MLP SE

XETRA:MLP

Earnings Call Transcript 2022-Q2

[Operator]

Good day, and welcome to the MLP results call for the second quarter 2022. Today's conference is being recorded. At this time, I'd like to turn the call over to Andreas Herzog. Please go ahead.

[Andreas Herzog, executive]

Thank you, operator. Ladies and gentlemen, welcome to our conference call. This morning, the MLP Group published quite strong results for the first 6 months of the year. With me today is our CFO, Reinhard Loose, who will guide you through our numbers. And of course, we'll be available for your questions afterwards. So please go ahead, Reinhard.

[Reinhard Loose, executive]

Thank you, Andreas. Good afternoon, ladies and gentlemen. The MLP Group remains on track, following an excellent start of the first quarter, we underpinned our great stability in the second quarter. This was achieved despite operating in a market environment that was clearly subdued particularly due to the war in Ukraine and the high level of inflation. We were able to increase our revenue to new record levels, both in the first 6 months and also in the second quarter.

The MLP Group also enjoyed a significant increase in earnings before interest and taxes after the first 6 months of the year. We achieved this, thanks to excellent earnings in the first quarter and stable development in the second. We benefited not only from our pronounced proximity to our clients, but also from our demand-oriented and highly diversified positioning. Although external factors, which we cannot influence are likely to identify in the coming months, it is important to remember that what we can directly control as a company, we manage quite well. So we generally look forward to the second half of the year with a sense of confidence while obviously remaining highly vigilant.

We are also keeping a close eye on our midterm planning. EBIT recorded by the MLP Group is set to reach EUR 100 million to EUR 110 million in the fiscal year 2025. We with more than EUR 1.1 billion in sales revenue. The fact that we generate added value for our clients and therefore, also for our company, through various perspectives and areas of expertise is also becoming increasingly important. At the same time, we are continuing to invest extensively in our future and are therefore continuously strengthening our basis for our planned medium-term rise in earnings.

You can find an overview on revenue development on Slide 5 of the presentation. In the period from January to June '22, MLP increased total revenue by 12% to a new record level of EUR 472.6 million. MLP was also able to increase total revenue in the second quarter.

Commission income. In other words, revenue from commission and fees is at EUR 427.7 million in the first half year. This shows how effective our consultants have been delivering our service commitment of being the dialogue partner for all financial matters for their clients. At the same time, these business figures reflect how successfully we now also serve other customer groups in the MLP Group. We have been working with many of them for years, and we are very aware of the trust they place in us.

The next slide, once again shows our successful development without outage provision. Commission income, including real estate development is reported in a long-term comparison. More than ever before, we can see just how we have driven the comprehensive diversification of our revenue base in the last few years. Indeed, it is precisely this diversification that grants us the pronounced stability the MLP Group currently enjoys, which becomes particularly important when parts of certain markets are in decline. We were able to achieve average annual growth of around 10% in these newly established lines of business of those significantly expanded since 2005.

A glance of the individual consulting field shows that we were able to record particularly a strong percentage growth in real estate in the first half of '22. Revenue rose by 126% to EUR 50.4 million here. This can, in particular, be attributed to the successful project business at MLP subsidiaries in the DEUTSCHLAND.Immobilien segment. In addition, real estate brokerage, particularly by MLP consultants, made a valuable contribution to this pleasing development.

The group achieved strong growth with an increase of 20% in nonlife insurance. The first time consolidation of companies in the Industrial Broker segment in the first quarter also had an effect here. FOM has been fully consolidated since the second quarter of '21. DOMCURA and MLP's private client business also displayed positive developments in the first half of 2022.

The loans and mortgage business, MLP recorded growth of 8% for the first 6 months of the year. While the latest strong increase in financing interest rates is causing some consumers in the markets to refrain from the consideration of acquiring real estate and MLP is benefiting from the fact that our clients interested in purchasing real estate have above average incomes and wealth.

Health insurance revenue remained constant in the first half of the year, while OD provision revenue declined slightly from EUR 88.2 million to EUR 86.3 million. This can be attributed to a significant slowdown in the private old-age provision market from April to June. In addition, having recorded growth in new business and occupational pension provision in the first quarter of 2022. Also, MLP observed some reservation among companies in the period from April to June in terms of expanding the commitments in this field.

