Notes

 

 

 

General information

 

1 Information about the company

The consolidated financial statements were prepared by MLP SE (formerly MLP AG, Wiesloch), Germany, the ultimate parent company of the MLP Group. MLP SE is listed in the Mannheim Commercial Register under the number HRB 728672 (formerly HRB 332697) at the address Alte Heerstraße 40, 69168 Wiesloch, Germany.

 

Since it was founded in 1971, the MLP Group (MLP) has been operating as a broker and adviser for academics and other discerning clients in the fields of old-age provision including occupational pension provision, healthcare provision, non-life insurance, loans and mortgages, wealth management and banking services.

2 Principles governing the preparation of the financial statements

The consolidated financial statements of MLP SE have been prepared in accordance with International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standard Board (IASB), taking into account the interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as they apply in the European Union (EU). In addition, the commercial law regulations to be observed pursuant to § 315e (1) of the German Commercial Code (HGB) were also taken into account. The financial year corresponds to the calendar year.

 

The consolidated financial statements have been prepared on the basis of the historical cost convention with the exception that certain financial instruments are measured at fair value. MLP prepares its consolidated balance sheet based on liquidity. This form of presentation offers information that is more relevant than if it were based on the time-to-maturity factor.

 

The income statement is prepared in accordance with the nature of expense method.

 

The consolidated financial statements are drawn up in euros (€), which is the functional currency of the parent company. Unless otherwise specified, all amounts are stated in thousands of euros (€'000). Both single and cumulative figures are values with the smallest rounding difference. As a result, differences to reported total amounts may arise when adding up the individual values.

 

The contractual relationships of MLP consultants and branch office managers have changed as a result of the spin-off of the brokerage branch of activity from MLP Finanzdienstleistungen AG into MLP Finanzberatung SE, as well as continuation of the banking branch of activity at MLP Finanzdienstleistungen AG and its subsequent name change to MLP Banking AG. The consultants now have a direct contractual relationship with both MLP Banking AG and MLP Finanzberatung SE. At MLP Banking AG, alongside their status as commercial agents pursuant to § 84 of the German Commercial Code (HGB), they now also have the supervisory status of tied agents pursuant to § 2 (10) of the German Banking Act (KWG). For MLP Finanzberatung SE, they operate as commercial agents pursuant to § 84 of the German Commercial Code (HGB). For the purpose of clarity, the term "MLP consultant" is used uniformly throughout the following part of the report.

 

The branch office managers now also have a direct contractual relationship with both MLP Banking AG and MLP Finanzberatung SE. At MLP Banking AG, they work on the basis of a sales agent contract, while at MLP Finanzberatung SE they work on the basis of a branch office manager contract. For the purpose of clarity, the term "branch office manager" is used uniformly throughout the following part of the report.

 

The term "commercial agent", which is used in the following report section, encompasses the sales agents at MLP Banking AG, the branch office managers at MLP Finanzberatung SE and the MLP consultants from both companies.

3 Amendments to the accounting policies, as well as new standards and interpretations

The accounting policies applied are the same as those used in the previous year, with the following exceptions:

 

The amendments to IAS 7 "Disclosure Initiative" and to IAS 12 “Recognition of Deferred Tax Assets for Unrealised Losses” were to be applied in the current financial year. This application did not result in any effects for MLP.

 

Adoption of the following new or revised standards and interpretations was not yet binding for the financial year commencing January 1, 2017. The standards were not adopted early:

   

EU endorsement has already taken place

 

The IASB published IFRS 9 "Financial Instruments" in July 2014. IFRS 9 introduces a uniform approach to classification and measurement of financial assets. The standard refers to the cash flow characteristics and the business model that is used to control them as its basis. In future, the subsequent measurement of financial assets will be based on three categories: (1) Measurement at acquisition costs using the effective interest method ("AC"), (2) Measurement at fair value with changes in fair value recorded and recognised directly in equity under other comprehensive income ("FVTOCI") and (3) Measurement at fair value with recognition in the income statement of changes in fair value ("FVPL"). In addition to this, IFRS 9 prescribes a new impairment model that is based on anticipated credit defaults. IFRS 9 also contains new regulations regarding application of hedge accounting to present a company's risk management activities more clearly, in particular with regard to managing non-financial risks.

 

Based on the analysis of the Group's financial assets and debts as of December 31, 2017, as well as the facts and circumstances in place at this time, the MLP Group is anticipating the following effects on its consolidated financial statements as a result of IFRS 9:

 

In terms of financial assets, the "hold" business model is the one predominantly used by the MLP Group. This applies both to the banking business (lending business) and proprietary trading (money market and securities transactions, promissory note bonds). MLP Banking AG has the status of a non-trading book institute, so transactions with a view to making a trading or short-term profit are not contracted, and originated loans are generally maintained over the contractually agreed term. Proprietary trading (including securities transactions and promissory note bonds) is performed in the MLP Group exclusively with the intention to hold such products to maturity. As such, the business model does not result in a reclassification of financial assets that have been measured at amortised costs in the past.

