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 third 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 9 months and the third quarter of 2024. With me today is our CFO, Reinhard Loose. He will guide you through the presentation. And of course, we are happy to take your questions after the presentation. So please go ahead, Reinhard.

Thank you, Pascal, and good afternoon, ladies and gentlemen. First of all, please allow me to present the most important information from this first 9 months of the financial year '24. From January to September, our group achieved another record high in terms of both total revenue and earnings before interest and taxes. A very strong third quarter also contributed to this. During the first 9 months of the year, we saw particular strong performance in the wealth competence field, especially in Wealth Management and the interest rate business included within it. MLP reaffirms its raised forecast from the 2nd of October '24 of recording EBIT between EUR 85 million and EUR 95 million for full year 2024. We are also pleased to reaffirm here today our planning to generate EBIT of between EUR 100 million and EUR 110 million by the end of '25. The successful business development not only demonstrates how the broad and diversified positioning of our group, which we have worked hard to achieve over the past years is once again paying off, but also highlights the strategic competitive advantages it is helping us to secure. The business figures recorded underpin the great stability as well as the growth potential of our business model. In other words, we deliver quarter after quarter. And we have a firm grip on what we can control ourselves, strategy, costs, and above all, services for our clients. At the same time, we are operating in a persistently difficult macroeconomic environment here in Germany. Yet despite these challenges, we continue to be there more than ever for our private, institutional, and corporate clients, providing them with highly qualified advice and support on all financial matters. Both our clients and our consultants are benefiting from the successful implementation of our digital strategy. In addition, we are currently creating entirely new perspectives for our clients, for our consulting services, and not least for our already high service quality through responsible and client-focused use of artificial intelligence. Important trends are supporting us on our promising path. I'm referring to those medium- and long-term developments that will increasingly shape our markets and the way we work for our clients. Alongside the important topic of sustainability, where we see ourselves as pioneers in the field of client consulting, the ongoing process of digitalization will always have a key part to play. We are early adopters of digital tools and are now successfully utilizing the many possibilities these offer for our clients. The same applies to our internal processes. However, we definitely do not consider the use of digital concepts and artificial intelligence as a means solely to increase cost efficiency. Rather, whatever we do must benefit our clients and thereby also our consultants as it frees up more time to support clients with complex financial matters. One current example is the introduction of the first digital employee in claims settlement at our subsidiary, DOMCURA. With the latest AI development, we are now able to support our clients even faster. As the MLP Group, we are also benefiting greatly from other relevant market trends, most notably the continued growth of wealth in Germany and the rising demand driven by personal wealth succession. This is associated with an increasing demand from our clients for highly qualified consulting, which is precisely what we are ideally positioned to deliver in the MLP Group. The same is true for the need for advisory services arising from legitimate concerns about inflation. And last but not least, the demographic development is becoming an increasingly important factor, both for private clients and for companies. Given the increasing pressure on social security systems, the main focus here is on supplementary pension provision. In this context, the demand for comprehensive high-quality advice is growing. Back to our business figures for the first 9 months of 2024. As usual, please allow me to start with our revenue development. You can find the associated overview on Slide 5 of the presentation. Total revenue grew by 11% and set a new record high at EUR 763 million. The MLP Group is continuing to benefit from its extremely stable revenue structure, which we have now been developing and establishing for almost 20 years. In fact, since 2020, we have increased our total revenue by approximately 10% each year. We are, therefore, sustainably on course for substantial and healthy growth. At this point, I would like to take the opportunity to reiterate the strong trends I've just outlined, which will sustainably support our future ambitions. The share of recurring revenue, which we have significantly increased to almost 70% also provides an extremely strong foundation for both our current and future growth. Broken down by competence fields, MLP recorded particularly strong revenue growth in the first 9 months of 30% to EUR 381 million in the wealth competence field, largely driven by the Wealth Management and interest rate business this includes. In Wealth Management, MLP's private client business as well as the support provided to institutional and high net worth clients by the MLP subsidiary, FERI, contributed to the growth in revenue. The performance-based compensation at FERI also increased significantly. They are the result of the performance of investment concepts and are largely recognized in the results. Real estate brokerage also falls under the wealth competence field. We recorded 140% increase in revenue from the brokerage of real estate, although obviously starting from a very low base due to the last year's collapses on the real estate market. Nevertheless, this significant increase demonstrates that this business area is recovering, especially as real estate remains highly relevant for our high-net-worth clients seeking to diversify their wealth portfolios. At EUR 165 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 Life and health competence field, which compromises old-age provision and health insurance displayed similar development. MLP recorded revenue of EUR 192 million here. In the others competence field, which includes the previous real estate development business, as well as other commissions and fees, revenue