FORECAST

Anticipated business development

 

As a partner for all financial matters – for private clients, companies and institutional investors – MLP is a future-oriented company and anticipates positive earnings development in both the mid-term and long-term. As presented in the chapter entitled “Forecast – Future industry situation and competitive environment”, however, market conditions are likely to remain challenging in the financial year 2016.

In the field of old-age provision, MLP expects reservations regarding signing long-term contracts to continue throughout the market. The main reasons for this remain the low interest rate phase, the negative press regarding life insurers and their products, as well as the uncertainty being felt among large sections of the population. The field of occupational pension provision could potentially provide positive stimulus – particularly in view of the fact that the German government will be presenting the results of its reform study on the optimisation potential of occupational pension provision in the first quarter of 2016. We believe that alternative guarantee concepts and single premiums, as well as occupational disability insurance will also become increasingly important. Overall, in the field of old-age provision, we are anticipating to record new business and sales revenues in 2016 that will be around the previous year’s level.

Market conditions in the field of health insurance are also unlikely to display any significant improvement in the short-term. This is primarily due to the loss of confidence in private health insurance, caused by various factors including reports on premium increases and discussions on the potential introduction of a “citizens insurance” in the run-up to the last German parliamentary election. The additional premiums anticipated in the statutory health insurance system, on the other hand, could provide positive stimulus that will increase the willingness of those paying into the statutory health insurance system to switch over to a private policy. In addition to this, the field of supplementary insurance promises slightly positive effects. Overall, we expect a small increase in revenues in the field of health insurance in 2016.

Over the course of the next few years, we generally expect to see an increased need for consulting services in the field of professional wealth management among all of the Group’s target client groups. More and more clients in the consumer business of MLP Finanzdienstleistungen AG are approaching the age at which financial investments become significantly more important, not least due to their increasing personal wealth. At FERI, we benefit from our comprehensive expertise in alternative forms of investment, particularly given the current framework conditions. However, it is also important to note that the capital market environment remains difficult overall and ongoing volatility should be expected. Not only is this motivating investors – both private and institutional – to remain risk-averse, it is also leading to drops in volume-based and performance-based remuneration. Given these two factors, we anticipate a slight increase in sales revenues in the field of wealth management for 2016. In terms of assets under management, we expect the overall volume to remain at the same level as the previous year.

Not least due to the acquisition of the DOMCURA Group, we are anticipating a pronounced increase in revenue in the field of non-life insurance. Alongside the existing business of the DOMCURA Group, the cooperation with MLP is likely to provide positive stimulus – through the introduction of new concepts, improved service for our clients and optimised processes for our consultants.

Additional potential arises from the brokerage of real estate objects, which is reflected in the item “Other commission and fees”. Given the comparably low starting position, we are also anticipating a pronounced increase in sales revenues here in 2016.

However, a degree of uncertainty remains in all fields of consulting due to the challenging market environment.

An altered distribution of revenues must also be taken into account in 2016. MLP will continue to generate a large proportion of its revenues and earnings in the final quarter. However, the acquisition of DOMCURA will also significantly increase the importance of the first quarter. This is due to the seasonal nature of the DOMCURA business model, whereby the subsidiary generally records high revenues and earnings in the first quarter of each year and then records an arithmetic loss from Q2 to Q4. However, we expect positive overall earnings from DOMCURA.

  

Sales revenue estimates: 2016 (in comparison with the previous year)

One-off increase in administrative expenses due to efficiency measures

From 2016, the administrative expenses of the DOMCURA Group will for the first time be included in full in the administrative expenses of the Group. This will result in a slight rise in administrative expenses of € 280 million in the financial year 2016. In addition to this, we will once more intensify our efficiency management in the reporting year. We therefore expect to record one-off expenses of € 15 million in the financial year 2016. The aim of these measures is to significantly reduce costs once again in the financial year 2017 and the following years and to achieve a significant positive EBIT compared to the financial year 2015.