This can be quite clearly attributed to uncertainties that numerous companies are currently facing, in particular, due to the natural gas crisis, ongoing disruptions to supply chains as well as high inflation. Overall, we expect the positive trend in occupational pension provision to continue.

In terms of revenue development in Wealth Management, we should first look at the capital markets, which, as you know, are being impacted by global crisis and tensions. Uncertainty about the pandemic and earnings performance at companies as well as the anticipated energy crisis are shaping the overall mood. Yet MLP was able to perform more than solidly.

Despite the challenging situation and a significant decline in performance fees associated with this, the MLP Group was able to achieve slight growth in the Wealth Management in the first 6 months. This also shows a strong footing Wealth Management in our group and how much trust our clients place in our expertise both at [indiscernible] and in MLP's private client business.

In terms of revenue, this means a very slight increase in the first half year to EUR 161.4 million, whereby revenue in the second quarter of '22 was, as expected, slightly down over the same period in the previous year. As already mentioned, it's important to note the following here. Due to negative capital market developments in the second quarter of '22, no major performance fees were collected in this period. This is in contrast to a significant revenue contribution in the same period of the previous year as a result of a highly positive development on capital markets. Indeed, these fees were already significantly lower in Q1 2022 than in the same quarter of the previous year.

Successfully compensating for this is indeed a strong sign of the stability and the strength of MLP. The success of our client support in Wealth Management is also reflected in further net cash inflows [indiscernible] MLP banking. In the MLP Group, we managed EUR 54.2 billion as of the 30th of June '22. Following a slight decline over the record level of the 31st of March '22, we still remain significantly above the comparative figure from the same period in the previous year.

This slide also shows how effectively the MLP Group has already been able to increase its assets under management in both the medium and long term. Indeed, this figure stood at just EUR 11.4 billion in 2007 after the first time consolidation of FERI. The fact of the non-life insurance portfolios managed by the MLP Group have once again seen an increase is also pleasing. At EUR 620.1 million as of the 30th of June 2022, we are operating at the level of a medium-sized non-life insurer and portfolios of this client obviously also further increase our stability.

And finally the current income statement on Page 9. At EUR 44.1 million, MLP succeeded in considerably increasing its EBIT in the first 6 months of the year despite the challenging market conditions. This was driven primarily by the strong increase in EBIT to EUR 34.6 million in the first quarter of '22. At EUR 9.5 million Q2 EBIT remained stable even in the subdued market conditions.

Alongside successful operational development in the first half of the year, particularly in real estate, the anticipated first ever profit contribution from the Industrial Broker segment, in the first quarter also took effect. MLP had established the Industrial Broker segment with the acquisition of FON in early '21 as well as with further subsequent acquisitions.

Net profit for the group rose from EUR 21.2 million to EUR 31 million in the first 6 months. The next slide shows balance sheet. As of the balance sheet date, shareholders' equity rose slightly from EUR 496.2 million to EUR 504.1 million. The core capital ratio was 18.2% on the reporting date, meaning that we remain well positioned. We are anticipating a comparable level over the course of the year. [indiscernible] in the MLP Group was serving 567,200 family clients as of 30th of June. The gross number of newly acquired family clients was 8,700. We also serve 25,000 corporate and institutional clients. Number of consultants in the MLP Group as of the 30th of June was 2042.

Through our continued business success, which I have described here today, our transformation to the new MLP is becoming ever clearer. Thanks to our further optimized setup, we do not only meet the growing demands of modern venture consulting, but are actually frontrunners in many respects. This applies an equal measure to serving private and corporate clients. After all, both of these require very well-qualified personal client consultants, together with modern technology and expert support from back office and group companies. Professional financial consulting is therefore becoming increasingly collaborative, enabling clients to receive a tailored service offering.