declined significantly to around EUR 8 million. This was expected due to market turbulences in the real estate business and our active reduction of business-related risk in this area. Our key figures are of great importance for our future revenue development. At the same time, they reflect the strong and growing trust of our clients in our advisory services. It is, therefore, all the more pleasing that we have once again been able to raise these key figures to new record levels. As of the reporting date of the 30th of September, assets under management in the MLP Group were EUR 61 billion after we already surpassed the next important mark of more than EUR 60 billion in the first 6 months. We are, therefore, within striking distance of our planned corridor for the end of 2025, which is between EUR 62 billion and EUR 68 billion, as set out in the diagram on Slide #7. A significant increase to the managed non-life insurance premium volume was also recorded in the first 9 months of the year. As of the reporting date, we are now managing a total volume of EUR 736 million throughout the group. As things stand today and thus more than 1 year ahead, we are already within the '25 planning corridor of EUR 730 million to EUR 810 million that we set for ourselves around 3 years ago. Back then, we were receiving a few skeptical looks in view of our ambitious planning. But our planning was once again very well founded. This is because we had already established a very solid position on our successful growth path with the strategic acquisition of RVM in 2021 and DOMCURA in 2015, in addition to the existing potential in MLP's private client business. As of the 30th of September '24, the MLP Group served 585,600 family clients. The gross number of newly acquired family clients was 14,100. The number of corporate and institutional clients was 27,900. The number of consultants in the MLP Group rose to 2,082 as of the 30th of September. This figure also reflects the successful introduction of the trainee program in mid-'23, which prepares the employed trainees very specifically for their work as MLP consultants. You can find the current income statement on Slide 9. Our group significantly increased its EBIT to EUR 66.4 million in the first 9 months of 2024. A particularly strong third quarter with an EBIT of EUR 17.8 million played a key role. In the first 9 months of the year, the strong revenue development observed in the wealth competence field was the driving force behind the increase in earnings, supported by a consistently high level of revenue in both the Property and Casualty and the Life and Health competence fields. Only real estate development, which is assigned to the others competence field was still significantly below the previous year's figure in the first 9 months of 2024. However, as already reported after the first 6 months of the year, we were quick to introduce measures that are having an increasingly positive impact here. The net profit of the MLP Group for the first 9 months was EUR 48.1 million, which is significantly higher than in the same period of the previous year. If you now take a brief look at the right-hand section of the slide, you will see further key figures that demonstrate our strong balance sheet. In comparison with the 2023 balance sheet date, shareholders' equity rose from EUR 532 million to EUR 547 million. The regulatory core capital ratio was 19.5% as of the 30th of September, remaining well above the minimum requirements of the regulatory authorities. The liquidity coverage ratio, which measures short-term liquidity reserves under stress scenarios and serves as an indicator of resilience, stands at 1,712%, well above the 100% required by regulatory authorities. This now brings me to our forecast for the current financial year. Given the successful development over the course of '24 as well as in particular, the strong third quarter that was to be anticipated, MLP had raised its forecast EBIT corridor for the full year to between EUR 85 million and EUR 95 million on the 2nd of October 2024. We are happy to confirm this forecast here today. In terms of revenue, the MLP Group continues to expect strong growth in the wealth competence field for the year. We now anticipate generating stable revenue in the life and health competence field. At the same time, we are reaffirming our estimate of recording stable revenue in the property and casualty competence field. However, we continue to face risks due to the development of the markets, above all with regard to the ongoing recovery of the real estate markets. On the other hand, the Growth Opportunities Act that the government passed in the first quarter could remain a supportive factor. This topic obviously comes up during our consultations with clients that are looking to diversify their wealth through real estate as the law provides an incentive for investors that invest in newly built rental housing. These clients now benefit from significantly improved tax offsetting options. Coming from our forecast for 2024, let me now address our planning of increasing EBIT to between EUR 100 million and EUR 110 million by the end of 2025, which we have now reaffirmed. We are basing this increase on the 3 strategic success factors that we have established in our group. These are, firstly, further growth in assets under management within the group; secondly, the continued expansion of the non-life insurance portfolio volume and thirdly, sustainable growth in all parts of the MLP Group. The brokerage of old-age provision products is, in particular, set to make an increasing contribution to this. Real estate brokerage also remains relevant among MLP's discerning high-end clientele. 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. At this point, I would like to inform you of our intention to publish another ambitious midterm planning at our annual press and analyst conference in March next year. Ladies and gentlemen, please now allow me to provide a summary. Firstly, we have already achieved a great deal so far in 2024. And with regards to this, we had raised our forecast. We also feel confident about the remainder of the fourth quarter. Secondly, we are making significant progress towards our EBIT range of EUR 100 million to EUR 110 million planned for the end of 2025. The success factors we've put in place are taking effect. And thirdly, thanks to our successful strategic development of the MLP Group, including our digital strategy, we have substantial further opportunities for growth. Many thanks for your time and your interest, and I'm now happy to take any questions.