For greater clarity, in future we will disclose the loan loss provisions in the lending business as a dedicated item in the income statement – and thereby separately from administrative expenses. Firstly, the loan loss provisions in the lending business will include amortisation expenses and impairments, which were previously part of the administrative expenses. Secondly, this item will in future include reversals of impairments that were previously disclosed in other revenue. Accordingly, administrative expenses – defined as personnel expenses, depreciation and impairments, as well as other operating income – will in the future only comprise items that we can control directly. We are anticipating total administrative expenses adjusted for one-off expenses of around € 277 million for 2016. Including one-off expenses of approximately € 15 million in connection with our efficiency measures, administrative expenses are expected to be around € 292 million.

The forecast administrative expenses continue to include expenses in connection with investments in the future – including the ongoing implementation of our digitalisation strategy.

Alongside administration expenses, the cost of sales (primarily commission expenses) are relevant for our cost structure. We are anticipating two key effects for this item in 2016. Firstly, the DOMCURA Group has commission expenses for broker remuneration which will for the first time be reflected in our income statement for the entire year. Secondly, we established a training allowance for new client consultants last year to help them find their feet in the world of self-employment (please refer to the chapter entitled “Employees and self-employed client consultants”). These costs are accrued as commissions paid. As we expect to see an increase in recruitments in 2016, this will also lead to increasing expenses. 

Forecast: Operating EBIT (before one-off expenses) expected to be slightly above the previous year’s level

Taking into consideration anticipated sales revenue and costs, MLP expects to record a slight increase in operating EBIT (before one-off expenses of € 15 million) for the financial year 2016. The EBIT of € 30.7 million recorded in 2015 is the comparative benchmark here. In the light of one-off costs of around € 15 million in connection with the above-mentioned efficiency measures, we expect a substantial decline in EBIT after one-off expenses. From the financial year 2017 onwards we expect that the efficiency measures will result in a significantly higher EBIT compared to 2015. With this outlook we underscore our commitment to return to profitable growth – despite continuing difficult market conditions and extensive investments such as in the recruitment of new consultants. This forecast is based on the assumption that the general conditions in our core markets do not deteriorate any further.

As was already the case in the previous year, we once again expect the finance cost to be slightly negative. The tax rate in 2015 was 29.2%. For 2016, we are anticipating a slightly lower tax rate.

 

Dividends of € 0.12 per share

As a general rule, our dividend policy is aligned to the respective financial and earnings position, as well as the company’s future liquidity requirements. Since MLP employs a business model that is not very capital-intensive, we intend to maintain an attractive and consistent dividend policy for the future. However, capital requirements have increased due to the revised definition of equity, as well as the stricter capital adequacy requirements as per Basel III, meaning that the Group uses a portion of its earnings for the purpose of reinvestment. Set against this background, we announced a distribution rate of 50% to 70% of Group net profit in the Annual Report for the last financial year.

On the basis of this prognosis, the Executive Board and Supervisory Board will therefore propose a dividend of € 0.12 per share at the Annual General Meeting on June 16, 2016. The distribution rate measured against net profit for the period is 66%. Based on the net profit for the period simulating a DOMCURA acquisition with effect from January 1, 2015, the distribution rate is 56%.

 

Acquisitions possible

Further acquisitions and joint ventures that offer potential for profitable inorganic growth are generally possible in the market of our subsidiary FERI.

MLP also expects the ongoing consolidation of the broker market to continue. Should brokerage companies in the core business of MLP Finanzdienstleistungen AG become available for purchase in future, the Executive Board will undertake accurate analyses to determine whether their structure and culture fit in with MLP.

 

Integration of the DOMCURA Group and expansion of digitalisation

The ongoing integration of the DOMCURA Group into the MLP Group will be an important topic in 2016. Focus here is on joint further development of the DOMCURA business model, as well as measures offering synergy and added value potential.

MLP made important progress in its digitalization strategy in 2015 with the relaunch of its websites, the possibility for online policy sales and its activities on social media platforms. Building on this, measures planned for 2016 include further establishment of online policy sales as an instrument for winning new customers. We will also further strengthen our social media activities. Preparations for a new MLP client portal will represent a particular focus here.

