MLP SE

XETRA:MLP

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, welcome to the publication of the results for the First Quarter 2023 of MLP SE. [Operator Instructions]Let me now turn the floor over to your host, Pascal Locher.

[Pascal Locher, executive]

Thank you very much, and welcome to MLP's conference call for the results of the first quarter of 2023. My name is Pascal Locher. I'm new Head of Investor Relations at MLP. With me today is our CFO, Reinhard Loose. He will guide you through the presentation. And of course, we are happy to take your questions after the presentation. So please go ahead, Reinhard.

[Reinhard Loose, executive]

Thank you, Pascal, and good afternoon, ladies and gentlemen. First of all, I would like to address the key point from the first 3 months of this financial year. MLP remains on course despite continuing to operate in a challenging environment. We enjoyed a successful start to the current year despite the war in Ukraine, sharp rises in interest rates as well as inflation that remained high. These factors were then made even more acute in the last few months due to the worries among consumers regarding the uncertainty resulting from political decisions, for example, the planned policy for energy-related measures. Yet, despite operating in such a difficult environment, the MLP Group was able to again increase total revenue slightly over the same quarter in the previous year, EUR262.8 million, which is certainly not something that can be taken for granted.Our highly stable revenue structure, including particularly strong growth in interest rate business at MLP Banking once again had a positive impact here. In terms of earnings before interest and taxes, or EBIT, we were able to almost equal the particularly strong first 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.Indeed, our Group has multiple strong pillars that contributed to our success in various market situations. At the same time, our business model in which we support and advise private, institutional and corporate clients in all the financial matters, continues to offer significant growth potential. We have repeatedly and successfully made comprehensive investments in our future in this regard over the last few years. We are continuing these with a focus on IT and digitalization across all parts of the MLP Group.We are looking to the current year with a sense of confidence, while remaining prepared for challenges that could potentially persist in parts of our markets. As things stand today, we reaffirm our earnings forecast for 2023 of recording an EBIT between EUR75 million and EUR85 million. In the medium-term, we are aiming for Group EBIT of EUR100 million to EUR110 million with more than EUR1.1 billion in sales revenues by the end of '25.The strategic success factors, which now in particular, include non-life insurance portfolio volumes continue to display positive overall development for the Group. We have established MLP as a corporate group with strong brands, compromising companies with a client-oriented scope of services that each enjoy a leading position in their respective lines of business. This applies both to our private and corporate client business.At the same time -- and this is something which is becoming ever more important. Synergies within the MLP Group are increasing, thanks to the targeted and successful interactions with one another. This not only involves providing mutual support through transfer of expertise within the Group, but also focuses on specialists providing direct support for the consulting process. We are also targeting client bases in the corporate client business, above all, at TPC and [ FOM ] by bringing together core competencies from the Group and offering multiple services from a single source. Working together in this way helps us generate the kind of additional revenue with a single group company with target to achieve on its own.Another area in which we are making consistent progress within the MLP Group is digitalization. This focus is in particular on further automation of work process, especially for repetitive activities, such as insurance policy portfolio management. By taking these steps, we are increasing our efficiency and getting even better at the work we perform for our clients. This is also why we are intensively and diligently looking into the scope of applications for artificial intelligence. The responsible task force, for example, is working with digital experts to analyze how chat bots, which now offer sophisticated speech recognition, can create an excellent client experience in the MLP Group, while at the same time, facilitating further increases in client advisory efficiency.The goal here is always to lighten the load on client consultants and service units with regard to basic questions and issues so that they can focus more of their time and energy on complex client issues, in other words, on the core of our consultancy services. In addition to this, and as we already reported during our annual press conference in March, we target our efforts and tapping into new lines of business with a digital focus.Pxtra, the innovative platform for employee benefits, is a prime example of this. Here, we are using our position as the largest German broker in the field of occupational pension