Notes to the statement of financial position

20 Intangible assets

Intangible assets comprise definite-lived and indefinite-lived assets. Depreciation/amortisation and impairment on intangible assets are presented in Note 14.
  

Useful lives of intangible assets

The goodwill originating from company acquisitions was allocated by MLP at the level of the cash-generating units. The disclosures take into account the demerger of MLP Finanzdienstleistungen AG performed in financial year 2017 within the former financial services business segment into the business segments of financial consulting and banking. The reportable financial consulting business segment contains the following groups of cash-generating units: (1) financial consulting, (2) occupational pension provision and (3) ZSH. No goodwill has been allocated to the reportable banking business segment. The reportable FERI business segment includes the cash-generating unit FERI Assetmanagement. The reportable DOMCURA business segment contains one DOMCURA cash-generating unit. Cash-generating units were allocated the following goodwill values arising from business combinations:

As was already the case in the previous year, there was no need for an impairment of capitalised goodwill in financial year 2018. The significant assumptions presented in the following were based on the impairment test performed.

Reportable financial consulting business segment

Reportable FERI business segment

Reportable DOMCURA business segment

Within the scope of its impairment testing MLP carried out sensitivity analyses. These analyses examine the effects of an increase of discount interest rates by half a percentage point and the effects of a reduction of the forecast EBT growth by 4% (previous year: 1%). The sensitivity analyses showed that, from today's perspective, there are no impairment losses for recorded goodwill at any cash-generating unit, even under these assumptions.

The items software (in-house), software (purchased), advance payments and developments in progress contain own work performed within the context of developing and implementing software. In the financial year 2018, own services with a value of € 412 thsd were capitalised (previous year: € 306 thsd). All development and implementation costs incurred complied in full with the criteria for capitalisation pursuant to IAS 38 "Intangible assets".

The item "Other intangible assets" contains acquired trademark rights, client relationships/contract inventories with a defined term, as well as indefinite-lived brand names acquired within the scope of company acquisitions.  In view of the recognition of these brands, at present no definite end of their useful lives can be specified.

The "FERI" brand is fully attributed to the cash-generating unit of the "FERI" reportable business segment:

The "DOMCURA" brand is fully attributed to the cash-generating unit of the "DOMCURA" reportable business segment:

There are no restraints on disposal or pledges with regard to intangible assets. Contractual obligations for the purchase of intangible assets have a net total of € 355 thsd as of December 31, 2018 (previous year: € 129 thsd).

21 Property, plant and equipment

Useful lives of property, plant and equipment

Depreciation/amortisation and impairment of property, plant and equipment are disclosed in Note 13.

The payments on account and assets under construction refer exclusively to acquired property, plant and equipment. There are no restraints or pledges with regard to property, plant and equipment. Contractual obligations for the purchase of property, plant and equipment amount to € 491 thsd net as of December 31, 2018 (previous year: € 1,687 thsd).

22 Receivables from clients in the banking business

Receivables from clients in the banking business

As of December 31, 2018, receivables (net) with a term of more than one year remaining to maturity amount to € 643,219 thsd (previous year: € 515,338 thsd).

The gross carrying amounts of receivables from clients in the banking business developed as follows in the financial year:

Receivables from clients in the banking business to collect contractual cash flows held by MLP are carried at amortised cost using the effective interest method. Assuming no bad debts are in place, all financial assets are recorded in Stage 1 on their date of acquisition and then written down over the next twelve months with an anticipated default. In the financial year, there were receivables of € 46 thsd where there was already an indication of impairment on the date of acquisition (POCI - purchased or originated credit-impaired financial assets).

If the credit risk increases significantly, a transfer to Stage 2 is performed. This involves a calculation of the impairment on the basis of the expected credit loss over the entire remaining term. If there are objective indications of an impairment or a default status, the financial asset is recognised in Stage 3. See Note 6 for further details on the impairment methods used and calculation of the impairment.

Modifications were performed to three contracts in the reporting year. These are deferred redemption payments, as well as contractual period extensions. As such, they do not represent substantial modifications. The modification gain resulting from recalculation of the present values of the receivables throughout the contractual period is not presented in the statement of comprehensive income as it is not significant.