To this end, MLP Group has expanded existing business areas and pushed forward to others in which it had previously not enjoyed any presence. Each subsidiary is a strong brand in its own business area, which not only offers great potential in itself, but also increases stability within the group. We have worked hard to secure this strategic advantage, which really pays off in eventful times such as these. We are also investing a great deal of time and energy in driving forward the interaction of the diverse competencies within the group.

Digitalization is playing an increasingly important part here, particularly in terms of processes that run in the background. Their importance for the client experience and also securing client loyalty should not be underestimated. We have done a lot throughout the group to make this happen and our steps on the road to the new MLP are already paying off. Indeed, they further improve the way in which clients perceive our consulting services while at the same time, boosting profitability.

What is now taking effect throughout the group applies all the more in MLP's private client business. Personal consulting in conjunction with complementary digital offerings and services is more than ever the key to long-term client satisfaction. This is the reason why we invest heavily in the qualification of our consultants year after year as well as developing and driving forward digital solutions.

An example of the latest MLP Choice, which I already mentioned is an example of [indiscernible] . MLP Choice is all about expanding our client-centric approach. This means that those customers who are not in close contact with consultants are to be supported centrally in the topics that are relevant to them. This happens situation, specifically at mostly digital. The main focus here is on the insurance sector.

This brings me to our forecast. We have also reaffirmed our assessment of revenue performance in individual consulting fees after the first 6 months of the year. We are still anticipating a slight increase in revenue for the year in the old-age provision business, although market-related challenges already started in the second quarter could continue in the second half of the year. However, the fourth quarter is traditionally very strong in our business model, which provides us with a possible leverage for further old-age provision revenue development.

Following a stable first half of the year, we are also still anticipating a slight downward trend in Wealth Management for the year as a whole, especially since the situation of the capital market appears to remain challenging and we had also benefited greatly from high performance fees in the previous year.

Overall, we still expect further growth in new business in the group, an increase in recurring revenues in various consulting fees to largely compensate for the decline in performance fees in Wealth Management that has already been recorded and is still to be expected. At the same time, we are continuing to focus on cost efficiency throughout the group. Despite further increased risk in the market, we are still aiming to achieve an EBIT of between EUR 75 million and EUR 85 million for the whole year 2022. However, we are also keeping a very close eye on the overall situation to determine whether uncertainties resulting from the risk aspects mentioned earlier, are likely to increase further.

Most importantly, with regard to energy. For companies in this country is to be hope that despite the ongoing efforts to adjust to gas shortages, there will not be a complete halt to supply from Russia. Regarding another key risk [indiscernible] inflation, we are now seeing signals that the peak may soon be past.

Based on the forecast for the current year, we once again confirm our medium-term planning. The increase in EBIT by the end of 2025 is set to EUR 100 million to EUR 110 million, with sales revenue in excess of EUR 1.1 billion in the same year. This planning essentially rests on 3 core strategic success factors that I've already addressed in detail over the last few months and will therefore just briefly summarize here.

These are a further increase in assets under management in the group, sustainable growth across all consulting fields and continued expansion of our real estate business, despite operating in tougher framework conditions.

Ladies and gentlemen, please now allow me to move on to the summary. Firstly, in the first half of the year, we recorded EBIT growth, and we're also able to further increase sales revenue quite significantly, despite operating the market environment that already showed signs of slowdown. More than ever before, the stable positioning of the MLP Group represents the basis for our positive and sustainable earnings performance.

Secondly, the earnings, the earnings recorded represent an excellent starting position for the second half of the year, which we generally look forward to with a sense of confidence. At the same time, however, we are remaining highly vigilant with regard to further increasing risks. Thirdly, we also remain focused on our medium-term planning for 2025, which we have reaffirmed here today. Our goal is to take the MLP Group to the next level in terms of revenue and earnings and we have already started this period of growth. Many thanks for your time. I'm now happy to take your questions.

[Operator]

[Operator Instructions] And our first question will come from Philipp Häßler with Pareto.

[Philipp Häßler, analyst]

I have 3 questions, please. I apologize in advance if I asked something which you have covered in your presentation because I had technical problems dialing into the call. So as few minutes late. But let's start with the net flows. Please could you give us the net flows for Q2 or H1, as you probably prefer to do. Then on the inflation you probably suffer like all other companies from higher personnel costs and nonpersonnel costs. I would like to get a feeling of to what extent you are able to also generate higher revenues? Or is there not much potential for you to pass on the high inflation to your customers?

