detail below.

Main features of the compliance organization

Compliance means conforming to all statutory and internal company regulations, such as guidelines and organizational instructions, with the goal to avoid and minimize liability.

In its Code of Conduct, BLG LOGISTICS already committed to complying at all times with the relevant laws and the company’s internal guidelines.

Based on these fundamental values as well as on our own ethical principles, we aim to be a reliable and fair partner for our customers, business partners and shareholders.

The goal of compliance is to ensure that an organization operates in a manner that is legally and ethically irreproachable, including the prevention of legal violations within the organization. The task of the compliance officer to support the management and the employees responsible for BLG LOGISTICS’ business processes in achieving these goals derives from this.

In accordance with the rules of procedure of the Board of Management of BLG AG, the compliance officer reports to the Board of Management member responsible for compliance, the Chief Compliance Officer. At the invitation of the Board of Management, the compliance officer reports at meetings of the full Board of Management on the current status of compliance activities at BLG LOGISTICS. Also at the invitation of the Board of Management, the compliance officer reports directly to the Supervisory Board of BLG AG.

Thanks to the compliance management system, misconduct within the organization is prevented and appropriate measures are taken to counter compliance risks or legal violations within the organization or from within BLG LOGISTICS.

The full Board of Management supports the compliance officer in the discharge of their duties.

The compliance officer has set up a regular Compliance Committee. BLG LOGISTICS’ compliance officer is the point of contact for the external compliance ombudsperson, and at the same time assumes the role of internal ombudsperson.

In the event of a violation of relevant laws or internal guidelines of BLG LOGISTICS, the compliance officer supports the internal investigations of the Audit department.

Should sanctions be required, the compliance officer, in coordination with the Human Resources department, proposes the necessary measures in the Compliance Committee. The Human Resources department then implements the proposals in coordination with the Board of Management, the responsible management and the Compliance Committee.

One particular focus of supplier compliance in the reporting year was the preparation, organized as part of a cross-divisional project, for the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG), which came into force on January 1, 2023.

The objective of this act is to improve compliance with human rights internationally by specifying the human rights due diligence obligations that companies must observe along the supply chain. It also stipulates environmental requirements. Derived from this, the law defines requirements for responsible management.

Basic elements of risk management

In line with the risk strategy of the BLG Group, the basic conceptual elements of the risk management system are rolled out centrally using a standardized approach to ensure coverage of clear risk accountability, and are described in the Group guideline on risk management. This leads to systematic and comparable risk identification/documentation, risk analysis/assessment, risk control/monitoring and communication/reporting.

The objective of risk management is to create a shared awareness and positive understanding among management and all employees in managing operating risks in order to ensure the company's risk-bearing capacity. The aim is to identify and assess risks, manage these risks efficiently through appropriate and effective measures, monitor them, and ensure ongoing risk reporting as a basis for sound decision-making. In this way, risk management is intended to contribute to achieving the aims of the corporate strategy and objectives.

The objectives of risk management are:

• Identify risks early and prevent crises and insolvencies (support continuity of the organization)

• Improve planning reliability and risk costs through optimal risk management

• Sound preparation of operating decisions with risk analyses to improve the company’s success

• Achieve sustainability-related corporate goals and monitor sustainability-related risks with regard to the three ESG dimensions (Environment, Social, Governance), taking into account the principle of dual materiality (i.e., BLG LOGISTICS’ impact on, for example, the climate or other environmental issues is also monitored).

Risk management organization

The areas of responsibility and roles with regard to the measures pursuant to Section 91 (2) and (3) AktG are clearly defined in the BLG Group’s organizational charts and specified, communicated and documented in the risk management tool. BLG LOGISTICS ensures that those vested with responsibility fulfill the required personal and professional criteria and receive regular training from central Risk Management. As part of the annual planning process, BLG sees to it that sufficient resources are made available for measures designed to promptly identify, evaluate, control and monitor developments that could jeopardize the organization’s continued existence as a going concern. The key provisions governing the organizational structure and workflows are documented and made binding.

