MLP SE

XETRA:MLP

Earnings Call Transcript 2020-Q1

[Operator]

Dear ladies and gentlemen, welcome to the publication of MLP regarding the results Q1 2020. At our customers’ request, this conference will be recorded. [Operator Instructions]May I now hand you over to Andreas Herzog who would start the conference today. Please go ahead, sir.

[Andreas Herzog]

Thank you, operator, and good afternoon, ladies and gentlemen, and a warm welcome to the presentation of our financial results for the first quarter 2020. All documents, including today's presentation are available on our website. Here with me is our Chief Financial Officer, Reinhard Loose, who will first comment on our business development in the first quarter. Afterwards, we will be happy to answer your questions. So now I would hand over to Reinhard. Thank you.

[Reinhard Loose, CFO & Member of the Executive Board]

Thank you, Andreas. Good afternoon, ladies and gentlemen.MLP Group continued the [ fiscal ] performance of previous months in the opening quarter of 2020. We are able to achieve significant gains on the revenue side. At the same time, we delivered solid earnings performance in light of the conditions resulting from the worldwide coronavirus crisis. In fact, we are only slightly below the figure from the same quarter of the previous year. We have established a strong and broad basis over the last few years and are benefiting from this, particularly during this time. Our extensive investments over the last few years to support digitization of our business are also paying off. MLP was quick to adapt its business operations to work from home and video consulting solutions, which became necessary due to the coronavirus crisis. We have been and remain on hand for our clients to answer the questions and continue offering them our full scope of services throughout this difficult period. At the same time, we were able to sustain a very dynamic development in the onboarding of new consultants in the first 3 months, particularly in the [ young segment. ]For the first time in 10 years, we actually succeeded in more than compensating for the typical seasonal dip in the opening quarter, adding 14 new consultants over the figure as of December 31, 2019. I in other words, we also remain on course with this important growth driver for MLP.As already communicated at the end of April, we are anticipating an EBIT of EUR 34 million to EUR 42 million of 2020. This is crucial here that we remain resolute in taking advantage of the opportunities currently being presented by our markets. At the same time, we are happy to confirm our midterm planning, based on which EBIT is likely to rise to around EUR 75 million to EUR 85 million by the end of 2022.You can find an overview of revenue development on Slide 5 of the presentation. Total revenue increased by 9% and EUR 193.7 million and thereby reached its highest level in the group structure since the sale of our health insurance. We are benefiting from our efforts to significantly strengthen the non-life insurance business in the last few years here. After all, a large amount of revenue is generated at the start of the year in this field of consulting. This also guarantees us lots of stability in times of strong external influences.As you know, we regularly perform long-term comparisons. The next slide shows the long-term comparison of commission income, excluding old-age provisions. This underlines MLP's success and -- continually by diversifying its revenue base and shows that the areas beyond old-age provision have recorded an average annual growth of 9.8% since 2005. The broad-based growth was bolstered by our revenue in virtually all consulting fields in the first quarter, especially in both fields that MLP has strategically developed over the last 3 years. In real estate brokerage, MLP more than doubled its revenue to EUR 7.5 million. Following the first-time consolidation performed in Q3 2019, our newest group subsidiary, DEUTSCHLAND Immobilien, also made an important contribution in the opening quarter of 2020. At the same time, the increase in revenue can also be attributed to the fact that more and more MLP consultants are enjoying success in establishing the topic of investments in real estate within our integrative consulting services. In wealth management, revenue increased by 10% to EUR 55.3 million. This reflects our success in acquiring new financial means both at MLP Banking AG and at FERI, which was achieved despite significant slumps on the market in March. In the field of non-life insurance, MLP recorded growth of 8% in the, as already mentioned, traditionally important opening quarter. The increase in sales revenue