On the closing date, there were no receivables from clients in the banking business whose conditions were renegotiated and which would otherwise be overdue or written down (previous year: € 457 thsd).

Loan loss provisions for receivables from clients in the banking business developed as follows in the reporting year:

Loan loss provisions declined from € 11,126 thsd to € 9,024 thsd in the financial year. This can primarily be attributed to disposals of receivables from credit cards, as well as current accounts in Stage 3. There were also reversals from Stage 1 of € 1,064 thsd, as well as from Stage 2 of €- 1,879 thsd in the financial year. The reversals from Stage 2 are primarily the result of improvements to the anticipated default risk on receivables and the transfers to Stage 1 associated with this. These were offset against allocations from newly acquired or issued financial assets to Stage 2 of € 1,422 thsd and to stage 3 of € 1,728 thsd.

Taking into account direct write-offs of € 684 thsd as well as income recovered from written-off receivables of € 198 thsd, allocations of € 3,832 thsd and reversals of € 3,601 thsd recognised in income resulted in a net loan loss provision of € 255 thsd in the previous year.

Qualitative and quantitative information on contributions from anticipated losses

As of the balance sheet date, the maximum default risk corresponds to the carrying amount of each of the categories of financial assets listed above. The written down or defaulted receivables disclosed in Stage 3 as of December 31, 2018 of € 15,844 thsd are secured with customary banking collaterals of € 1,559 thsd. The maximum default risk of contingent liabilities and irrevocable credit commitments corresponds to the face value of € 59,386 thsd.

The Group holds forwarded loans of € 81,295 thsd (previous year: € 60,283 thsd) in the form of collateral for liabilities due to refinancing banks.

Due to defaults of debtors, ownership of financial and non-financial assets of € 1,361 thsd (previous year: 784 thsd) serving as collateral for originated loans and receivables was acquired. The assets mainly concern property and receivables from claimed life insurance policies.

Information on the fair value of financial assets is provided in Note 35.

Comparative information pursuant to IAS 39

The analysis of the carrying amount, as well as the age structure of receivables from clients in the banking business that are neither overdue nor written down is as follows as of December 31, 2017:

Receivables for which no specific allowance has been made but which are overdue as of December 31, 2017 of € 2,455 thsd are secured with customary banking collaterals.

Receivables from clients due to originated loans are partly secured by mortgages (December 31, 2017: € 107,500 thsd; previous year: € 94,018 thsd), assignments (December 31, 2017: € 53,314 thsd; previous year: € 46,466  thsd) or liens (December 31, 2017: € 26,849 thsd, previous year: € 20,280 thsd). Receivables from current accounts and credit cards are generally not collateralised. With regard to receivables from the banking business which are neither impaired nor overdue, there were no signs at the closing date that debtors will not meet their payment obligations.

Receivables from clients in the banking business for which new terms were agreed and which would otherwise have been overdue or impaired were € 457 thsd on the closing date (previous year: € 0 thsd).

Loan loss provisions due to receivables from clients in the banking business developed as follows in the previous year:

For reasons of materiality, a decision was taken not to determine the interest income from impaired receivables from clients (unwinding) in accordance with IAS 39.A93 (Unwinding).

Taking into account direct write-offs of € 517 thsd, income from written-off receivables of € 283 thsd, as well as revenue from the reversal of provisions of € 63 thsd, total allocations and reversals recognised in income resulted in a net loan loss provision of € 432 thsd in the previous year.

Receivables for which specific allowances have been made were € 4,642 thsd in the previous year.  For a partial amount of € 1,935 thsd, the impairment loss was less than 50 % of the gross receivable, while the remaining volume was written down by more than 50 %. The impairment was € 2,813 thsd. This corresponds to a percentage of 61 %.

Accounts receivable for which a specific allowance has been made are secured as per December 31, 2017 with customary banking collaterals amounting to € 1,384 thsd previous year.

23 Receivables from banks in the banking business

All receivables from banks in the banking business are due from domestic credit institutions. As of December 31, 2018, receivables with a term of more than one year remaining to maturity are € 103,161 thsd (previous year: € 107,000 thsd). The receivables are not collateralised. At the closing date there are no receivables from banks which are overdue. Receivables of € 2,000 thsd have a greater default risk and are therefore allocated to Stage 2. Other receivables from banks of € 692,210 thsd are disclosed in Stage 1 and an anticipated 12-month loss is determined. The anticipated losses on receivables from banks are € 170 thsd in the financial year. This leads to a net loan loss provision income of € 74 thsd in the reporting year.

