MLP SE (MLP) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the MLP SE conference call regarding the publication of the results for the second quarter 2024. [Operator Instructions] Let me now turn the floor over to your host, Pascal Löcher. Please go ahead.

Thank you very much. And welcome to MLP's conference call to our results for the first half year, second quarter 2024. With me today, our CFO, Reinhard Loose. He will guide you through the presentation. And of course, we are happy to take questions after the presentation. So please go ahead, Reinhard.

Thank you, Pascal, and good afternoon, ladies and gentlemen. First of all, allow me to present the most important sector regarding the first 6 months of the financial year 2024. The MLP group, set a new record for both total revenue and earnings before interest and taxes needed in the first half of the year. We were particularly successful in the wealth competence field, especially in terms of the interest rate business and wealth management, this includes. Our asset under management have now passed the EUR 60 billion mark. Set against this background, we have confirmed our EBIT forecast for '24 of EUR 75 million to EUR 85 million, and also announced that we are now targeting the upper half of this earnings corridor. At the same time, we are pleased to reaffirm our planning to generate EBIT of between EUR 101 million and EUR 110 million by the end of '25. So what can the success of our group be attributed to? It is the result of our long-standing process of strategic further development and the relevance that we have worked hard to establish among our clients. The success we've enjoyed also shows just how much potential our broad and strategically interlinked positioning holds. At the same time, we are keeping our costs under control. Added to this effect that we can increasingly offer our clients and our consultants added value as part of our successful digital strategy, that's all with our financial home for clients and our consulting portal. We are also tapping further potential through the responsible use of artificial intelligence. However, we more than ever consider personal consulting in conjunction with supplementary digital offers and services to be the key to long-term client satisfaction. This is the reason why we invest continuously in the acquisition and training of our consultants. Around 1 year ago, we introduced our trainee program for aspiring young consultants and this has now been successfully established. Since 2005, we have formed a group that now has multiple strong pillars to build on. This can clearly be seen in our revenue distribution to which our competence fields of Wealth, Life & Health, and Property & Casualty each make a strong contribution. At the same time, and this is something which is becoming ever more important, synergies within the MLP Group are increasing, thanks to the targeted intermeshing of all the paths with one another. Working together in this way helps us generate the kind of additional revenue that a single group company would not always struggle to achieve on its own. For example, FERI comes into play for the large and more complex mandates in MLP's private client business. However, specialists from our various group companies not only engage in successful corporations to provide private client consultant services, but also within our corporate client business, which we have been developing for years. Let us take the example of TPC and [ FRM ]. As the largest German broker, TPC is our brand for supporting many small and midsized companies, primarily in questions of occupational pension provision. The FRM Group, on the other hand, handles our brokerage business with industrial insurance policies. The interaction of these 2 companies hold significant potential for revenue synergies, which we are leveraging in a targeted way. Indeed, the corporate clients of both FRM and TPC can benefit from the entire expertise of both brands while also receiving everything from a single source. This also underlines the fact that MLP has long since become established as a relevant protagonist in the corporate client business. My longstanding colleague on the Executive Board, Manfred Bauer, has played a key part in this further development of the MLP Group, which today enjoys an extremely stable position with strong earnings and a massive growth potential. As announced yesterday, however, he is no longer seeking to extend his position for reasons of age when his present contract expires at the end of April 2025. I would therefore like to thank -- like to take this opportunity to express my sincere thanks for the excellent cooperation of the Executive Board at MLP over a period of around 15 years. At the same time, a seamless transition has also been initiated. MLP Supervisory Board already laid the foundations for the future positioning. As also announced yesterday, this will lead to changes on the Executive Board at MLP as well at the 2 group companies, MLP Finanzberatung SE and MLP Banking AG. Jan Berg already holds the position of spokesman for the Executive Board at MLP Finanzberatung SE, will be appointed to the Executive Board at the MLP on the 1 of May 2025, in addition to his current role. In future, he will then bear responsibility at holding company level for the industrial broker and DOMCURA segments. One key focus here is on successfully continuing the corporate client business in the MLP Group and taking it to the next level. He will also be assuming a coordinating role with regard to product management at the individual companies. We have a product director in place at each of the group companies. These product directors focus intensively on the quality of the solutions brokered by us as well as the performance of our product partners. Miriam Michelsen, who's currently head of old-age provision in health insurance, will take responsibility for product and services as a member of the Executive Board at our largest group company, MLP Finanzberatung, from 1 of January 2025. At the level of the holding company, MLP SE, the future Executive Board will be completed with Angelika Zinkgraf, currently Head of Human Resources. We're set to take on the new Executive Board mandate for human resources, compliance, and internal audit. As is the case throughout the entire sector, all 3 of these areas have also become far more important for the MLP Group over the course of the last few years. With Angelika Zinkgraf as an Executive Board member at group level, we are strengthening personal work throughout the MLP Group. This is clearly an important task in light of the shortest of skilled labor and demographic trends we are currently encountering. On the 1 of September '24, Angelika Zinkgraf will initially be signed general power of attorney for human resources. Her appointment to the Executive Board is then planned for the end of '25 with view to banking regulations. I'm really looking forward to working with all of my new colleagues on the Executive Board, as I've already known them for years and learned to appreciate them. Ladies and gentlemen, please now allow me to return to our business figures for the first