provision to provide a flexible full scope offer that caters to the rapidly growing demand for employee benefits, the digital solution for employers and their employees. We are combining a fintech approach with a network, client base and financial power of the MLP Group here.You can find an overview on revenue development on Slide 6 of the presentation. Total revenue rose by 3% to EUR262.8 million in the period from January to March '23 and thereby set a new record. Income from commissions and fees was EUR232.6 million. With an increase of 231% to EUR11.8 million, the interest rate business at MLP Banking, enjoyed particularly strong growth. Real estate development business also performed well with a substantial increase in revenue of 32% to EUR10 million. At 12%, the MLP Group also recorded strong revenue growth in non-life insurance in the first quarter of the year. Indeed, at EUR91.7 million, this consulting segment represents the greatest revenue share within the MLP Group in the first quarter.The Industrial Broker segment DOMCURA and MLP's private client business all contributed to this. DOMCURA and the Industrial Broker segment each generated a particularly large proportion of the revenue in the first quarter. [ DSV ], which we acquired last year, was also consolidated in this Industrial Broker segment and now first time in the first quarter. Old-age provision also recorded a significant increase in revenue of 8%. Our successfully established division with young consultants is bearing fruits here. While the recovery occupational pension provision is also continuing.In health insurance, MLP was able to achieve further growth to 5%. This can still be attributed to the heated awareness of the importance of healthcare that came about during the coronavirus pandemic. The situation in real estate looks somewhat different. As a result of the collapse in the real estate market, MLP recorded real estate brokerage revenue of just EUR1.8 million, which represents a significant decline over the excellent first quarter of the previous year.Taken together with revenue generated from real estate development business where progress was recorded in the individual projects, we generated revenue of EUR11.9 million following EUR20.1 million in the same quarter of the previous year. Loans and mortgages displayed a similar picture, recording a decline in revenue to EUR3.9 million. However, an upturn has been observed in both of these peers over the last few weeks.Wealth management revenue for the first 3 months of the year was EUR73.8 million. As anticipated, the volatility in the capital markets in the last few quarters meant that we were able to collect only low-performance-based compensation despite delivering good performance with our investment concepts. However, both FERI and MLP's private client business were still able to record net cash inflows in the first quarter. This is also an expression of the growing and continuing trust displayed by our clients in our wealth management consulting services.Client confidence is also reflected in the key figures for the MLP Group. Set against the background of the aforementioned net cash inflows, we also achieved slight growth in assets under management, which increased to EUR55.7 billion as of the 31st of March of this year. As such, we are continuing to operate on a par with renowned private banks. The non-life insurance portfolios managed in the MLP Group also recorded an increase, reaching a new all-time high of EUR672.6 million, more than ever before. We are therefore reaching the size of a medium-sized non-life insurance.We can review the current income statement on Slide 9. Despite continuing to operate in challenging conditions due to the war in Ukraine, the turnaround in interest rates, high inflation and uncertainty among consumers resulting from political decisions at EUR32.4 million EBIT, virtually equal to the excellent figure recorded in the same quarter of the previous year. The Industrial Broker segment once again made a strong profit contribution in first quarter of '23 due to the typical seasonal nature of this business.Alongside organic growth within the Industrial Broker segment, the acquisition of DSV, which was completed last year, also contributed to this. However, in addition to the continued expansion of business areas and investments in digitalization, the cost of DSV that was included in the same quarter of the previous year, also led to increased costs overall. As I already briefly mentioned at the start of my speech, we place great emphasis on the consistent continuation of the successful development of the MLP Group. This is not only helping us achieve excellent stability in terms of earnings, but also gradually develop further growth potential.The next slide shows our balance sheet. As at the balance sheet date, shareholders' equity rose slightly from EUR525.5 million to EUR545.9 million. The core capital ratio on the reporting date was 21.2%, meaning that we still consider ourselves to be very well positioned. The consultants in the MLP Group was supporting 573,100 family clients as of the 31st of March. The gross number of newly acquired family clients was 4,300. We also support a further 28,200 corporate and institutional clients with the MLP Group.Despite the slight seasonal dip that occurs every