MLP SE

XETRA:MLP

Earnings Call Transcript 2022-Q1

[Operator]

Dear ladies and gentlemen, welcome to the publication of the MLP regarding results Q1 2022. At our customer's request, this conference will be recorded. [Operator Instructions]

May I now hand you over to Andreas Herzog who will lead you for this conference. Please go ahead, sir.

[Andreas Herzog, executive]

Thank you, operator. Ladies and gentlemen, welcome again to our conference call. This morning, the MLP Group published excellent figures for the first 3 months of the year. With us today is our CFO, Reinhard Loose who will guide you through the Q1 results. Please go ahead, Reinhard.

[Reinhard Loose, executive]

Thank you, Andreas. So good afternoon, ladies and gentlemen. Looking at the first quarter shows that we had a very good start to the trans financial year. However, we all know that the strain of the economy has increased further as a result of the war in Ukraine, as well as high inflation. I say further because even before there had been some headwinds due to among other things, still widespread COVID-19 disease and the very dynamic turnaround in interest rates. Nevertheless, we succeeded in achieving growth in all areas of consulting and virtually all parts MLP Group in the first 3 months.

EBIT grew considerably compared to the same quarter of the previous year. More than ever, we are benefiting from having significantly expanded over the past years and are in a very stable position. And it pays off that in all parts of the MLP Group, we are very close to our clients and provide perfectly tailored solutions of a high standard. At the same time, we are continuing to invest extensively in our future that goes for all parts of the MLP Group. We want to continue expansion of our successfully established industrial broker segment, which was included in the consolidation in an opening quarter for the first time and delivered a positive profit contribution.

Most recently, we took a further step in this direction for our [ FON ] group at the start of April with the acquisition of the industry insurance broker DS4. We continue to look to the current year with confidence, but also with respect for the generosity conditions that have already become more difficult. In the medium term, we plan an EBIT for the group of EUR 100 million to EUR 110 million with more than EUR 1.1 billion in sales revenue by the end of 2025. It's strategic success sector for MLP continue to develop positively. You can find an overview on revenue development on slide 5 of the presentation.

Total revenue the first quarter increased by 15% to EUR 254.7 million setting a new all-time high. At EUR 238.8 million, commission income, meaning revenue from commission and fees increased significantly and represented the greatest share of this positive development. Not least this is strong evidence of the further increased trust of our consultants have earned among their clients.

The next slide shows the long-term comparison of commission income performance, excluding old age provision. It clearly indicates the success of our extensive diversification and iteration, and that pay has continuously broadened its revenue basis to a significant extent. The areas newly established or significantly expanded since 2005 achieved annual growth of around 11% on average. The broad-based growth and revenue were driven by all consulting fields in this first quarter. The percentage increase was particularly noticeable in the real estate division. The 131% jump to EUR 20.1 million is attributable to a growing project business at [indiscernible] as well as a real estate brokerage, particularly by MLP consultants.

The second strongest percentage growth was recorded in non-life insurance. The first-time profit contribution of the industrial broker segment in an opening quarter also contributed to the 23% increase. [indiscernible] and MLP private client business recorded positive results too. At 17% lower than mortgages saw the per strongest revenue growth. Incidentally, it has recently become apparent here that real estate buyers or owners wanted to secure the still historically low interest rate level in anticipation of further increase in lending interest rates. We were able to increase revenue from all age provision by 3% to EUR 40.4 million. This was due primarily to the successful business occupational pension provision, which we as the largest German broker in this field expanded further.

At the same time, the effects of the challenging situation of the market as a whole for private old age provision did not go unnoticed at MLP. Especially in times of uncertainty, think of inflation in the war in Ukraine, consumers often react more hesitantly when concluding long term contracts. Added to this is the fact that although policy makers are talking about plans to reform old age provision, very much, if not all of this remains highly intangible and is leading to greater uncertainty among the public and yet in view of demographic development, which will foreseeably lead to a massive strain on set of zero pensions in just a few years. As it's clear to everyone, there is an urgent need to take action.

