MLP is a future-oriented company that expects a significant positive development in the results of operations in the mid-term and long-term. As presented in the “Economic Report”, market burdens in the financial year 2013, as especially seen in the fourth quarter being, again added to the uncertainty being felt in the sector. This makes it more difficult to provide an accurate forecast of business development. Due to the extraordinary adverse market environment in the two fields of consulting, namely old-age provision and health insurance, we have decided to use a scenario-based approach in the forecast. In the following, we first provide a detailed presentation of what we consider to be the most likely scenario, assuming initial improvements to the general conditions:
Based on this, the market environment in the field of old-age provision remains largely charac- terised by reservations on the part of clients when it comes to signing long-term contracts. These reservations can in turn be attributed to the low-interest-rate phase and intensive discussions on the consequences of this for life insurance products. However, there will still be opportunities, above all for products with a low capital market component. These include occupational disability insurance policies, which are now on the radar of more and more citizens and will be supported by extended tax breaks within the scope of the Old-Age Provision Reform Act (AltvVerbG) in the coming financial year. Furthermore, long term care annuity insurance, i.e. insurance cover against the risk of needing care based on a pension insurance policy, will become increasingly important. Having become a focus for clients over the last two years, we anticipate increasing acceptance of this field of consulting. We also consider the field of occupational pension pro- vision to hold considerable potential, as it is able to decouple in certain areas from the general reservations regarding old-age provision products. The current political discussions regarding
Significance of individual sales channels in the brokerage of life insurance policies over the course of the next five years (all figures in %)
Independent financial consultants Banks Tied agents Internet portal Direct sales Untied pyramid sales organisations Pyramid sales organisations 34 25 18 2 5 8 7 18 27 27 33 57 41 39 5 16 34 40 24 27 2 46 42 14 19 26 40 23
Increasing Constant Decreasing No significance
further legislative strengthening of occupational pension provision are also having a positive effect. Although most clients are likely to remain cautious, we expect to see a slight improve- ment in market conditions in the field of private old-age provision, which will also be supported by new products with alternative guarantee concepts in the current low interest environment. The private health insurance sector should experience a reduction in the degree of uncertainty, as no further systematic switchover to “citizens’ insurance” is now to be anticipated. Alongside the negative press, the discussions on this led to a “wait and see” attitude among many clients in the financial year 2013. The topic of long-term care is also becoming increasingly important, largely due to the daily long-term care allowance product. Added to this is the fact that the two fields of old-age provision and health insurance were severely affected by the introduction of new unisex tariffs on December 21, 2012. This led to rather modest business development in these two fields in the first half of 2013, as consultants throughout the sector first had to famil- iarise themselves with the new product world. This negative effect will no longer apply in the coming financial year.
Due to the comparatively low base value in 2013, MLP anticipates a significant increase in sales revenues in the field of old-age provision for 2014 in this scenario and a continuation at the same level in the subsequent year. From today’s perspective and on the basis of the aforementioned effects, MLP also expects to record significant growth for 2014 and slight growth in 2015 in the field of health insurance.
We are also optimistic about business in the field of wealth management. Despite the risk- averse attitude being displayed by many investors, we expect to see stagnating development or possibly modest growth in the market. Further potential is to be found in the future-oriented approach and further strengthening of the portfolio of real assets which has been initiated in the FERI Group. In the consumer business at MLP Finanzdienstleistungen AG, we expect wealth management to become significantly more important for many clients due to the age structure. Following the successful developments of the last few years, we therefore also expect to record a slight increase in sales revenues in the field of wealth management in both 2014 and 2015. This is supplemented by additional potential in the field of real estate. Due to the high level of client demand, we will significantly expand our quality-assured property portfolio as an additional service alongside financing. Based on our planning, this will lead to a significant increase in other commission and fees. The developments stated in this basic scenario for the individual fields of consulting would lead to significantly increased total revenue in 2014 and a further slight increase in total revenue in 2015.
MLP has significantly reduced its administration costs in the last few years. The baseline achieved by the end of the financial year 2012 provides excellent foundations for us to generate sufficient earning power, even in difficult market conditions. MLP will continue its continuous efficiency management over the course of the next few years to ensure that administration costs remain under control. As was already the case in the financial year 2103, however, MLP will still allow higher expenses on a one-off basis – either to make important investments for the company’s future or to relieve expenses in subsequent financial years through non-recurring start-up costs. Around € 6 million in temporary expenses will be accrued in the financial year 2014, among other things due to the expansion of online offers for clients, comprehensive recruiting programmes and IT projects. Including this amount, we expect administration costs of around € 255 million for 2014 and slightly lower costs for 2015.
Continuous efficiency management programme
Forecast: EBIT of around € 65 million in the basic scenario
In the last Annual Report, we defined a target corridor for EBIT of between € 65 and € 78 million for the years 2013 to 2015, whereby the 2013 earnings are likely to be more toward the lower of these two figures. Due to even greater market burdens, MLP was unable to reach the levels stated in this forecast in the last financial year.
However, MLP’s goal remains to record EBIT in the corridor between € 65 and € 78 million in the two coming financial years. The Group has the necessary structure in place both on the cost side and the revenue side to achieve this level of earnings.
In the basic scenario, which we described in the previous sections, we expect the framework conditions to improve slightly. Assuming this is the case, we expect to record EBIT at the lower end of the corridor of around € 65 million for 2014. On that basis and from today’s perspective, we expect a further slight increase in EBIT for 2015.
