MLP SE (MLP) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to presentation of MLP's financial results for 2020 live from our headquarter here in Wiesloch. My name is Andreas Herzog, and with me is our Chief Executive Officer, Dr. Uwe Schroeder-Wildberg; and our Chief Financial Officer, Reinhard Loose. Please allow me some housekeeping remarks. This conference is being recorded and broadcasted via web. During this conference, at first, Uwe and Reinhard will comment on business development in 2020, and afterwards, give an outlook on our future development. Both will be available for your questions at the end. [Operator Instructions] So let's get started, and allow me to hand over to Uwe.

Thank you very much, Andreas. Warm welcome to you. Good afternoon to our investors conference. Yes, 2020 was a heavy and unintended stress test for our team. And our strategy and results we just reported demonstrate clearly that we didn't only pass the stress test, we did it with excellence. And please allow me that, therefore, to -- first-hand to thank our customers for their trust during these very difficult months of the last year. And let me thank our fabulous MLP team for their energy and their passion throughout all these challenges we were faced as the whole society and the whole economy worldwide was. And for sure, the results are also a consequence of a strategic foundation we built up during the last years, the last decade, over the last 15 years. So the outcome was clearly successful. Total revenues came up by more than 8%. So we continued with an ongoing good growth rate during the last years. We set up a new record on the top line with roughly EUR 770 million. So that means also this growth for the seventh year in succession. Very important, you know that, because many of you follow us for a decade or more, our gains were recorded in all key figures, which is also a clear outcome and a benefit out of our diversification strategy. The earnings EBIT came up by 26% to EUR 59.4 million despite all these corona effects we were, for sure, also faced with. And very important, the ongoing investments we set up since the last years in our young segment, for example, in IT infrastructure and much more. Coming out from these results, we will propose -- the Executive Board will propose a dividend of EUR 0.23, up to EUR 0.21 in 2019, which is, again, more or less in the middle of our defined payout ratio. Very important, very important, and also this is one of our key success drivers, we record now a net increase of more than 100 new consultants. This is the first time having such a number again since 2006. And as you know, it's one of the most important foundations for our future growth perspectives. And coming out of this, and we will make a bit more detail later on, we confirmed again our original mid-term planning, which is going more and more to short-term planning, our EBIT increase to a range of EUR 75 million to EUR 85 million for '22, 2022. Let me, before I hand over to Reinhard, just highlight this very specific year 2020, which was, for sure, characterized by the coronavirus pandemic. From our viewpoint, we succeeded because we were prepared. We prepared due to the recent initiatives during the last 4, 5 years in our digital process, which come up, for example, with a new video consultation right at the beginning of the last year, with new applications, with new opportunities and possibilities for our customers, for application and execution of contracts so customers and advisers or, name it, with the [indiscernible] possibilities to initially also install new customer relations in a digital world. This is for sure one of the main explanations for our success despite the passion I just mentioned of the whole MLP team in 2020. And there are several stabilizers in our business in the meantime, and just to highlight 3 of them. What we have seen is, and it's also a good proof for our business model, that the demand of our customers, questions they had, rise up significantly in the last year due to the big changes and changing risk factors in this world, the questions about health insurance, questions about all this provisioning, questions about wealth allocation, whatever. So it means meetings with customers came up. Customer activity came up. And you see, for example, that, just take out one figure, we had 11% more contracts concluded in MLP's private client business compared to the year 2019. Or another very good example is record inflow of MLP private customers in wealth management of more than EUR 1.15 billion in gross cash inflows, which is remarkable for this year. It's even more important because you know that one of the big potentials we have is to really monetize our potential in this wealth management sector, where we compete clearly against typical German banks. And having a last example, and I could name much more, taking the very solid EBIT contribution of DOMCURA. We acquired that in 2015. As you know, when we acquired that, we had a run rate of EBIT of some EUR 3 million. So we are now in the level of roughly EUR 8 million. So we bought in digital processes here in this small ticket business, and we earned out a very stable and increasing EBIT contribution up to this year. And so that means these are, I think, very good examples how we managed to come through this very difficult year much better than we expected originally. So these were my first remarks. I will come back later with strategy and forecast. I would like to hand over now to my colleague, Reinhard, for more details of figures.

