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

Muted global economic growth

The World Bank in Washington forecasts a continued slowdown for the third consecutive year in 2024, attributing this to high interest rates, persistent global crises, and subdued investment levels. The latest projection indicates a decrease in global economic growth to 2.4 percent in 2024, down from 2.6 percent the previous year, marking the weakest expansion since the 1990s. The outlook is concerning, with the World Bank deeming it a “sad milestone.” Compounding these challenges are the conflict in the Middle East and the ongoing war in Ukraine, which have the potential to exacerbate the situation. In industrialized nations, the goal is to sustain competitiveness without overburdening low-income households.

Economic climate in Europe

The European Central Bank (ECB) has repeatedly increased interest rates since July 2022. Consequently, there was a marked rise in financing costs throughout 2023. It is highly probable that this will adversely affect consumer behavior and corporate investment activities.

Moreover, the German government has reduced its growth projection, now anticipating only a 0.2 percent increase in gross domestic product (GDP) for the current year, 2024. The German Council of Economic Experts (“Wirtschaftsweise”), which advises the German government, is forecasting growth of 0.7 percent. It employs its own calculation model, which already factors in reduced government spending.

According to the Deutsche Bundesbank’s February monthly report, uncertainty persists concerning transformation and climate policy. Moreover, the impact of various strikes, especially in rail and air transport, on production cannot be discounted. While order backlogs in industry and construction still exist, they are slowly diminishing. Consequently, economic output might experience a slight downturn once more in the first quarter of 2024. Currently, there are no indications of a significant deterioration in the labor market due to the sluggish economy.

The German Bundesbank anticipates that the inflation rate will continue to fall in the upcoming months. This expected decline is partly attributable to baseline effects in energy and local public transportation. The main factor behind the reduction in the inflation rate is expected to be the slowing price dynamics for food and industrial goods. Inflation-related cost increases in a highly competitive market can create substantial price pressures for businesses. Moreover, this pressure is expected to diminish more gradually in the service sector over the coming months, partly because of persistent robust wage growth.

Concerning the conflict in the Red Sea and the Suez Canal, it is believed that this will have only minimal impact on global production. Given the adequate global shipping capacity, the current supply bottlenecks observed in Germany due to the escalation in the Red Sea are expected to diminish swiftly once firms adapt their procurement and production strategies.

Additional uncertainties for the financial year 2024 include the persistent war in Ukraine, the Middle East conflict, tensions between Taiwan and China, and the presidential elections in the United States.

Sources for this section:
Deutsche Bundesbank, Monthly Report, January + February 2024
IMK, IMK Report No. 186, December 2023
IMK, IMK Report No. 187, January 2024
Tageschau.de 12/13/2023, 11:06 a.m. “IW-Ökonomen erwarten weiteres Rezessionsjahr”
Handelsblatt.de 01/09//2024, 4:24 p.m. “Weltbank erwartet verlangsamtes Wachstum der globalen Wirtschaft”

Logistics sector again faces challenging year

Business climate logistics sector

Source: Bundesvereinigung Logistik e.V.; 2015 = 100 = normal level

At the close of 2023, the business climate in Germany’s logistics sector saw a marginal improvement. As part of its economic assessments, the ifo Institute conducts monthly surveys on behalf of the German Logistics Association (BVL) to gauge the Logistics Indicator. This index experienced an uptick in the fourth quarter, spurred by improved expectations.

However, when juxtaposed with the third quarter, the business climate was once more perceived in a negative light. Despite a modest uplift in business expectations, service companies are maintaining a cautious stance regarding the forthcoming months.

Additionally, January 2024 witnessed the third consecutive rise in the SCI Logistics Barometer’s indicator value. The positive trend is bolstered by a balanced seasonal business climate and significantly brighter expectations for the coming quarter. However, the SCI Logistics Barometer indicates that despite these favorable trends, the industry remains constrained by high cost pressures. Surveyed transport and logistics companies did not expect costs to fall going forward. Rising toll charges and escalating wage expenses are expected to lead to further cost increases in the subsequent three months.

Revenue development in the German logistics industry

Source: Bundesvereinigung Logistik e.V.

The uncertainty in the logistics sector, prevalent throughout 2023, has also led to a diminished inclination to invest. The SCI Logistics Barometer indicates that only a small majority of entrepreneurs surveyed at the start of the year were planning investments for the current year.

Stock levels remained high, comparable to the previous quarter. An increased number of companies reported restrictive human resources planning, and some were considering price reductions.