Risk management organization encompasses the following components:

The organizational structure describes the tasks and responsibilities of all persons responsible for the risk management process and the measures taken to maintain the implemented system at a consistently high level and to communicate developments to those responsible in a structured and systematic manner.

The risk management process is the process of assessing risks by identifying/documenting, analyzing/evaluating, controlling/monitoring and communicating/reporting risks.

The platform for an effective risk management system is the risk management tool, which enables risk managers to exchange information, prepare assessments and consolidate risks in a timely and flexible manner.

The divisions feed reports into the risk management tool on a continuous basis. The risks entered in the risk management tool are then evaluated and monitored by centrally responsible risk managers, who submit detailed risk reports to the Board of Management and the Supervisory Board at least four times a year.

Aims and methods of financial risk management

The principal financial instruments used to finance the Group include non-current loans, current borrowings, lease liabilities, other borrowings, factoring 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. The central task besides managing liquidity and arranging financing is the minimization of financial risks at Group level. 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 (of receivables), 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 in the “Financial risks” section, and verifies compliance with these guidelines. At Group level the existing market price risk for all financial instruments is also monitored.

Hedge accounting is applied if derivative financial instruments are used as hedging instruments and the requirements for hedge accounting in accordance with IFRS 9 are met. The objective is to reduce inconsistencies in recognition or measurement arising for example from gains or losses from a hedging instrument not being credited or charged to the same account in the financial statements as the gains or losses from the hedged risk. The Group’s accounting policies for derivatives and other disclosures on hedge accounting are presented in the “Derivative financial instruments” section.

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 income 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 over the long term to reduce the costs of capital in general and the refinancing risk in particular.

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

Internal control system

The internal control system (ICS) as the set of all systemically defined controls and monitoring activities has the objective of ensuring the security and efficiency of business transactions, the reliability of financial reporting, and the compliance of all activities with laws and policies. An effective and efficient internal control system is crucial to successfully managing risks in our business processes. In its design, the internal control system at BLG LOGISTICS considers all material business processes and goes beyond controls in the accounting process. The non-financial ICS covers areas such as environmental violations, occupational health and safety and anti-corruption.

The ICS and the elements that contribute to it are regularly the focus of audit activities by the Internal Audit department. These are carried out either within the scope of the risk-based annual audit plan or within the scope of audits scheduled during the year at the request of management.

Integrated governance, risk and compliance approach²

² The disclosures in this section are so-called non-management report disclosures and have not been audited by the auditor.

Risk management within the BLG Group is based on an integrated governance, risk and compliance model, which enables responsible management of risks and opportunities.

First line of defense:
Operational management

Operational management of the individual business areas and central departments forms the front line of defense. They manage and are responsible for their processes and identify and assess risks locally at the level of the operating companies. Countermeasures are initiated promptly, and the residual potential impact is assessed. Material risks are reported in the risk management system on the basis of the published internal risk management guideline. The outcomes are continuously incorporated into risk reporting, thus also providing the Board of Management with an overall picture of the current risk situation during the course of the year via the documented reporting lines.

Second line of defense:
Central risk management system, compliance management system, internal control system

Central risk management is closely dovetailed with the two other governance control systems, the compliance management system and the internal control system. All three systems serve to support and systemically monitor operational management. These three core governance control systems provide the organizational framework and control the implementation of the framework guidelines in the operational processes, thus ensuring compliance with laws and our internal corporate standards and rules. Giving consideration to the findings from the other two control systems, the compliance management system and the internal control system, central Risk Management draws up the central risk map and acts as an important node for passing on relevant information to the Internal Audit department as well as for preparation of the annual financial statements.

Third line of defense:
Audit by the Group Internal Audit department

The Group Internal Audit department supports the Board of Management in overseeing the various divisions and business units within the Group. It regularly checks the early risk identification system and the structure and implementation of risk management as part of its independent audit activities.

Fourth line of defense:
Audit by the independent auditor

The risk management system is assessed with regard to the accounting process by the independent auditor within the scope of the audit of the annual financial statements.

