Notes to HHLA AG prepared in line with the German Commercial Code (HGB)

Unlike the consolidated financial statements, the annual financial statements for Hamburger Hafen und Logistik Aktiengesellschaft (HHLA AG) are not prepared in accordance with International Financial Reporting Standards (IFRS). Instead, they are based on the regulations contained in the German Commercial Code (HGB).

Company overview

Structure and commercial activities

Hamburger Hafen und Logistik AG (HHLA) is a leading European port logistics group. HHLA AG is the parent company of the HHLA Group and controls the Group as a strategic management holding company. Its operating business is conducted by 37 domestic and 31 foreign subsidiaries and associated firms. In the 2023 financial year, HHLA increased its group of consolidated companies with a view to optimising its Intermodal business and expanding its digital activities. No other significant legal or organisational changes were made.

HHLA AG is a legally independent company that was split into two divisions – the A division and the S division – in the course of the initial public offering on 2 November 2007. The A division represents the Port Logistics subgroup. The class A shares, which are listed on the stock exchange, merely entitle shareholders to participate in the result and net assets of these commercial operations. The performance and financial result of the Real Estate subgroup are attributed to the S division. Class S shares are not traded on the stock exchange and are held solely by the Free and Hanseatic City of Hamburg (FHH). In the unlikely and unprecedented event of the Real Estate subgroup reporting a loss, this would be indirectly transferred to the Free and Hanseatic City of Hamburg in line with a separate agreement to assume losses.

On 13 September 2023, Port of Hamburg Beteiligungsgesellschaft SE (the “bidder”), a wholly-owned direct subsidiary of MSC Mediterranean Shipping Company S.A., Switzerland (MSC), notified HHLA of its decision to submit a voluntary public takeover bid in relation to the class A shares. A total of 69.3 % of the class A shares (equal to 50,215,336 class A shares) are currently held by HGV Hamburger Gesellschaft für Vermögens- und Beteiligungsmanagement mbH (HGV) and 30.7 % (equal to 22,299,602 class A shares) are in free float. The takeover bid took the form of a cash offer against payment of a consideration of € 16.75 in cash per class A share to the shareholders of HHLA. Furthermore, the bidder stated that in connection with the takeover offer, MSC and the Free and Hanseatic City of Hamburg (FHH) had entered into a binding agreement on 13 September 2023, which establishes the basic parameters and terms of the takeover offer as well as the mutual intentions and understandings of the parties with respect to the company.

In addition, a binding preliminary contract for a Business Combination Agreement was concluded on 5 November 2023 between HHLA, the bidder and its sole shareholder at the time, SAS Shipping Agencies Services Sàrl (SAS), as well as HGV, that sets out the common understanding of the key points regarding the long-term preservation of HHLA and its business model and contains key commitments vis-à-vis HHLA.

In a joint reasoned statement as per Section 27 of the German Securities and Takeover Act (WpÜG) on the takeover bid, dated 6 November 2023, the Executive Board and Supervisory Board of HHLA recommended that the shareholders accept the bid.

On 12 December 2023, it was published that, by the end of the extended acceptance period on 7 December 2023, MSC had been tendered 9.7 % of the class A shares in free float. As of 31 December 2023, the bidder also held shares acquired on the market amounting to 12.4 % of HHLA's share capital.

Employees

HHLA AG had a total of 987 employees as of 31 December 2023 (previous year: 1,014). Of this number, 199 received wages (previous year: 218), 729 received a salary (previous year: 726) and 59 were apprentices (previous year: 70). Of the 987 staff members, 335 were assigned to companies within the HHLA Group in the reporting year.

Economic environment

The macroeconomic and sector developments are largely in line with those at the HHLA Group. Economic environment

Earnings position

The revenue generated by HHLA AG resulted mainly from the charging of personnel expenses for holding company staff assigned to the spun-off Container and Logistics segments, and from billing administrative services for IT systems which are pooled within HHLA AG. Revenue totalled € 141.4 million in the reporting period (previous year: € 138.5 million). The rise of € 2.9 million mainly resulted from services billed to subsidiaries of HHLA AG.

Other income and expenses improved earnings by an additional € 47.1 million compared with the previous year. This was mainly the result of an accounting gain from the sale of a 24.99 % stake in HHLA Container Terminal Tollerort GmbH, Hamburg (CTT), as well as income from the reversal of provisions.

There was a positive trend in the financial result as a result of improved terms for investment.

The change in income from equity investments was mainly due to the performance of the Container segment. The net profits of HHLA AG’s subsidiaries and equity investments recognised in profit or loss decreased year-on-year by € 47.0 million to € 67.9 million (previous year: € 114.9 million).