half of '24, starting with our revenue development. You can find an overview of this on Slide 5 of the presentation. Total revenue increased by 8% to EUR 514 million in the first half of the year, setting a new record. The MLP Group once again benefited from an extremely stable revenue structure we have developed and established over the last few years. Our total revenue has enjoyed significant growth in the last few years. At the same time, we have significantly expanded the proportion of recurring revenue in the last few years, which also makes a valuable contribution to our stability. Broken down by competence fields, MLP achieved particularly strong revenue growth of 26% to EUR 240 million in the wealth management competence field. This was largely driven by the wealth management activities and the interest rate business this field contains. We were able to double our revenue in real estate brokerage, which is also assigned to the wealth competence field, all by obviously starting from a low level due to the last year's collapses on the real estate market. At EUR 131 million, the MLP Group recorded consistently high revenue in the property and casualty competence field, which compromises the non-life insurance business with both corporate and private clients. The same applies to the life and health competence field, which compromises old-age provision of health insurance. MLP recorded revenue of EUR 123 million here. Demand for private health protection remains high. Our clients are also keen to invest in private old-age provision to cover their future requirements. However, due to the current economic situation and the rather subdued mute associated with this, many companies are still holding back when it comes to making new investments. This is impacting occupational pension provision. Yet we feel certain that this will change as soon as the companies once again have more confidence in the future development. This is especially important in light of all the efforts being made by many companies to keep existing specialists loyal while also seeking to acquire new ones. As the largest German broker in the field of occupational pension provision, the MLP Group is perfectly positioned to benefit from this. As expected, revenue in the other competence field, which also includes other commissions and fees alongside the real estate development business, declined significantly to around EUR 7 million. This was due to market turbulences in the real estate sector and an active reduction of the associated business-related risks. We're growing and continuing trust being displayed by our clients and our consulting services is also reflected in the key figures. These are extremely important for future revenue development. It is therefore all the more pleasing that we have once again been able to raise these key figures to new record levels. The assets under management in the MLP Group was EUR 60.5 billion on the reporting date of the 30th of June. We have, therefore, passed the next key milestone and have long since reached a point where we are on par with renowned private banking. A significant increase to the managed premium volume in non-life insurance was also recorded in the first 6 months of the year. Throughout the group, we are managing a total value of several EUR 729 million. By the way of comparison, this is similar to a medium-sized non-life insurer in Germany. As of the 30th of June, the MLP Group served 583,600 family clients. The gross number of newly acquired family clients was 9,200. The number of corporate and institutional clients was 27,800. The number of consultants in the MLP Group rose to 2018. At this point, allow me to highlight again that due to the trainee program successfully introduced in mid-2023, which prepares the employee trainees for the future role as self-employed MLP consultants. The number of consultants shown is structurally lower in comparison with the former reporting approach. The reason for this is that trainees are not classed as consultants at MLP as they are ultimately still trainees and not yet working as MLP consultants. The current income statement is presented on Page 9. Our group was able to significantly increase EBIT to EUR 48.7 million in the first 6 months of '24, a particularly strong second quarter with EBIT of EUR 11.7 million made a key contribution to this. Above all, positive development enjoyed in the first 6 months of the year can be attributed with a strong revenue growth in the wealth competence field. Although the Life & health and Property & Casualty competence fields also made strong and consistent contributions to earnings. Yet despite this, earnings in the first half of the year were negatively impacted by the real estate development business, which we record the other competence field. In light of the disruptions in the real estate markets; however, we are quick to initiate measures here as a way to actively reducing our business-related risk in this field. When examining the overall picture and following on from the successful first quarter, the particular good second quarter once again serves to underline the pronounced quality and stability of earnings of the MLP Group. At the same time, extensive growth potential is discernible. If you now take a brief look at the right-hand section of the slide, you will see further figures that underpin our strong balance sheet. In comparison with the '23 balance sheet date, shareholders' equity rose from EUR 532 million to EUR 570 million. The regulatory core capital ratio as of the 30th of June was excellent at 19.9%, remaining well above the minimum requirements stipulated by the supervisory authorities. The liquidity coverage ratio reserves the benchmark for the short-term liquidity situation in stress scenarios and is therefore an indicator of resilience, is 1,092%. This is, therefore, also well above the ratio of 100% required by the supervisory authorities. This brings me to our strategic further developments, 2 of which I would like to describe in more detail today, among them, our client portal and our consultant portal. More than ever before, the intelligent end that comes from the personnel support provided by our consultants coupled with the digital sales services that our lines are so keen to see, continues to sit at the heart of our digitalization strategy we are consistently pursuing and expecting. Set against this background, we have extended our client portal to create a true financial home. Our strategic objective is already evident in the name. The portal offers clients a comprehensive overview of the finances in a digital environment that is convenient for them to use and available around the clock. Yet what makes us stand out from other providers is that MLP clients not only have access to their banking transaction, but also all insurance contracts from product partners in a single application. A client portal of this kind offers a particularly high degree of transparency while also enabling clients to act independently. In short, it offers genuine added value for all consumers. This also secures a clear competitive advantage for MLP when comparing the market. We are also