MLP SE

XETRA:MLP

Earnings Call Transcript 2019-Q3

[Operator]

Dear ladies and gentlemen, welcome to the publication of MLP regarding the results Q3 2019. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Jan Berg, who will start the conference today. Please go ahead, sir.

[Jan Berg, Head of Communications and Politics]

Yes. Thank you very much, and good afternoon, ladies and gentlemen. A warm welcome to our Q3 financial results conference call. We very much appreciate you taking this time to join our telephone conference.We have no shortage of interesting topics today, so I hand directly over to our CFO, Reinhard Loose.

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

Good afternoon, ladies and gentlemen. We've been able to continue the positive development of recent quarters the last few months. On the revenue side, we have not only recorded a new all-time high, but also enjoyed high-quality growth. The diversification of our revenue basis, which we have been consistently driving forward over the course of the last few years, is continuing to pay off. At the same time, we are developing steady sources of revenue for the future by expanding our portfolios and intensifying our efforts for recruiting new consultants, which has gained considerable momentum. We will benefit greatly from this in the midterm.Our earnings performance after 9 months is fully in line with planning. And this connection is important to note that, amongst others, we had a positive one-off effect in the same quarter of the previous year. We remain right on track for the year and are happy to confirm our forecast.Please now allow me to address the development of our income statement. Total revenue rose by 5% to EUR 487.3 million, which is the highest value after 9 months since the sale of the insurance subsidiary in 2005. At the same time, commission income rose to EUR 463.4 million. Interest income was EUR 12.5 million and therefore, slightly below the previous year's level.The broad diversification of our revenues is presented on Slide 6 of the presentation. With the exception of real estate brokerage, we have recorded an increase over the previous year in all fields of consulting after 9 months. At 9%, the strongest growth was recorded in the old-age provision business, which -- for which we see good and sustained momentum. The drivers of this positive development were once again 2 further developments that we have worked hard to promote in the last few years.Firstly, the expansion of our occupational pension provision business, which increased by 23% in the first 9 months in terms of the brokered premium sum. The background to this remains the legislation to strengthen occupational pension provision in Germany and the corresponding need for advisory service at companies as well as the associated incentives offered for private clients.Secondly, we are benefiting from the strengthening of our university segment. We are once again recruiting more young consultants through this initiative and thereby developing the massive potential among students and graduates even more effectively. This has led to the brokered premium sum in the field of consulting increasing by 84% over the previous year. I will come back to this in more detail later again.Now I'd like to return to our revenue development in the various consulting fields. The non-life insurance field also displayed pleasing development. We recorded an increase of 6% to EUR 102.9 million after 9 months here, both from MLP's private client business and through our subsidiary DOMCURA. Loans and mortgages field was slightly above the figure from the same period in the previous year, with an increase of around 5%, while health insurance rose by 1%. Although real estate brokerage continues to lag behind slightly, we already observed an upturn in the second quarter, which then gained even more momentum in the third quarter as anticipated. Indeed, growth of 33% was recorded for the period from July to September and October was also very successful.In wealth management, which encompasses both MLP's private client business and the FERI business, we were able to increase our revenue by 5% to EUR 160.5 million, despite operating in volatile markets. However, performance fees received for the performance of investment concepts at FERI were weaker in the third quarter than the previous year due to the developments on the capital markets. This has a direct effect on earnings.The development of assets under management in the MLP Group, together with FERI, remains pleasing. It rose to EUR 38.1 billion and is gradually approaching the EUR 40 billion mark. We also observed continuous growth in another important stock value. In the non-life insurance, the premium volume increased to around EUR 400 million, which is comparable to a medium-sized insurer in the market.Slide 8 of the presentation shows you our income statement. At EUR 19 million, EBIT developed fully in line with our planning, even if this figure is below the same period in the previous year. When comparing the 2 years, the reasons for this are costs incurred indifferently when comparing the annual period and as already mentioned, lower performance fees in wealth management as well as a positive one-off effect in the third quarter of 2018. At that time, a capitalization of a VAT receivable provided a positive EBIT contribution of EUR 2.9 million. The net profit for this period was EUR 15.3 million.The next slide gives you an overview of our balance sheet. At EUR 409.5 million, shareholders' equity was down slightly on the reporting date. Due to the completion of the acquisition of the majority stake in the DE Group, minority interests were disclosed in the balance sheet. These were EUR 1.1 billion on September 30. The core capital ratio was 17.7%, so we remain well positioned to handle the strictest stipulations being imposed by the regulator.As shown on Slide 10, net liquidity continued to be a solid pillar of our balance sheet as well as a solid foundation of our company value. The MLP