MLP SE

XETRA:MLP

Earnings Call Transcript 2023-Q2

[Pascal Locher, executive]

Thank you very much, and welcome to MLP's conference call to our results for the First Half Year and the Second Quarter of 2023. 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. After the first 6 months of the current financial year, we can say the MLP Group is holding its ground despite operating in an environment that remains difficult. This has also put us in a solid position for the rest of the year. Broad and strategically interlinked positioning of our Group helps us remain successful even when facing conditions that continue to be characterized by crisis and the massive strains on consumers, as well as their knock-on effects. The strong pillars of our business serve to compensate for one another during varying market situations.Despite continued pressures on the market resulting from dynamically rising interest rates, high inflation, and uncertainty relating to political decisions, total revenue rose to a new high of EUR 475 million in the first half of this year. This once again demonstrated the high stability of the overall business, including the particularly strong growth recorded in the interest rate business at MLP Banking.Especially in challenging times, private, institutional, and corporate clients all rely on us as partners and consultants in all financial matters. We have worked hard to establish this special relationship with our clients and consistently honoring our service commitments forms the basis of our economic success, particularly in tough times. It also represents the basis for significant future growth potential. We have repeatedly and successfully made comprehensive investments in our future over the last few years. We will continue on this path with a focus on IT and digitalization.The same applies to recruiting young MLP consultants, a field in which we recently took a key step when launching a carefully planned new program for employed consultants trainees in mid-July. With this program, we are assuming a unique position in the competition for the greatest talents and best consultant personalities. The costs associated with this have already been taken into account in our forecast for 2023, which we are happy to reaffirm here today.In concrete terms, we continue to target earnings before interest and taxes, EBIT in short, of EUR 75 million to EUR 85 million. For the first half of the year, MLP already recorded EBIT of EUR 37.4 million, despite operating in framework conditions that remained challenging in parts of our markets and a negative financial one-off effect. At the same time, we are already benefiting from a noticeable upturn in the old-age provision business, particularly with a view to the second half of the year. So we generally look forward to the remainder of the year with a sense of confidence, although remain highly vigilant.In the mid-term, we are adhering to our plan and placing special emphasis on achieving our planned EBIT of EUR 100 million to EUR 110 million for the Group with more than EUR 1.1 billion in sales revenues by the end of 2025. Moving along our ambitious growth path, we are continuously getting closer to this goal. The strategic success factors, which in particular also include non-life insurance activities, continue to display positive overall development for the MLP Group.Within the MLP Group, which we have been continuously developing and strategically diversifying since 2005, we are now focusing sharply on greater depth of value-added and consistent digitalization. To this end, we are working hard in the field of digitalization to further automate work process, especially for repetitive activities, such as portfolio management of insurance contracts.Robotics are also playing an increasingly important part at our bank in terms of availability, precision, and obviously cost efficiency. In other words, we are using innovative digital solutions throughout the entire group in areas where they serve the needs of our clients and help boost their efficiency. Our goal here is 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, the core of our consultancy services.In addition to this, we are extending our service offering within the MLP Group and also entering new business areas with a digital focus. We have set up a task force to look at the potential use of Artificial Intelligence. The members of this team work on answering questions regarding the prudent and also responsible use of this technology.You can find an overview on revenue development on Slide 5 of the presentation. Total revenue rose to EUR 475 million in the period from January to June 2023, which represents a new record. Income from commissions and fees were EUR 417.2 million. Interest rate business and MLP Banking enjoyed particularly strong growth with an increase of 266% to EUR 27.5 million. As expected, due to current market developments, real estate development revenue displayed a significant decline to EUR 14.9 million in the first half of 2023, over the very strong equivalent period in the previous year.With an increase of 13%, MLP recorded particularly strong revenue growth in non-life insurance. At EUR 127.8 million, the consulting field currently represents the second largest revenue contributor within the MLP Group. The Industrial Broker segment, DOMCURA, and MLP's private client business all contributed to this. Old age provision also recorded an increase in revenue of 8%. The growth recorded in the first quarter also continued in this field. The good development in occupational pension provision is having a particular impact here. In addition to this, our young consultant area continued to display good development.In the field of health insurance, MLP was also able to generate further growth with an increase of 5%. Occupational health insurance, which we cover through our TPC business division, is also making an increasing contribution. As expected, challenging market developments continued to burden both the real estate brokerage and loans and