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Edited Transcript of MLPG.DE earnings conference call or presentation 15-May-19 12:00pm GMT

Q1 2019 MLP SE Earnings Call

WIESLOCH May 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Mlp Se earnings conference call or presentation Wednesday, May 15, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jan Berg

MLP SE - Head of Communications and Politics

* Reinhard Loose

MLP SE - CFO & Member of the Executive Board

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Conference Call Participants

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* Andreas Schäfer

Bankhaus Lampe KG, Research Division - Analyst

* Michael Hermann Haid

Commerzbank AG, Research Division - Team Head of Financials

* Philipp Häßler

Pareto Securities, Research Division - Analyst

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Presentation

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Jan Berg, MLP SE - Head of Communications and Politics [1]

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Thank you very much, and good afternoon, ladies and gentlemen. Warm welcome to our Q1 financial results conference call. We very much appreciate you taking the time to join our call. With me is our CFO, Reinhard Loose. Before starting the Q&A session, Reinhard will comment on the business development in the first quarter. His comments will be based on the presentation we published this morning and which is available on our website.

Now I would like to hand over to Reinhard.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [2]

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Ladies and gentlemen, please also allow me to wish you a good afternoon. The start of the financial year was demonstrably successful, and we are on the right track. As was also the case throughout 2018 it's clearly shown what positive effects the strategic development of the past years have had on our business. In other words, the significant diversification of our revenue basis is delivering success. Total revenue is up and has benefited from gains in virtually all consulting fields. At the same time, key early indicators for future revenue development are also displaying positive signs. In terms of earnings, we repeated the high level of the 2 previous years and are well on target after the first 3 months. It remains our objective to increase EBIT once again. You can find an overview on revenue development on Slide 5 of the presentation. Total revenue is up 6% to EUR 177.8 million. This is the highest figure in an opening quarter since 2003.

The next slide provides a long-term comparison of this commission income, excluding the old-age provision area. This underlines that MLP has been extremely successful in diversifying its revenue base, and the consulting fields, beyond old-age provision have recorded an average annual growth of around 10% since 2005. And as also demonstrated by the first quarter of 2019, 2 consulting areas played a crucial role in this diversification. These are our wealth management, which we have further developed together with FERI and the non-life insurance area in which both the business of our subsidiary DOMCURA and the business with MLP clients is continuing to bear fruit.

At the same time, the old-age provision area is continuing to display pleasing development, with occupational pension provision performing particularly well here and recording a very substantial increase to around 29% of the brokered premium sum. The legislation to strengthen occupation pension provision in Germany is generating the anticipated need for advisory services at companies. At the same time, as the largest German broker in the field of occupational pension provision, we can offer a diverse and high quality program. Most recently, extended to include a digital portal for small and medium-size companies. We therefore have the right answers and solutions for the ever increasing requirement of companies. An increase of 2% in the old-age provision area's revenue recorded in the financial year 2018 already indicated a certain degree of bottoming out.

In the first quarter of 2019, we have now recorded a rise of 13% in these areas, which represents the strongest growth of all consulting fields at MLP. The premium sum of new business rose by 9%, which, as already mentioned, represents a positive early indicator for revenue in the subsequent quarter. Please allow me to make one small short comment at this point, which I already mentioned on our annual analyst conference in February. Until now, we have had -- we had applied certain total premium factors to determine the premium sum attributable to new business. In the past, regulatory changes and the low actual interest rate led to a reduction in these sectors and thereby to increasingly disordered recognition of new business. Starting now in Q1 2019, total premium factors are no longer be applied in our financial reporting. So we can once again offer a more accurate picture of new business. And of course, we also provide a comparative figure for the previous year.

Let's now return to our revenue. You can find detailed information on this in the individual consulting areas on Slide 8 of this presentation. There you recognize, the second largest growth driver was the non-life insurance area with a traditional strong first quarter. Commission income increased by 7% to EUR 59.9 million year-over-year. A significant contribution came from our subsidiary DOMCURA for which the first quarter is of special significance due to their business model. However, also MLP's private client business in the non-life insurance area continued to display positive development. Also the wealth management once again demonstrated that it is an important growth driver in the first quarter. Revenue increased by 6% to EUR 50.2 million.