Group had access to net liquidity of around EUR 126 million. As the graph shows, mainly reductions in cash and cash equivalents essentially related to the initial purchase price for the acquisition of the DE Group as well as higher other liabilities contributed to that change.As of September 30, MLP Group served 547,900 family clients. A gross figure of 13,600 new clients were acquired in these first 9 months of the year, which represents a slight increase over the same period in the previous year. Around 25% of these were initiated online. This positive development also reflects our intensified consultant recruitment drive, which is increasingly bearing fruit. Indeed, the number of consultants working for MLP rose to 1,932 as of September 30. We are, therefore, not only significantly above the previous year's level of 1,888, but also already above the level from December 31, 2018. In other words, since we enjoy an extremely low fluctuation rate and, at the same time, firmly expect further recruitment in the remaining months, we are anticipating a significant increase in consultant numbers for the year. Alongside these short-term prospects, at this point, I would like to once again briefly highlight the midterm prospects of the strategic step we have taken by strengthening the university segment. We have an unprecedented focus on acquiring new young consultants and young clients. The objective here is to develop the existing massive potential at the universities to an even greater effect. To achieve this, we first had to invest. We, therefore, allocated an additional EUR 7 million in 2018 and will be adding around EUR 8 million in the current year.As you can see from various factors, such as the increase in old-age provision products in the first 9 months, our ongoing investments are starting to pay off. As already announced, our goal is to increase the number of consultants in the university segment from the current level of around 300 to around 500 to 600 by 2022. With this order of magnitude, we see ourselves well positioned in this area in the long term because it will allow us to tap the existing graduate potential properly. Slide 11 (sic) [ Slide 12 ] shows that we are already anticipating a positive EBIT contribution from 2021 onwards according to our planning.Real estate brokerage represents another important growth area for the future. We already reported on completion of the transaction to acquire a majority stake in DEUTSCHLAND.Immobilien at that time. As a result, we now operate DEUTSCHLAND.Immobilien as a fifth brand in the MLP Group and are already starting to see some initial signs of interaction. We will be opening the second DEUTSCHLAND.Immobilien store tomorrow at the MLP Consulting Center in Heidelberg. Our clients will then be able to get a very tangible sense of the group's extended real estate expertise as soon as they enter the waiting area of the consulting center. At the same time, the store is a point of contact for prospective clients and the sales partners linked to DEUTSCHLAND.Immobilien. This acquisition also has impact on our income statement and balance sheet. The Holding segment was renamed into Holding and Other, and since completion of the transaction to acquire a majority stake in the DEUTSCHLAND.Immobilien Group on 2nd September, also includes the project companies of the DE Group. Expenses from real estate development are disclosed under commission expenses. Inventory changes also results from real estate development and represents the changes in asset values generated in the current phase of the projects within the reporting period. This item will increase in the future as the respective projects progress. In return, the successive sale of the product units reduces this item. The newly included item inventories represents essentially the assets of the project companies. In addition, minority interests are now reported as part of the equity. Before I move on to the outlook, I would like to give a brief update on the ongoing discussion regarding a potential commission cap in the field of life insurance. The draft bill has still not even been presented to the Cabinet. At the same time, a revised draft bill indicates that the potential start date has now been pushed back to January 1, 2021, for the next year -- the year after the next. The plan is still to incorporate 3 components. These are basic compensation, a component for high-quality consulting and the compensation for services that is in line with the market, in case a broker, such as MLP, performs specific services for insurer. Nobody currently knows whether a cap will actually be introduced. Indeed, many expert politicians are rightly more critical than ever of this regulation and allow me to add for good reasons. However, should the cap in the life insurance field, ultimately, be introduced, we'd be able to cope with that better than anyone else in the market due to our positioning.Finally, allow me to give an outlook for the rest of the year. In terms of the qualitative estimate of our sales revenue, we have made some slight adjustments. Following successful development in the current year, we are now anticipating slightly growth in the old-age provision. Until now, we had assumed stable development. In the comparatively small consulting field of loans and mortgages, on the other hand, we are reducing our expectations slightly. The other consulting fields remain unchanged.We are expecting a good closing quarter overall and look forward for the coming weeks with a sense of confidence. We are fully on track and expect for the last quarter, which still remains extremely important in our business model, to record a stronger earnings performance than the same period of the previous year. On this basis and despite high levels of investment in the future, we confirm our earnings forecast to increase EBIT slightly over the previous year's -- year in 2019.I'm now happy to answer your questions.

[Operator]

[Operator Instructions] The first question is from Philipp Häßler of Pareto.