year, the number of consultants in the MLP Group as of the 31st of March, '23 was 2,078. As such, this continues to represent an impressive increase since the segment for our young consultants was first established back in 2017 when the total number of consultants working for MLP was only 1,909. We are also working hard to increase the attractiveness of starting work as an MLP consultant even further. This is one of the reasons why we developed our new trainee program, which will be welcoming young consultants from the 1st of July of this year. With this new program, we are offering young talents the opportunity to launch their career with the added security of an employment contract. This gives them 4 months to prepare themselves for a further role as a consultant with all of the opportunities the self-employment has to offer.We reaffirm our EBIT forecast for the year 2023. While continuing to operate in difficult economic conditions, we are still anticipating EBIT of between EUR75 million and EUR85 million for the current financial year. We expect to record continuously rising portfolio volumes in the non-life insurance business as well as a pleasing interest rate business. In our qualitative comparative outlook, we are now also forecasting significant growth in the current year for the latter.In light of market developments, however, we are adjusting our expectations for the real estate as well as the loans and mortgages business. We are now anticipating a decline for the current year in these 2 areas, yet in all other consulting fields, we are upholding our previous estimates. We also plan to further increase the profit contribution from the young segment established in the recent years for young consultants. The massive investments of the last years, in particular, those targeting the IT infrastructure and effective cost management will also have a strong positive impact on our future earnings performance.Before I move on to our mid-term planning, please first allow me to say a few words on the latest news from the regulator in Brussels. As you may know, the EU Commissioner McGuinness, has now moved away from her original intention to introduce a fundamental ban on commissions in Europe. This is certainly a welcome decision for consumers who clearly benefit from the competition brought about by the fee and commission-based remuneration system. The renowned Center of European Policy or CEP, also already highlighted this in a recent survey.Last Tuesday, the Federal Financial Supervisory Authority in Germany, BaFin, also appreciated the renunciation of the commission ban. Regarding McGuinness plan, BaFin had been skeptical since the commissioner came up with it. Since the new commissioner has stated that she is now keen to focus on cost transparency, this could potentially be helpful for consumers, assuming that this is done properly.Having said all this, for a final and well founded assessment, we must await for draft document, which is yet to be officially published. From today's perspective, however, I cannot see any need for fast action for consumers and especially for MLP. After all, we have already been using a fee-like model in Wealth Management at MLP for more than 10 years, whereby clients pay a percentage of the deposit volume each year and on retrocessions we receive will be given to them.This is a very simple and transparent pricing system. The costs in the field of old-age provision have also been disclosed directly for years as per the legal regulation, and importantly, before contract conclusion. I never get tired of stressing at this point that MLP offers the kind of payment form that enjoys a high degree of acceptance among clients in the market. So we are anything but dogmatic when it comes to the question of fees or commission. Following the intensive public discussions, it certainly appears as though this perspective now also enjoys the majority in Europe.Based on our forecast for 2023 just reaffirmed, please now allow me to move on to the familiar mid-term projection. MLP is still planning to increase EBIT to a level of EUR100 million to EUR110 million by the end of '25 and generate sales revenue of more than EUR1.1 million in the same year. This planning is essentially based on 3 key strategic success factors; a further increase in assets under management in the Group, ongoing development of non-life insurance portfolio volumes and sustainable growth in all parts of the MLP Group.Ladies and gentlemen, please now allow me to come to the summary. Firstly, despite pronounced and ongoing pressures in the parts of the markets, we worked hard to record a successful start of the year. The compensating effects of multiple strong pillars in our Group once again contributed to this. Secondly, MLP remains on course for the current year and beyond. We are on course to hit our target figures and are also prepared to take potentially persistent challenges or even significant turbulences in parts of our markets. And thirdly, our focus is on our reaffirmed mid-term planning for 2025. The MLP Group has already entered the next growth phase, for which we have expedited synergies and the digital strategy in the Group, and we are continuing to do so with determination resolve.Many thanks for your time and your interest. I'm now happy to take any questions.

