MLP SE (MLP) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to our online presentation of MLP financial results for 2019 live from our group headquarter in Wiesloch. Thank you for joining us today. Please note this conference is being recorded. My name is Andreas Herzog. And with me is our Chief Executive Officer, Dr. Uwe Schroeder-Wildberg; and our Chief Financial Officer, Reinhard Loose. During this online conference, first of all, Uwe and Reinhard will present the business development during 2019 and give an outlook for future development. Afterwards, both will be available for your questions. You can simply type your questions in the field provided in your browser at any time. If you do have some questions already, please feel free to enter them now. So let's get started, and allow me to hand over to Uwe.

Thank you, Andreas. Good afternoon, ladies and gentlemen. Warm welcome also from my side. We are looking back to a very successful financial year 2019, and let me say that right at the beginning, a very important year for our future. We recorded growth in all important key figures, and we met our financial targets. Our total revenue increased now the sixth time in succession to a new all-time high of roughly EUR 709 million. We reached an EBIT in our expected range at EUR 47.1 million. So we met our goal again here in the year 2019. And it's not only about achieving our financial goals. We also laid foundation for future growth. So what is happening is that the investments we took in the last 2 to 3 years are going on to pay off. There's one very prominent example, which is our investments in the university segment, our young segment. You've seen that our number of consultants increased by 53 in 2019 compared to 2018. This is the biggest scale we've seen the last 13 years. And it's clear, we'll come back to that later, that that's not just the number of consultants. That means also there's a significant leverage for future growth expected. And to point it out again, we don't dilute any quality requirements we have in recruiting new advisers. Another example in this category is our activity in the real estate sectors and others. All this comes together that we are very positive about our short- and midterm future. Or said in other words, MLP today has unprecedented substance and a totally different company compared to the MLP 10 years ago, and therefore, we are positive in our dividend proposal for the year 2019 with EUR 0.21 compared to EUR 0.20 in 2018. And therefore, we are also positive in our planning -- midterm planning, our EBIT range for 2022, where we expect a range for our EBIT something between EUR 75 million and EUR 85 million. We'll come back later to this very important point. On Page 3, you can see the result of our strategic development of the last years as illustrated here. And what you can see here is that we had a very clear plan to offer more value to our customers and to develop new customer segments and as a result of this activity, to broaden our revenues. We executed our plan with persistence and a very strong will to change in challenging market environments since 2008. The new group, which is illustrated on Page 4, is already a very strong and unique group with the components or parts: FERI as a very strong investment house; TPC as the biggest German broker in corporate pension plans; DOMCURA as an underwriter in the nonlife insurance sector; and the newest part, DEUTSCHLAND.Immobilien, significant strengthening part now in the real estate sector. And don't forget traditional core part of our business, MLP private customer business. And so also here, this illustrates that the world has changed. In the past, we are seen, in some parts, just as an insurance broker. Today, we are -- have a broad offering and value proposition for our customer. And this is, by the way, also the priority of our thinking: first, value for customers. And we expect the result for this work in turnover, in earnings and earnings growth and for sure also in effects on our share price. This all, what we have achieved is no reason to relax. We want to even more intensify the collaboration within the MLP Group. And perhaps not seen by everybody so far, we already established also market-shaping force in the B2B arena. So we started that with FERI with also a growing wholesale business. We strengthened it with the acquisition of DOMCURA. DOMCURA itself has more than 5,000 insurance brokers in the market. And the latest step was DEUTSCHLAND.Immobilien with also more than 6,000 insurance brokers, real estate brokers and others using the offerings of our online platform there and the services in the real estate field. That means the market is changing for everybody. So regulatory requirements are increasing. Markets -- margins are under pressure. And it's clear that our competitive power, our stability, our professional service we can offer are more and more accepted and welcomed in the outside market. That means there's a next field for fantasy for the forthcoming years. So this is the first overview about what we have done in 2019 and what is -- has been established from a strategic point of view. I now hand over to my colleague, Reinhard Loose, for the financials.

