Notes to the statement of financial position

21 Intangible assets

Intangible assets comprise definite-lived and indefinite-lived assets. Depreciation/amortisation and impairment on intangible assets are presented in Note 15.

Useful lives of intangible assets

The goodwill originating from company acquisitions was allocated by MLP at the level of the cash-generating units. The goodwill accrued on the basis of the provisional purchase price allocation resulting from the acquisition of the DI Group in the last financial year has been confirmed in the final purchase price allocation and was distributed to two cash-generating units. The reportable Financial Consulting business segment contains the following groups of cash-generating units: (1) financial consulting, (2) occupational pension provision, (3) ZSH and (4) DI Sales. 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. The cash-generating unit DI Projects is included in the Holding and Others segment. 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 the financial year 2020. 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

Other Holding and Others segment

The global COVID-19 pandemic was taken into account in the key underlying assumptions. MLP bases is planned EBT figures on the assumption that the coming year will also be impacted by the pandemic and its consequences and that the situation is unlikely to normalise again until the second half of 2021. The capitalisation rate is made up of a risk-free interest rate of 0.1% (previous year: 0.2%), a market risk premium of 7.6% (previous year: 7.5%), as well as an individual beta for each cash-generating unit in the range from 0.88 to 1.17 (previous year: 0.85 to 1.15).

Within the scope of its impairment testing MLP carried out sensitivity analyses. A so-called adverse scenario was developed in order to simulate an economic downturn that potentially continues beyond the year 2021. This scenario leads to a 30% reduction in the planned EBT growth rate. As such, a reduction in the planned EBT growth rate of 30% (previous year 12%) was analysed. In addition to this, the effects of increasing the discount interest rates by one percentage point were analysed (previous year 50 BP). The reduction in planned EBT growth, as well as the increase in discount interest rates does not lead to the carrying amount exceeding the recoverable amount at any of the cash-generating units.

The items software (inhouse), software (purchased), advance payments and developments in progress contain own work performed within the context of developing and implementing software. In the financial year 2020, own services with a value of € 110 thsd were capitalised (previous year: € 354 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" essentially 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 € 174 thsd as of 31 December 2020 (previous year: € 771 thsd).

22 Property, plant and equipment

Useful lives of property, plant and equipment

Depreciation/amortisation and impairment of property, plant and equipment are disclosed in Note 15.

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 € 273 thsd net as of 31 December 2020 (previous year: € 348 thsd).

Leases

Rights of use from leases are disclosed under the "property, plant and equipment" item. As of 31 December 2020, rights of use of € 50,063 thsd are in place (previous year: € 53,275 thsd), € 48,079 thsd (previous year: € 51,723 thsd) thereof is attributable to rented properties and € 1,984 thsd (previous year: € 1,551 thsd) to vehicle leases.

In the financial year, the acquisition costs of the rights of use from leases developed as follows. There were additions of € 9,104 thsd (previous year: € 11,415 thsd) and disposals of € 2,247 thsd (previous year: € 1,655 thsd).  Amortisation of rights of use from leases of € 1,636 thsd (previous year: € 452 thsd) were recognised in the financial year. The changes are mainly due to rented properties.

In the financial year 2020 some properties were sublet, resulting in revenue of € 343 thsd (previous year: € 127 thsd).

The table below shows a maturity analysis of inflows from the sub-lease of properties and of use and reflects the undiscounted payments  received after the balance sheet date of the financial year and of the previous year:

23 Receivables from clients in the banking business

Receivables from clients in the banking business

As of 31 December 2020, receivables (net) with a term of more than one year remaining to maturity are € 712,850 thsd (previous year: € 674,139 thsd).

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

Reconciliation statement for gross carrying amounts of receivables from clients in the banking business for 2020

Reconciliation statement for gross carrying amounts of receivables from clients in the banking business for 2019

Receivables from clients in the banking business to collect contractual cash flows held by MLP are carried at amortised costs 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 € 39 thsd (previous year: € 44 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 from Stage 1 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 a credit 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 25 contracts due to the effects of the coronavirus pandemic in the reporting year (previous year: one contract). These essentially relate to the suspension of next due principal payments at an unchanged interest rate and do therefore not apply to substantial modifications. The modification gain resulting from recalculating the present value of the receivable throughout the contractual period is not presented in the statement of comprehensive income, as it is not significant.

