MLP SE

XETRA:MLP

Earnings Call Transcript 2021-Q2

[Operator]

Dear, ladies and gentlemen, welcome to the publication of MLP regarding the results Q2 2021. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Andreas Herzog, who will start the conference today. Please go ahead, sir.

[Andreas Herzog]

Well, thank you, operator, and good afternoon, ladies and gentlemen, and warm welcome to the presentation of our financial results for the first half year 2021. Here with me is our Chief Financial Officer, Reinhard Loose, who will, firstly, comment on our business development in the first 6 months. And afterwards, we will be happy to answer your questions.All documents, including today's presentations, of course, are available on our website. So now I would like to hand over to you, Reinhard.

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

Thank you, Andreas. Good afternoon, ladies and gentlemen. The MLP Group was able to continue its successful course of the last few quarters. We stepped up the pace of growth, recorded gains in all fields of consulting and were able to further increase our earnings before interest and taxes [ significantly ]. This broad-based growth also reflects how we generate added value within the MLP Group for our clients and, thereby, for the company itself through the various perspectives and areas of expertise. The development observed in wealth management is particularly pleasing. When presenting our business figures from the first quarter, I already mentioned that our assets under management were only just short of the EUR 50 billion mark. As of the 30th of June, we are now visibly above this mark, thanks to further inflows as well as performance.In light of the successful development in the first half of the year, we are also happy to substantiate our forecast that we are now anticipating EBIT at the upper end of the forecast range of between EUR 55 million and EUR 61 million for the year 2021. At the same time, we continue to make extensive investments in our future and thereby, continuously strengthen the basis for our planned increase in earnings in 2022.You can find an overview on revenue development on Slide 5 of the presentation. Total revenue increased by 17% to EUR 421.8 million, setting a new high. At EUR 405.1 million, commission income, meaning revenue from commission and fees, increased significantly and represented the greatest share of this positive development.Looking at the second quarter on its own, growth of total revenue was 21%, which I consider a very strong message in this market and which underlines one key factor, providing our clients with intensive support leads to added value for them and also for us as a company. As such, we are both a reliable dividend stock and an attractive growth investment for our shareholders.In the first half of the year, this growth was driven by all consulting fields and paths to growth, which once again impressively underlines just how broad and stable our bases has now become.A look at the breakdown by consulting fees for the first half of the year shows the strongest growth rates in real estate with an increase of 39% and wealth management with an increase of 33%. The excellent development in wealth management can be attributed in part to highly successful new business at both MLP Banking and FERI. However, the performance-linked compensation accrued for value development of investment concepts in wealth management are also significantly above the previous year's level after the first 6 months.Looking at the second quarter on its own, the performance-linked compensation is slightly above the already high level recorded in the same quarter of the previous year. MLP also recorded strong gains in real estate brokerage in the first 6 months of the year. In association with DEUTSCHLAND.Immobilien, we enjoyed a significant increase in revenue to EUR 22.3 million here. 39% increase in revenue can also be attributed to the fact that more and more MLP consultants are enjoying success in establishing the topic of real estate within our comprehensive consulting services.We also gained significant growth in loans and mortgages where revenue is up 21%. This reflects the sustained high level of demand for real estate, at the same time, demonstrates that our consultants have long since established themselves as professional advisers for their clients in this field.Developments in the old-age provision field were also pleasing. Following the declines encountered throughout 2020 due to the effects of the coronavirus pandemic, we were able to record a recovery here. In the first 6 months of 2021, revenue increased by 12% over the same period in the previous year.Looking at the second quarter on its own, growth was even stronger at 24%. This growth was bolstered by both private and occupational pension provision. The latter had a particularly tough time in the previous year due to the special situation for many employers in the coronavirus pandemic. We are, therefore, all the more delighted to be back on the growth path.Other key figures also displayed positive development in the last 3 months. As I already mentioned at the start, we're able to increase the group's assets under management to the record level of EUR 51.4 billion as of the 30th of June. This figure rose by EUR 11.8 billion in the last 12 months alone. In comparison, this figure stood only at EUR 11.4 billion in 2007, that means after the first-time consolidation of FERI.We have benefited from performance and inflows into funds here, both at FERI and at MLP's private client business. We were also able to increase the nonlife insurance portfolio volumes managed by the MLP Group to EUR 547 million as of the 30th of June 2021. At EUR 98.7 million, a significant effect here was the first-time consolidation of industrial insurance broker, RVM, which was acquired early in the year. More than ever before, we are operating at a level comparable to midsized nonlife insurers in terms of the total portfolio volumes now being managed.With completion of the RVM acquisition as well as acquisition of a corporate alliance in Hamburg, which MLP has already reported on, the ongoing expansion of the industrial broker segment was not the only thing we were able to expand. In fact, this serves to highlight our 2 branch premise, which characterize the new MLP. Each of our companies has its own strong business model. Added value has been created through networking of diverse perspectives and areas of expertise in the group. Among other things, the fact that every company which has joined the group in the last few years, has significantly increased earnings serves to underline this. We are continuously building on and expanding this synergy.As a tangible example, MLP consultants can bring an expert from the group onboard at any time, for example, from FERI for extensive investment situations. In the first 6 months alone, this helped us record inflows into funds of around EUR 100 million.However, the subsidiaries can also gain leverage among one another. TPC and RVM, the latest member joining the group, both serve midsized employers, one in the field of pension provision and the other in insurance. At the same time, DOMCURA can provide coverage concepts for RVM. DOMCURA and