[Operator Instructions] The first question goes to Henry Wendisch of NuWays.

Congratulations. On the results, I have a couple of questions. So let's get started. Yes, obviously, our government is not as stable as you are. But this is why I'd like to ask, do you see any potential impact from a potentially non-pass rent page? I don't know the exact English word? Or do you any other stuff that could happen if the budget for 2025 is not passed by the end of this year? The second question is a little bit detailed, but also given the macroeconomic environment in Germany, would you mind sharing the exposure of the industrial broker segment? I have looked at the website, they have all different kinds of industrial segments covered. But is it like mainly focused on maybe renewables or automotive or any cluster risk that might be in the industrial brokerage segment, so we can look out for that? Thirdly, I'd like to always know the net liquidity figure and also the net inflows into assets under management, if that is valuable. And then following up #4 on real estate. The recovery is obviously visible in brokerage, but not so much in development. Maybe help me out a little here. In your areas of consulting, you report no sales from development. But at the segment level of Deutschland Immobilien, you recorded EUR 10 million of sales. So the difference, is that also brokerage coming at the Deutschland Immobilien level? Or how can we see this difference? Because I always thought Deutschland Immobilien is a developer in that sense and the brokerage commissions are charged at the FI level. Also, when will you resume development projects? I think most of them are on stop right now. And also based on current developments, how likely do you feel that there will be another goodwill impairment of Deutschland Immobilien in the fourth quarter? So the goodwill is now at EUR 20 million. It's come down significantly over the last 2 years. But as of now, how do you see a risk for another goodwill impairment in the fourth quarter? That was a long question. But now the fifth one, also looking at Q4, I know there's a lot that can happen still until the end of December. But as of now, with capital markets performing quite well, how do you feel about the chances of performance fee contributions also for the fourth quarter? And then after the fourth quarter, it's time for the full-year results. And then I would like to know a little bit more on dividend policy. What part do like one-off effects from the performance fee contribution, for example, so that positively affect earnings per share also play a role when it comes to the dividend? So I would not expect any special dividend from your side, but maybe after 3 years of a constant dividend, you may want to share a little bit more that the dividend might be increased. Also maybe like a payout ratio that you might have in mind. And also given that your net liquidity is quite high, in my view, you could definitely afford to raise dividends. So maybe give us a little bit more light on that topic. And that's it already.