[Operator]

[Operator Instructions] So the first question comes from Henry Wendisch from NuWays.

[Henry Wendisch, analyst]

Congratulations on keeping on course. I hope you're all doing fine. I have a couple of questions. The first one you already answered quite a bit, but -- which concerning the EU-wide plans for banning the brokerage commissions. But 3 days ago, the BaFin actually came out with the [ max slab ] on endowment life insurance, and I would like to know if you have any comments on that? I know we talked about it before that you are not a black sheep in the industry, of course, but I'd like to hear your comments on this special you think that has come out 3 days ago?Second question concerning your full year guidance for this year. Obviously, you changed the outlook for real estate and loans and mortgages accordingly. Would it be fair to assume that for Q1 that you reached rock-bottom in terms of real estate brokerage? And do you see any more downside on the real estate development business for this year? So maybe you also expect a little pick-up in the real estate brokerage for this year maybe to mid-single-digit numbers per quarter.Third question would be on your operating cash flow. I've seen that the last 5 quarters actually you have the negative, and I know it's driven by the banking business quite a lot. But do you have any visibility on -- for the full year, how the operating cash flow might turn out for the course of the year?And my last question, as you probably have guessed from my model, I would like to have the numbers, especially in the performance fees, if you have that for us in Q1, the net cash inflows and Wealth Management business? And maybe a question from my understanding, the EUR860 million receivables from financial institutions on the balance sheet, is that most part the ECB deposits or is there any other financial institutions where you have deposited some money?

[Reinhard Loose, executive]

Yes, on our side of the table, we are fine. I hope you are also fine. Answering your questions, I go from the bottom to the top, starting with the deposits. Yes, it's almost all deposits at the ECB, which we have there. Obviously, there are also some current accounts with the banks, which we are working at. But the majority, as I said before, is on ECB.This I would link directly to your -- I think your third question on the operating cash flow. And as you in your question already explained our operating cash flow, let's say, analyzing our cash flow statement also is a little bit difficult because definitely it has to do with the balance sheet. And one of the things we did in the first 3 months of the year, you know, we have a very high liquidity. We had at the year end extremely high liquidity.Just one perhaps key figure. The BaFin asked us to have an LCR ratio at minimum 100%. Our liquidity was so high that we had year end liquidity and LCR ratio of more than 1,600. I'll repeat, 100 is a minimum and we had 1,600 extremely high liquidity, which helps us a lot and which helps us a lot for our interest rate income. And obviously, especially in times when -- like this when everyone talks about liquidity at the banks, we feel extremely comfortable there.We feel so comfortable that in the last 3 months, we switched a little bit the liquidity we had [Indiscernible] to some banks where we deposited the money for 6 to 12 months. And due to this -- and it's the only reason for that. Due to this, we reduced our operating cash flow and we did something similar already in the last quarter of the year. And this is the explanation what's the major change in the operating cash flow. I would expect -- it depends a little bit on the market, but I would expect that we do not continue to do this in this amount as we did in the last month. Just as I said before, it depends a little bit on the markets.Having answered these questions, and I will ask you later if I gave you all the information, I'll come to the number of performance fee, which we said, which is a very low figure. And you will understand in a second why I said this, we had in this quarter performance fees of around, let's say, EUR40,000, which is more or less nothing. I think is the lowest figure we had now for many, many quarters. Nevertheless, and we know what the reason is that we have not reached the high watermarks and we're looking forward to do this during the course of the year, let's see.What else you asked concerning Wealth Management? The calculation, we had gross inflows of EUR1.5 billion in the first 3 months. And we had outflows of EUR1 billion, which results in net inflow for wealth management. And I hope I understood your question correctly. This was then a net inflow of 0.5. And the rest which is around 0.9, more or less, was the performance. And then you have the development of our assets under management.Then we have concerning the outlook of real estate. I will also connect this with the outlook of financing. You asked if we have seen more or less the bottom. And obviously, this is difficult to answer, but we have the same impression, let's say, this way. In the real estate sector, how do we measure? We measure, for example, how many appointments our customers have at the notary to sign the contracts, and this number is going up. It was going up in April and continues to go up from extremely low levels in the first quarter, but nevertheless, it's going up.And we also see some -- a little higher figures in the inflow for financing contracts. And therefore, we hope -- and also in the market, you see and hear the same impressions that it's going up again. Definitely, you see the whole picture for the whole year. We expect that we will be low last year, but we believe that we've seen the worst of this during the year.And then finally, the final question I've noted is concerning the EU plan and the writing from the BaFin concerning old-age provision. I think in general, we feel quite fine and comfortable with this. We know that there are some, let's say, black sheeps on the market. And we find it totally understandable that the BaFin would like to have a closer look to this, let's say, this way. And therefore, we feel good position there. We know that we do something different -- some things different than others. And therefore, we don't see any negative effect for us on this at the first glance.And with this, I hope I answered your question, Mr. Wendisch?