Assets under management set a new record of EUR 36.3 billion. This once again makes it clear that the MLP Group has established itself in the league of private banks. And with peers also targeting a more important role in the consulting field of real estate, the product portfolio that has once again been extended for our clients. And we are acting accordingly. I recently reported on our acquisition of the DEUTSCHLAND.Immobilien Group and how we are using this to continue driving forward the diversification of our revenue basis. As announced, we are expecting the transaction to be completed in the third quarter of 2019.

The way forward is therefore clearly marked out here. In light of the prospects offered by this strategic step and the fact that we recorded a very strong closing quarter in the real estate brokerage area in 2018 with a 90% increase, declining revenues in one quarter are less significant and we are anticipating this area to accelerate over the course of the next few months. Revenue in the first quarter was EUR 3.3 million following EUR 4.9 million in the same period of the previous year. At EUR 5.1 million, loans and mortgages remained at the previous year's level.

Slide 11 gives you an overview of the income statement. EBIT was EUR 12.5 million in first quarter, and therefore, remains at the same high level recorded in 2 previous years. Among other things, it is important to take into account that additional expenses of EUR 0.4 million were accrued in the first quarter for external consulting services in connection with acquiring the announced majority stake in the DEUTSCHLAND.Immobilien Group. All in all, earnings also displayed successful development at the start of the year. The midterm EBIT comparison shown on the right slide -- serves to underline this. At EUR 9.1 million, group net profit remained at the level recorded in same period of the previous year.

The next slide gives you an overview of our balance sheet. Shareholders' equity rose slightly from EUR 424.8 million to EUR 429.2 million. The equity ratio was 19.2% on the reporting date, so we remain well positioned to handle the stricter stipulations being imposed by the regulator. We are anticipating a comparable level over the course of the year.

Ladies and gentlemen, at this point, please allow me to make reference to the change in property, plant and equipment and other liabilities. As a result of the new IFRS 16 accounting standards, which is to be applied from January 1st onwards, leasing transactions are to be subjected to a revised accounting treatment. Accordingly, usage rights from leasing transactions of around EUR 55 million were recognized in the item property, plant and equipment for the first time. These are offset in other liabilities on the equity side of the balance sheet also at around EUR 55 million.

As shown on Slide 13, the first quarter net liquidity continued to be an extremely solid pillar of our balance sheet as well as a solid foundation of our company volume. At the end of March, the MLP Group had access to net liquidity of around EUR 178 million. However, it is important to note here that we reserve around EUR 100 million of liquidity for our operating business.

Now some more information on the number of clients and consultants. As of 31st of March, the MLP Group served 543,300 family clients. The gross number of newly acquired family clients was 4,100 in first quarter. Compared with the same quarter of the previous year, this represents an increase of around 2%, which is also a positive early indicator. Slightly more than 22% of our new family clients were initiated online in first quarter. The group also served 21,000 corporate and institutional clients.

As of the 31st of March, 1,910 client consultants were working for MLP. Compared to the 31st of March 2018, this represents an increase of 20 consultants. At the same time, accelerated recruitment of consultants meant that the typical seasonal dip at the start of the year was less pronounced than in previous years. The hiring figures also displayed positive development in the first quarter as did the number of leads and applicants. 2 key factors contributed to this: firstly, we have significantly extended activities in the newly established university segment; secondly, with regards to experienced providers, we are increasingly benefiting from the ongoing consolidation of the market and our extended offering makes us more attractive than ever for these candidates. MLP is still anticipating further year-on-year gains in the number of client consultants.

Ladies and gentlemen, our outlook remains unchanged after the first 3 months of the year. The trend looks good and is stabilizing further. We continue to anticipate a slight increase in EBIT relatively to 2018. We have declared this target despite the fact that MLP has announced, when publishing the annual figures, we'll once again be investing approximately EUR 8 million in 2019 for further development of the university segment. This shows that we are undoubtedly have ambitious targets. At the same time, the start of the year shows that these are achievable.

Many thanks for your time. I'm now happy to take any questions.

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Questions and Answers

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Operator [1]

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The first question comes from the line of Philipp Häßler, Pareto Securities.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [2]

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Philipp Häßler from Pareto Securities. I have 3 questions, please. Firstly, on old-age provision revenues, which went up quite strongly by 13% in Q1. Could you perhaps explain the drivers behind this? Was it due to occupational pension business? Or were there some other drivers? And then I would be interested in your guidance for the full year because you expect only a stable development for the full year now you're up by 13% in Q1. Do you know something we don't know? Or are you just cautious? I mean I know that Q4 is very important for you. Maybe you could shed some light on this.