[Philipp Häßler, Analyst]

Philipp Häßler from Pareto Securities. I have 3 questions, please. Firstly, on the performance fees in wealth management. Could you please give us a figure how large they were in Q3? And maybe explain a little bit, again, why they were lower year-on-year despite the fact that you reached a new record AUM level? Secondly, you were just talking that you are expecting EBIT increase for Q4 year-on-year. Maybe you could explain, again, why you're so confident that Q4 will be a strong quarter? And then on the old-age provision revenues where we have become more positive, at the beginning of the year, you expected a stable development, now with plus 8% after 9 months, if I remember correctly, you did much better. Why don't we see that stronger in EBIT? Is there a special explanation for this?

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

Mr. Häßler, thank you for the questions. Concerning performance fees, first of all, why they are lower than last year, although our assets under management are higher, the reason is -- for that is that many of this contracts have a high watermark in it, and therefore, let's say, although there are more assets, more volume, many of the older assets still haven't reached high watermark levels. And therefore, there are 2 contradictory parts, but the high watermarks, where in many cases, not met, and therefore, they did not generate performance fees in overall. Just to compare the overall number, we had in the full year now EUR 3.4 million of lower performance fees and carries than the year before.

[Philipp Häßler, Analyst]

That's for 9 months?

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

This for 9 months, yes. Then the second question, why we are confident concerning Q4? First of all, number one, we expect lower costs in Q4 than in the comparative quarter of 2018. The second point is that we expect an additional push in real estate. You see the numbers of Q3, and we said something concerning October, which was quite well. We see there additional momentum, and this also should be a part of the EBIT increase. And finally, the old-age provision part also seems to go quite well, and therefore, this also should contribute to a positive EBIT. These are more or less the 3 main reasons for Q4.And concerning old-age provisions, this was up, yes, 9% now in the first 9 months, and as I said, this continues to go up. And therefore, we changed from a stable outlook to a positive outlook for the full year. And in our planning, we just had a stable outlook, and therefore, we expect this also contributing positively. Does this answer more or less your questions?

[Philipp Häßler, Analyst]

Yes. Just regarding the last question, I mean, the question was, I mean, at the beginning of the year, you said, okay, stable development for old-age provision revenues. Now they came in probably much stronger than you expected at the beginning of the year, but still the EBIT probably didn't increase as much as we could have expected looking back comparing the 2 forecasts of your...

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

Yes. I think that there are other parts in it. The main part is, if you compare to our planning and what I do first is I compare with our planning, then we haven't planned a positive development in the old-age provision in Q4, and we will now expect a positive development. And this, therefore, is a deviation in our planning. If you look backwards and compare it to what you just did with what was during the year, then we also see some positive effect in our assets under management, which was quite good.And then there is another effect, which I didn't mention, looking for the last quarter, we are also now planning relatively cautious concerning performance fees in Q4. But if the market continues to be as it is right now, then there will be more performance fees in Q4 than expected. And this, therefore, is a combination of these parts.

[Operator]

The next question is from Andreas Schäfer of Bankhaus Lampe.

[Andreas Schäfer, Analyst]

So I have 3 questions, if I may. First, could you tell us the brokered sum in old-age provision after 9 months? And how does it look like compared to the German market? So is the market already in Germany up, let's say, 10% year-to-date in terms of new business? Then second question, do you expect, again, like in the last couple of years, a release of risk provisions in Q4? And the next question is -- the last question is your capital ratio is going down to some extent in my view due to the fact that the balance sheet growth was so strong. What do you expect going forward? Do you expect to grow your balance sheet, especially the deposits as strong as in the last couple of years? And is that really helpful for your, let's say, profitability and capital ratios?

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

Okay. Mr. Schäfer, I'll start from -- with the last question, capital ratio. Yes, it went down due to 2 reasons. First of all, our equity went down a little bit, first, for the payout of the dividend; secondly, also, to a smaller effect due to the interest rates we calculate -- or use for calculating the -- our pension parts, and they both reduced a little bit the equity. And on the other side, as you said, balance is going up. Balance is going up more than we expected, and to be also quite honest in this respect, more that we want. We have the 2 parts. On one side, we are positive that we have additional customers coming in, opening accounts, especially current running accounts, which also brings some money, therefore, to our balance sheet. On the other side, there is more money on our balance sheet than we want to have it. You are now -- we all are part of the banking system and I think follow very curious the discussion on negative interest rates. And I think that this discussion and then the -- introducing negative interest rates will have an impact on the development of balance sheet of all parts also of others. Therefore, let's make it shortly in one sentence. Our -- we would be happy if the balance sheet increase would go down, number one. Number two, concerning the equity, what we do is, we book the profit of the year to the equity at the end of the year for calculating the capital ratio. And therefore, the profit of the full year will increase equity as of 31st of December, and therefore, we'll see an increase in the capital ratio when we talk next time, when we talk about the full year 2019. Another point you touched, the risk provision. If we expect a release of risk provision in the last quarter? I would say, no, we don't see -- we don't -- at the moment, we don't expect such a development as we saw last year.And concerning the brokered sum in old-age provision in the third -- in the first 3 quarters, we have now a brokered sum of around EUR 2.5 billion in the first 9 months, as I said, and we are there with a market share of around 3%, a little bit better than we are in market share than in previous years.