Many thanks, Uwe, and good afternoon, everybody. Following extremely dynamic fourth quarter, total revenue rose by 8.3% to EUR 767.3 million. This means that MLP now has recorded continuous growth in total revenue for 7 years in a row. Just looking at the closing quarter, the increase was 9.3%. Despite the negative effects associated with the coronavirus crisis, MLP recorded growth in virtually all fields of consulting. Having enjoyed 11 years of growth in succession, wealth management is now the largest consulting field on an annual basis for the first time. This is the result of a highly positive development in MLP's private client business and as well at FERI. Alongside good operational development among both private and institutional clients, significantly higher performance-linked compensation than in previous years also contributed to this and generated revenue of EUR 34 million for the financial year. At this point, I'm keen to stress that collecting this revenue was definitely not a foregone conclusion. The performance results and our asset management concepts were above-average successful. For the fourth year in a row, MLP achieved the greatest percentage growth in real estate brokerage, which has been strengthened since 2014, with revenues rising by 67% to almost EUR 40 million. Wealth management recorded the second highest growth rate with an increase of 17%, while nonlife insurance displayed the third highest growth rate with an increase of 8%. Thanks to the growth recorded in these and other fields, we were also able to more than compensate for the decline in old-age provision. The lower old-age provision revenue can be attributed to the very stifled development observed throughout the market due to the effects of the coronavirus pandemic, above all in occupational pension provision. The MLP Group served around 554,900 family clients as of the 31st of December. The gross number of newly acquired family clients was just under 18,400 in the financial year. We initiated around 24% of these clients online. Although the number of new clients is, therefore, below the previous year and also below our planned level due to the effects of the coronavirus pandemic, we are actually satisfied with the figures in light of the difficult framework conditions. In addition to this, the number of corporate and institutional clients further increased to around 22,500. Our EBIT displayed very pleasing development. At EUR 59.4 million, we're even able to significantly surpass our own forecast from before the COVID-19 pandemic. However, it is important to remember that we will remain in a phase of high investment, having invested an additional gross amount of EUR 11 million in the young segment in 2020 alone. Group net profit rose to EUR 43.2 million in the last financial year. You can find the most important financial key figures from the balance sheet on the next page of the presentation. Accordingly, the equity ratio as of the 31st of December was 14%. The return on equity is 9.9%, which is more than 1 percentage point higher than the previous year. The core capital ratio was 21.3% at the end of the period. In other words, we are in a strong economic footprint in the group. The positive business development, the strong economic base and our trust in the future are also expressed in the Executive Board's dividend proposal. We are proposing a dividend payout of EUR 0.23 per share, which represents yet another increase following 21% -- EUR 0.21 per share in the previous year. At 59% of group net profit, the payout ratio is in the middle of the announced corridor. This means that our shareholders will once again participate appropriately in the good development of the company. We also launched another share buyback program in January. In the period since January 4, we have acquired 295,000 shares with a total value of EUR 1.9 million throughout the stock exchange. Our overall plan is to buy back shares with a total volume of EUR 3.4 million, which we will use for our participation program for MLP branch managers and MLP consultants. Finally, please now allow me to come to our share price. Following a rather mixed performance in 2020, the price has displayed very positive development in the last few weeks. The capital market has thereby not only honored our good development over the course of the last year, but is also increasingly recognizing our growth perspective for the year 2022. Uwe Schroeder-Wildberg will offer more information as to how we are looking to tap this potential.

