Annual Report • Mar 27, 2017
Annual Report
Open in ViewerOpens in native device viewer
YOU WILL FIND THE ONLINE VERSION OF THE ANNUAL REPORT AT MLP-ANNUAL-REPORT.COM
| All figures in € million | 2016 | 2015 | 2014 | 2013¹ | 2012¹ | 2011¹ | 2010¹ | 2009 |
|---|---|---|---|---|---|---|---|---|
| Continuing operations | ||||||||
| Total revenue | 610.4 | 554.3 | 531.1 | 499.0 | 563.6 | 545.5 | 522.6 | 532.1 |
| Revenue | 590.6 | 535.7 | 509.7 | 480.5 | 538.1 | 526.7 | 497.3 | 503.8 |
| Other revenue | 19.8 | 18.7 | 21.4 | 18.5 | 25.5 | 18.8 | 25.3 | 28.4 |
| Pro forma earnings before interest and tax (Pro forma EBIT) (before acquisitions) |
19.7 | 32.5 | 39.0 | 30.7 | 70.5 | 17.3 | 47.0 | 42.2 |
| Earnings before interest and tax (EBIT) (before one off exceptional costs) |
35.1 | 30.7 | 39.0 | 30.7 | 70.5 | 50.7 | 47.0 | 42.2 |
| Earnings before interest and tax (EBIT) |
19.7 | 30.7 | 39.0 | 30.7 | 70.5 | 17.3 | 47.0 | 42.2 |
| EBIT margin (%)⁴ | 3.2% | 5.5% | 7.3% | 6.2% | 12.5% | 3.2% | 9.0% | 7.9% |
| Earnings from continuing operations |
14.7 | 19.8 | 29.0 | 23.9 | 50.5 | 11.2 | 34.1 | 27.2 |
| Earnings per share (diluted) in € |
0.13 | 0.18 | 0.27 | 0.22 | 0.47 | 0.10 | 0.32 | 0.25 |
| MLP Group | ||||||||
| Net profit (total) | 14.7 | 19.8 | 29.0 | 23.9 | 50.5 | 11.5 | 34.1 | 15.8 |
| Earnings per share (diluted) in € |
0.13 | 0.18 | 0.27 | 0.22 | 0.47 | 0.11 | 0.31 | 0.15 |
| Dividend per share in € | 0.08² | 0.12 | 0.17 | 0.16 | 0.32 | 0.60 | 0.30 | 0.25 |
| Cash flow from operating activities |
144.7 | 58.8 | 32.3 | 67.6 | 22.4 | 53.8 | 91.0 | 72.5 |
| Capital expenditure | 18.4 | 12.8 | 15.4 | 22.5 | 14.5 | 7.8 | 3.9 | 4.0 |
| Total shareholders' equity | 383.6 | 385.8 | 376.8 | 370.5 | 381.7 | 399.6 | 421.2 | 410.0 |
| Equity ratio | 19.7% | 22.0% | 23.2% | 24.2% | 25.6% | 26.8% | 27.6% | 27.4% |
| Balance sheet total | 1,944,1 | 1,752.7 | 1,624.7 | 1.533,6 | 1.491,3 | 1.489,8 | 1.524,0 | 1.498,4 |
| Clients³ | – | 858,700 | 847,600 | 830,300 | 816,200 | 794,500 | 774,500 | 785,500 |
| Private clients (Family)⁵ | 517,400 | 510,200 | – | – | – | – | – | – |
| Corporate and institutional clients⁵ |
19,200 | 18,200 | – | – | – | – | – | – |
| Consultants³ | 1,940 | 1,943 | 1,952 | 1,998 | 2,081 | 2,132 | 2,273 | 2,383 |
| Branch offices³ | 146 | 156 | 162 | 169 | 174 | 178 | 192 | 238 |
| Employees | 1,768 | 1,802 | 1,542 | 1,559 | 1,524 | 1,584 | 1,672 | 1,900 |
| Brokered new business³ | ||||||||
| Old-age provision (premium sum in € billion) |
3.7 | 3.5 | 4.1 | 3.6 | 4.8 | 5.2 | 5.0 | 5.1 |
| Loans and mortgages | 1,710.0 | 1,798.0 | 1,415.0 | 1.513,0 | 1,301.0 | 1.327,0 | 1.219,0 | 1.119,0 |
| Assets under management in € billion |
31.5 | 29.0 | 27.5 | 24.5 | 21.2 | 20.2 | 19.8 | 17.0 |
Values adjusted. 1
Subject to the consent of the Annual General Meeting on June 16, 2016. Continuing operations. 3
EBIT in relation to total revenue. 4
⁵ MLP adjusted the way it counts clients in Q1 2016.
Dr. Uwe Schroeder-Wildberg Chairman and CEO MLP AG
Strategy, Communication, Policy/Investor Relations, Marketing, Sales
Appointed until December 31, 2022
Manfred Bauer Member of the Executive Board of MLP AG Product Management Appointed until April 30, 2020
Reinhard Loose Member of the Executive Board of MLP AG
Compliance, Controlling, Purchasing, IT, Group Accounting, Risk Management, Internal Audit, Legal, Human Resources
Appointed until January 31, 2019
MLP achieved more in 2016 than could have been expected at the start of the year. Me increased revenue in the field of old-age provision and expanded market shares in key consulting areas, accelerated the process for winning new clients and laid the foundations for further cost reductions. Me can therefore rate the financial year as ¹satisfactory in the light of market conditionsº.
However, we do not want to content ourselves with that for the future. One of the reasons why MLP enjoys such an excellent position in the competitive environment is because we were quick to start work on restructuring the company with a clear direction in the last few years, while at the same time keeping a tight rein on costs.
If we compare the commission income from 2005 – i.e. the year before the expansion of our wealth management operations – with 2016, three facts become clear0
A look at the development of total revenue over the last five years also shows how we have made gradual yet continuous progress. In fact we are now above the level recorded in 2012, a particularly strong year. In comparison with 2015, total revenue has increased by 10 percent to € 610.4 million.
MLP recorded good gains in 2016, particularly in the non-life insurance area, where revenue increased by 93 percent to € 105.6 million. Around € 68.7 million of this can be attributed to the ongoing positive development of DOMCURA, which we acquired as a subsidiary mid-2015. Developments in the old-age provision area were also pleasing, with revenues increasing by 3 percent to € 221.5 million. This successful development can largely be attributed to a strong final quarter. This means that MLP recorded gains in the old-age provision segment for three quarters in succession in 2016.
At € 166.4 million, revenue in wealth management is slightly above the previous year's record figure, despite selling the former FERI EuroRating Services in mid-2016. Mith revenue of € 15.4 million, the loans and mortgages area is slightly below the record level recorded in 2015. At € 15.4 million, other commission and fees, which are mainly attributable to the brokerage of real estate objects, remain at the previous year's level. At € 45.8 million, revenue in the health insurance area also remained at the previous year's level.
These developments should also be seen as positive in the light of market conditions that remain extremely difficult. In the private health insurance area, the number of persons holding comprehensive health insurance fell for the fifth year in succession, while the wealth management is facing negative market developments due to the massive monetary distortions. However, the old-age provision area continues to display the greatest market turbulence. Indeed, new business throughout the sector only increased 1.5 percent over the previous year's low level.
At MLP, the premium sum of new business in the old-age provision area increased by 6.2 percent. MLP's ability to adapt quickly to the new product portfolio is one key reason for this excellent development. Me also recorded better development than the industry in the private health insurance area with a slight increase in the number of persons holding comprehensive health insurance.
This all resulted in operating earnings before interest and taxes (operating EBIT) – i.e. before one-off exceptional costs – increasing by 14.3 percent to € 35.1 million. As announced, one-off exceptional cost were accrued within the scope of the efficiency programme. These expenses were € 15.4 million, resulting in an EBIT of € 19.7 million. One-off exceptional costs also had an impact on net profit for the period, which was € 14.7 million.
Taking earnings trends and current capital requirements into account and subject to approval by the Supervisory Board, the Executive Board proposes a dividend of 8 cents per share. At 60 percent, the distribution rate is set to increase slightly over the previous year and lies within the announced corridor.
In 2017, we added two new topics to our strategic agenda. The first focuses on extending our corporate and economic scope for action through an optimisation of corporate structure, while the second revolves around strengthening our university segment in the private client business.
The objective of the corporate structure optimisation is to significantly extend MLP's scope for action, which had become increasingly restricted in the last few years. This is due to the significantly stricter capital requirements for banks that have been in place since the outbreak of the financial crisis – such as Basel III and others. Me are not complaining about this and are still of the opinion that events such as those that occurred during the financial crisis need to be prevented through adequate measures. For MLP, however, the regulatory pendulum is now swinging too far in the other direction. Our banking business is low-risk. Oet despite this, the aforementioned new requirements placed on classic banks are impacting our operations across the board, meaning that the proportionality of revenue and costs has shifted significantly in the current Group structure.
Mith the step we are preparing in the current year and intend to introduce early in 2018, we will bundle all regulated bank activities at one company, while all other consulting services will then be provided by the other company. This offers the advantage that we will be able to gradually increase our free own funds by around € 75 million up to 2021 – assuming the current capital adequacy requirements remain unchanged. Me will use this significantly improved position in our own funds primarily for investments in the future and for acquisitions. In addition it will also provide us with greater freedom for dividend pay-outs. Me can envisage continuing to make acquisitions in three main segments – at FERI, at DOMCURA, as well as in MLP's traditional private client business. Regarding the strengthening of the university segment0 MLP has deep roots in the private client business. This also includes a highly visible presence in the university segment, in which MLP consultants continue to win a large proportion of our new clients – both online and offline. In the last few years, we have already introduced comprehensive measures to boost our presence in this segment with increasing numbers of academics. For example, introduction of our further training allowance has made it easier for young consultants in particular to make the transition into self-employment. The package is being well received and has made a key contribution to stabilising consultant numbers.
Me are now taking the next step with the introduction of a dedicated divisional board member for the young segment. By focusing on core topics for young clients and consultants, we pave the way for faster acquisition of new clients and consultants – and thereby further strengthen our presence.
In addition, we are persevering with our strategic approach of recent years.
The ongoing diversification of our revenue structure aims at further reducing the impact of short-term market influences on MLP. Therefore the non-life insurance and wealth management consulting areas will be in the focus also for 2017.
Me are also pressing ahead with digitalisation. In 2016, we collaborated with a fintech to introduce online sales for electronics and travel health insurance policies – i.e. for basic products that do not require intensive consulting services – and are already seeing initial successes. In addition to this, we have won more than 50,000 initial contacts online and on social media platforms. As these examples show, the key here is to remove any notion of online OR offline and instead focus on bringing the two concepts together. In 2017, we will release more products for online sales and launch the first phase of our new client portal. This will provide clients with all financial information at a glance, accompanied by a personal budget book. Me are convinced that digitalisation – understood correctly – can actually help further underline the importance of face-to-face consulting.
In terms of cost management, we will harvest the fruit of our efforts in 2017. In the past year, MLP laid the foundations for permanently reducing the cost base of administrative expenses by around € 15 million relative to 2015 from 2017 onwards. In 2017, this low cost base will be subjected to additional one-off exceptional costs of around € 9 million for implementing the new Group structure. Due to the planned increase in own funds, we can cushion the effect of these one-off expenses for our shareholders. Maintaining a distribution rate of 50 to 70 percent, we will base our dividend proposal for the financial year 2017 on operating net profit, i.e. before one-off exceptional costs.
Overall, we expect to record EBIT for the current year of at least € 36 million. Accordingly, we anticipate an operating EBIT of at least € 45 million.
Me would be delighted if you – our shareholders – continued to accompany us along this path. On behalf of the entire Executive Board, I would like to express my sincere thanks for the trust you showed in us throughout the last financial year.
Equally sincere thanks are also due to all client consultants and employees in the Group.
Oours sincerely,
Dr. Uwe Schroeder-Mildberg
Dr. Peter Lütke-Bornefeld Chairman Elected until 2018
Dr. Claus-Michael Dill Elected until 2018
Dr. h. c. Manfred Lautenschläger Vice Chairman Elected until 2018
Tina Müller From June 2015 Elected until 2018
Alexander Beer Employees' Representative Elected until 2018
Burkhard Schlingermann Employees' Representative Elected until 2018
In the 2016 financial year, the Supervisory Board reviewed the company's development in depth and performed fully its supervisory duties. It regularly advised and monitored the Executive Board in running the business of the company.
During the course of the last financial year, the Supervisory Board paid particular attention to the economic development, financial situation, prospects and further strategy of the company, and advised the Executive Board on these topics. Its work in the financial year 2016 focused in particular on supporting the Executive Board in the strategic development of the company and of the MLP Group, implementing further measures to increase efficiency and both assessing and monitoring the opportunity and risk position of the company and the Group.
The Supervisory and Executive Boards met regularly in the reporting year for discussions and joint consultations regarding business development, strategy and key events within the company. The Supervisory Board was directly involved in all decisions of fundamental importance to the company. The Executive Board regularly provided the Supervisory Board with written and oral reports in a timely and comprehensive manner on all relevant issues related to corporate planning, strategic development, the business situation and the position and overall development of the Group as a whole, including the risk situation, risk management, risk-bearing ability and compliance. The Supervisory Board was able to confirm the appropriateness of the Executive Board's corporate governance. In 2016, the Executive Board also reported to and advised the Supervisory Board on the content and anticipated effects of legislative or regulatory proposals at the German national or EU level.
No personnel changes were made to the Supervisory Board in 20161 nor were changes made to the company's Executive Board in the previous financial year.
The Supervisory Board held five regular meetings and one extraordinary meeting in the financial year 2016. Mith the exception of one meeting, all members of the Supervisory Board attended the meetings in person. Individual members of the Supervisory Board participated in the extraordinary Supervisory Board meeting via telephone. The Supervisory Board was also informed by the Executive Board of particularly important or urgent projects outside of the regular meetings. Mhere necessary, Supervisory Board resolutions were also passed as circular resolutions.
In addition, three meetings of the Audit Committee were also held in this year. All committee members took part. The Personnel Committee convened once in the previous financial year.
Furthermore, the Chairman of the Supervisory Board met with the Chairman of the Executive Board on a regular basis to discuss various issues, in particular the business situation and the position of the Group. The Chairman of the Supervisory Board regularly informed the other members about the content of these meetings.
In an extraordinary Supervisory Board meeting held on February 24, 2016, further tightening of the cost management and strategic restructuring of the group was discussed. A corresponding Executive Board proposal was then approved.
Following preparations in the meeting of the Audit Committee, the Supervisory Board meeting on March 16, 2016 focused on the audit and approval of the financial statements and the consolidated financial statements as of December 31, 2015. The auditors participated in the meeting and gave detailed reports on the course and outcome of their audit of the financial statements and the consolidated financial statements. Following an indepth discussion, the Supervisory Board approved both the financial statements and the consolidated financial statements as of December 31, 2015. In addition to this, the Supervisory Board also reviewed and approved the appropriateness of the Executive Board's remuneration – as required in accordance with the Corporate Governance Code – as well as the variable remuneration components of the Executive Board for the financial year 2015. The proposed resolutions for the companys Regular Annual General Meeting were another item on the agenda.
The regular Supervisory Board meeting on May 11, 2016 focused primarily on discussing the results and business development from the first quarter of 2016.
The results of the second quarter, the business development in the first half of the year, reporting on the internal audit and risk controlling (including report on the notion of materiality, risk strategy and risk-bearing capacity concept) were all on the agenda of the regular Supervisory Board meeting on August 10, 2016.
The November meeting focused on the business results of the third quarter and the first nine months of the current financial year. Alongside this, the Supervisory Board approved corresponding measures for implementation of the EU Audit Regulation and Germany's audit reform legislation (AReG). Other topics discussed included the change of corporate form from MLP AG to a ¹Societas Europaeaº or SE. A respective resolution was then drafted, which will propose to the Annual General Meeting that MLP AG be converted to an SE in 2017.
At the meeting on December 14, 2016, discussions focused on the resolution regarding the Declaration of Compliance as per § 161 of the German Stock Corporation Act (AktG), alongside adherence to the regulations of the German Corporate Governance Code (GCGC). Extensive reporting was provided on the corporate governance process and the current Declaration of Compliance. Furthermore, the Supervisory Board addressed in detail and approved the strategy and budget of both the Group and the company for the financial year 2017.
The Supervisory Board was regularly informed of the work carried out by its committees in 2016.
The Audit Committee held three regular meetings in the financial year 2016. Representatives of the audit firm also took part in some of the meetings, providing the committee with detailed reports. In the presence of the auditors, the Chairman of the Executive Board and the Chief Financial Officer, the Audit Committee discussed the financial statements of MLP AG and the MLP Group as well as the proposed appropriation of earnings. Furthermore, the relationship to the auditor, proposals for selecting the auditor, auditor fees, audit assignment and monitoring of the auditor's independence were the subject of extensive discussions. The Audit Committee received regular reports on the work of the Internal Audit and of the Compliance and Risk Management department and was informed on legal and regulatory risks and risks to reputation. In its two meetings, the Audit Committee also addressed in detail the new legislation arising from the EU Audit Regulation and Germany's audit reform legislation (AReG). The Committee discussed corresponding implementation measures for the Supervisory Board and the Audit Committee. This led to the approval of measures to ensure compliance with the new legislation.
The Personnel Committee met only once in the reporting period and focused in particular on checking the appropriateness of Executive Board remuneration, as well as determining the bonus pool for the MLP Group.
The Nomination Committee did not hold any meetings in the financial year 2016, as there were no new Supervisory Board elections and therefore no proposed resolutions to be submitted to the Annual General Meeting.
The Supervisory Board regularly deals with the application of the corporate governance principles.
Last year, the Supervisory Board dedicated its meeting on December 14, 2016 in particular to in-depth discussions on the amendments to the German Corporate Governance Code in the version of May 5, 2015.
In the meeting held on December 14, 2016, the Supervisory Board reviewed the efficiency of its actions based on an evaluation form made available to the members of the Supervisory Board in good time prior to the meeting. The Supervisory Board also discussed procedures in the Supervisory Board, the information flow between the Committees and the Supervisory Board, and the timeliness and sufficient content of reporting by the Executive Board to the Supervisory Board on this occasion. Measures aimed at increasing efficiency were analysed.
At the same meeting, MLP AG's Supervisory Board also assured that the company had met the recommendations of the GCGC in line with its Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act (AktG) in the previous financial year and will in future continue to comply strictly with the recommendations of the Government Commission on the German Corporate Governance Code (version dated May 5, 2015). In December, the Supervisory Board and Executive Board issued a Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act (AktG) for the financial year 2015 and made it permanently available to the shareholders via its website.
In accordance with the German Corporate Governance Code government commission, we understand conflicts of interest to mean any special professional or private interests of any member of the Supervisory Board that could potentially pose a threat to or contradict the interests of the company. Conflicts of interest in this sense do not include plurality or the existence of various streams of interests when these express diversity in terms of the Supervisory Board composition desired by the legislator or the German Corporate Governance Code government commission. There were no conflicts of interest in this sense in the last financial year. A summary of corporate governance at MLP, including the Declaration of Compliance from December 14, 2016, can be found in the Executive and Supervisory Board's corporate governance report. All relevant information is also available on our homepage at www.mlp-ag.com.
The financial statements and the joint management report of MLP AG as of December 31, 2016 have been compiled by the Executive Board pursuant to the German Commercial Code (HGB). The consolidated financial statements and the joint management report as of December 31, 2016 were drafted as per § 315a of the German Commercial Code (HGB) in line with international financial reporting standards (IFRS) as applied in the EU. As of December 31, 2016, APMG AG Mirtschaftsprfungsgesellschaft, Berlin audited the financial statements and the joint management report of MLP AG in accordance with the principles of commercial law, as well as the Group financial statements and the joint management report in accordance with the principles of IFRS, issuing an unqualified auditor's opinion in each case. The auditor performed the audit in compliance with the basic principles of sound auditing practices determined by the Institut der Mirtschaftsprfer (German Institute of Auditors).
The financial statements, together with the joint management report, the auditor's reports and the Executive Board's proposal for use of the unappropriated profit were made available to all Supervisory Board members in good time.
The Audit Committee of the Supervisory Board reviewed these documents in detail and reported to the Supervisory Board on its audit. The auditor also reported on the key results of the audit and on the fact that there are no significant weaknesses in the internal monitoring system, the risk management system nor with regard to the compliance. The Audit Committee also reviewed the risk management system, the accounting processes and the effectiveness of the internal monitoring, risk management and auditing systems, as well as the relationship to the auditor, the proposals for selection of the auditor, the auditor's remuneration, the audit assignment and monitoring of the auditor's independence, as well as the additional services performed by the auditor. The Supervisory Board also checked and discussed the documentation and reports in detail. In the presence of APMG AG Mirtschaftsprfungsgesellschaft, Berlin, which reported on the key findings of its audit, the audit reports were reviewed in detail at the Supervisory Board meeting on March 15, 2017. At this meeting, the Executive Board explained the financial statements of MLP AG and of the MLP Group, the risk management system, the accounting processes and the effectiveness of the internal monitoring, risk management system, audit system and of the compliance, as well as giving detailed reports on the scope, focuses and costs of the audit.
The Supervisory Board concurred with the outcome of the auditor's audit and, on the basis of the final outcome of the Audit Committee's audit and its own audit, found no grounds for raising an objection. Accordingly, at its meeting on March 15, 2017, the Supervisory Board approved the annual financial statements and the joint management report of MLP AG, as well as the consolidated financial statements and the joint management report in accordance with IFRS prepared by the Executive Board. The annual financial statements are therefore adopted.
After performing its own reviews, the Supervisory Board agreed with the Executive Board's proposal to pay out a dividend of € 0.08 per share for the financial year 2016. The equity and liquidity situation, future regulatory requirements and the company's budget, as well as the shareholders' interest in an appropriate dividend were included and weighed against one another in its considerations.
The Supervisory Board would like to thank the Executive Board, the Management of the respective Group companies, as well as all employees and consultants of the MLP Group for their exemplary personal commitment and achievements in the financial year 2016.
Miesloch, March 2017
The Supervisory Board
Dr Peter Ltke-Bornefeld Chairman
Our goals are to acKieve a sustainaEle increase in company value and constantly Euild on our market position 7o tKis end we continuously strengtKen our strategic success factors :e allow our sKareKolders clients employees and MLP consultants to participate in tKis longterm increase in value
\$n important 86P in our traditional private client Eusiness is tKat we support our clients as a partner in all financial matters – from oldage provision and wealtK management tKrougK KealtK and nonlife insurance rigKt tKrougK to financing 8nlike most players in tKe market Kowever we do not offer our own products Instead we rely on tKe products of all relevant providers in tKe market In addition to tKis clients can take care of all tKeir important Eanking Eusiness witK MLP Gaining a profound understanding of our clients and tKeir life situation also represents a KigKly important part of our pKilosopKy (acK of our appro[imately client consultants tKerefore focuses on one professional group aEove all pKysicians economists engineers and lawyers
In tKe last few years we Kave estaElisKed additional core fields of e[pertise and significantly e[panded our Eusiness model 7Kese include a compreKensive portfolio for corporate clients KigK net wortK individuals and institutional investors via our suEsidiary )(RI :itK tKe acTuisition of 'OMC8R\$ in we Kave once again significantly e[tended our product portfolio in particular for otKer market actors in tKe nonlife insurance Eusiness and Kave also strengtKened our corporate client Eusiness witK tKe commercial and industrial Erokers of tKe 'OMC8R\$ Group \$ll in all tKis diversification Kas significantly increased tKe staEility of our company development
:e supplement our growtK strategy witK a consistent efficiency management programme In order to Eoost profitaEility we Kave also reduced our administration costs consideraEly since
Developments of the German share indices were characterised by a high degree of volatility in 2016. Germany's leading index, the DAN, was still down until the end of November. Mhile the MDAN and SDAN were already able to record initial gains in August, Germany's leading index did not achieve this until December. For the full year, the DAN recorded an increase of !7.9%. The MDAN (!6.3%) and TecDAN (!5.5%) were also able to record further gains and close the 2016 stock market year in positive territory.
Germany's leading index, the DAN, experienced its weakest start for 28 years. After two and a half weeks in 2016, it had fallen to 9,314 points. This decline was due to the impact concerns about growth in China and the resulting negative expectations for German exports. In the months that followed, the capital markets in Germany and Europe were unsettled further by speculation of an increase in capital stock and greater credit defaults at Deutsche Bank. The DAN fell to 8,752 points, a decline of 18.5% since the start of the year. The DAN was not able to climb above the 10,000-point mark again until March. It then went on to hit 10,474 points in April. Following a phase of relative calm, the mood worsened again significantly in June. The DAN lost almost 6% month-on-month. The imminent Brexit referendum had a negative impact on the markets, primarily due to uncertainty regarding global economic prospects caused by the UA's potential departure from the EU. On 24 June, the unexpected result of the referendum in the UA caused the DAN a single day loss of over 10%. It eventually bottomed out at 9,226 points.
