Outlook

Future direction of the Group

Retention of the business model

A fundamental change in our business model is not currently planned. One strategic priority will be the further expansion of the AUTOMOBILE and CONTRACT Divisions. Our goal is to be profitable in all business areas and to continue to grow. We intend to grow our shares in existing markets, open up new markets and win new customers by continuing our acquisition activities, developing collaborations in a targeted manner and establishing strategic partnerships. We will also extend our value chains in the business areas. Moreover, we will seek to improve productivity in all areas, also in the current multiple crisis environment, through consistent process and quality management, the use of opportunities arising from digitalization and automation, and strict cost management.

Expected macroeconomic conditions

Slowdown in global economic growth

Due to high inflation rates, continued tightening of monetary policy in many countries and the European energy crisis resulting from the Russian war of aggression against Ukraine, the global economy expanded only modestly in the final quarter of 2022.

Global consumer and business sentiment brightened somewhat at the turn of the year, as the European energy crisis eased noticeably and inflationary pressure lessened slightly. The end of the zero-Covid policy in China can also be expected to provide a basis for economic recovery.

Nevertheless, a significant slowdown of the global economy is projected for 2023. “Extra savings” accumulated during the pandemic are increasingly being used up, high industrial order backlogs are being worked off, and higher financing costs caused by central bank interest rate hikes are slowing investment and consumption. Forecasts assume – depending on the institute – that the global economy will grow by between 2 and 3 percent.

Euro zone on the brink of recession

By contrast, growth of less than one percent is expected for the euro zone in the coming year, which means that the euro zone is on the threshold of recession. High inflation, rising interest rates and a difficult global economic environment all point to a phase of economic weakness in the first quarters of 2023.

The European Central Bank is also likely to continue to pursue the restrictive basic monetary policy approach that it adopted last summer. As a result, financing conditions for households and companies will deteriorate further.

Overall, however, Europe has adjusted more quickly than expected to higher energy costs and has shown greater resilience to the effects of the Ukraine war than originally assumed. The economy is expected to pick up again especially in the last six months of 2023.

Risk of recession in Germany

The outlook for the economic situation in Germany is muted. Although the situation on the energy markets and the supply bottlenecks in the German economy eased somewhat at the beginning of 2023, industrial production started sluggishly, as did exports due to weakening demand from abroad.

Declining real incomes and persistently high inflation will significantly weaken private consumption in particular. Despite gas and electricity price brakes, the inflation rate in 2023 is expected to be in the mid-single digits.

Although the economic situation is expected to improve slightly in the second half of the year, overall German economic output is likely to decline slightly in 2023 or only just avoid recession. The labor market is expected to remain stable.

The EU’s and the German government’s ambitious targets for lowering greenhouse gas emissions will create a massive need for investments and development in the coming years. This presents huge challenges for the automotive industry in particular, as well as for other large parts of German industry. Furthermore, the medium-term shift away from the combustion engine to electric drive technology entails enormous changes in the production and work sequences.

A possible further escalation of the Ukraine conflict, coupled with strained relations between the US, Europe and Russia as well as the ongoing tensions between the US and China, give rise to additional uncertainties. Problems with energy supplies may also intensify again. It is not yet possible to give a definitive assessment of the future impact on the global economy.

Sources for this section:
Deutsche Bundesbank, Monthly Report, February 2022
IMK, IMK Report No. 178, December 2022
IMK, IMK Report No. 179, January 2023
IfW Kiel, Kiel Institute Economic Outlook, No. 97 (2022|Q4)
Tagesschau.de, “Bessere Aussichten für die Weltwirtschaft,” January 31, 2023, 9:14 a.m.

Logistics sector faces challenging year

The results of the SCI Logistics Barometer (December 2022) show that among the transport and logistics companies surveyed the performance indicator was at a similarly negative level at the end of 2022 as at the beginning of the coronavirus pandemic in March 2020. Despite isolated positive assessments of the current and seasonal business situation, the persistently negative expectations of logistics companies at federal state and national level overshadow the industry’s economic assessment. Even though the rate of cost increases slowed toward year-end, the sector still expects 2023 to be a challenging year. In addition to persistently high costs and a generally negative business trend, respondents anticipate a dip in the previously mostly positive employment trend.

The shortage of skilled workers and the resulting dearth of suitable applicants pose additional difficulties for the industry. Amid the protracted war in Ukraine, high energy costs and global supply chain instability, a high level of skepticism remains in respect of the business development in 2023.

Industry confidence improved in January 2023 according to the SCI Logistics Barometer indicator, with expectations of a more stable cost and price development resulting in a significantly more positive outlook than in the previous months. However, the sudden change in mood should not be overestimated.