 

The subsequent analysis of the cash flow criterion indicated that ancillary agreements which would be detrimental to SPPI only affected one fixed income security. However, this security has already been recognised at fair value in the income statement as per IAS 39. All other securities in the portfolio do not contain any ancillary agreements that would be detrimental to SPPI and are classified as AC as per IFRS 9. In terms of the funds, the cash flow criterion is not met. Measurement will therefore continue to be performed at fair value in future. With all other financial instruments, no criteria that would be detrimental to SPPI were identified. Below is a list of all balance sheet items where changes have occurred to the measurement as of December 31, 2017 pursuant to IFRS 9:
 

The effect resulting from the change in classification is € 220 thsd. Minus deferred taxes, this results in an equity movement of € 155 thsd. The initial adoption effect can move within a range of +/-10%.

 

The value adjustment model of IFRS 9 provides three stages for determining the level of impairment to be recorded. Stage I contains losses already anticipated on acquisition at the level of the present value of an anticipated 12-month loss, while Stage II contains the losses over the entire term remaining to maturity in the event of a significant increase in the default risk. In the event of an objective indication of impairment, interest collection is performed on the basis of the net book value (carrying amount less loan loss provisions – Stage III). As no changes to the definition of default resulted from IFRS 9, financial instruments that were already individually impaired pursuant to IAS 39 are to be transitioned over to IFRS 9 in Stage III. If there are no objective indications of an impairment, in future it will be necessary to investigate whether a significant deterioration of the credit risk in comparison with the credit risk when performing the transaction has occurred as of the respective balance sheet date. If this is the case, the respective financial transaction must be assigned to Stage II. Otherwise, the transaction is assigned to Stage I. As a result of recording losses from Stage I, Stage II and Stage III, MLP is anticipating additional impairments of approximately € 4,538 thsd. Net of deferred taxes, this results in an equity-reducing effect of € 3,206 thsd. The initial adoption effect can move within a range of +/-10%.

 

MLP is not anticipating any effects on its consolidated financial statements from the new provisions relating to the application of hedge accounting.

 

In May 2014, the IASB published IFRS 15 Revenue from Contracts with Customers. Based on the new standard, the revenue recorded is to include transfer of goods and services promised to the customer at the amount that corresponds to what the company is likely to receive in exchange for these goods or services. Revenue is generated when the customer receives control of the goods or services. IFRS 15 replaces IAS 11 "Construction Contracts" and IAS 18 "Revenue", as well as the accompanying interpretations. The standard is to be applied for the first time to financial years beginning on or after January 1, 2018. MLP will therefore apply the standard for the first time for the financial year 2018 in line with the modified retrospective method. Changeover effects as of January 1, 2018 will be recorded in retained earnings with no effect on the operating result and the 2017 comparison period will be presented as per the provisions applicable up to December 31, 2017. Findings in the course of implementing IFRS 15 confirm that significant effects on the consolidated financial statements of MLP are only likely to be encountered in the following areas. In future, revenue from brokerage services will also include the estimated revenue from anticipated regular acquisition commissions at the time of contract conclusion, as well as trail commissions paid by the insurer throughout the contribution period. To this extent, IFRS 15 leads to an earlier realisation of revenues. In this context, contractual assets and contractual debts are also to be recorded in the balance sheet for the obligation to make payments to MLP consultants). The following table clarifies the effects on the individual items in the balance sheet:
 

The IASB published its new IFRS 16 "Leases" standard in January 2016. IFRS 16 replaces IAS 17 and the accompanying interpretations (IFRIC 4, SIC-15, SIC-27). For lessees, the new standard requires a completely new approach for reporting leasing agreements. While with IAS 17 the transfer of key opportunities and risks relating to the lease object was the overriding factor when reporting leases, in future all leases must generally be recorded in the balance sheet by the lessee as a financing transaction. The accounting regulations for lessors have remained largely unchanged. If endorsed in its current form by the EU, the standard is to be applied for the financial years beginning on or after January 1, 2019. Early adoption is possible, provided IFRS 15 is also being applied. The company is currently reviewing what effects adoption of IFRS 16 would have on its consolidated financial statements. The company currently checks which rental or leasing contracts need to be capitalised pursuant to IFRS 16.

 

No significant effects on the consolidated financial statements of MLP SE result from the other new or revised standards.

 

MLP did not adopt any standards or interpretations ahead of time that have already been issued but have not yet come into force. The Group will apply the new/revised standards and interpretations at the latest when their adoption becomes binding following endorsement by the EU.
  

