Report on Economic Position

Macroeconomic conditions

Weak growth dynamic

Due to the sharp rise in inflation and the accompanying strong monetary policy reactions, uncertainty was high at the turn of 2022/2023 and a pronounced slowdown in global economic activity was widely expected.

Ultimately, the global economy performed better than predicted, although there was no noteworthy economic upswing and the high inflation only gradually subsided.

Overall economic production in the advanced economies increased moderately over the course of 2023, with the United States’ economy proving to be particularly robust. This was underpinned by an expansive financial policy – with the central banks raising interest rates sharply.

By contrast, overall economic production in Europe was considerably weaker. In both the European Union and the United Kingdom, the economy barely broke out of stagnation.

The Chinese economy will probably exceed the government’s growth target of 5 percent in 2023, although the level of expansion is lower by historical standards. The Indian economy, on the other hand, expanded very significantly.

German GDP down by around 0.3 percent in 2023

Year-on-year comparison of change in real GDP

Overall, Germany’s gross domestic product (GDP) dipped by 0.3 percent.

This was due in particular to weak foreign demand and high energy costs, which weighed on industry and exports. The automotive industry, which is important for Germany, struggled with persistently weak demand. Furthermore, higher financing costs led to fewer investments (particularly in home building) and private households were more cautious with their consumer spending and held back.

The high inflation rates seen at the beginning of the year calmed down over the course of 2023. Energy prices in particular dropped substantially and the rate of food price increases more recently slowed.

Inflation compensation premiums and new collective wage agreements led to a significant increase in collective wages in 2023. Overall, however, the weak economy was mirrored on the labor market, with the number of people in employment stagnating since the summer.

Sources for this section:
Deutsche Bundesbank, Monthly Report, January and February 2024 IfW Kiel, Kiel, Kiel Institute Economic Outlook, No. 109+110 (2023|Q4) IMK, IMK Report No. 186, December 2023

Situation in the logistics sector

The demands on logistics are changing at an ever-increasing pace. These changes are being driven by ongoing globalization, shorter product life cycles, digitalization, artificial intelligence (AI) and urbanization. As a result, the sector continues to benefit from the increasing demand for logistics services, which is amplified by the growth in e-commerce business and reverse logistics processing in the business-to-consumer segment. Challenges concern in particular continued pressure on margins, demographic trends and growing competition in the search for specialists, managers and young talents. Other factors are the growing importance of online trading, increasing customer requirements with regard to speed, flexibility and the quality of supply, and increasing environmental awareness among the population. The sector is currently experiencing staff shortages particularly in the areas of warehouse workers, truck drivers, locomotive drivers and IT managers.

In addition, when it comes to outsourcing activities, logistics companies are expected to be very willing to invest and highly innovative. A key focus here is to invest in transshipment, distribution and order-picking centers in conveniently situated locations. Contracts with customers are frequently concluded with terms of only a few years and space and handling equipment are often rented or leased.

Increasing customer requirements have greatly expanded the use of end-to-end information and communication technology along the process chains. Logistics service providers must increasingly adapt to changes such as the growing role of advancing automation and digitalization of process chains.

The logistics industry in Germany is the largest sector of the economy after the automotive industry and retailing. This is attributable to the fact that as a logistics location, Germany generates a large share of its economic output in industry and the retail sector. Other reasons include the traditionally high export share, its central position in Europe and the resulting hub function that it fulfills.

The 2023 financial year – like those that preceded it – was another challenging one for the logistics industry. The wars and crises around the world, high inflation and declining transport volumes were the main factors contributing to the difficult business environment.

The global economy is based on finely tuned and interwoven logistics chains spanning the globe. This global network of supply chains is very fragile and was already put to the test with COVID-19. In line with economic activity, the SCI Logistics Barometer performance indicator at the end of 2023 was only slightly above the year-end value of 2022 and remained very clearly negative.

The development over the course of the year was very volatile and largely influenced by the uncertainty in the logistics sector due to the above-mentioned indicators. The indicator value only moved into positive territory in the months of February and April.

At the end of 2023, a high proportion of 46 percent of respondents rated the current business situation as “poor”, while 34 percent characterized it as “normal” and 20 percent as “good”. In addition to the global crises, increasing costs and the ever-growing shortage of skilled staff were key factors in this assessment.