And last but not least, you probably have covered this, but as I said, I was late on the call. On the real estate brokerage business, fees were very, very strong in Q2. Was there a one-off? Or was there a special big deal? And maybe you could give us an outlook for H2 and also comment on how your customers see this business as the demand for real estate property is still higher or has it come down somewhat?

[Reinhard Loose, executive]

Yes, of course, I covered all the questions in the first [indiscernible] . Then I'll start with your first question, the net flows. Overall, for the asset under management, we had around EUR 3.9 billion of gross inflows in the first half of the year as you expected. This is what I prefer to answer. We had outflows of EUR 1.7 billion in the first 6 months and then you will calculate the performance which without surprise was negative in the first 6 months and with EUR 4.5 billion negative for the whole portfolio.

Then now, I go to question number three. Inflation, I think the most difficult one. Real estate, yes, we had a high increase 126% increase in revenues in the first 6 months. Please keep in mind there are 2 parts in it. There are the part of brokerage and the part of development. Brokerage is that what we do now for 8 years. We started in 2014 with the brokerage and after the acquisition of the DEUTSCHLAND.Immobilien, we also started with development of some projects to, let's say, to give us a better reach to some projects, especially in the area of housing for senior people. And therefore, in the first 6 months, we had an extremely high increase in revenues in the development area. The brokerage part went up by around 24%. And therefore, there was no special effect, but you might remember that during the last call, from time to time, we have the question, when do we start with the development. And I said there are some delays in the development of the projects.

Now the projects start running and therefore, the revenues went up in the first half of the year, and we expect that they also will continue to be quite high in the next 6 months. You didn't ask this, but perhaps I should add one thing. And I said, the brokerage still went up around 24% in the first 6 months. Yes, we see a small -- less -- the increase went down a little bit, we still see an increase. But nevertheless, with the interest situation we have right now, the demand is not as high as it was 6, 12 months ago, but still with an increase towards last year.

Now, I hope this has answered -- no, the inflation, I didn't want to answer this one. Inflation, we definitely -- we also see on the cost side, on the HR cost side until now it's not that much, but we see that is going up definitely on other costs. We see prices rising and parts of our business model is, especially in the brokerage in the insurance sector, there our possibility to increase margin itself is extremely limited. Therefore, we have to look for compensation in the increase overall in the volume. And therefore, it's for us a little bit more difficult to increase prices there than someone who is really, let's say, producing things. This is something which is of pressure. Therefore, we have to continue on our growth path.

[Philipp Häßler, analyst]

And in the asset management area, it's probably the same. So it's very hard to increase margins for you?

[Reinhard Loose, executive]

Yes, it's more or less the same.

[Philipp Häßler, analyst]

And so I didn't catch the number. The net outflows for H1 were EUR 4.5 billion.

[Reinhard Loose, executive]

The negative performance was EUR 4.5 billion. The outflow was EUR 1.7 billion -- the outflows was $1.7 billion. The gross outflow was $1.7 billion. The gross inflow was EUR 3.8 billion. And the difference..

[Philipp Häßler, analyst]

Okay, the EUR 1.2 billion is then the net outflow.

[Reinhard Loose, executive]

Its EUR 2.1 billion the other way around. The net inflow is EUR 2.1 billion.

[Philipp Häßler, analyst]

You are the CFO, you are much better math and REITs.

[Reinhard Loose, executive]

I see you could see your calculation slides, I'm not quite sure about that, but thank you.

[Operator]

And our next question will come from Fabien Le Disert with Kepler.

[Fabien Le Disert, analyst]

I have 2 questions. The first one is on the Wealth Management segment. Do you still anticipate a positive high single-digit million euro contribution from performance fees to your 2022 EBIT as H2 could be similar to Q2. And the second question is on the Industrial Brokerage segment. What are the current trends? And should we expect overall small bolt-ons in this business in H2?

