Opportunity and Risk Report

Risks

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 actual risk culture.

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

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.

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 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.

Thanks to the compliance management system (CMS), 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.

One particular focus of supplier compliance in the reporting year was the implementation, organized as part of a cross-divisional project, of 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 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.

Particular attention is given to so-called extreme risks. These are risks with a high level of damage but a low probability of occurrence. They include, for example, extreme natural disasters, economic crises or terrorist attacks. Identifying possible risks and analyzing potential consequences (including extreme manifestations) for the company is part of business continuity management (BCM). Developing strategies, plans and actions that protect activities or processes or provide alternative modes of operation is a further aspect of BCM.

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 corporate 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 business 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.

Opportunity and risk management at BLG LOGISTICS

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. The Risk Committee then validates and examines reported risks with regard to their nature and scope. This also includes the option of transferring risks to another risk officer and appointing a person to be in charge of measures. The committee is responsible for general quality assurance, including presenting and commenting on risk exposure. Furthermore, the committee supports the further development of corporate governance (including the dovetailing of the risk management system, internal control system, compliance and internal audit, i.e. integrated GRC). Detailed risk reports are submitted 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 adopted 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 approach¹

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

Governance, risk and compliance model at BLG LOGISTICS

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, 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 combined.

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 relating to the financial reporting process in particular to the Financial Services department.

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 combined 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 subject to a plausibility check and adjusted if necessary.

In addition, disclosure management software is used for preparing the separate financial statements and the combined financial statements, which uses a uniform data pool and includes validations, history traceability 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 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 system¹

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 future. The premise for this remains our network, and the innovative intermodal offering in the AUTOMOBILE Division. The established business models offer us sales and acquisition opportunities in the CONTRACT Division, 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 into and out of Hamburg and Bremerhaven with only minor restrictions. 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. In the course of 2023, however, the second expansion phase of the deepening of the Elbe was canceled due to the discovery of extensive munitions. As things currently stand, it is not possible to foresee when the most recently imposed draft restrictions on the Elbe are likely to be lifted.

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 investment and equity interest in the meantime acquired by Hapag Lloyd in this terminal marks another important step in the further development of this location.

Strategic opportunities

Low-threshold access for applications as an opportunity to attract additional skilled labor

In order to simplify the application process and make it more accessible for applicants, BLG LOGISTICS has introduced the option to submit applications using the popular messenger service WhatsApp. With the help of modern communication channels such as WhatsApp, BLG LOGISTICS is providing applicants with low-threshold access to the company.

In an initial test phase, first and foremost jobs for professional drivers or in the area of warehouse logistics are being assigned a QR code that can be used to apply via WhatsApp. Applicants can register their interest quickly and easily via text or voice message and even send CVs or references.

However, this convenience does not come at the expense of data protection. BLG LOGISTICS attaches great importance to protecting applicants’ privacy, and has therefore carefully reviewed all data privacy aspects in advance. The service provider that provides the interface to WhatsApp is certified in accordance with ISO 27001 and works in compliance with the GDPR. The WhatsApp chats feed directly into the applicant management system via an interface.

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 specialize in designing, configuring, implementing and managing 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.

Increase in vehicle imports

Last year saw an increase in import volumes from the Far East, particularly from China, at the BLG AutoTerminal in Bremerhaven. While this was still on a small scale, BLG LOGISTICS anticipates a significant rise in import volumes over the coming years. One of the main reasons for this is that Chinese manufacturers increasingly want to tap into the European market with electric cars and have in some cases put their own carriers into service. BLG AutoTerminal Bremerhaven is well positioned both for handling transshipments and providing technical services.

Additional space in Bremerhaven

BLG LOGISTICS has rented a prime site directly adjacent to BLG AutoTerminal Bremerhaven as of July 1, 2023. The site, known as the MWB Area, at Barkhausenstraße 60 has 60,000 square meters of open-air and indoor space plus two ship berths on a 600-meter stretch of quay.

With this investment, BLG LOGISTICS is responding to the increased demand in the handling of self-propelled units, break bulk cargo and project cargo and is boosting the high & heavy segment in the AUTOMOBILE Division. With a handling volume of some 1.2 million metric tons of high & heavy goods per year, the BLG AutoTerminal Bremerhaven is already one of the largest RoRo terminals of its kind in Europe. The expansion of the site generally increases the efficiency and resilience of all of BLG LOGISTICS’ cargo handling segments.

An important aspect apart from the planned freeport status is the seamless connection to the 240-hectare site of the auto terminal, allowing direct access from the terminal to the MWB Area in the future. What’s more, BLG is now able to deliver and collect high & heavy goods by truck to and from the MWB Area. Up to completion of the development – including projects such as energy-saving refurbishment of the buildings – BLG LOGISTICS will use the area as a back-up to ease the pressure on the core area of the auto terminal.