4 Scope of consolidation, as well as shares in associates and disclosures on non-consolidated structured entities

MLP SE and all significant subsidiaries that are controlled by MLP SE are included in the consolidated financial statements. Associates are accounted for using the equity method.

 

Changes to the scope of consolidation:

 

As per the resolution of the Annual General Meeting from June 29, 2017, MLP AG was converted to a Societas Europaea (SE) with effect from September 21, 2017. The change of the stock market listing was performed on September 22, 2017. The rights of the shareholders, the company's membership in the SDAX index and the stock exchange code remained unaffected by this.

 

On the basis of the merger agreement dated March 24, 2017, Schwarzer Familienholding GmbH was merged with MLP SE with retroactive effect from January 1. Entry into the Commercial Register was made on May 30, 2017.

 

Since this time, DOMCURA AG and nordias GmbH insurance brokers are 100% subsidiaries of MLP SE alongside MLP Finanzberatung SE, MLP Banking AG and FERI AG.

 

Atrium 105. Europäische VV SE was acquired with effect from May 17, 2017. Atrium 105. Europäische VV SE was renamed MLP Finanzberatung SE with entry into the Commercial Register on July 6,  2017. In the financial year 2017, the brokerage branch of activity was spun off from MLP Finanzdienstleistungen AG and reassigned to MLP Finanzberatung SE in line with the spin-off and takeover agreement dated November 10, 2017, as well as the assembly decisions of the respective legal entities from November 10, 2017 and November 16, 2017. The banking branch of activity remained at MLP Finanzdienstleistungen AG. MLP Finanzdienstleistungen AG was renamed MLP Banking AG with entry into the Commercial Register on November 30, 2017. With effect from October 1, 2017 all regulated bank activities have been handled by MLP Banking AG, while the brokerage business has been managed by MLP Finanzberatung SE. With the realignment of the Group structure, MLP will leverage free regulatory equity capital. Furthermore, the new Group structure offers the potential for strategic cooperations.

 

Alongside MLP SE as the parent company, 13 (previous year: 13) fully consolidated domestic subsidiaries and, as was already the case in the previous year, one fully consolidated foreign subsidiary and one associated company were incorporated in the consolidated financial statements as of December 31, 2017.

 

With the resolution dated March 7, 2017, MLP SE, as a shareholder in Nordvers GmbH, approved an exemption pursuant to § 264 (3) of the German Commercial Code (HGB) from the need to draft a management report as per § 289 of the German Commercial Code (HGB) for the financial year 2017. The company is included in the 2017 consolidated financial statements of MLP SE with its registered office in Wiesloch. The consolidated financial statements are published in the Federal Gazette (Bundesanzeiger) within the legal deadlines. A single-entity relationship is in place between the company and MLP SE which obliges MLP SE to the assumption of losses as per § 302 of the German Stock Corporation Act (AktG), as well as to the assumption of liability.
  

Listing of shareholdings for the consolidated financial statements as per § 313 of the German Commercial Code (HGB)

Disclosures on non-consolidated structured entities

Structured entities are companies at which the voting rights or comparable rights are not the dominant factor when determining control, such as when voting rights refer exclusively to administrative duties and the relevant activities are governed by contractual agreements. Examples of structured companies include securitisation companies, asset-backed finance companies and private equity companies. As is also the case with subsidiaries, the structured entities need to be consolidated whenever MLP SE controls them.

 

Non-consolidated structured entities of the MLP Group are private equity companies. As they engage in similar activities, disclosures on non-consolidated structured entities are bundled.

 

The activities of the companies focus on establishing, maintaining and managing a portfolio of passive investments (target companies), in particular by acquiring shareholdings. The investments primarily comprise shareholdings and are regularly financed by shareholders' equity. The business model prescribes utilisation of potential returns for equity suppliers through investments in shareholdings via an umbrella fund concept. The objective is to generate income for the equity suppliers via two different approaches; firstly via regular dividend pay-outs from profitable target companies, and secondly by selling participations for a profit towards the end of the shareholding. The companies generally do not have any business operations of their own or employ any staff.

 

The carrying amounts of non-consolidated structured entities in the MLP Group are € 360 thsd as of December 31, 2017 (previous year: € 457 thsd). In the financial year 2017, MLP SE recorded an income of € 221 thsd from non-consolidated structured entities (previous year: € 68 thsd).

 

The MLP Group's maximum risks of loss from non-consolidated structured entities corresponds to the investment carrying amount.
 

5 Significant discretionary decisions, estimates and changes in estimates

On occasion, the preparation of the financial statements included in IFRS consolidated financial statements requires discretionary decisions, assumptions and estimates, which influence the level of the disclosed assets and debts, the disclosures of contingent liabilities and receivables, the income and expenses of the reporting period and the other disclosures in the consolidated financial statements.