DEUTSCHLAND.Immobilien each have more than 5,000 brokers in the market for whom they can draw offers.Please now allow me to move on to the income statement on Slide 9. At EUR 31.4 million, MLP recorded a significant increase in EBIT in the first half of the year. This was driven primarily by the significant increase in EBIT to EUR 21.8 million in the first quarter as well as a further rise in the second quarter to EUR 9.6 million. However, it's also important to take into account the fact that VAT refunds for previous years were recognized in income in the second quarter of the previous year. This led to an EBIT contribution of EUR 3.4 million as a special effect in Q2 2020.In addition, the first-time consolidation of industrial broker RVM served to reduce our EBIT by EUR 1.1 million in second quarter 2021. This is due to the fact that earnings are primarily generated in the first quarter in the RVM business model as a result of the seasonal nature of the business. EBIT in the first quarter amounted to EUR 7.1 million according to German Commercial Code, meaning HGB. Since the transaction was concluded at the start of the second quarter, it is not reflected in the income statement. In addition, consulting costs increased on group level in Q2. Considering all of these factors, we are more than satisfied with Q2 earnings.The next slide shows you our balance sheet. As of the balance sheet date, shareholders' equity fell slightly from EUR 454 million to EUR 451.2 million. The core capital ratio was 18.5% on the reporting date, meaning that we remain very well positioned. We are anticipating a comparable level over the course of the year.Here is some information on our consultants number. As of the 30th of June 2021, 2,053 client consultants were working for MLP. Compared with the same period of the previous year, this represents a significant increase, although lingering effects of coronavirus-related restrictions could be felt in the second quarter of 2021. However, we are still anticipating further year-on-year gains in the number of client consultants. Indeed, we are keen to continue our highly successful consultant recruitment efforts of the last 3 years having recorded a significant increase of 105 consultants in 2020. At the same time, we still pay attention to the quality of the applicants and our recruitment efforts. In other words, we try to ensure that the candidates display the necessary skills and the aspiration to perform the sophisticated work of an MLP consultant.The consultants in the MLP Group were serving 557,100 family clients as of the 30th of June. The gross number of newly acquired family clients was 9,800 in the first 6 months and thus visibly above the same period in the previous year. We also served 24,500 corporate and institutional clients.Ladies and gentlemen, I will now move on to our outlook. In light of the successful development in the first half of the year, MLP is now anticipating EBIT at the upper end of the forecast range of between EUR 55 million and EUR 61 million for the year 2021. On the revenue side, we are adjusting our expectations in the loan and mortgages field and are now anticipating clearly positive development for the whole year following a very strong first 6 months.In wealth management, we are initially reaffirming our estimate, which was only revised after the first quarter. This is because we have not planned for any further performance-linked compensation for the second half of the year and having received very high compensation in the same time period of 2022 -- of 2020, of course, sorry. However, this obviously means that we will have an additional earnings driver if performance-linked compensation is, in fact, accrued in the second half of this year. At the same time, we continue to seek market risks and, above all, risks for our business due to issues surrounding the coronavirus pandemic. This is particularly true of old-age provision for which we have chosen to leave our quality assessment as slightly positive. Yet we are still anticipating dynamic development in both real estate brokerage and nonlife insurance.As mentioned, we are now expecting to reach the upper end of the forecast range of between EUR 55 million and EUR 61 million for the year. Not the least set against the background of coronavirus developments, which are almost impossible to predict, we feel comfortable with this comparably conservative assessment. However, I would like to make one thing very clear. If the framework conditions are conducive, we can potentially already record even higher earnings in the current year. I've already touched on the potential wealth management as an example here.The year 2022 remains the primary focus of our earnings planning. Our key growth levers are aligned in such a way that we'll not only expect a significant increase in earnings level, but can actually already reduce this from the basis of key leading indicators as things stand today. We are also once again happy to confirm our planning based on which EBIT is likely to rise to around EUR 75 million to EUR 85 million by the end of 2022.If you take a look at the overview on Slide 17, you can see a list of the growth areas that we have already highlighted the start of the previous year. In our young segment, the announced breakeven point is imminent. Over the last few years, we have invested and accumulated total of more than EUR 30 million and are now benefiting from the effects of this. The young consultants already onboard are becoming increasingly productive, and the total number is increasing as planned. These 2 factors together should help to, again, significantly boost the contribution in earnings in 2022.Another key growth field for us is the brokered real estate volume. This continued to display positive development, and we are making good progress towards our goal of reaching a volume of EUR 600 million to EUR 700 million in 2022. Alongside brokerage, we have now also successfully established the project business, above all, in the fast-growing area of senior citizen housing and care. Of course, delays can potentially be encountered while we are still living with all the effects associated with the coronavirus pandemic. But this does not change the fact that we have a strong pipeline, facilitating a [ valuable ] contribution for 2022. In addition, we are aiming to build on our continuous growth across other fields of consulting just as we have done in the last few years. This is flanked by the potential from the new industrial broker segment in which we are anticipating visible effects on earnings from 2022 onwards.Ladies and gentlemen, please now allow me to move on to the summary. Firstly, we further boosted sales revenue growth in the first half of the year, and we're also able to increase profit. This provides us with a tailwind for the remainder of the year. Secondly, we have once again benefited from the very broad and thereby, stable foundations of our business. At the same time, additional added value has been created through networking of diverse perspectives and areas of expertise in the group. And thirdly, we are starting the second half of the year with optimism and are also well on track to reach our 2022 targets.Many thanks for your time. I'm now happy to take any questions.