Description of the main features of the ICS 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 appropriate and legally compliant recognition, measurement and presentation of business transactions in financial accounting and reporting as well as non-financial information within the scope of sustainability reporting. The objective is to avoid any material misstatements in accounting and external reporting. Since the internal control system is an integral component of risk management, they are presented summarized.

The internal management and monitoring systems are components of the internal control system. Being responsible for the internal management system, the Board of Management of BLG LOGISTICS, has commissioned the Financial Services department in particular with the accounting process.

The internal monitoring system comprises controls that are both integrated into and independent of the financial reporting 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 financial reporting 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. In line with the Supervisory Board’s profile of skills and expertise, consideration has also been given to ensuring that its members have appropriate expertise in sustainability aspects that are material for BLG LOGISTICS. The Audit Committee concerns itself in particular with the financial accounting for the company and the Group, including reporting and supervising the auditing of the financial statements. 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.

Audit activities that are independent of the financial reporting process are also performed by external auditing bodies such as the German public auditing firm 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.

Financial accounting and reporting process and measures to ensure compliance with the applicable legal requirements

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). 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 debt consolidation, internal balances are regularly reconciled in order to clarify and remedy any differences in good time. 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.

Für die Erstellung der Einzelabschlüsse und des Gruppenabschlusses wird darüber hinaus eine Disclosure-Management-Software eingesetzt, die einen einheitlichen Datenpool verwendet und Validierungen, eine Nachvollziehbarkeit der Historie sowie einen fest definierten Workflow enthält. Durch einen hohen Automatisierungsgrad wird das Fehlerrisiko deutlich reduziert und die Effizienz erhöht.<

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 as well as the compliance management system, i.e., the set of all governance systems, ensure the compliance of the financial accounting and reporting process with legally required accounting principles and with the relevant legal requirements as well as the sustainability-related objectives. Discretionary decisions, erroneous controls or fraud may, however, limit the effectiveness of the internal control and risk management system and the compliance management system, so that the established systems cannot guarantee with absolute certainty that the risks will be identified and managed.

Effectiveness of the internal control system, risk management system and compliance management system³

³ The disclosures in this section are so-called non-management report disclosures and have not been audited by the auditor.

With the integrated governance, risk and compliance approach, the Board of Management has created and implemented a management framework for BLG LOGISTICS which aims to ensure appropriate and effective internal control and risk management. The measures implemented as part of this approach are similarly aimed at the effectiveness and appropriateness of internal control and risk management as well as compliance management and are explained in more detail in this report. In the context of anchoring the three-lines-of-defense business model and the legal framework, independent reviews and audits simultaneously take place, in particular through audits carried out by the Internal Audit department, and their reporting to the Board of Management and Supervisory Board, and by the Supervisory Board’s Audit Committee, as well as through other external audits.

Based on its review of the internal control and risk management system and compliance management system, as well as the reporting by the Internal Audit department, the Board of Management is not aware of any circumstances which contradict the appropriateness and effectiveness of these systems.

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 the future. The premise for this remains our network, and the innovative intermodal offering in the AUTOMOBILE Division. The established business models in the retail 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 completed adjustment of the Elbe fairway and the still outstanding deepening of the Outer Weser was and continues to be of great importance to secure and position the German seaports in the “North Range” so that ever larger container vessels can operate without problems into and out of Hamburg and Bremerhaven. Following the implementation of the fairway adjustment measures in the Elbe, the nautical problems encountered by the growing number of ever-larger mega carriers had improved somewhat, especially at the Hamburg 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 recent investment and equity interest acquired by Hapag Lloyd in this terminal marks another important step in the further development of this location.

Strategic opportunities

Strategic partnership: BLG LOGISTICS and DEKRA combine competencies

BLG LOGISTICS and DEKRA have agreed a strategic partnership between their two companies. Together, the partners will tackle strategic issues in the future and combine their strengths in the areas of digitalization, sustainability and qualification. The partnership will create operational advantages and sales synergies for both companies.