Yes. Thank you, Reinhard. As I mentioned in the beginning, one of the reasons for our success is clearly the new MLP model. So as you know, we worked out over last decade a complete new company, for sure, based on the founding idea and the founding culture, which is still a very strong driver in our thinking, our decision-making. On this Page 10, it's illustrated what we did. I think more or less we know what happened. So we bought in competency, we bought in new customer groups like high net worth institutional customers, new segments like B2B business, and the outcome is illustrated on the bottom of the slide. We have completely changed the revenue mix. We have now this year, the biggest segment of wealth management in front of old-age provisioning. And if you look -- step deeper in the quality of revenues, you can see that the recurring revenue portion came up to a level of 63% in 2020 compared to the 30% in 2005. And even a step more deeper, if you look to the share of contribution margin one, in administration expenses, you can see what we come up from a 27% to 62% or name it, in other words, that means when the years begin, the cost coverage at the beginning of the year comes up to a level already of 62%. That means based on recurring revenues where we don't need a new signature of our customers. So this outcome is also, I think, very clearly demonstrated in growing numbers in assets under management, for example, where we came up now to a level of EUR 42.7 billion of assets. So that means, for sure, as experts in the segment, it's clear that we are now playing on the level of typical and well-known German private banks. And also on the nonlife insurance premium volume, we came up with organic growth further. And so we ended up last year now with roughly EUR 331 million, which is comparable to [ normal ] mid-sized nonlife insurer. I think quite impressing numbers, which is not the endpoint of a story but interim's point and should be also a good fundament now for the next growth steps. Part of this growth and the history is that we also -- in those cases where it made sense to buy in customer groups and then to develop it, we made significant acquisition steps. One of the first one was FERI, and for sure, it was still the biggest one, or DOMCURA. And what we can see is that we had always a clear philosophy to do that. That means each group we are buying in needs to have a strong business model, a quite strong position in their market and also a potential for interaction with the rest of the group. It's basically MLP part and the rest of the group. Two, this was also very important to realize revenue synergies despite the risks, which are typically also combined with acquisitions. And this was quite successfully proved in the meantime that we are able to leverage what we have when we combine it on a smart and respectful way. So this is our philosophy. And for sure, what also comes in more and more now is that we buy in, as you cannot buy people, but we buy in competencies in highly demanding and, in many case, also professional customer groups, which are, for example, institutional investors or high net investors or family office managers. They have -- for sure, their demands in high professionality, but this is also helpful for the total group also to cope with this level of demand. And then you can see the examples illustrated for FERI and DOMCURA. As you see in the time line after acquisition, these companies developed very, very successfully. If you take the FERI development coming from levels, a majority shareholding in the first phase of some, whatever it was, EUR 3 million, EUR 4 million, now with a systematic increase in the forthcoming years up to 2020 or DOMCURA coming from an EBIT level of EUR 3 million, now on a very solid path towards EUR 8 million and perhaps even soon, higher value. So this is a good example of a philosophy and the corresponding results for the group. That means also that this picture is forming out, I think, very clearly in the meantime. It's not too easy in the beginning to see what the rationale behind was, but I think in the meantime, it's very clear that we have different groups, which are focused on -- for example, on private customers, corporate customers, institutional clients, or on the right side with DOMCURA and DEUTSCHLAND.Immobilien with -- to market members, brokers, insurance brokers, namely B2B business. And this is what came in. And as I just mentioned, we try to bring it to [indiscernible] to create value for MLP private client business through indirect support like brand and know-how transfer, but also direct support for consulting. For example, one example is MLP advisers can use experts of TPC if you want to install a pension plan in a company where we need experts. Or they can ask a FERI colleague for help, if ever a customer with a higher volume to invest or higher and complex volume to invest, which are very practical examples how interaction works. And for sure, additionally, we try to create value for the group companies through increased client base, increased volumes and, for sure, therefore, also economies of scale. And it's not only between these new group members and MLP, it's also among each other, which is coming up more and more. And I'll give you some examples. And perhaps one is thinking about a new group member, RVM and TPC, for example. As you know, TPC is serving more than 5,000 corporate customers, mid-sized, smaller-sized SMEs, German [Foreign Language]. And for sure, this is exactly the same customer