As you all know, the situation of the capital markets has also become more challenging and continues to be so. Development in our wealth management is therefore particularly appeasing as it shows just how highly our clients at Feri and in The MLP private client business value our consulting services. Revenue for the first quarter saw growth of 5% to EUR 81.2 million. As we had already anticipated and communicated, the contribution for performance-based compensation as a result of the decline in development of the capital markets was now significantly lower than the same quarter of the previous year. Success of our client support is reflected in further net cash inflows at Feri and MLP Banking.

Despite the downturn of the capital markets asset on the management of the group equal ed the previous record level of the 31st of December at EUR 56.6 billion. It is all the very pleasing that the portfolio is managed by the MLP Group in the field of non-life insurance rose to EUR 583.2 million as of the 31st of March 2022. More than ever in terms of size, we can therefore be considered equal to medium sized non-life insurer. You can find the current income state note on page 9 with the value of EUR 34.6 million MLP succeeded in considerably increasing its EBITDA in the quarter despite the challenging conditions.

Alongside successful operational development, we also recorded the anticipated first-time profit contribution of the industrial broker segment in an opening quarter. As a [indiscernible], a very positive result will be achieved due to the strong seasonal performance in the first quarter of the year. Whereas it is generally slightly negative in quarters 2 to 4. MLP has established the industrial broker segment with the acquisition of FYM in early 2021, as well as further subsequent acquisitions. What is more? Results of MLP group in the first quarter of this year saw a positive evaluation effect for risk provisions at MLP banking. Net profit for the period rose from EUR 15.8 million to EUR 24.2 million.

The next slide shows you our balance sheet. As of the balance sheet dates, shareholders equity rose slightly from EUR 496.2 million to EUR 522.6 million. The core capital ratio was 18.8% on the reporting date, meaning that we remain very well positioned. We are anticipating in comparable level of over the course of the year. The [indiscernible] group was serving 564,200 family clients. Gross a number of newly acquired family clients was 4,000. We also served 24,800 corporate and institutional clients. The number of convergences in the MLP Group was 2,048. Despite the usual seasonal decline of the opening quarter, MLP is expecting a positive development in the number of client consultants for the full year.

We confirm our EBIT guidance for the full year 2022. Despite the increased risk on the markets MLP still expects an EBIT of EUR 75 million to EUR 85 million. As before, we anticipate with further growth new business and then increase in a recurring revenue in various consulting fields will largely compensate the expected decline in performance-based compensation in wealth management. In addition, MLP reaffirms the new medium-term planning communicated by us at the annual press conference on the 10th of March 2022. Based on the forecast for the current year, we are planning increase in EBIT to EUR 100 million to EUR 110 million by the end of 2025, as well as sales revenue of more than EUR 1.1 billion in the same year.

This planning essentially rests on 3 core strategic success factors, which we presented to you in detail at the end of press conference. In concrete terms, further increase in assets on a management in the group, sustainable growth across all consulting fields and continued expansion of our real estate business. However, I would like to add that uncertainty has grown as a result of the risk aspects mentioned at the start, war in Ukraine and high inflation. In particular, deep rises in energy and food prices. Depending on how those affect consumer behavior, our projections may also be subject to change. We nevertheless remain confident that we will be able to throw out these challenges as well as our business is highly diversified and thus very stable.

Ladies and gentlemen, please now allow me to move on to the summary. Firstly, we significantly increased sales revenue and profits in the opening quarter despite additional challenges for our business successfully transforming MLP over the past years helped us to create the foundation for this. Secondly, we are right on course for the current year, but are arming ourselves for possible setbacks in parts of our markets. The risks have increased further with the effects of the war in Ukraine and inflation. And thirdly, we are already focusing on our medium-term planning for 2025. In this further growth phase, we are taking the MLP Group to next level in terms of revenue and profits. Many thanks for your time. I'm now happy to take your questions.

[Operator]

[Operator Instructions] We have a first question. It's from Philipp Häßler, Pareto Securities.

[Philipp Häßler, analyst]

Yes. Philipp Häßler from Pareto. I have 3 questions please, Mr. Loose. Firstly, the usual question on the net flows in Q1. I was pretty impressed that the AUM remains stable quarter on quarter, but probably this is related to strong net flows. Then secondly, the performance of the real estate broker, which business was also very strong. Have there been any special effects included or can we take this as a run rate for the next quarters?