Germany's leading indices recovered remarkably quickly from the referendum result in Great Britain. Indeed, in July they had already recorded increases of over 6 % and were thereby able to regain lost ground. The upwards trend continued in August, although it was less pronounced. Robust labour market data from the US helped the DAN reach a monthly high of 10,802 points on 15 August. In September, the ECB disappointed the markets by electing not to extend its quantitative easing programme beyond March 2017 and also not to increase the repurchase volume. The DAN then suffered a month-on-month decline (-0.8%). In October, concerns over Deutsche Bank, a ¹hard Brexitº and the most recent collapse in exports from China served to suppress developments in the market. Further, when Hillary Clinton was seen to defeat Trump in each of the three televised debates held during the US election campaign, the stock exchanges reacted positively. Indeed, the DAN reached a new annual high of 10,827 points on 25 October.
Second half of the year rescues annual performance of the share indices
Rapid recovery after Brexit
Stock markets initially suffered severe losses in Asia and also in Europe, with Donald Trump's surprise win of the 9 November US presidential election. However, the stock market was then given new impetus by Donald Trump's announcements regarding deregulation of the US banking sector, reversal of the healthcare reform initiated by President Obama, increasing state spending on infrastructure and defence, as well as tax cuts. On 22 November, all four US indices (Dow Jones % SP500 % Nasdaq100 and Russel 2000) simultaneously recorded new all-time highs for the first time since 1999. In Germany, however, the DAN, MDAN and TecDAN were all down at the end of the month – despite unemployment figures for October hitting a record low of 6.0%. The ¹Trump Rallyº launched in November continued into December and also gave a bump to share prices in Europe. The DAN, MDAN and TecDAN all recorded significant gains. Two key contributing factors here were that Brexit continued to remain in the background with its potentially negative consequences and, as anticipated, the ECB extended its quantitative easing programme until the end of 2017. The ifo business climate index had a positive effect in December, as it reached its highest level for almost two years at 111 points. Mith 22,147 points, the MDAN set a new all-time high at the end of the year, while the DAN reached its annual high of 11,451 points.
The MLP AG share was subject to pronounced fluctuations in the first half of financial year 2016. The price trend was then clearly positive from the third quarter onwards. At a price of € 3.65, the MLP share began the new year virtually unchanged. Due to a strong sales surplus, the share dipped below the € 3.00 mark at the start of February and reached its annual low of € 2.57 on 9 February 2016. Following the expiry of a large purchase order, however, the price was later able to recover up to mid-April and once again surpass the € 3 mark. The price had risen to € 3.70 by the start of June, but then declined slightly following the € 0.12 per share dividend payment on 17 June. Publication of the business figures for the first nine months triggered a sustainable upwards trend, which in mid-November took the price above the € 4 mark for the first time in the reporting period. The closing price at the end of the year was € 4.17, which is 14.2% above the price at the start of the year. The average daily trading volume increased over the previous year (81,000) to 93,390 shares per day.
The MLP AG share exited the SDAN with effect from 21 March 2016. This was due to large companies taking their place ahead of MLP in the ranking of the performance index last year, primarily as a result of IPOs and changes to stock exchange segments. The downward development of the MLP share near the end of 2015 and at the beginning of 2016 also contributed to the company exiting the SDAN. Our objective is to once again increase market capitalisation by improving operational development. This represents the basis for being able to return to the index. Over the course of the year, we also won another designated sponsor to provide additional liquidity for share trading.
Further information on the MLP share can be found in the ¹MLP Shareº section of our Investor Relations page at www.mlp-ag.com.
MLP will continue its consistent dividend policy for the financial year 2016. As announced, the distribution rate will be between 50% and 70%. In concrete terms, the Executive Board and Supervisory Board will propose a dividend of € 0.08 per share at the Annual General Meeting on 29 June 2017. This corresponds to a distribution rate of around 60% of the net profit for the period.
| 2016 | 201+ | 201* | 201) | 2012 | ||
|---|---|---|---|---|---|---|
| Shares in circulation at the end of the year |
in units | 109,334,686 | 109,334,686 | 107,877,738 | 107,877,738 | 107,877,738 |
| Share price at the beginning of the year |
in € | 3.67 | 3.71 | 5.29 | 5.08 | 5.07 |
| Share price at the end of the year |
in € | 4.18 | 3.67 | 3.71 | 5.21 | 5 |
| Share price high | in € | 4.25 | 4.26 | 5.98 | 6.58 | 6.89 |
| Share price low | in € | 2.57 | 3.48 | 3.48 | 4.41 | 4.17 |
| Market capitalisation at the end of the year |
in € million | 456.5 | 401.3 | 400.2 | 562.2 | 539.4 |
| Average daily turnover of shares |
in units | 93,390 | 80,996 | 43,775 | 47,302 | 31,011 |
| Dividend per share |
in € | 0.08 | 0.12 | 0.17 | 0.16 | 0.32 |
| Total dividend | in € million | 8.7 | 13.1 | 18.3 | 17.3 | 34.5 |
| Return on dividend |
in % | 1.9 | 3.3 | 4.6 | 3.1 | 6.4 |
| Earnings per share in € | 0.13 | 0.17 | 0.27 | 0.22 | 0.49 | |
| Diluted earnings per share |
in € | 0.13 | 0.17 | 0.27 | 0.22 | 0.49 |
Subject to the consent of the Annual General Meeting on 29 June 2017
The following changes were made in the reporting period. The share of the voting rights held by FMR LLC (Fidelity) decreased to 4.72% by 16 March 2016 (7.10%). This decline can be attributed to expiration of the proxy for exercising voting rights. In addition, Harris Associates L.P%Harris Associates Investment Trust informed us that it held only 1.46% of the shares in MLP with effect from 19 February 2016.
Changes to the shareholder structure
Mith effect from 27 June 2016, INAA Internationale Aapitalanlagegesellschaft mbH, Dsseldorf, acquired a total of 3.55% MLP shares.
The free float in financial year 2016 remained unchanged at 49.8%. In line with the German Stock Exchange's definition, institutional investors were not taken into consideration when determining the free float. The following chart provides an overview of the major shareholders
Definition of free float on the German Stock Exchange1 including additional voting rights pursuant to § 22 of the German Securities Trading Act (MpHG)
The goal of our investor relations activities is to establish a continuous and open dialogue with our shareholders, potential investors and the capital market. Me are keen to establish and build on trust among investors and support the market in assessing the value potential of our company. To this end, we provide continuous, timely and transparent information on relevant events and incorporate feedback received from capital market players. Me engage in active exchange with both private and institutional investors at regular capital market events, such as roadshows, capital market conferences and our Annual General Meeting. Alongside direct contact, financial reporting is a key basis for our communication. The Annual Report plays a particularly important part here, as it provides comprehensive and transparent information on all aspects of the company. Since the 2015 Annual Report, MLP has switched over to an online-only version. This allows users to call up specific information and compile their own individual download package. The report, which adapts to the respective terminal device of the user, is available at www.mlp-annual-report.com.
In August 2016, the first MLP AG Online Annual Report received the Red Dot Design Award in the "Communication Design / Annual Report" category. The 26 experts on the international jury were particularly impressed by the information design and interactive tools. Submissions were received from a total of 46 nations for this year's competition.
We also provide a special investor relations newsletter service, whereby anyone interested can sign up to receive e-mails on important events. Interested parties can also keep up-to-date with news from the company and the sector via twitter. You can find the investor relations section at: www.mlpag.com/investors. [Please feel free to contact us if you prefer to speak to someone.]
| 2016 | 2015 | ||
|---|---|---|---|
| Equity ratio | in % | 19.7 | 22.0 |
| Return on equity | in % | 3.8 | 5.1 |
| Net liquidity | in € million | 184 | 174.0 |
| Market capitalisation at the end of the year | in € million as of 31 Dec. |
457 | 401.3 |
| Total revenue | in € million | 610.4 | 557.2 |
| EBIT | in € million | 19.7 | 32.5 |
| Operating EBIT* | in € million | 35.1 | 32.5 |
*before one-off exceptional costs
In addition to the MLP Group, the following `oint management report also encompasses MLP AG in accordance with § 315 (3) in connection with § 298 (3) of the German Commercial Code (HGB)\$
The values disclosed in the following have been rounded to one decimal place\$ As a result, differences to reported total amounts may arise when adding up the individual values\$
The Previous year's values of the consolidated income statement and the consolidated balance sheet have been adapted and are disclosed accordingly in the following tables\$ Information is provided in Note 3\$
The MLP Group (MLP) is the partner for all financial matters · for private clients, companies and institutional investors\$ Four brands, each of which en`oy a leading position in their respective markets, are used to offer a broad range of services0
Broad range of services
The views and expectations of our clients always represent the starting point in each of these fields\$ Building on this, we then present our clients with suitable options in a comprehensible way so that they can make the right financial decisions themselves\$ For the implementation we examine the offers of all relevant product providers in the market\$ Our products are selected and rated on the basis of substantiated market and product analyses\$
Since the company was founded by Manfred Lautenschlger and Eicke Marschollek in 1971, MLP Finanpdienstleistungen AG has consistently striven to establish long-term relationships with its clients\$ This requires a profound understanding of their individual requirements\$ Each of our approximately 2,000 client consultants therefore focuses on one professional group\$ MLP's clients primarily include physicians, economists, engineers and lawyers\$ Me support these clients in all financial matters · from old-age provision and wealth management, through health and non-life insurance, all the way up to financing, real estate brokerage and banking business\$
As a financial institution, MLP Finanpdienstleistungen AG is supervised by the Federal Financial Supervisory Authority (BaFin) and represents the controlling company of the Financial Holding Group in terms of the supervisory regulations\$
As an insurance broker, MLP Finanpdienstleistungen AG is also committed to selecting the most suitable product options for clients from the broad scope of offers in the market\$ These concepts clearly set us apart from the ma`ority of players in the market, who either only offer their own products or a very limited selection of third party products\$
MLP places great emphasis on the use of ob`ective and transparent criteria when selecting partners and products\$ An analysis and quality check of the providers in the market, as well as their respective products, are performed on the basis of client requirements\$
In addition to its private client business, the MLP Group has also been establishing an extensive portfolio for corporate clients, institutional investors and very high net worth individuals since 2004\$ Since 2014, we have also strengthened our activities in the field of real estate brokerage\$ In addition to this, MLP has developed new potential in the field of non-life insurance since 2015 with the acquisition of the DOMCURA Group (DOMCURA) and has positioned itself as a provider for other market members\$ The integration of DOMCURA was successfully completed in the reporting year\$ Mith the continuous expansion of our business model and new additions to our core competencies, we have created further stable pillars to secure the sustainable success of our company\$
The aforementioned acquisition of Schwarper Familienholding GmbH (hereinafter referred to as the DOMCURA Group/DOMCURA) in the first half of 2015 and its successful integration into the MLP Group was another key milestone in the diversification of revenue streams in the reporting year\$ As an underwriting agency, DOMCURA designs, develops and implements its extensive coverage concepts for private and commercial clients in the field of non-life insurance\$ These concepts are used by market members such as brokers and other agents\$ In addition, the DOMCURA Group also includes specialist brokers for commercial and industrial insurance\$ An initial `oint hedging concept was already developed and successfully launched to market by DOMCURA and MLP in 2016\$ Oou can find more information on this in the chapter entitled ¹Performanceº\$
Client requirements in focus
MLP Finanpdienstleistungen AG0 Focus on individual professional groups
Supervisory requirements
Transparent partner and product selection process
Diversification at an advanced stage
DOMCURA · The non-life insurance specialist
As an investment house for institutional investors and high net-worth individuals, the FERI Group (FERI) offers services in the areas of investment management, investment consulting and investment research\$
In the Investment Management business segment, FERI Trust GmbH offers a broad spectrum of wealth management services in all asset classes\$ These range from the development and implementation of individual investment strategies, right through to quantitative risk management and control\$ Investment consulting involves long-term advisory services to institutional investors and the provision of family office services to high net-worth families\$ Investment Research draws up economic forecasts and individual asset allocation analyses, which provide an important basis for the investment strategies\$
FERI further sharpened its focus on this core business in the reporting period by selling FERI EuroRating Services AG\$
As a specialist in occupational pension provision management, TPC GmbH (TPC) offers companies and associations consultancy services covering all issues relating to occupational pension provision and remuneration\$ Companies benefit from a full portfolio of services · ranging from needs analyses, to individual concept development and implementation, right through to continuous inspection of existing occupational old-age provision systems\$ The key focus here is on providing consulting services to small and medium-siped companies from various sectors, as well as employer consulting services at tax advisers, auditors, solicitors, physicians and architects\$
Further training plays an important part in our company's ability to ensure sustainably high quality consulting services\$ Oou can find more detailed information on this in the chapter entitled ¹ Employees and consultantsº\$
The registered office of MLP AG, the holding company, and also MLP Finanpdienstleistungen AG is in Miesloch, Germany, where all internal divisions are centralised\$ Additionally we are represented by our client consultants and offices in all German urban centers, including all important university locations\$ DOMCURA has its headquarters in Aiel, while TPC operates out of Hamburg\$ Alongside its HG in Bad Homburg vor der Hhe, FERI also maintains further national and international locations in Munich, Dsseldorf, Purich, Luxembourg and Vienna\$
FERI · Mealth management with independent research
TPC0 Sector concepts for occupational pension provision management
Further training of key importance
Represented throughout Germany
MLP is organised as a holding company, in which central management duties are performed by the Group's parent company, MLP AG\$ The three subsidiaries MLP Finanpdienstleistungen AG, FERI AG and Schwarper Familienholding GmbH (DOMCURA Group) are directly subordinate to it (see figure)\$ The business divisions each carry end-to-end accountability for results\$ This organisation reflects the Group's strategic goals and client requirements\$
MLP Finanpdienstleistungen AG holds a banking license and is registered as an insurance broker for the brokerage of insurance contracts\$ MLP Finanpdienstleistungen AG includes TPC GmbH in Hamburg, PSH GmbH Finanpdienstleistungen in Heidelberg, MLPdialog GmbH in Miesloch and MLP Hyp GmbH in Miesloch, which we operate together with the mortgage broker Interhyp AG in Munich\$
FERI AG's main fields of business are investment management, investment consulting and investment research, each of which is offered both to institutional and private clients by FERI Trust GmbH, Bad Homburg v\$d\$H\$ The issuance and structuring services for alternative investments and fixed asset investments are centralised at FEREAL AG, which is approved as a capital management company by the Federal Financial Supervisory Authority (BaFin)\$
FERI AG sold FERI EuroRating Services AG in the reporting year\$ The transaction was concluded on August 1, 2016\$ Mith this move FERI is continuing to focus on its core areas of expertise and on strategic further development to become the leading investment company in Germany, Luxembourg, Switperland and Austria\$
The main companies and affiliations in Germany and abroad include FERI Trust (Luxembourg) S\$A\$, which acts as fund manager and coordinates the entire fund structuring and fund floating process, as well as Michel Cortesi Asset Management AG (Switperland), which offers investment solutions for private and institutional investors\$ In the field of real estate, FERI AG holds investments in CORESIS Management GmbH\$
The main subsidiaries of the DOMCURA Group include DOMCURA AG, which specialises in designing, developing and implementing comprehensive coverage concepts in the non-life insurance segment for both private and commercial clients\$ In the course of the ongoing focus on the corporate structure in the DOMCURA Group, companies including Ralf M\$ Barth GmbH and FF Makler AG among others were merged into nordias GmbH Versicherungsmakler in the financial year\$ All activities of the broker business segment have been pooled in this company, including specialist brokers for commercial and industrial products\$
Economic developments in Germany have a significant impact on the business model of the MLP Group, as the company generates almost all of its revenue in this country\$ Particularly important indicators in this regard are economic growth, developments on the employment market, salary levels and the general savings rate\$ These indicators are described in further detail in the chapter entitled ¹Economic report · National economic climateº\$ The results of operations are influenced even more acutely by market conditions in the consultancy areas of old-age provision, health insurance and wealth management, which are analysed in the corresponding chapters of the ¹Economic reportº\$ Another important factor is the regulatory environment, which is examined in more detail in the chapter entitled ¹Economic report · regulation and competitionº\$
The Executive Board at MLP AG comprises three members\$ The positions on the Board continue to be held by Dr\$ Uwe Schroeder-Mildberg (Chairman of the Executive Board), Manfred Bauer (Product Management) and Reinhard Loose (Finance)\$
The Supervisory Board, which is, among other things, required to monitor the actions of the Executive Board under German law, comprises six members\$ There were no changes to the personnel on this committee in the reporting year\$
At FERI AG, the Executive Board contract of Dr\$ Matthias Alpper (Finance) expired in the reporting period\$ As of January 1, 2017, Marcel Renn was appointed as a new member of the Executive Board with responsibility for Operations\$ Chairman of the Executive Board, Arndt Thorn, assumed responsibility for Finance from this date on\$
Both the Executive Board and Supervisory Board seek to change the company's corporate form from MLP AG to an SE (Societas Europaea)\$ This proposal is to be put to the shareholders during the 2017 Annual General Meeting\$ The ob`ective of the change in corporate form is primarily to secure the current flexibility of the work performed by the two committees for the future\$ To date this has been achieved through a six-member Supervisory Board commensurate to the sipe of the company, among other measures\$
The MLP Group employs comprehensive planning and control systems\$ Starting from our strategy and the estimates regarding future external framework conditions, we draw up targets for key controlling figures in the strategic and operating planning process\$ Any deviations from our targets then become transparent within the scope of ongoing controlling processes\$ Based on these developments we then derive actions for our corporate management\$ Me also continually monitor developments in the market and the competitive environment\$
The Executive Board at MLP AG assesses the performance of the various business segments and reaches decisions regarding resource allocation on this basis\$ Earnings before interest and tax (EBIT) and total revenue (sales revenue) represent the central benchmark at MLP for overall business development in the individual business segments\$ Alongside this, the Executive Board also receives regular information on the relevant macroeconomic, political and legislative factors that influence developments in the individual consulting fields\$ Analysis of the old-age provision, wealth management, health insurance and non-life insurance, loans mortgages and real estate brokerage consulting fields is performed with the ob`ective of explaining the performance of the consulting fields in the past, anticipating changes in the environment and exerting targeted influence on the future development\$ In line with MLP's comprehensive consulting approach, which focuses on the views and expectations of the client, the Executive Board does not manage the Group on the basis of the contribution margin of the individual consulting fields\$
The following overview clarifies which key fields of consulting contribute to the development of revenue in the respective business segments\$
EBIT and sales revenue as the most crucial key performance indicators
| Financial serlices | FER? | DOM9URA | |
|---|---|---|---|
| Old-age provision | X | ||
| Health insurance | X | ||
| Mealth management | X | X | |
| Non-life insurance | X | X |
Me require profitable growth and sustainable development of earnings in order to achieve a sustainable increase in company value and expand our market position\$
Beside the important key performance indicators of EBIT and revenue, other APIs include administrative expenses (defined as the sum of personnel expenses, other operating expenses, as well as depreciation and impairments), the return on equity, assets under management, brokered new business in the oldage provision area, the existing non-life insurance policy portfolio and the number and turnover rate of consultants\$
The obective of our corporate management is for all consultants and employees to actively support MLP's strategic goals and pledge to meet our service commitment\$ Our established central, strategic control instrument is the so-called ¹ISAº (Integrated Strategic Agenda)\$ This way, the Group obectives are broken down across all Group companies and the key segments, thereby allowing each business unit to make its own contribution to meeting the defined targets\$ This ensures end-to-end incorporation of all organipational units and integration into the planning and management process\$ The ISA grants all business segments the opportunity to get actively involved in planning targets\$ This promotes motivation among everyone involved and increases planning quality throughout the organisation\$ At the end of the obligatory ISA process (applied consistently throughout the Group), the target achievement level of each unit is defined through our established planning and reporting processes\$ ISA provides the Executive Board with a high degree of transparency in the value-added process\$
Risk management is permanently anchored in MLP's corporate management strategy\$ The members of the Executive Board, general managers of Group companies and departmental heads are responsible for detecting and classifying risks as quickly as possible\$ Since ISA managers also bear risk and cost responsibility, we are able to establish a practical link between risk management and controlling\$ Oou can find further information on risk management in the chapter entitled ¹Risk reportº\$
Me regularly use simulation scenarios to be able to assess the success of our business\$ Important early indicators include assets under management, which reflect developments in the wealth management area, and brokered new business in the field of old-age provision, as these two areas represent a significant portion of commission income\$
Our ob`ective is not only to win over the best consultants in the industry to our business model, but also to keep them loyal to our company in the long term\$ Me therefore continually monitor our employee turnover rate and aim for a maximum annual turnover rate for self-employed consultants of 10\$
Oou can find further information on this in the chapters entitled ¹Performanceº and ¹Anticipated business developmentº\$
Risk management0 Important management and control element
Aeeping consultant turnover low
FUNDAMENTAL PRINCIPLES OF THE GROUP
Since our consulting firm is a service provider, we are not engaged in any research or development in the classic sense\$
The recovery in the europone continued in the reporting year\$ According to estimates provided by FERI Investment Research, economic growth for the europone was 1\$5 in 2016 · and was thereby slightly below the previous year (20150 1\$9)\$ The expansive monetary policy of the European Central Bank was the key contributing factor to the recovery in the europone\$
In Germany, growth in the last financial year continued to be bolstered by a comparatively robust domestic economy\$ In its autumn forecast, the German government stated the low oil price as another reason for the positive development\$ According to calculations performed by FERI, inflation-ad`usted gross domestic product (GDP) in Germany increased slightly to 1\$9 in 2016\$
Consumers in Germany continue to display a highly positive attitude, as underlined by the Consumer Sentiment Index of the German Consumer Research Association (GfA)\$ The Index stood at 9\$8 points in December 2016, compared with 9\$3 points twelve months earlier\$ In September 2016, it even surpassed the 10-point mark with 10\$2 points\$ According to the study performed by the German Consumer Research Association (GfA), one reason for the very positive overall sentiment is the fact that consumers are displaying resilience to a range of risk factors, such as the result of the US election, the Brexit decision, the financial crisis flaring up again in Italy following the unsuccessful referendum and Renpi's resignation from the government, as well as the ongoing threat of terrorism\$ In addition to this, the employment market remains solid and private household incomes are displaying good development\$ The Consumer Sentiment Index of the German Consumer Research Association (GfA) is considered one of the most important indicators of behaviour among German consumers and of economic stability\$
The overall mood in the German economy remains positive\$ The recovery remained intact in Germany right to the end of the year\$ The ifo business climate index was unchanged in November 2016 at 110\$4 points · having been at `ust 107\$4 points in January 2016\$ In December 2016, it increased even further to 111\$0 points · representing its highest level since February 2012\$
Consumer confidence stabilising at a high level at the end of the year
The employment upturn in Germany continued in the reporting year\$ According to data published by Germany's Federal Employment Agency, the annual average number of registered obseekers fell by 104,000 year-on-year to approximately 2\$7 million persons in 2016\$ The corresponding unemployment rate of 6\$1 (20150 6\$4) is the lowest level in 25 years\$ The employment market continued to offer opportunities for highly skilled employees\$ According to Germany's Federal Employment Agency, the unemployment rate among academics remained very low atust 2\$4\$
Employment market development remains robust
According to the German government, the healthy situation on the employment market led to significant salary increases\$ Indeed, net wages increased by 3\$7 in 2016\$ According to data published by the German Federal Statistical Office, the disposable income of private households increased by 2\$8\$ The savings rate in Germany increased slightly in the last financial year, reaching 9\$8 in 2016\$ It was 9\$7 in 2015\$
Traditionally, the vast majority of MLP's total revenue is generated from the following three core fields of consultancy0 old-age provision, health insurance and wealth management. In the financial year 2016, these fields together represented 73.4% of total revenue. Revenues in the fields of old-age provision and health insurance are generated in the financial services segment. Mealth management revenue is generated at the FERI segment and the financial services segment. The non-life insurance consulting field become significantly more important through the acquisition of the DOMCURA Group in 2015. Alongside the DOMCURA segment, revenue in this consulting field is also generated at MLP Finanpdienstleistungen AG. The share of non-life insurance increased accordingly in the financial year 2016 to 17.9% (20150 11%).
The main factors that had a particular influence on the market environment and the results of operations in the four aforementioned consulting fields in 2016 are described below.
As had already been the case in previous years, the ongoing period of low interest rates and the reservations being displayed by many consumers when it comes to signing long-term contracts continued to dampen the market environment in the old-age provision segment in Germany in the financial year 2016. The situation is being made even more acute by the new requirements as per Solvency II, which have been in force since January 1, 2016 and have a significant impact on both the insurance sector and the capital investment strategies of companies. Oou can find further information on this in the chapter entitled ¹Competition and regulationº.
Among other things, life insurers are addressing these challenges with innovations in the product landscape. They are increasingly choosing to offer old-age provision products with flexible guarantees or even no guarantees at all. Several life insurers have already dispensed with traditional guarantee products altogether. However, the classic collateral pool remains an efficient instrument for generating guarantee components for many other products.