group, also RVM is addressing already, and it should be easier to convince customers also to take the corresponding offering from both sides as having a cold start here. Another example could be RVM and DOMCURA. It's -- we think that it's possible to design insurance solutions for RVM customers and [ UFM ] customers in the industry segment and using DOMCURA platform to design and manage those concepts. And the last example could be DOMCURA and DEUTSCHLAND.Immobilien, as you know, both have more than 5,000 B2B customers, which could be served in cross-selling aspects from both sides. So it means bringing that together, there is a very consistent philosophy, consistent picture, which came up now, which was approved in this very difficult year. And that means there is this added value through joint and deeper value creation and very important, where it makes sense. It's also, in some aspects, very important we have a very decent centralized market-orientated approach but to respect the market segments and keep it also separate. But there are several good examples where it makes sense to go to deeper value creation. And now coming to the new product, the new member of the group is another good example. RVM is in a very attractive part, very attractive segment, which is, on the other side, very fragmented. As you perhaps know, we will have the same guidelines and principles how we start to work together, how we integrate, what is the philosophy behind, which is illustrated on the right side of this slide. For sure, we have a clear target that, again, here, we want to be in a recent amount of time to be under the top 10 players in the German market. We believe that we can do that because RVM is a very strong player in the segment already. It's a very strong team, very strong management team, also the rest of the team, a strong brand and already also contributing midsized single-digit EBIT number. We will develop in the forthcoming after closing, which will take place in 1st of April, developing common potential together. And I think the way we build up TPC, our corporate pension offering, is, to some extent, the role model, where we started to combine competency and sales power for this. And as you know, we are, in the meantime, the biggest German broker in the segment of corporate pension planning. And so we will also work out this. And for sure, we are clear, and we said it already, that we are also willing to build additional smaller brokers to have a full landscape offering. As you perhaps know, RVM is more present in the southern half of Germany. So that means we're some places on this landscape, which have to be filled, and here we are open and also in preparing talks to make this next steps to have a full scope offering in Germany, which will be combined also with the sales power of MLP consultants and the TPC group throughout Germany. And for sure, last point is that we want to derive the synergies, as we did also in other examples, as I just presented, to come up with a very successful story in the forthcoming years. By the way, coming to the next topic, we just informed the markets that we bought a small wealth manager in Switzerland with Limmat, which will help us to continue the growth of our very Schweiz entity in the forthcoming years. I would like to give you, at this point, very early insight to our thinking. We are preparing in these days for another project. We want to offer more systemized back-office service for B2B customer. I just gave you the figure of that. DEUTSCHLAND.Immobilien and DOMCURA have to gather more than 10,000 B2B customer. And we want to offer them typical back-office service we already have in-house. We need that as MLP, as ZSH, which is one of our smaller brokers. And we are prepared, from a technical point of view, to offer these services also to the market. The service I'm speaking about are, for example, digitalization of broker post, portfolio transfers for advisers and customers or contract of data processing. Put it around in other words, we want to scale our infrastructure to be even more proactive and more systematically -- systematic in our approach here and to work on the interface between market members and insurers, which we are currently planning. We want to be effective during this year, and for sure, we'll keep you informed. Ladies and gentlemen, let me come now to the forecast of the year 2021. As we said last year at the same stage, we have a strong focus on 2022. Our main growth initiatives are targeted on the significant earnings impact on this year '22. As I mentioned, we made the preparations. The projects behind are ongoing, and I can again state that the indications we have so far are completely in line with what we originally planned for. That means that we are on good track on our way. For this year '21, we are expecting a stable level. Coming out from this quite high level in '22, we are expecting EBIT range between EUR 55 million and EUR 61 million, which is, coming from a strong year '22, we think, quite reasonable and should be a good starting point then to close the gap to the '22 results. I will give you some help to understand that in some minutes. Let me give you some technical remarks. The new acquisition, RVM, will be closed, as I said, 1st of April. That means in this business, also the first quarter will be dominant comparing to DOMCURA. That means the earnings of this first quarter will be reported not in the EBIT line, but in the equity for [ 2001 ], for sure, afterwards in the EBIT. So just a technical remark