BLG LOGISTICS and the DEKRA companies operate in a constantly changing market environment and want to work together to meet the developments in the areas of lifecycle management and remarketing, digitalization, process optimization, quality improvements, zero emissions and employee qualification – keyword: shortage of skilled workers.

Through the strategic partnership with the specialists from DEKRA, BLG LOGISTICS can offer its customers in the AUTOMOBILE Division further added value: holistic solutions as well as services with unique selling points from a single source.

BLG contract logistics restructured

As from the beginning of October 2022, the BLG CONTRACT Division consists of three new pillars: Contract Operations, Customer & Business Development, and Performance Support. With this move, the company has replaced the former division into the business areas industrial and retail logistics. This reorganization allows BLG LOGISTICS to emphasize its strengths, use its potentials even better, and generally offer greater agility.

BLG LOGISTICS provides contract logistics at more than 40 locations in Germany and around the world. In the future, the locations and countries will be integrated into a regional structure. This will ensure the BLG team is even closer to customers and operates with even better business acumen. Another goal of the new structure is to strengthen the company’s competitiveness for a secure future. Further¬more, developments in technology and sustainability will be more strongly anchored in the organization.

BLG LOGISTICS as strong logistics architects

Today, our customers face massive challenges and opportunities. Advancing digitalization is opening up new possibilities in all areas of the value creation chain. At the same time, global competition demands ever-faster responses. To an increasing extent, logistics processes are also a factor in how competitive companies are.

As “logistics architects,” the expert teams at BLG LOGISTICS plan, design, implement and operate customized logistics centers, ranging from conventional to highly automated.

We have a large staff of in-house experts who draw on comprehensive 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.

Our Mission Climate and sustainable logistics center

The topic of climate protection 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 protection 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 (Scopes 1+2) and –15 percent along the supply chain (Scope 3) assessed and certified by the independent Science Based Targets initiative (SBTi).

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 opened a new location for industrial logistics. From “C3 Bremen,” BLG LOGISTICS provides sustainable and efficient supplies to the foreign assembly plants of a major car manufacturer.

“C3” stands for customer, climate and comfort. With intelligent intralogistics planning and efficient workflows, logistics processing is tailored to our customers’ needs. The processes inside the new facility were designed in line with the lean management principle, supported by cutting-edge automation and digitalization systems. A holistic concept was developed to underscore the building’s sustainability credentials. Among other things, it is planned to install a photovoltaic system covering the entire roof. A solar thermal energy system feeds electricity into the heating and hot water system. The new project is not only a design highlight. The communal and outdoor spaces were developed with the wellbeing of people and nature in mind to make the working environment as pleasant as possible. The new building project places a strong focus on employees’ health at the workplace.

“Damietta Alliance” develops and operates new container terminal in Damietta, Egypt

A new container terminal is being built in the port of Damietta (Egypt). For this purpose, a joint venture was founded to develop and operate the new “Terminal 2” in the port. The “Damietta Alliance Container Terminal S.A.E.” joint venture consists of three core shareholders which are Hapag-Lloyd Damietta GmbH (39%), Eurogate Damietta GmbH (29.5%) and Contship Damietta Srl (29.5%). Two further partners will each hold one percent.

The new Terminal 2 at the port of Damietta is expected to start operations in 2024. It will have a total operational capacity of 3.3 million TEUs and will serve as Hapag-Lloyd’s dedicated strategic transshipment hub in the Eastern Mediterranean.

With Terminal 2 being operational in 2024, the partners will be able to use a state-of-the-art terminal with sufficient capacity, high productivity and a dense feeder network.

The concession to operate the facility is granted to the joint venture for 30 years. This gives EUROGATE, the joint venture partners and our respective customers a long-term perspective in the port of Damietta.

Automation at Container Terminal Wilhelmshaven

In the coming years, container handling activities at EUROGATE Container Terminal Wilhelmshaven will be converted from manual operations to an automated system. The respective automation project got underway in January 2022. EUROGATE is investing at least EUR 150 million in the first phase of the project. Automated operation of a first ship berth is planned for as soon as 2027.