continuously improving the consultant portal at MLP, which essentially serves as a cockpit for our highly qualified consultants. The portal enables our consultants to supplement their personal client relationships with modern digital services, featuring sophisticated, perfectly tailored overviews and modeling of the financial situation, all of which is always aligned with the individual requirements of the client. However, the really special thing is the evolution of the consultancy services provided and the portal does a fantastic job of providing the right support here. Together with our highly trained consultants, this leads to a client experience that is characterized by all clients enjoying a complete overview of their own finances and recognizing the reciprocal effects of their own decisions. The consultant portal is also generally suitable for providing full-scope online consultancy services. The context of the consultant portal and client portal, we are also working hard yet on further developing the field of artificial intelligence, always in a responsible manner. At the moment, we are focusing on evaluating projects, for example, to facilitate the use of AI as the interfaces to our product partners. All of these efforts serve one main goal, being able to offer a particularly innovative yet equally well-founded consulting services. Our clients rightly have high expectations of the financial advisers. Set especially against this background, we not only invest in our digital infrastructure, but also recruiting the best consultants. We successfully launched our innovative trainee program last year. This will help put us in the best possible position to achieve our goals, both now and in the future. As employed consultant trainees, participants can focus fully on the consultant training during this phase. In the midterm, the attractive program will produce highly qualified junior consultants, precisely the kind of consultants we need for our young segment at MLP. Now that 1 year has passed, we can draw some preliminary and highly positive conclusions. As of the 30th of June, already 123 consultants have made the step from trainees to young consultants. Forty-six trainees are still in the program. Looking at all trainees yet started in the program, around 1/3 of these are women, which is all the more impressive considering that we operate in a sector which used to be almost completely dominated by male consultants. This [ corporate university ] MLP has also made a significant contribution to increasing the quality of education services for the entire sector. The qualifications offered here stretch all the way up to certified financial planner, the highest internationally recognized level of education for financial consultants. Our trainee program represents a particularly important tool for demography management in our consultant base. However, as part of dedicated site planning, we also ensure the best possible transition of successful junior consultants to the level of colleagues with a more professional experience and established client base. This is all accompanied by a continuous further training offers. Hundreds of consultants will take this step over the course of the next 4 years. At the same time, we are focusing on the further development of consultants to become branch office managers, not least, to secure structured succession planning. This focuses on ensuring ongoing client support even when MLP consultants leave the profession due to retirement. Following the successful performance in the first half of '24, MLP now expects to reach the upper half of the full year forecast EBIT range of EUR 75 million to EUR 85 million. We have based this forecast on the assumption of continued growth in the Wealth & Life and Health competence field. The forecast for the property and casualty competence field is to maintain year-on-year stability. Risks continue to be faced due to the developments in parts of our markets, particularly with regard to a significant correction of the capital market. In fact, we encountered an event of this kind only last week. In light of the varied global risks and crisis currently being faced, further events of this kind cannot be ruled out over the course of the year. This is particularly relevant in light of ever-escalating geo-politic conflicts. Slower-than-anticipated recovery of the real estate markets could also potentially impact the forecast earnings performance. However, the growth opportunities at our German [indiscernible], which the German government passed in the first quarter has enduring potential to deliver a positive effect. Among other things, this provides incentivization for those looking to invest in investment properties. These now benefit from improved tax offsetting options. Having spoken about our confirmed and specified forecast for '24, please now allow me to move on to our reaffirmed planning of increasing EBIT to between EUR 100 million and EUR 110 million by the end of '25. This is primarily based on 3 center strategic factors; a further increase in assets under management in the group, ongoing expansion of the nonlife insurance portfolio volume, as well as sustainable growth in all parts of the MLP Group. In particular, we expect the brokerage of old-age provision products to make an ever-increasing contribution to our earnings growth. However, the real estate brokers still remains important for our planned increase in earnings by the end of '25. And the growth opportunities should also provide support for this. In any case, property investment is often an interesting option when seeking to identify wealth, particularly among MLPs high-end client tier. Acquisitions are not yet factored into the planning for '25, although they remain a part of the MLP Group's strategic options. In addition to this, the positive EBIT development is being supported by the ongoing and consistent cost management approach. Ladies and gentlemen, please now allow me to provide a summary. Firstly, the MLP Group is continuing to grow significant benefits from its broad and interlinked positioning. Alongside pronounced stability, we can clearly see further growth potential with strategically implemented business model. This serves to underline the relevance we have worked so hard to establish among our clients. The combination of high-quality financial consulting services and ever greater digital support will help us achieve long-term success. Secondly, in light of the strong first half of the year, we've already made significant progress towards our targeted figures for '24. This is also expressed in our specified full year forecast. At the same time, we are remaining highly vigilant with regard to the risks in our markets, such as a further slide on the stock exchanges. And thirdly, our main focus is still on our planning for the end of '25 with a plan of recording EBIT of between EUR 100 million and EUR 110 million that we have once again reaffirmed year-to-date. By taking these steps, we are keen to raise the MLP Group to significantly and consistently higher level of earnings. Many thanks for your time and your interest. I'm now happy to take any questions.