Many thanks, Uwe, and good afternoon, everybody. MLP was able to record increases in all important key performance indicators in 2019 with quite significant gains in some areas. Following an extremely dynamic fourth quarter, total revenue increased by 6.4% to EUR 708.8 million, which is the highest figure in the group structure since the sale of our own insurance. As we already -- as was already the case in the previous year, MLP achieved growth in all fields of consulting. The real estate brokerage, which we have been strengthening since 2014, recorded the strongest growth for the third year in succession with revenue up by 17.9% to EUR 23.7 million. The second highest growth rate was recorded in loans and mortgages with an increase of 16.9%. Wealth management also enjoyed a significant rise of 10.6%, and MLP has now achieved growth in this sector for 10 years in succession. Alongside MLP's private client business, this also resulted from the positive business development once again at FERI. The total assets under management in the MLP Group are now approaching the EUR 40 billion threshold, and thereby, represent a very reliable revenue source for the future. The same also applies to the nonlife insurance volume, which increased to EUR 405.5 million for the year. This is similar to the levels managed by medium-sized nonlife insurance companies. The premium sum of new business and old age provision rose to around EUR 4.2 billion. MLP benefited both from the expansion of the university business and from significant gains in occupational pension provision year. Still backed by new developments within the scope of the legislation to strengthen occupational pension provision in Germany, this now represents a share of around 20.9%. The MLP Group served around 549,600 family clients as of the 31st of December. The gross number of newly acquired family clients was just under 19,300 in the financial year. We initiated around 25% of these clients online. In addition to this, the number of corporate and institutional clients also increased further to around 21,800. As you can see from Slide 9, at EUR 47.1 million, our EBIT is well within the predicted target range at the start of 2019. Group net profit rose to EUR 36.9 million from the last financial year. A favorable tax rate also played a part here. For the current year, we are anticipating a higher tax rate of between 28% and 30%. You can find the most important financial key figures from the balance sheet on the next page of the presentation. Accordingly, the equity ratio was 15.6% on the 31st of December. The return on equity relative to group net profit is 8.7%, which is slightly above the previous year. Our core capital ratio on the reporting date was 19.2%. So we remain well positioned to handle the stricter stipulations being imposed by the regulator. As shown on Slide 11, 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 excess net liquidity of around EUR 186 million. However, it is important to note here that we reserve around EUR 100 million of liquidity for our operating business. The Executive Board proposed a dividend of EUR 0.21 per share for the financial year 2019, following on from EUR 0.20 per share in the previous year. At 62% of group net profit, the payout ratio is in the upper half of the announced corridor. We are therefore maintaining our attractive and consistent dividend policy. We also successfully completed our share buyback. In the period from January to February 2020, we acquired 566,000 shares via the stock exchange with a total value of EUR 3.2 million. We will use these shares for the participation program for MLP branch managers and MLP consultants that has already been communicated. The program is intended to further strengthen the collaborative component in the MLP business model. Overall, the MLP share price has been moving in the right direction over the last few months up to February 2020 before the global stock market plunged in recent days. For the year 2019, the MLP share was up by 29%. This implies the capital market has increasingly recognized the current value and the very tangible growth potentials for the future. Uwe will talk more about this now.