 

The estimates include complex and subjective measurements, as well as assumptions, some of which are uncertain due to their very nature and can be subject to changes. The actual values may deviate from the estimates.

 

Information on significant discretionary decisions, assumptions and estimation uncertainties that have the greatest impact on the amounts disclosed in the consolidated financial statements when applying the accounting policies is provided in the following notes:

 

• Note 4 – aggregation principles for structured entities
• Notes 6 and 19 – impairment test (discounted cash flow forecasts and significant assumptions applied)
• Notes 6, 21 to 24 and 34 – classification and measurement of financial instruments, as well as fair value disclosures.
• Notes 6, 21 and 24 – allowances for bad debts
• Notes 6, 27 and 33 – provisions and corresponding refund claims as well as contingent assets and liabilities
• Notes 6 and 27 – measurement of defined benefit obligations
• Notes 6 and 32 – classification of leases
• Note 17 – recognition of tax receivables/tax reserves
• Note 25 –  cash and cash equivalents – composition of cash and cash equivalents
    

6 Accounting policies

 

Revenue recognition

Revenue is generally recognised if it is probable that MLP will derive definable economic benefit from it.

 

MLP generates revenue from commission. This commission is, in turn, generated in the areas of old-age provision, wealth management, health insurance, non-life insurance, loans and mortgages and other consulting services.

 

Commission income from the brokerage of insurance policies is recognised independently of the inflow of funds if the Group is entitled to receive payment. The entitlement to payment automatically arises when the first premium of the policy holder has been collected by the insurance company, but at the earliest upon conclusion of the insurance contract. Obligations to MLP consultants and office managers also arise at this point in time. MLP is entitled to time-limited trail commissions for the brokerage of certain contracts (especially pertaining to old-age provision). They are realised according to the same principles as acquisition commissions. MLP receives partially recurrent trailer fees for brokered old-age provision and health insurance contracts. The company is usually entitled to these as long as premiums are payable for underlying contracts.

 

For the obligation to return portions of commission received when brokered insurance policies are prematurely terminated, MLP establishes provisions for cancellation risks on the basis of empirical values and capitalises the refund claims associated with this for MLP consultants and office managers under "Other receivables and assets" as refund claims resulting from recourse claims. The change in provisions is disclosed under revenues, while the change in the refund claim associated with this is disclosed under commission expenses.

 

In the field of old-age provision, only commission income from the brokering of life insurance products is included. In the areas of non-life and health insurance, commission income comes from the brokering and management of corresponding insurance products. Revenue from wealth management includes issuing premiums, custody and account maintenance charges, fund management/brokerage fees, as well as brokerage and trailer commission from wealth management mandates. Further wealth management revenue comes from research and rating services. Revenue is generated after service provision.

 

Commission income from the brokering of loans (credit brokering commission) is attributed to the revenue from the loans and mortgages business. MLP realises brokerage commissions for loan brokerage after concluding the respective loan agreement.

 

Other commission and fees are generated at the level to which consulting services are performed. They are paid in particular for consulting services to companies when setting up occupational pension provision schemes, for consulting services offered in connection with medical practice financing and business start-ups, as well as for real estate brokerage.

 

In addition to this, revenue is generated from the interest rate business. Revenue from the interest rate business also includes interest income from the investment of funds of MLP Banking AG.

 

Interest income is earned by MLP for the duration of the capital investment in line with the effective interest method. Commissions that are part of the effective interest return of a receivable are treated as interest income and recorded in those periods in which they are actually earned. They include commitment interest for giving loan commitments or taking over an existing liability. The company realises fees for other current handling and processing services (for example prematurity compensation) after providing these services.

 

Interest income from the investment of money from other Group companies is a constituent of the finance cost and is earned for the duration of the capital investment in line with the effective interest method, while dividends are recognised the moment an entitlement to payment arises.
  

Currency translation

The euro is the functional currency of all companies consolidated in MLP's consolidated financial statements. The Group operates exclusively in Germany and Luxembourg.

Fair value

A range of accounting policies and Group disclosures require determination of the fair value for financial and non-financial assets and liabilities. For the determination of the fair value of an asset or liability, MLP uses data observed in the market insofar as possible. If there is no active market on the closing date, the fair value is determined using recognised valuation models. Based on the input factors used in the valuation models, the fair values are classified in various tiers within the fair value hierarchy as per IFRS 13:

 

1. Fair values at hierarchy level 1 are determined using prices available in active markets for the identical financial instrument (quoted market prices).
2. The fair values at hierarchy level 2 are either determined using prices on active markets for comparable but not identical financial instruments or using valuation techniques based primarily on data from observable markets.
3. When using valuation techniques, which incorporate a key parameter that cannot be observed in the market, fair values are assigned to hierarchy level 3.