Maybe you could explain a little bit also this very strong development in Q1. And last but not least you were mentioning higher inflation, higher interest rates, maybe you could elaborate a little bit more regarding the impact on your business, for example, on the real estate brokerage business, or the real estate loans, brokerage business. Do you see any impact, whether you see biggest risks from higher inflation or higher rates on your business?

[Reinhard Loose, executive]

Yes. Thank you for question, Mr. Häßler. Okay, let's go through these questions. Question number one is under management. Thank you for this question. Yes, we're also, we're very happy about this. We saw overall inflows of EUR 2 billion in the first 3 months and outflows of EUR 500 million adding up to EUR 1.5 billion overall. And this is, yes, both as, mentioned as well as Feri has in the bank. And therefore, we are very happy to see this. I think, and you know this, that especially in the bank we have let's say one positive, effect that around 25% of the inflows come from regular saving rates, which obviously are very stable. But especially in the first month and continuous, and also in the second quarter, the customer still is willing to invest. And therefore, I'm also like you, am very happy that we are able to manage to stay on the same let's say on the management level than at the end of the year. This concerning the overall the question is it on the management?

[Philipp Häßler, analyst]

Mr. Loose, could you perhaps give a split between the bank and Feri regarding the influence the net influence will be EUR 1.5 million?

[Reinhard Loose, executive]

Yes. From this let's say I take, the growth rate from these EUR 2 billion inflows. EUR 1.4 million came from Feri and EUR 600 million from the bank.

[Philipp Häßler, analyst]

Okay.

[Reinhard Loose, executive]

You're welcome. Real estate, no there's no special effect included. You know that we divided to make this also very obvious that there are the overall EUR 20 million revenues. let's say we generated. Have 2 effects, 7.6 if I have a correctly in mind came from the project development and therefore around EUR 12 million came from the brokerage, of real estate and both with impressive increases. That's something which has no special effect in it, on the other side, I wouldn't say that it would be the run rate for the rest of the year. Definitely not what we see.

And this also touched your third question, concerning interest rate. What we started to see, and also this is true also true in the second quarter is that although the interest rates are going up, at the moment the demand for real estate is extremely high. And we had enough supply, in this quarter to deliver enough for our clients and therefore the run rate was, or the-sorry, the increase was that high. And you know that in average, we started the business 2014, the annual average was a little bit less than 40% growth year on year. And we continue to say that in one year it will be less than this, obviously it can't continue in an amount like this, but in the beginning of this year, still, as I said before, the demand is very high. But I'm very sure that in the next quarter you will see lower numbers, but still, impressive numbers there.

And then, then the perfect next question, inflation. What will happen with interest rate? Let's say we have some, with our business model, we have different areas where we see either positive or negative effects on interest rate. Obviously, as we all imagine and everyone knows, especially for the real estate sector. In theory, increasing interest rates have a negative effect because it makes more, at least the financiation, of flats and things like this are more expensive and therefore there's a negative effect. And therefore, we could also see a negative effect on the amount of loans and mortgages we broker.

On the other side, we see positive effects by lower interest rates for interest income. Just keep in mind that, for example, last year we paid EUR 5 million only on negative interest rates, and only the EUR 5 million will vanish, it definitely will help us. And there is at least if the interest rate is a little bit higher and a little bit stable, there is in theory positive effect also on the life insurance sector. And therefore, we have both sides, obviously they are not totally comparable and there might be time shifts, but in general, we see a slightly positive interest rate, definitely for group and positive. And obviously what I didn't mention, but you know even better than I know there is in fact interest rate on the share market. But as I said, this you know perfectly, and therefore there's obviously something, some reflection to our business as well. Does this answer the question, Mr. Häßler?

[Philipp Häßler, analyst]

Yes.

[Operator]

The next question is by Jochen Schmitt of Metzler. The line is now open for you.

[Jochen Schmitt, analyst]

I have 2 questions, please. Firstly, could you provide a figure for performance fees? And second, what can you tell us about the situation of cost inflation in your property development business? How does the risk of cost overrun look like to you currently? These are my questions.