Thank you, Reinhard. Ladies and gentlemen, the key figures you just have heard and seen are proving the success in executing our strategic plan. Therefore, I would like to thank the whole big and, fortunately, also growing MLP team for their successful work and their strong commitment. As I said in the beginning, we are not speaking only about a successful year 2019, we are speaking also about a strong fundament for future growth. And this is also expressed now in our midterm 3 years plan, where we expect for 2022 EBIT range between EUR 75 million and EUR 85 million. This is ambitious, no doubt, but we wanted to have an ambitious plan. And we also believe that it's not just ambitious, it's also a smart and balanced plan. The reason for that is that we have prepared in the recent years 4 main growth drivers which should help to reach our target for 2022. And these 4 areas are: for sure, our young business in universities; this is our growing business in real estate; as also the project business, which is linked to our acquisition of DEUTSCHLAND.Immobilien; and last but not least, what we delivered in the last few years, a consistent growth across various consulting fields. Let me start with our university segment or so-called the young segment. As you know, in 2017, we took a very deep-going decision. We gave this segment a completely new shape with a very, very strong focus. We invested a lot. Combined in the 3 years, we invested EUR 19 million. In this time now up to today, we increased the number of young advisers from 150 to 330. We expect in year 2022 a number between 500 and 600. That means that the number of advisers in total at MLP should come up to a level of 2,200 to 2,280. And it's not just this. The reason behind is that the business is linked to these young advisers, getting new customers and serving these young customers. And the leverage is illustrated in the chart since last year. For sure, we have to go on in investments. But beside that, we are expecting a breakeven next year, 2001 (sic) [ 2021 ] , and then strong earnings impact from year 2001 (sic) [ 2021 ] onwards. The same also on Page 15 for the newest part of the group, DEUTSCHLAND.Immobilien, with 2 main fields. One is the selected project business in growth markets. We are speaking here about their nursery (sic) [ nursing ] care living and old age living or, in reality, typically a mix of both sector, which should have, for long-term use, very strong demand in Germany due to the demographic development we are faced with and due to the under-service of this market. There's a structural advantage in this sector that we can speak about a pipeline in opposite to typical transaction business, like the life insurance business. So it's a pipeline. We see that the pipeline is well filled. We see -- I just mentioned strong market demand. And we believe that, therefore, in the next round -- the midterm round, there will be a tangible business potential out of this project business. And this is the same case on Page 16 for the real estate brokerage business. And here, again -- as you know, we started that in 2014. The DEUTSCHLAND.Immobilien acquisition should be a trigger for a massive potential in the forthcoming future. One reason is a very smart and very well-shaped online portal which serves more than 1,300 MLP advisers in the meantime who have the license to do this business; and as I mentioned before, the more than 6,000 B2B business partners of DEUTSCHLAND.Immobilien. And bringing that together, we expect, from our level we reached in 2019 with EUR 294 million in brokered real estate volume, strong growth up to 2022 and expect the range in this time period up to EUR 600 million to EUR 700 million volume in brokered real estate. And the fourth growth driver of the package of growth -- of different growth drivers is to go ahead with what we have delivered over the last years. But this is, for sure, on one hand, wealth management. Not illustrated on this Page 17, just to start -- but to start with that, is MLP wealth management. As you know, one of the still big fields for development, and our role in this sector has changed significantly in the last years. And for sure, it's a complete and integral part of our holistic approach so we are very happy that we delivered here. And as you know, our customers on average are still quite young with 43, but exactly the time frame where wealth management questions are getting more and more relevant. And we know that the growth potential in this market is still very, very big, just thinking about waves of heritage that will come up in the forthcoming decade of exploration of life insurance contracts. And the other strong sector for sure is the FERI business. As you have seen, very strong result again for 2019, where we are serving institutional customers as well as high net worth customers. We are speaking of, as Reinhard just mentioned, about more than EUR 39 billion in assets. So we have the top ranking of typical German private banks, nothing one could have imagined 10 years ago. And FERI is doing very well. Just pointing out one segment which, for sure, has also for the future strong growth potential, is the sector of alternative assets such as private equity and hedge funds. And if you look to other markets like U.S. or Great Britain, you can see that this sector especially has a big potential, and we are seeing also in our discussions with these customers that there should be also very real growth potential. And market position we have with FERI is quite strong. And also historical development, coming from the EUR 6.7 billion in 2017 now to the EUR 8.5 billion, demonstrates that this is not just a word, you can see the results in our asset growth. The nonlife insurance sector, which is heavily driven by our DOMCURA business, offers a huge and very stable potential. So we tried, for sure, also to use it also for the external market. Very helpful is that DOMCURA is always winning the awards which are outside for