[Operator Instructions] And the first question comes from Henry Wendisch from NuWays.

Congratulations on the strong results. As always, I have the same questions that was asked, but also a couple of other questions. So first of all, I want to know the specific amount of performance fees, if you have it, and also the capital in and outflows going into assets under management. And you also used to report the net liquidity figure back in the days, but I haven't seen it in the report or in the presentation. So if you could provide us with that figure as well. That would be very nice. My second question is regarding operating cash flow. It stands at roughly EUR 150 million for the first half of the year, which is very solid. If you look back at the history, it always fluctuates given the banking business has negative or positive growing capital swings, which you assume for the remainder of the year, a rather stable development of operating cash flow? Or do you see maybe some negative swings from the banking business in the second half of the year? Third question is regarding M&A strategy. As I've seen, it's still -- I mean the watches is obviously full, you have a high net liquidity figure. But I think that the valuation for industrial brokers actually want to acquire are still a little bit too high? Or has there anything changed in that regard? My fourth question is regarding the non-life insurance portfolio, which went up 7%, but the non-life revenues up were only up 2.5%. What's the reason behind the divergence of those 2? Is it that the margin mix has worsened? Or is this a temporary thing? If you could provide a little more color on that would be very, very helpful. And my fifth question is regarding Deutschland.Immobilien and we have seen a positive EUR 6 million valuation result, which is not related to operating activities, which should stem from a positive valuation of debt at Deutschland.Immobilien. Could you provide any more color on this, like is this a one-off thing or other similar actions planned in the future? And like what has been driven the EUR 6 million positive effect? I mean, you've also done a capital increase at Deutschland.Immobilien, you now own 100%. So this might be in the same relation. And also on Deutschland.Immobilien my sixth question is that you've written that the -- it's still the only segment that is dragging down EBIT was negative 8.7% in the first half of the year. But you're also right that you expect significantly positive effects in the coming quarters and that you have limited the risk of the restate development. Is this positive effect that you speak of stemming from an increasing topline? Or would you say topline is rather still muted and rather constant going forward and you can actually decrease cost by like a substantial amount. And also given that you now own 100% of Deutschland.Immobilien and you have subscribed capital increase at your subsidiary. Do you also -- is it fair to assume that you're very much still convinced of its prospects. Otherwise, you wouldn't have invested or reinvested in Deutschland.Immobilien. And my last question -- my second last question for the day. Is there still -- how would you describe the risk of another goodwill impairment in the fourth quarter at Deutschland.Immobilien? And then a strategic question also on your Financial Home and consultant portal. You said that it allows 100% online consultancy. And then I've asked myself, is it -- could it be open to like online customers, which are not MLP customers yet. So like an additional sales funnel that could may be used for people who want to have a software that just displace all their assets, insurance policies and securities accounts or would this later rather cannibalize the quality and the personal touch of your consulting services. So lots of questions from my side, I hope that's not so much.