A survey conducted by market research institute OouGov on behalf of MLP underlines the ongoing need for advisory services in the field of old-age provision. Based on this survey, just under 32% of German citipens do not have any clear idea of how much statutory pension they will receive, while a further 27% only have a ¹rough ideaº.
According to the 2016 Mealth Barometer of the DSGV (German Savings Bank Association), around one third of the population (36%) is currently not setting any money aside for provision in their old age. The lower the income, the higher this ratio becomes. 46% of households with a net income between € 1,000 and € 1,500 save nothing, but this figure increases to 59% among households with a maximum net income of € 1,000 per month.
The average saving rates decreased in comparison with previous years0 Only 23% of respondents stated that they set more than € 100 aside per month for their old age. In 2015, this figure was 28%. The ANA Germany Report indicates that more than half of all those in gainful employment in Germany (55%) are no longer looking to sign any new old-age provision policies as a result of the low interest rates.
The most popular savings goal among young people aged between 17 and 27 is a holiday trip. 64% regularly set aside money for this, while 42% save for training or university courses and only one in three (35%) saves towards their old age. These were the findings of a survey performed by TNS Infratest.
Ooung generation primarily saves for holidays and training
Massive reservations despite state subsidies
The difficult framework conditions described were also reflected in the market trend of the various old-age provision products in the reporting year. The state is offering citipens various incentives in the form of tax breaks and allowances to encourage them to save for their own old age.
State subsidies%allowances in Germany are presented in the so-called 3-tier model0
Alongside the statutory pension, basic provision (1st tier) also includes the basic pension or Rrup pension, whose premiums can be offset against income tax. Alongside freelancers and self-employed people that are not obliged to pay into the statutory pension insurance fund, the basic pension is also open to salaried staff. Starting in 2015, the German government supplemented and injected dynamism into the former funding framework for the basic pension to make it more attractive. The maximum taxdeductible amount in 2016 was € 22,766 for single persons (€ 45,532 for married couples). In 2016, taxpayers were able to offset up to 82% of capital invested into a basic provision policy over the course of the year against income tax up as special expenses.
Despite this significant tax incentive, data published by the German Insurance Association (GDV) indicates that only 94,900 new basic annuity contracts had been concluded throughout the market by the reporting date on December 31, 2016. This corresponds to a drop of 3.4%, with the number of policies concluded having already displayed a downward trend in the last 3 years.
The supplementary pension provision (2nd tier) essentially comprises occupational pension provision and the Riester pension. Half (53.7%) of those with statutory pension insurance in Germany also have a Riester pension or occupational pension in place as supplementary provision. According to a study published by the Prognos Institute, around 20% of these have a Riester pension, while 22.7% are covered though an occupational pension scheme and 11% are using both forms of investment to save for their old age.
The sector-wide downward trend in sales also continued for new Riester contracts signed in the reporting year. According to the German Federal Ministry of Labor and Social Affairs, 26,000 new contracts were concluded by the end of Q3 2016 (financial year 20150 186,000). There were therefore approximately 16.5 million Riester policies in place – which is only slightly more than on December 31, 2015. As had already been the case in the previous years, an increase of new contracts for the ¹Mohn-Riesterº state-subsidiped housing financing was recorded in the reporting year. However, the number of insurance policies once again displayed a slight downward trend.
Improved incentives for basic pension still not having any real impact
¹Mohn-Riesterº statesubsidiped housing financing remains popular The overall significance of occupational pension provision as a further component of 2nd tier provision is fundamentally great. One reason is that it qualifies for tax and social security breaks. Oet despite this, occupational pension provision is still struggling to gain further ground among employees. According to a survey performed by the University of Mrpburg on behalf of the Federal Finance Ministry, the ratio has remained stable in the last few years at around 60%. The penetration rate of occupational pension provision is well below the average, particularly among low-income employees, as well as employees working for small and medium-siped companies (SMEs). The study therefore recommends that further proliferation of the occupational pension provision concept should be supported by additional reform measures on the part of the state. The German Federal Ministry of Labour and Social Affairs already reacted and presented a corresponding draft bill in the autumn of 2016. Oou can find more information on this in the forecast section under ¹Competition and regulationº.
The 3rd tier is also still displaying stifled development, not least due to the lowering of the guaranteed interest rate at the start of 2015. The 2016 Mealth Barometer states that almost one in two German citipens (47%) currently holds a private life insurance policy and more than one in three (37%) holds a private pension insurance policy. According to the German Insurance Association (GDV e.V.), the number of new classic life and pension insurance policies signed in the reporting year is below the previous year's level at 778,112 (-11.5%). 46% of new contract wins is attributable to new guarantee products, following 37% in 2015, 31% in 2014 and 24% in 2013.
Due to the difficult market environment described and the reservations still being displayed among the population when it comes to signing long-term contracts, provisional figures provided by the German Insurance Association (GDV e.V.) indicate the brokered premium sum of new business in the reporting year was € 147.65 billion, which is only slightly above the low figure of the previous year (€ 145.46 billion).
Health insurance continued to face a difficult market environment in the financial year 2016 – particularly in the case of comprehensive private insurance. According to data published by the Association of Private Health Insurers (PAV), the number of persons holding comprehensive health insurance declined for the fifth time in succession. At 8.77 million persons on December 31, 2016, the figure is 13,300 lower than the previous year. As such, there are now around 203,000 fewer holders of comprehensive health insurance policies than in 2011.
The experts at ratings agency Assekurata also do not anticipate any reversal in this trend for the reporting year. The industry shares this assessment. In a study undertaken by Assekurata Solutions GmbH, two thirds (66.7%) of brokers surveyed, rate the current business situation in the fully comprehensive private health insurance segment as poor.
Since 2015, statutory health insurance funds are entitled to charge an additional premium alongside the general premium rate of 14.6%. In 2016, two thirds of the insurance funds raised their premiums over the previous year. Only one statutory health insurance fund did not levy any additional premiums in 2016. The premiums in the reporting year ranged from 14.6% to 16.3% of gross income.
According to the 2016 Continentale Study, private policy holders are significantly more satisfied than those on statutory insurance. Indeed, 87% of private policy holders stated that they were satisfied with the services received, while 73% said they were happy with the price. Among statutory health insurance policy holders, only 60% said they were satisfied with the price they pay, which is 8% fewer than in the previous year. According to the survey, one likely reason for this is the increase in additional premiums in the statutory health insurance funds. 71% of statutory insurance policy holders were satisfied with the services they received.
Occupational pension provision0 Market penetration stagnating
Life and pension insurance policies only slightly above the previous year throughout the market
Fewer and fewer holders of comprehensive health insurance policies in Germany
No reversal of trends to be anticipated in the fully comprehensive private health insurance segment
Additional premiums at statutory health insurance funds
Private policy holders more satisfied than statutory insurance policy holders
The trend toward bolstering the scope of services covered by statutory health insurance through private provision also continued in the reporting year. According to the latest figures published by the Association of Private Health Insurers, the number of supplementary insurance policies increased by 1.7% in 2015 to 24.77 million contracts. Supplementary dental insurance policies recorded particularly strong growth. Mith a net increase of 539,000 policies according to data published by the Association of Private Health Insurers, the figure has actually more than doubled. The positive development in the supplementary insurance segment continued up to the end of 2016.
The second Act to Strengthen Long-term Care came into force on January 1, 2016. For the first time, all persons in need of nursing care now have equal access to the services of long-term care insurance, regardless of whether they are suffering from a physical or mental condition. However, key sections of the new legislation will not take effect until 2017. 2016 was used to prepare for the practicalities of the new evaluation procedure and the switchover to the new system with five care levels. Since January 1, 2016, family members caring for loved ones are entitled to care consultations. Oou can find more information on this in the forecast section.
Supplementary long-term care insurance continues to represent the second growth pillar in the supplementary insurance segment. The number of state-supported supplementary long-term care insurance policies (¹Pflege-Bahrº) increased by 22.4% to 683,500 contracts in 2015. The number of supplementary long-term care insurance policies without state support increased by 4.2% to 2.59 million. This resulted in a total increase of 228,200 policies. For the first time ever, almost as many nonsubsidiped supplementary long-term care insurance policies as tax-privileged policies were concluded. Oet new contracts in the long-term care annuity insurance segment, which represents the most comprehensive coverage, displayed a downward trend. Please refer to the chapter entitled ¹Old-age provisionº.
There are massive doubts among the population regarding the current performance of the statutory long-term care insurance system. This was one of the findings of a survey performed by the Allensbach Institute for Public Opinion Research within the scope of the MLP Health Report. Only 10% are convinced that the statutory long-term care insurance system provides adequate financial cover, while only 19% believe that at least a significant portion of care costs will be covered. The majority are of the opinion that the services of the statutory long-term care insurance system are not even close to meeting demands and can only cover a small portion of the costs associated with nursing care.
Number of supplementary insurance policies still on the rise
New rules for care
Long term care provision becoming more important
Major doubts regarding the performance of the statutory long-term care insurance system
How well-protected German citipens feel with the statutory long-term care insurance system (all amounts in %)
As a result of the amendment earmarked for 2017, as well as the associated increase in media coverage of long term care provision, the Assekurata ratings agency is predicting rising sales figures.
In the reporting year, the market environment in the wealth management segment was characteriped by the ongoing period of low interest rates and high volatility on the stock markets. Global uncertainty became apparent, primarily following the unexpected result of the UA referendum on exiting the EU and also in the course of Donald Trump's surprising victory in the US presidential election. Meanwhile, the recovery of the global economy remains weak, susceptible to disruption and exposed to numerous risks. The financial markets are being influenced by high levels of private and public debt on the one hand and low growth, low inflation and low interest rates on the other.
Global private wealth is growing – albeit somewhat more slowly. According to the 2016 Global Mealth Report published by the Boston Consulting Group (BCG), the worldwide assets of private households increased by 5.2% to US 168 trillion in 2015 – which represents slower growth than in 2014 (!7.5%). This applies to all regions worldwide with the exception of Japan. In Mestern Europe, the speed of growth slowed noticeably to 3.2% in 2015, compared with 6.9% in 2014. In Germany, private assets grew by 4.0%, following an increase of 4.4% in the previous year.
According to the 2016 Global Mealth Report published by Allianp, the average net assets of German citipens increased by 6.5% to € 47,681 in 2015. The increase recorded in the previous year was around 1%.
Based on the latest figures of the German Bundesbank, the trend towards liquid and low-risk investments also continued in the reporting year in Germany. The total monetary assets of private households in Germany at the end of Q3 2016 were € 5,477.5 billion – and therefore more than 5.0% higher than one year previously. In the first nine months of 2016, inflows into funds were essentially recorded for claims against insurance companies and pension schemes of € 66.6 billion, as well as for demand deposits (including cash) of € 54.1 billion.
Morldwide wealth increasing more slowly
Appetite for returns on the rise among private households
Investment funds also recorded positive cash inflows in the reporting year. Based on information provided by the German Association of Investment and Asset Management (BVI e.V.), the total assets managed by the German investment industry in Germany as of December 31, 2016 were € 2,801 billion, which is 7.7% higher than one year previously. Institutional investors made a significant contribution to this, meaning that investments in special funds increased by 10.6% from € 1,340 billion to € 1,482 billion. This market is relevant for the MLP Group due to the services provided by FERI.
Mixed and special funds on the rise
As of December 31, 2016, mutual funds recorded a total increase of 3.6% to € 915 billion compared to the previous year. By far the greatest inflows into funds were recorded in mixed funds at € 11.6 billion, followed by open-end real estate funds at € 4.2 billion. In contrast to 2015, investors actually withdrew money from mutual equity funds again in the reporting year.
The market for providing consulting and asset management services to high net-worth individuals, which we serve via FERI, has become significantly more complex and fiercely contested since the financial and economic crisis. Alongside the challenging conditions on the capital market, the competitive environment is also characteriped by ongoing consolidation in the private banking and wealth management segments.
From the client perspective, it is also important to note that the decision-making cycles of investors remain long and the willingness to sign new contracts remains fairly low. In light of the low-interest environment, institutional investors in particular are increasingly looking for alternative investments.
Due to the ongoing period of low interest rates, investments in both owner-occupied and investment properties are becoming increasingly more important for long-term capital accumulation. According to the 2016 Mealth Barometer, 59% of German citipens consider owner-occupied property the most suitable form of investment for this purpose. This figure has risen by six percentage points compared to 2015. 29% prefer to invest in investment properties for capital accumulation.
Ongoing consolidation in private banking and wealth management
Real estate remains popular
The non-life insurance business has become more important for insurance brokers in the last few years. According to a survey performed by AssCompact, more than three quarters (77%) of brokers surveyed consider the private non-life insurance business to be highly relevant. In 2015, this figure was just 40%. Most of those taking part in the survey believed that the Life Insurance Reform Act (LVRG) was the key reason for this increased significance of the non-life insurance business, as it is putting pressure on other areas of the brokerage business. Since this time, the non-life insurance business has been helping many insurance brokers stabilise their business model.
High importance of the non-life insurance business for insurance brokers (all figures in %)
According to a survey undertaken by Assekurata, the current business situation among insurance brokers in the non-life insurance segment is promising. Virtually three out of every four respondents (72.1%) rate the situation as good. More than half (55.7%) also share this assessment for commercial non-life insurance products.
German citipens display a high degree of willingness to switch car insurers. According to a survey performed by LVM Versicherung, 70% of German citipens have already switched car insurer at least once. The most common reason for switching was a lower premium offered by a different company. One in two Germans (55%) uses the internet to find out more about car insurance offers. Oet despite this, the personal contact to a consultant remains the most popular approach for 46% of those taking part in the survey.
According to the Natural Hapard Report of the German Insurance Association (GDV e.V.), storms, hail and heavy rain caused material damage of € 2 billion for policy holders in 2016. Half of the damage was caused by two storms in spring. In the last few years, non-life insurers have had to pay out an average of € 2.4 billion for damage caused by natural hapards.
Many homeowners in Germany underestimate the risk of suffering flooding. According to a survey conducted by the German Insurance Association (GDV e.V.), around two thirds of homeowners believe they will never be affected by this. Around 37% of residential buildings throughout Germany are insured against natural disasters such as heavy rain or flooding. This also means that around 11 million of the 17.5 million homeowners in Germany do not have adequate protection in place for damage caused by forces of nature. There is potential here, as DOMCURA is already successfully active in this business segment and enjoys an excellent market position thanks to numerous awards.
Mith regard to premium increases, the German Insurance Association (GDV) is anticipating growth in the property and casualty insurance segment in 2016.
Brokers rate the business situation as good
High degree of willingness to switch providers in the vehicle insurance segment
Risks due to forces of nature increasing
The competitive situation in the German market for financial services did not change significantly for the MLP Group in 2016 compared to the previous year. The sector remains very heterogeneous and is characterised by consolidation trends. The providers include numerous banks, insurance companies and free finance brokers. However, the quality of consulting provided by these companies can vary quite markedly. In addition to this, competitive pressure is growing throughout the entire sector as a result of new, digitally-oriented market members (so-called fintechs).
To sustainably increase the degree of transparency and consulting quality in the market, the legislator has already implemented various regulatory changes in the last few years. These changes also had a lasting effect on the framework conditions in the last financial year, and their implementation will continue to promote consolidation of the market. MLP was an early adopter of numerous requirements that the legislator is now stipulating with new sets of rules and standards. Me see this as a competitive advantage.
As was already the case in previous years, clarification of details regarding implementation of Basel III in the European Union (EU) continued to occupy the banking world in Europe during the reporting year. As a financial institution, these regulations also apply to MLP Finanpdienstleistungen AG and thereby to the MLP Group. Various capital buffers were substantiated in 2016, focusing in particular on the requirements of the capital conservation buffer, which will increase in steps from 0.625% in the reporting year to 2.5% in 2019.
In addition to this, on February 19, 2016 the Federal Financial Supervisory Authority (BaFin) published the consultation paper for the fifth amendment to the minimum requirements of risk management at credit institutions (MaRisk BA). The amendment encompasses comprehensive changes, such as extended requirements of data management, data quality and aggregation of risk data, the IT infrastructure, as well as risk reporting.
The Life Insurance Reform Act (LVRG), which already came into force in 2015, also had lasting effects on the competitive situation in the market as a whole during the reporting year. Ratings agency Assekurata expects the current level of commission to decrease further in a second wave of adjustment as a result of the Life Insurance Reform Act (LVRG). Analyses also reflect a transition from acquisition commission to portfolio commission.
The law transposing the Solvency II EU Directive into German law came into force on January 1, 2016. Insurance companies therefore now have to adhere to new supervisory rules that rest on three pillars and are designed to fundamentally modernise and harmonise insurance regulation throughout Europe. The first pillar requires insurers to submit a risk-based%fair value-based measurement of their investments and benefit obligations. The second pillar presents additional requirements pertaining to business organipation (governance), while the third pillar extends the reporting obligations of insurers.
Life insurers are reacting to the challenges associated with Solvency II with innovations in the product landscape and are increasingly seeking to extend their portfolio of old-age provision products with flexible guarantees or no guarantees at all. The growing complexity of the products presents opportunities for quality-driven brokers with the necessary consulting expertise, such as MLP.
Altered framework conditions drive consolidation
Stricter banking regulation in Europe
Life Insurance Reform Act (LVRG) having lasting effects
Solvency II is moving the insurance sector
The first Financial Market Reform Act came into force in July 2016 and represents the first part of a comprehensive amendment to the laws of the financial market. The objectives are to strengthen the rights and protection of small private investors and increase the transparency of the financial markets. As the introduction of the amended Markets in Financial Instruments Directive (MiFID II) has been postponed by one year to January 3, 2018 by the European Commission, the initially coherent Financial Market Reform Act will be split up. Oou can find further information on this in the Forecast section.
The act on the implementation of the EU directive on credit agreements for consumers relating to residential immovable property came into force in Germany on March 21, 2016. The new law requires banks to investigate the financial and economic situation of clients particularly carefully when issuing mortgages. In addition to this, mortgage brokers must hold a certificate of proficiency, be registered and sign up for professional liability insurance. The local chambers of industry and commerce are responsible for organising the competence tests. The transitional period ended on March 21, 2017.
MLP is also active in the brokerage of mortgages. All our consultants are well-trained for this consulting field. However, some consultants still need to present their new certificate of proficiency. In the current reporting year, we already prepared consultants at our Corporate University for the necessary examination at the respective chambers of industry commerce. Further training measures are to take place at the start of 2017.
MLP considers itself to be generally well prepared in terms of compliance with the legal documentation, qualification and transparency obligations. But irrespective of this, the regulatory developments will certainly represent a challenge and put pressure on the profitability of all market members.
According to the most recent Sales Channel Survey performed by corporate consultancy Towers Matson, independent brokers like MLP (i.e. brokers that do not offer any of their own products) were the third most important specialist consulting channel in the industry for the sale of life insurance policies. Their market share of brokered new business was 26.3%. Tied agents, which represent just one company, took 2nd place with 27.5%, just behind the banks at 30.4%.
According to Towers Matson, independent consultants also continue to play a key role in the brokerage of private health insurance policies. Mith a market share of 33.5%, they are the second most important consultant group after the tied agents (48.1%).
Greater transparency and better investor protection in focus
Directive on credit agreements for consumers relating to residential immovable property
Demand for independent consulting services remains high
In the old-age provision area, the ongoing period of low interest rates and critical media reports on life insurers throughout the market were the main factors that led to continued reservations 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 72% of all newly concluded contracts at MLP in 2016. Occupational disability insurance also provided positive stimulus here. Total revenue in the old-age provision area was slightly above the previous year's level in the reporting year.
In the health insurance area, we continued to encounter reservations in terms of signing new comprehensive private insurance policies. Factors such as premium increases in this area and a critical media coverage contributed to this development. Oet despite this, our revenues in the health insurance area displayed stable development. This is thanks to our good client basis, as well as the close and intensive support our clients receive. As anticipated, the supplementary insurance area also displayed positive development in 2016.
Together with our subsidiary FERI, we have developed the wealth management area into a key revenue pillar in the last few years. FERI was able to acquire new clients in all business segments in the reporting year. 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, hedge funds and real estate).
Mith the divestment of ratings agency FERI EuroRating Services AG in the reporting period, FERI now concentrates on its three core business segments of investment research, investment management and investment consulting.
Total revenue in the wealth management area remained at the previous year's level. In terms of assets under management, we exceeded our forecast and are above the previous year's level. This development also continued to be supported by net cash inflows at MLP Finanpdienstleistungen AG.
As anticipated, revenues in the non-life insurance area were considerably above the previous year's level. This was due to the first consolidation of DOMCURA for a full financial year. Alongside the existing business of the DOMCURA Group, the cooperation with MLP provided positive stimulus, for example through the implementation of new concepts (see below).
As expected, it was not quite possible to repeat the previous year's record result in the property financing segment. Other commission and fees, an item that primarily reflects the brokerage of real estate objects, remained at the previous year's level. Reasons for this development were above all the shortage of listed buildings, which together with existing real estate had been the focus of brokerage activities. To expand the revenue basis, MLP extended its portfolio in the reporting year to include new buildings, as well as existing and concept-driven properties (microliving, nursing care properties).
MLP further diversified its revenue basis in 2016. The successful integration of the DOMCURA Group represents a key contribution to this strategic objective, whereby business with other market members (sales partners) continued to enjoy positive development. One important advancement in this regard was the introduction of a new online calculation tool for commercial insurance policies. MLP consultants also receive comprehensive process support in the non-life insurance segment. Aside from
Portfolio extended in the real estate segment
Diversification of revenue streams is progressing
this, an initial joint concept for private clients (¹DOMCURA comprehensive coverº) was also developed and successfully launched to market in the period under review. The positive developments observed in the wealth management and health insurance areas also made an important contribution to diversification of the revenue basis.
As announced at the start of the year, MLP adjusted the way it counts clients to the modified corporate structure in the reporting year. Since Q1 2016, we have been reporting according to family clients served at MLP Finanpdienstleistungen AG and in the FERI Group and according to corporate and institutional clients. These include clients in the occupational pension provision area and institutional clients at FERI as well as sales partners at DOMCURA. On the basis of this definition, the Group served 517,400 family clients as of December 31, 2016 (December 31, 20150 510,200). The gross number of newly acquired family clients increased by 10.8% to 20,500 in 2016. In addition to this, the MLP Group provided its services to a total of 19,200 corporate and institutional clients (December 31, 20150 18,200).
The distribution of revenues has changed since the reporting year. Although MLP generates a large proportion of its revenues in the final quarter, the acquisition of DOMCURA has also made the first quarter significantly more important. This is due to the seasonal nature of the DOMCURA business model. Accordingly, the subsidiary records high sales revenue and comparably high earnings in the first quarter of each year and subsequently records a loss from Q2 to Q4. Examining the whole year, earnings are significantly positive.
To increase the productivity of our consultants, we increased the staffing level at the MLPdialog GmbH client service center in Bad Segeberg in the reporting year and further extended the service for our consultants and clients.
Mithin the scope of implementing our online strategy, MLP intensified its cooperation with the fintech company massUp in the reporting year. Since the roll-out at the start of the year, our clients have also been able to sign up for basic insurance products online using the MLP client websites mlp.de and mlpfinancify.de. During this period, a total of 1,000 contracts have already been concluded, including electronics insurance, bicycle insurance and in particular travel health insurance policies. Plans for further expansion are currently underway. In addition to this, vehicle insurance policies can also be concluded online at MLP. Video conferencing was once again made available to all consultants in the reporting year. The pilot group for the eSignature was expanded in a step-by-step approach in 2016. Another roll-out is planned for 2017.
Mithin the scope of our online strategy, MLP further increased its presence on social media platforms such as Facebook, OouTube and Twitter in the reporting year. In addition to this, we worked on permanently improving our websites. These two approaches each help win participants online for seminars held at the branch offices and develop consulting needs. In the survey ¹Customer-oriented websites of listed companies 2016º conducted by consultancy Service Value for the German daily newspaper ¹Die Meltº, MLP's revised online presence was rated as the best overall offer of a listed financial services provider. MLP FinancePilot, which offers our clients various online options including processing of their day-to-day banking needs, received new functionalities in 2016. These include the SecureGo process, as well as the GiroCode function, with which invoices can be scanned via QR code.
In 2016, the foundations were laid for an extended client portal. The MLP client portal is an application which has been adapted to the modern design of the MLP homepage and in particular links up FinancePilot Banking and Report and provides them with new features. The main focus is on the ¹digital budget bookº, which presents financial topics such as client income and expenditure in a clearly structured way. Mith the infrastructural basis of the client portal already in place and planned extensions, MLP now offers an application which clients can use to access further individual MLP applications just by logging in and which makes it particularly easy for them to manage their financial matters. The pilot phase for the client portal was launched at the end of 2016, and across-the-board roll-out is planned for early 2017.