from EUR 59.9 to EUR 64.5 million reflects gains both at the subsidiary DOMCURA and MPL's private client business. MLP also recorded significant gains in health insurance, where revenue increased to EUR 13.1 million as well as an old-age provision with an increase of 4%. Only loans and mortgages was a decline to EUR 4.3 million recorded. However, this was due to a one-off effect in the same quarter of the previous year. In this connection, it's important to note the financing volume continued to increase.Slide 8 shows you an overview of other major stock volumes. Portfolios managed by the MLP Group in the field of non-life insurance rose from EUR 405.5 to EUR 415 million. This is similar to the levels managed by medium-sized nonlife insurance. Despite the coronavirus based slumps on the markets, assets under management affiliate MLP as of the 31st of March 2020 was EUR 37.2 billion. This is only slightly below the figure of year-end and actually above the figures from previous years. The recovery observed in the capital markets over the last few weeks since the dip in mid-March has obviously not yet been taken into account here.As of the 31st of March, around EUR 8.9 billion of the assets under management were placed in alternative investments, such as hedge funds and private equity, but also in volatility strategies. We select these for our clients at FERI with the expertise of the largest team of specialists in Germany in this field and, in some cases, also manage them ourselves. The flagship OptoFlex, a concept that has been successfully pursuing an innovative volatility strategy for years, has experienced in another baptism of fire during the coronavirus pandemic and passed this with flying colors. Indeed, at the beginning of -- sorry, at the beginning of May, OptoFlex has reached a new all-time high.Let us now return to the income statement on Slide 9. As already reported, EBIT has displayed solid development and was EUR 10.7 million in the first quarter. As such, it was only slightly below the figure from the same quarter of the previous year. However, MLP started to feel the initial effects of the coronavirus pandemic in the second half of March, thus all due to increased risk provisions, market value fluctuations and revaluations of various instruments, including promissory note bonds of [ Schuldschein ]. The next slide shows you our balance sheet. As of the balance sheet date, shareholders' equity rose slightly from EUR 437.4 million to EUR 442 million. The capital ratio was 18.9% on the reporting date meaning that we remain very well positioned. We are anticipating a comparable level over the course of the year. And we really benefit from the considerable financial strength it has built up over the last few years, especially in times such as the current coronavirus pandemic, which can quickly become financially challenging for many market members, in particular, small enterprises and those battling on their own. Incidentally, some 87% of brokers in the markets that were surveyed in the recent study stated that they are already feeling the effects of the crisis. While 41% stated that the lockdown is having a serious impact on the business.As shown on Slide 11, net liquidity continued to be a solid pillar of our balance sheet as well as a solid foundation of our company value. MLP Group had access to net liquidity of around EUR 179 million. However, it is important to note here that we reserve around EUR 100 million of liquidity for our operating business. Set against the backdrop of the current challenging market environment, further consolidation is expected in the consulting market. MLP, however, has already achieved a sustainable turnaround in consulting growth in 2018. In 2019, as a whole, the number of consultants further grew by 53. For the first time in 10 years, we were able to record growth in the number of consultants in an opening quarter, which more than compensated for the usual seasonal decline, which 1,995 client consultants as of the 31st of March, a significant increase of 85 consultants over the same quarter of the previous year was recorded. The intensified process for acquiring new consultant is clearly paying off particularly in the [ young segment. ]As a financially strong and quality leading enterprise, we will also benefit from the market consolidation that has now been underway for years by acquiring new consultants. The coronavirus pandemic will certainly also contribute to this. As such, we are still anticipating further year-on-year increases in the number of client consultants.Now for some facts on client numbers. As of the 31st of March 2020, MLP Group served 550,200 family clients. The gross