mortgages consulting fields. Despite a slight improvement in the overall picture, MLP therefore recorded a significant decline in real estate brokerage revenue in the first half of 2023, compared to the strong equivalent period in the previous year. The same applied for the real estate development.Wealth management revenue for the first 6 months of the year was EUR 150.3 million. In light of volatility on the capital markets in the preceding quarters, performance-based compensation, which is generally paid based on its actual date, also remained very low. Nevertheless, the investment concepts displayed good performance.Let's now move on to assets under management, where we recorded a new all-time high of EUR 56.7 billion as of the 30th of June of this year. More than ever before, we are therefore operating on a par with renowned private banks. The non-life insurance portfolios managed in the MLP Group also rose to a new record level of EUR 682.2 million after the first 6 months of the year. To put this in context, the MLP Group is therefore operating at the level of a medium-sized non-life insurer.You can find the current income statement on Page 8 of the presentation. Despite operating in an environment that remains difficult, EBIT was EUR 37.4 million. This was once again driven primarily by strong earnings in the first quarter of 2023. In the second quarter of 2023, on the other hand, the EBIT of EUR 5 million was influenced by negative developments in the real estate and loan and mortgages business. This figure also includes a negative financial one-off effect of EUR 2.8 million resulting from mergers in the Industrial Broker segment. However, taking this necessary step will greatly simplify management of the segment in future, while also reducing costs.Next slide shows our balance sheet. As at the balance sheet date, shareholders' equity rose slightly from EUR 525.5 million to EUR 547.1 million. At 20.5%, the core capital ratio remained at a high level on the reporting date. The liquidity coverage ratio, LCR, which serves as a benchmark for the short-term liquidity situation in stress scenarios and as such is an indicator of resilience, is 881%, and therefore, well above the ratio of 100% required by the supervisory authorities.The consultants in the MLP Group were serving 575,500 family clients as of 30th June 2023. The gross number of newly acquired family clients rose to 9,300 in the first half of the year. The number of corporate and institutional clients as of 30th of June was 27,600. The number of consultants in the MLP Group as of 30th of June was 2,055. We already reported back in May on the slight seasonal decline encountered in the first quarter. In the second quarter, we are now dealing with a knock-on effect in the context of our new trainee program for aspiring consultants, which we successfully launched in mid-July. In the mid-term, however, we are still anticipating a further and substantial increase in consultant numbers above all, thanks to this new trainee program.This brings me to our strategic further developments, two of which I would like to describe in more detail today, including the trainee program. As already announced in Q1, the objective of the trainee program, our new recruiting instrument, was and is to further increase the attractiveness of starting work as an MLP consultant. With the new trainee program, young talents now no longer start their ambitious career as a consultant directly on a self-employed basis, but are instead employed at MLP for qualification periods, including an examination by the Chamber of Industry and Commerce, [ AHK ]. This gives them 4 months to prepare themselves in a focused and well-planned approach for their future role as a consultant, with all of the opportunities that self-employment has to offer.Today, just a few weeks after launching the new program, some 41 aspiring new junior consultants have already embarked on this path towards their future career. With the new trainee program, we are once again assuming a pioneer role in the market. More than ever before, we feel certain that this will help us to win the best talents to our company. After all, only these talents are actually capable of delivering MLP service commitment to our discerning clients. At the same time, we are actively addressing the challenges that all companies are now facing as a result of the demographic development.In the current year, we estimate that our new trainee program will impact earnings by a low single-digit million-euro figure and by a mid single-digit million-euro figure for the 2 subsequent years. As was also the case in 2017, when we choose to further development the young consultant segment at MLP and already achieved the break-even point in 2021, we are once again making targeted investments in our own future with this new trainee program. Despite this, the formal number of consultants in the Group at the end of the current year is unlikely to be higher than the figure as of the 31st of December 2022. This can be attributed to the transitional effect resulting from the switch over to the new trainee program.Since our junior consultants now initially start their career as employed trainees, they are not yet included in the consultant numbers during this time. In fact, the first group of trainees will only appear in the MLP consultants key figure once they have completed their first 4 months at the company and pass their exam at the [ AHK ]. The subsequent groups of consultants trainees that start their career with us during the later months of this year will then obviously only be counted as consultants in the coming year after they have made the transition to self-employment.At this point, I would like to once again point out that this figure has always been a group figure. Although future growth of this key figure will still predominantly be driven by successfully recruiting young MLP consultants, it is also influenced by increasing consultant numbers by successfully acquiring brokers already working in the market and