Secondly, on regulation, particularly on the planned introduction of a cap on life insurance policies. Maybe you could comment a little bit how you assess the situation? We have had some statements from politicians, we have the draft law. So maybe you could comment on this.

And last, but not least on the acquisition of DEUTSCHLAND.Immobilien, they are also active in the project development. Could you perhaps give some more details how important is this for DEUTSCHLAND.Immobilien? Do you plan to continue this? Will you provide funding? How do see the risks in this business? Some more details would be helpful.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [3]

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Yes. Hello, Mr. Häßler. Your questions -- I start with the question concerning old-age provision. What is the reason for the increase in Q1. One reason is, indeed, the occupational pension area, which went quite well in the first quarter. And yes, also concerning guidance, we expect that the push in the occupational pension area continues in the course of the year 2019. The second reason is that, as you know, we expanded our university segment, the segment for younger consultants and with a small number and additional activities in this area, these university segments also has its part in the increase of old-age provisions.

Concerning guidance for the full year, as you said, the first quarter went quite well. We'll have second quarter, which normally is more or less the weakest quarter of the year, and we will have a look on the development there. And then, definitely, we'll compare this to the guidance. At the moment, yes, we are ahead of guidance but we have seen some surprises in old-age provision during the past years that we continue to be a little cautious for the guidance. This comment on old-age provision.

On the regulations, the discussion concerning a cap on commissions for life insurance, the first draft for discussion was sent out. Number one, this draft goes, I think, in the direction we already always said that would be a more or less acceptable direction, meaning that there is a difference between normal areas where -- for instance -- where we have just a basis and additional quality areas, but the bigger question for us is if this life insurance cap will go into place. We have heard comments, especially from the CDU that they will not support this and therefore, we are following, of course, if this will take -- will go live at the moment. I think the signs are going into our direction that we might not see this come, we'll see. But in all cases, and I think this is important to mention, if it comes or if it will not come, there will be no impact for 2019. That means the 2019 results will not be affected by this.

The next point was DEUTSCHLAND.Immobilien. Yes, one area of DEUTSCHLAND.Immobilien is also project development -- project development in the area of homes for elderly people, and we plan to continue this. This also is important for us because we see this area as a growing area, and we see this also -- we have a very interesting demand of our customers especially for this field. It's increasing year-by-year, and therefore, we see, this could bring a positive impact to DEUTSCHLAND.Immobilien and therefore, also for MLP. On the other side, we also see risks in this definitely, product development always bring some risks with it, but I think we and DEUTSCHLAND.Immobilien are able to carry this risk. We'll also give some funding to this area, but also in clear -- clearly defined limits. And therefore, again, we see there are more opportunities than risks in this area.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [4]

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Could you give us some figure? What kind of funding we talk, the EUR 3 million, a 3-digit sum, 2 digits?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [5]

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No, it will be -- the limits -- okay. First of all, we'll start with this therefore, we see how this will end. I think at the moment, in the beginning, we start about single-digit million number, and then we might go to 2 digits, but a lower 2-digit million number.

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Jan Berg, MLP SE - Head of Communications and Politics [6]

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Does that answer, Häßler?

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Philipp Häßler, Pareto Securities, Research Division - Analyst [7]

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Yes.

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Operator [8]

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The next question comes from the line of Andreas Schäfer, Bankhaus Lampe.

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Andreas Schäfer, Bankhaus Lampe KG, Research Division - Analyst [9]

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Just 2 questions from my side. First, just a question regarding wealth management. Could you give us the figure for the performance fees in Q1? And the second figure regarding the two smaller businesses, loans and mortgages, in real -- real estate brokerage. I mean you still see these 2 segments being the growth driver at least in percentage-wise in 2019 despite the fact that both segments declined in Q1. So do you expect there's a strong increase in growth in the next couple of quarters?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [10]

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Hello, Mr. Schäfer, yes. I will start with the first question, wealth management, performance fees in the first quarter was extremely insignificant, less than EUR 100,000. On the other side, we had a little higher carry income -- income from carries, from private equity. More or less both numbers together are at the same range than in the year before of around a little bit more than EUR 300,000. This concerning #1. And real estate, this more or less is exactly opposite what I just said concerning old-age provision. Yes, we are lagging behind in the real estate and connected to this, in the financing area. We had extremely strong last quarter Q4 2018. And therefore, we believe that with coming to, let's say, a normal quarter again in Q2 and then also the positive impact in working together with DEUTSCHLAND.Immobilien -- now we are starting from Q3, we see significant possibilities to come back on this growth track as we had it during all the last years. And therefore, we'll stay in this quarter with this guidance, but let me -- definitely -- like in old-age provision, in the next month, we also want to have a look at this. But we are very positive that this decline was just a Q1 effect.