 

If the input factors used to calculate the fair value of an asset or liability can be assigned to various tiers in the fair value hierarchy, the entire measurement of fair value is assigned to the tier in the fair value hierarchy that corresponds to the lowest input factor of overriding importance for the valuation.

 

The Group recognises re-assignments between the various tiers in the fair value hierarchy at the end of the reporting period in which the respective amendment was implemented.

 

You can find further information on the assumptions made when determining fair values in the following Note 34 - Additional information on financial instruments:
  

Intangible assets

Intangible assets are disclosed at their acquisition or manufacturing costs minus all accumulated amortisation charges and all accumulated impairment losses. MLP does not apply the revaluation method.

 

Definite-lived intangible assets need to be estimated with regard to the depreciation methods and duration. The respective useful life periods are defined on the basis of empirical values. Due to changed overall economic circumstances, the amortisation period may need to be adjusted, which can have significant effects on the level of amortisation expenses. At MLP this mainly concerns client relations and software. Definite-lived intangible assets are usually written down on a straight-line basis over their economic life.

 

Intangible assets generated internally are only capitalised at their cost of conversion if the conditions required pursuant to IAS 38 are fulfilled. The cost of conversion includes all costs directly attributable to the development process and appropriate portions of development-related overheads.

 

Goodwill and other indefinite-lived intangible assets are not amortised. The indefinite-lived intangible assets are subjected to an impairment test once a year or when there are indications of an impairment. These tests are either performed individually or at the level of a cash-generating unit. At MLP, this in particular affects the brands acquired within the scope of business combinations.

 

Business combinations require estimates of the fair value of the assets acquired, assumed debts and contingent liabilities purchased. Property, plant and equipment are usually valued by independent experts, while marketable securities are shown at their stock market price. If intangible assets are to be valued, MLP either consults an independent external expert or calculates the fair value based on a suitable valuation method, generally discounted cash flows, depending on the type of asset and the complexity involved in calculating the value. Depending on the type of asset and the availability of information, various valuation techniques are applied (market-price-oriented, capital-value-oriented and cost-oriented methods). For instance, when valuing trademarks and licences, the relief-from-royalty method may be appropriate, whereby the value of intangible assets is assessed on the basis of royalties saved for trademarks and licences held by the company itself.

 

Insofar as cash-generating units are restructured, a re-allocation of the goodwill assigned to these units is performed on the basis of the relative revenue values. Brands are re-allocated on the basis of sustainable revenue or relative revenue values.

 

MLP tests goodwill from business combinations for impairment at least once a year. For the purpose of the impairment test, goodwill is allocated to cash-generating units at the acquisition date. The impairment test compares the carrying amount of the cash-generating units with their recoverable amount. The recoverable amount is the higher amount of either the fair value less costs of sale or the value in use of the cash-generating unit. This requires an estimate of the value in use of the cash-generating unit, to which the goodwill is allocated. To this end, corporate management must estimate the likely future cash flow of the cash-generating units. The calculation of the present value of anticipated future cash flows is based on assumptions on the portfolio development, future sales volumes and expenses. The cash flow estimate is based on detailed planning periods with a planning horizon of four years. In addition to this, an appropriate discount rate must be selected to determine the present value of this cash flow.
 

Property, plant and equipment

Items of property, plant and equipment are measured at cost and, if applicable, less straight-line depreciation and impairment losses. MLP does not apply the revaluation method.

 

The profits or losses resulting from the disposal of assets are determined as the difference between the net disposal proceeds and the carrying amount and are recognised in the income statement as other revenue or other operating expenses in the period in which the item is derecognised. Maintenance and minor repairs are recognised in the income statement immediately.
 

Impairment test

The carrying amount of all indefinite-lived intangible assets, intangible assets that are not yet ready for use and goodwill is tested at the end of each financial year.

 

The significant assumptions that are used when calculating the recoverable amount in the form of the use value are the discount rates, terminal value growth rates and growth rate of earnings before tax. The discount rate is based on a risk-free basic interest rate plus a company-specific risk premium, which is derived from the systematic market risk (beta factor) and the current market risk premium. The discounted cash flow model is based on future cash flows over a period of four years. Cash flows after this time period are extrapolated using a growth rate, which is based on the management's estimate of the long-term average annual growth rate in earnings before tax. For further details, please refer to Note 19.
   

Leasing

MLP has not signed any agreements that essentially transfer all risks and rewards associated with the ownership of the leased asset to the lessee (finance leases). The further notes are therefore limited to operating leases.

 

MLP signed multiple leasing agreements as the lessee of rental properties, motor vehicles and office machines. The agreements are also classified as operating leases, as the lessors bear the key risks and opportunities associated with ownership of the property. Rental payments under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. The same principle applies to benefits received and receivable that serve as an incentive to enter into an operating lease. For further details, please refer to Note 32.
 