[Reinhard Loose, executive]

Oh, thank you. Thank you, Mr. Schmitt. First question is very easy to answer. Performance fee. In the first quarter, we had gross performance fees of EUR 3.2 million which was obviously positive for our overall P&L. A little bit more [indiscernible] cost inflation for our property or real estate business. In general, when we are in the project and development, we have building companies let's say who guarantee the prizes for this. Obviously now speaking, at least from my perspective as a finance guy, there obviously is still their risk if the building companies can bear this risk. Obviously there there's a time development, there's a cost inflation at the moment that meaning definitely there is some risk in it which as I said before in theory, and from the contract is borne by someone else. But definitely this is something which finally also could put in a very negative situation come back to us.

At the moment we don't see this, we have more problems or more constraints like we also had in the last quarters with the time line, as well permissions, as well as building phase itself is longer than we wanted to see this and expected this. And therefore, we have a more-therefore we have at the moment also in the first quarter, you see that the profit from [indiscernible] is relatively small. Some EUR 200,000. And we would like to see a higher profit there for this year, you keep in mind please that now for the first time we show the results of [indiscernible] of this real estate business there in a unique segment. Before it was part of the segments of the finance, of the broker and in the holding, and now it's a segment and we expect to see there some million profits during the course of the year. And therefore, this is the issue which is at the moment our constraint there.

[Operator]

Your next question is by Fabien Le Disert of Kepler Cheuvreux.

[Fabien Le Disert, analyst]

Yes, I have 2 questions. The first one, so firstly, congratulations for the strong Q1, you are on track to deliver an annual EBIT in excess of EUR 100 million. Given the difficult macroeconomic environment, could we consider that this 2022 guidance is now recession proof? And the second question. In the industrial broker segment, you deliver a strong quarter, but you only guided for EUR 30 million of revenues after the recent acquisition in early April. Could we expect a new communication in Q2 on this segment? Thank you very much.

[Reinhard Loose, executive]

Yes. Fabien, thank you. Thank you also for the congratulations. And to start with 2 questions, industrial broker segment. The industrial broker segment, and the business is similar to what we have now experienced with the [indiscernible] segment. That means we have a very strong first quarter and negative or almost negative quarters through 2, 3 and 4. And therefore, also we see the big chunk of the revenues in the first quarter and smaller parts in the following quarters. And therefore, let's say this overall guidance, controlling revenues of the overall expectation, is still valid. And at least for the path which we have at the moment in our books and therefore it is a little bit depending on perhaps further acquisitions. But at the moment, as I said before, this overall guidance there, and this segment is developed. Also the guidance that we expect the acquisitions, expect something like a midsize million Euro EBIT contribution of this segment. And by answering the second question, I forgot about the first question. The first question was-sorry, can you repeat the first question?

[Fabien Le Disert, analyst]

Yes. Yes. The first question was about the 2022 guidance.

[Reinhard Loose, executive]

Yes.

[Fabien Le Disert, analyst]

Yes. Could we consider, but the guidance is recession proof because your Q1 EBIT bit was very solid. And mutually, you-yes, sorry.

[Reinhard Loose, executive]

I would say that let's say the guidance is not over optimistic. I think with the EUR 34 million EBIT, I think we were able to bring a very stable basis for the rest of the year. We'll see definitely much lower EBIT figures in Q2 and Q3, and Q4 again will be a very strong quarter. And this has definitely, we have, obviously when, we plant this, we didn't know where we are right now, but we had negative effects from COVID already in our planning. And therefore, your term recession proof, at least, we still stay to this, we still stick to this, and I think we will manage to deliver this field.

[Operator]

[Operator Instructions] For the moment, there are no further questions and so I hand back to you.

[Andreas Herzog, executive]

Well, thank you. Ladies and gentlemen, as it seems that we have no further questions left, we would like to thank you for your participation. If further questions might arise afterwards, please do not hesitate to contact the IR team. Have a good remaining day and goodbye.

[Reinhard Loose, executive]

Thank you. Bye-bye.

[Operator]

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