number of newly acquired family clients was 4,500 in the first quarter. Compared to the same quarter of the previous year, this represents an increase of around 10%. Alongside the number of consultants, another key early indicator for future revenue performance has, therefore, enjoyed positive development. Slightly more than 90% of our new family clients were initiated online in the first quarter. In addition, the MLP group also served 21,600 corporate institutional clients as of the 31st of March.Ladies and gentlemen, I will now move on to our outlook. Throughout 2020, we'll continue to decisively fight against the pressures associated with the coronavirus pandemic and remain resolute in taking advantage of the opportunities that our markets offer us.As already communicated at the end of April, we are anticipating EBIT of EUR 34 million to EUR 42 million. At this point, please allow me to once again briefly describe the key factors on the revenue side.In the field of old-age provision, we have rolled back our expectations slightly due to the foreseeable effects of the coronavirus pandemic and are now anticipating neutral to slightly declining revenue performance, in particular, due to the difficult situation in the field of occupational pension provision. Just like in old-age provision, we are also expecting more difficult framework conditions for wealth management. We must accept and will not entirely escape the effects of the sharp slump on the capital markets. Although there is still a change -- a chance of rapid improvement so the markets can continue the recovery they have recently been displaying and do not return to the previous low when the corona virus pandemic was at its worst.We are now anticipating stable to slightly negative development overall in wealth management. We do not see any need to revise the estimates we provided at the start of the year in either the health insurance or the nonlife insurance areas. In loans and mortgages, we are using our expectation to just stable development. However, it is important to note here that we are still operating at the previous year's extremely high level as we had already increased our revenue from loans and mortgages by around 70% in 2019 over the same period of the previous year. In real estate brokerage, we are sticking to our forecast of strong growth. Although, we expect this to be slightly less dynamic than originally anticipated at the start of the year.It is unlikely with every single brokerage process associated with real estate that has been postponed during the coronavirus pandemic, for example, due to delay or deterring of viewing appointments will then definitely be concluded in the current year. Our forecast for 2020 is based on the assumption that the framework conditions are likely to begin improving again from third quarter onwards and will then gradually normalize. As things currently stand, however, market-related risks remained since, as the coronavirus pandemic could potentially have even greater macroeconomic effects than can't currently be predicted. We are holding firm to the comprehensive investments already communicated for the current financial year, above all in our university segment, yet also further implementation of the digitalization strategy. These are critical for the further development of our growth drivers.I already presented the underlying midterm planning with this chart during our annual press conference at the start of March. At the time, I explained that we had not only completed the successful year but had also already sown the seeds for future growth. Our objective with these steps is also to take MLP to the next level in terms of earnings over the course of the next 3 years. Indeed, we are still planning to generate an EBIT of between EUR 75 million and EUR 85 million for 2022.Ladies and gentlemen, please now allow me to move on to the summary. We have seen significant growth in revenue in the opening quarter. At the same time, we have recorded solid earnings in light of the initial coronavirus based challenges. We can build on this over the rest of the year.The current quarter, in particular, will continue to be shaped by the effects of the crisis. However, our very stable position, our digital infrastructure and our strong balance sheet means that we are capable of overcoming any challenges we may face. At the same time, past investments have enabled us to establish significant earning drivers for the future, particularly of our university and real estate businesses. These value drivers are continuing to develop as planned. So we confirm our midterm planning.Many thanks for your time. I'm now happy to take any questions.