While the expectations within the German Logistics Association (BVL) Logistics Indicator were corrected upward slightly in the fourth quarter, it nevertheless again developed negatively overall in 2023 (see also graphic chart in the Outlook) and the business climate remained well short of its full potential. In the survey covering the fourth quarter of 2023, many of the companies surveyed reported a dip in demand and a falling order backlog as well as restrictive human resources planning. This again reflects economic policy uncertainties as well as companies’ reluctance to invest coupled with restrained demand on the part of private households.

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

Board of Management’s overall assessment of the business environment

Amidst the war between Russia and Ukraine, heightened tensions between the United States and China, accompanied by soaring energy prices at the start of the year, BLG LOGISTICS braced for another challenging year in 2023. The global economic and geopolitical dynamic in the reporting year confirmed this projection. A series of critical issues took precedence on the global political stage.

The war in Ukraine, energy costs, inflation, skills shortages, climate change and the ongoing Middle East conflict – these multiple crises made for an exceptionally tough business environment.

Nevertheless, BLG LOGISTICS closed the 2023 financial year far better than anticipated, which, given the large number of crises and challenges, was again a commendable performance. However, we know that the current economic uncertainties will persist or may even increase – and are preparing accordingly.

The situation in the AUTOMOBILE Division improved substantially overall compared to the previous year, despite recurring supply chain disruptions and a slowdown in demand. There are multiple reasons for this, including

• good capacity utilization and productivity in the domestic terminals in particular with regard to vehicle handling and technical services led to improved contributions to earnings;
• there is a general trend for car makers to increasingly outsource more activities to (logistics) service providers;
• despite sometimes severe infrastructure disruptions (construction sites, closures, etc.), more cars were transported by road and rail and BLG LOGISTICS carried out more short-haul transports. The market is also characterized by repeated bottlenecks due to a shortage of truck drivers and locomotive drivers.

The CONTRACT Division provides contract logistics at more than 40 locations in Germany and around the world. In the past, contract logistics was divided into the industrial logistics and retail logistics business areas, but since the organizational restructuring at the beginning of the year, the locations and countries have been integrated into a regional structure.

Consumer goods and e-commerce services in particular were again in demand. Overall, the CONTRACT Division performed in line with expectations in the 2023 financial year. Some individual locations suffered significant volume reductions, but higher volumes and productivity plus additional business at other locations compensated for this. Falling inflation rates and especially lower energy prices in the course of the year also had a positive effect.

The difficult economic situation was particularly keenly felt in the CONTAINER Division in the 2023 financial year. The inland container terminals of the EUROGATE Group handled significantly fewer containers than expected in the reporting year. Furthermore, storage fee revenues, which had increased in 2022 due to the disrupted schedules of the shipping lines, decreased earlier than anticipated.

One-time factors from the reversal of risk provisions and falling energy prices compensated for this to some extent, meaning that the CONTAINER Division only fell slightly short of earnings expectations.

The structural and lasting changes in the container industry continued in the reporting year. Competition for container volumes is becoming increasingly tough, making it imperative to forge ahead with implementing the transformation measures aimed at stabilizing the future of the EUROGATE Group.

The trend on the part of the shipping lines to commission additional ultra-large shipping vessels continues unabated. Given this trend, the EUROGATE Group is also expected to see an increase in the number of ultra-large container ships calling at its terminals.

Overall, thanks to its diversification, BLG LOGISTICS was able to leverage the opportunities that 2023 presented and initiated many changes that make us – even in times of multiple crises – robust, agile and fit for the future.

Nevertheless, BLG LOGISTICS continues to operate in a volatile market environment. To enable us to meet these challenges, we are continuing to relentlessly tackle topics such as flexibility, digitalization/artificial intelligence, automation and sustainability and are working intensively to constantly improve BLG LOGISTICS’ economic position.

This assessment is based on the results of the combined financial statements for 2023 and takes into account business performance up to the time the combined group management report was prepared in 2024. The business development at the beginning of 2024 was in line with our expectations.