at this point of time. So coming to the assessment of the revenue development, you can see that we are quite positive for all this provisioning. The assumption behind that is further normalization, hopefully, very soon, especially in the old-age provisioning -- in the old-age provisioning corporate segment. Here we expect, which was under pressure last year, as you know, we expect positive development latest in the second half. Again here, indications, we have already a quite positive wealth management after -- just speaking about the top line here, after a very strong year of just neutral, but you have to keep in mind that this was a very strong year 2019. And just to name 2 other examples, very positive, still ongoing in nonlife insurance and real estate brokerage. One remark we have to make at this point of time, for sure, this is the corona remark. There is still uncertainty. There is still risk we cannot foresee in detail. For sure, we are much more relaxed than last year after the first lockdown, but we have to keep in mind there are risks on the street. Coming now to '22, as I said, where we expect the decisive earnings step to a range of EUR 75 million and EUR 85 million in '22. There are growth areas we defined, and we worked out years before, which is very important, the young segment, where we invested in the last years some roughly EUR 30 million. And we can see -- and you have seen that the adviser growth comes up significantly. So with a net new adviser number of 100, we are coming up now to 2,086 advisers, which I think is a strong increase, as I said, because since 2006, and very important, for sure, you can imagine, a very important growth driver. If you look deeper, if you look to be just young segment, we had to -- at the end of '22, 440 young advisers. And our target is up to the end of '22 to come up 2,600 advisers. Very important to say again, quality comes first, quantity second. We take care about quality because we are speaking about a very challenging profession, very challenging value proposition to customers, if you really want to be a holistic adviser. Second, we want -- we plan and we assume that our growth, we have demonstrated now for years in all the different segments, will go ahead. So we will have further significant growth rates. And for sure, the occupational pension scheme business should come back stronger as we had it especially last year but also the year before. And on the right side, you see the block of real estate brokering and project business. Again, we demonstrated good growth in the brokering of real estate. And so there's no reason to assume a different path as it's demonstrated here to come up to this volume, which is illustrated here. And as you know, we are in preparation for this very focused project development business with a very low-risk profile due to the way we are doing that. And here, we see the pipeline, and we expect at least 10 projects a year, which also will help for sure to reach the goals we set up some time ago. And additionally, there's the contribution [ '22 ] of our new acquisition, RVM, which is for sure new, but also could help us to reach our goals. And then to do it as a bridge, to help you to understand the efforts we have and the challenge we have coming up from roughly EUR 49 million of '22, we need for the young segment, earning contribution, something between EUR 7 million and EUR 9 million. For the revenue growth, including real estate, some EUR 9 million to EUR 11 million. And additionally, if you take the EUR 4 million to EUR 6 million from industrial broker segment, the new one, we end up on a range between EUR 75 million and EUR 85 million. In our planning, we are careful with the performance-linked compensations compared to '22, for sure. We have to be careful and -- but we assure that this decline in our assumption compared to '22 and also what we had, in fact, the recent years, will be compensated to other consulting fields above all, for sure, the already mentioned real estate. Maybe in other words, if you take the lower range of these 2 first blocks without the industrial broker segment, we come up to the lower range of the EUR 75 million. If you take the upper values, we end up with some EUR 80 million. So that means with the first 2 blocks, we should end up at least at the level of EUR 80 million. So that means exactly in the middle of the range we are targeting for the EUR 75 million to EUR 85 million. So this just to give you some help to understand the work we have to do and how we can bridge to the new earnings level we are working for. So now coming to the end and summarize. We have seen a very positive development, which is, in fact, a result of our work over previous years and our fantastic MLP team. We had revenue growth, more or less, in all segments, with a steady growth despite all the challenges the pandemic brought to us. The diversification approach helps to create value to customers, and as a result, it helps to create better top line and better quality of revenues. And it means also we laid the foundation to bring MLP to the next level in terms of profit, not just for a year. So next level means as a fundament then for the next forthcoming steps, which should come up. And that means also, there's no reason to do something different. We clearly confirmed our mid-term planning. We want to rise our EBIT to a level between EUR 75 million and EUR 85 million to the end of '22. So thank you very much for your time and your patience, and we are now happy to answer your questions.