[Operator]

[Operator Instructions]And the first question is from Philipp Häßler, Pareto Securities.

[Philipp Häßler, Analyst]

Philipp Häßler from Pareto.I have a couple of questions, please. Firstly, the financial result was negative with this EUR 0.9 million. Maybe you could shed some light on this. Then the health insurance revenues were surprisingly strong, plus 8% year-on-year. Were there any special reasons for this? And then on FERI, could you provide, please, the net flows in Q1 and also the performance fees?Yes, that's it.

[Reinhard Loose, CFO & Member of the Executive Board]

Häßler, yes, I'll start from -- with your last question, performance fees. Performance fees in the first quarter were altogether around EUR 0.2 million. Just to keep in mind, last year, in the first quarter, as you, I think, will have in mind, were EUR 0.3 million, that means a little bit less. The -- concerning the inflows, one question from my side, do you want to -- was your question just the FERI number? Or -- I think the overall number of inflows, I guess?

[Philipp Häßler, Analyst]

Yes, at FERI and MLP, yes.

[Reinhard Loose, CFO & Member of the Executive Board]

Okay. We had inflows of around [ EUR 1.8 billion ] in the first 3 months and outflow of around [ EUR 0.8 billion. ] Concerning your question....

[Philipp Häßler, Analyst]

Sorry, could you give the split between MLP and FERI, again?

[Reinhard Loose, CFO & Member of the Executive Board]

[ EUR 1.4 billion ] at FERI inflow and [ EUR 0.4 billion, ] of course, at MLP.Concerning health, I think this is something which has -- it started a little bit last year, and it was pushed now to this situation we are in. I think at times like this where we speak so much about health, we see that more of our customers are interested in checking if their health insurance situation is well equipped. And therefore, we see more demand from our customers to talk with us about health insurance in general or, especially, health insurance for the times when they might be older. And this is the reason why we have more income generated and, obviously, also more contracts signed in the first 3 months.And concerning the financial -- the finance. There, I have to check. I think it was a change in the valuation, but I'm not quite sure at the moment. I would like to give you the answer later to avoid, but I'll give you something wrong at the moment.

[Operator]

The next question is from Michael Haid, Commerzbank.

[Michael Hermann Haid, Team Head of Financials]

On the fee and commission from consulting, I'm positively surprised on how fees and commission kept up in the first quarter. Now we are halfway through the second quarter. What are your experiences so far on fee and commission generation? Is it similar to your experience in the first quarter? What consulting fees are most affected by the lockdown measures and what are your biggest concerns going forward?

[Reinhard Loose, CFO & Member of the Executive Board]

Haid, yes, our biggest concern, I think, is indeed the occupational pension area. At the moment, I think everyone can understand that the companies don't want to talk about new ideas for giving company pension schemes to their employees. And therefore, the new business there is relatively low to be modest year. And therefore, I think we'll see a bigger decrease here during the rest of the year.And on the other side, in general, I think it's also interesting to see we were talking about digitalization, we were talking about video consulting systems we have installed. And interesting to see is that we have more consulting appointments and not only more consulting appointments than in the previous year, but we have also signed more contracts and not only in the first quarter, but especially in the period starting from mid of -- let's say, mid of March to now, even end of April. And therefore, I think in general, the consulting activities still remains strong. And we see next to the health insurance sector, which I just talked about this in our customer base, a big request for consultation in wealth management.We opened more new contracts than in previous times. We have all-time highs in opening new depots. And therefore, at the moment, we see no reasons due to negative consulting the rest of the year. I think for the question concerning where do we see -- where do we stand at the moment concerning consulting fees.

[Operator]

The next question is from Andreas Schäfer BankHaus Lampe.

[Andreas Schäfer, Analyst]

A couple of questions from my side. First, regarding your operating expenses, I mean, they went up 8% to EUR 70 million in Q1. Could you quantify the impact of DEUTSCHLAND Immobilien in this figure?Then the second question on old age provision. Boker new business went down, I think, some 5%, while commissions were up 4% year-on-year. Has there been any sort of special impact in Q1, which has lifted the commission level?And the question on your -- the development of your customer base. It's the first quarter, Q1 that your customers -- number of customers has not really increased strongly. So is there also any negative impact from COVID-19 here?And a question on FERI and your private equity investments. Do you expect some delayed, let's say, impairments or write-downs on your private equity portfolio?

[Reinhard Loose, CFO & Member of the Executive Board]