Adjustment to the way we count clients
New distribution of revenues due to DOMCURA acquisition
Client service center further extended
Digitalisation strategy successfully pressed ahead
Social media activities as a way of acquiring new clients
New client portal launched
In 2016, MLP introduced a new application for the selection of products. This new application offers considerable operating and process benefits over the previous software. It offers consultants valuable support – from selecting products, the entire application process right through to the advisory documentation. The new MLP.net Intranet was also launched at the end of October 2016. It facilitates targeted information transfer to both consultants and employees, while promoting the exchange of professional information with one another.
Me are consistently working on further developing our consulting approach, which is being supported by a new consulting application (¹Budget guideº). This was successfully tested and combined with a comprehensive training concept in 2016. A further, step-by-step roll-out is due to follow from 2017 onward. In parallel to this, the counterpart for advising young clients has been developed in the form of the ¹Budget guide easyº application. The application was released for testing in November and the rollout (together with corresponding training sessions) is scheduled for 2017. Oou can find further information on this in the section entitled ¹Anticipated business developmentº.
As in the previous year, acquiring new consultants continued to be a key topic in the reporting year. The new further training allowance introduced in 2015 for those wishing to begin a career as a client consultant has established itself as an important concept within our recruiting initiative. Oou can find further information on this in the section entitled ¹Employees and freelance client consultantsº.
The Corporate University has been collaborating with the School of Management and Innovation at the Steinbeis University in Berlin since September to offer an MSc course in ¹Financial Planning and Managementº. The extra-occupational master's course is aimed both at experienced MLP consultants and those who are working for MLP after completing their bachelor's degree. It therefore represents a supplementary instrument of our recruiting initiative and an additional further training opportunity for our consultants.
As the market environment remains challenging, in February 2016 MLP introduced measures to again significantly reduce costs in the financial year 2017 and subsequent years and to achieve a positive EBIT effect of € 15 million compared to the financial year 2015. This incurred one-off expenses of approximately € 15 million in the financial year 2016. The savings predominantly relate to material costs. In addition to this, MLP chose not to fill positions that became vacant and instead relied more on synergies between the Group companies in the back office. MLP already lowered administrative costs by around € 60 million between 2008 and 2012.
In the reporting year, FERI AG announced the sale of FERI EuroRating Services AG. The transaction was then concluded on August 1, 2016. FERI is now continuing to focus on its core strengths of investment management, investment consulting and investment research, as well as on strategic further development to become the leading investment company in Germany, Luxembourg, Switperland and Austria.
Mithin the scope of the additional focus of the corporate structure in the DOMCURA Group, companies including Ralf M Barth GmbH and FF Makler AG were merged into nordias GmbH insurance brokers in the reporting year. All activities of the broker business segment have been bundled in this company including specialist brokers for commercial and industrial solutions.
Roll-out of new consultant applications
Recruiting initiative starting to bear fruit
Financial Planning master's programme launched
Consistent efficiency management programme supports growth strategy
Changes in corporate structure
The previous year's figures under financial position, net assets and results of operations offer only limited comparability year on year. This is due to DOMCURA being included in the Group consolidation scope for a full year for the first time in the financial year 2016. In the financial year 2015, it was only included for the months from August to December.
Despite the continually challenging market conditions already described, MLP was able to increase total revenue in the reporting period by 10.1% to € 610.4 million (€ 554.3 million). This growth was primarily driven by the increase in commission income from € 514.3 million to € 570.1 million. Here it should be noted that the revenues of the DOMCURA Group were included for a full financial year for the first time. DOMCURA's contribution to Group revenue was € 70.7 million in the financial year 2016 (share from August to December 20150 € 20.0 million). Revenue from the interest rate business fell to € 20.5 million (€ 21.4 million) due to the ongoing low interest rate environment. Following € 18.7 million in the previous year, other revenue increased to € 19.8 million.
The market environment in the old-age provision area remains challenging, not least due to the ongoing low interest rate environment, as well as the ongoing negative press on life insurers and their products. Oet despite this, revenues in the old-age provision area increased by 2.7% to € 221.5 million (€ 215.7 million) – even when taking into account a one-off positive effect due to the correction of an incorrect settlement by a product partner in the previous year. This successful development is primarily down to a strong closing quarter, in which revenue rose by 7.4% to € 94.3 million (Q4 20150 € 87.8 million). This means that MLP recorded gains in the old-age provision area for three quarters in succession. At € 3.7 billion, the premium sum of new business generated in the financial year was 5.7% above the previous year (20150 € 3.5 billion), while growth in the overall market was just 1.5%. One key reason for the excellent development enjoyed by MLP was its ability to adapt fast to the new product portfolio. Mhile just under 50% of contracts in the market were brokered with classic guarantees in 2016, this figure was just 14% at MLP. Instead, 72% of clients at MLP opted for new types of guarantees and 14% preferred purely unit-linked policies.
At € 45.8 million, revenue in the health insurance area was up on the previous year (€ 45.9 million). Accordingly, MLP recorded stable development, despite the reservations regarding private health insurance being felt by many German citipens throughout the market, not least due to the negative press regarding premium increases.
The non-life insurance area recorded significant growth. Indeed, revenue for the year almost doubled to € 105.6 million (€ 54.9 million). Our subsidiary DOMCURA, which was acquired mid-2015 made a particularly significant contribution to this. In 2016 the revenues generated by DOMCURA were included in the income stated for the first time for a full year. Its contribution was € 68.7 million (August to December 20150 € 20.0 million).
Total revenue significantly up
New business in the oldage provision area significantly above the previous year
Health insurance at the previous year's level
Non-life insurance enjoys significant growth
At € 166.4 million, revenue in the wealth management area remained at the previous year's record level (€ 166.0 million). The assets under management by FERI and MLP Finanpdienstleistungen AG continued to display positive development and were € 31.5 billion as of December 31, 2016 (September 30, 20160 € 30.0 billion).
Assets under management rises to € 31.5 billion
At € 15.4 million, revenue in the loans and mortgages area was not quite able to reach the previous year's record level (€ 16.2 million). At € 1.7 billion, the brokered financing volume was also slightly down on the previous year (€ 1.8 billion). At € 15.4 million, other commission and fees, which are mainly attributable to the brokerage of real estate objects, remain at the previous year's level.
In the last financial year, MLP successfully implemented the announced efficiency programme and thereby laid the foundations for permanently reducing the cost base for 2017 and subsequent years. Administrative expenses (defined as the sum of personnel expenses, amortipation expenses and impairments, as well as other operating expenses), which for the first time also included an entire financial year of administration expenses at DOMCURA in the financial year 2016, were € 290.9 million (€ 270.1 million). These include € 15.4 million in total one-off expenses accrued in 2016 within the scope of the efficiency programme. The administrative expenses of DOMCURA, which were only included in the previous year from August 2015 due to its first-time consolidation (€ 10.5 million), were around € 24.3 million for the full year 2016.
Operating EBIT (before one-off expenses) increased by 14.3% to € 35.1 million (€ 30.7 million) in the financial year. Taking into account one-off expenses of € 15.4 million, EBIT amounted to € 19.7 million (€ 30.7 million). The one-off expenses also have an effect on the net profit for the period of € 14.7 million (€ 19.8 million).
Loans and mortgages slightly below the previous year's level.
Efficiency program successfully implemented – cost base permanently reduced
Sales revenue increased to € 590.6 million (€ 535.7 million) in the reporting period. At € 70.7 million, revenue generated by DOMCURA had a significant influence on this (€ 20.0 million). At € 19.8 million, other revenue was up on the previous year (€ 18.7 million). Following € 554.3 million in the previous year, total revenue rose to € 610.4 million.
Development of total revenue (all figures in € million)
The increase in commission income from € 514.3 million to € 570.1 million had a positive influence on revenue development and was largely due to the increase in revenues in the non-life insurance area. At € 20.5 million, interest income was below the previous year (€ 21.4 million). This was due to the ongoing period of low interest rates. The old-age provision area continued to make the greatest contribution in terms of commission income with a share of 38.9% (41.9%), followed by wealth management with a share of 29.2% (32.3%). Mith a 18.5% contribution to revenue (10.7%) and 92.3% growth in revenue, the non-life insurance area too, made an important contribution in the last financial year. The following table provides a detailed overview0
Old-age provision above previous year – non-life insurance enjoys significant growth
| All figures in € million | 2016 | 2015 | Change in |
|---|---|---|---|
| Old-age provision | 221.5 | 215.7 | 2.7% |
| Mealth management | 166.4 | 166.0 | 0.2% |
| Non-life insurance | 105.6 | 54.9 | 92.3% |
| Health insurance | 45.8 | 45.9 | -0.2% |
| Loans and mortgages | 15.4 | 16.2 | -4.9% |
| Other commission and fees | 15.4 | 15.6 | -1.3% |
| Total commission income | 5-0\$1 | 514\$3 | 10\$. |
| Interest income | 20.5 | 21.4 | -4.2% |
| Total | 590\$6 | 535\$- | 10\$2 |
Commission expenses primarily comprise performance-linked commission payments to our consultants. They represent the largest single item under expenses. This item also comprises the commissions paid in the DOMCURA segment, which were included in this item for the first time for a full financial year in 2016. These variable expenses occur due to the remuneration of brokerage services in the non-life insurance business. Added to these are the commissions paid in the FERI segment, which in particular result from the activities in the field of fund administration. Variable expenses are, for example, accrued in this business segment due to remuneration of the depository bank and fund sales. Largely due to the first-time inclusion of the commissions paid in the DOMCURA segment for a full year, this item increased to € 298.5 million (€ 253.6 million). Net provision income therefore rose to € 271.6 million (€ 260.7 million).
Interest expenses fell to € 1.7 million (€ 1.9 million) due to the ongoing low interest rate environment. Net interest was € 18.8 million in total, following € 19.5 million in the previous year.
Gross profit (defined as total revenue less commission expenses and interest expenses) improved to € 310.2 million (€ 298.8 million).
In the past year, MLP laid the foundations for permanently reducing the cost base of administrative expenses relative to 2015 from 2017 onwards. This incurred one-off expenses of € 15.4 million in 2016, € 14.9 million of which can be attributed to administrative expenses. The administrative expenses of the MLP Group, including the administrative expenses of DOMCURA for a full financial year, amounted to € 282.4 million in 2015. In the last financial year, this figure was € 276 million before one-off expenses. However, it is important to note that the previous year's figure of € 270.1 million only covers the administrative expenses of DOMCURA for the months from August to December. Including one-off expenses, administrative expenses were € 290.9 million in 2016.
One#off enpenses due to efficiency measures by segment all figures in € million
Commission income above the previous year
Administrative expenses before one-off expenses down
| Iegment | |
|---|---|
| Financial services | 14.4 |
| FERI | 0.2 |
| DOMCURA | – |
| Holding | 0.8 |
| Total | 15\$4 |
Personnel expenses increased to € 121.8 million (€ 113.5 million), essentially due to the described effect of DOMCURA. Among other things, these include € 105.0 million (€ 98.1 million) for salaries and wages, € 14.3 million (€ 12.9 million) for social security contributions and employer-based old-age provision allowances of € 2.5 million (€ 2.4 million). Expenses accrued within the scope of our efficiency program are also included in this figure. Depreciation%amortipation and impairment charges increased to € 24.0 million (€ 15.1 million), largely due to one-off expenses. Other operating expenses increased to € 145.1 million (€ 141.5 million), also as a result of one-off expenses.
| All figures in € million | 2016 | ?n of total enpenses |
2015 | ?n of total enpenses |
Change in |
|---|---|---|---|---|---|
| Commission expenses | 298.5 | 50.5% | 253.6 | 48.2% | 17.7% |
| Interest expenses | 1.7 | 0.3% | 1.9 | 0.4% | -10.5% |
| Personnel expenses | 121.8 | 20.6% | 113.5 | 21.6% | 7.3% |
| Depreciation and impairments | 24.0 | 4.1% | 15.1 | 2.9% | 58.9% |
| Other operating expenses | 145.1 | 24.5% | 141.5 | 26.9% | 2.5% |
| Total | 591\$1 | 100\$0 | 525\$6 | 100\$0 | 12\$5 |
MLP Hyp once again displayed very encouraging business development in the last financial year. Me hold a 49.8% stake in this company, which is operated as a joint venture together with mortgage broker Interhyp. As a result of the excellent business development, our allotted earnings from the company increased to € 2.1 million (€ 1.8 million). This is reflected in the income statement under the item ¹Earnings from investments accounted for using the equity methodº.
Operating EBIT before one-off expenses increased by 14.3% to € 35.1 million (€ 30.7 million) in the financial year. The main drivers of this increase were revenues in the old-age provision area, which were up once again, as well as the profit contribution of DOMCURA. As announced, one-off expenses were accrued within the scope of the efficiency programme. These expenses amounted to € 15.4 million, resulting in an EBIT of € 19.7 million (€ 30.7 million).
The finance cost rose to € -0.9 million (€ -2.8 million) in the last financial year. Significantly lower other interest and similar expenses, which fell from € -3.3 million to € -1.9 million, were the main reason behind this increase. In the previous year, this development could be attributed to interest charges due on a retrospective tax payment resulting from MLP's international activities that were ceased back in 2007. In the light of one-off expenses, earnings before tax (EBT) were € 18.7 million (€ 28.0 million). Accordingly, income tax expenditure also declined to € 4.1 million (€ 8.2 million). In the previous year, this had also been impacted by the retrospective tax payment described above.
Operating EBIT significantly up
Finance cost significantly increased
The following table provides an overview of the earnings structure, as well as the development of earnings and margins0
| All figures in € million | 2016 | 2015 | Change in |
|---|---|---|---|
| Total revenue | 610.4 | 554.3 | 10.1% |
| Gross profit | 310.2 | 298.8 | 3.8% |
| Gross profit margin (%) | 50.8% | 53.9% | |
| EBIT | 19.7 | 30.7 | -35.8% |
| EBIT margin (%) | 3.2% | 5.5% | |
| Operating EBIT | 35.1 | 30.7 | 14.3% |
| Operating EBIT margin (%) | 5.8% | 5.5% | |
| Finance cost | -0.9 | -2.8 | 4-100% |
| EBT | 18.7 | 28.0 | -33.2% |
| EBT margin (%) | 3.1% | 5.1% | |
| Income taxes | -4.1 | -8.2 | -50.0% |
| Net profit | 14.7 | 19.8 | -25.8% |
| Net margin (%) | 2.4% | 3.6% |
Definition0 Gross profit is the result of total revenue less commission expenses and interest expenses. 1
Group net profit fell to € 14.7 million (€ 19.8 million) in the financial year 2016. This decline can be attributed to one-off expenses within the scope of our efficiency programme. The diluted and basic earnings per share were € 0.13.
| All figures in € million | 2016 | 2015 | Change in |
|---|---|---|---|
| Continuing operations | 14.7 | 19.8 | -25.8% |
| GROUP | 14.7 | 19.8 | -25.8% |
| Earnings per share in € (basic) | 0.13 | 0.18 | -27.8% |
| Earnings per share in € (diluted) | 0.13 | 0.18 | -27.8% |
| Number of shares in millions (basic) | 109.3 | 108.5 | 0.7% |
Meighted average number of shares
At the start of the past financial year, we announced that we would persist with our dividend policy of paying 50% to 70% of Group net profit to our shareholders in the form of dividends. Me paid our shareholders € 0.12 per share in the form of a regular dividend for the financial year 2015. The total dividend paid was therefore € 13.1 million.
For the financial year 2016, Executive Board and Supervisory Board will propose a dividend of € 0.08 per share at the Annual General Meeting on June 29, 2017. This corresponds to a total dividend payout of € 8.7 million and a payout ratio of around 60%.
The financial management of the MLP Group is performed by the central Treasury department in cooperation with the Controlling and Risk Management departments. Our primary objective here is to secure the liquidity of the Group at all times, control the risks involved using the various financial instruments and optimise Group-wide cash management. To this end, we employ a system of rolling liquidity planning with a time frame of 15 to 18 months.
There were no significant liabilities or receivables in foreign currencies during the reporting period, as we generate almost 100% of total income in the europone. It is therefore not necessary for us to hedge net items in foreign currencies by means of hedging instruments. Oou can find details on the financial risks in the notes to the consolidated financial statements in the ¹Financial risk managementº chapter.
In the light of today's group structure, MLP expects increased capital requirements for the next few years in order to meet the revised definition of equity and stricter requirements of Basel III.
The Group's equity capital backing and liquidity remain good. As of the balance sheet date, shareholders' equity amounted to € 383.6 million and remained at the previous year's level (€ 385.8 million). The Group net profit of € 14.7 million for the financial year 2016 had a significant effect on this. However, this was counteracted by the dividend payment of € 13.1 million for the financial year 2015. Due to the higher balance sheet total, the equity ratio declined from 22.0% to 19.7%. The regulatory equity ratio was 14.2% (14.3%) on the balance sheet date.
At present, we are not using any borrowed funds in the form of securities or promissory note bond issues to finance the Group. Our non-current assets are financed in part by non-current liabilities. Current liabilities due to clients and banks in the banking business represent further refinancing funds that are generally available to us in the long term. Total liabilities due to clients and financial institutions in the banking business of € 1,308.8 million (€ 1,125.7 million) essentially comprise client deposits, which have no financing function for the Group. These liabilities are offset on the assets side of the balance sheet by € 1,217.5 million (€ 1,143.0 million) in receivables from clients and financial institutions in the banking business.
Since provisions only account for 4.7% (4.9%) of the balance sheet total, they have no significant financing function for the Group. Other liabilities increased to € 146.9 million (€ 140.2 million) on the balance sheet date, Current liabilities rose to € 143.1 million (€ 137.2 million). These are essentially liabilities from operating activities. Current liabilities are offset on the assets side by cash and cash equivalents of € 184.8 million (€ 77.5 million), which are attributable to temporarily higher deposits at the Deutsche Bundesbank, and financial investments of € 162.3 million (€ 147.9 million), as well as other current assets of € 109.4 million (€ 99.3 million).
On the balance sheet date of December 31, 2016 there were financial commitments from rental and leasing agreements amounting to € 15.8 million (€ 14.5 million). These mainly constitute liabilities from the renting of our branch offices, as well as leasing of motor vehicles and office equipment. They can result in potential total liabilities of € 70.9 million (€ 70.4 million) by the year 2022.
No liabilities or receivables in foreign currencies
Equity ratio at 19.7%
Cash flow from operating activities increased to € 144.7 from € 58.8 million in the same period of the previous year. Here, significant cash flows result from the deposit business with our clients and from the investment of these funds.
Cash flow from investing activities changed from € -18.0 million to € -41.3 million. A higher volume of new investments in financial assets were made in the reporting period than in the same period of the previous year.
| All figures in € million | 2016 | 2015 |
|---|---|---|
| Cash and cash eguilalents at beginning of period | 94\$5 | -2\$1 |
| Cash flow from operating activities | 144.7 | 58.8 |
| Cash flow from investing activities | -41.3 | -18.0 |
| Cash flow from financing activities | -13.1 | -18.3 |
| Change in cash and cash eguilalents | 90\$3 | 22\$4 |
| Cash and cash eguilalents at end of period | 1.4\$. | 94\$5 |
As of the balance sheet date, December 31, 2016, the MLP Group has access to cash holdings of around € 265.0 million. A good level of liquid funds therefore remains available. Thus there are sufficient cash reserves available to the MLP Group. Alongside cash holdings, free lines of credit are also in place. In 2016, the MLP Group was capable of meeting its payment obligations at all times.
MLP generally finances capital expenditures from cash flow. The total investment volume in intangible assets and property, plant and equipment increased to € 18.4 million in the last financial year (€ 12.8 million). This increase can essentially be attributed to greater investments in sales-supporting IT systems and software.
| All figures in $\epsilon$ million | 2016 | 2015 | 2014 | 2013 | 2012 |
|---|---|---|---|---|---|
| Intangible assets | 13.7 | 7.9 | 8.9 | 19.5 | 7.8 |
| Goodwill | |||||
| Software (developed in house) | 0.3 | 0.4 | 0.4 | 0.4 | 0.4 |
| Software (purchased) | 2.5 | 0.4 | 1.1 | 0.6 | 0.4 |
| Other intangible assets | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Payments on account and assets under construction |
11.0 | 7.1 | 7.4 | 18.5 | 7.0 |
| Property, plant and equipment | 4.7 | 4.8 | 6.6 | 2.9 | 6.7 |
| Land, leasehold rights and buildings | 0.5 | 0.7 | 0.4 | 0.4 | 0.4 |
| Other fixtures, fittings and office equipment |
3.0 | 3.1 | 4.2 | 1.8 | 5.4 |
| Payments on account and assets under construction |
1.2 | 1.0 | 2.0 | 0.8 | 0.9 |
| Total capital expenditures | 18.4 | 12.8 | 15.4 | 22.5 | 14.5 |
At € 16.6 million, the overwhelming majority of capital expenditure in the last financial year was related to investments in the financial services segment. These investments were made in operating and office equipment and here in particular in sales-supporting IT systems. They contribute to the continuous improvement of consulting support and client service. Alongside these capitalipable investments, we also use other intensive resources for these projects which are recogniped as expenses in the income statement. Capital expenditure in the FERI segment was € 0.6 million, which we invested in operating office equipment, as well as in IT. The investments in the DOMCURA segment amounted to € 0.7 million and were aimed in particular at operating office equipment, as well as IT.
| Total capital expenditure | Change in % | ||
|---|---|---|---|
| All figures in $\epsilon$ million | 2016 | 2015 | |
| Financial services | 16.6 | 11.2 | 48.2% |
| FERI | 0.6 | 0.8 | $-25.0%$ |
| DOMCURA | 0.7 | 0.5 | 40.0% |
| Holding | 0.3 | 0.3 | 0.0% |
| Total | 18.4 | 12.8 | 43.8% |
As of the reporting date of December 31, 2016 the balance sheet total of the MLP Group increased to € 1,944.1 million (€ 1,752.7 million).
Intangible assets – essentially including the client base, brand and goodwill – decreased to € 168.4 million (€ 174.5 million) as of the balance sheet date. This decline can essentially be attributed to the amortipation of software. Fixed assets were declined within the scope of depreciation and amortipation to € 63.4 million (€ 65.7 million).
Receivables from clients in the banking business increased to € 626.5 million (€ 542.7 million). This can essentially be attributed to an increase in own-resource loans, higher investment volumes in promissory note bonds and a greater volume of promotional loans being passed on to our clients. Receivables from banks in the banking business amounted to € 591.0 million (€ 600.3 million). Around 58% of receivables from banks and clients in the banking business have a term to maturity of less than one year.
As of the balance sheet date financial investments increased to € 162.3 million (€ 147.9 million) due to redeployment of other forms of investment. The tax refund claims declined to € 12.1 million (€ 14.9 million). This can be attributed to a reimbursement of corporation tax overpayments.
Other receivables and assets rose to € 122.8 million (€ 112.5 million). This item essentially contains commission receivables from insurers resulting from the brokerage of insurance products.
As a result of reporting-date factors, cash and cash equivalents increased to € 184.8 million (€ 77.5 million), reflecting temporarily higher deposits at the Deutsche Bundesbank. At the same time, the profit transfers of MLP Finanpdienstleistungen AG and FERI AG boosted the figure. Among other factors, the dividend payment to our shareholders had the opposite effect. Oou can find detailed information on the change in cash and cash equivalents in the chapter entitled ¹Financial positionº.
Non-current assets held for sale and disposal groups fell from € 6.0 million to € 0.0 million on the closing date. A property included in this item was sold in the financial year 2016.
The equity capital backing of the MLP Group remains good. As of December 31, 2016, shareholders' equity was € 383.6 million (€ 385.8 million). Due to the higher balance sheet total, the equity ratio was 19.7% (22.0%). Based on Group net profit of € 14.7 million, we therefore achieved a return on equity of 3.8% (5.1%).
Provisions increased to € 91.2 million (€ 86.5 million), essentially due to higher provisions for cancellation risks and pensions. This was offset by the release of provisions in connection with the participation model.
Further increase in balance sheet total
Equity capital backing remains good
The deposits of our clients (liabilities due to clients in the banking business) increased to € 1,271.1 million (€ 1,102.6 million) at the end of the reporting period. This increase is primarily attributable to short-term deposits held in bank accounts, credit cards and instant access savings accounts. Liabilities due to banks in the banking business rose to € 37.7 million (€ 23.1 million). This can mainly be attributed to a higher volume of promotional loans being passed on to our clients. This item includes the refinancing funds from funding institutions.
Following € 4.0 million in the previous year, tax liabilities amounted to € 3.6 million. Other liabilities were € 146.9 million (€ 140.2 million). This item essentially comprises current liabilities due to our consultants and branch managers in connection with open commission claims (please also refer to the section entitled ¹Financial positionº).
The corporate management still considers the Group's economic situation to be positive, both at the end of the reporting period and at the time of preparing the Group management report. This also applies to our financial position. Liquidity remains at a good level. The equity capital backing also remains good.
At the start of the financial year, we issued a forecast for the operating EBIT that indicated a slight increase over the previous year. Me also made a qualitative estimate regarding the revenue performance.