Further information on receivables from financial institutions in the banking business is disclosed in Note 35.
  

24 Financial assets

As of December 31, 2018, MLP has portfolios amounting to € 79,583 thsd (previous year: € 68,593 thsd) that are due in more than twelve months.

As per the measurement categories for financial instruments defined in IFRS 9 (previous year:  IAS 39), the financial investment portfolio is structured as follows:

In financial year 2018, shares and other variable yield securities of € 3,157 thsd are measured at fair value through profit or loss. This leads to valuation differences from exchange losses of € 662 thsd, which are recognised in the valuation result.

Debentures and other fixed income securities of € 9,925 thsd are also measured at fair value through profit or loss in the financial year 2018. This leads to valuation differences from exchange losses of € 54 thsd, which are also recognised in the valuation result.

Debentures and other fixed income securities of € 86,219 thsd are measured at amortised costs.

The anticipated 12-month loss on debentures and other fixed income securities valued at acquisition costs is € 28 thsd in financial year.

The fair value changes to fixed income securities triggered by a change in creditworthiness are € -105 thsd.

Assets pledged as collateral

As at the closing date, the availability of liquidity facilities provided by Deutsche Bundesbank is collateralised by marketable securities of € 6,883 thsd (previous year: € 13,675 thsd) with a face value of € 7,000 thsd (previous year: € 14,500 thsd).

For further disclosures regarding financial assets, please refer to Note 35.

25 Other receivables and assets

As of December 31, 2018, receivables (net) with a term of more than one year remaining to maturity amount to € 45,984 thsd (previous year: € 14,638 thsd).

The main items included in trade accounts receivable are commission receivables from insurance companies. They are generally non-interest-bearing and have an average payment of 30 days.

Refund receivables from recourse claims are due to MLP consultants and branch office managers and insurance companies. 

Receivables from the underwriting business comprise unpaid receivables from clients, as well as receivables from insurance companies for claims settlement.

The contractual assets in the context of unit-linked life insurance policies developed as follows:

Corresponding revenue had to be recognised for additional payments of € 752 thsd received in relation to contractual assets amounting to a different total.

Revenue of € 3,132 thsd was recognised as the result of an adjustment to an estimation parameter.

Other receivables and assets are usually not collateralised. With regard to receivables and other assets which are neither impaired nor overdue, there are no signs at the closing date that debtors will not meet their payment obligations. On the closing date there were no receivables and other assets for which new terms were agreed and which would otherwise have been overdue or written down.

The allowances for other receivables and other assets have developed as follows in the financial year:

Development of impairments on other receivables and assets

MLP uses the simplified approach described in IFRS 9.5.5.15 to determine the loan loss provisions on anticipated losses from other receivables. Based on this, these receivables are already assigned to Stage 2 during initial recognition and no estimate is performed regarding a significant increase of the credit risk. If the assets display any objective indications of compromised creditworthiness, they are transferred to Stage 3.

MLP uses a loss rate approach to determine the losses anticipated throughout the entire term of the contract. Here, historical credit default rates are determined for defined portfolios with the same risk characteristics. The anticipated losses are estimated on the basis of historical losses.

In cases where MLP institutes enforcement or where insolvency proceedings are imminent or have already started, receivables are written down based on empirical values. The same applies to receivables which are disputed and where legal action is pending.

Taking into account direct write-offs of € 505 thsd as well as allocations of € 884 thsd and reversals of € 1,871 thsd recognised in income resulted in a net loan loss provision of € 393 thsd in the previous year.

As of December 31, 2018, the total volume of receivables recognised in Stage 2 is € 119,027 thsd. An impairment loss of € 1,686 thsd was recognised for this.

As of December 31, 2018, the total volume of receivables recognised in Stage 3 is € 3,889 thsd. There are objective indications of an impairment or default status for these receivables. An impairment loss of € 2,406 thsd was recognised for this.