Sources for this section:
BVL Logistics Indicator, 4th Quarter 2023, including commentary
SCI Verkehr, SCI Logistics Barometer, December 2023 and January 2024

Development of BLG LOGISTICS in the following year

AUTOMOBILE Division

German car manufacturers are currently seeing a decrease in new vehicle orders within Germany and Western Europe. Nevertheless, BLG LOGISTICS anticipates that production at European automotive plants will not diminish as a result, but that instead a higher export volume will be recorded. Moreover, from 2024 onwards, a consistent rise in import volumes is projected, especially for electric cars originating from China.

In the seaport terminals business area, vehicle handling volumes at the seaport terminals are forecast to rise in 2024 compared to the 2023 financial year. BLG AutoTerminal Bremerhaven expects an increased share of imports, notably from the Far East. However, an increase in volumes is also projected for the export sector.

The high & heavy segment reported a global economic cooling for 2023, especially within the construction industry, suggesting only a modestly positive trend for the following year. Owing to the predicted economic rebound in 2024, we expect a substantial rise in volumes in the subsequent years.

The BLG AutoTerminal in Cuxhaven is projecting a higher handling volume in 2024 compared to the previous financial year. In 2023, a new venture for underbody protection was successfully launched with a key customer for exports to Scandinavia and secured with a long-term agreement.

Whether the successful market trend in the inland terminals business area seen in the 2023 financial year continues, hinges on multiple factors. The materials shortage at European car manufacturers’ production plants in 2023 led to a rise in the storage of incomplete vehicles. This, in turn, was linked to an increase in technical value-added services for completing these vehicles at the terminals. For 2024, the expectation is that car manufacturers will cease the outsourcing of incomplete vehicles. Moreover, the standardization of operational processes at the domestic terminals is anticipated to enhance productivity in technical services. The anticipated positive impacts of increased productivity are likely to be tempered by a forecast decrease in handling volumes relative to the latter half of 2023.

The volume of road transport within the AutoTransport business area is predicted to stay consistent with the previous year’s figures. The projected decline in deliveries to dealers is expected be offset by rising transport volumes for exports at the seaports.

As in the previous year, the restrictions on providing adequate rail capacity are set to persist throughout the financial year 2024. This will lead to higher demand for truck transport as an alternative to rail, which may, in turn, exacerbate the shortage of subcontractors and third-party companies. The company will maintain a constant number of trucks in its own fleet.

Demand for vehicle transport capacity in the rail business area is expected to remain high. However, there will continue to be restrictions in 2024 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 2024 and BLG LOGISTICS’ transport volumes will grow. Export volumes at the seaports are also expected to increase in 2024. 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, there will be an increased focus on expanding transportation using our own fleet of vehicles. The transport operations of the joint venture in Ukraine will be maintained to the greatest extent possible. For 2024, the business area is anticipating a considerable increase in revenue compared to 2023.

CONTRACT Division

The outlook for the CONTRACT Division remains challenging in the 2024 financial year. It is anticipated that the ongoing poor consumer sentiment will further impact the domestic economy. The purchasing power of private households is expected to be undermined by persistent high inflation, elevated base rates, and steep consumer prices, especially for high-value items. Private consumption is not anticipated to offer any positive stimulus for the economy. While energy costs have fallen, they remain at a high level. Additionally, no radical improvement in overall economic output is foreseen for 2024.

Elevated collective wage agreements heighten the likelihood of a wage-price spiral. On the back of these pivotal economic indicators, customers are generally more cautious, which is reflected in particular in the reduced volumes contracted by our customers.

Notwithstanding the obstacles, predominantly favorable results are projected in the regions and sites of the division for the financial year 2024.

Within the consumer & fashion market segment, we anticipate that negative variances in certain businesses will be balanced by positive trends in others.

The mobility segment is currently facing a challenging environment. The automotive sector is undergoing a transition toward electromobility, which is poised to significantly influence the market. This shift impacts both car manufacturers and their suppliers alike. Specifically, this manifests as reduced volume projections from customers in this industry. These challenging conditions are also likely to impact our largest industrial logistics site in Bremen in 2024. We attempt to mitigate the effects by implementing countermeasures designed to reduce costs and enhance processes. Individual contracts with existing customers in the North region will be routinely retendered in 2024.

The industrial & energy segment is experiencing a positive revenue trend thanks to price renegotiations, new business and, occasionally, increased volumes.