In the old-age provision area, we were able to slightly exceed our expectation of maintaining constant revenues. Revenues in both the wealth management and health insurance areas remained at the previous year's level and were therefore slightly below our expectations. In the non-life insurance area, we were able to increase revenues significantly in the anticipated scope.
Before one-off expenses associated with our efficiency measures, we anticipated administrative expenses of € 277.0 million for the past financial year. Mith administrative expenses of € 275.5 million before one-off expenses, we were able to remain slightly below this level.
Mith operating EBIT of € 35.1 million (before one-off expenses), we were able to achieve an increase in line with our forecast.
The financial services segment reflects revenue from all fields of consulting – i.e. old-age provision, health and non-life insurance, wealth management and loans mortgages. The FERI segment primarily generates revenue from the wealth management field of consulting, while the DOMCURA segment generates most of its revenue from the non-life insurance business. The industry situation for the Group described in the individual fields of consulting applies accordingly to the segments.
Total revenue in the financial services segment rose to € 410.8 million (€ 406.0 million) in the financial year 2016. This can essentially be attributed to the increased commission income in the old-age provision and wealth management segments. Development of the other consulting fields (wealth management, health insurance and other consulting services, which essentially reflect revenue from real estate brokerage) was in line with the overall development in the Group. At € 20.5 million (€ 21.4 million), revenue from the interest rate business was below the previous year. This was due to the continued low interest rate level.
Commission expenses increased to € 183.6 million (€ 172.5 million). This increase can be attributed to higher commission income and greater expenses within the scope of our further training allowance for young consultants, as well as payments to our consultants within the scope of a participation programme and increased participation on the part of our branch office managers. At € 1.7 million (€ 1.9 million), interest expenses were below the previous year's level. The reason for this lies in the continued low level of interest rates.
Personnel expenses increased from € 74.2 million to € 76.0 million, essentially due to one-off expenses accrued within the scope of our efficiency programme. Depreciation%amortisation and impairments increased to € 19.1 million (€ 9.5 million) also affected by one-off expenses. In the light of one-off expenses, other operating expenses rose to € 126.8 million after € 124.3 million in the previous year.
Total one-off expenses of € 14.4 million were accrued in the financial services segment within the scope of our efficiency program.
EBIT declined to € 4.8 million (€ 25.6 million) which is attributable to the efficiency programme and higher commissions paid. Along with this the EBIT margin fell to 1.2% (6.3%).
The FERI segment represents the activities of the FERI Group. Revenue is primarily generated in this segment from the wealth management field of consulting.
At € 128.7 million, total revenue remained at the previous year's record level (€ 129.9 million), despite the fact that the performance-based remuneration which FERI receives for the performance of client portfolios (performance fees) was lower in 2016 than in the previous year. The sale of FERI Eurorating Services AG also had a revenue-reducing effect in 2016.
At € 72.1 million, commission expenses remained at the previous year's level (€ 70.7 million). Personnel expenses fell to € 28.1 million (€ 30.4 million). The previous year's higher figure was due to greater variable remuneration. Depreciation%amortipation and impairment was € 1.5 million (€ 1.8 million). Other operating expenses declined to € 11.8 million (€ 13.4 million). The previous year was influenced by several factors, including higher consulting costs in connection with acquiring a license to operate as a capital management company.
Total one-off expenses of around € 0.2 million were accrued in the FERI segment within the scope of our efficiency measures.
In light of lower overall administrative expenses, EBIT increased to € 14.3 million (€ 13.7 million). In this context, the EBIT margin improved to 11.1% (10.5%). The finance cost was € -0.1 million, following € - 0.3 million in the previous year. Accordingly, EBT rose to € 14.2 million (€ 13.4 million).
The previous year's figures in the DOMCURA segment report offer only limited comparability with the figures of the financial year 2016, as only the time period from the point of acquisition up to December 31, 2015 (around 5 months) was taken into account in the previous year. At DOMCURA, revenues are primarily generated in the non-life insurance consulting fields.
DOMCURA's business model is characterised by a high degree of seasonality. Accordingly, the subsidiary records high sales revenue and comparably high earnings in the first quarter of each year and subsequently records a loss from Q2 to Q4.
DOMCURA generated revenue of € 70.7 million (€ 20.0 million) in the reporting year. Other revenue was € 3.2 million (€ 2.1 million). Accordingly, total revenue was € 73.9 million (€ 22.1 million).
Commission expenses amounted to € 46.6 million (€ 13.5 million). These are essentially accrued as variable remuneration for brokerage services.
Following € 10.5 million in the previous year, administrative expenses rose to € 24.3 million. Thereof personnel expenses accounted for € 14.1 million (€ 5.1 million). Depreciation%amortipation and impairment was € 1.4 million (€ 0.7 million). Other operating expenses amounted € 8.8 million, following € 4.7 million in the previous year.
EBIT was € 3.0 million in the first year of full consolidation (€ -1.8 million). Mith a finance cost of € 0.0 million (€ 0.0 million), EBT was € 3.0 million (€ -1.8 million).
The Holding segment does not have active operations. Total revenue in the reporting year increased to € 13.7 million (€ 11.0 million). This rise is mainly attributable to a settlement payment made in connection with judicial proceedings.
Personnel expenses were € 3.6 million (€ 3.8 million). Depreciation%amortisation and impairments fell to € 1.9 million (€ 3.2 million). In the previous year a substantial one-off write-down due to revaluation of a property in the previous year had to be recogniped. At € 10.5 million (€ 10.6 million), other operating expenses remained at the same level as the previous year.
In the light of higher total revenue and lower amortisation expenses, EBIT increased to € -2.4 million (€ -6.7 million). Finance cost also improved to € -0.6 million, following € -2.3 million in the previous year. As described at Group level, the previous year's higher figure was attributable to interest payments due on a retrospective tax payment. EBT therefore rose to € -3.0 million (€ -9.0 million).
Total one-off expenses of € 0.8 million were accrued in the Holding segment within the scope of our efficiency programme.
As MLP is a knowledge-based service provider, qualified and motivated employees and consultants represent the most important foundation for sustainable company success. Continuous development and refinement of personnel work for employees, establishing the availability of a comprehensive range of training courses for consultants and winning new consultants were therefore also key focuses in 2016.
The number of employees in the MLP Group declined slightly in the reporting year 2016. On the reporting date, December 31, 2016, a total of 1,768 employees worked for MLP. This development can be attributed to two key factors. The first focuses on the effects of the efficiency programme (please refer to the section entitled ¹Performanceº for further details), while the second revolves around a reduction in the number of temporary staff in the financial services segment. The sale of FERI EuroRating with effect from August 1, 2016, had an impact on staff numbers in the FERI segment. At 6.3%, employee turnover at the company HQ increased slightly in 2016 due to the aforementioned measures (20150 5.5%). The average age of employees at MLP AG, MLP Finanpdienstleistungen AG, FERI AG and DOMCURA is currently 41.
The following table shows the development of average employee numbers in the individual business units over the last few years0
Low staff turnover rate
| Segment | 2016 | 201+ | 201* | 201) | 2012 |
|---|---|---|---|---|---|
| Financial services | 1,275 | 1,300 | 1,303 | 1,306 | 1,265 |
| FERI | 223 | 235 | 232 | 244 | 251 |
| DOMCURA | 264 | 261 | – | – | – |
| Holding | 7 | 7 | 7 | 9 | 8 |
| Total | 1"-6. | 1".02 | 1"+*2 | 1"++/ | 1"+2* |
Date0 December 31, 2016 incl. TPC, PSH and MLPdialog To offer our employees even better development opportunities, we launched a modular ¹management programmeº for team leaders in 2015, which was further optimised and successfully continued in the reporting year. The objective here is to train existing managers in relevant topics and support them in their role with personnel responsibility. Me welcomed a new group of participants to our ¹Top Talentsº programme for junior staff in the reporting year 2016. This programme has been established since 2013. The goal is to systematically identify talented junior staff from within the company and then provide these with targeted and sustainable development opportunities for future specialist and management duties.
In the course of developing and refining our personnel work, a new works agreement was reached in 2016 that precisely defines the obligations for advertising internal positions and stipulates selection guidelines for posts to be filled. In addition to this, the focus in the reporting year was on the practical implementation of the works agreements reached in 2015 regarding introduction of a new remuneration system, as well as holding appraisal meetings. The objective here is to establish a fair, transparent and motivating remuneration system that rewards personal experience, expertise and achievements on the part of employees, while at the same time remaining in line with market conditions.
One focus in 2016 was the digitalisation of personnel work. In the last financial year, software for a new digital personnel file was introduced for all employees. Mork on transferring the data to the digital personnel files has already begun and will continue in 2017. The next step will be the implementation of talent management software. MLP is also planning to perform its payroll accounting in-house again from 2017, having outsourced this process to external service providers in the past. This will allow adjustments to be made to salary statements and personnel files more quickly and efficiently.
As of December 31, 2016, MLP operated 146 representative offices with a total of 1,940 consultants (20150 1,943), who work as self-employed commercial agents. The average age of consultants is currently 44. The loyalty displayed by existing consultants remains very pleasing, as underlined by our employee turnover rate. This figure was 7.9% in 2016 – and thereby significantly below the target variable of around 10%.
As in the previous year, acquiring new consultants continued to be a key topic in the reporting year. The further training allowance introduced in 2015 for new client consultants has established itself as an important concept within our recruiting initiative. To give our activities in this field a boost, we further intensified internal collaborations between the University Management and Recruiting departments in 2016. The objective here is to increase our presence at universities. In this connection, we have opened a new office in the university city of Bielefeld and are preparing to open further branch offices.
Development programmes for managers and junior staff
New works agreements implemented and established
Digitalisation of personnel work now underway
Consultant turnover at a low level
Progress in the process for recruiting new consultants Following a significant increase in applications in the field of financial consulting in the previous year, this figure remained largely stable at the increased level in the financial year 2016. The recruiting offensive launched in 2015 is therefore starting to display positive effects, which we are keen to build on in 2017. Oou can find further information on recruiting planning in the section entitled ¹Anticipated business developmentº.
The internship programme, launched in 2014, has established itself. In the reporting year, some 144 school-leavers and students took the opportunity to get a better idea of what it is like working as an MLP consultant. The ¹Salesº dual study course, which we launched in 2013 to help students prepare for a career as a consultant at the offices, represents another successful recruiting instrument. Some 21 dual study course students and 28 trainees are currently working at the various offices (previous year0 24 and 22), while 23 dual study course students and 20 trainees are working at the company HQ (previous year0 25 and 23).
MLP operates in a complex and constantly changing market and competitive environment and aims to be a long-term dialogue partner for all financial matters of its discerning clientele.
A high-quality range of training courses represent an indispensable prerequisite in achieving this. At the heart of the development of the training programme lies the MLP Corporate University (CU) which is based in Miesloch. Since 2012 the CU has been accredited by the Financial Planning Standards Board Deutschland e.V. (FPSB Deutschland) for the Certified Financial Planner (CFP) qualification. Since this time, more than 140 consultants have successfully gained their Financial Planner qualification and further consultants are already preparing for this. Following an extensive certification process, in 2013 the CU was the first corporate university to be awarded the ¹Certified Corporate Universityº international seal of approval from the Foundation for International Business Administration Accreditation (FIBAA). The training programme offered by the CU therefore complies with the international requirements of the European Credit Transfer and Accumulation System (ECTS), which simplifies cooperation with state universities.
A new cooperative degree course was launched in autumn 20160 The Corporate University has been collaborating with the School of Management and Innovation at the Steinbeis University in Berlin since September to offer an MSc course in ¹Financial Planning and Managementº. The extra-occupational master's course is aimed both at experienced MLP consultants and those who are working for MLP after completing their bachelor's degree. The degree course therefore offers our consultants an additional opportunity to gain further qualifications – which also makes it a valuable instrument within the scope of our recruiting initiative.
Internship programme and dual study programme established
Comprehensive range of training offers are the key to success
Master's programme launched
Numerous seminars and events serve to underline the scope of our training offer. In 2016, around 21,700 individual events (including online seminars) were held at the CU. Alongside numerous training courses addressing specialist and consulting topics, one focus was on offering training in the brokerage of real estate. In addition to this, we helped our consultants familiarise themselves with the new application for product selection with a comprehensive eLearning package. Mithin the scope of four ¹consultant power daysº, all consultants had the opportunity to learn about the latest specialist and consulting topics in a total of 21 modules. In addition to this, a comprehensive range of training courses was prepared in the last financial year to accompany the further roll-out of the new ¹Budget guideº consulting application in 2017. Oou can find further information on this in the section entitled ¹Anticipated business developmentº.
Total expenditure on qualifications and further training in the last financial year was around € 7.6 million, which is roughly the same as in the previous year.
The Executive Board would like to take this opportunity to express its sincere thanks to all employees and consultants for the trust, cooperation and excellent commitment they showed in the past financial year. Me would also like to thank the members of the works council for its constructive collaboration which, among other things, is documented by the signing of four works agreements. The key now is to maintain this open and responsible dialogue as effectively as possible in future for the benefit of all employees.
Comprehensive training programme
A big thank you to our employees
The effective remuneration system provides for a fixed basic annual salary and also variable remuneration (in the form of a bonus) (see table). The basic figure for the bonus payment is determined based on the income statement of the MLP Group in accordance with the respective (international) accounting standards applied in the Group. The EBIT of the MLP Group in the past financial year for which the bonus is to be paid forms the basis of assessment here. The key figure is therefore the earnings before tax (EBT) that would result without deduction of profit-sharing payments. If continuing operations and discontinued operations were to be recogniped in the financial year, the basis of assessment is formed by the total of the EBITs of operations to be continued and discontinued respectively. No costs and income directly related to the discontinuation%sale of business segments are included in the basis of assessment. If the employment contract begins or ends in the course of the financial year, the basic bonus figure is reduced pro rata temporis.
45% of the bonus calculated in this way is to be paid as an immediate payment following presentation of the company's adopted financial statements. The remaining 55% is only to be paid as a ¹deferred paymentº after presentation of the financial statements for the financial year two years after the year of the immediate payment. The level of deferred payment effectively to be made to the member of the Executive Board is also subject to upwards or downwards adjustment, based on the ratio of the average EBIT recorded in the base year and the three subsequent years to the EBIT in the base year.
In contractually more closely specified boundaries, the immediate payment and the deferred payment are also subject to an adjustment right, which can be used at the discretion of the Supervisory Board. Here, the Supervisory Board is authoriped, at its reasonable discretion, to increase or reduce the immediate payment by up to 30% and the deferred payment by up to 10% based on its assessment of the individual performance of the respective member of the Executive Board or extraordinary developments.
In addition to this, the service contract provides for a cap of the immediate payment and the deferred payment in €. For both bonus parts, a maximum of 150% of the basic figure is stipulated as the cap with an assumed EBIT of € 100 million.
Under the remuneration system, the members of the Executive Board are entitled to unrestricted use of a company car and payments from a life and disability insurance policy.
The Chairman of the Board, Dr. Uwe Schroeder-Mildberg, also has an individual occupational benefit plan entitlement. An old-age pension upon reaching 62 years of age, a disability pension, a widow's pension and orphan's benefits have been guaranteed. The benefit entitlement for the old-age pension is specified separately in an addendum to the employment contract. The disability pension and widow's pension is 60% of the contractually agreed old-age or disability pension benefit. The level of orphan's benefit payable per eligible child is calculated on a case by case basis. The total of the widow's pension and orphan's benefit of all entitled persons together must not exceed 100% of the old-age pension. However, the members of the Executive Board, Manfred Bauer and Reinhard Loose, receive employerfinanced, defined contribution benefits in an occupational pension scheme.
Principles of Executive Board remuneration
The service contracts of all members of the Group Executive Board comprise change-of-control clauses granting the right to termination for cause in the event that
If a member of the Executive Board resigns on the basis of the aforementioned conditions, he is entitled to compensation of no more than two annual salaries, on the condition that the termination takes place more than two years before the end of contract. After that the regulations apply on a pro-rata-temporis basis.
To comply with the relevant supervisory requirements, the service contracts of all members of the Executive Board also include the following provisions0
In accordance with the recommendation of the German Corporate Governance Code, individualiped Executive Board remuneration is disclosed on the basis of the specimen tables provided as appendices to the Code.
| Allocation | :r\$ Uwe Ichroeder#Mildberg | Reinhard Loose | Manfred Bauer | Muhyddin Iuleiman |
|||||
|---|---|---|---|---|---|---|---|---|---|
| Chairman of the Board Chief Financial Officer |
Member of the Board for Products and Ierlices |
Member of the Board for Iales |
|||||||
| since @an 1" 2003 | since Feb 1" 2011 | since May 1" 2010 | until Mar 31" 2014 |
||||||
| All figures in €000 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | |
| Fixed compensation | 550 | 550 | 360 | 360 | 360 | 360 | 0 | 0 | |
| Fringe benefits | 30 | 30 | 17 | 17 | 27 | 26 | 0 | 0 | |
| Total fined compensation | 5.0 | 5.0 | 3-- | 3-- | 3.- | 3.6 | 0 | 0 | |
| One-year variable compensation |
239 | 194 | 158 | 129 | 160 | 129 | 0 | 0 | |
| Multi-year variable compensation |
290 | 216 | 186 | 151 | 232 | 172 | 0 | 209 | |
| Bonus 2011 (2011-2014) | 290 | 0 | 186 | 0 | 232 | 0 | 0 | 209 | |
| Bonus 2012 (2012-2015) | 0 | 216 | 0 | 151 | 0 | 172 | 0 | 0 | |
| Other | -27 | 0 | -17 | 0 | -23 | 0 | 0 | 0 | |
| Total fined and lariable compensation |
1"0.3 | 990 | -03 | 65- | -56 | 6 | 0 | 209 | |
| Pension benefits | 297 | 224 | 140 | 140 | 150 | 150 | 0 | 0 | |
| Total compensation in accordance with the German Corporate Golernance Code :CGA |
1"3.0 | 1"213 | .43 | -9- | 906 | .3. | 0 | 209 |
| Benefits granted | :r\$ Uwe Ichroeder#Mildberg | Reinhard Loose | ||||||
|---|---|---|---|---|---|---|---|---|
| Chairman of the Board | Chief Financial Officer | |||||||
| since @an 1" 2003 | since Feb 1" 2011 | |||||||
| All figures in €000 | 2015 | 2016 | 2016 Min | 2016 Man | 2015 | 2016 | 2016 Min |
2016 Man |
| Fixed compensation | 550 | 550 | 550 | 550 | 360 | 360 | 360 | 360 |
| Fringe benefits | 30 | 30 | 30 | 30 | 17 | 17 | 17 | 17 |
| Total fined compensation | 5.0 | 5.0 | 5.0 | 5.0 | 3-- | 3-- | 3-- | 3-- |
| One-year variable compensation |
194 | 130 | 91 | 169 | 129 | 87 | 61 | 113 |
| Multi-year variable compensation |
283 | 376 | 0 | 990 | 189 | 250 | 0 | 660 |
| Bonus 2015 (2015-2018) | 283 | 0 | 0 | 0 | 189 | 0 | 0 | 0 |
| Bonus 2016 (2016-2019) | 0 | 376 | 0 | 990 | 0 | 250 | 0 | 660 |
| Total fined and lariable compensation |
1"05. | 1"0.6 | 6-1 | 1"-40 | 695 | -14 | 43. | 1"150 |
| Pension benefits | 297 | 224 | 224 | 224 | 140 | 140 | 140 | 140 |
| Total compensation in accordance with the German Corporate Golernance Code :CGA |
1"354 | 1"310 | .95 | 1"963 | .35 | .54 | 5-. | 1"290 |
| Benefits granted | Manfred Bauer | Muhyddin Iuleiman | ||||||
| Member of the Board for Products and Ierlices | Member of the Board for Iales | |||||||
| since May 1" 2010 | until Mar\$ 31" 2014 | |||||||
| All figures in €000 | 2015 | 2016 | 2016 min\$ | 2016 man\$ | 2015 | 2016 | 2016 min\$ |
2016 man\$ |
| Fixed compensation | 360 | 360 | 360 | 360 | 0 | 0 | 0 | 0 |
| Fringe benefits | 27 | 26 | 26 | 26 | 0 | 0 | 0 | 0 |
| Total fined compensation | 3.- | 3.6 | 3.6 | 3.6 | 0 | 0 | 0 | 0 |
| One-year variable compensation |
129 | 87 | 61 | 113 | 0 | 0 | 0 | 0 |
| Multi-year variable compensation |
189 | 250 | 0 | 660 | 0 | 0 | 0 | 0 |
| Bonus 2015 (2015-2018) | 189 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Bonus 2016 (2016-2019) | 0 | 250 | 0 | 660 | 0 | 0 | 0 | 0 |
| Total fined and lariable compensation |
-05 | -24 | 44- | 1"159 | 0 | 0 | 0 | 0 |
| Pension benefits | 150 | 150 | 150 | 150 | 0 | 0 | 0 | 0 |
| Total compensation in accordance with the German Corporate Golernance Code :CGA |
.55 | .-4 | 59- | 1"309 | 0 | 0 | 0 | 0 |
As of December 31, 2016, pension provisions totalling € 16,139 thsd (€ 17,631 thsd) were in place for former members of the Executive Board.
In addition to compensation for their expenses for the financial year, the members of the Supervisory Board receive a fixed annual remuneration of € 40,000 in accordance with the Articles of Association. The Chairman of the Supervisory Board receives twice and his deputy one and a half times this amount. Additional, special remuneration is granted for work on the Audit Committee and the Personnel Committee. This comes to € 25,000 for the Audit Committee and € 15,000 for the Personnel Committee. The chairman of the respective committee receives twice the stated level of remuneration. The fixed portion of remuneration is paid after the end of the financial year. No member of the Supervisory Board receives any variable or share-based remuneration payments.
| All figures in €000 without tan | Remuneration 2016 | Remuneration 2015 |
|---|---|---|
| Dr. Peter L"tke-Bornefeld (Chairman) | 135 | 135 |
| Dr. h. c. Manfred Lautenschlger (Vice Chairman) | 100 | 100 |
| Dr. Claus-Michael Dill | 90 | 90 |
| Johannes Maret | – | 25.3 |
| Tina M"ller | 55 | 23.6 |
| Burkard Schlingermann | 55 | 55 |
| Alexander Beer | 65 | 65 |
| Total | 500 | 494 |
until June 18, 2015 as of June 18, 2015
In the financial year 2016 € 17 thsd (previous year0 € 17 thsd) was paid as compensation for expenses.
MLP considers risk management as the use of a comprehensive array of instruments for managing risks in line with the strategy set out by the Executive Board, as well as the risk bearing ability process. Due to the potential growth and extra earnings they can offer, risks should be addressed and taken in a conscious and controlled manner within the scope of internal control%monitoring procedures.
The operational and organisational structure, the risk management and controlling processes, as well as the special Risk Controlling, Compliance and Internal Audit functions represent key components of the Group-wide risk management system.
The following companies are examined within the scope of Group-wide risk management (scope of consolidation pursuant to § 25a of the German Banking Act (AMG) - Germany's ¹MaRiskº minimum risk management requirements consolidation scope)0 MLP AG, Miesloch, MLP Finanpdienstleistungen AG, Miesloch, PSH GmbH Finanpdienstleistungen, Heidelberg, FERI AG, Bad Homburg v. d. Hhe, FERI Trust GmbH, Bad Homburg v. d. Hhe, FEREAL AG, Bad Homburg v. d. Hhe, FERI Trust (Luxembourg) S.A., as well as Schwarper Familienholding GmbH, Aiel, DOMCURA AG, Aiel and NORDVERS GmbH, Aiel.
| Iegment | Company | ?FRI scope of consolidation |
MaRisk scope of consolidation ™25a German Banking Act AMG |
|---|---|---|---|
| Holding | MLP AG | x | x |
| MLP FDL AG | x | x | |
| TPC GmbH | x | ||
| PSH GmbH | x | x | |
| MLPdialog GmbH | x | ||
| Financial services | MLP Hyp GmbH | x | |
| FERI AG | x | x | |
| FERI Trust GmbH | x | x | |
| FEREAL AG | x | x | |
| FERI | FERI Trust (Luxembourg) S.A. |
x | x |
| Schwarper Familienholding GmbH |
x | x | |
| DOMCURA AG | x | x | |
| NORDVERS GmbH | x | x | |
| nordias GmbH Insurance Broker |
x | ||
| Milly F. O. Aster GmbH |
x | ||
| DOMCURA | Siebert GmbH Insurance Broker |
x | |
accounted for using the equity method
In the sense of § 25a (3) of the German Banking Act (AMG) and in conjunction with Section 4.5 of Germany's Minimum Requirements for Risk Management (MaRisk), the Executive Board at MLP Finanpdienstleistungen AG, which as per Article 11 of the Capital Requirements Regulation (CRR) is the controlling body of the MLP Financial Holding Group as the depository institution, ensured appropriate control and monitoring of the significant risks at Group level through suitable processes. This approach encompasses in particular
In order to evaluate the risks of the MLP Financial Holding Group, MLP Finanpdienstleistungen AG, acting as a controlling company, obtains an overview of the risks in the Group on a regular and ad hoc basis within the scope of the strategy process and the risk inventory. Based on the risks identified in the individual companies and their relative weighting, the ¹MaRisk scope of consolidationº is formed, which defines the scope of the Group-wide risk management system. In principle, all risks identified as significant within the Group by the controlling company are taken into account. Group-wide regulations and policies for establishing Group-wide risk management at the MLP Financial Holding Group are defined taking into account the type, scope, complexity and risk content, as well as the different application options provided by corporate law on an individual basis.
