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Edited Transcript of MLPG.DE earnings conference call or presentation 8-Aug-19 12:00pm GMT

Q2 2019 MLP SE Earnings Call

WIESLOCH Aug 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Mlp Se earnings conference call or presentation Thursday, August 8, 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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* 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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Operator [1]

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Dear, ladies and gentlemen, welcome to the publication of MLP regarding the results Q2 2019. At our customer's 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.

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Jan Berg, MLP SE - Head of Communications and Politics [2]

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Yes. Thank you very much, and good afternoon, ladies and gentlemen, a warm welcome to our Q2 financial results conference call. We very much appreciate you taking the time to join this call. Today, we have no shortage of interesting topics, so I keep it short and hand directly over to our CFO, Reinhard Loose.

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

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Thank you, Jan. Ladies and gentlemen, please also allow me to wish you good afternoon. MLP can reflect on a successful first 6 months in which we were able to continue the positive trend of recent quarters. With a 6% increase in revenue, we have, once again, recorded a visible and allow me to say this right at the start, positive qualitative growth. We are benefiting from the diversification of our revenue bases that we have performed in the last few years. This not only enables us to grow in the year and now, but also to develop reliable revenue sources for the future.

Our earnings before interest and taxes, after the first 6 months of the year, are also above the previous year's level, and we were able to make up for the slight deficit encountered in the first quarter. We remain optimistic that we will once again be able to increase EBIT as announced for the year.

Alongside operating developments, we are also on course with our strategic initiatives, but I will talk more about this later. First, let me focus on the development of our income statement. Total revenue increased by 6% to EUR 329.2 million. It also grew by 6% on a quarterly basis. MLP has thereby completed the first or the most successful first half year since the sale of the insurance subsidiaries in 2005.

The strong substance of our revenue is presented on Slide 6 of the presentation. With the exception of real estate brokerage, we are above the previous year in all consulting fields after the first 6 months. The strongest growth rate was recorded by an area that has been difficult for MLP in the last few years due to the market conditions. Old-age provision. We recorded an increase of 10% to EUR 84 million in the first 6 months here.

Many of you are not probably asking yourself whether the framework conditions have improved significantly. The simple answer is, unfortunately not. However, we are benefiting from 2 further developments, which we have quite intentionally intensified in the last few years. The expansion of our occupational pension provision activities, which contributed almost 21% to the brokered premium sum of the first half of the year and from strengthening of our university segment.

The key fact here is that we are, once again, acquiring more young consultants through this initiative and thereby exploiting the massive potential among students and graduates more effectively. It is particularly for this client group where initial provision products such as occupational disability insurance (inaudible) are very important. I will return to the mid-term potential resulting from the strengthening of our university segment later on.

The wealth management area, which encompasses both MLP's private client business and the FERI business also displayed pleasing development. Despite operating volatile markets, revenue increased by 7% to EUR 104.7 million. This is the first time we have broken through the EUR 100 million threshold. We are also observing continuous growth in the non-life insurance area, both from MLP's private client business and through our subsidiary, DOMCURA. The increase here was 6% to EUR 81.7 million in the first half of the year.

The health insurance area was also able to achieve a slight gain after the first 6 months of the year, with an increase of just under 3%, while the loan and mortgages area recorded a rise of just above 1%.

Following an extremely dynamic closing quarter in 2018, the real estate brokerage area was still in decline after the first 6 months of 2019. However, we already began to see an improvement here in the second quarter, and this is likely to accelerate in the second half of the year.

Slide 7 of the presentation shows you our income statement. Earnings before interest and taxes, EBIT, were EUR 12.2 million in the first 6 months and thereby, slightly above the previous year. The net profit for the period was EUR 9 million.

Taking a look at the second quarter, which is traditionally weak for MLP in terms of earnings, we can see a slight improvement of the previous year at minus EUR 0.3 million. In other words, earnings are within the scope of our planning.

The next slide gives you an overview of our balance sheet. At EUR 406.3 million, shareholders' equity was down slightly on the reporting date. The equity ratio was 18.5% on the reporting date. So we remain well positioned to handle the strict stipulations being imposed by the regulator.

Ladies and gentlemen, as usual, allow me to take stock of our announced strategic initiatives for the first half of the year. Alongside ongoing cost management and inorganic growth, the key here is organic growth, largely driven by 3 parts: An increase in consultant numbers above all of the university segment; further diversification of the revenue basis; as well as implementation of our digitalization strategy.

Allow me to first address the topic of increasing consultant numbers. As you know, 2018 saw the first increase in consulting numbers on an annual basis since 2007. This can particularly be attributed to the strengthening of our university segment, which we initiated in mid-2017. At this time, we have maintained an unprecedented focus on acquiring new young consultants and young clients. The objective here is to exploit the massive potential in the universities to have a greater effect. We also increased our consultant numbers in the second quarter compared not only with March 31, but also the previous year's figures from June 30, 2018.