Business performance

Financial performance

Revenue development

in EUR thousand

In the 2023 financial year, combined Group revenue increased by EUR 91,055 thousand year on year to EUR 1,210,035 thousand. This revenue increase was attributable in particular to the AUTOMOBILE Division, which grew substantially by EUR 62,115 thousand to EUR 641,883 thousand, and was mainly due to higher revenues in the transport segment and to storage fees. Necessary price adjustments on the back of increased costs also positively affected revenue.

Revenues generated by Neustädter Hafen – together with BLG Cargo Logistics GmbH as a whole – have since the reporting year been included in the CONTRACT Division. This more than compensated across all divisions for lower revenues in the area of car parts logistics due to lower-than-expected volumes – particularly at the Bremen site.

In the CONTAINER Division, handling volumes (in TEUs) decreased by 5.1 percent overall in the 2023 financial year on the back of the weak economic phase. As was to be expected, the substantial decline in revenues by EUR 43,184 thousand was largely attributable to lower storage fee and reefer revenues. Since the EUROGATE Group, which represents the CONTAINER Division, is included in the combined financial statements using the equity method, this revenue is not included in the reported combined Group revenue.

Other income was at a similar level to the previous year and fell only slightly (EUR 4,930 thousand). Compared to the previous year, prior-period income decreased by EUR 2,654 thousand and income from the recharging of expenses by EUR 1,478 thousand. In contrast, miscellaneous other income relating to various one-time items rose by EUR 273 thousand.

Net profit from equity-accounted entities amounting to EUR 21,374 thousand (previous year: EUR 75,596 thousand) primarily included the net investment income from the measurement of EUROGATE GmbH & Co. KGaA, KG (EUROGATE) accounted for using the equity method with EUR 18,202 thousand (previous year: EUR 76,705 thousand). For further information concerning the year-on-year decline, please refer to the remarks below relating to the CONTAINER Division.

With 8.9 percent, the cost of materials increased slightly more than revenue (8.1 percent). This is due in particular to the sharp rise in costs for subcontractors in the road and rail car transport business area in an environment of limited market capacity. Increased costs are passed on to customers with a time delay. In contrast, expenses for external personnel fell by 11.2 percent. The main reason for this was a lower need to compensate for capacity peaks in the area of industrial logistics.

Personnel expenses rose significantly in the reporting year to EUR 492,174 thousand (previous year: EUR 475,075 thousand). The rise was primarily attributable to new collective wage agreements, which led to an increase in the basic remuneration for employees, while the number of employees remained relatively stable.

Other expenses in the reporting year were down by EUR 5,533 thousand, primarily as a result of lower one-time factors (expenses for expected losses and infrastructure measures). Moreover, the reporting year saw an increase in general costs due to high inflation, with a particularly high increase in IT and consulting expenses relating to major projects. Additionally, claim-related expenses rose by EUR 2,818 thousand. This uptick was chiefly related to incorrect heat treatment and the subsequent required reprocessing of vehicles that we must undertake.

Depreciation, amortization and impairment decreased by EUR 2,440 thousand in the financial year 2023. Current depreciation and amortization expense saw a marginal reduction compared to the previous year, amounting to EUR -997 thousand. Of the total impairment losses amounting to EUR 6,393 thousand, EUR 5,198 thousand related to buildings, reflecting a slight decrease (EUR -1,442 thousand). Additionally, EUR 1,195 thousand corresponded to an operational management tool that is not being further developed.

Net financial income/net finance costs improved year on year by EUR 1,237 thousand to EUR -10,097 thousand. Interest income from credit balances and especially the elevated interest income from lease contracts with customers more than offset the higher interest rates for non-current loans resulting from the increase in the general level of interest rates.

Earnings before taxes (EBT) in the AUTOMOBILE Division improved substantially, while at Group level EBT decreased by EUR 19,627 thousand year on year. This is attributable mainly to the decline in net investment income from the CONTAINER Division. The notable difference to the previous year’s figures is partly because the result from the previous year included a reversal of write-downs of non-current financial assets of (proportionately) EUR 35.4 million, which related to the reversal of an impairment loss on the equity-method carrying amount of EUROGATE Container Terminal Wilhelmshaven GmbH & Co. KG. EBIT declined accordingly year on year by EUR 18,390 thousand to EUR 46,192 thousand. The EBT margin was therefore 3.0 percent in the 2023 financial year (previous year: 5.0 percent).