Earnings from investments accounted for using the equity method

The acquisition costs are annually updated by taking into account the equity changes of the associates corresponding to MLP’s equity share. Unrealised gains and losses from transactions with associates are eliminated based on the percentage of shares held. The changes of the pro rata shareholders' equity are shown in the company’s income statement under earnings from investments accounted for using the equity method. Dividends received reduce the carrying amount. For further details, please refer to Note 15.

   

Financial instruments

A financial instrument is a contract that simultaneously gives rise to a financial asset at one entity and a financial liability or equity instrument at the other entity. In the case of regular-way purchases and sales, financial instruments are recognised or derecognised in the balance sheet on the trade date. Regular-way purchases or sales are purchases or sales of financial assets requiring delivery of the assets within a period dictated by market regulations or conventions.

 

Pursuant to IAS 39, financial instruments are divided into the following categories:

 

• Financial assets at fair value through profit and loss,
• Held-to-maturity investments,
• Loans and receivables,
• Available-for-sale financial assets,
• Financial liabilities measured at amortised cost and
• Financial liabilities at fair value through profit and loss

 

MLP defines the classification of its financial assets and liabilities upon initial recognition. They are initially recognised at their fair value. The fair value of a financial instrument is defined as the price paid for the sale of an asset or transfer of a liability in a standard business transaction between market actors on the cut-off date for valuation. Financial assets or liabilities that are not measured at fair value through profit and loss within the scope of the subsequent measurement are initially recognised plus transaction costs that are directly attributable to the acquisition of the financial asset or issue of the financial liability.
 

Financial assets at fair value through profit and loss comprise the subcategories "Held for trading" and "Designated at fair value through profit and loss". MLP's financial instruments are "designated at fair value through profit and loss" when incongruences would otherwise arise in their valuation or recognition. Subsequent to initial recognition, these assets are measured at their fair value. Profits or losses from the change in fair value are recognised through profit or loss.

 

MLP tests the carrying amounts of the financial instruments that are not measured at fair value through profit and loss individually at each closing date to determine whether there is objective and material evidence of impairment. A financial asset is impaired and impairment losses are incurred if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset than can be reliably estimated.

 

The following are classed as objective evidence that impairment losses have occurred to financial assets:

 

• Default or delay in payments on the part of the debtor
• Indications that a debtor or issuer is falling into insolvency
• Adverse changes in the payment status of borrowers or issuers
• Economic framework conditions that correlate with defaults
• The disappearance of an active market for a security.

In addition to this, when an equity instrument held suffers a significant or extended decline in fair value to a level below its acquisition costs, this is considered an objective evidence of impairment. MLP classes a decrease in value of 20% to be "significant" and a time period of nine months as an "extended" decline.

 

MLP has classified financial assets as held-to-maturity investments. Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and a fixed term that MLP wishes to and is capable of retaining until maturity. So far MLP has not prematurely sold any financial assets that were classified as held-to-maturity financial investments. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method. If held-to-maturity investments are likely to be subject to an impairment, this will be recognised through profit or loss. An impairment that was previously recognised as an expense is reversed to income if a recovery in value can be attributed objectively to facts that have arisen since the original impairment charge. An increase in value is only recognised to the extent that it does not exceed the value of the amortised costs that would have resulted without impairment. The recoverable amount of securities held to maturity which is required for impairment testing corresponds to the present value of the expected future cash flow, discounted using the original effective interest rate of the financial asset. The fair value of held-to-maturity investments can temporarily drop below their carrying amount. Insofar as this drop is not due to credit risks, no impairment is recognised.

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not listed on an active market. Subsequent to initial recognition, they are valued at amortised cost using the effective interest method. For receivables from banking business and for other receivables and other assets, impairment losses on a portfolio basis are recognised for receivables for which no specific allowances have been made.

 

Any impairment losses are recognised in profit or loss on the corresponding impairment account. If a receivable is uncollectable (i.e. payment is almost certainly impossible), it will be written off. Allowances for bad debts on a portfolio basis in connection with loan loss provisions in the banking business are established on the basis of historical loss rates and dunning levels. Specific allowances for bad debts are recognised if receivables are likely to be uncollectable. The allowances for other receivables and other assets essentially relate to receivables from branch office managers and consultants. Alongside the allowances formed for losses on individual accounts receivable that are in default, portfolio-based impairment losses are recorded for the remaining accounts receivable. As is also the case with loan loss provisions in the banking business, the allowances are based on historical loss rates. These are set separately for consultants and office managers and applied to the respective accounts receivable. For further details, please refer to Notes 21 and 24.