[Operator]

[Operator Instructions] And the first question received is from Olivier Calvet of Kepler Cheuvreux.

[Olivier Calvet, Equity Research Analyst]

Reinhard and Andreas, I would have 3 questions. First one was -- is on the number of consultants being slightly down. I just want to ask if you could remind us if there's any seasonality in, I guess, the incentive schemes that we should bear in mind? Or if that was really more driven by, as you said, your stringent requirements for new MLP consultants?Second question would be if you could break down the impact on your AUM of the net inflows versus the performance.And the third question would be, just coming back to the one-offs last year, I think you had EUR 25-or-so million in H2 from the performance fees that significantly lifted your EBIT. If I were to just take out -- take that out and look at the underlying EBIT, I mean, obviously, the numbers you've released out are very good and I understand your -- why you're confident in reaching the top end of your guidance. But where -- in the underlying business, can you shed some light on what is going to drive the positive EBIT swing year-on-year that we will see in H2, excluding the performance fee?

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

Yes. Thanks for your questions. If I start with your first question concerning number of consultants. Yes, indeed, we are a little bit down. We -- as I mentioned, it's a little bit more complicated this year to find new consultants. As mentioned, for example, many of the, let's say, fairs which we normally book and visit where young people look for new jobs or for their first jobs, these fairs are not there. Obviously, we have other ways like LinkedIn or XING, but nevertheless, a little bit more complicated. But overall, it's also typical that we have something like a seasonal swing.Normally, first quarter and also the second quarter are a little more difficult and then the rest of the year, it will go down. Therefore, overall, we are positive that we will see a positive development for the number of consultants, and therefore, we'll see a higher number at year-end than we had at the year-end of the previous year, but also the rise will not be as high as in 2020. And therefore, we stay positive. And therefore, it's -- we will more say it's a seasonal effect plus coronavirus, plus difficult environment, but we will continue to grow.Your second question, the asset under management. Yes, as mentioned, we have increased to now EUR 51.4 billion asset under management, starting with EUR 42.7 billion at year-end 2020. And if we want to break down this development, the main inflow -- we had an inflow of EUR 7.3 billion overall. The majority there, obviously, of around EUR 6.3 billion was at FERI. There we have, for example, won a very huge new client which invested -- or who invested mainly in alternative assets and, therefore, supported overall the asset under management of FERI, but especially asset under management in the -- for us, very important area of alternative assets at FERI. And this was definitely very positive. If we continue with the breakdown, we have outflows of around EUR 1.2 billion and then performance-related changes in asset under management of EUR 2.5 billion.I hope this answers your question. Yes, we're not totally unhappy about this question -- this number, that's true. And this directly leads to your third question, let's say, the positive swing or the continuation in the second half of the year, yes, as you said, we had a very positive performance fee or performance-linked contribution from FERI in the second half of 2020 of around EUR 23 million. And we plan 0 for the second half of this year. Obviously, that can be more than 0 and that will have a positive effect.But now, forget this for a moment and why we are -- what we will see as positive, let's say, development in the second half of the year, we have our main -- our typical seasonal effect that we see profit increase in our area of financial services of the finance outlook in the last quarter of the year, and if you look back into the last quarter -- in the last years, this were always the, by far, profitable, most profitable quarters for the group overall and especially for the segment of Finanzberatung. And therefore, this will continue to be, and therefore, this will be the main effect in the second half of the year.Then you saw our figures for real estate, which were quite positive in the first 3 -- in the first 6 months. And obviously, we continue to believe that the market surrounding supports us also with an increase -- will increase there in the second half of the year. And this perhaps also is supported by positive impacts from our project business, and therefore, we see a positive development there. And then, let's say, normal business continues to be positive. Meaning, for example, in the area of nonlife insurance where we will see, let's say, normal business or -- as well as, for example, in the loan and mortgage business where we just lifted our outlook for the year, we will see a positive, a very positive development. And therefore, we are quite confident also for the second half of the year. And as mentioned before, our outlook, I think, personally, and I'm normally not too optimistic, but I would see our outlook there as a conservative outlook.