offering them a new career, for example at [indiscernible].Consultant acquisition, which was once considered a key indicator for measuring the success potential of MLP many years ago, has now generally become less significant. This is due to the fact that our consultants today support their clients more intensively, in line with our positioning as a dialogue partner for all financial matters. This has obviously also made MLP even more successful commercially. Overall, MLP has enjoyed strong positive development, including entry into various additional sectors, as well as a strong corporate client business.The occupational pension provision is a particularly good example for just how reliably and efficiently the strategic positioning of the MLP Group developed in recent years has been working. We took the decision to focus our efforts on establishing this business field back in 2004. With our TPC brand, we are now enjoying success as the largest German broker and continue to record dynamic growth. In light of the shortage of skilled professionals, many enterprises have also recognized the fact that occupational pension provision can be an excellent instrument for acquiring and retaining capable employees.However, occupational pension provision is not simply an off-the-record product. In fact, it requires specialists and consultants who are capable of developing and implementing concepts tailored to the specific interests of a company. This is precisely where the strength of TPC lies as a part of the MLP Group and while revenue is also continuing to rise by around 19% in the first half of this year.Returning to the key issue of acquiring and retaining the best employees, the altered demographic development requires companies to come up with new ideas. MLP has solutions ready for precisely this purpose that also go far beyond the scope of occupational pension provision. From a strategic perspective, these also fit in perfectly with MLP's range of products and services. And solutions of this kind typically have a provision-based character. MLP clients that their corresponding responsibility as company owners or top managers also request them on a regular basis.Set against this background, we have been a majority shareholder in the startup pxtra since its founding in July 2022. Hosting high-level digital operations, the [ hot ] stock-based startup specializes in flexible employee benefits, including health promotion of public transport and meal allowances. Our offerings in the field of occupational pension provision and health insurance are also set to be added. Both employers and employees organize all services and processes related to employee benefits using the digital platform and associated app developed and supported by pxtra. At the same time, employers can keep an eye on actual requirements in the workforce and then make individualized offers on this basis. For our corporate clients, this is a valuable instrument for increasing employer attractiveness while also offering employees the company's greater quality of life and satisfaction with their job.Our investment in pxtra is a successful example of our strategic approach for developing further growth potential early on. Here, we leverage our position as the largest German broker in the field of occupational pension provision to develop and implement an innovative and highly competitive offering around a digital solution. Our investment in pxtra falls within the scope of our corporate client strategy, which alongside consultancy services for family clients, represents an important pillar of the MLP Group. The pillar, which we are set to expand further in the coming years.Ladies and gentlemen, please now allow me to move on to the forecast. Despite continuing to operate in challenging framework conditions in parts of our markets, we are still anticipating EBIT in the range of EUR 75 million to EUR 85 million for the MLP Group in the current financial year. Starting from the solid position, we worked hard to establish in the first half of the year, we are anticipating further increases in portfolio volumes in the non-life insurance business, as well as a continuation of the strong interest rate business.In light of the ongoing challenges resulting from the significant rise in interest rate and costs for the building industry, however, MLP has reduced its annual revenue forecast for real estate. The health insurance consulting field in which revenue has displayed better than anticipated developments to date, we are leaving our estimate for the year as neutral. In the mid-term, meaning by the end of 2025, we are still planning to record EBIT in the range of EUR 100 million to EUR 110 million with revenue of more than EUR 1.1 billion. This planning continues to be essentially based on 3 key strategic success factors that you are already aware of: a further increase in assets under management in the Group; ongoing expansion of non-life insurance portfolio volumes; and sustainable growth in all parts of the MLP Group. At the same time, we are paying close attention to our costs.Ladies and gentlemen, please now allow me to come to the summary. Firstly, the first 6 months of the year served to underline our resilience and our ability to deal with negative developments in parts of our markets. We have once again demonstrated our capability to effectively navigate through potential prolonged challenges. Secondly, we have worked hard to secure a very solid position for the rest of the year. At the same time, we are already benefiting from a noticeable upturn in the old-age provision business, particular with a view to the second half of the year. And thirdly, moving along our ambitious growth path, we are gradually getting closer to our goal of significantly increasing both sales revenue and earnings in the MLP Group by the end of 2025. To achieve this, we will also be focusing on our digital strategy, which we will continue to pursue with determination.Many thanks for your time and your interest. I'm now happy to take any questions.