The Executive Board of the controlling company defines the business strategy, as well as a consistent risk strategy for the MLP Financial Holding Group. The Group-wide risk propensity is derived from the risk strategy, taking into account the risk-bearing ability. On this basis, framework conditions for risk management in the MLP Financial Holding Group are then defined. The readiness to take risks is regularly checked and adjusted as necessary.
The following basic principles are consistent with the business strategy and describe the central framework conditions for the risk management at the MLP Financial Holding Group0
This responsibility includes defining appropriate strategies and setting up appropriate internal control procedures in particular – thereby assuming responsibility for all significant elements of risk management. The task of defining the business and risk strategy cannot be delegated. It is the responsibility of the Executive Board to implement the strategies, assess the risks associated with them and also put in place and monitor measures to ensure that these risks are limited.
The Executive Board of the controlling company defines the risk strategy for the MLP Financial Holding Group, including the significant elements and assumptions on risk-bearing ability. The risk strategy reflects the risk propensity or ¹risk toleranceº based on the targeted risk%earnings ratio. The Executive Board ensures that a comprehensive approach, incorporating all key risk types, is incorporated in the companies and that suitable steps are taken to implement the risk strategy.
MLP promotes a strong awareness of risks and a pronounced risk culture0 Risk awareness that goes beyond each department's or person's own field of responsibility is essential. A strong awareness of risks across all divisions and a corresponding risk culture are encouraged through appropriate organisational structures. The appropriateness of the risk management and controlling system is continuously monitored and any adjustments that become necessary are implemented as quickly as possible. Appropriate quality standards are established and subjected to continuous checks.
MLP pursues a strategy of comprehensile risk communication and risk reporting0
Detected risks are reported to the responsible management levels openly and without restriction. The Executive Board is informed in a comprehensive and timely manner (if necessary ad hoc) of the risk profile of the relevant risks, and profit and losses at the MLP Financial Holding Group. The Supervisory Board receives the information required to perform its legal obligations. Internal risk communication and risk reporting is supplemented by comprehensive, external publications that cater to the interests of MLP AG shareholders and the capital market and also comply with the supervisory requirements.
Entrepreneurial activity invariably involves taking risks. For MLP Financial Holding Group, ¹riskº means the danger of possible losses or lost profits. This danger can be attributable to internal or external factors. Since it will not be possible to eliminate all risks, a risk that is commensurate with the expected return must be targeted. The aim is to identify risks as early as possible in order to react to them quickly and appropriately. Our risk management system currently records risks in particular. In addition to this, we also focus on business opportunities. Particularly in Product Management and Purchasing, business opportunities in the market are identified in a targeted process for the individual product segments. Implementation is then tested and initiated, taking into account the chances of success and the associated risks. Oou can find a detailed description of the significant opportunities for the MLP Financial Holding Group in the separate opportunity report.
MLP's group-wide early risk detection and monitoring system is used as the basis for a group-wide active risk management. This system ensures appropriate identification, assessment, controlling, monitoring and communication of the major risks. Risk management is a key component of the valuedriven management and planning system in the MLP Financial Holding Group. Moreover, the Group's risk culture is continuously consolidated and efforts are made to communicate information relevant to risk across all business segments.
Risk capital management is an integral part of the Group management system in the MLP Financial Holding Group. Active control of the economic capital adequacy based on the results of risk assessments and in compliance with the supervisory requirements ensures that risk-taking is always in line with capital backing.
Risks are only accepted within limits derived from aspects of the risk-bearing ability to achieve adequate returns, taking into account risk%earning factors. In particular this prevents risks that could threaten the continuity of the business model.
Risk capital management – risk-bearing ability
The Executive Board defines the risk capital based on business policy targets and controls the risk profile in an appropriate ratio to the risk coverage fund. The focus is on the key risks for the MLP Financial Holding Group, which are identified at least once a year within the scope of a risk inventory (risk profile) performed throughout the Group. Here, the key risk indicators determined using standardiped procedures are compared against threshold values applied throughout the Group. The Group-wide risk profile represents the basis for both risk capital management and the risk management and controlling processes. Mith reference to the minimum requirements of risk management systems (MaRisk), we take into account the proportionality principle with regard to implementation of § 25a of the German Banking Act (AMG).
The key risk types of counterparty default, market price, liquidity and operational risks are in particular quantified within the scope of the risk-bearing ability. The strategic risks and reputation risks (other risks) also represent significant risk types, although these are currently not quantified. These are incorporated via additional buffers when calculating the risk bearing ability.
In managing the financial risk capital, the minimum regulatory capital adequacy requirements (as per the Capital Requirements Regulation (CRR)) represent supplementary conditions which must be strictly adhered to.
In accordance with the guideline entitled ¹Prudential assessment of internal banking risk-bearing capacity conceptsº (published on December 7, 2011 by the Federal Financial Supervisory Authority), the internal assessment of the appropriateness of equity capital backing is performed based on the goingconcern approach in the standard scenario. In addition the liquidation approach is applied within the scope of stress scenarios.
In the going-concern approach, the focus is on securing continued existence of the bank. In the liquidation approach, the objective is to protect the bank's owners and external providers of equity.
Furthermore, MLP implemented a process for planning future capital requirements. The instrument supports MLP in identifying and planning future capital requirements, as well as in implementing suitable measures to cover requirements. Unlike the one-year review period of the risk-bearing capacity concept, this is based on a multi-year time frame. This component, which stretches further into the future, is intended to supplement the risk-bearing capacity concept in a sensible way to secure early identification of any necessary capital increases.
As it has the largest business volume and greatest earning potential, MLP Finanpdienstleistungen AG bears the greatest risks within the Financial Holding Group. This is also reflected in the allocation of 75% of the risk coverage fund to the financial services segment.
Stress tests are also performed on a regular and ad hoc basis for special analysis of the effects of unusual yet still plausible events. Comprehensive analyses have therefore been implemented, both at the level of the individual risk types and across all risk types. The effects of potential concentrations of risks are also taken into account here.
Mhen performing the standardised stress tests, the key risk drivers are scaled in such a way that they reflect disproportionately negative economic situations. The implemented stress tests can then be used to check whether the risk-bearing ability of the MLP Financial Holding Group can still be secured even under unfavourable economic framework conditions. The market value effects on the financial situation, the liquidity situation and the results of operations are also investigated in this connection.
Stress tests
The Executive Board is responsible for establishing an appropriate and effective system of risk management in the MLP Financial Holding Group. Set against this background, operational and organisational precautions are put in place.
Our risk management concept follows clearly defined basic principles that are applied as binding throughout the entire Group and whose compliance is continuously checked. A crucial element of these principles is a clear organisational and operational distinction between the individual functions and activities of risk management.
The operational and organisational structure is regularly checked and assessed through internal audits and adapted to internal and external developments as they happen.
The Group Risk Manager is responsible for the risk monitoring and control activities in the MLP Financial Holding Group. He is kept continuously informed of the risk situation in the Financial Holding Group and gives regular reports on this to the entire Executive Board and Supervisory Board.
To be able to address risk topics early on and sustainably throughout the Group, while also increasing risk awareness, a risk controlling function has been set up at MLP. This function is responsible for independent monitoring and communication of risks.
Risk management in the MLP Financial Holding Group and its local operating implementation in the business units is performed on the basis of the risk strategy. The units responsible for risk management reach decisions for conscious acceptance, reduction, transfer or avoidance of risks, observing the framework conditions specified centrally.
The Risk Controlling unit in particular is responsible for the identification and assessment of risks, as well as for monitoring of defined limits. This is accompanied by reporting the risks to the Executive Board and the business units that control the risks. Suitable early detection systems support risk monitoring, identify potential problems early on and thereby enable prompt planning of measures.
Appropriate guidelines and an efficient monitoring process also ensure that the regulatory requirements for risk management and controlling are met by the principal Group companies.
The methods used at the MLP Financial Holding Group to assess risks are in line with the current level of knowledge and are aligned with practices in the banking sector as well as recommendations of the Federal Financial Supervisory Authority. The results determined on the basis of the risk models are entirely suitable for controlling the risks. Quantification methods are subject to regular checks by risk controlling, as well as internal and external audits. However, despite careful model development and regular checks, it is conceivable for circumstances to occur that lead to greater losses than those forecast by the risk models.
Controlling is responsible for planning processes and continuously monitoring trends in earnings. The planning process is broken down into short-term and mid-term planning horipons with varying degrees of detail.
Functional separation
Group Risk Manager
Risk controlling function
Risk management and controlling processes
Controlling monitors earnings trends
To monitor planned and target variables, the sales revenue and earnings figures actually achieved are compared against the corresponding plan figures within the scope of daily, weekly and monthly reporting. This provides continuous transparency for the Management.
Mith regard to the accounting and management reporting processes, the Internal Control System (ICS) is used to provide an accurate picture of actual conditions in terms of the net assets, financial position and results of operations at MLP Finanpdienstleistungen AG and the MLP Group. The objective of the ICS is to secure complete and accurate recording, processing and documentation of all business transactions in accordance with the regulations, standards and guidelines of applicable legislation and the company's Articles of Association.
MLP excels through its clear organisational, corporate and control structure. The departments of all Group companies involved in the accounting process comply with their respective quantitative and qualitative requirements. The employees tasked with performing the accounting process receive regular training. Group Accounting is the central contact for all questions in connection with accounting issues, both at individual company and Group level.
The checks in the accounting process aim to ensure that the individual and consolidated financial statements are drafted in line with the provisions of German commercial law and International Financial Reporting Standards (IFRS), as well as proper and timely internal and external financial reporting. The scope of the checks and responsibilities integrated into the procedures is clearly regulated.
In addition financial and risk data, which itself is subject to a comparable internal monitoring system, is also incorporated into the management report.
Functional separation, the dual-control principle, as well as the audit activities of the Internal Audit department represent key control instruments for all accounting-related processes. The processes of the accounting-based ICS are documented and specified in work instructions that are regularly updated and published in the organisation manual.
The consolidated financial statements, are drawn up using standard software. Group Accounting secures the completeness and accuracy of the relevant disclosures on the basis of the information provided.
The adequacy and effectiveness of the accounting-based ICS are regularly checked and monitored.
The Executive Board has also set up a compliance function, the duties of which include identification and monitoring of the key legal provisions and requirements, non-compliance with which can potentially jeopardise the assets of the MLP Financial Holding Group.
Internal controlling system in the accounting process
Compliance function
The internal audit department, which assumes audit tasks in major Group companies on the basis of outsourcing contracts, as well as MLP Finanpdienstleistungen AG in the form of a controlling company in accordance with § 10a (2) of the German Banking Act (AMG), constitutes an important element of the internal control%monitoring system. The internal audit department performs regular, systematic riskoriented inspections with regard to compliance with legal, supervisory and internal specifications. The department monitors the functional separation and effectiveness of the risk management system, and performs follow-up procedures on audit recommendations. In addition to this, it performs independent advisory services with a view to creating added value and improving business processes. The minimum requirements for risk management governing the internal audit function are complied with throughout the Group.
The internal audit department operates in an independent capacity throughout the Group on behalf of the Executive Board.
A substantial risk reporting scheme forms the basis for appropriate and successful corporate management. This is complemented by an extensive system of internal reporting, which provides the key decision-makers with prompt information on the current risk situation. Risk reports are generated at fixed intervals (monthly or quarterly) or produced ad-hoc, if and when necessary. In addition, planning, simulation and control instruments show possible positive and negative developments to the most important value and controlling parameters of the business model and their effect on the net assets, financial position and results of operations.
Risk reports are submitted to the controlling units, the Executive Board and the Supervisory Board. Prompt and comprehensive information is provided on any changes to relevant influential factors.
The MLP Financial Holding Group is exposed to various financial risks. These in particular comprise counterparty default, market price and liquidity risks. Alongside financial risks, there are also operational and other risks, such as strategic risks and reputation risks.
The key risk types in the respectile segments are presented below0
Internal audits
Risk reporting
| Iegments | :efault risks | Market price risks | Liguidity risks | Operational risks | Other risks |
|---|---|---|---|---|---|
| Holding | x | x | x | x | |
| Financial services | x | x | x | x | x |
| FERI | x | x | x | x | x |
| DOMCURA | x | x | x |
The counterparty default risk is the risk of a loss due to the defaulting of or deterioration in creditworthiness of a business partner. The credit risk comprises the contracting party risk (re-covering risk and advance performance and counterparty settlement risk), as well as the risks related to specific countries which, however, are only of secondary importance to the MLP Financial Holding Group.
The counterparty default risks of the MLP Financial Holding Group are essentially made up of the client credit business under the company's own liability, the company's own business and the commission receivables against our product partners. There are no significant risks related to specific countries, since the majority of lending (95%) is limited to borrowers domiciled in the Federal Republic of Germany.
The identification of potential concentrations of risks constitutes another key component of credit risk management. Those risks which come about due to an uneven distribution of business partners in credit relations or other business relations or which are caused by sectoral%geographical business focuses and are capable of generating such great losses that the solvency of an institute may be threatened are classed as concentrations of risk in the credit portfolio. To be able to identify concentrations of risk in the lending business early on, the portfolio is analysed using various approaches, such as investigations based on sector, sipe and risk classes or security categories. Concentrations of risk are also given special consideration in the stress tests specific to the risk types.
To minimise potential concentrations of risk in the proprietary business before they can even occur, the MLP Financial Holding Group follows a strategy of diversification and risk avoidance. Thus, investments are diversified into bonds, debentures and other financial instruments across various sectors. Me have defined binding investment limits for the individual sectors and issuers via our capital investment directive. These limits were observed at all times over the course of the year.
In the private client business, potential concentrations in ratings classes with high failure rates should be avoided. This is achieved by focusing on retail products of credit cards and accounts in connection with the targeted client segments. In addition to this, the minimisation of large individual risks with a low credit rating is a further central component of the credit policy in place at the MLP Financial Holding Group. Focusing on the target group of academics and other discerning private clients allows an attractive profit margin to be achieved due to relatively small default risks.
The responsibilities in the credit business, from application, through authorisation, to completion and including regular monitoring with regular creditworthiness analyses, have been defined and documented in the organisational guidelines. Decision-making authority is laid down in the authority regulations, which themselves are based on the risk content of the transactions.
Me also monitor and control any potential default risks from advances paid to consultants and office managers via a layered warning system, in which any incidents are quickly detected and active receivables management is guaranteed.
Counterparty default risks
Credit management
Loan approval, in particular in the client credit business, takes the form of credit limits being granted for the individual borrower or borrower unit. Individual credit decisions are reached by specialiped employees that follow clearly defined guidelines based on the sipe, creditworthiness and collateral of the respective borrower. A special scoring process allows fast decisions to be made, in particular for credit cards and accounts in the retail lending business, while also securing consistently high quality.
The basis of our credit decisions is always the creditworthiness of the borrower. Collateral does not have any influence on the borrower's rating. Depending on the structure of a transaction, collateral can however be of significance for the risk assessment of a commitment.
All forms of traditional loan collateral are essentially used throughout. This specifically includes mortgages on residential and commercial property, warranties, sureties, life insurance policies, financial collateral, as well as assigned receivables.
In addition to this, potential default risks are continuously measured and evaluated by comparing allowances for bad debts with the credit volumes subject to risk. For accounts that are regarded as carrying acute risk, we build up appropriate allowances for bad debt (see table for the development of loan loss provisions). Loans that are recognised as being problematic are transferred to certain specialist departments and managed by experts.
| Amount in € million prelious year | Opening balance | Allocations | Relersals | Utilisation | Closing balance |
|---|---|---|---|---|---|
| Specific allowance for doubtful accounts | 6.7 (7.7) | 2.1 (1.3) | 1.0 (1.1) | 0.3 (1.2) | 7.5 (6.7) |
| General allowance for bad debts | 4.5 (5.4) | 0.4 (0.0) | 0.0 (0.1) | 1.4 (0.9) | 3.4 (4.5) |
| General allowance for doubtful accounts | 4.5 (5.3) | – (–) | 1.2 (0.8) | – (–) | 3.3 (4.5) |
| Provisions | 0.2 (0.3) | – (–) | 0.0 (0.1) | – (–) | 0.2 (0.2) |
| Total | 15\$9 1.\$- | 2\$5 1\$4 | 2\$2 2\$1 | 1\$. 2\$1 | 14\$4 15\$9 |
Due to rounding of these figures, minor differences may arise.
In addition to the above-described risks in the client credit business, there is an issuer's risk from the bonds, debentures and other financial instruments acquired. Me reduce the risk of default among issuers, whose securities we have acquired within the scope of capital investment management through the specified creditworthiness requirements of our capital investment directive. Mhere available, the MLP Financial Holding Group also bases its decisions in the field of financial investments on external ratings.
The credit value at risk is approximated using the formulae of capital adequacy requirements as per CRR for calculating the economic counterparty default risk and for the purpose of internally controlling the counterparty default risks. Various methods are available for this in accordance with the CRR. In terms of the calculation methods, differentiation is made between the standardised approach to credit risk (CRSA) and the approach based on internal ratings (IRBA). Depending on the rating status of the receivables due to the MLP Financial Holding Group, the internal control system is based on the various supervisory calculation methods.
The MLP Financial Holding Group understands market price risks as the uncertainty regarding changes in market prices and rates (including interest rates, share prices, exchange rates and raw material prices), the correlations between them and their volatility. There are currently only very minor open risk items in foreign currency and commodities. In the year under review, no speculative use was made of financial instruments – such as securitisation transactions – with a view to making profits in the short term, nor is this envisaged for the future. The MLP Financial Holding AG continues to hold the status of a non-trading book institute.
Interest rate and price risks represent the sub-categories of the market price risk which are important for us.
Interest rate risks essentially come about from incomplete congruency of interest rate agreements between the loans granted and the business on own account as well as their refinancing. These maturity transformation risks are continuously monitored and assessed in compliance with supervisory requirements (among others by means of stress scenarios).
Mithin the scope of the risk-bearing capacity assessment, a simulation is performed in which the net interest for interest-bearing and interest-sensitive items is determined for the interest risk in the event of an ad hoc change in interest rates.
Possible effects of different interest development scenarios are portrayed via planning and simulation calculations. The risks and their effects are made transparent based on assumptions of multilayer interest scenarios. In this context, cash value changes of all items in the asset ledger are shown in relation to the equity, with the application of the changes in interest rates prescribed by the Federal Financial Supervisory Authority. The simulation is performed by automated means for all the interestbearing and interest-sensitive items. It is in this manner that the controlling of the interest risk is ensured. The change in value determined in the reporting period always remained significantly below the threshold of 20% of equity – a threshold which, if exceeded, would give us the status of an institute with increased interest risk.
| Amount in € million | ||||
|---|---|---|---|---|
| ?nterest rate shock%parallel shift | ||||
| Change in lalue !200 BP | Change in lalue #200 BP | |||
| 2016 | 2015 | 2016 | 2015 | |
| Total | #.\$4 | #15\$1 | 4\$5 | 6\$5 |
Shares, bonds, and funds held can be subject to a share price risk due to fluctuations in the market interest rate or changes in creditworthiness. Through constant monitoring and evaluation of our portfolio, possible effects on results caused by strong exchange rate fluctuations can be addressed early on. Me thereby ensure a prompt reaction to market changes. Me use a value-at-risk calculation when performing risk measurements. The nominal change in value of share price-based securities is determined for the significant price risks. A holding period of 250 trading days and a confidence level of 97.0% are assumed here.
Interest rate risks
The MLP Financial Holding Group understands liquidity risks to mean uncertainty in terms of the availability of funds to meet payment obligations or reduce risk items which are either insufficient or which can only be secured by accepting higher rates. Liquidity risks can result from both internal and external risk factors.
The fundamental principles of liquidity control and planning are defined in the internal guidelines. In controlling the liquidity risk, we employ two different approaches, operational and structural.
The central instruments and control variables of operational and short-term liquidity control at the MLP Financial Holding Group include itemisation of financial assets and refinancing sources in the company's own business as per the balance sheet date within the scope of cash management, but also the liquidity and observation ratios of the liquidity regulation. In addition to this, within the scope of liquidity control the volume of daily net cash inflows and outflows is observed and incorporated into the risk assessment based on the liquidity at risk (LaR). The LaR describes the anticipated cash payment surplus (net funding requirement) which will not be exceeded at a defined level of probability within a given period of time. Sufficient funds were available to cover short-term liquidity requirements at any time.
The funding matrix is the central instrument of structural liquidity control at the MLP Financial Holding Group and also a preliminary step towards economic analysis of additional refinancing costs. It indicates for each time frame whether there is a surplus or possible shortfall of financing means and thereby allows open liquidity items to be controlled. The liquidity value at risk (LVaR), which indicates the additional refinancing costs required to close open liquidity items, represents a key instrument of structural liquidity control and is also used in risk capital management. Mhen determining the LVaR as of December 31, 2016, net cash inflows for the year were in line with forecasts and no additional refinancing costs are thus expected to occur. If, contrary to expectations, net cash outflows should occur, sufficient cash reserves are available. The liquidity risk in the MLP Financial Holding Group results primarily from MLP Finanpdienstleistungen AG as the deposit-taking bank. The refinancing structure is based largely on client deposits. Appropriate short and medium-term credit lines have also been agreed to safeguard against a possible short-term liquidity shortfall.
Alongside the assumed development in standard scenarios, we have also defined stress scenarios to simulate potential increases in liquidity requirements as a result of a negative change in the market environment. These enable us to introduce any countermeasures deemed necessary in good time.
MLP Finanpdienstleistungen AG has established a simple cost allocation system to allow the internal allocation of the respective liquidity costs, liquidity benefits and liquidity risks to be monitored and controlled.
Compliance with the supervisory liquidity APIs is a key component of risk measurement and risk control. Alongside monitoring the current liquidity coefficient pursuant to current the Liquidity Directive, the MLP Financial Holding Group calculates, checks and reports the liquidity coverage ratio (LCR on the basis of the CRR). The LCR requires maintenance of a liquidity buffer, which must at least cover net cash outflows occurring within 30 days under standard market and idiosyncratic stress conditions. Corresponding measures serve to secure short-term solvency, in particular by maintaining an appropriate liquidity reserve.
The management of operational risks is based on the definition of Article 3 of the Capital Requirements Regulation (CRR). As such, operational risk is the risk of losses caused by inadequacy or failure of internal procedures and systems, people or by external events. This definition includes legal risks.
Operational risks are identified and assessed locally throughout the Group in the individual organisational units. To this end, an operational risks inventory is performed at least once a year. Mithin this scope, experts from all specialist departments examine and assess the operational risks on the basis of self-assessments. They are broken down into an assessment of risk potential for identification and evaluation of the main risks and into suggested measures derived from this.
The probability of occurrence and potential extent of damages presented by the risk scenario being examined are determined when assessing an identified operational risk. Both empirical values and projections for the upcoming period of one year are applied here. The risks identified are managed using corresponding risk control strategies.
In addition to this, any loss%damage occurring at the MLP Financial Holding Group is continuously recorded and analysed. Collecting all loss%damage data allows loss events to be identified and evaluated as a way of detecting trends and any concentration of operational risks. The results are collated and checked for feasibility by risk controlling and then made available to the Executive Board and the controlling units.
The operational and organisational structure at the MLP Financial Holding Group is comprehensively documented and laid down in internal organisation guidelines. Operational risks arising from internal processes are primarily managed through continuous improvement of business processes, as well as expansion of the internal control%monitoring system. Further safeguarding measures include risk transfer through the conclusion of insurance policies and consciously avoiding risky products. In order to secure the continuation of business operations, comprehensive emergency and business continuity plans are also in place for the most important areas and processes.
Mithin the scope of the Business Impact Analysis (BIA), critical company processes are identified, whose disruption or failure can have a significant influence on the Group's business activities. To this end, suitable measures are defined in the form of alternative actions. In the event of an emergency, these measures allow business operations to continue, albeit with reduced performance. The critical processes and the effectiveness of the defined measures are subject to regular monitoring and continuous development. A documentation by the Business Continuity Management (BCM) is available to the business segments and employees in the organisation manual.
Mhen introducing new products or extending activities to include new markets % sales channels, a predefined process (¹NPMVPº process for the introduction of new products or entry into new markets) is used to ensure that all affected functions of MLP are involved in the impact analysis prior to the start of planned new business activities.