[Operator]

The next question we received is from Philipp Häßler of Pareto.

[Philipp Häßler, Analyst]

Philipp Häßler from Pareto. I have 3 questions, please. Firstly, on your old-age provision business, which was very strong in Q2, you mentioned that the occupational pension business has recovered again in Q2. Could you maybe give us some more details, particularly the growth rate versus Q2 2020?And then secondly, performance fees in Q2, could you please quantify those? And last but not least, on the health insurance business, we saw an increase of 12% in the first half. Still, your outlook is relatively cautious. You expect a neutral development for the full year. Have there been any one-offs in the first half? Or why are you so cautious? Or is it may be linked to the general election we will have in September? Maybe you could shed some light on this.

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

Of course, thanks for your questions. Starting here from the end, home insurance. First of all, obviously, we are looking for the -- let's say, for the elections. But regardless which results we see in the elections, I don't expect there are any impacts for 2021. Therefore, the answer to your question at least in the first half of the year, yes, we received some bonus payments due to the, let's say, quality of the business, we brokered there to the insurance companies. And these bonus payments won't be in the second half of the year, and that's the reason why we stick to our outlook. And that's also the reason why we had a more positive development than normally in the area.Health insurance continues to be a difficult business. We are performing better than the market. No question about this. But the market is difficult, and therefore, we continue with the outlook.On the performance fees, we had just performance fees of EUR 23 million overall in the first half of the year, EUR 11.4 million in the second quarter. And to be precise, additionally, we had some carries from our private equity activities there of EUR 1.2 million in the -- also in the second quarter.And then old-age provision. Old-age provision overall in the area of occupational pension business in the second quarter rose by 22%. That's, therefore, let's say, similar to the overall number. And therefore, we mentioned this, especially because last year, we had a big decrease. You may remember, last year, the private business was more or less stable, and we had a huge decrease in this occupational pension business. And now both are going upwards with similar numbers. But nevertheless, we mentioned especially because we are, let's say, happy. We're happy because in the long run, as you know, we see more potential in the occupation -- or more growth potential, to be precise. We see more growth potential in the occupational pension area. And this is just -- yes, I think is a short description where we are at the moment there. Does that answer your question?

[Philipp Häßler, Analyst]

Yes, it does. Only just a small follow-up on the occupational pension business. So would you say you're already back to normal there? Or is there still some catch-up potential in the next quarters? So are your corporate clients still relatively reluctant? Or is this not the case anymore?

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

There is some more potential. Why? With the existing customers, we are, let's say, all more back to normal, perhaps not 100%, but almost back to normal. But what we find out is that it's -- that these existing customers with the existing clients, they don't hire people as they hired before the coronavirus pandemic. And therefore, there's, let's say, less new business with existing clients. And also, it's seems to be a little bit more difficult that existing clients at the moment change because it's -- and therefore, the number of new clients there is -- could increase even more. We have, let's say, in the outlook for the second half, some interesting potential for new customers. But in the first half of the year, this number was not as good that I would say that we are back to normal, therefore, still potential there.