insurance in and around the homes. And this was also very helpful multiple proof that our offering with the strength of MLP Group is also relevant for the broad market. And for sure, we'll go ahead to use this strong offering also in our MLP private client business basis. And last but not least, the old age provision part, which is, for sure, some extreme important part in the young sector. And on the other side, we are very happy that we can use our strong market position in the meantime of TPC to serve a growing number of customers in this very important sector of occupational pension provisions, which are, as you know, very important for safeguarding a good retirement phase for customers after we had these very strict reforms of the state pension plan years ago. So on Page 18, you can see everything together. For sure, at this point, we have also to speak about risks. There are risks in our market. One potential is always regulatory impact, a substantial regulatory impact on a short-term basis. But this has changed in the last 2 years the discussion around Betriebsrentengesetz. The question behind regulating the commissions for life insurance contracts has calmed down or we can say the progress has stumbled. And what we can see is with the current drafts, which are in discussion, are much more easy to cope with for quality providers as MLP is. So this point of view, from a short-term perspective, we don't expect too much. But for sure, we are in regulated market, and there's also always ongoing risk. We will go ahead with our strict cost management, which is for sure part of our success also for the future. What our goal here is to have just a moderate growth in the forthcoming years. For sure, we want to create -- we want to invest on an ongoing future, but we believe that we can deliver moderate growth in this cost sector. And last but not least, for sure, we will go ahead in our activity for further acquisitions. We are very active. We are strong enough to do so. We have a very good reputation in the meantime after the steps we made with FERI, with DOMCURA and DEUTSCHLAND.Immobilien. And so we are very open and see also that the market is open for that, on one hand. On the other hand, for sure, you know our philosophy. We are very careful in having a close look on these targets. We will have a close look on the people, have a close look on the potential fit to our strategy. And last but not least, for sure, we are looking for a reasonable price we are able to stand for. But you can be sure we are active, and we'll keep you informed. A very important factor, on Page 19, to make MLP even more powerful in the near future is digitalization. It's, for us, more opportunity than a challenge. We did a lot in the last years to work out a digital culture, to be more agile, to be more first. We have made experiences in all the major new technologies coming, from cloud or blockchain or artificial intelligence. And so the result is more and more tools. We are rolling out -- I'll use the example, is our new online advice to -- for advisers to get online contact -- online advice for customers. And it's not just like a FaceTime interaction, it's linked to every tool we have for advice, for product selection, for all the needs you have for professional advice with customers. Another example was our new portal for companies for occupational pension schemes. And we are just working on a new consultant portal to give our advisers much more digital help to serve their customers, and the effect will be closer contact to customers. And for sure, we want to create efficiency and gain efficiency for advisers because, if we have success, it means also more work for advisers. So we have to save time on both sides, customers and advisers. Before coming to the end, I would like to share with you our view on forecast '22. So we spoke about our planning now in the coming -- midterm planning now coming to forecast 2020. We are positive for the old age provision sector, having the challenges in mind due to 2 reasons. One is the young segment I discussed with you, and the other reason is the corporate pension business. We are positive for wealth management with all the potential we have in the different fields. We are positive of our nonlife insurance. We are positive for loans and mortgages. We are neutral for the health insurance sector, which is, I think, on a reasonable path for MLP. But you know that the discussion for sure is always ongoing about the right health insurance system in Germany. And we are very positive for our still young real estate brokerage with a trigger we have now in our hands after the integration has took, more or less, place of DEUTSCHLAND.Immobilien. And this all comes together for our forecast '22, for the expectation for a slight increase in the EBIT 2020 compared to 2019 despite -- to remember it again, despite investments we are still willing to put in the university segment or fields like digitalization. And for sure, for 2021, a stronger earnings should take place. At this point, for sure, I have -- and I spoke already about one risk category, regulation. I have to point out also other uncertainties in our market. And of course, we have a close look at this point of time to a potential impact of the coronavirus on the business development of '22. No company can rule out the potential burden on their business. But from today's point of view, we are seeing no impact on our -- no major impact on our forecast. Let me come to the end of the presentation. To summarize, MLP can reflect on a very successful financial year with an unprecedented level of stability achieved. That means also it's the foundation for future growth. The growth areas should be developed in the coming years, making a massive contribution now to earnings development. And so therefore, we are anticipating or plan EBIT in a range of EUR 75 million to EUR 85 million in 2022. Thank you very much for your attention. We are now open for your questions.