The MLP Financial Holding Group places great value on having qualified employees and managers, particularly in the back-office areas. Staff resources and sufficient qualification%training of employees are secured by the responsible specialist departments. Me reduce the risk of staff shortages through appropriate personnel planning and targeted personnel allocation measures.
Risks from internal procedures
Human resources risks
Employees working with confidential information undertake to observe the respective regulations and handle the information responsibly. A clear separation of management and control functions restricts the risk of breaching internal and external regulations. Defined substitute and successor regulations secure our business and decision-making processes.
A possible error in client consulting, investment and acquisition brokerage or finance portfolio management and associated claims for damages can present a consulting and liability risk. Me minimise potential consulting risks by maintaining consistently high quality consulting which we ensure, for example, through IT-supported consulting tools. Consultations with our clients and the results coming from this are comprehensively documented. Our own Corporate University ensures a high standard of consultant training. Indeed, each of our consultants initially attends extra-occupational training here to become a Senior Financial Consultant.
To effectively manage IT-related risks, the MLP Financial Holding Group operates a comprehensive information security management system. In terms of our software strategy, we typically rely on sectorspecific standard software from well-known providers. However, we bring in qualified specialists for business-specific proprietary IT applications. Prior to commissioning, new IT systems and software components are checked to ensure correct functioning. The availability and consistency of the data is secured through distribution of data processing operations across multiple locations, backup and recovery processes and a business continuity management system. In addition to this, we use leading service providers to operate our systems. Me protect our IT systems from unauthorised access through a system of authorisation management, comprehensive malware protection, as well as security measures at network level.
Companies in the financial services sector are increasingly focussing on their genuine core skills, i.e. production of financial services products, support and information services, specialist consulting and sales expertise. In this market environment, the MLP Financial Holding Group makes use of external partners for activities that are not part of its core business. Based on Germany's ¹MaRiskº minimum risk management requirements, key outsourcing activities are incorporated into risk management within the standard scope of risk controlling and management processes with continuous risk identification, assessment, control and reporting (outsourcing analysis).
Responsibilities for outsourced processes are clearly set out at the MLP Financial Holding Group. This ensures that any potential organisational, structural or process-based risks that may occur due to outsourced business activities are closely controlled.
In addition to this, corresponding insurance policies have been concluded where appropriate to minimise risks from external events such as fraud, burglary, theft or damage due to force majeure.
Internal security measures are also used to thwart fraudulent activities, where possible before they even occur.
Risks arising for the MLP Financial Holding Group from fraudulent or other criminal conduct are identified and regularly assessed within the scope of the risk analysis performed to identify potential hapards caused by criminal conduct (both internal and external). Both the risk assessment and the individual measures implemented to avoid criminal conduct are performed by the relevant section at company HQ pursuant to § 25h of the German Banking Act (AMG) and are also incorporated into the operational risk inventory process.
IT risks
Risks from external events
The significant legal provisions and stipulations for the MLP Financial Holding Group were identified within the scope of the requirements of the Compliance function in line with Section 4.4.2 of Germany's ¹MaRiskº minimum risk management requirements. Failure to comply with these provisions and requirements could pose a considerable threat to the assets of the MLP Group. As per Germany's ¹MaRiskº minimum risk management requirements, the Compliance function works towards implementation of effective procedures, alongside corresponding control measures by the competent departments, to comply with the significant legal stipulations and internal regulations and provides regular reports, including ad-hoc reports when and where necessary, on its activities to the Executive Board and the Supervisory Board.
Our legal department controls legal risks. In addition to consulting on corporate decisions and designing business processes, its tasks include following and assessing current legal disputes. Possible legal risks are detected at an early stage and possible solutions for minimising, limiting or preventing such risks are shown. The legal department coordinates the commissioning and integration of external lawyers. Mithin the scope of risk mitigation, the legal department in cooperation with the product management checks and monitors the existing insurance coverage for economic loss and initiates any adjustments which may be necessary. According to our review, the pending or threatening legal proceedings against the MLP Financial Holding Group do not represent risks which could endanger the Group's continued existence. The Executive Board at MLP AG remains of the conviction that the claims for damages filed against MLP AG in August 2007 due to provision of allegedly inaccurate capital market information in the years 2000 to 2002 will not be successful. Indeed, the vast majority of these claims have already been withdrawn. Two claims were dismissed by the court, which ruled in favour of MLP. Dismissals were also issued in favour of MLP in the last two legal proceedings. The processes are currently in the court of appeal.
Changes that emerge in tax law are continually checked and reviewed with regard to potential effects they may have on the Group. The compliance with fiscal requirements of the controlling company, MLP AG, is checked by internal and external experts in accordance with the tax regulations and all accompanying documentation issued by the fiscal authority. Corresponding provisions are formed for subsequent payments to be anticipated.
The MLP Financial Holding Group currently uses the basic indicator approach in line with Section 316 of the Capital Requirements Regulation (CRR). On this basis the capital charge is 15% of the average gross proceeds of the last three financial years, whereby only positive gross proceeds are taken into account.
Reputation is defined as ¹the public reputation of the MLP Financial Holding Group overall or of individual Group companies in terms of expertise, integrity and trustworthiness that results from the perception of different stakeholder groupsº. Stakeholder groups for example include clients, employees, equity suppliers, other institutes, ratings agencies, the press or politicians. The risk of damage to reputation is classed as reputation risk.
The potential risk of mistakes made while providing consulting services to our clients also impacting our reputation is minimised by securing continuously high quality consulting. The instruments used to secure this high level of consulting include IT-based consulting tools. In addition to this, comprehensive documentation is provided of consultations with clients.
Legal risks
Capital charge according to the basic indicator approach
Reputation risks
General business risks predominantly arise due to altered framework conditions and can lead to unanticipated dips in earnings or negative budget deviations. These can have many causes, such as changes in client behaviour, changes to general economic conditions, as well as poor strategic decisions. The processes for managing general business risks are largely handled by Controlling within the scope of overall bank management. Controlling also performs regular checks to detect and analyse all changes to economic factors or the industry and competitive situation. This results in impulses for strategic alignment of the MLP Financial Holding Group.
The low interest rate environment, which continues to suppress the willingness of German citipens to save, as well as the lasting effects of the Life Insurance Reform Act (LVRG) have introduced a degree of uncertainty. The ever stricter regulations associated with supervisory requirements in the banking and financial services sectors, such as the finalisation of Basel III (some market members are already talking about Basel IV) or MiFID II are having a significant effect. In addition to this, we are facing growing competitive pressure in the financial sector, also from new, innovative and digital market members (fintechs). Oou can find more detailed information on the environment, sector and competitive situation in the section entitled ¹Economic report and forecastº.
No quantification of other risks is currently performed within the scope of internal risk management. However, to adequately control the risks resulting from this, an adequate buffer is included in the riskbearing ability. This is regularly validated within the scope of back testing and adjusted as and when necessary.
Risk-based capital adequacy requirements are of essential importance to ensure availability of sufficient equity to cover unanticipated losses. As underlined by the assessments of the European Parliament, however, the banking and financial crisis has shown that these requirements alone are not enough to prevent institutes from taking leverage risks which are simply untenable in the long term.
The leverage ratio API establishes a connection between regulatory equity and the non-risk-weighted items both on and off the balance sheet. The Group's leverage ratio is integrated into the risk reporting submitted to the Executive Board and to the Supervisory Board to allow any necessary measures to be derived early on.
The established leverage ratio results show that the MLP Financial Holding Group is not currently subjected to any significant leverage risk.
The risk-bearing capacity concept ensures that the risks incurred are offset against sufficient risk coverage potential at all times. Mithin the scope of the risk-bearing capacity concept, the MLP Financial Holding Group pursues a going-concern approach with a confidence level of 97% when controlling risks. This is based on protection of the minimum capital backing required by law and thereby a continuation of the business operations of the MLP Financial Holding Group. Free equity capital that is available after meeting the regulatory ratios for minimum capitalisation and an additional buffer are in place to serve as risk coverage potential.
In 2016, the Executive Board made a risk coverage fund available based on the risk coverage potential (sum of free supervisory equity and plan EBT) up to an upper threshold of € 100 million to cover the following risk types that MLP categorises as significant0 counterparty default risk, market price risk, liquidity risk, operational and other risks.
Leverage risk
Results of the analysis of risk-bearing ability
Mith a share of 48%, counterparty default risks and operational risks with a share of 42% take up the majority of the risk coverage fund available. At 75% the financial services segment ties up the majority of risk capital among all risk types.
The risks incurred are covered by the assigned limits in line with the respective risk coverage potential. Consistent surplus coverage is in place.
| Risk bearing ability | 2016 Utilisation in |
2015 Utilisation in |
|---|---|---|
| Risk and capital commitment | 75.0 | 75.2 |
| thereof0 | ||
| Counterparty default risk | 77.8 | 79.6 |
| Market price risk | 71.6 | 53.7 |
| Operational risk | 75.9 | 80.5 |
| Liquidity risk | 0.0 | 0.0 |
The backing of risk assets with eligible own funds for tier 1 capital generally requires a minimum ratio of 4.5%. As in the previous year, these requirements have not changed during the financial year 2016.
As per Article 25 et seq. of the CRR, the Group's Tier 1 capital includes the following equity items of IFRS capital0
share capital, capital reserves, statutory reserve and retained earnings. Among other factors, intangible assets, treasury stock and goodwill reduce Tier 1 capital.
As was also the case in the previous year, the MLP Financial Holding Group fulfilled all legal requirements relating to minimum capital adequacy throughout the financial year 2016. The relationship between the risk assets and equity capital on the balance sheet date is illustrated below0
| Ihareholders¼ eguity in € million | 2016 | 2015 |
|---|---|---|
| Tier 1 common capital | 214.7 | 211.2 |
| Tier 1 additional capital | – | – |
| Tier 2 capital | – | – |
| Eligible own funds | 214.7 | 211.2 |
| Capital adequacy requirements for counterparty default risks | 75.5 | 70.4 |
| Capital adequacy requirements for operational risk | 45.8 | 47.5 |
| Core capital ratio (in %) | 14.16 | 14.33 |
| Tier 1 common capital ratio (in %) | 14.16 | 14.33 |
MLP's business development is essentially influenced by financial, operational and general business risks. Me use our risk management system for the identification, assessment, control, monitoring and communication of our key risks in terms of both current and future developments. The information provided ensured prompt introduction and prioritisation of risk management measures without exception.
Both the MLP Financial Holding Group as a whole as well as the business segments always acted within the scope of their financial risk-bearing ability in 2016.
Our Business Continuity Management also ensures regulated business operations in the event of any disruptions. Our risk monitoring and control systems and the consistent alignment of our business model to our risk-bearing ability enable us to ensure that the risks taken in our business activities are backed with adequate risk capital.
The risk management system is subject to continuous further development, in particular with regard to developing the volume and complexity of our business. The effectiveness of our risk management system and its supervisory implementation are also checked cyclically by both external and internal auditors.
The above-mentioned risks, and such risks which are not yet known to us or are currently considered insignificant, could have a negative impact on our forecasts detailed in the outlook.
There are currently no discernible risks that could threaten MLP's continued existence. And we do not expect to see any negative development in the coming year. No appreciable risks which could have a significant influence on the continued existence of the MLP Financial Holding Group occurred at MLP after the balance sheet date.
The ob`ective of the integrated opportunity management approach employed by the MLP Group is to secure systematic and early identification of opportunities and their assessment\$
This takes place within the scope of a standardised business strategy process, performed by the Executive Board once a year\$ To this end, assumptions made about relevant influential factors for future development are subect to an ad hoc check\$ Such reasons can, for example, include maor acquisitions, regulatory changes or changes in the market environment\$ MLP's corporate strategy, and the opportunities associated with this, are derived from its corporate mission, which is examined and updated by the Executive Board on an annual basis\$ The current internal and external framework conditions, as well as influential factors are then analysed and summarised using established processes\$ A comprehensive analysis of the current environment always forms the basis of this process\$ Among other things, this includes the macroeconomic and regulatory framework conditions, developments in the product area and also the competition\$ Mith regard to client and sales potential, we also use available market data alongside our own assessments\$ The analysis culminates in a comprehensive SMOT analysis (strengths, weaknesses, opportunities, threats)\$
MLP's system of opportunity management is accompanied by continuous observation of the market and competitive environment from the company's various perspectives\$ This process is organised locally in the responsible departments, which regularly report their findings to the respective member of the Executive Board\$ Product Management is a key player here, as it determines opportunities through intensive contact with product providers and industry experts, mostly in the form of product innovations\$ In addition to this, Customer Management is undertaking extensive market research\$ Other important protagonists in terms of opportunity management are Controlling, which examines the market to detect potential acquisition opportunities, as well as the organisational units of Risk Management and Compliance, which examine potential regulatory changes early on\$
The opportunities in terms of the future business development can be sub`ect to both external and internal influences\$
The economic forecasts for the year 2017 suggest only limited opportunities for MLP\$ Although economic experts are assuming that Germany will enoy further growth, the aforementioned reservations on the part of clients when it comes to signing long-term savings contracts will hinder progress\$ In the mid to long term, however, the greater need for private and also occupational pension provision is likely to increase demand for these two products significantly again · particularly among MLP's target groups\$ Should the German economy enoy better development than assumed in our forecast, this will only have an indirect influence on short-term operating developments\$ However, should the reservations disappear altogether (contrary to our expectations) when it comes to signing long-term contracts, this would have direct positive effects for MLP\$
Opportunities from changing framework conditions
The ever stricter regulation of the financial services sector in Germany, with the ob`ective of stabilising the financial system and increasing investor protection, presents both challenges and opportunities for MLP\$ Stricter regulatory requirements will initially lead to additional costs and reduced productivity, as administrative costs increase and processes in the company have to be adapted\$ However, the regulation also tightens the quality standards required of market actors\$ This will accelerate consolidation of the market, as individual brokers will not be able to comply with the stricter requirements\$ The supply side of the market will reduce in sipe overall\$ Mith our consulting approach, which focuses on clients and their financial matters, we are able to clearly differentiate ourselves in the marketplace\$ In addition to this, we were quick to align our operations to the new framework conditions over the last few years, which will enable us to benefit from this development in the midterm\$
Me see corporate strategy opportunities primarily in MLP's positioning as a partner for all financial matters, a position which has been particularly strengthened over the last few years\$ Alongside support for private clients, we are now also increasingly focusing on our business with corporate clients and institutional investors\$ In cooperation with our Group companies TPC, DOMCURA and FERI, we will further expand our portfolio for corporate clients and institutional investors in the areas of investment, risk management, non-life insurance and occupational pension provision\$ MLP could benefit from additional opportunities as a result of the increased state support for occupational pension provision in Germany · as presented by the German Federal Ministry of Labour and Social Affairs in a draft bill in November 2016\$
Interlinking these areas with one another and with the private client business will furthermore enable us to create corresponding revenue potential\$ In the private client business itself, MLP has an important USP thanks to its broad positioning\$ Further developing these opportunities offers important potential for the next few years\$ Additional increases are also possible, particularly in the wealth management area, in which MLP clearly sets itself apart from the market through its highly transparent price model, yet also in the non-life insurance area, in which MLP is developing the business of its subsidiary DOMCURA\$
Mithin the scope of opportunity management, MLP examines the market for potential acquisitions\$ In the event of an acquisition, opportunities can arise which can increase revenue potential\$
As a pure service provider, our operational tasks comprise sales, product purchasing/product selection and sales support\$
In the field of sales, our client potential in the private client business will increase even further over the course of the next few years\$ The need for well-trained employees in Germany is increasing, which in turn improves the basic conditions for our client group of academics\$ At the same time, the number of academics capable of and seeking employment is also set to rise in the mid-term, which will lead to greater new client potential for MLP\$
More targeted penetration of our client base, particularly in the wealth management and non-life insurance areas, will also help us achieve further growth\$ Since our clients are generally very welltrained and thereby have excellent income prospects, they also have a continuous need for sound financial advice and hold corresponding revenue potential\$
Corporate strategy opportunities
Business performance opportunities
The private client business is not the only area in which we see opportunities for winning and supporting new clients\$ There is also a high demand for independent, professional consulting in the business with corporate clients and with institutional clients, which we have now bundled at our subsidiary FERI\$ Particularly for institutional investors and high net-worth families, the need for consulting services is on the rise, above all in the field of alternative investments\$ DOMCURA is the service provider for agents and other brokers in the non-life insurance area and provides comprehensive solutions for both private and commercial business · partly with a high degree of individualisation\$
Over the last few years we have introduced and implemented various measures to increase the productivity of our consultants\$ These include further development of our consulting programmes, even greater support for our consultants · for example in product selection · and even more effective service from the back-office in Miesloch\$ The MLPdialog service centre also makes an important contribution to this\$ As an underwriting agency, the DOMCURA Group has also extended the added value chain of the MLP Group for standard products in the non-life insurance area with its processes and expertise and will continue to do so in future\$ The goal of these measures is to allow our consultants to focus even more on their core task, namely advising and supporting their clients\$ This provides important revenue potential for the future\$
Positive business/market developments with lasting effects on earnings figures can be beneficial for the capital/financial situation of MLP and facilitate greater scope for action in terms of the business model and the risk profile\$ Alongside the opportunities already mentioned arising from changing framework conditions, corporate strategy and business performance, further opportunities could also arise from interest rate developments or lower loan loss provisions due to economic developments\$
In the banking area, MLP also engages in current account and credit card business beside the classic lending business\$ These business activities focus on cross-selling and are subect to acceptance of counterparty default risks\$ Special profit opportunities arise for MLP through its preferred clientle and their predominantly good credit ratings\$ In addition to this, positive development of the economic situation in Germany could present opportunities for improved portfolio quality, thereby keeping the need for value adustments at a low level\$
Interest rate developments also have an influence on the interest book of MLP\$ Depending on the positioning/alignment and interest rate development, they could potentially lead to risks but also to opportunities, which could be reflected in a continuously comfortable liquidity situation\$
MLP sees several significant opportunities\$ These affect multiple fields, in particular corporate strategy and business performance factors, as well as the asset and risk position\$ However, we believe that the changing framework conditions will only present limited opportunities\$ The opportunities described, as well as those which are not yet known to us or are currently considered insignificant, could lead to a positive deviation from the disclosures made in our forecast\$
Opportunities from development of asset and risk positions
Summary
The economic dynamism in the europone remains positive, although it is likely to weaken somewhat in 2017 as a result of the worsened outlook for exports to Great Britain\$ Aey impulses for greater growth are lacking in terms of both foreign and domestic trade\$ Political risks resulting from the consequences of the referendum in Italy, election of a new president in France and the German parliamentary elections are increasing uncertainty\$ As a result of this, FERI Investment Research is anticipating economic growth of 1\$3 for the europone in 2017\$
For Germany, the experts at FERI Investment Research expect that the recovery will continue to be carried by a robust domestic economy, although this will be weakened by the effects of Brexit and the fragile dynamics of the europone\$ FERI Investment Research is now forecasting economic growth of `ust 1\$5 for Germany in 2017\$
Based on estimates of the Institute for Employment Research of the German Federal Employment Agency (IAB), employment market developments in Germany remain robust\$ In terms of the annual average for 2017, unemployment is expected to drop by a further 70,000 to 2\$6 million persons\$ Given the number of refugees entering the country, however, the seasonally ad`usted unemployment figure could potentially increase again temporarily over the course of the next year\$ According to FERI Investment Research, the level of employment remains high overall\$ The employment market experts at the IAB are therefore predicting an increase in total employment figures of around 480,000 persons in 2017\$ However, the IAB also warns of the future challenges presented by digitalisation, demographic changes and the integration of refugees\$
The German government is forecasting a 3\$7 increase in gross salaries and wages in 2017 and that private households in Germany will enoy a 2\$8 increase in disposable income\$ The framework conditions for private households therefore remain favourable\$ According to a forecast provided by the German government, the price-adusted consumption expenditure of private households will increase by 1\$6 in 2017\$ In its latest annual report for 2017, the Council of Economic Experts forecasts a savings rate of 9\$7 in Germany (20160 9\$8)\$
Moderate growth anticipated in Germany
Employment market prospects remain favourable
Increasing salaries and wages to be anticipated
The aforementioned influence of the individual fields of consulting on the operating business segments applies accordingly to the future industry situation and the competitive environment.
In future, private and occupational pension provision are likely to assume an increasingly important role in Germany. Despite the latest proposals of the German Federal Ministry of Labour and Social Affairs, the objectives of which include strengthening the statutory pension, in its 2016 Pension Insurance Report the German government is keen to stress that constant reduction of the guaranteed statutory pension levels is necessary in order to keep the premiums stable. This can be compensated through additional provision.
The state supports supplementary old-age provision in Germany. In 2017, the maximum tax-deductible amount in Tier 1 is to increase from € 22,766 to € 23,362 for single persons (joint allowance with spouse € 45,532). At the same time, the percentage of premiums paid that is taken into account by the tax authorities is set to increase from 82% to 84%. A maximum of € 19,624 can therefore be deducted as special expenses in 2017. These figures are doubled for married couples. Furthermore the state support levels for the Riester pension remain the same as in 2016.
A survey conducted by the German Consumer Research Association (GfA) indicates that most German citipens are aware of the urgency of private old-age provision. Four out of every five respondents (80%) consider it extremely important to put financial provisions in place for their old age. Many Germans also take a pessimistic view of their personal pension prospects, as reported by a survey undertaken by TNS Infratest on behalf of Industrial Union of Metalworkers (IG Metal)0 According to this, 64% do not think that they will be able to live well off their statutory pension when they retire. This figure increases even further to almost three quarters (73%) in the 18 to 34-year old bracket. A study of investors commissioned by Gothaer Asset Management AG highlighted that 59% of German citipens are still struggling to achieve their old-age provision saving goals in light of the ongoing period of low interest rates. 32% are of the opinion that this has actually become even more difficult.
The vast majority of German citipens are worried about the risk of old age poverty, as underlined by a Forsa survey commissioned by Gothaer0 Accordingly, three out of every four German citipens (75%) are worried or extremely worried about their old age prosperity and fear impoverishment. A survey performed by Axa suggests that those in gainful employment in Germany are predominantly choosing real estate as investments to cover their old age living costs. Indeed, more than one in four (27%) is planning to purchase property either to live in or rent out. One in ten Germans in active employment is keen to invest in savings deposits, private pension%life insurance policies or occupational pension provision to provide for their old age.
Higher subsidy for the basic pension from 2017
Vast majority understands the importance of supplementary old-age provision
Morries about a drop in standard of living in later life
Mhich forms of investment do people in gainful employment intend to use for securing their pension income5 (amounts in %)
According to the latest Pension Insurance Report published by the German government, the standard pension level is already at 48%. This figure is likely to drop further to 44.5% by 2030. In its most recent forecasts, the official group of estimators expects the pension level to fall to 41.7% by 2045 and the premium rate to increase to 23.6%. The pension shortfalls are even greater for citipens that enjoy a high income.
According to a survey conducted by market research institute OouGov on behalf of MLP, almost two thirds (62%) of German citipens do not believe that the government can prevent a decline in the pension level. The results show that neither an increase to the statutory retirement age nor higher premiums would be accepted by the population as a way of stabilising the statutory pension system. Only 10% % 13% of those with statutory pension insurance who have not yet retired would be willing to do this. 58% prefer other approaches to stabilise the declining pension level, such as occupational pension provision.
According to the generation mortality tables of the German Federal Statistical Office, the average life expectancy in Germany is 84.7 years for men and 88.7 years for women. However, the results of a Forsa survey indicate that 90% of German citipens underestimate their actual life expectancy – and thereby also how long their old-age provision will need to last. Based on this, men live an average of seven years longer than they expect, while women live almost eight years longer.
New calculations performed by Cologne-based economist Eckart Bomsdorf suggest that life expectancy is likely to continue increasing quite markedly. Based on the figures provided, girls born in 2016 are likely to live to an average age of 93 years, while boys are likely to reach 90 years – meaning they would have a very long period of retirement. According to official German pension insurance figures, the average pension benefit period has doubled from 10 to 20 years over the course of the last five decades. In 2015, it was 18.8 years for men and 22.8 year for women.
Statutory pension continues to decline in stages
Own life expectancy underestimated
Despite all of these factors – including state subsidies%allowances for private and occupational pension provision, the declining pension level and increased life expectancy – German citipens continue to display reservations when it comes to signing long-term contracts for old-age provision. Although the market potential remains promising in the mid-term, Assekurata, for example, is forecasting stagnating sector growth.
The German government is planning to launch a pension concept for the statutory pension before the 2017 parliamentary elections. Among other things, this new concept will stipulate harmonisation of the pensions in eastern and western Germany. Compulsory provision for self-employed persons is also being discussed and the foundations for strengthening occupational pension provision have already been laid. The planned legislation to strengthen occupational pension provision in Germany has been available as a draft bill since November 2016 and could provide positive stimulus for occupational pension provision in Germany. It is expected to enter into force in 2018. Among other things, the draft bill will provide for an expansion of the existing tax benefits. The ceiling for tax incentives on premiums paid into pension funds, pension schemes and direct insurance is set to be increased from its current level of 4% to 8% of the income threshold. Oou can find more details on the planned amendments in the forecast section entitled ¹Competition and regulationº.