Income taxes in the reporting year were EUR 2,665 thousand (previous year: EUR 4,116 thousand). The decrease is explained by lower expenses for prior periods (EUR -3,083 thousand) and higher income from tax reimbursements (EUR -269 thousand). In contrast, income from current taxes fell by EUR 583 thousand.

As a result of the developments described, combined Group net profit for the period decreased by EUR 18,176 thousand to EUR 33,430 thousand.

AUTOMOBILE Division

Vehicles handled

(in millions)

Along the global value chains of the automotive industry, as described above, various factors influenced developments in the AUTOMOBILE Division in the 2023 financial year. Despite the challenging framework conditions, the volume of vehicles handled, transported and technically processed increased by 0.3 million compared to the previous year to 5.0 million vehicles.

In the seaport terminals business area, overall throughput in financial year 2023 was marginally lower than the already low level of previous years. The car terminal in Bremerhaven processed around 1.5 million vehicles, a slight decrease from the previous year, primarily due to the economic climate. One-time business, additional storage fee revenues and technical services had a particularly positive impact. Volumes at the AutoTerminal Cuxhaven remained nearly the same. The earnings situation was also impacted by low productivity and high energy costs, especially at the start of the year. To mitigate this, individual spot transactions were conducted. In Cuxhaven, the terminal’s earnings were positively influenced by permanently leased space and special orders.

In the high & heavy segment, the handling volume slightly exceeded the previous year’s figures, rising by 0.2 million metric tons to 1.3 million metric tons. Despite the uncertain geopolitical climate and investment hesitancy, special transactions and orders positively influenced the outcome. Consequently, the business area closed the 2023 financial year surpassing expectations.

The inland terminals business area saw a substantial 22 percent increase in vehicle handling over the previous year, outperforming forecasts in most locations, including Kelheim, Dodendorf, Duisburg and Hamburg. This success was largely attributed to robust customer volumes, spot transactions, optimal capacity utilization and enhanced value creation through technical services. Additionally, the downturn in energy prices contributed positively to the results. Thus, the business area ended the 2023 financial year well ahead of initial projections.

The AutoTransport business area experienced higher-than-expected transport volumes in the reporting year. The rising costs for subcontractor charges on the back of scarce market capacities were offset by spot transports at adequate rates. Significant volumes were also recorded for water-borne transport with vehicles shipped via inland waterway vessels, leading the business area to close the year significantly above expectations.

Conversely, the rail business area faced numerous obstacles. A lack of available lines due to construction works, maintenance costs, a shortage of skilled locomotive drivers and at times high absenteeism rates had a significant impact on productivity and earnings. Additionally, the scarcity of parts necessary for car production impacted manufacturers, affecting the volumes and scheduled journeys, with the result that the rail business area was unable to fully meet projected performance expectations.

Within the Southern/Eastern Europe business area, the investment in Ukraine was entirely written off, and the assets in Russia were deconsolidated in response to the events that unfolded in both countries in the previous year. The Gdansk location profited from one-time business and was able to conclude 2024 significantly above expectations.

Due to the developments described above, especially in the seaport terminals business area, EBT in the AUTOMOBILE Division for the 2023 financial year, at EUR 36,182 thousand, was substantially higher than the previous year’s figure of EUR -11,696 thousand and thus also above expectations.

CONTRACT Division

In the ongoing multiple crisis environment, the CONTRACT Division again succeeded in achieving its targets in financial year 2023. In many places, the order situation and volumes processed in the retail and industrial logistics business areas were above expectations. Moreover, new and additional business was generated, with energy costs impacting less than anticipated over the course of the year.

At our largest industrial logistics site in Bremen, the CKD (completely knocked down) and body-in-white areas continued to face challenges throughout the 2023 financial year. These were affected by reduced volumes, productivity issues and the shortfall of projected volumes. It was possible to mitigate the effects of this through countermeasures such as cost reductions and process improvements.

At the retail logistics sites, volumes in the consumer & fashion market segment sometimes fell below expectations; however, these were on the whole offset by stable business at other sites with established customers.