First of all, hello, Mr. Wendisch, thank you for your long list of questions. I try to…

I can always ask them again, so no problem.

No, I'm okay. We'll see. I found it extremely smart that you placed one question and then below there are so many other questions. But let's try to find it out. The easy ones, you started with the easy ones, you asked for performance fees and the performance fees of the first half of the year. The performance fees, including carries for the first half of the year, EUR 9.2 million. That is much more than last year, and by the way, a little bit more than we expected for the full year. This -- the inflows for the first 6 months, the gross inflows were EUR 2.4 billion, sorry, the outflow is EUR 1.9 billion, leads to a little around EUR 0.5 billion net inflows plus a positive performance of EUR 3 billion. And the last question on this, which you said is one question only, was the net liquidity figure at 30th of June is around EUR 220 million. Then you asked for the cash flow, there is a little bit more difficult. You know that I really don't like too much this figure. And you also gave the reason for my dislike. It's the influence of the banking business. And for all of us here in the flow, it depends, the cash flow depends if we invest more shortly on the banking side or more long term. And this has influenced on the cash flow figures. And therefore, to be quite honest, the figure I don't follow too much. And now I expect that in the last -- in the next months, we also will, let's say, invest a little bit more on, let's say, long term is the wrong expression. On the midterm, in the banking business than we did in the first 6 months. This would be my answer concerning cash flows. Then you asked concerning M&A. Yes, we are -- and that's what I also already said, we are still open, and we are in discussions, but the valuation is still -- especially in the sector we are looking for, for the industrial broker segment, the valuation is still relatively high. And therefore, we are still not totally convinced to act in at that moment. Let's see if we find a target where we feel more comfortable with the valuation than with some which were in the market in the first 6 months of the year. The next question was Non-Life. There was a question why the portfolio grew more than the revenue. There are also -- you might also ask me why we in our forecast only have a neutral development for the non-life insurance segment, although it's our -- one of our growth segments. This is more a technical reason. And I think I tried to explain at the beginning of the year when we published our forecast. We have, let's say, a group of customers with relatively high -- sorry, with a relatively small margin impact and also a relatively small revenue impact. And we are on the way to, let's say, to quit these contracts. And therefore, we see during the year, let's say, a different development and the revenues in the portfolio side. And this is the reason for this development. This is the reason for the forecast. We still believe that the segment is, for us, very profitable and a segment with a lot of future potential. Then -- and we go again in a more technical answer, then you ask concerning our segment Deutschland.Immobilien. In the financial result, you will find the valuation result of EUR 6 million. And this definitely is a one-off effect. And what is the reason for this one-off effect in the course of the, let's say, restructuring of these operations and in the course of the increase of our shares to 100%. We also had a new refinancing structure for the existing financing contract of Deutschland.Immobilien and we were able to reduce the interest for the existing contracts and the reduction of this interest set led to this positive one-off valuation result. So -- and continuing with Deutschland.Immobilien, yes, now as we are 100% owner, we feel a little bit more comfortable with the situation. We see a relatively high losses also in the first 6 months. Our expectation is that we can -- that during this next quarters, we will reduce the losses. And in '25, we will again see positive results in this segment. Nevertheless, you asked for the risk of goodwill impairment. This is one of in my words, I described the risk that the positive development we see right now in the real estate sector that this will not continue for the next month. And if there are some more, let's say, problems in the sector, and these problems might also occur when other insolvencies in the segments arise. This is -- there is still a risk for the overall segment and especially for the area of real estate development in it. And finally, you asked me concerning Financial Home. We have made wonderful progress in our financial home, which we are exclusively open for MLP customers, and it's not planned to open this for other customers. And I hope I remembered all of your questions, and I could answer them to your -- to your -- that you're happy with my answers.

Yes. Very happy. Just one little follow-up. So the positive effect that you expect for Deutschland.Immobilien, this is -- that should come from increasing topline, but not from decreasing costs, right?

Sorry, yes. Yes, increase in topline.

Okay. Since we didn't receive any further questions, I will briefly open the line again for questions. [Operator Instructions]

I guess, Mr. Wendisch had too much questions -- so many questions.

Okay. I think there are no further questions. So let me hand back over to you for some closing remarks.

Okay. So if there are no further questions, I would like to thank you for taking part in our conference call. And of course, you can reach us with any further questions right later. I wish you a good afternoon. Thank you, and goodbye.