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Operator [11]

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The next question comes from the line of Michael Haid, Commerzbank.

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Michael Hermann Haid, Commerzbank AG, Research Division - Team Head of Financials [12]

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Two questions. I have to come back on the cap on the -- the potential cap on the life insurance sales commissions. In discussions with your clients, is such a possible cap on life sales commissions a topic or is it not discussed at all? Second question, regarding the occupational pension business, you reported that nearly 30% of the premium sum of new business comes from occupational pensions. Can you say how much of the EUR 38 million revenues from old-age provisions -- provision commissions come from occupational pension business? I assume, it is significantly a lower percentage, but maybe you can quantify?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [13]

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Mr. Haid, one easy, one difficult question. The life insurance question is extremely easy because I never heard any of the consultants speaking about this item and never heard one of the clients commenting on this. Therefore, no, it's not topic. Occupational pension is a little bit more difficult. It is significantly lower, but I don't have a number there. We have -- I think we have to look for the number and perhaps, you can talk with Mr. Herzog after this session. We have the average margin but I don't have it here.

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Operator [14]

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We received another question from the line of Philipp Häßler, Pareto Securities.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [15]

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Yes. It's me again. Sorry to bother you once more. But just another question regarding net flows Q1. This would be great if you could give the data for us, and then the decline in the number of consultants? I assume that's the normal seasonal drop we have seen in recent years as well as nothing to worry about.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [16]

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Mr. Häßler, first of all, you're not bothering us and therefore, we're happy for your questions especially when it goes concerning net inflows. As expected, listen, I was waiting for this question in the first round although in Q1, in this Q1, I can't give you good figures there because all in all, the net inflow was more or less zero in the first 3 months. It was an insignificant low number, that means almost all -- almost the whole increase of our assets under management came from performance in Q1. Does that answer this question?

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Philipp Häßler, Pareto Securities, Research Division - Analyst [17]

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Yes. It does.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [18]

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Okay. And the number of consultants, yes, you gave the answer. We always, if you look back, always in the first quarter, we have a decline and therefore, we also had this decline concerning the year-end figures in this 3 months past. But if you compare year-on-year, there was an increase and this gives us, I think, enough support for our positive outlook for the rest of the year.

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Operator [19]

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There are currently no further questions. (Operator Instructions) We received one follow-up question from the line of Michael Haid, Commerzbank.

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Michael Hermann Haid, Commerzbank AG, Research Division - Team Head of Financials [20]

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Another question on the commission ratio in the financial consulting segment, this was rather high at 50.7%. I think I asked the question already in the past but just wanted to confirm again. Should we expect such high level also going forward? And can you say how much of the planned EUR 8 million investments in the university initiatives, how much of these have been done in the first quarter?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [21]

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Mr. Haid, from this EUR 8 million, EUR 2.4 million are in the first quarter. Yes, it is. It was EUR 2.4 million were in the first quarter. And the commission ratio, I think, for the rest of the year, we could expect a commission ratio in a similar level like this. Perhaps it will be a little less at the end of the year but structure to it, we would expect something similar.

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Michael Hermann Haid, Commerzbank AG, Research Division - Team Head of Financials [22]

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And the EUR 2.4 million, that is also affecting the commission ratio?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [23]

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Not -- partially, but not everything. Will also for -- general costs.

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Operator [24]

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Thank you. There are currently no further questions. (Operator Instructions) There were currently no further questions. I'll hand back over to Mr. Berg for the closing remarks.

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Jan Berg, MLP SE - Head of Communications and Politics [25]

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Thank you very much. As there are no further questions, we close this conference call. Again, thank you very much for joining us today. We will be available for any further questions you might have. Again, thank you, and we wish you a nice and pleasant afternoon. Bye-bye.