Capacity at Neustädter Hafen in Bremen was effectively utilized, especially due to the high volumes of steel. Overall, the tonnage handled (ship-side processing) decreased from 1.6 million metric tons to 1.3 million metric tons. Nevertheless, the earnings situation improved, aided by additional storage fees, reduced costs for third-party services and one-time effects. In overland transports, the loss of a major customer has not been fully compensated for yet.

At our overseas facilities, the industrial logistics location in South Africa, in particular, sustained its positive development from the previous year. The site – including new business – was able to close the year much better than originally expected. In contrast, the US business closed the 2023 financial year below plan, due in particular to significantly lower-than-expected volumes of new business.

Overall, the CONTRACT Division was able to meet the earnings expectations in a challenging environment, even though EBT fell by EUR 1,834 thousand year on year to EUR 9,422 thousand.

CONTAINER Division

In addition, EUROGATE became a shareholder in the “Damietta Alliance Container Terminal S.A.E:” joint venture in 2022, which will be responsible for realizing the construction, development and operation of a new terminal in the port of Damietta/Egypt.

The CONTAINER Division’s business mainly involves container handling. Complementary services are also provided in the form of intermodal services, such as the carriage of sea containers to and from the terminals, repairs, depot storage and trading of containers as well as cargomodal services and technical services.

The following figures correspond to the 50 percent ownership interest in EUROGATE.

The 2023 financial year for EUROGATE was markedly shaped by the global economic and cyclical conditions described above. Additionally, the substantial difference in earnings compared to the previous year can be attributed to a reversal of write-downs of non-current financial assets amounting to (proportionately) EUR 35.4 million included in the prior-period result (see above).

EUROGATE experienced a significant drop in Group revenue of approximately 13 percent, down to EUR 301.9 million (previous year: EUR 345.1 million, presented on a proportionate basis of 50 percent), alongside a reduction in handling volumes at the fully consolidated companies in Germany. Apart from the decline in handling volumes, the decrease in revenue was mainly attributable to significantly lower income from storage fees. Handling volumes at the EUROGATE terminals declined from 11.2 million TEUs by 5.1 percent overall, and at the German terminals by a total of 10.5 percent.

On the other hand, the reporting year saw initial successes from the transformation project initiated at the end of 2019, internally named “Future EUROGATE,” which has been crucial for maintaining the EUROGATE Group’s sustainable competitiveness and already positively influenced the 2023 earnings.

The result from the equity-method inclusion, reflecting the development of the proportionate equity, stood at EUR 18,202 thousand, which was substantially lower than the previous year’s figure of EUR 76,705 thousand.

Comparison of financial performance in 2023 with the forecast for the 2023 financial year

In this very uncertain environment, BLG LOGISTICS initially assumed that revenue could increase slightly compared to the 2022 level, but that earnings (EBIT and EBT) would be significantly reduced. We also forecast the development of RoCE and EBT margin accordingly.

As the table and descriptions above show, the projections for the 2023 financial year were largely correct. Despite a decrease in energy prices and inflation, geopolitical uncertainties escalated owing to the conflict in the Middle East, leading to a lethargic economy. This situation significantly impacted the CONTAINER Division’s handling volumes, resulting in diminished investment income due to reduced handling volumes and substantially lower storage fee revenues. The strong earnings growth in the AUTOMOBILE Division and the robust performance in the CONTRACT Division could not compensate for this. Despite a modest rise in sales revenues (excluding the CONTAINER Division), earnings fell by EUR 19,627 thousand compared to the previous year, yet remained clearly positive. The RoCE and EBT margin also reflected this trend.

Financial position

Structure of the statement of financial position

In the reporting year, total assets amounted to EUR 1,317,368 thousand and were therefore marginally lower than the previous year’s figure of EUR 1,336,518 thousand.

In respect of property, plant and equipment, total capital expenditure on non-current intangible assets and property, plant and equipment amounted to EUR 84,639 thousand (of which EUR 40,877 thousand non-cash). This compares to divestments of EUR 8,394 thousand and depreciation, amortization and impairment losses in the amount of TEUR 84,559 thousand, which was EUR 2,440 thousand lower year on year. At 41.3 percent, the capital intensity ratio remained unchanged compared to December 31, 2022.