Following the typical seasonal dip at the start of the year. We are, therefore, on track. Not only has the number of applicants increased significantly, but we are also anticipating numerous entries in the coming weeks and months. We are still expecting to record visible growth for the year.

We decided to strengthen the university segment. Our initial task was to invest. Indeed, we allocated EUR 7 million in additional funds in 2017 and '18 each, and we are investing EUR 8 million during the current financial year. As you can see from various factors, such as the increase in the old-age provision production in the first half of the year, our ongoing investments are starting to pay off. We are aiming to increase the number of consultants in the university segment from just under 300 now to around 600 in the coming 3 to 5 years.

This is precisely what I was referring to at the end of this conference when I stated that our investments in the university segment could potentially limit our earnings growth in the short term, but would significantly increase our profit potential in the midterm

We are also active in stimulating interest among consultants with experience in the sector to work for MLP. With this development, we are diametrically opposed to the trend of the market. Indeed, the number of brokers in the market has been in decline for many years. While there were still slightly more than 260,000 insurance brokers operating in the market in January 2011, today, there are fewer than 200,000. This development has continued in the last few months and is likely to accelerate even further.

After all, the world of politics is already discussing regulation that would also apply the provisions of MiFID II in investment advisory services to financial investment brokers without banking license. Furthermore, it is also discussed that they are no longer being monitored by the trade supervisory authorities, but rather, the Federal Financial Supervisory Authority, the BaFin.

MLP has already been addressing the strictest supervisory requirements for many years with its own bank. In the sense of consulting quality, we expressly welcome the steps that have been initiated in Berlin. Sooner or later, however, many of the smaller providers and those less focused on quality will struggle to meet the requirements. In other words, the process of consolidation is moving forward with increased dynamism, and MLP would be a relative winner in all of these developments.

We are also making good progress in the second initiative to strengthen organic growth, further diversification of our revenue basis. I've already presented the distribution of sales revenues, and you were able to see that MLP has never been as balanced as it is today.

Slide 11 of the presentation now shows the development of over the past few years. Based on this, we have recorded average growth outside the old-age provision area of more than 9% per year since 2005.

Recurring revenue. This is revenue that does not require any further signature by the client, has risen from 30% in 2005 to 65% in 2018. Here, only in comparison on an annual basis is meaningful.

The MLP Group is the highly diversified company with strong substance, sustainable revenue sources for the future and tangible growth potential. An adequate assessment of our current revenue sources in the group already paints quite a different picture from the value of MLP Group as reflected by the current share price. We have net liquidity of EUR 168 million. We manage total assets of EUR 37 billion at FERI and MLP Banking AG, which generate recurring revenue. The same applies with particularly pronounced stability to the premium volume of EUR 396.4 million in the non-life insurance area, which we manage via MLP Finanzberatung and DOMCURA.

In terms of size, we can, therefore, already be considered equal to a medium-sized non-life insurer. In addition to this, we have numerous growth areas in our private client consulting operations. As I mentioned before, our progressively developed university segment is one example of this.

This broad diversification is also the best possible way to immunize ourselves from any form of regulation. As we have had regular discussions in the last few quarters regarding the potential commission cap in the life insurance area, allow me to give you a quick update. The draft bill has still not even been presented to the cabinet. At the same time, the revised draft still indicates that the potential start date has now been pushed back to the 1st of January 2021.

The plan is still to incorporate 3 components. These are basic compensation, a component for high-quality consulting and the remuneration for services in case of brokers such as MLP performs specific service for insurer. Nobody currently knows whether there will be a cap. Indeed, many expert politicians are rightly very critical to this regulation. The use of a cap remains highly questionable in terms of regulatory policy. However, if a cap was ultimately introduced, we would certainly live with it based on current assessments. Although, it would also present challenge for MLP. But one thing is clear, our positioning would enable us to manage this more effectively than anyone else in the market.

The third part of organic growth is digitization. In the first half of the year, we initiated 22% of our 8,830 new family clients online. We are also preparing the introduction of a new application for online client support by MLP consultants, which will contribute to an even greater increase in client proximity and thereby, to an increase in consulting efficiency.

In terms of inorganic growth, we have taken an important step with the acquisition of a majority stake in DEUTSCHLAND. Immobilien that was communicated in March. We expect this transaction to be closed in September. We generally see massive potential for the future in the property brokerage business. However, this is also dependent on the interest rate environment, which favors real estate as a supplementary asset class. Added to this effect that there is an enormous backlog in Germany, especially for property with nursing care as well as age-appropriate living options.

Demographic development of the population and the significant increase in the need for nursing care represent the background to this. The current bottleneck in this area is with premium quality properties. DEUTSCHLAND. Immobilien has proven expertise precisely for this market.

