ECONOMIC REPORT

Business performance

Together with our subsidiary FERI, we have expanded the wealth management segment into a key revenue pillar in recent years. FERI continued its successful course of the past few years in the reporting period and reinforced its position as a leading independent investment company. Despite operating in volatile markets, the company recorded primary growth in all core business areas for the fourth year in succession. FERI was able to win new mandates and expand existing business relations among both private and institutional clients. The consulting and service portfolio was consistently expanded, above all in the areas of investment management, alternative assets and real assets (for example private equity and real estate). Total revenue generated by FERI in the wealth management area was significantly above the previous year's level. MLP also recorded a significant increase in revenue in the wealth management area in its classic private client business. The total assets under management throughout the Group are above the previous year's level.

 

In the old-age provision area, the ongoing period of low interest rates and critical media reports on life insurances were the main factors that led to continued pronounced restraints in terms of signing long-term contracts. However, MLP was able to gain an advantage in this area by being quick to recognise and adapt to the growing significance of new guarantee products, which are proving a popular alternative to classic concepts among clients. Indeed, these guarantee products already represented 75.5% of all newly concluded contracts at MLP in 2017. The Riester pension also provided positive stimulus, bucking the industry trend in the reporting year and recording gains at MLP. Due to the continued difficult market environment total revenue in the old-age provision area generated in the reporting year was slightly below the previous year's level.

 

As anticipated, the successful integration of DOMCURA stimulated an increase in revenue in the non-life insurance area in the 2017 financial year compared to the previous year. Among other things, positive impetus was provided by the pooling concepts, which were launched in 2016 and which were further refined and adapted to market conditions throughout the reporting year. In addition to this, in the form of the DOMCURA special inventory policy, we have developed and successfully established a new product solution in the market that is aimed specifically at physicians and physiotherapists.

 

In the health insurance area, we continued to encounter reservations in terms of taking out new comprehensive private insurance policies. Premium increases in the private health insurance sector and critical media coverage were the main factors contributing to this development. In the run-up to the 2017 German parliamentary elections and during the subsequent exploratory negotiations among the parties, the public discussion regarding the potential introduction of "citizens insurance" led to uncertainty among consumers. Despite these difficult framework conditions, our revenue in the health insurance segment was only slightly below the previous year's level.

 

As anticipated, we were able to slightly increase our revenue in the property financing area in 2017 over the previous year. Other commission and fees, in particular for the brokerage of real estate objects, were significantly above the previous year's level. The main reasons for the positive development were the systematic expansion and successful diversification of our real estate portfolio. Alongside the listed buildings sector, MLP also significantly extended its portfolio of new buildings, as well as existing and concept-driven properties (micro-living, properties with nursing care) in the 2017 financial year.
 

Diversification of revenue base is progressing

In the course of diversifying our business model and integrating the DOMCURA Group, we have been able to expand the wealth management and the non-life insurance areas into key revenue pillars in the past few years. We have also made substantial progress in the property brokerage area.

 

Number of clients showing pleasing development

New client acquisition developed very pleasingly in the reporting year. MLP was able to acquire 19,800 (20,500) new family clients in 2017. Around 12% of these new clients were acquired online.

 

As of December 31, 2017, the MLP Group served 529,100 family clients (519,800) and 19,800 corporate and institutional clients (19,200).

 

Social media activities as a way of acquiring new clients

Within the scope of its digitalisation strategy, MLP continued to expand and intensify its presence on social media platforms such as Facebook, YouTube and Twitter in the 2017 financial year. In the reporting year, MLP acquired over 12% of new family clients via online sales of basic insurance products such as travel health insurance policies.

 

To further strengthen its online acquisition activities, MLP acquired a 25.1% stake in Uniwunder GmbH in March 2017. The startup has a great deal of expertise in the field of performance marketing. In the university segment, one of the various approaches to acquiring potential clients is via partners such as Hochschulinitiative e. V. or the Spitzenstudent platform. To demonstrate its expertise and present itself as a dialogue partner for all financial matters, MLP offers a range of seminars for students. To promote innovative startup models, MLP also cooperates with the incubator Innospire from Dresden.