[Operator]

[Operator Instructions] And the next question we received is from Christian Salis of Hauck & Aufhäuser.

[Hans Christian Salis, Equity Analyst]

Christian from Hauck speaking. Congrats to the fantastic results, first of all. Two questions from my side. On RVM, what has been the impact on revenues in Q2? And could you maybe please provide an update on the integration process? And could we expect already any positive cross-selling effect in the second half of the year?And then second question on the -- again, on the full year '21 guidance. So to recall, you are guiding now for more than EUR 2 million or EUR 3 million more EBIT compared to the initial guidance. While you generated, as you just said, I think, EUR 23 million performance fees in the first half of the year, right? So I think your initial guidance was based on the assumption of EUR 6 million performance fees. So ultimately, the delta here is EUR 17 million, the positive delta. So I know that EBIT is strongly geared towards Q4. But nevertheless, my question is what other part of the business, if there is any, is underperforming so much in terms of EBIT that you are not going -- or not raising the guidance more significantly? So could you please maybe share more detail here?

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

Yes, of course. I'll start with our industrial broker segment, RVM. Overall, just to explain a little bit the business model, the EBIT flows are similar to what we see at DOMCURA. That means you remember that at DOMCURA, we see a very positive first quarter. And then in the quarters 2, 3 and 4, we normally see losses or more or less at 0. And with RVM, we will see similar development because it's -- let's say, with this nonlife insurance brokerage there, it's a similar EBIT development. Therefore, we will also in the next quarters don't see -- or won't see positive EBIT effects there.There will be some cross-selling effects, but also only minor. Therefore, I wouldn't, let's say, expect big figures there during this year. The integration team is working definitely. We are, let's say, visiting -- jointly visiting customers at the moment. We are speaking about integration of some systems. We are about, let's say, forming policies for special customer groups from DOMCURA to RVM and, therefore, let's say, I would say normal integration work. Also, of course, just speaking with the CFO there for normal integration work also on risk management systems and other things, which normally don't generate too much positive effects, but avoid too much risk in the future. And therefore, I would think that on the EBIT side, you will see in 2022, there the expected midsized million positive effects. This is just to go a little bit more detail -- give a little more details on RVM.On the guidance, yes, with the figures, I think the performance fees, it doesn't change your question. But with the performance fees, when we talk about performance fee, obviously, it's a gross figure and not everything of the performance fees goes to EBIT. I would say, yes, we generated more performance fees than we expected. I wouldn't say that overall, let's say, business is -- or other business are going back. But especially, in the real estate area, we mentioned already that we see more difficulties in getting the right -- the correct documents from the government to start with some projects. And therefore, we see delays in projects. We expected more income there. And there, we are a little bit behind. That's one reason.And obviously, business is going well, but we still see the potential for some risks. And therefore, also for the downside, we might see on the credit side some risks, on the old-age area some risks. And therefore, that's the reason why we changed the guidance. But as I, on the other hand, also said, we're aware that this is a conservative guidance. And let's look to -- forward how business will continue in August and September, and then we will talk again. And by the way, thanks for the congrats in the beginning.

[Operator]

[Operator Instructions] And we received a follow-up of Philipp Häßler.

[Philipp Häßler, Analyst]

Another follow-up question. You were mentioning the contribution from the project business in the first half, maybe you could quantify this also, how big was the contribution from the project business in H1 and if possible, split into Q1 and Q2?

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

I would -- let's say, if we go forward, we are behind. I don't have the, let's say, the precise figures right there. And also -- therefore, I think we also have to look there for the second half of the year how this continues. As I said before, we are behind. We have the expectation that we will see definitely a positive development in the second half of the year. But nonetheless, we are behind there.I just received the figure. Great. Andreas is helping -- supporting me. We have in the first half of the year, we have revenues of EUR 5.3 million. I didn't have the number by heart. But here is the number, EUR 5.3 million is the number for the first half of the year. And to be quite honest, we expected a higher figure there. And this, we're looking forward and working that this continues to -- it's growing, no question about this, but this continues to grow also in the second half of the year.

[Operator]

As we received no further questions, I hand back to the speakers for closing remarks.

[Andreas Herzog]

Well, thank you, operator, and thank you for your questions, and thank you for participating in our call. If there still might be some questions left or will arise later, please do not hesitate to contact our IR team. We appreciate you to attending our call today and wish you a pleasant day. Thank you, and goodbye.

[Operator]

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