Alongside the aforementioned acquisitions, we will also examine opportunities for increasing profitability at FERI. This involves in particular the potential bundling of service provision in terms of international activities, as well as the potential bundling of licenses at regulatory level.

 

Further development of the consulting approach

We are working on further developing our consulting approach, which is being supported by a new consulting application. This was developed in the reporting year and is currently being tested in a pilot group. The application provides targeted support for consultants during client meetings.

 

Consultant recruiting remains growth initiative

Winning new consultants remains a focus of investments in 2016. In the last few years, we have established important conditions for new client consultants through new entry models and introduction of the training allowance. The number of applicants has already significantly increased thanks to these measures. To achieve slight net gains in our number of consultants in 2016, we will also continue to strengthen our recruiting activities through our online media and social media presences. This is based on the assumption that the annual staff turnover rate among our consultants will not exceed the maximum target of 12% (+/- 2 percentage points). To accompany this, we are also planning to found more new branch offices in the university segment.

We believe that the high quality of our basic and advanced training offers will continue to be the key to success. Indeed, we offer our consultants a programme that exceeds the legally stipulated level. For 2016, we are also planning to introduce a master’s degree course with a focus on “Financial Planning”. We expect the number of central training days (including online seminars) at our Corporate University to be on a slightly higher level than in the last financial year. This also applies to the total budget for qualifications and further training. 

Planned financing activities and investments

The MLP Group held sufficient shareholders’ equity and cash holdings as of the balance sheet date. Our business model is not very capital intensive and generates high cash flows. From today’s perspective, this provides sufficient internal financing capacity for the forecast period. This therefore makes us largely non-reliant on developments in the capital markets. Even increasing interest rates or more restrictive issuing of loans by banks would not have a negative effect on our financing options or liquidity. We will use our cash flow to allow shareholders to participate in the company’s success, to strengthen the Group’s financial power and for investments.

Our investment volume was € 12.8 million in the last financial year, whereby the focus remained on IT. You can find more detailed information on this in the chapter entitled “Economic report – Performance”. We will continue to focus on investing in IT in the financial year 2016 and anticipate an investment volume slightly below the 2015 level. Within our projects, we will also use further financial resources that flow directly into our income statement as expenses. We expect to be able to finance all investments from cash flow.

 

Significant downturn in return on equity expected

Return on equity declined from 7.7% to 5.1% in the financial year 2015. In the light of the costs connected with the efficiency measures we expect a significant decline in 2016.

Largely influenced by the acquisition of the DOMCURA Group, the Group’s liquidity increased from € 155 million to around € 174 million in the financial year 2015. The overall liquidity situation remains good. Liquidity will be reduced by the intended dividend payment of € 13.1 million for the financial year 2015. It will increase again in the second half of 2016 thanks to the typical year-end business. Acquisitions which we finance with cash holdings would also have a negative effect on the Group’s liquidity and capital adequacy. We do not expect any liquidity squeezes for the next two financial years.

 

General statement by corporate management on the expected development of the Group

MLP anticipates that the difficult market conditions will continue throughout the financial year 2016. We anticipate a slight overall increase in operating EBIT (prior to one-off expenses). In view of the efficiency measures we expect EBIT to be negatively affected to the extent described. We therefore expect to see a positive overall development within the Group. We are financially strong and, in combination with our strong market position as an independent consulting firm, this will enable us to further expand our competitive position.

 

Prognoses

This documentation includes certain prognoses and information on future developments founded on the conviction of MLP AG’s Executive Board, as well as on assumptions and information currently available to MLP AG. Terms such as “expect”, “anticipate”, “estimate”, “assume”, “intend”, “plan”, “should”, “could”, “might”, “project” and any other phrases used in reference to the company describe prognoses based on certain factors subject to uncertainty.

Many factors can contribute to the actual results of the MLP Group differing significantly from the prognoses made in such statements.

MLP AG accepts no liability to the general public for updating or correcting prognoses. All prognoses and predictions are subject to various risks and uncertainties, which can lead to the actual results differing from expectations.

 The prognoses reflect the points of view at the time when they were made.