[Operator]

[Operator Instructions] The next question is from Christian Salis of Hauck & Aufhäuser.

[Jan Berg, Head of Communications and Politics]

Mr. Salis?

[Hans Christian Salis, Equity Analyst]

Yes. Sorry, I was muted. And I've got one question left, please. On the university segment, so you are saying you want to reach breakeven in 2021. And my question would be, what's the negative EBIT impact in 2019?

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

Yes. Wait a second to avoid the answer by heart. Yes, the EBIT effect in 2019 for this university segment overall will be at around EUR 3 million in 2019.

[Hans Christian Salis, Equity Analyst]

Okay. Okay. And how is this spread across the individual -- across the quarters in 2019?

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

First of all, I was just reminded, the EUR 3 million was a minus EUR 3 million, obviously, sorry.

[Hans Christian Salis, Equity Analyst]

Yes, of course, of course.

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

And for the quarters, to be quite honest, I don't have it at the moment. It's going -- it's decreasing, obviously, from quarter-to-quarter, but the exact numbers, I don't have at the moment.

[Hans Christian Salis, Equity Analyst]

Okay. That's fine. And then lastly, maybe just another one on the performance fees in Q4. So you said if the markets are staying like that, like we have seen currently, so at pretty strong levels, then performance fees should come in above plan. Could we also assume that this implies that performance fees could come in above the performance fees we have seen in Q3? So above EUR 3.2 million or...

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

No. I don't expect this -- no, it's -- I think it's difficult there to -- we all know that it's changing a lot day by day, but I wouldn't expect a number above Q3.

[Hans Christian Salis, Equity Analyst]

Okay. And maybe one last question, sorry. You also talked about lower OpEx, I think, in Q4, which should support profitability improvement on EBIT. Is there -- has there been a -- will there be a shift from costs into Q3? Or what do we mean by that?

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

No. We had -- I would say that from quarter-to-quarter, there are always differentiation and from time to time, you have more costs or untechnically spoken, investments in different quarters, and we had more costs in Q3 and -- for some activities, which also impact or will have an impact in Q4, and therefore, we see that the cost will go down. There's no [ voluntary ] shift, but it's more operational doing.

[Operator]

Next question is a follow-up from Philipp Häßler of Pareto.

[Philipp Häßler, Analyst]

Yes, Philipp Häßler, again. Sorry to Mr. Loose to bother you with my regular question about the net flows in Q3. Maybe you could provide those?

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

I was missing something.

[Philipp Häßler, Analyst]

I thought so. And then I'm -- I got a little bit confused about the performance fees. So for Q3, they were at EUR 3.2 million, and for the full 9 months, they were EUR 3.4 million lower year-on-year. Is this correct?

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

For the full year, it was EUR 3.4 million lower, that's correct. And let's have a look to -- in this performance. For Q3, it was -- together with the carries, it was, 2 point -- sorry, EUR 3.4 million, sorry, yes, EUR 3.4 million.

[Philipp Häßler, Analyst]

Performance fees Q3?

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

Yes, also, yes. Performance fees and carries in Q3 2019. And now the question concerning inflows and outflows. We had inflows -- net inflow of around EUR 600 million and gross inflows of EUR 5.5 billion in the group.

[Philipp Häßler, Analyst]

In Q3?

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

No. Sorry, as always, for the full year. Sorry, for the full year.

[Philipp Häßler, Analyst]

9 months. So the gross figure was 5...

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

EUR 5.5 billion, and the net was EUR 0.6 million (sic) [ EUR 0.6 billion ].

[Operator]

There are no further questions. I hand back to the speakers for closing words.

[Jan Berg, Head of Communications and Politics]

Thank very much. So obviously, all questions are answered. Again, thank you very much for your attention. We will be available if you have any further questions. Again, thank you, and we wish you a nice and pleasant afternoon. Bye-bye.

[Operator]

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