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, a photovoltaic system was installed 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 percent), Eurogate Damietta GmbH (29.5 percent) and Contship Damietta Srl (29.5 percent). Two further partners will each hold 1 percent. The joint venture signed the final financing agreement on December 21, 2023.

The new Terminal 2 in the port of Damietta 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 scheduled to be operational in early 2025, a state-of-the-art terminal with sufficient capacity, high productivity and a dense feeder network will be available.

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

Opportunities and risks from new alliances

After A.P. Moeller-Maersk A/S (Maersk) and MSC Mediterranean Shipping Company S.A. (MSC) announced at the beginning of 2023 that they intend to terminate their previous cooperation via the “2M” Alliance at the end of January 2025, Maersk and Hapag-Lloyd Aktiengesellschaft (Hapag-Lloyd), Hamburg, announced in January 2024 that they had concluded an agreement on a new, long-term operational cooperation under the name “Gemini Cooperation.”

The two shipping companies are each major customers at the various EUROGATE Group locations. It is not yet possible to anticipate exactly what changes this cooperation may mean in the future for liner services in the various trade lanes, and what impact this will have on the handling volumes at the respective container terminals. However, the EUROGATE Group is well positioned with regard to the joint ventures operated together with these shipping companies and their terminal operators APM Terminals and HL Terminals, the latter owned by Hapag-Lloyd, at the Bremerhaven, Wilhelmshaven, Tangier and, in future, Damietta locations

The future shipping schedules published by Maersk and Hapag-Lloyd for the Gemini Cooperation to date indicate that Bremerhaven and Wilhelmshaven, alongside Rotterdam, will play a significant role as hub ports for this alliance.

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.

Risk matrix

Service and infrastructure risks

Risks from business relationships

In all operating divisions, close customer relationships and the sometimes 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.

Personnel risks

Demographic change and increasing automation are creating a shortage of qualified employees in many areas. Not being able to fill positions as and when needed or with the right qualifications following (unplanned/planned) fluctuation leads to a lack of productivity. At the same time, this puts additional strain on the workforce, possibly resulting in increased absenteeism, accidents and further fluctuation.

BLG LOGISTICS is taking targeted action to counteract the shortage of skilled workers with the aim to reduce the number of exits by providing timely feedback, employee qualification and recognition. At the same time, the company retains employees with the help of personnel development, good leadership and competitive remuneration. In 2023, the effectiveness of the recruitment process was strengthened by measures such as the “dedicated application process”, active sourcing and applications via WhatsApp.

The persistently high inflation rates and the shortage of skilled workers may result in higher demands on the employee side in future collective bargaining negotiations. We counter this to some extent by integrating price escalator clauses into the contracts with our customers.

Various large-scale projects put additional strain on the organization, which can lead to processing inaccuracies and non-adherence to schedules. We attempt to counter this, for example, by allocating resources accordingly and providing temporary support through interim management or consulting capacities.

Climate risk

The increasing frequency and intensity of acute extreme weather events (for example heatwaves, storms, flooding), combined with the longer-term chronic changes in the mean values and fluctuation ranges of various climate variables (e.g. temperature, precipitation, sea level) pose threats to our assets and business processes. We analyzed various natural hazard scenarios for our property, plant and equipment and the potential operating downtimes associated with them.

To transfer the risk of consequential losses, BLG LOGISTICS has taken out property damage and business interruption insurance. Individual theoretical risks such as a storm surge currently cannot be fully insured. We address such risks as far as possible as part of our business continuity management.

IT risks

The number of cyber incidents, such as IT outages, ransomware attacks or data breaches, remained high in 2023. 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.

In 2023, the emergency processes were reviewed and a crisis team with appropriate decision-making powers was implemented to enable clearly defined processes to ensure a quick and efficient response in the event of a potential attack.

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 combined statement of financial position do not include allowance accounts 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 a liability risk through the assumption of financial guarantees, which as of the reporting date was considered to be low risk.

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.

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

In order to combat inflation, the European Central Bank raised its base rate, in turn increasing banks’ refinancing costs, which they pass on to their customers. In addition, banks’ increased requirements in terms of creditworthiness and sustainability could put further pressure on the interest margin.

As part of the interest rate strategy, interest rate hedges were concluded with banks for financing volumes of EUR 90 million. For each of the years 2019 to 2024, EUR 15 million in loans is fixed via swaps.