Comparative information pursuant to IAS 39

The allowances for other receivables and other assets have developed as follows in the financial year:

In cases where MLP institutes enforcement or where insolvency proceedings are imminent or have already started, receivables are written down based on empirical values. The same applies to receivables which are disputed and where legal action is pending.

Taking into account direct write-offs of € 356 thsd, income from written-off receivables of € 57 thsd, total allocations and reversals recognised in income resulted in a net loan loss provision of € 67 thsd in the previous year.

As of December 31, 2018, the total volume of accounts receivable for which a specific allowance has been made is € 4,636 thsd. For a partial amount of € 512 thsd, the impairment was less than 50 % of the gross receivable, while the remaining volume was written down by more than 50 %. The impairment loss comes to a total of € 4,099 thsd. This corresponds to an average impairment rate of 88 %.

Additional disclosures on other receivables and assets can be found in Note 35.

26 Cash and cash equivalents

As was the case in previous years, cash and cash equivalents include deposits at the Deutsche Bundesbank. In financial year 2018, holding funds with commercial banks were transferred to the Bundesbank. This resulted in an increase in cash and cash equivalents, which can be seen within the scope of cash flow from operating activities. Changes in cash and cash equivalents during the financial year are shown in the statement of cash flow. The impairment charge in accordance with IFRS 9 amounts to € 10 thsd. Holdings are assigned to Stage 1.

27 Shareholders' equity

Share capital

The share capital of MLP SE comprises 109,166,662 no-par-value shares (December 31, 2017: 109,334,686). In the last financial year, 168,024 own shares were acquired in the last financial year. These will be issued to MLP consultants and branch office managers within the scope of a share-based payment.

Authorised capital

The Executive Board is authorised, with the consent of the Supervisory Board, to increase the Company's share capital by up to € 21,500,000 by issuing new ordinary bearer shares in exchange for cash or non-cash contributions on one or more occasions until June 13, 2023.

Acquisition of treasury stock

The Annual General Meeting on June 29, 2017 authorised the Executive Board to buy back own shares on one or more occasions with a pro rata amount of capital stock represented by such shares of up to € 10,933,468 until June 28, 2022. On November 22, 2018, the Executive Board at MLP SE approved a share buyback that is to be performed by MLP Finanzberatung SE. The shares are to be used for the participation programme. Please refer to Note 32 for further details.

Capital reserves

The capital reserves include increases/decreases in capital stock in MLP SE from previous years. The capital reserves are subject to the restraints on disposal as per section 150 of the German Stock Corporation Act (AktG). The change in capital reserves in the financial year is the result of recording share-based payment in line with IFRS 2. For further details, please refer to Note 32.

Other retained earnings and net profit

Other retained earnings comprise retained earnings of the MLP Group and a reserve for treasury shares of € 556 thsd (previous year: € 0 thsd).

Revaluation reserve

The provision includes losses from the revaluation of defined benefit obligations of € 17,804 thsd (previous year: € 17,230 thsd) and deferred taxes attributable to this of € 5,286 thsd (previous year: € 5,046 thsd).

Proposed appropriation of profit

The Executive Board and Supervisory Board of MLP SE will propose a dividend of € 21,867 thsd (previous year: € 21,867 thsd) for financial year 2018 at the Annual General Meeting. This corresponds to € 0.20 (previous year: € 0.20) per share.

28 Provisions

Pension provisions  

At MLP, executive members of staff have been granted direct pension benefits subject to individual contracts in the form of defined benefit plans which guarantee the beneficiaries the following pension payments:

• Old-age pension upon reaching 60, 62 or 65 years of age,
• Disability pension
• Widow’s and widower's pension of 60% of the pension of the original recipient
• Orphan’s benefit of 10% of the pension of the original recipient

The benefit obligations are partially financed through reinsurance policies, which essentially fulfil the prerequisites of pension scheme assets.

The defined benefit obligation for retirement income, funded only by means of provisions, amounts to € 19,236 thsd (previous year: € 19,432 thsd). Pension insurance policies are in place for all other pension obligations (defined benefit obligation of € 30,517 thsd; previous year: € 29,708 thsd).

The change in net liability from defined benefit plans is summarized in the following table.

€ 992 thsd of the net liabilities recognised in the balance sheet (previous year: € 959 thsd) are attributable to Executive Board members active at the end of the reporting period.