Mr. Schafer. Starting your questions, taking questions -- you started with the OpEx question. The impact of DEUTCHSLAND Immobilien in the first 3 months was EUR 1.4 million. And therefore, there obviously was some impact on OpEx for -- due to the consolidation of DEUTCHSLAND Immobilien. Your question concerning the old-age provision, why the new business went up -- went down, sorry, and the income went up? There are 2 reasons for that. One reason is, which you we've tried to explain from time to time that we have a very strong last quarter, and there always are some contracts last -- which then have been signed at the end of 2019 but generate income in -- especially in January 2020. And therefore, there always is a certain time lag between the new business numbers and the revenue. And especially during December and January, you see there a stronger -- always, more or less every year, you see there a stronger or a higher number and therefore, a more relevant figure.This was reason #1. And reason #2, also could be also interesting. We have -- the numbers for occupational business, as we explained, went down. And let's say, the margin on the traditional business is a bit -- is less significant than a private customer business. And therefore, there also is a little bit of shift between the margin generating sources of the revenues for old-age provision.On customer base, I'd -- to be quite honest, there is no special reasons for months being a little bit stronger or a little bit lower. And you asked for a special onetime effect. No, there is no special effect concerning this.And the last question was on the FERI private equity portfolio. First of all, I think it's -- we all know that we, there, have no own, yes, participations on our balance sheet or in our books, but we only broker these. At the moment, we have no signs that the investments we did for our customers will see devaluations, but definitely, there is a risk in this, but this -- but it is good, but would be very, very sad that you won't see this in our balance, obviously.

[Andreas Schäfer, Analyst]

Just one follow-up question if I may, regarding the expenses. So excluding DEUTCHSLAND Immobilien, they went up 6%. Is that some sort of run rate for the full year as well?

[Reinhard Loose, CFO & Member of the Executive Board]

No. We see there are some smaller effects which are more -- which occurred more during the first 3 months and in former years were perhaps a little bit later. There -- that's not our expectation for the full year, definitely not.

[Operator]

There are currently no further questions. [Operator Instructions]And we have a follow-up question from Philipp Häßler, Pareto Securities.

[Philipp Häßler, Analyst]

Yes. Philipp Häßler again. I have two more questions, if I may. Firstly, loans and mortgages, you gave only a neutral outlook. Maybe you could explain why you are a little bit cautious on this and quite bullish on the real estate brokerage? I mean, the Bundesbank published strong figures for Q1. New business mortgages up by 10%. So why are you relatively cautious for this? And then on the dividend, could you confirm that you will pay the dividend so that there hasn't been any pressure from the regulator not to pay a dividend?

[Reinhard Loose, CFO & Member of the Executive Board]

The mortgages. First of all, perhaps also interesting for you, the new business itself. We had EUR 611 million in new business in the first 3 months opposite to EUR 490 something million in 2019, meaning that we saw an increase also in new business with a onetime effect in last -- in the first quarter last year. And therefore, as we also explained, the revenues went down, although the new business went up. This effect will be lower -- will not be seen in the other quarters, and therefore, for the whole year, will be lower. We are a little bit cautious because we had seen a very strong 2019. And therefore, due to the fact we ask ourselves, yes, we see on our books, new or more real estate business but we were not quite sure if we also see in the same number, an increase also in mortgages. Therefore, we are there a little bit more cautious keeping these onetime effect on one side from last year. And the question mark concerning the question of if we generate enough new business from the real estate sector also in our books, keeping in mind that in the past, we brokered EUR 2 billion altogether last year, and definitely, there were many real estates, which we financed, normally, real estate, which were not brokered by us. And therefore, now we have more owned real estate. This does not necessarily mean that also the percentage in mortgages would go up because fewer times, the customer bought the real estate from someone else, and we financed, now the same customer -- or our customer buys his real estate from us, hopefully, and finance with us. That means no difference in the -- or no reason for increasing the mortgages. There's a little longer explanation for our cautious -- more cautious outlook for mortgages for 2020. And I only did this because I wanted to avoid the question concerning dividends. No. We will stick with our proposals for EUR 0.21 per share of dividend. And we will propose this to the general assembly.

[Operator]

There are currently no further questions. [Operator Instructions]We haven't received any further questions at this point. So I hand back to the speakers for closing remarks.

[Andreas Herzog]

Thank you very much, operator.Well, if there still might be some questions left or right later, please do not hesitate to contact our IR team. We appreciate you attending our call today and wish you a pleasant remaining day. Thank you.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.