Henry, thank you for your questions. This was indeed a long list. I hope I noted all the questions on my little paper here. And even more, I hope I can answer all this. Let's start very briefly with the government issue, obviously, that we can talk for hours. Obviously, in the bucket included was the idea of this [indiscernible], which could have some positive impact. But due to the fact that until now, there were many question marks, even before the coalition broke, there were many question marks included. We had no impact in our plannings in this. And therefore, there is one thing which, let's say, I don't see positive from a German perspective and which I don't see positive from a perspective of MLP. But as I said before, it was nothing included in our planning. And therefore, let's say, in the overall figures, it will not influence us. Therefore, perhaps there now for the outlook, positive and negative, aspects, short and risk, and let's first underline the potential positive impacts. One thing, and we spoke about this many times that we, like many others in this business, see heavy burdens due to the bureaucracy, due to the regulations, to the ongoing regulations, due to the number of new laws. And due to the discussion we have right now, we hope that there might be even more willingness to reduce this burden and to start initiatives like this fourth law for Bureaucati and last [indiscernible] that there are more initiatives to support the industry, to support Germany overall and Europe overall to reduce bureaucracy. And that's, let's say, obviously a hope. But therefore, overall, due to these changes, we are definitely not negatively impacted by this. This in general. Now your second question went into our segment of industrial brokerage. And you raised the question, if we see -- I put it in my words if we see cluster risks, the answer is very short, no. We don't see cluster risks. We have small and medium companies, mainly, obviously, we also have some up to the MDAX companies. But in more or less, all branches in all industry segments. And yes, obviously, there are some segments and also in the course of this year and in the course of last year, we saw some insolvencies and we saw for this reason, some companies where we lose the client relationship. But on the other side, there are more new coming to us. Therefore, overall, for the outlook for the next year, we still see more opportunities than risks there and definitely no cluster risks. Concerning inflows was your next question for our assets under management, what happened to our asset under management table during the course of the year? The 9-month figures there were that we have net inflows of EUR 600 million and that we had a positive performance during 2024 of EUR 3.5 billion. For the liquidity, perhaps one explanation or one information there, during 2004, we invested more than in the years before in hard and software, and we invested more in also own real estate. What do I mean? We are, at the moment, building for our industrial broker segment in the nice little village Reutlingen, a totally new office there. And we're also refurbishing or renovating the offices of our daughter company, DOMCURA. And we also were renovating the offices and the building of our daughter company, FERI, during the course of the year. And therefore, if you see in the figures, you will see that the investments in this area were quite more intensive than it was in the years before. All this led to also reduced liquidity. We are at 30th of September, which is always a relatively low figure at around EUR 130 million liquidity there. Now when I spoke about our own real estate, this was a nice link to the real estate segment, whereas no own real estate included. Your first question was when we'll start to -- with new projects. We are more or less at the starting point there. We signed a contract in the last quarter, which was more or less the beginning of one project together with a partner. And we hope to sign a new contract for a new start of a project, again, together with a partner at the end of this quarter. And we hope to see the positive effects of these projects in '25. That also was the reason why I think in the last conference, we had, I said that we expect for the whole segment of Deutschland.Immobilien that we expect negative figures, still negative figures for '24, but we expect a turnaround in '25 concerning the overall EBIT numbers, and we expect for the whole year '25 positive figures in this segment. Concerning your question about possible impairments, I can't answer this right now, but you said totally correctly that for the whole segment, we have around EUR 20 million goodwill. I would like to split it up even more detail for a moment. We have cash-generating units there. We have around EUR 8 million goodwill for the part, which is just the brokerage segment, and we have around EUR 12 million goodwill for the project segment. And therefore, let's say, the part at risk is the project segment. But with the outlook of the projects, we -- okay, we'll see at the end of the year. We are still in the planning phase, and we'll finalize our planning there in the mid of December. Turning from the Real Estate segment from Deutschland.Immobilien to another question you had then in the more, let's say, positive environment in the capital market development with the question, if we expect some performance fees in the last quarter in our FERI segment. A good question. When you say me -- when you please tell me what the capital market is at the 31st of December, then I will give you the answer if we see performance fees. There is a possibility that there will be some smaller performance fees, but we are -- at least from our side, there are many question marks how the capital market will continue. Therefore, until now. Obviously, we can't promise there. In our planning, we have nothing included for the rest of the year. And also in our outlook for the year, there's nothing included. And obviously, what will come out then also could have an impact on the dividend. And therefore, you were asking concerning dividend policy. My continuous answer there is we have a dividend policy, which says that we will pay out between 50% to 70% of the net profit. I would like to keep in all our minds that last year, we were not totally consistent with the dividend policy because last year, we had a payout ratio of 74% to avoid our dividend would fall from EUR 0.30 to EUR 0.29. And therefore, we paid out a little bit more. Keeping this in mind, we will stick to our dividend policy. And therefore, what comes out of the end of the year, then we'll see where between 50% to 70%, we'll find a dividend. Let's say it this way, with our increased forecast, obviously, there is a potential of a small increase, but we'll see it at the end of the year. And I hope now I answered all your questions.

Yes. Most of them. Just one little follow-up. I was wondering because in your area of consulting, you reported no sales from development in Q3, but at the segment level of Deutschland.Immobilien, it was EUR 10 million. So what's the difference? Where is it coming from? Is this -- you probably asked it already, you have 2 cash-generating units within Deutschland.Immobilien. One is the brokerage business. So that is -- the rest must be in brokerage, right?

First of all, this, we have both segments in, number one, and this is the reason. But also, we all should keep in mind that not all sales from Deutschland.Immobilien goes through Finanzberatung, but also sales from Deutschland.Immobilien goes to the, let's say, to other sales channels outside of MLP.

And the next question goes to Jochen Schmitt of Metzler.

I have one question on MLP Banking, please. Loan loss provisioning increased in Q3 year-over-year and the reasons seem to be provisions on individual loans. Could you please comment a bit more in detail which type of loans were affected? And what is the corresponding outlook for Q4? That's my question.

We have increased our provisioning there for a customer where we had a loan of EUR 5 million and where it goes at the moment also in -- you can read something in the media about these customers, and we are also part of it. And due to the unstable outlook and the questioning how this will continue, we had a provisioning for one special customer due to -- out of the Schuldscheindarlehen, which we gave to this customer. For the outlook, I think if you see our overall risk provisioning in this year and also in the last years, I think we are there overall on a very low level or on a very comfortable level, let's say, this way. And especially in the loan provisioning for individuals, there are all the numbers. I think I know them more or less by heart, how many individual provisionings we had there. And saying this, we have the impression, and our advisers also say this that -- I think our portfolio there has a very high quality. And therefore, I would not expect too many of these impacts we saw in this quarter.

[Operator Instructions] There seem to be no further questions. So let me hand back over to Pascal Locher 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 if any further questions arrive later. I wish you a good afternoon. Thank you, and goodbye.