As the result of the application of the legal moratorium (pursuant to Art. 240 § 3 (1) of the Introductory Act to the German Civil Code (EGBGB)) MLP has granted 15 clients a deferral of payment in the current financial year. Since the deferrals were not primarily granted on the grounds of financial hardship, they have not been classified as modifications.

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

Reconciliation of expected losses 2020

Reconciliation of expected losses 2019

Loan loss provisions increased from € 7,674 thsd to € 9,481 thsd in the financial year. The loan loss provision on existing business increased by € 2,543 thsd as a result of deteriorations in terms of credit ratings, as well as transfers to Stage 3 (previous year: € 2,002 thsd). Some € 2,400 thsd of these funds were allocated due to the effects of the coronavirus pandemic. In addition there are allocations in Stage 2 of € 1,971 thsd (previous year: € 2,037 thsd) which are mainly due to deteriorations of creditworthiness resulting in a transfer from Stage 1 to Stage 2. These are offset by Stage 2 reversals of € 1,553 thsd (previous year: € 1,273 thsd) and Stage 3 reversals of € 1,217 thsd (previous year: € 4,149 thsd) as a result of credit enhancements.

Taking into account direct write-offs of € 184 thsd (previous year: € 523 thsd) as well as income recovered from written off receivables € 241 thsd (previous year: € 254 thsd), allocations of € 5,180 thsd (previous year: € 4,721 thsd) and reversals of € 3,103 (previous year: € 3,620 thsd) recognised in income resulted in a net loan loss provision of € 2,020 thsd in the reporting year (previous year: € 1,370 thsd).

Qualitative and quantitative information on contributions from anticipated losses 2020

Qualitative and quantitative information on contributions from anticipated losses 2019

As of the balance sheet date, the maximum default risk corresponds to the carrying amount after impairment of each of the categories of financial assets listed above. Credit impaired or defaulted receivables from clients in the banking business disclosed in Stage 3 as of 31 December 2020 of € 7,998 thsd (previous year: € 8,363 thsd) are secured by land charges of € 925 thsd (previous year: € 355 thsd). The maximum default risk of contingent liabilities and irrevocable credit commitments corresponds to the face value of € 73,018 thsd (previous year: € 58,430 thsd).

The Group holds forwarded loans of € 106,089 thsd (previous year: € 97,970 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 € 47 thsd (previous year: € 237 thsd) serving as collateral for originated loans and receivables, was acquired. The assets mainly concern receivables from claimed life insurance policies.

Information on the fair value of financial assets is provided in Note (36).

24 Receivables from banks in the banking business

All receivables from banks in the banking business are due from domestic credit institutions. As of 31 December 2020, receivables with a term of more than one year remaining to maturity are € 147,324 thsd (previous year: € 131,182 thsd). The receivables are not collateralised. At the closing date there are no receivables from banks which are overdue. As at the closing date, there are no receivables with a high risk of default which are assigned to Stage 2 (previous year: € 4,000 thsd). Receivables from banks of € 751,466 thsd (previous year: € 724,085 thsd) are disclosed in Stage 1 and an anticipated 12-month loss is determined. The anticipated losses on receivables from banks are € 195 thsd in the financial year (previous year: € 203 thsd). This results in a net income from loan loss provisions in the reporting year of € 8 thsd (previous year: net expense from loan loss provisions: € 32 thsd).

Further information on receivables from financial institutions in the banking business is disclosed in Note 36.
  

25 Financial assets

As of 31 December 2020, MLP has portfolios amounting to € 88,945 thsd (previous year: € 83,800 thsd) that are due in more than twelve months.