[Reinhard Loose, executive]

Thanks for your questions. Concerning performance also within the wealth management, the performance fee. At the end of last year, we announced that we see a single-digit million euro amount in our planning as what we expect for the whole year '22 as performance fees. Now we have around EUR 5 million in the first 6 months as performance fees, especially in the first quarter, obviously. And yes, definitely, it will be difficult in the second part of the year. But overall, and we all see it right now, the trend at the moment is not totally negative to say this way. And therefore, perhaps we see some performance fees. But on the other side, we will see much, much less performance fees than we saw in the last year, just to keep -- again, in our minds, we had more than EUR 60 million performance fees for the whole year last year. And definitely, we will see single-digit million euro amount, and there will be the high difference and our task is -- and at the moment, it works quite well to balance this with other -- with the increase in other areas.

And on the Industrial Broker segment, yes, now after the first 6 months, we see there an EBIT of more than EUR 6 million. And therefore, a positive part please keep in mind that the positive effect is in the first quarter and in the following quarters, they all will be normally a slight negative effect. And therefore, there will be no positive surprises in the next month, but this was also part of our planning. And we announced and therefore, we still stick to this that we plan to grow this segment. And we are looking and also in discussions with other companies if we can or could acquire them. Obviously, we will not promise any acquisitions either in the next months nor overall, but we are in discussions, and I would assume that sooner or later, we will see another acquisition there. Did this answer your questions?

[Fabien Le Disert, analyst]

Yes.

[Operator]

We will now hear from Jochen Schmitt with Metzler.

[Jochen Schmitt, analyst]

Sorry, I was also late in the call, but I guess you have not answered my questions yet. Firstly, on non-life insurance brokerage regarding inflation, do you see some clients actively asking for higher insurance cover in existing policies in certain lines of business like, for example, home insurance. And secondly, any comment on new mortgage loan business volumes since beginning of July would be fine. These are my questions. Thank you.

[Reinhard Loose, executive]

Hello Mr. Schmitt, no, I don't repeat the joke and definitely, I haven't answered your questions in the first second. First question, non-life insurance. This is something where we can now spend a lot of time in the Industrial Broker segment, in the majority of the cases, the coverage is linked to, for example, revenues of the companies. Therefore, if revenue goes up, then the premium also goes up. There were some questions concerning different coverages, but I wouldn't call this at the moment, a big wave. But what we will see, and this perhaps also not only in general for MLP as a company, but also for you personally as someone who also insures your house, what we see in the moment is something which never happened before. The overall -- there is something like an expert committee who gives to the insurance companies an advice how the costs and how the premium of non-life insurance, especially, for example, in the housing area should increase.

And in the last 70 years, the overall advice was to increase the premium between 0.5% up to 4%. And in this year, the advice is to increase the premium by 15%. Obviously, it is not sure that all insurance companies will act like this. But nevertheless, what we will see in the next year is an increase in non-life insurance premiums. Let's say, as normal people, I would say that's definitely another sign of inflation as now as a broker, as we are, I see this with a positive and with the negative part. And the positive part definitely is, and this goes a little bit to the question Mr. Häßler asked before concerning inflation, we can't increase our margin. But if the premium in nonlife insurance will increase that much also our overall part of our overall share will increase obviously. And therefore, this has also, for us, as a company, some positive sign as long as the companies and everyone, all the customers can and are willing to pay this insurance premium. This was a little bit longer the answer, but I thought it could be interesting.

[Jochen Schmitt, analyst]

Yes. And on new mortgage loan business volumes?

[Reinhard Loose, executive]

Sorry. I answered that much on the first half. Mortgage volume, definitely, as in the whole market, there was a very high demand in the first month, and this demand is going down with the higher interest rate. And during the last weeks also we see a decline in demand there. I think like the whole market.

[Operator]

And we have no further questions at this time.

[Reinhard Loose, executive]

Okay. So if there really are no further questions, I would like to thank you for participating in our call. If further questions might arise afterwards, please do not hesitate to contact the IR team. Have a good day, and goodbye.

[Operator]

Once again, this does conclude today's call. Thank you for your participation. You may now disconnect.