MLP launched its real estate portfolio in 2014. Since this time, the brokered volume has risen by 46% per year on average. We are also anticipating massive potential for the next few years in this field and expect the real estate volume brokered annually via MLP to increase from its current level of around EUR 256 million to EUR 600 million to EUR 700 million by 2022.

Let us now return to the topic of acquisition. We remain open to purchases and therefore, active, in the market. Further brands shall be added to the MLP Group over the course of the next few years. All of these initiatives will be accompanied by continuous cost management.

Finally, allow me to offer an outlook for the rest of the year. In terms of sales revenue, we are basically sticking to our previous qualitative estimates. Following the successful first 6 months, it's quite possible that the old-age provision area could display slightly better development than originally planned.

Other consulting fields, on the other hand, also face risks and could record slightly weaker development than originally planned. Overall, we confirm our forecast today despite high levels of investment for the future. MLP is still pursuing the objective of slightly increased EBIT once again in 2019 over the previous year.

We have reached our forecast in each of the last 3 years and are determined to repeat this for the current year.

I'm now happy to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question we received is from Philipp Häßler from Pareto Securities.

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

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Philipp Häßler from Pareto, I have a few questions, please. Firstly, on old-age provision, quite an impressive growth over the first 6 months, up by 10%. I understand that this mainly comes from the occupational pension business. My questions are, firstly, I mean, why -- I mean you just said you are a little bit more optimistic for the full year. But I mean if you're up by 10% after 6 months, why are you not more bullish for the full year? Or asked differently, what does the 0 mean at your outlook, the neutral? Does it mean plus/minus 5%? Or does it mean plus/minus 2%?

And then also, maybe looking a little bit further down the road, 2020. Could it be possible that the strong growth from the old-age provision from -- sorry, from the occupational pension business will continue? Or is it more -- will it more be a onetime effect in the current year?

And then secondly, on the net flows, maybe you could share with us the figure once again and also the performance fee in wealth management in Q2.

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

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Yes, Mr. Häßler. Old-age provision. As we said, there are 2 sources for the growth. Number one is the occupational pension area. Number two, also the university segment. Just perhaps to give you one figure, around 60% of the growth comes from occupational pension; 40% out of the university segment.

This -- definitely, we are quite positive -- or we have quite positive figures for the first 6 months. We hope to continue this but on the other side, we all know that in the old-age provision area, we have seen some surprises in the past. And therefore, we continue to be a little bit cautious with the 0. And the 0 means plus/minus 5%. Obviously, there is a potential to have also a better result. But as I said, on the other side, there are also areas where we might see some risk in the second half of the year, I think there, especially in the area of wealth management, but might be also, we are a little back in real estate. And therefore, the pluses and minuses at the moment, overall, it looks quite good. I think this definitely is one area where we could have, at the end of the year, a better result than we expected.

And the positive sign is what you said concerning occupation pension. We -- what we see and what we expect is that there will be also a positive influence from the changed law in 2020. And therefore, this could bring also business in 2020.

That's concerning old-age. Now the question concerning net flows. Overall, we have inflows of -- in the first -- I'll give you the numbers of the first 6 months if it's okay. In the first 6 months, we had inflows of EUR 2.2 billion and outflows of EUR 1.95 billion. And if you now see the difference then it would come through the performance of around EUR 2.2 billion positive, obviously, in the first 6 months.

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Jan Berg, MLP SE - Head of Communications and Politics [4]

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Does this answer your questions, Mr. Häßler?

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Philipp Häßler, Pareto Securities, Research Division - Analyst [5]

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Yes. And then on the performance fees?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [6]

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Sorry, performance fees. I would like to add this concern together with a second source. We have performance fees from the normal funds and we have carries, especially from the area of the private equity funds, which is an area which is getting more and more important for us. You know that the alternative assets, especially in the FERI, assets are increasing. And there, we can see positive inflows from the carry -- from carries. Both together, we had EUR 2.3 million in the first 6 months versus EUR 2.9 million in the first 6 months of 2018.

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Jan Berg, MLP SE - Head of Communications and Politics [7]

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Does it answer your questions, Mr. Häßler?

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Philipp Häßler, Pareto Securities, Research Division - Analyst [8]

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Yes.

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Operator [9]

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(Operator Instructions)

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Jan Berg, MLP SE - Head of Communications and Politics [10]

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I see Mr. Häßler again.

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Operator [11]

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Yes, we received a follow-up question of Mr. Häßler.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [12]

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Okay. If I may ask a second question, sorry about that. Just on the real estate brokered volume, you showed this nice chart and you gave an outlook for 2022. Could you provide also the figure perhaps for the first half of this year? What was the brokered volume in real estate after 6 months?