Yes. Thank you very much, Uwe and Reinhard. We have now time for your questions. I can see that we have already some waiting in the line. First question is regarding the EBIT we target for 2022. And this is coming from Christian Salis from Hauck & Aufhäuser and also from Philipp Häßler from Pareto Securities. First question is regarding the components of the EBIT we target for 2022. What is driving that? Second is why is that acceleration that rise in EBIT more backloaded towards '21 and '22? And third question in this regard, the level of sales this guidance is based on, the top line this guidance is based on. And yes, I mean Reinhard, this is for you.

Thank you, Andreas, and I will start. Why is there only a slight increase in 2020? This is due to the fact that we are still in the investment phase, especially in the university segment, but also in the real estate segment. As Uwe mentioned, these are 2 major drivers for the growth in the future years, and therefore, we are still investing in this. You know, out of the last years, that we, especially in the university segment, invested last year, 2019, for example, EUR 8 million, and this will continue. And you saw the slide, the positive impact will come from 2021 onwards and especially in 2022, yes. And therefore, I think that we -- I also just mentioned and Uwe also in his presentation mentioned the 2 areas where comes the major part of the increase from, added, of course, by an expected increase in our other consulting fields.

Thank you. Additional to that, regarding the margin, the development of margin in respect to 2022.

Good question. I think the overall margin should be something like similar, a little bit increasing. And therefore, obviously we also expect a sales increase also of course, mainly from the university segment and also the real estate sector. And I think -- cautiously, I think we should go into the direction of EUR 1 billion sales.

Thank you. A further question from Christian Salis is going a little bit deeper in the figures for 2019. He's asking to share the operating cash flow for 2019, the CapEx and the D&A figure.

Okay. I think these figures are for me. The D&A figure is -- in 2019 was EUR 26 million. Please keep in mind that in 2016, we had the first impact of IFRS 16. That means depreciation is now seen -- for IFRS 16, for example, for our branches is now seen in this line. Before, it was not there. This effect of IFRS 16 in this line is EUR 11 million. The CapEx last year was EUR 9 million. This is the simple figure there. And now comes the most complicated figure, operating cash flow. The operating cash flow, as we also showed in our figures -- or will show it in our figures is something which always depends also on the -- for example, on the duration of the receivables we invest, for example, for our customers. Therefore, the number you see there is not really helpful for normal cash flow calculation. But nevertheless, this official figure is EUR 192 million.

Thank you. You already mentioned in your speech the tax rate in 2019. And Mr. Salis from Hauck & Aufhäuser wanted to have a little light on that, why that tax rate was relatively low in 2019.

Okay. Today is my turn. The tax rate in 2019, also in the years before, changed mainly for one reason. It depends a little bit where do we generate major part of our business at the moment. For us, for our business, the tax rate in Luxembourg is relatively low. This will change and this might change in 2020. And therefore, we plan for 2020, as I already said, a tax rate between 28% and 30%. There is still a question mark behind this tax rate in Luxembourg, but our plan is the mentioned figure.

Thank you. Additional questions from Mr. Häßler regarding the net flows in Q4, the reason for the negative financial result in 2019 as well as the development of the performance fees in the fourth quarter of last year.

Not too many complicated questions, one after the other. The performance fee in 2019 in the last quarter was a little bit more than EUR 5 million. The overall figure for the whole year was more or less on the same level than in 2018 there. The -- sorry, now I can't -- the next...

The reason for the negative development of the financial results.