Significant changes arose on the assets side in equity investments in companies accounted for using the equity method. These decreased in the reporting year by EUR 26,669 thousand to EUR 208,281 thousand. This was attributable in particular to the fact that BLG LOGISTICS received a dividend of EUR 39,728 thousand from EUROGATE GmbH & Co. KGaA, KG in the reporting year (previous year: EUR 27,320 thousand), which significantly exceeded the earnings of EUR 18,202 thousand carried using the equity method.

Another significant change on the assets side was cash and cash equivalents, which showed an increase of EUR 21,529 thousand as of the reporting date compared to the previous year. Trade receivables decreased by EUR 9,636 thousand as at the reporting date.

Primarily due to the positive Group earnings (combined net profit for the Group of EUR 33,430 thousand) equity as of December 31, 2023 increased by EUR 7,950 thousand. The equity ratio increased accordingly from 20.8 percent in the previous year to 21.7 percent in the reporting year.

This contrasted with remeasurement effects on actuarial gains and losses from the measurement of gross pension obligations recognized directly in equity in accordance with IAS 19 as well as the difference between the expected and actual return on plan assets, and net gains, also recognized directly in equity, from changes in the fair value of the effective portion of cash flow hedges. Overall, other comprehensive income after income taxes totaled EUR -16,466 thousand for the reporting year, marking a substantial decrease from the previous year’s EUR 80,388 thousand, which was influenced by the sharp increase in interest rates.

A detailed breakdown of the fair values of financial assets and liabilities and disclosures on hedging instruments can be found in note 32 of the notes to the combined financial statements.

Cash flows

Based on the earnings before taxes of EUR 36,095 thousand achieved in 2023, cash flows of EUR 87,884 thousand were generated from operating activities (previous year: EUR 78,434 thousand). The free cash flow of EUR 100,971 thousand was in clearly positive territory and EUR 42,639 thousand above the previous year’s figure of EUR 58,332 thousand.

In particular, the significant increase in earnings in the AUTOMOBILE Division had a positive effect on cash inflows from operating activities. In contrast, the change in trade receivables as of the reporting date (year-on-year change EUR -38,559 thousand) substantially reduced cash flows from operating activities.

Cash flows from investing activities improved significantly in the reporting period, as the slightly lower cash payments to acquire property, plant and equipment and intangible assets totaling EUR 41,330 thousand were offset in particular by significantly higher proceeds from dividends received amounting to EUR 28,048 thousand (mainly distributions from EUROGATE) and a slight increase in cash receipts from the payment of lease receivables (EUR 24,230 thousand). A detailed statement of cash flows can be found in the }combined financial statements. Further disclosures on the statement of cash flows can also be found in note 37 of the notes to the combined financial statements.

Cash flows from financing activities improved moderately by EUR 6,981 thousand in the reporting year to EUR -63,876 thousand. The changes are mainly the result of higher cash proceeds from borrowings, which increased by EUR 9,290 thousand compared to the previous year.

This compared among other things to lower cash payments from the redemption of financial borrowings (EUR 626 thousand) and the repayment of lease liabilities (EUR 426 thousand).

In total, cash and cash equivalents improved significantly by EUR 35,578 thousand to EUR 32,943 thousand in the financial year.

Acquisitions of assets are financed from operating cash flows, non-current debt (loans) and through leases.

As of the reporting date, credit facilities to the value of EUR 76.5 million had been agreed but not utilized. Under existing factoring contracts, a volume of EUR 23.1 million was unutilized as of December 31, 2023.

Financial debt decreased slightly by EUR 6,513 thousand compared to the previous year. The increase in non-current loans by EUR 12,415 thousand compared to the previous year was more than offset by the decrease in other non-current and current financial liabilities. In particular, a significant decrease of EUR 14,049 thousand in obligations arising from bank overdraft facilities had a positive effect.

Ultimately, net debt decreased significantly by EUR 37,683 thousand compared to the previous year, mainly due to a substantial increase of EUR 21,529 thousand in cash and cash equivalents compared to 2022. Additionally, within the current financial receivables, the amount from shareholder accounts at companies accounted for using the equity method rose by EUR 11,316 thousand year on year.