As per the measurement categories for financial instruments defined in IFRS 9, the financial investment portfolio breaks down as follows:

In the financial year 2020, shares and other variable yield securities of € 7,084 thsd (previous year: € 5,398 thsd) are measured at fair value through profit or loss. These are debt instruments that do not fulfil the cash flow criterion and therefore need to be measured at fair value through profit or loss. The figure includes investment funds of € 4,509 thsd, which are assigned to the "Hold and Sell" business model. This leads to valuation differences from exchange losses of € 247 thsd (previous year: € 485 thsd), which are recognised in the valuation result.

In addition, debentures and other fixed income securities of € 10,056 thsd (previous year: € 10,095 thsd) are measured at fair value through profit or loss in the financial year 2020. This leads to valuation differences from exchange losses of € 40 thsd (previous year: € 170 thsd), which are also recognised in the valuation result.

Debentures and other fixed income securities of € 101,849 thsd (previous year: € 90,214 thsd) are measured at amortised costs.

The anticipated 12-month loss on debentures and other fixed income securities measured at amortised costs is € 48 thsd in the financial year (previous year: € 40 thsd). As at the closing date, two debentures are in place with increased default risk in Stage 2 and a lifetime expected loss of € 33 thsd. These result in total loan loss provisions of € 41 thsd to be recognised in income (previous year: € 12 thsd).

The fair value changes to fixed income securities triggered by a change in creditworthiness are € 5 thsd (previous year: € 89 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 € 35,297 thsd (previous year: € 30,834 thsd) with a face value of € 38,450 thsd (previous year: € 32,700 thsd).

For further disclosures regarding financial assets, please refer to Note 36.

26 Inventories

Inventories break down as follows:

Due to the sale of residential units, € 3,076 thsd of inventories were accounted for as an expense in the item "Inventory changes" in the last financial year.

27 Other receivables and assets

As of 31 December 2020, receivables (net) with a term of more than one year remaining to maturity are € 41,782 thsd (previous year: € 38,230 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 term of payment of 30 days.

Refund receivables from recourse claims are due to MLP consultants and branch office managers, as well as 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:

The contractual assets relating to DI projects developed as follows:

Figure includes contract initiation costs of € 964 thsd.

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 2020

Development of impairments on other receivables and assets 2019

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 credit impairments, 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 € 535 thsd (previous year: € 271 thsd), allocations of € 569 thsd (previous year: € 536 thsd) as well as reversal of € 221 thsd (previous year: € 798 thsd) recognised in income resulted in a net loan loss provision of € 817 thsd in the reporting year (previous year: € 9 thsd).

As of 31 December 2020, the total volume of receivables recognised in Stage 2 is € 152,092 thsd (previous year: € 130,174 thsd). An impairment loss of € 2,097 thsd was recognised for this (previous year: € 1,846 thsd).

As of 31 December 2020, the total volume of receivables recognised in Stage 3 is € 3,867 thsd (previous year: € 4,006 thsd). There are objective indications of an impairment or default status for these receivables. An impairment loss of € 2,540 thsd was recognised for this (previous year: € 2,456 thsd).

Additional disclosures on other receivables and assets can be found in Note 36.

28 Cash and cash equivalents

As was the case in previous years, cash and cash equivalents include deposits at the Deutsche Bundesbank. In the financial year 2020, holding funds with commercial banks were transferred to the Bundesbank. This resulted in an increase in cash and cash equivalents. Changes in cash and cash equivalents during the financial year are shown in the statement of cash flow. The impairment in line with IFRS 9 is € 10 thsd (previous year: € 12 thsd), the holdings are assigned to Stage 1.

29 Shareholders' equity

Share capital

The share capital of MLP SE is made up of 109,326,186 (31 December 2019: 109,334,300). 566,000 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

A resolution passed by the Annual General Meeting on 14 June 2018 authorised the Executive Board, with the consent of the Supervisory Board, to increase the company's share capital by up to € 21,500,000 in exchange for cash or non-cash contributions on one or more occasions until 13 June 2023.

Acquisition of treasury stock

The Annual General Meeting on 29 June 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 28 June 2022. On 24 September 2019, the Executive Board at MLP SE approved a share buyback, which was carried out by MLP Finanzberatung SE. The shares were to be used for share-based payments under the 2019 participation programme. The buyback of shares for the 2020 participation programme starts in 2021. Please refer to Note 34 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 § 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 34.