The ifo-BVL Logistics Indicator also showed a business climate well below its full potential at the end of 2022 (see also graphic), albeit with a slight improvement over the previous three months. The overall business sentiment was only worse at the start of the coronavirus pandemic in 2020. At the end of 2022, business expectations for the coming six months were also significantly below the normal level.

The respondents noted a sharp fall in demand momentum and frequently characterized the order backlog as too low. They also anticipate lower demand in the subsequent months. Despite signs of a relaxation, price expectations remain at a high level.

As mentioned above, the ifo-BVL Logistics Indicator also infers that the supply bottlenecks have gradually been overcome, or the partially implemented higher inventory levels are having an effect. Some companies are already perceiving inventory levels as too high again. However, that is one of the reasons for the poor outlook of the logistics service providers: the catch-up effects seen in the previous months have been largely absorbed and in many sectors fears of a prolonged period of weak demand are setting in.

Logistics providers find it considerably harder than industry and retailing to absorb price adjustments. Cost pressure due to rising energy prices and inflation affects both segments of the economy equally.

The logistics industry will continue to benefit from a strong, export-oriented German industry and Germany’s excellent position as a logistics center. Maintaining the infrastructure continues to be a major challenge. Furthermore, climate policy will strongly influence the organization of supply chains in the future, giving rise to additional requirements.

Sources for this section:
BVL Logistics Indicator, 4th Quarter 2022, including commentary
SCI Verkehr, SCI Logistics Barometer, December 2022 and January 2023

Development of BLG LOGISTICS in the following year

AUTOMOBILE Division

Based on the signals from the automobile manufacturers, BLG LOGISTICS assumes that the supply situation for production parts will normalize in the 2023 financial year and that there will no longer be repeated, unplanned production stoppages. Due to high inflation and energy supply uncertainties, sales of new vehicles in Germany are expected to decline. However, this is likely to be offset by higher exports from the manufacturers' German and Eastern European plants, which, in turn, will increase the expected volume of finished vehicles in the entire network compared with financial year 2022.

In the seaport terminals business area, the restructuring process at BLG AutoTerminal Bremerhaven will continue, aimed at improving productivity and increasing technical value creation. We are expecting vehicle throughput at AutoTerminal Bremerhaven to increase compared to the 2022 financial year.

Owing to the low availability of container capacities, the high & heavy segment benefited from a higher share of rolling cargo (RoRo cargo) in fiscal year 2022. Accordingly, we expect handling volumes for 2023 to remain constant.

We also anticipate similar handling volumes to the previous year for BLG AutoTerminal Cuxhaven. A new long-term contract with a major customer is expected to make up for the loss of spot and extraordinary business.

In the inland terminals business area, crowding out is likely to intensify. Nevertheless, we see good opportunities to further expand this business area, especially through business with high technical value creation, which we intend to do by leveraging our high level of expertise and the division’s extensive terminal network. A slight to moderate increase in vehicle volumes is projected, particularly as a result of extraordinary business. Standardizing operational processes allows BLG LOGISTICS to further improve productivity in technical services. Capacity utilization problems at the AutoTerminal Neuss joint venture are expected to persist in 2023.

In the car transport business area, we expect road transport volumes to remain at the previous year’s level. The projected decline in deliveries to dealers will be offset by rising transport volumes for exports to seaports.

Restrictions in the provision of adequate rail transport capacity are also set to continue in the 2023 financial year. This leads to higher demand for truck transport as an alternative to rail, which can in turn lead to a shortage of capacity from subcontractors and third-party companies. We are maintaining the number of trucks in our own vehicle fleet at a constant level.

Demand for vehicle transport capacity in the rail business area will remain high. However, there will continue to be restrictions in 2023 as a result of the persistently high shortage of locomotive drivers, a large number of construction sites in the Europe-wide track network and the prioritization of other goods on the railroads. Nevertheless, we are predicting that unplanned production stoppages by manufacturers will decrease appreciably in 2023 and BLG LOGISTICS’ transport volumes will grow significantly. Export volumes at the seaports will also increase in 2023. At BLG RailTec, we want to further expand the repair business for third parties, above all in the area of mobile maintenance.

In the Southern/Eastern Europe business area, we are specifically planning to expand high & heavy transports at BLG LOGISTICS’ location in Poland. The transport business of the joint venture in Ukraine is being sustained to the extent possible.

CONTRACT Division

The CONTRACT Division repositioned itself at the end of 2022 and now consists of three pillars: Contract Operations, Customer & Business Development, and Performance Support. With this move, BLG LOGISTICS has replaced the former division into the business areas industrial and retail logistics.

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. Another goal of the new structure is to strengthen the company’s competitiveness for a secure future. Furthermore, developments in technology and sustainability will be more strongly anchored in the organization.

The effects of supply chain disruptions, consumer restraint, the war in Ukraine and high inflation will continue to pose challenges in the coming financial year.