We are anticipating that automation will contribute to 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 with streamlined organization 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.

Risks

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. Furthermore, in line with the principle of dual materiality, we draw on risk analyses to assess and manage the impacts of our business activities on people and the environment. We consider risks from the area of Environment, Social and Governance (ESG) to be an integral part of the risk categories presented below. 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.

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.

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. These 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.

Should the still outstanding measure to deepen the Outer Weser fail to materialize or be seriously delayed, this could have a highly adverse effect on the future development of transshipment at the Bremerhaven location.

A possible shortage of gas and energy supplies, particularly in Germany, may lead to production stoppages, short-time work and higher costs for the procurement of replacement materials and components required for production. Supply chain disruptions caused by other events, such as coronavirus lockdowns, can negatively impact procurement as well as demand. BLG LOGISTICS reviews potential disruptions in consultation with customers and assesses their impact on the business in order to initiate countermeasures at an early stage.

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 and the shortage of skilled workers, future collective bargaining negotiations may result in higher demands on the employee side. We counter this to some extent 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. 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, and the skills and turnover of the workforce.

This long-term human resource development harbors certain personnel cost risks in the event that business development does not occur as planned in the medium term.

Additional 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

German companies continued to see a rise in the number of cyber incidents, such as IT outages, ransomware attacks or data breaches, in 2022. The conflict in Ukraine and further geopolitical tensions increase the risk of a cyberattack by state-backed criminal groups. At the same time, the increasing shortage of skilled workers makes efforts to improve processes even more challenging.

As information security plays a central role in our business processes, this risk remains significant for BLG LOGISTICS. We have introduced various measures to avoid and mitigate risks and continuously review our processes and technologies.

Raising employees’ awareness of the importance of sensitive handling of all business-relevant information is something we take very seriously. We therefore conduct internal communication and training campaigns and ensure that appropriate technical support is in place to guarantee the confidentiality, integrity and availability of information at all times.

Together with the data protection officers, we make sure that personal data is processed exclusively in accordance with the regulations of the EU General Data Protection Regulation and the respective applicable local laws.

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. Owing to the ongoing monitoring of receivables at management level and the use of commercial credit insurance depending on customer creditworthiness, we are 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, which are highly secure thanks to a joint liability scheme and/or at which there are offsetting opportunities via non-current loans.

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.

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, however, are not considered material.

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 liquidity 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 committed credit facilities. The issue of sustainability is also becoming increasingly important in the capital market. The definition of sustainability targets as part of the overall strategy, as well as the implementation of the corresponding measures, are increasingly in the focus of potential lenders and can be criteria for granting loans. Our sustainability measures are thus a factor in ensuring that we can meet our liquidity requirements in the future.

In parallel, the BLG Group uses the non-recourse sale of receivables under a factoring agreement as an off-statement of financial position financing instrument 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 risks material to disposal relate to the credit risk and the risk of late payment (late payment risk). The credit risk is transferred in full to the factor in return for payment of a factoring fee. There is no significant late payment risk. The receivables were therefore derecognized in full.

We counter the financial risks arising from the dynamics of the current geopolitical situation with a regular forecast process, from which appropriate measures are derived where necessary.

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, while interest rates were low and attractive for investments, a portion of the financing requirement of the coming years was hedged by agreeing forward interest rate swaps. 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 expense, 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 are only recognized through 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. The same applies to interest payments from interest rate swaps which are, as an exception, not contained in a hedge accounting relationship in accordance with IFRS 9. In the case of these interest rate swaps, market interest rate changes also have an effect on the fair value and thus affect the remeasurement of financial assets or financial liabilities to fair value and are therefore included in the income-related sensitivity analysis.

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

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

Political, legal and social risks

Legal and political environment

The Russian invasion of Ukraine in February 2022 heightened the risk situation. On the one hand, concerns about our employees and the uncertainty of business in Ukraine increased, and on the other hand we had to react in line with the sanctions policy against Russia. BLG LOGISTICS assesses the situation on a daily basis from a social and financial point of view in order to be able to take the necessary steps in a timely manner.