[Operator]

Right now we have the first question. It's coming from Henry Wendisch, NuWays.

[Henry Wendisch, analyst]

Yes. I hope you can hear me fine, and thank you so much for your presentation and congratulations on the record H1 so far. I have a couple of questions. Maybe I'll start with on the business side first. On the interest spread, obviously, you have more interest income, but also I saw that you increased the interest rate for your customers that have overnight and time deposits. How do you feel for the remainder of the year? Do you feel competition from other banks concerning that interest rate? Or do you maybe plan to increase that to maybe avoid a little bit of churn? I know it's not the main core of your business, but it's definitely interesting.And the second question is the number of family clients has gone up, but the number of institutional clients went down a little bit compared to the full year number. I would like to know, is there any particular reason for that or is it just regular volatility, I would say, for the customer based on the institutional client business, especially as you just said before, you increase your intention to the institutional client business?Then I'd like to know numbers-wise, the assets under management that record -- record level, which part of that was actually the valuation effect and how much net capital inflows did you receive? And you might have guessed that my last question on the business is the number of performance fees you acquired in Q2, I'm estimating EUR 0.5 million, but maybe I'm a little bit above that.And now on politics, a few questions, mainly on the EU retail investment strategy that has been published in May. I'd like to know how do you feel about that? In particular, do you think it might lead to an over-regulation or a bureaucracy monster as we have them in Germany quite often, which will also lead to more costs concerning the products? Or do you rather feel that it's going to support your business because it targets the objective of financial education or could it be both? And maybe similar on that one is the new report from the [ focus ] group [indiscernible] from the German government. Basically, how are your views on that? If you want to make some political remarks on that, maybe how do you feel that how this is going to impact your business if the proposals are executed as such?

[Reinhard Loose, executive]

Wendisch, yes, many questions. Thank you for them. I'll start in the order. The first business question was concerning interest spread and let's say a little outlook on the second half of the year. I think what we see right now, we have more or less stable deposit structure, a little bit growing, but not too much. And we feel quite comfortable with the deposit structure overall. We have now, in our point of view, a quite attractive interest situation for our customers. On the, let's say, daily accounts, we give them 1.5%, which is, I think, a very attractive ratio. We don't take part in these 6-month offers to get new customers. That's not our way of getting new customers, but let's say the basis interest rate of 1.5% is quite attractive. Or another example for offering a one-year deposit, we offer 3.5%, which is quite attractive. With this, in the market, good and high interest rates, we feel confident that we will be, let's say, that we will see a stable interest margin in the second half of the year. And therefore, obviously, we don't know if there are very aggressive offers, then we have to act as well. But at the moment, we see the market and the market condition for us quite positive.On the second question, family and institutional clients, we had, during the last months, let's say, some mergers. And with some of the mergers, there were a little consolidation effect on the number of clients. But let's say, overall, and if you follow the year-by-year number, you will see that also not only the number of family clients, but also the number of institutional clients continues to grow, and especially in the last, let's say, 18 months, the growth was quite significant, which obviously has something to do with our acquisitions as well in the Industrial Broker segment. And therefore, we are also confident there that we can continue with this growth rate, with the organic growth rate in the next months and years.Concerning asset under management, we have overall seen inflows of EUR 2.8 billion and outflows of EUR 2.4 billion in the first 6 months of the year. And we saw a performance of EUR 2 billion. And that means that the main part of our growth in assets under management came from performance in this 6 months. Staying with the wealth management area, you asked on performance fees, we had -- also for the first 6 months, overall, we had [ EUR 2 million ] performance fees, and performance fees meaning performance fees and carries for our private equity concepts, compared to [ EUR 5 million ] for the same number in last year, EUR 2 million to EUR 5 million.And now coming to politics. First of all, in general, yes, with all these new laws and regulations, definitely we fear and we see more regulation, we see more bureaucracy, we see, in general, higher costs for fulfilling these regulations, which gives us definitely great concern. And if we want, we can continue the numbers. You spoke about the focus group, you spoke about the regional investment strategy regulation. There are many other new ideas, which can be regulated. IT is a very nice part of DORA, the regulation which is coming. We have seen new regulations for MaRisk, the seventh MaRisk is now in the market and which also will bring us new bureaucracy. Therefore, this regulation trend is really extremely critical, definitely not only for us, but I think, let's say, for doing business all over Europe.But complaining about this is one thing. Obviously, we have to handle this and therefore, we see a second part, let's say, with the details, which are in both mentioned ideas, regulations. We are not -- not totally unhappy, I would call it like this. I think we can handle the details and we therefore don't see major negative effects for our business in both of them. And with this, I hope that I could answer your questions, Mr. Wendisch.

[Henry Wendisch, analyst]

Yes, perfect. Thank you very much.

[Reinhard Loose, executive]

You're welcome.

[Operator]

At this moment, we have no further questions. There comes one. Okay, just a moment. The next question comes from Philipp Hassler, Pareto Securities.