In the past financial year, BLG LOGISTICS was able to negotiate renewals of existing contracts with almost all current customers. We hope to be able to continually expand business in line with our strategic orientation by generating new business, especially with existing customers. In the area of human resources, the aim is to increase the proportion of in-house staff in existing business in order to counteract the high fluctuations in external staff and the associated impact on productivity.

In the CKD (Completely Knocked Down) business area, we anticipate increasing volumes in the coming financial year, which will be handled at the new C3 logistics center in Bremen. On completion of the relocation, business will be consolidated and optimized in one area.

For the overseas industrial logistics business area, we are assuming a stable development of the South Africa location after securing new business in the 2022 financial year. In the US, the startup of new business is still expected to have a negative impact on earnings. BLG LOGISTICS withdrew from its joint ventures in India and Malaysia at the beginning of 2023.

In pursuit of further industry diversification in the area of retail logistics services, BLG LOGISTICS will continue to focus on additional target industries going forward.

At the Neustädter Hafen site in Bremerhaven, BLG Cargo successfully compensated for negative effects from switches in transport routes and ports on the part of the shipping lines through the acquisition of new business. We expect handling volumes for 2023 to remain constant.

CONTAINER Division

In light of the expected economic recession, we believe that supply chains will ease and transport and handling volumes will contract significantly in the 2023 financial year. This is likely to be accompanied by a substantial decline in the division’s earnings.

This development is reflected in the volume planning for the individual terminals for the 2023 financial year. In February 2023, the termination of the 2M consortium (of Maersk and MSC) as of January 2025 was announced. How a new setup will look, is currently not known. The two remaining shipping line consortia will remain unchanged for the foreseeable future. For EUROGATE Container Terminal Wilhelmshaven (CTW), a significant volume increase is anticipated in the coming year as a result of the planned start of a first ultra-large ship service operated by the alliance of the new partner Hapag Lloyd in April 2023.

In addition to the macroeconomic trends described above, however, other industry-specific influences will have a decisive impact on the handling volumes of our container terminals. For further information, please refer to the remarks in the Opportunity and Risk Report.

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

Three major consortia continue to dominate market activity on the customer side. Whether and to what extent changes in the alliances are likely to occur in the foreseeable future – especially in the 2M consortium – is not apparent at present.

The trend on the part of the shipping lines to commission additional ultra-large container vessels, in the meantime of up to 24,000 TEUs, continues unabated. In light of this trend, the number of ultra-large container ships docking at the terminals of the EUROGATE Group can also be expected to further increase.

The respective infrastructure aspects remain of great importance as locational factors for the container terminals.

In Wilhelmshaven, the nautical conditions remain unchanged and without restriction. Electrification of the double-track rail link was completed on schedule.

Planned capital expenditure

We adjust our investment plans to the constantly changing market conditions, paying particular attention to our liquidity and results of operations. Significant expansion, process optimization and replacement investments are planned in the coming year in the AUTOMOBILE Division, for example for the continuous replacement of older trucks and the buyback of car wagons from leasing in the car transport and rail business area. In the seaport and inland terminals business areas, capital expenditure mainly relates to various measures to expand and modernize spaces and buildings and the upgrading of handling equipment. In addition, investments will be made to optimize the division’s IT network. In the CONTRACT Division, capital expenditure relates to the development and expansion of new logistics centers and the expansion of existing business. Another focus is the replacement of technical plant and machinery. An investment volume of around EUR 134 million is planned for the necessary expansion and replacement investments and for investments in process optimization (excluding the CONTAINER Division). This capital expenditure will be mainly financed through borrowing.

Overall statement on the expected development of the Group

At the time of preparing this report, the war between Russia and Ukraine is still ongoing, tensions remain between the US and China and the energy crisis is not yet over. We know that the uncertainties will continue to grow in 2023 – and are preparing accordingly.

In this uncertain environment, based on the forecast for the BLG Group outlined above, we currently expect revenue to be slightly above the previous year’s level. Overall, we anticipate a significant reduction in earnings (EBT), mainly on the back of substantially lower investment income from the CONTAINER Division, in the 2023 financial year – although nevertheless still in clearly positive territory. EBIT and RoCE and the EBT margin will develop accordingly. Against the backdrop of the multiple crisis situation described above, this forecast is subject to a high degree of uncertainty.

We pursue the goal of an earnings-related and consistent dividend policy. Therefore, depending on business performance, we will continue to allow our shareholders to participate appropriately in earnings.

This annual report was prepared on the basis of German Accounting Standard 20 (DRS 20) in the current version. Apart from historical financial information, it contains statements on the future development of the business and the business performance of BLG LOGISTICS which are based on estimates, forecasts and expectations, and can be identified by wording such as “assume,” “expect” or similar terms. These statements may, of course, vary from actual future events or developments. We are not under any obligation to update these forward-looking statements with new information.