Other retained earnings and net profit

Other retained earnings comprise retained earnings of the MLP Group and a reserve for treasury shares of € 267 thsd (previous year: € 1 thsd).

Revaluation reserve

The provision includes losses from the revaluation of defined benefit obligations of € 29,816 thsd (previous year: € 24,842 thsd) and deferred taxes attributable to this of € 8,822 thsd (previous year: € 7,294 thsd).

Minority interests

Minority interests comprise equity interests subsidiaries of MLP SE.

Proposed appropriation of profit

The Executive Board and Supervisory Board of MLP SE will propose a dividend of € 25,147 thsd (previous year: € 22,960 thsd) for the financial year 2020 at the Annual General Meeting. This corresponds to € 0.23 (previous year: € 0.21) per share.

30 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 € 20,574 thsd (previous year: € 23,469 thsd). Pension insurance policies are in place for all other pension obligations (defined benefit obligation of € 36,573 thsd; previous year: € 33,463 thsd).

The change in net liability from defined benefit plans is summarised in the following table:

Net liabilities of € 2,029 thsd recognised in the balance sheet (previous year: € 1,941 thsd) are attributable to Executive Board members active at the end of the reporting period.

With regard to net pension provisions, payments of € 1,671 thsd are anticipated for 2021 (previous year: € 1,462 thsd). € 961 thsd thereof (previous year: € 872 thsd) is attributable to direct, anticipated company pension payments, while € 710 thsd (previous year: € 590 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.

On 31 December 2020, the weighted average term of defined benefit obligations was 18 years (previous year: 18 years).

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 the financial year 2020 they total € 11,748 thsd (previous year: € 11,158 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.

Provisions for litigation risks/costs are formed for risks resulting from legal disputes.

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.

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.

The provisions for economic loss due to liability risks are offset by claims for reimbursement from liability insurance policies with a value of € 573 thsd (previous year: € 435 thsd).

The provision for anticipated losses from the lending business is recognised as a result of the impairment regulations pursuant to IFRS 9. Please refer to Note 35 for further information on the provision for anticipated losses from the lending business.

Other provisions are formed for obligations from IT services and incentive trips.

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 33 years.

Provisions for expected losses from the lending business developed as follows in the financial year:

31 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 € 1,993,251 thsd to € 2,379,389 thsd is essentially attributable to the increase in short-term client deposits in current accounts.

As of 31 December 2020, liabilities due to clients from savings deposits with an agreed notice period of three months amounted to € 22,357 thsd (previous year: € 19,758 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 36 and 37.

32 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 1 January 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 31 December 2020 this figure was € 25,070 thsd (previous year: € 26,515 thsd), € 17,695 thsd of this amount was non-current (previous year: € 19,273 thsd).

Leasing liabilities of € 51,157 thsd (previous year: € 54,156 thsd) include liabilities for lease payments on real estate of € 49,184 thsd (previous year: € 52,624 thsd) and liabilities for lease payments on vehicles of € 1,973 thsd (previous year: € 1,532 thsd). The total outflow of cash and cash equivalents for leases was € 12,036 thsd in the financial year 2020 (previous year: € 11,584 thsd).

Liabilities from the underwriting business include collection liabilities due to insurance companies, open third-party commission claims, as well as liabilities from claims settlement.

Purchase price liabilities include variable purchase price components resulting from the acquisition of the DI Group. Adjustments to the earnings targets of the DI Group were performed due to the coronavirus pandemic in the time period relevant for the purchase price. This leads to a reduction in the purchase price of € 1,479 thsd, which was recognised in the income statement.

Other liabilities comprise commissions withheld from MLP consultants due to cancellations amounting to € 2,359 thsd (previous year: € 2,291 thsd). Commissions withheld are charged with interest. Their term is mainly indefinite.

MLP has agreed-upon and non-utilised lines of credit amounting to € 160,029 thsd (previous year: € 168,961 thsd).

Further disclosures on other liabilities can be found in Note 35 and 36.