[Philipp Häßler, analyst]

Yes, hello, Philipp Hassler from Pareto. I have a number of questions. Firstly, on the tax rate in Q2, which was very high. Could you please give some color on the tax rate? Then the interest expenses for liabilities, they amounted to [ EUR 2.6 million ] in Q2. Do you have a figure for Q1 as well? At least I haven't found any in the financial report for Q1.And then on the performance fees and outlook for the second half, because I think the high watermarks play an important role regarding the achievement or the generation of performance fees. Are we still far away, or not we, but are you still far away from these high watermarks? Or is it possible that performance fees will increase again to somewhat higher levels in H2 or at least next year?

[Reinhard Loose, executive]

Hello, Mr. Hassler. I can give you 2 out of your 3 questions. I can give you 2 answers out of your 3 questions. But with the first -- with the interest liabilities in Q1, I have to look it up. I don't know the figures right now, and I don't have it with me. We will deliver this if you're okay. We'll deliver this to you later.The tax rate, yes, the tax rate in Q1 is relatively high. There is one reason. We have losses in our segment for DEUTSCHLAND.Immobilien in Q2. And while in almost all parts of the German business we operate under one tax regime, Organschaft, the DEUTSCHLAND.Immobilien is exempted. That means losses in the DEUTSCHLAND.Immobilien cannot be calculated tax-wise against profits of the rest of the Group. And therefore, the overall tax rate goes up because, obviously, the profits has to be taxed with a normal rate, and the losses, as I said, it can't be or won't reduce this overall number. For the, let's say, outlook of the full year, we nevertheless continue to plan a tax rate around 28%, 29%, which should be somewhere, again, in the normal rate.And I was motivated with a question concerning outlook with performance fees. We are at the moment with the OptiPlex above our high-water mark. And therefore, let's see how the rest of the year develops. But there are some, let's say, hopes, expectations. It's not totally unfair to believe that we'll see some performance fees in the second half of the year, as long as the markets continue to be like they are right now.

[Philipp Häßler, analyst]

Okay, perfect. I forgot one question I had, because the EUR 2.8 million negative financial one-off, which is related to the merger of industrial brokers, maybe you can also give some color on this. I mean, it sounds like a relatively high figure for merging a few entities.

[Reinhard Loose, executive]

Yeah, it's -- what is the reason for this? When we acquire a company or when we acquire these industrial brokers, normally this is not one company, but there's a couple of companies. And obviously, our intention is to reduce the number of companies. And what we normally do, and it's clear, when we acquire the company, we have to consolidate it. Let's say, the bigger companies and the smaller companies are below the consolidation threshold. And then, in the course of the year or the next year, like it was this time, we try to merge the smaller companies. And when they -- this merger then comes, therefore, to our consolidation circle. And therefore, they brought -- and some of the smaller companies of the industrial brokers brought some, let's say, losses with them. They brought some losses with them, and due to this double effect of merger on one side and bringing them into the consolidation circle, because now, obviously, they belong to bigger companies, that was the reason why this loss occurred.And because I know that you are, let's say, in the figures, I continue with one aspect, it could be interesting, that there are other possibilities to handle this issue. One possibility could do that you merge them and increase the goodwill. But we, as you know, we see us as more conservative, and therefore, we preferred not to put this [ EUR 2.8 million ] in the goodwill. And then, obviously, we won't have seen this in the P&L, but we preferred to bring it into the P&L and therefore to stay with the goodwill on the level we have right now.

[Philipp Häßler, analyst]

That's certainly a good decision. I do appreciate that. But just coming back to, so it was -- but it was a one-time effect, because you said you -- now you consolidate the losses of the smaller companies, but that's, nevertheless, it was a one-time effect. So there won't be now losses from the smaller companies contributing negatively to EBIT in the next quarter.

[Reinhard Loose, executive]

No, there was a one-time, and they brought the losses with us. And obviously, the idea of merging them is that we, let's say, that they bring the customers with them, but they are relatively small, and that means the operation for this small business is not really profitable. And now, as they are part of the bigger entity, the operation is much more cost-efficient, and therefore, the customers we had in the smaller entities or the bigger entities, and then on the gross rate, obviously, the customer bring benefit with them. And now they will, on a small level, but nevertheless, they will contribute to the revenue of the -- and therefore, also to the profit of the Group.

[Philipp Häßler, analyst]

So you will be able to take out some costs going forward?

[Reinhard Loose, executive]

Exactly.

[Philipp Häßler, analyst]

Okay. Perfect.

[Pascal Locher, executive]

Then, if there are no further questions now, I would like to thank you for taking part in our conference call. And of course, you can reach us if any further questions arrive later. And so I say thank you and goodbye.