 

Available-for-sale financial assets represent non-derivative financial assets which, subsequent to initial recognition, are measured at their fair value. Profits or losses that result from a change in fair value are recognised outside the income statement as other comprehensive income until the respective asset is derecognised. However, allowances for bad debts and profits or losses from currency translations are excluded from this. They are recognised directly in profit or loss. The reversal of profits/losses recorded under other comprehensive income in the income statement is performed either when the respective asset is derecognised or in the event of an impairment.

 

If a decline in the fair value of an available-for-sale financial asset has been recognised under other comprehensive income and an objective reference to impairment of this asset is in place, this loss recognised previously directly in shareholders' equity is to be transferred from shareholders' equity to the income statement up to the level of the determined impairment.

 

Impairment losses of an available for sale equity instrument recognised in profit or loss cannot be reversed. MLP records any further increase of the fair value under shareholders' equity with no effect on the operating result.

 

If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and this increase can be related objectively to events occurring after the impairment was recognised, the impairment loss is reversed to equity at the appropriate level.

 

MLP measures equity instruments for which no listed price exists on an active market, and whose fair value cannot be reliably established, at acquisition cost. If objective indicators suggest there is an impairment to a non-listed equity instrument measured at acquisition costs, the amount of impairment is calculated as the difference between the carrying amount and the present value of the estimated future cash flow, which are discounted at the current market rate of return of a comparable asset.

 

Subsequent to their initial recognition, financial liabilities are to be recognised at their amortised costs using the effective interest method. Profits or losses are recognised in the income statement on derecognition, as well as within the scope of amortisation charges. Subsequent to their initial recognition, financial liabilities at fair value through profit and loss are measured at their fair value. Profits or losses from the change in fair value are recognised through profit or loss.
  

Pension provisions

Old-age provision in the Group is performed on the basis of the defined-benefit and defined contribution old-age provision plans.

 

In the defined contribution plans, MLP pays premiums to statutory or private pension insurance institutions based on legal or contractual provisions or on a voluntary basis. After payment of the premiums, MLP has no further benefit obligations.

Commitments to pay premiums into defined contribution schemes are recognised as expenses as soon as the related service has been rendered. Pre-paid premiums are recognised as assets insofar as a right to reimbursement or reduction of future payments arises.

 

In accordance with IAS 19 "Employee Benefits", the provisions for pension obligations from defined benefit plans are measured using the projected-unit credit method.

 

The benefit obligations are partly covered by reinsurance. Virtually all reinsurance policies fulfil the conditions of pension scheme assets. For this reason the claims from reinsurance policies are netted against corresponding pension provisions in the balance sheet as per IAS 19.

 

The Group's net obligation with regard to defined benefit plans is calculated separately for each plan by estimating future benefits that the employees have earned in the current period and in earlier periods. This amount is discounted and the fair value of any pension scheme assets subtracted from this.

 

For the measurement of pension obligations, MLP uses actuarial calculations to estimate future events for the calculation of the expenses, obligations and entitlements in connection with these plans. These calculations are based on assumptions with regard to the discount rate, mortality and future salary, as well as pension increases. The interest rate used to discount post-employment benefit obligations is derived from the interest rates of senior, fixed-rate corporate bonds.

Revaluations of net liabilities from defined benefit plans are recognised directly under other comprehensive income. The revaluation encompasses actuarial gains and losses, income from pension scheme assets (without interest) and the effects of any upper asset limit (without interest). The Group calculates net interest expenses (income) on net liabilities (assets) from defined benefit plans for the reporting period through application of the discount rate used for valuation of the defined benefit obligations at the start of the annual reporting period. This discount rate is applied to net liabilities (assets) from defined benefit plans at this time. Any changes to net liabilities (assets) from defined benefit plans that occur as a result of premium and benefit payments over the course of the reporting period are taken into account. Net interest expenses and other expenses for defined benefit plans are recognised as profit or loss.

 

Further details of pension provisions are given in Note 27.
 

Other provisions

In accordance with IAS 37 "Provisions, contingent liabilities and contingent assets" other provisions are recognised when the Group has a present obligation (legal or constructive) resulting from a past event, settlement is expected to result in an outflow of resources and the obligation’s amount can be estimated reliably. They represent uncertain obligations that are measured at the amount that represents the best possible estimate of the expenditure required to fulfil the obligations.

 

Insofar as the level of the provision can only be determined within a range, the most likely value is used. If the probability of occurrence is equal, the weighted average is taken.

 

Where the effect of the time value of money is material, provisions with a time of more than one year remaining to maturity are discounted at market interest rates that correspond to the risk and the time remaining to maturity.

 

Reversals of provisions are recognised under other revenue.

 

If the Group expects to receive a reimbursement of at least part of a practically certain provision from an identifiable third party (e.g. in case of an existing insurance policy), MLP recognises the reimbursement as a separate asset. The expenditure required to set up the provision is recognised in the income statement after deduction of the reimbursement.