[Henry Wendisch, analyst]

Yes, perfect.

[Operator]

And the next question comes from Philipp Hassler, Pareto Securities.

[Philipp Häßler, analyst]

Philipp Hassler from Pareto. I have 2 questions, please. Firstly, on the interest income, which was very strong in Q1, close to EUR12 million. Maybe you could share your thoughts on how you see the development in the next quarters. Do you see a further rise in this figure if possible or do you see competition increasing, and thus, you have to raise deposit rates? A few thoughts on this would be nice.And then on the P&C insurance or the non-life insurance business, could you perhaps give us some details regarding the contribution from DSV if possible on the revenue side and also would be even better on the EBIT side? And probably, I am right in assuming that Q1 is also for DSV the best quarter during the course of the year?

[Reinhard Loose, executive]

I'll start with the first one, interest income. The income overall will continue to go up in the first -- in the next quarters. Perhaps not with the same speed than it was during the last 2 quarters, but the overall income will continue to go up. The interest result, at the moment, I also would expect that it will continue to go up a little bit. At the moment, the competition is for us quite okay. We have stable volumes on our balance sheet there. And we have already beginning of the year increased our interest rates there. And therefore, we feel overall well positioned.And just to give you 2 figures, we are now in the stage that we will increase for target scale our interest rate to 1.25%. And for example, for money, which stays with us for 1 year to 2.25%, which I think in the market is quite good. And therefore, we -- as I said, we believe that our balance sheet will be more or less stable and also the interest income will continue to go up a little bit.On the non-life insurance segment, the contribution of DSV to be quite, I believe it was something like on the revenue side something around EUR1 million, but I think we have to give you the correct figure later. Meaning, yes, there was a contribution of the DSV question about this, but we had a growth in -- not only in the area of the Industrial Broker, but we had also growth in the non-life insurance and in MLP. And therefore, we would have seen positive figures also without DSV.The biggest increase, by the way, was at DOMCURA due to the increase of different contract classes. And we all know that non-life insurance we see -- due to the inflation, we see increases in the overall markets. And this also leads to increasing revenues at MLP or in the Group, let's say, this way. Does it answer your question, Mr. Hassler?

[Philipp Häßler, analyst]

Yes. So if you are saying the revenue contribution was around EUR1 billion, the EBIT contribution is more or less not significant?

[Reinhard Loose, executive]

What's -- let me check this before I answer something wrong there. We'll contact you later on this. But it was not necessarily significant than it was -- the reason for the increase overall. That's what I want to...

[Operator]

The next question is from Fabien Le Disert from Kepler Cheuvreux.

[Fabien Le Disert, analyst]

I have 3 questions. The first one, regarding banking regulation, do you think that the current crisis surrounding Credit Suisse might have implications on enforcement on adjustment of Basel III regulation? Second question is on Wealth Management. Inflows were mainly driven by fixed income, equity or alternative investment strategies? And it's a question regarding outflows. And the final one, regarding alternative assets. Do you see less appetite for private assets going forward as there could be maybe a conflict between higher private assets allocation and the increased liquidity needs in an environment where the direction of interest rate has changed and interest rate volatility could be higher also?