This has also something to do with IFRS 16. There is an impact from IFRS 16 in the last quarter, yes.

And the question regarding the net flows in Q4?

I only have the figure for the whole year in my mind, at the moment. But due to the fact that you asked the question on the quarters, I think you can calculate this on your own. The figure for the whole year 2019 was EUR 844 million. .

Thank you. And also for that complex, the total of assets under management at FERI was asked, at the moment, by the end of the last year.

At the moment or by the end of last year?

By the end of the last year.

By the end of the last year, it was EUR 33 billion with something behind the point, which I don't remember at the moment.

Thank you very much. Now we have a question from Mr. Haid from Commerzbank regarding the dividend policy. And he is asking if we could expect a dividend that will grow in line with the EBIT until 2022.

Should you talk about that?

Okay. I just wanted to relax a little bit. We have -- our guidance is that we have a payout ratio between 50% and 70%. And at the moment, we don't see any reason to change this policy.

Thank you. A further question from Mr. Haid is why the university segment is not shown as a separate segment in our reporting.

So I think this is the point of time where I can give you some relaxing time, Reinhard. I'll take that. I think you should understand how we did it. So the idea was to give you more focus, on one hand, but to use what we have at MLP. So it's an integral part of our private client business. So we use whatever we have, our education, our IT systems and whatever, so there's no reason to have a separate view on that. That was a reason to have a focus on that but not to separate something. There's also no separate entity, whatever. So therefore, I don't expect to report here a separate segment for the young business.

Thank you. Another question from Mr. Haid is regarding potential influence of the potential cap in life insurance commissions. Perhaps you can give us some short update there and if there are any different thoughts regarding the 3-component model initially proposed by the BaFin.

As I said in my speech, there's not really new aspect we have. We see the progress come down or stumble, as I said. The 3-component model as -- this was one -- first result of a first round of discussion, is something -- and I don't have -- we don't have anything concrete here, but something due to the fact that there's a quality component inside and there's a structural component for brokers like we are, what we see -- as a quality leader in the market. But we should cope with something like that if this should occur. But at this point of time, we can -- don't see that this would be the breakthrough in the government discussion as long as we still have time to discuss that. There's another proposal, as you perhaps know, to have some benchmark for the BaFin to act when somebody should earn commissions, which are too high compared to benchmark average or whatever. Again, here, if something like that should come out, we could even -- cope with that even more better. So this is what we have today in our view. Finally, at the end, we cannot expect that -- we should not expect that something comes up for '20 or for this year or even not for the next year. It's not really realistic. So that means we still have some time to see what happens, and we are hoping, for sure, that there'll be the ideal solution, which supports quality providers in the market, as we are.

Thank you very much. We have a further question from Christian Salis from Hauck & Aufhäuser regarding the share of revenue we do expect in 2020 by the acquisition of DEUTSCHLAND.Immobilien.

I would like to answer this a little bit more indirectly. We have an outlook for the real estate sector which is a strong growth. This outlook consists of 2 parts: the former MLP part on one side and the DEUTSCHLAND.Immobilien part on the other side. And I don't want to go more in details because -- due to the fact that we don't publish plans for different companies we have, and I think we shouldn't start there. I think overall, important is that the real estate sector for us will be, in our plans, the fastest growing part of the group.

Thank you very much. So it seems that there are no further questions. No? It seems that there are no further questions.

Philipp Häßler -- Mr. Häßler wanted to ask me at least if I could give him the asset under management as of today. As you also know, we are a little bit hesitating to publish figures during a quarter. Therefore -- I think as we all know, the market is changing at the moment day by day. And obviously, overall, the market went down. And yes, our asset under management also went down a little bit with the market, I wouldn't say as strong as the overall market but also our asset management went down.

Thank you. So now it seems that there are no further questions. Should you still have more questions, please do not hesitate to contact the MLP IR team. Now all that remains is to wish you a pleasant day. Thanks again for your attendance, and see you next year. Thank you. Goodbye.