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 sometimes have 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 thus 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 level of risk 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.

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 must be given particular consideration.

Investments made in the past may entail a need for subsequent decisions, assuming continuation of the strategic decisions and statements made at the time of acquiring 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. Should these changed conditions become permanent, BLG LOGISTICS may be required in the future to write-down the investment in full.

Market risks

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.

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.

Inflation

The rise in inflation and the associated increase in risks from higher energy, personnel and material costs impacted on the risk situation of BLG LOGISTICS.

In the past, the contract logistics business model in particular was partly based on the assumption of cost change risks for customers under the contracts concluded for the respective term of the contract. Coverage of these risks was taken into account in the price calculation on the basis of historical data. Price adjustment clauses in the form of inflation-related indexing or “cost-plus” arrangements were not systematically included in the contracts in the past in view of the stable market environment.

Sector risks

In finished vehicle as well as car parts logistics, the increased uncertainty relating to customer volumes expected for BLG LOGISTICS continues. New studies predict that the shortage of semiconductors will persist until 2024, slowing down car production worldwide. The reason for this is the increasing demand for chips due to the ramp-up of electric cars in the coming years. Another risk factor is a prolonged shortage of components, as only some of the bottlenecks can be seen as temporary in relation to disruptions in global retail supply chains in the wake of the coronavirus pandemic and the war in Ukraine.

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 continues to lead to a dependency on German original equipment manufacturers (OEMs). To limit such dependencies, we actively manage the OEM share of our revenue in the overall customer portfolio.

Threat to market position and competitive advantages

The contractually agreed prices for seaport transshipment in the AUTOMOBILE Division, coupled with the persistently strong competition with other ports, 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 again likely to be lost for these regions in 2023. By optimizing planning and control tools, we are constantly working to better anticipate fluctuations in capacity utilization.

For break bulk cargo business and project logistics, the principal risks lie in high competition 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 other 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 capacities in the North Range and in the Baltic region,

• commissioning additional large container vessels and the related operational challenges in ship handling,

• changes in the market, network and processes resulting from changes in the structure of the shipping company consortia,

• mergers and the formation of joint ventures, as well as

• price structures in the market.

Added to this is the increasing shift to vertical integration among shipping lines along the entire logistics chain.

Because the container terminals still have capacity reserves, at least in the medium term, the remaining consortia/shipping companies gain market power as a result of consolidation. This also puts pressure on revenue and intensifies the need to identify and implement further cost reductions and efficiency improvements at the container terminals as well as standardization and automation measures.

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.

Given the still outstanding negotiation of a reconciliation of interests at the Hamburg site and the revised savings target, which exceeds original expectations, it will not be possible from today’s perspective to fully achieve the corresponding effects by 2024.

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 ongoing war in Ukraine continued to impact on the risk situation of the BLG Group in 2022. Particularly worthy of note was the rise in inflation and the associated increase in risks from higher energy, personnel and material costs. The key interest rate adjustment by the European Central Bank in response to persistent inflation in the euro zone also affects a possible interest rate risk for subsequent years. Given the tense situation, the risk of a cyberattack remains significant. The economic slowdown and associated restrained demand, as well as the difficult availability of components and raw materials, lead to fluctuating volumes in our customer businesses, which are therefore difficult to predict. We are seeing an increasing focus on sustainability issues in the areas of environment, social and governance, which present both opportunities and risks for the BLG Group. These issues can have an impact on the overall risk situation, for example in financing, human resources policy, regulation and procurement.

Our transparent and systematic risk management with its structured processes contributes to efficient management of overall risks in the Group.

From today's perspective and supported by the outcome of a risk-bearing capacity analysis at Group level, there are currently no risks that pose a threat to the continued existence of the company. Based on our medium-term planning and the uncertain geopolitical situation and taking the measures already initiated into account, there are currently no indications of any strategic or operational risks to future development that jeopardize the continued existence of the company as a going concern.

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 the Chapter “Further Information” of this financial report.

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

To the Takeover-related disclosures

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 (under Corporate Governance). 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.