[Reinhard Loose, executive]

There are 3 difficult questions. I don't know where to start with. Let's start with the first one, regulations. I think we all read it and seen it that the regulator said that now it's not the time for reduced regulations. And we know that before, let's say, the Credit Suisse debacle, we had discussions if there could be some reductions on regulations. I think this discussion is now over. What will come, I think that's something that's difficult to say.Just from my point of view, you see and hear from time to time things that now we need even more equity. I think this is something which I don't understand, because from my point of view, especially which comes from the U.S., it was not the question of not enough equity, but it was a question of liquidity and what's done there. And I mentioned in the first round of questions that I see us on the liquidity side because we are very conservative on this now for years, which costs us a lot of money during the negative interest rate period. But in this time, I think we don't have to fear anything there. And therefore, as long as we see additional regulations on liquidity, I would say, there's no impact on us. But with the regulators, it's difficult to plan and to see. And you see that I have some difficulty to answer these questions.And regarding difficulties, I'll also go to the next point, alternative assets. Definitely, and we all know that, let's say, the advantage of alternative assets now in this interest rate environment is not so significant than it was before. But nevertheless, there are still many reasons for invest into alternative assets comparing or just taking diversification, taking stability. And therefore, at the moment, with our customers, we don't see any sign that the interests of our customers will be reduced in the next future that they will invest less in alternative assets with us. Obviously, we have the customers who are investing in many fields and alternative asset is one amongst others. And we believe that these investors will continue to do so.By the way, just one perhaps additional point. At the moment, there is one, let's say, speaking mutually, one bigger insurance company in the South of Germany, which are offering for old-age provision for over one-time investment to participate in their portfolio of alternative assets. And they have packed this into an old-age provision into a life insurance policy, which can be acquired by private customers. And we see in the market and also with our customer that the interest even of private customers to invest into this product, which is also alternative asset product, is still -- not only still, is extremely high. And this gives me, let's say, a hint that the overall interest in alternative assets will not be reduced a lot.And therefore, Wealth Management and then I will come to your last question or it was the second one. The mix in our portfolio concerning the inflows was, yes, a little less shares and a little more in bonds. But also, there was no steep all alone, no extreme change in the inflows -- in the shares of the inflows in the last 3 months in our -- at least amongst our customers.

[Operator]

The next question is from Jochen Schmitt, Metzler.

[Jochen Schmitt, analyst]

I have 2 follow-up questions on the net interest margin development of MLP Bank. Maybe to ask a former question in a slightly different way, to which extent will you compete in deposit competition? And to which extent you would be willing to let client deposits simply leave MLP Bank given your high LCR at year end '22? And in a more strategic context, the second question also on MLP Bank. My understanding is that optimizing the net interest margin is not your primary target of running MLP Bank, but rather offering a comprehensive product offer for your clients. Could you maybe give some comments on that?

[Reinhard Loose, executive]

I see the questions are getting more and more difficult here. The last one was the easy one because optimizing that interest margin definitely is not our main target. Yes, you all know that the idea of our bank is, let's say, a combination to offer a product for our customers that we have something like a core product for our customers and that they can use this, for example, for investing in our -- in the asset under management they have with us. And therefore, we -- this is our overall strategy and this also has then an impact to our net interest or to our interest margin strategy.I would say, this way, that we feel quite comfortable with the balance sheet or the volume of our customers which they have parked on our balance sheet. And therefore, we don't see us as someone who is fighting for inflows. On the other side, we also would not be too happy if our balance sheet reduces a lot. If there is some up and some down, it wouldn't be a problem. But I would see us, therefore, somewhere in the middle to see that we can attract our customers, that we offer them a basis for investment in our Wealth Management.

[Operator]

Right now, we have no further questions in the queue.

[Pascal Locher, executive]

So if there are no further questions, I would like to thank you for taking part in our conference call. And of course, you can reach out if any further questions arrive later. Thank you.

[Reinhard Loose, executive]

Thank you very much. Bye, bye.