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

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Yes. Wait a second. Good question. We have it, but we don't have it in the first part, first sheet of the staple. Can we give you the number later?

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Philipp Häßler, Pareto Securities, Research Division - Analyst [14]

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Sure. Sure. Sure.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [15]

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I can explain something in the meantime. As you saw, we are down in income, we are also down in volume, but we are up in numbers. That means what we saw is that we have -- the average size for brokered real estate went down, and the volume overall in the first 6 months of this year was EUR 98.1 million versus EUR 117 million in the first 6 months of the previous year.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [16]

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Sorry, that was EUR 98.1 million versus EUR 117 million?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [17]

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Yes.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [18]

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Okay.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [19]

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In line with the revenue decline.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [20]

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Okay. And then maybe another number question. Assets under management, just I mean -- maybe, I mean, you -- I understand you can't give us a concrete figure, but I assume it's down. I mean is it down more, like more than 5% currently or?

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

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Assets under management?

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Philipp Häßler, Pareto Securities, Research Division - Analyst [22]

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Yes. As of today or yesterday or...

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

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Today meaning today, today.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [24]

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Yes.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [25]

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I think we would like to answer this question when we hear us again in the next -- in the Q3 conference.

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Philipp Häßler, Pareto Securities, Research Division - Analyst [26]

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Okay. Fair enough.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [27]

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But obviously, we are part of the market. We -- therefore, there is a certain normal dynamic risk which goes up and down with the market.

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Operator [28]

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(Operator Instructions) We received a question from Michael Haid from Commerzbank AG.

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Michael Hermann Haid, Commerzbank AG, Research Division - Team Head of Financials [29]

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I have two questions. First, on adviser growth. You mentioned it as an important driver going forward. Can you talk a little bit about early indicators of what makes you so confident that the number of advisers will grow this year? And maybe also, what is your expectation regarding adviser growth going forward, so 2020, 2021?

Second question, obviously, the possible introduction of a cap on life insurance commissions. This, as you mentioned, may or may not come in 2021. As it looks of today, if it comes, it consists of 3 components. To my understanding today, in today's environment, you receive a rather high commission rate from life insurance companies for the -- for the new life policies you bring to them. And this, to my understanding, is also -- a possible reason for this is because of the high volume and the high quality of the business you bring to them. If the cap comes, you obviously hope to also receive the third component, the service component. Is it then a question of your bargaining power against these life insurers demand for additional payments for certain services and administration? Is this line of reasoning correct?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [30]

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Mr. Haid, yes. Number one, adviser growth, what makes us so positive that this adviser growth will continue? This is -- we have some early indicators, the best early indicator is applications and the application almost doubled concerning last year. And obviously, the majority of this application will be accepted by us. Will come to us finally. But just with this application, we definitely have a correlation between applications and then people starting with us. And this gives us I think, a very profound reasoning for our optimism that the total number will increase at the year-end.

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Michael Hermann Haid, Commerzbank AG, Research Division - Team Head of Financials [31]

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Can you say -- can you quantify that a little bit when you say adviser -- or the applications doubled? What does it mean in terms of absolute figures?

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [32]

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I don't have the absolute figures here right now. No, sorry, I don't have the absolute figures here. We can give it to you later, but I don't want to give you a wrong number. But as I said, the overall number went quite significantly up right now.

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Michael Hermann Haid, Commerzbank AG, Research Division - Team Head of Financials [33]

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But I must assume that you expect going forward, especially going into 2020, going into 2021, that adviser growth accelerates from the growth we have seen so far.

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Reinhard Loose, MLP SE - CFO & Member of the Executive Board [34]

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Yes, we expect advisory growing. We expect on the one side, also a higher fluctuation rate. As we said, around 10%. We were lower than this fluctuation rate in the last year. But on the other side, we also expect more than 200 new transactions coming in. And applications now -- we have the number of applications here. We had, in 2018, we had around, I would say, yes, that's 800 applications. And now we double it more or less.

This was concerning advisers. Now concerning life insurance. Obviously, there are many question marks, what will come and how will it look like at the end. But yes, what we see at the end if we have services, which we deliver for the insurance companies, we also expect that there could be an impact of our bargaining power in the final number of this third component. And therefore, overall, with our calculations, we expect that the provision -- sorry, the commission which we will receive even with these 3 components would go down, but we expect that this would go down in a relatively limited percentage.

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Operator [35]

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(Operator Instructions) As there are no further questions, I hand back to the speaker.

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Jan Berg, MLP SE - Head of Communications and Politics [36]

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Yes. Thank you very much. So there are no questions left so we close this call. Thank you, again, for your attention. If you have any further questions, just send over an email or give us a call. Again, thank you for your time and we wish you a nice and pleasant afternoon. Bye-bye.

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Operator [37]

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