Well, excellent. Thank you, Uwe and Reinhard. We have now time for your questions, and I can see that we have already some waiting. The first question comes from Christian Salis and refers to the acquisition of RVM. And he wants to know, why is MLP entering the industrial insurance market? And why is that segment attractive?

As I said, it's a fragmented market. It's a challenging market, but we think with a combination I just explained of RVM and what we bring to the party, we are in the position to bring extra value to our customers, to new customers and potential customers, and that also we can make that with limited risk quite successful. And as we just worked out, the philosophy we have behind seems to be successful. And therefore, we also convinced that this is a very important step. And just taking one example. If you take the corporate customers we have in the pension segment are more or less the same customers we potentially have in this segment. And this is one of, I think, the easiest examples how we can work it out in the forthcoming years.

Thank you. Going a little bit deeper in the acquisition, Christian Salis again asks, how many corporate clients are fitting RVM's target group? And what sales and EBIT contribution could we expect in '21 and '22?

Okay. The number of the group Uwe mentioned in the occupational pension business, we have around 5,000 customers. And out of the 5,000 customers, we think that the majority could be also interesting for the RVM group. And therefore, I think it's enough potential to form synergies. The EBIT contribution, we said will be in the range of a medium single-digit euro, single-digit million euro amount, and that's what we expect also for 2022 and '21. As we announced, as we said, the majority of the income and also the profit is made in the first quarter. And the remaining 3 quarters, we will see a little negative contribution there. But in '22, we'll -- and we'll see the full potential of the group and the development of the group in combination with the MLP share.

Thank you. Touching the purchase price, another question is, what was the acquisition multiple for that?

I think, as we said, we -- and we also announced, we paid medium double-digit [ volume ] price for the 100% shares of RVM, and we expect a medium single-digit amount of EBIT out of this acquisition. And now you can more or less calculate perhaps the multiple.

To stay within that acquisition complex, we have another question from Philipp Häßler, Pareto Securities. He's asking, why the acquisition of RVM, you said, we are also interested in other inquisitions in that segment? And what company size do you think of same size like RVM or smaller?

I will do this around. So question of Philipp. RVM was a bigger step with a very good market position already. And also from a regional point of view, as I said, more on the southern half of Germany. And that means if we want to have a full scope offering in Germany, we need also to fill the next gaps for our expectation today. But typically, we will take focus on smaller steps, smaller acquisition volumes to make -- to work out the full offering here. So this is what we can expect, significantly smaller steps. And as I said, we are already in quite good talks to execute the next one as long it makes sense. As you know, we also take our time, take extremely care about everything, management, quality of the model. And for sure, at the end, also the price. And so this is what I can say at this point of time.

Thank you. Going a little bit deeper in the numbers. We are now coming to performance fees. And Mr. Salis wants to know, what amount of performance fees is included in the 2021 guidance? And perhaps adding a question from Mr. Häßler, how many performance fees occurred in 2020?

Okay. We have in 2020, EUR 34 million performance -- contribution performance fees, sorry, altogether, the carries and the performance fees together. And as we also said, we are careful about the forthcoming year, and we expect something like EUR 6 million in the planning there.

So then we continue with a question of Mr. Häßler, Pareto Securities, regarding revenues. Revenue in real estate financing was up by only 5%, and the 2021 outlook is also only neutral. The market environment for real estate financing remains very positive. Why don't you participate to a larger extent?

Yes, this is -- the revenue part is reflected or is reflecting a one-off in 2019. We had a positive one-off in the first quarter in 2019. And thereof, the increase in revenue is not as big as the increase in underlying business with around EUR 2.4 billion in loans, which we brokered. We had a new record there. And there, this increase, as I said, was much higher. For the next year, let's say, we are cautious about the development, and nevertheless, we hope that we will be better than just neutral. But let's see if we can also be part of this market development, which we also see.

Thank you. Coming to our growing segment of the young segment. Mr. Häßler asked, you have invested EUR 11 million into the young segment in 2020. What do you plan for 2021? How many investments?

Should I take it? So it's what we invest, what we spend, [ these words ]. And we expect, due to the further growth, also some increase there. That means '22 and 2021 -- excuse me, '21, '22, it could be something like a level of [ EUR 12 million to EUR 14 million ], which should be expected with a given growth expectation we have in number of advisers, which is the gross number in expenses. As we demonstrated on the chart, we will expect the breakeven already this year with a slight positive number and then a pickup in '22, which could be quite reasonable with EUR 7 million, EUR 8 million or EUR 9 million.