 

New client portal successfully launched

In April 2017 the new online client portal entered its first expansion stage. It offers clients all financial information at a glance, accompanied by a personal budget book, which presents income and expenditure in a clearly structured way according to categories. A further step-by-step expansion is envisaged for the next few years. You can find further information on this in the section entitled  Anticipated business development.
 

New consultant applications developed

Our new consultant applications (Budget guide and Budget guide easy for young clients) support our continuously refined consulting approach. The roll-out and the accompanying further training measures gained significant ground in the reporting year and are set to continue in the coming year.

 

The extensive roll-out of the new e-signature was started as planned in summer 2017 and is currently being used in the banking business (account and credit card applications).

 

Realignment of the university segment

Acquiring new consultants was a key topic in 2017. To further strengthen the university segment, MLP completely realigned it in the reporting year. As part of this realignment, MLP also appointed an additional divisional board member, who holds responsibility across all locations for MLP's presence in the university segment. The objective here is to further expand the acquisition of new clients and especially young consultants. With this initiative, MLP is preparing the basis for future growth in revenue. You can find further information on this in the section entitled Employees and self-employed client consultants.

 

Consistent efficiency management programme supports growth strategy

We also engaged in intensive cost management in the reporting year. At the same time, previously announced one-off expenses of around € 9.1 million were accrued in the 2017 reporting year for the demerger of MLP Finanzdienstleistungen AG into banking operations and the brokerage business.

 

Non-life insurance segment strengthened for commercial clients

With the acquisition of the DOMCURA Group in 2015, MLP also acquired several brokers in the commercial non-life insurance area alongside the primary underwriting agent business. These companies were further refined and then brought together in mid-2017 under the umbrella of nordias GmbH Versicherungsmakler as a subsidiary of MLP SE, which is also home to key activities and services of the MLP Group for commercial non-life insurance products. By pooling our activities in the commercial non-life insurance area, we are strengthening this business area and further utilising the potential resulting from the acquisition of the DOMCURA Group.
 

Changes in corporate structure

In 2017 Holding MLP AG was converted into a European stock corporation (SE). This new legal status means that the Supervisory Board can permanently maintain its current size and composition. In addition to this, the SE form is more attractive for foreign investors.

 

Besides the merger of the intermediate holding company Schwarzer Familienholding GmbH (SFH) (acquired through the purchase of the DOMCURA Group) with MLP SE, the spin-off of the brokerage branch of activity from MLP Banking AG into MLP Finanzberatung SE represented another focus. MLP Finanzdienstleistungen AG, which held a full banking licence, was renamed MLP Banking AG in the course of this process and now incorporates the entire regulated banking business, including investment consulting. The brokerage business, as well as all other consulting services are now run via the new company MLP Finanzberatung SE.

 

In the course of this further optimisation of the Group structure, various assets and debts were transferred under German commercial law to MLP Finanzberatung SE with effect from October 1, 2017. These are essentially shares in affiliated companies, intangible assets as well as property, plant and equipment. Therefore income from the shares will in future no longer be included in the earnings of MLP Banking AG. On the liabilities side of the balance sheet, in particular the provisions for cancellation risks are transferred to MLP Finanzberatung SE. The commission income and expenses from the old-age provision, non-life insurance, health insurance and finance brokerage consulting areas, as well as other commission and fees are transferred to MLP Finanzberatung SE and will therefore have an impact on the respective income statement. Commission income and expenses from the wealth management area, as well as net interest income will remain at MLP Banking AG.

 

Furthermore, the supervisory scope of consolidation was narrowed down in the reporting year. As a result of this step and the demerger measures free regulatory equity capital should be significantly increased by the end of 2021. The first step was already implemented in the first quarter of 2017: DOMCURA AG, ZSH GmbH Finanzdienstleistungen and TPC GmbH were classified as "other companies" and have no longer been part of the supervisory scope of consolidation since this time. This increased free equity capital at Group level by € 27 million to around € 240 million. A further € 25 million of regulatory equity capital was then released in the fourth quarter of 2017 as a result of the demerger of MLP Finanzdienstleistungen AG. Set against the background of the applied waiver structure, various factors including these measures led to the equity ratio of the MLP Group increasing gradually to 20.0% by the end of the financial year (December 31, 2016: 14.3%). The objective is to significantly increase financial leeway, primarily for investments and acquisitions, yet also for dividend payouts.