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 floating-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 floating-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/“Derivative financial instruments” section of the notes to the combined 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 floating-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 heightens the risk situation. On the one hand, concerns about our employees and about the security 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 an ongoing basis from a social and financial point of view in order to be able to take the necessary steps in a timely manner with respect to the equity investment in Ukraine.

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.

Changes in the market environment can lead to deviations from the assumptions with regard to quantities and cost structure made in the price calculation. Any resulting deviations from projections are addressed within the scope of renegotiations.

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.

Change in the classification of e-vehicles

According to the current classification, fitted batteries are not considered dangerous goods. A change in classification would lead to severe operational restrictions for the AUTOMOBILE Division.

Following the reporting on an accident involving a ship, the Fremantle Highway, the industry has calmed down, meaning that the probability of occurrence for this risk can be classified as very low.

BLG LOGISTICS is monitoring current court decisions and the technical requirements for the handling, transportation and storage of finished vehicles.

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.

Regular reporting to the Board of Management and the Supervisory Board and the regular meetings of these bodies ensure that the operating business is monitored and managed on an ongoing basis. This allows us to respond promptly to emerging risks with appropriate measures.

Market risks

Macroeconomic risks

In addition to the ongoing war in Ukraine, BLG LOGISTICS’ risk situation in 2023 was also affected by other global conflicts. For example, an escalation of the China-Taiwan conflict would lead to a political chain reaction and have enormous consequences for the German automotive industry. The Chinese sales market and parts of the production centers would collapse and, more importantly, it would not be possible to utilize the important semiconductors and technology from Taiwan. A slump in volumes and disruptions to supply chains would lead to a significant decline in earnings in the AUTOMOBILE Division. Due to an ultimatum from the Chinese, it is assumed that the conflict will not escalate until 2027. In the meantime, as part of a “derisking” strategy, the industry is striving to become independent in terms of the supply of parts.

By further expanding segments such as high & heavy and used vehicles, BLG LOGISTICS is continuing to drive diversification. At the same time, it was agreed with our customers that the division would reduce its dependency on the volume of vehicles transshipped and instead generate more revenue from the provision of capacities.

Due to the conflict in the Middle East, ships are being diverted from Asia to Europe via Africa, resulting in longer shipping times. If the conflict continues for an extended period of time, customers will adjust their logistics planning, which could lead to a redistribution of shipping lanes. This would in turn result in changed frequencies, weaker productivity and lower volumes at AutoTerminal Bremerhaven and across the network.

BLG LOGISTICS is also counteracting this by adjusting the planning and management of customer volumes.

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.

Change in the OEMs’ distribution model

Car manufacturers want to switch from distribution via car dealerships to direct or platform trading. This would also eliminate storage capacity at dealerships for both the primary and secondary markets. We have already received initial inquiries for the construction of additional car parks.

BLG LOGISTICS is examining possibilities for creating additional storage capacities and potential investments in new car parks.

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. This dependency can be reduced by increasing the import quota in the coming years.

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 likely to continue to be lost for these regions. 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 transshipment 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.

The Hamburg location is likely to be impacted by the major investment project announced in September 2023 by Mediterranean Shipping Company S.A. (MSC), Geneva, to acquire an equity interest in Hamburger Hafen und Logistik AG (HHLA). MSC is a long-standing major customer of EUROGATE Container Terminal Hamburg. After closing the transaction, which is subject to antitrust and other legal approvals, MSC is expected to transfer its existing services from EUROGATE to HHLA’s Hamburg terminals, which entails a substantial risk in relation to these handling volumes.

While this relocation is not expected to take effect much before the end of 2024, we are currently in intensive talks with existing customers with the aim of increasing their throughput volumes, allowing us to at least compensate for the anticipated loss of the customer MSC through new services or additional volumes.

Other risks

No other identifiable risks currently exist 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 tense geopolitical situation continues to harbor risk potential for the BLG Group in 2024. The rerouting of shipping lanes is already having an initial impact. Geopolitical tensions threaten to further impair trade, for example through import restrictions on goods. Consequently, we see growing volume risks in our customer business going forward. We are also expected the structural change in the automotive industry to gather momentum.

The tightening of monetary policy (interest rate hikes) and more stringent credit standards are affecting more and more sectors of the economy and placing an increasing burden on German companies.

Given the tense situation, the risk of a cyberattack remains significant. 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. Medium-term climate change adaptation and the increase in natural disasters call for special risk management for climate risks and the drafting of emergency plans.

On the back of demographic change and exacerbated by the COVID-19 pandemic, we are also seeing a growing shortage of qualified employees. The skills shortage represents a particular risk in areas such as IT, making employee retention and recruitment measures an increased focus of attention.

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.

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