Reported income tax is largely influenced by the capitalisation of deferred taxes on tax loss carry-forwards as at 31 December 2023. The termination and reworking of profit and loss transfer agreements and the loss carryback to the assessment year 2021 also influenced reported income tax.

As the basis for calculating the dividend, the company’s annual net profit is the key performance indicator for HHLA AG and amounted to € 105.1 million in the reporting period (previous year: € 47.2 million). The A division accounted for € 94.2 million of this amount (previous year: € 38.1 million) and the S division for € 10.9 million (previous year: € 9.1 million).

The difference between the actual net profit and guidance is mainly attributable to income from the reversal of provisions and increased interest income due to improved investment conditions.

Assets

The carrying amounts of intangible assets and property, plant and equipment totalled € 36.5 million at the balance sheet date (previous year: € 33.3 million). Capital expenditure on intangible assets and property, plant and equipment amounted to € 7.8 million in the reporting period (previous year: € 5.6 million). Capital expenditure focused mainly on expanding the IT landscape.

The total increase in financial assets of € 455.2 million to € 925.0 million was mainly due to the above-mentioned expansion of the Intermodal business and digital activities, as well the issuance of loans.

Equity increased by € 44.7 million compared to year-end 2022. This increase is due to the net profit for the year of € 105.1 million and the distribution of a cash dividend of € 60.4 million.

HHLA AG uses the projected unit credit method to value entitlements associated with existing pension obligations. Future obligations are projected based on past service and possible future service prior to the insured event occurring. Anticipated future pension and pay increases are also taken into account. An average market interest rate for the past ten years of 1.82 % set by the Deutsche Bundesbank was applied for the reporting year (previous year: 1.78 %). In accordance with Section 253 (2) sentence 2 HGB, a remaining term of 15 years is used as a basis for the pension provision, which amounted to € 323.3 million as of the balance sheet date (previous year: € 334.8 million).

Financial position

Cash flow from operating activities totalled € 152.6 million in the reporting period (previous year: € 117.0 million). This item was strongly influenced by the operating result and the income received from equity investments. Due to the reclassification of a cash pooling agreement as a medium-term loan, cash flow from investing activities declined sharply and financial funds fell to € 370.2 million (previous year: € 509.2 million). The remaining capital expenditure was funded by means of cash flow from operating activities and the assumption of loans.

In connection with existing cash pooling agreements, capital funds comprised receivables from subsidiaries of € 205.0 million (previous year: € 374.5 million), cash and cash equivalents in the form of bank balances totalling € 120.4 million (previous year: € 59.7 million) – of which € 55.0 million (previous year: € 20.0 million) was short-term bank deposits – and clearing receivables of € 44.8 million (previous year: € 75.0 million) due from Hamburger Gesellschaft für Vermögens- und Beteiligungsmanagement mbH, Hamburg (HGV). The S division of HHLA AG participates in the cash clearing system operated by HGV. The A division also utilises the option of investing surplus liquidity with HGV whenever this is advantageous for HHLA AG.

Risk and opportunity report

Business developments at HHLA AG are generally subject to the same risks and opportunities as those of the HHLA Group. HHLA AG shares in the risks of its subsidiaries and equity investments in line with its respective shareholding.

As the parent company of the HHLA Group, HHLA AG is incorporated into the Group-wide risk and opportunity management system. The risk and opportunity report contained in the combined management report provides a description of the internal control system as required by Section 289 (4) HGB. Risk and opportunity management

Business forecast

Outlook

Due to its close ties with the affiliated companies and its weight within the Group, the expectations for HHLA AG are reflected in the business forecast for the Group as a whole. It is anticipated that the statements made for the HHLA Group regarding market and revenue developments will largely be mirrored by the revenue of HHLA AG. Furthermore, the income from equity investments will significantly influence HHLA AG’s earnings. Business forecast

Expected earnings position in 2024

On the basis of the expected earnings position of the HHLA Group, as outlined in the business forecast for the Group, and the previous comments, HHLA AG anticipates a strong year-on-year decrease in its annual profit. Due to the uncertain environment described in the Group’s business forecast, a reliable outlook for HHLA AG is also still not possible. Expected Group performance

Expected financial position in 2024

Based on the liquidity management measures outlined in the business forecast for the Group, HHLA AG expects its financial position to remain stable. Expected Group performance

Dividend

As in the previous year, HHLA AG’s appropriation of profits is based on the development of earnings in the financial year ended. The distributable profit and stable financial position provide the foundation for a continuation of the company’s stated dividend policy. Earnings position