 

For the liability arising due to the premature loss of brokered insurance policies whereby commission that has been earned must be refunded in part, MLP sets up provisions for cancellation risks. MLP estimates the cancellation rate by product group and the period of the underlying policy that has already run on the basis of empirical values. The period in which MLP is obliged to refund portions of the commissions due to the premature loss of a policy is determined either by the statutory provisions of the German Insurance Act or the distribution agreements that have been concluded with the product providers.
  

Share-based payments

Share-based payments in line with IFRS 2 "Share-Based Payment" comprise remuneration systems paid for in cash and using equity instruments.

 

The proportion of the fair value of share-based payments settled in cash attributable to services provided up to the valuation date is recognised as personnel expenses or as commission expenses and at the same time as a provision. The fair value determined based on the Monte-Carlo simulation or another suitable valuation model is recalculated on each balance sheet date and on the payment date. The recognition of the anticipated expenditure arising from this system demands that assumptions be made about turnover and exercise rates. Any change to the fair value is to be recognised in profit or loss. At the payment date, the fair value of the liability corresponds to the amount which is to be paid to the eligible employee.

 

Share-based payments also include those made through equity instruments ("2017 Participation Programme” for MLP consultants and office managers). The 2017 Participation Programme applies to the calendar year 2017, as well as to MLP consultants and MLP office managers whose commercial agent or office manager contract remained unterminated and in place on December 30, 2017. The remuneration to be made in the form of MLP shares is determined on the basis of the annual commission of the MLP consultant/office manager, applying various performance parameters, and is recorded in the 2017 consolidated financial statements as an expense with a corresponding increase in shareholders' equity.

 

You can find further details on the share-based payments in Note 31.
 

7 Reportable business segments

The division of MLP into business segments follows the structure in place for internal reporting. The MLP Group is subdivided into the following reportable business segments:

 

• Financial consulting
• Banking
• FERI
• DOMCURA
• Holding

 

As described under Note 4, the brokerage branch of activity was spun off from MLP Finanzdienstleistungen AG and assigned to MLP Finanzberatung SE in the financial year. The banking branch of activity remained at MLP Finanzdienstleistungen AG, which was then renamed MLP Banking AG in the course of the financial year. All regulated banking activities are combined in the MLP Banking AG, while the brokerage business continues to operate in the MLP Finanzberatung SE. As a result, the financial consulting and banking business segments were formed.

 

Due to the similarity of the products and services offered, as well as reliance on the same client base and identical sales channels, MLP pooled the "financial consulting" and "occupational pension provision" business segments under the reportable "financial consulting" business segment in accordance with IFRS 8.12. The object of the reportable financial consulting business segment is the provision of consulting services for academics and other discerning clients, particularly with regard to insurance, investments, occupational pension provision and the brokering of contracts in connection with these financial services. The segment comprises MLP Finanzberatung SE, TPC GmbH, ZSH GmbH Finanzdienstleistungen, MLPdialog GmbH, as well as the associate MLP Hyp GmbH.

 

The task of the reportable Banking business segment is to advise on and operate the banking business, including the securities custody business, the commission business, investment consulting and investment brokerage. In addition to this, the insurance brokerage business forms part of the business activities.

 

The business operations of the reportable FERI business segment cover wealth and investment consulting. This segment comprises FERI AG, FERI Trust GmbH, FERI Trust (Luxembourg) S.A. and FEREAL AG.

 

The business operations of the reportable DOMCURA business segment encompass the design, development and implementation of comprehensive coverage concepts in the field of non-life insurance as a so-called underwriting agency. The segment also engages in brokerage activities. It is made up of DOMCURA AG, Nordvers GmbH, nordias GmbH insurance brokers, Willy F.O. Köster GmbH and Siebert GmbH insurance brokers.

 

The Holding business segment consists of MLP SE. The main internal services and activities are combined in this segment.

 

Intra-segment supplies and services are settled in principle at normal market prices. In the case of intra-group allocations, an appropriate general overhead surcharge is levied on the direct costs actually incurred.

 

The management makes decisions on the allocation of resources and determines segment performance on the basis of the income statement for that segment. MLP employs the accounting policies applied in the consolidated financial statements to determine financial information on the segments.

 

The financial consulting, banking and DOMCURA segments perform their economic activities predominantly in Germany. The FERI segment conducts its business activities in Germany and in Luxembourg.

 

In the financial year, revenue of € 205,274 thsd was generated with two product partners in the financial consulting, banking, FERI and DOMCURA business segments. In the previous year, revenue of € 258,141 thsd was generated with three product partners in the financial services (now: financial consulting), FERI and DOMCURA business segments.

 

In line with IFRS 8.30, the previous year's figures have not been adjusted in the segment reporting. However, to make the figures comparable, the values of the current financial year have also been prepared in line with the previous year's segment structure in the following table.