With regard to net pension provisions, payments of € 1,314 thsd are anticipated for 2018 (previous year: € 1,185 thsd). € 770 thsd thereof (previous year: € 787 thsd) is attributable to direct, anticipated company pension payments, while € 544 thsd (previous year: € 398 thsd) is attributable to anticipated reinsurance policy premiums.

Actuarial calculations incorporate the following assumptions:

The assumptions made regarding future mortality are based on published statistics and mortality tables.

As of December 31, 2018, the weighted average term of defined benefit obligations was 18.0 years (previous year: 18.7).

Sensitivity analysis

If the other assumptions all remained the same, changes to one of the key actuarial assumptions which would have been realistically possible on the closing date would have influenced the defined benefit obligations by the following amounts:

In order to define the sensitivity of mortality, all mortality rates stated in the mortality table were reduced to 80%. By extending life expectancy, this leads to an increase in the scope of defined benefit obligations. Although the analysis does not take into account the full distribution of anticipated cash flow based on the plan, it does provide an approximation of the sensitivity of the assumptions presented.

Alongside defined benefit plans, defined contribution plans are also in place. With these types of plans the company pays premiums to state or private pension insurance institutions in line with legal or contractual regulations or on a voluntary basis. The regular premiums paid for employees are disclosed as personnel expenses. In financial year 2018 they total € 10,510 thsd (previous year: € 9,904 thsd).

Other provisions are made up as follows:

Other provisions have changed as follows:

The provisions for cancellation risks allow for the risk of having to refund earned commissions due to a premature loss of brokered insurance policies.

Provisions for bonus schemes are recognised for incentive agreements for MLP consultants and branch office managers.

Due to contractual obligations towards insurance companies, provisions for claim settlement contributions/ commission reductions are to be recognised in accordance with the current estimate of the development of claims and premiums of in-force portfolios.

Provisions for share-based payments are recognised for incentive agreements and for profit-sharing schemes for Executive Board members, employees, MLP consultants and branch office managers.

The provisions for economic loss due to liability risks are offset by claims for reimbursement from liability insurance policies with a value of € 970 thsd (previous year: € 2,114 thsd).

The provision for anticipated losses from the lending business was recognised in 2018 as a result of the impairment regulations pursuant to IFRS 9. Please refer to Note 34 for further explanations.

The provisions classed as short-term are likely to be utilised within the next financial year. Payments for long-term provisions are essentially likely to be incurred within the next 2 to 41 years.

The Provision for expected credit losses developed as follows in the financial year:

29 Liabilities due to banking business

This summary includes the balance sheet items Liabilities due to clients in the banking business and Liabilities due to banks in the banking business.

The change in liabilities due to banking business from € 1,501,188 thsd to € 1,720,517 thsd is essentially attributable to the increase in short-term client deposits in current accounts.

As of December 31, 2018, liabilities due to clients from savings deposits with an agreed notice period of three months amounted to € 18,059 thsd (previous year: € 16,651 thsd).

The liabilities due to clients or due to other banks do not comprise any large individual items.

Further information on liabilities due to banking business is disclosed in Notes 35 and 36.

30 Other liabilities

Liabilities due to MLP consultants and branch office managers represent unsettled commission claims. Usually they are non-interest-bearing and due on the 15th of the month following the settlement with the insurance company. Since January 1, 2018, additional liabilities to MLP consultants and branch office managers resulting from future commission claims need to be recognised due to the introduction of IFRS 15. As of December 31, 2018, these were € 27,630 thsd. (of which long-term:  € 21,503 thsd).

Liabilities from the underwriting business include collection liabilities due to insurance companies, open commission claims and liabilities from claims settlement.

The item "Advance payments received" of the previous year concerns paid-in-advance trail commissions from unit-linked life insurance policies.

Other liabilities comprise commissions withheld from MLP consultants due to cancellations amounting to € 2,248 thsd (previous year: € 2,347 thsd). Commissions withheld are charged with interest. Their term is mainly indefinite. The item also contains liabilities for bonus and profit-sharing payments.

MLP has agreed-upon and non-utilised lines of credit amounting to € 116,148 thsd (previous year: € 131,605 thsd).

Further disclosures on other liabilities can be found in Note 34 and 35.