BLG Cargo Logistics at Neustädter Hafen in Bremen has seen a recent rise in earnings from the increased handling of sawn timber and steel. However, this has not offset the loss of job security and the costs associated with significant repairs and acquisitions. Consequently, investments planned for 2024 will prioritize digitalization and the enhancement of process efficiency and space utilization.

CONTAINER Division

Because the container terminals, at least in the medium term, still have capacity reserves, the trend toward consolidation is strengthening the market power of the remaining consortia/shipping companies and at the same time increasing the pressure on earnings. This intensifies the need to identify and implement sustainable cost reductions and efficiency improvements at the container terminals. This is reflected in the implementation of the transformation process.

Based on the planning carried out in autumn 2023, a stable handling volume was initially forecast for EUROGATE Container Terminal Hamburg for 2024. However, the handling volume already took a downward turn in November and December 2023, a trend that continued in the early months of 2024. How handling volumes ultimately develop in 2024 will depend to a large extent on the timing and transfer process of Mediterranean Shipping Company S.A. (MSC) services to the Hamburg terminals of Hamburger Hafen und Logistik AG (HHLA) once the transaction for MSC to acquire an equity interest in HHLA has been completed. We are currently assuming that the relocation will take place in the fourth quarter of 2024 at the earliest and will not yet have a significant impact on the company’s handling volume in 2024.

For the Bremerhaven site, a rise in handling volumes in 2024 is currently expected. This outlook is largely based on the assumptions of the partners and customers of our local joint ventures.

Wilhelmshaven continues to have very good chances of acquiring further liner services given that most of the leading container shipping companies will commission additional ultra-large container vessels with a capacity in excess of 24,000 TEUs in the next few years. Achieving reasonable capacity utilization of the EUROGATE Container Terminal in Wilhelmshaven continues to have high priority. The acquisition of a shareholding by partner and customer Hapag-Lloyd AG has in light of the trend towards ever-larger container ships substantially improved the growth prospects for Wilhelmshaven deep-water port in the coming years. In January 2024, Wilhelmshaven already acquired a new transatlantic service.

The prospects of acquiring additional liner services in the next few years are also good. Aside from this, there are plans to convert a first section of shore-side operations to an automated system in the medium term.

For the individual companies in the EUROGATE Group, the 2024 financial year will continue to be dominated by the transformation and the further implementation of cost-saving and organizational measures designed to increase efficiency and productivity.

Given the macroeconomic conditions affecting the subsidiaries and equity investments described above, together with the exceptional factors from the reversal of provisions recognized in the previous year’s result, the CONTAINER Division is expected to report a significant decline in earnings for 2024, albeit still in positive territory.

The EUROGATE Group’s overall profit situation is strongly influenced by the earnings of the container terminals and here by handling volumes and throughput rates as well as cost structures as the key influencing parameters. One important criterion in this context is that the sustainable implementation of restructuring measures leads to corresponding further earnings improvements in the 2024 financial year.

In addition, the container terminals may face significant changes in the customer and shipment structure, the specific impacts and results of which are currently very difficult to predict. This also applies to the repercussions of the current disruptions to shipping in the Red Sea.

Planned capital expenditure

We adjust our investment plans to the constantly changing market conditions, paying particular attention to our liquidity and results of operations. Furthermore, BLG LOGISTICS also evaluates investment projects taking sustainability aspects into account, for example when developing new locations. 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 160 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

Expected changes for 2024

Personnel costs are expected to face significant pressure in 2024. Despite currently falling inflation rates, there is a surge in wage demands across all sectors in Germany. This poses a considerable challenge for devising a responsible collective wage policy, particularly given the decreasing order volumes in various business areas of BLG LOGISTICS.

At the time of preparing this report, the war between Russia and Ukraine is still ongoing. Renewed conflicts in the Middle East and the Red Sea may cause further disruptions in supply chains and shipping companies’ schedules due to necessary ship detours. Additional uncertainties stem from ongoing consumer hesitancy, sustained high interest rates and the forthcoming presidential election in the United States.

We are aware that the economic uncertainties will not lessen in 2024, and are preparing accordingly.

In this uncertain environment, based on the forecast outlined above, we currently expect revenue (excluding the CONTAINER Division) for the BLG Group to improve slightly over the previous year. Overall, we anticipate a significant decline in earnings (EBT), mainly on the back of substantially lower investment income from the CONTAINER Division, in the 2024 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), as amended. 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.