However, the fourth quarter of 2013 clearly showed that all business developments are subject to a great deal of uncertainty in the current framework conditions. This situation has been made even more acute by the extremely critical public discussions since the start of the year on potentially reducing the guaranteed interest rate for life and pension insurance policies even further. Even if this inclines clients to show similar reservations as in 2013, the market condi- tions in the fields of old-age provision and health insurance will still change since the negative effect associated with the new unisex policies from the first half of 2013 would no longer be present. As is also the case in the basic scenario, significant additional revenue potential results from an increased property portfolio. Added to this is the slight increase in revenue anticipated in the field of wealth management. In this scenario, MLP would anticipate EBIT of at least € 50 million in 2014. 311.7 295.4 279.1 274.3** 251.9 250.6 255.0
* Definition: Personnel expenses, depreciation and amortisation and other operating expenses ** Adjusted to include one-off expenses
Development of administration costs* (all figures in € million)
2009 2010 2011 2012 2013 2014e 2008
Including € 6 million temporary expenses in 2014 Cost basis for the coming years
If the market environment were to improve significantly, on the other hand, MLP would antic- ipate an increase in EBIT to up to € 75 million in 2014. This third, upper scenario, however, assumes that in addition to the described sales potential, the health insurance market develops extremely positively and that the reservations being displayed by clients when it comes to capital market products in the field of private old-age provision largely dissipate. We applied the same cost development for the upper and lower scenario as for the basic scenario.
With our outlook, we are underlining our claim of once again intending to significantly increase our earnings in all scenarios starting from 2013.
As was also the case in recent financial years, we anticipate a slightly negative finance cost in 2014, followed by a slightly positive figure in subsequent year. On the basis of the forecast EBIT, the tax rate should be around 28% to 29% in the next two financial years.
The market has been characterised by consolidation over the last few years. From today’s per- spective, we will not make any acquisitions in our core business at MLP Finanzdienstleistungen AG (please refer to the chapter entitled “Goals and strategies”). However, MLP Finanzdienst- leistungen AG could envisage making acquisitions of smaller companies that possess special technology solutions or which could expand the existing added value chain. Building on the successful establishment of the occupational pension provision business segment in the last few years, further strengthening of the business with corporate clients is also conceivable, for example a takeover in the field of non-life insurance products for companies. In addition to this, we could generally envisage making acquisitions or entering into joint ventures in the market of our subsidiary FERI AG.
From today’s perspective, we are not planning any significant changes to the corporate policy in the next two financial years.
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 non-capital-inten- sive business model, we intend to maintain an attractive and consistent dividend policy for the future. However, the next two years are likely to require increased capital in order to comply with the revised definition of equity and stricter requirements of Basel III (please refer to the chapter entitled “Future industry situation and competitive environment”), so the Group will use a portion of its earnings for the purpose of accumulation.
Set against this background, we announced in 2011 that we would be returning to our long-stand- ing dividend payout ratio of between 60% and 70% of Group net profit. Based on this dividend payout policy, the Executive Board and Supervisory Board will therefore propose a dividend of € 0.16 per share at the Annual General Meeting on June 5, 2014. This corresponds to a payout ratio of 68% of Group net profit. For the coming financial years, we will continue to aim for a payout ratio of 60% to 70% of Group net profit.
Qualifications and further training will continue to play an important role in the future. The training received by our new consultants will also continue to go beyond the legally prescribed level. In addition to this, we will offer our consultants extensive further training opportunities also in the future. By adopting this approach, we expect the attendance days and online seminars at our CU to either remain at a level comparable to the previous year or increase slightly. This also applies to the total budget for qualifications and further training.
Acquisitions possible, primarily at FERI
Dividends of € 0.16 per share
Qualifications and further training remain in focus
Our target upper limit for consultant turnover remains between 12% and 15%. We also antici- pate some initial positive stimuli in 2014 from our intensified activities to win new consultants we initiated in 2013. Our mid-term objective is to increase the number of consultants slightly. 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 capital-intensive and generates high cash flows. From today’s perspective, this provides sufficient internal financing capacity for the forecast period 2014 to 2015. 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 share- holders to participate in the company’s success, to strengthen the Group’s financial power and for investments.
Our investment volume in the last financial year was € 22.4 million, which is € 8.0 million more than in the previous year. The primary focuses were investments in IT, in particular to prepare our new consulting application and to virtualise the IT workplace. You can find more detailed information on this in the chapter entitled “Goals and strategies”. Following the planned roll- out of these innovations at the start of 2014, capital expenditure will be slightly lower in the coming financial year. The financial services segment remains the focus of investments. We will continue to employ funds here to improve the quality of client support and consulting. Within these projects, we will use further funds that will flow directly into our income statement as expenses. We expect to be able to finance all investments from cash flow.
Return on equity developed from 13.3% to 6.6% in the financial year 2013. Despite the planned retention of portions of earnings at a payout ratio of 60% to 70%, we anticipate a slight increase in the return on equity for the next two financial years in connection with the forecast trend in earnings.
The Group’s liquidity declined from € 180 million to € 147 million in the financial year 2013. However, the overall liquidity situation remains good. Liquidity will be reduced by the intended dividend payment of € 17.3 million for the financial year 2013. It will increase again in the second half of 2014 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. 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 Due to the further worsened market conditions, we were unable to meet our own expectations in the financial year 2013. This adverse environment is also making it difficult to provide a concrete forecast, so we have chosen to present our further business prospects in three sce- narios. In our basic scenario, we assume an initial improvement of the framework conditions. Assuming this is the case, we expect to record EBIT at the lower end of the corridor of around € 65 million for 2014.
We have a good financial strength and, in combination with our positioning as an independent consulting firm, this will enable us to further expand our competitive position. We therefore expect to see a significant positive overall development within the Group.
Investment volume significantly increased
Good level of liquid funds available
More difficult market conditions in 2013
Positive development of the Group anticipated