On January 1, 2017, the legislator once again reduced the maximum technical interest rate for life and pension insurance policies – from 1.25% to 0.9%. Based on the estimates of ratings agency Assekurata, this reduction represents another challenge for life insurers, as it is becoming increasingly difficult to maintain gross premiums in the coverage assets. Indeed, this can now only be guaranteed for long contractual periods.
The reduction is also leading to higher premiums for new contracts in the occupational disability insurance segment. Model calculations performed by MLP show that the monthly premiums could rise by up to 5%, depending on age group and coverage period.
The further reduction of the maximum technical interest rate is likely to contribute to further reservations among German citipens in the financial year 2017. On the product side, concepts with new types of guarantees are likely to gain ground throughout the sector.
New stimuli anticipated for occupational pension provision
Maximum technical interest rate down again1 also impacting occupational disability insurance premiums
Further reforms are to be expected in the health insurance area over the course of the next few years, particularly following the German parliamentary elections in the autumn of 2017. In future, statutory health insurance funds will face financing challenges, while the private health insurance sector will face challenges resulting from the low interest rate.
For 2017, Germany's Federal Ministry for Health announced that the average additional premium for statutory health insurance will remain stable at 1.1%. From 2018 onwards, however, those with statutory health insurance should expect significant premium increases. According to estimates provided by Association of Health Insurance Companies (vdek), the additional premiums paid exclusively by employees will increase. According to the forecast, this increase is likely to be 1.4% in 2018 and rise to 1.6% by 2020 to ultimately reach 1.8%.
MLP believes that the willingness of numerous statutory health insurance policy holders to switch to a private policy will be boosted as a result of the increasing additional premiums. This in turn should once again inject more dynamism into the private health insurance market in the mid-term. According to ratings agency Assekurata, however, no such desire to switch to private policies should be anticipated in the short-term in the comprehensive private insurance segment. The experts are therefore predicting portfolio losses to continue at a similar rate until the 2017 German parliamentary elections. This view is also shared by the other market members. Based on a survey performed by Assekurata Solutions GmbH, more than half of insurance brokers surveyed (52%) expect business developments in the comprehensive insurance segment to deteriorate in the next twelve months.
The long-term potential of private health insurance is also underlined by various studies. The ¹Continentale Survey 2016º concluded that many of those paying into the statutory health insurance system remain sceptical about the future of the healthcare system in Germany. Almost two thirds (64%) of German citipens surveyed do not believe that the statutory health insurance system will be able to provide them with proper medical care in future. More than three quarters (81%) believe that good healthcare provision can only be secured through additional private provision either now or in the future.
The MLP Health Report 2016 also comes to similar conclusions. A large percentage of German citipens are anticipating increasing statutory health insurance premiums (81%) and are worried about having to pay for a greater proportion of their medical care costs out of their own pocket (72%). More than one in two respondents (58%) expect the healthcare funds only to cover the costs of basic medical care.
Statutory health insurance funds anticipating significant premium increases
Significant majority considers additional private health provision necessary
A survey performed by market research institute OouGov came to the conclusion that private supplementary health insurance offers excellent sales potential. Based on this, one in ten policy holders (11%) aged between 18 and 59 is considering signing up for one or more policies over the next six months. Just under one in five (19%) stated they consider it.
The majority of those paying into the statutory health insurance system believe that private provision plays an important part in ensuring good medical care. According to the Continentale survey, they believe long-term care (78%) and dentistry (77%) are the key areas in which they need to have additional insurance coverage. The latest Healthcare Barometer published by PricewaterhouseCoopers indicates that just under two thirds (61%) of statutory insurance policy holders in Germany currently do not have any supplementary insurance in place. Ratings agency Assekurata therefore sees great growth potential for products such as supplementary dental insurance.
The third part of the Care Enhancement Act (PSG) is likely to inject new impetus into the private long term care provision market. Mith the care reform, the three former care levels were replaced by five degrees of care on January 1, 2017. (Oou can find more detailed information on this in the ¹Competition and regulationº chapter). Due to the increased coverage in the media associated with this, the topic of insurance cover for long-term care remains very much in the public mind. Based on estimates of ratings agency Assekurata, this could again boost sales of supplementary long-term care insurance policies, as statutory long-term care insurance provision will remain just a partial solution even after the change in legislation.
Looking ahead to the German parliamentary elections in 2017, a reform of the healthcare system could once again become a key issue with potential to improve the tax conditions for occupational health insurance schemes. At a time when skilled specialists are in short supply, positive stimuli can also come from employers that have recognised the power of occupational health insurance cover as an instrument for winning the best staff and keeping them loyal. To date, the occupational health insurance policies offered by insurers have essentially comprised discounted standard products with pricing modules. However, ratings agency Assekurata expects more individual and innovative product solutions to hit the market over the next few years.
Employers consider occupational health insurance highly attractive. Indeed, according to a survey performed by Gothaer Versicherung, they actually value it over benefits such as company cars, job tickets or company phones. 61% of respondents stated that they would like to have occupational health insurance in place, but only 4% of employees have received a corresponding offer of additional occupational coverage from their employer. Supplementary dental insurance policies are the most popular, followed by supplementary outpatient coverage policies.
The advantages for employers are clear. Almost two thirds of employees surveyed (64%) stated that receiving occupational health insurance as an additional benefit would strengthen their loyalty towards their employer. Almost half (43%) go further and consider the combination of occupational health insurance with workplace health management a key factor when selecting a future employer.
Supplementary insurance policies need to catch up
Long-term care provision offers significant growth potential
Occupational health insurance attractive for employees
The need for high-quality wealth management services is set to increase in the long term, due to the constantly growing number of high net-worth individuals. In its 2016 Global Mealth Report, the Boston Consulting Group (BCG) expects global private assets to increase at an annual rate of 6% and exceed US 224 trillion by 2020. The percentage of millionaires in the German population is likely to increase from 1.1% today to around 1.6% by 2020. According to the BCG survey, these individuals will together control 31.5% of all assets in the country. The current level is 27.6%. A survey conducted by consultancy Capgemini also suggests that there is massive growth potential for wealth management companies. To date, only 32% of assets owned by dollar millionaires are managed by wealth management companies.
The European Central Bank's interest rate policy is slowly motivating German citipens to rethink the way they invest their savings. According to a Union Investment survey, 41% of savers now consider it prudent to channel at least a portion of their money into investments offering a better return. This is 5% more than at the end of 2015. Just over a third (36%) consider shares an attractive investment. In addition to this, investors are optimistic about the price trend. Three quarters of those taking part in the survey expect the prices to remain stable or improve slightly.
The European Central Bank's monetary policy and its effects on personal financial investments are motivating more Germans to seek investment advice. According to Union Investment, one in two German citipens consider it important to attend a personal meeting with a consultant as a way of finding the right investment in a sea of choices.
Over the next few years, we expect to see major shifts in funds due to inheritances. According to a survey performed by the German Pension Institute (DIA), private households in Germany alone will inherit around € 3.1 trillion by the year 2024 – representing just under 30% of the entire assets held by private German households. Based on the DIA survey, an average of € 363,000 will be handed down per inheritance.
The topic of inheritance already commands a great deal of attention in modern society. Indeed, a survey undertaken by Deutsche Bank indicates that the majority of German citipens (52%) have inherited or expect to do so. Just under half of potential heirs stated they would use their inheritance for financial investments, capital accumulation and old-age provision.
The 50! generation is the only population group in Germany that is continuously growing. It also controls 75% of all assets. Me already serve clients in this age group and the group itself is likely to become even more important over the course of the next few years. The primary focus of retirement planning activities is on determining what assets clients have already acquired and how these values can best be invested to meet their specific needs and achieve their goals.
Given the significance of this topic, we will be both further expanding the training offers at our CU and extending our range of services for clients in 2017.
For years, the independent wealth management market has been characterised by ongoing consolidation under massive cost pressure. Clients are increasingly demanding customised solutions, multi-asset concepts and passive investments. The key with investment management services, such as those we offer through FERI Trust GmbH, is therefore to seek greater diversification with comprehensive hedging of risks through a wider, more diverse portfolio. This commitment paired with an ever increasing regulation of the finance sector and the loss of confidence among investors requires well-founded research.
Growing need for wealth management advisory services
Shares slowly becoming more attractive to savers
Mave of inheritance in Germany
Retirement planning becoming increasingly important
Ongoing consolidation in the wealth management area
Based on a survey performed by Universal Investment, alternative investments are proving increasingly popular among institutional investors in light of the low interest rate environment. Accordingly, four out of every ten investors are keen to invest three to six percent of their funds in alternative investments in future. One in four is looking to increase their alternative investment quota to between nine and twelve percent, while slightly more than one in ten will be seeking to invest more than twelve percent in this asset class.
PwC expects that around US 15.3 trillion of global assets under management will be invested in alternative investments in 2020.
In light of low interest rates, the ongoing debt crisis and geopolitical risks, the capital market environment is likely to be characterised by pronounced volatility and remain challenging in the financial year 2017. Mithin this context, in the long term we expect to see an increased need for consulting services in the professional wealth management area among all of the Group's target client groups.
Non-life insurance will play an increasingly important role in the market. According to a survey performed by AssCompact, 81% of insurance brokers expect the private non-life insurance business to become much more important over the next few years. The brokers taking part in the survey believe that commercial non-life and homeowners' insurance policies hold particular potential. More than half of the brokers surveyed are anticipating a significant increase in revenue here.
According to a survey performed by Assekurata, just under 40% of brokers believe that private non-life insurance policies will enjoy positive development in the coming year, while one in three (34%) expect the same of commercial non-life insurance policies. 60% expect the market to remain more or less stable.
The AssCompact survey also suggests that many insurance brokers are worried about losing their standardised bulk business to the internet. Indeed, more than half of the brokers surveyed are concerned about strong competition from direct insurers or price comparison websites. After all, many of the newly founded fintechs%insurtechs are focusing their attention on the non-life insurance sector with the goal of using simple apps to push their non-life portfolio.
Ratings agency Fitch is anticipating slightly lower growth of around 2% for the property and casualty insurance segment in 2017.
The entire market for financial services and the insurance sector are facing consolidation. Germany is considered to be the market with the greatest potential in Europe, in which both national and international service providers are competing. Due to stricter regulations, pressure is in particular mounting on low-level providers, which will lead to a further reduction in the number of market actors. In addition to this, competitive pressure is growing throughout the entire sector as a result of new, digital market members (so-called fintechs). Ratings agency Assekurata also believes that digital competitors will play an increasing part in the mid-term. According to a survey undertaken by the German Consumer Research Association (GfA) for the German Insurance Association (GDV e.V.), four out of every five Germans (82%) are already using the internet to gain more information prior to signing up for an insurance policy. However, the majority (55%) cannot ever see themselves signing up for an insurance policy on the internet, even in the future.
Alternative investments increasingly in demand among large-scale investors
Market environment remains difficult
Brokers anticipate positive business development
The number of registered insurance brokers also declined again in 2016, as the sector lost around 5,100 brokers. Since reaching its peak at the start of 2011, the number of brokers has fallen by 35,200. As regulatory requirements are becoming ever stricter, this trend is unlikely to change in future. At the same time, it presents MLP with many opportunities as a quality-driven provider.
Further consolidation is likely to be expected in the healthcare sector due to increasing cost pressure. The number of statutory health insurance policyholders already dropped quite sharply in previous decades. Mhile there were 1,815 health insurance funds in 1970, this number had already almost halved to 960 by 1995 and currently stands at just 118 (previous year0 124). Today, there are just 132 healthcare funds, and this number is likely to drop even further in future. According to a survey performed by PwC, the statutory health insurance funds believe consolidation to be indispensable as a way of reducing costs and increasing efficiency. Two thirds of respondents believe that 40 to 100 statutory health insurers will be enough in future.
The second part of the Care Enhancement Act (PSG) came into force on January 1, 2017. Mith this step, a new definition of the ¹need for careº is being implemented in practice – with five degrees of care instead of the three previous care levels. In future, physical and mental disabilities will both be taken into account equally when classifying the need for long-term care. In addition to this, the statutory long-term care insurance premium increased in 2017 – by 0.2% points to 2.55% for parents and to 2.8% for those without children.
Mithin the scope of the planned pension reform, the German government is keen to offer greater incentives for occupational pension provision. The German Federal Ministry of Labour and Social Affairs presented a draft bill of the legislation to strengthen occupational pension provision in Germany in November 2016. The strategy being employed to boost this market is to offer a larger subsidy framework and make it easier for employers to get on board. The key issues of the draft bill include increased tax relief from the current level of 4% to 8% of the income threshold, a state subsidy for those on low incomes, as well as the opportunity to opt for defined contribution commitments rather than minimum or guaranteed services in terms of the target pension, thereby eliminating liability risks for employers. In addition to this, the basic allowance for the Riester pension is to be increased from € 154 to € 165 p.a. The legislation is scheduled to come into force at the start of 2018.
In the course of implementing Solvency II, the German government discussed dispensing with the maximum technical interest rate, but ultimately decided to keep it. However, the rate was reduced from 1.25% to 0.9% on January 1, 2017. This further reduction not only impacts pension insurance policies. Higher premiums for new policies are also to be anticipated in the term life insurance area and especially in the occupational disability and nursing care insurance areas. Based on a statement issued by the president of BaFin, the need for a guaranteed interest rate is to be reviewed again in 2018.
After the European Commission postponed the introduction of the Markets in Financial Instruments Directive MiFID II by one year to January 2018, the Federal Finance Ministry presented the draft bill for the ¹Second Financial Market Reform Actº in the autumn of 2016. The goal is for the guideline to be transposed into national law by July 2017 and then applied with effect from January 2018. The objectives include greater transparency and better investor protection, both of which MLP generally welcomes. Consultation records in their present form are to be abolished and replaced by a so-called ¹suitability declarationº.
As is the case for all other market actors, MiFID II and the Financial Market Reform Act will lead to significant implementation costs for MLP in areas including IT systems, cost transparency, customer information and reporting. Mith MLP's current position in the field of wealth management, however, we believe that we are well positioned to handle implementation of the requirements.
Further consolidation among statutory health insurance funds
New definition of ¹need for careº as of 2017
Legislation set to strengthen occupational pension provision from 2018 onwards
Maximum technical interest rate down to 0.9%
MiFID II on the home straight
In the course of transposing MiFID II into German law, focus is once again shifting toward fee-based investment advisory services. If this leads to additional market potential, MLP is in an ideal position to exploit it, as its approach to new business in the wealth management area has been equivalent to feebased remuneration for several years.
The European Commission has postponed the start date for the Packaged Retail and Insurance-Based Investment Products Regulation (PRIIPs) by one year to January 1, 2018. In future, providers of financial products are to draft a uniform product information sheet that describes the most important features in a brief and comprehensible way. The PRIIIP regulation applies to investment products such as funds and certificates, as well as to insurance investment products.
To improve the comparability of state-supported old-age provision products, a compulsory product information sheet has already been introduced at national level with the Old-Age Provision Reform Act (AltvVerbG). To this end, the Produktinformationsstelle Altersvorsorge GmbH (PIA) initiative has drawn up a uniform and binding standard for determining risk-return profile classes and calculating the actual costs of tax-privileged old-age provision products. Since January 1, 2017, providers of Riester and basic pensions must use a standardised product information sheet to inform clients of the main product characteristics when concluding a contract. In addition they must have the risk-return class of their own products certified by the PIA and document this accordingly. Me generally welcome this step towards greater transparency. However, during a transitional period there will be a difference in the disclosure of costs between tax-privileged and non-tax-privileged products. This contradicts the objectives of greater cost transparency and, in particular, better comparability of products for clients.
In November 2016, the Federal Ministry of Economics presented the draft bill of the legislation for transposing the EU Insurance Distribution Directive (IDD) into German law. The ban on passing on commission in the insurance sector is to remain intact. However, there are no plans to issue a general ban on commissions. The draft bill also provides for the introduction of fee-based insurance consulting. In addition to this, the IDD sets important standards for better quality consulting with uniform principles throughout Europe. For example, brokers will in future not only have to provide evidence of their basic training, but also of their ongoing vocational further training. The transposition into national law must be completed by February 2018.
The analysts at Assekurata believe that the IMD will present insurers, financial services providers and broker pools with particular challenges in 2017. Business models and consulting processes need to be adapted to the new directive. However, no major effects on MLP's business model should currently be anticipated. MLP has always placed great emphasis on further training for consultants.
The capital requirements pursuant to Basel III will increase further up to 2019. The capital conservation buffer will increase in stages from 0.625% in 2016 to 2.5% in 2019. At the same time, intensive discussions to finalise Basel III are taking place. Due to the scope involved, however, many market members are already talking about a new package of regulations, Basel IV. These could potentially lead to even stricter capital requirements for the sector, which would also impact MLP.
In summary, we consider our current competitive situation as good, thanks largely to the sustainable diversification of our business model. MLP was an early adopter of numerous requirements that will become binding law in future. Implementation expertise is required in order to comply with the legal documentation, qualification and transparency obligations. MLP believes it is well prepared for this. But irrespective of this, the regulatory developments will certainly represent a challenge for all market actors.
Product information sheets now only to be introduced in 2018
Final sprint towards Insurance Distribution Directive (IDD)
Bank regulation remains in focus
Mell equipped to handle new regulatory requirements
In the field of old-age provision, MLP expects reservations regarding signing long-term old-age provision policies to continue throughout the market. This is primarily due to the low interest rate phase and the further reduction to the maximum technical interest rate performed on January 1, 2017. These are driving forward changes in the product landscape of the old-age provision area. Alternative guarantee concepts are enjoying ever increasing demand and gaining ground throughout the market. MLP has already assumed a pioneering role in the brokerage of these concepts and we are increasingly benefiting from this. The planned legislation to strengthen occupational pension provision in Germany is also likely to provide positive stimulus for occupational pension provision. In the field of old-age provision, we are anticipating recording new business and revenues in 2017 that will be around the previous year's level.
In the field of health insurance, public discussions regarding the possible introduction of ¹citipens insuranceº could lead to uncertainty in the run-up to the German parliamentary elections in 2017. At the same time, higher premiums throughout the market could have a negative impact on the market for private comprehensive health insurance. The supplementary insurance area holds growth potential. Overall, we expect MLP to record a small increase in revenues in the health insurance area in 2017. Me are anticipating positive stimulus from the additional premiums likely to be charged in the statutory health insurance segment, which will increase the willingness of statutory insurance policy holders to switch to private providers. Due to their above-average income, this is likely to have a pronounced effect on those MLP clients currently holding statutory insurance. Me also believe that the occupational health insurance area has a promising future.
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 Finanpdienstleistungen 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, we also expect the capital market environment to remain difficult overall with high volatilities. It is therefore safe to assume that investors – both private and institutional – will continue to display risk-averse behaviour. Volume-based and performance-based remuneration could also decline. In an unchanged market situation with no radical events or severe effects on the capital markets, we expect to record stable revenues in the wealth management segment for 2017 and a slight increase in the assets under management segment.
On the basis of the successful integration of DOMCURA, we are anticipating further slight increases in revenue for the non-life insurance area in 2017. The commercial non-life insurance business is one area that offers growth potential. Some initial new concepts are currently being developed for the corporate clients served by MLP in this field of consulting, such as practice owners. MLP's private client base provides further potential for growth. Me have established comprehensive system support through DOMCURA to leverage this.
Alongside listed buildings, we are also continuously expanding our brokerage activities for new, existing and concept-driven properties as a way of establishing a broader basis for our consulting services in and around the real estate area. Me expect ¹Other commission and feesº to remain at the same level as the previous year in 2017.
However, a degree of uncertainty remains in all fields of consulting due to the challenging market environment.
| 201- | |
|---|---|
| Revenue from old-age provision | Unchanged |
| Revenue from health insurance | Slight increase |
| Revenue from wealth management | Unchanged |
| Revenue from non-life insurance | Slight increase |
In order to also sustainably increase the earnings level in spite of the ongoing difficult market conditions in the field of old-age provision, MLP has further accelerated the strategic restructuring since the beginning of 2016. Initiated and successful growth initiatives will be continued to this end.
Further acquisitions and joint ventures that offer potential for profitable inorganic growth are generally possible in the market of our subsidiaries FERI and DOMCURA.
MLP also expects the ongoing consolidation of the broker market to continue. Should brokerage companies in the core business of MLP Finanpdienstleistungen 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.
Me are also driving the further diversification of our revenue basis through continuous expansion of our consulting fields beyond old-age provision, focussing in particular on non-life insurance and wealth management.
Mith the relaunch and added functionality of our websites, our activities on social media platforms and the launch of online policy sales, we made important progress within the scope of our digitalisation strategy in 2016. Measures planned for 2017 that will build on this include further establishment and expansion of online product sales as a way of winning new clients and self-service for existing clients. At the same time, MLP is continuing to expand its client acquisition activities on social media platforms. The new MLP client portal, which began its pilot phase at the end of 2016, is also to be made available to all clients in the coming financial year. The application will run on smartphones and, alongside banking functionalities, will include a ¹digital budget bookº. Mith our combination of individual consulting and supplementary digital offers, we believe that we are well-positioned to compete with fintechs.
Alongside client-facing activities, however, the processes performed in the back office are particularly crucial. Unlike many fintechs, we have taken an important step with the integration of DOMCURA and are keen to use this to help our consultants develop the non-life insurance business as efficiently as possible. Me are currently developing a further functionality which will enable users to optimise nonlife insurance policies in an app. Me will continue to drive these process improvements throughout the Group in 2017.
In the reporting year, we developed two new applications which provide our consultants with targeted support during client meetings. Once the pilot phase has been successfully completed, both the ¹Budget guideº application and its counterpart ¹Budget guide easyº for the provision of consultancy services to young clients will be rolled out in stages starting in 2017. The introduction will be supported by a comprehensive training concept.
Further acquisitions possible
Digitalisation remains in focus
New applications support client consultants
Minning new consultants also remains a focus of investments in 2017. Me have laid important foundations in the last two years with activities such as the introduction of a training allowance for new client consultants or closer networking between university management and recruiting. Our aim is to increase our presence at universities over the course of the next few years. Me will therefore bundle all cross-location activities of MLP in the university segment. To this end, MLP has appointed a new divisional board member for the university segment, who will work alongside the four other divisional board members for the regions. The objective here is to further accelerate the acquisition of new clients and young consultants. In support of this, we will further intensify our recruiting activities through our online and social media presences. Me are anticipating a stable net development of consultant numbers for 2017. Although the changes made at our subsidiary PSH within the scope of our efficiency programme will initially lead to a slight decline throughout the Group, we then expect to record a slight increase again over the course of the year as a result of our announced focus on the university segment and the intensified activities to win new consultants associated with this. Our overall assessment is based on the fact that annual consultant turnover will not exceed the target limit of around 10%.
Me believe that the high quality of our training offers will continue to be the key to success. Indeed, we offer our consultants a programme that exceeds the legally stipulated level. This should help us increase the number of central training days (including online seminars) at our Corporate University slightly compared with the last financial year. This also applies to the total budget for qualifications and further training.
To accompany and support the aforementioned growth initiatives, MLP implemented comprehensive efficiency measures in 2016 to further significantly reduce the cost base in the financial year 2017 and subsequent years. As announced, this incurred one-off expenses of € 15.4 million, which will lead to a drop in the administrative cost base of around € 15 million in 2017 relative to 2015 – based on the administrative expenses of DOMCURA for the whole of 2015.
Me will continue to develop and optimise MLP in 2017. The forecast administrative expenses therefore still include expenses for future investments.
Alongside administration expenses, the cost of sales (primarily commission expenses) are also relevant for our cost structure. Alongside expenses in the financial services and FERI segments, commission expenses at DOMCURA, which was acquired in August 2015 were included for a full year for the first time from the start of 2016. Since 2015, MLP has also offered a training allowance for new client consultants to support them in their start to self-employment. These costs are also recognised under commissions paid. In 2017, we expect to record a comparable overall ratio of commission income to commission expenses as in the reporting year.
Me also expect loan loss provisions to remain at the previous year's level.
Based on our expected revenues and costs, we are anticipating a significant increase in EBIT for the financial year 2017 over both 2016 and also 2015 (€ 30.7 million). Our forecast therefore still corresponds to the assessment we presented for 2017 in the 2015 Annual Report.
Despite markets that remain challenging and the need for comprehensive capital expenditure, including investments to support the ongoing implementation of the digitalisation strategy and the winning of new consultants, we still expect to record profitable growth. This forecast is based on the assumption that the framework conditions in our core markets will not become significantly worse.
Consultant recruiting remains a key focus
Administrative expenses down
Forecast0 Significant increase in EBIT anticipated As was already the case in the previous year, we once again expect the finance cost to be slightly negative. The tax rate in 2016 was 21.6%. Set against the background of a significant rise in anticipated earnings, we also expect the tax rate to increase significantly in 2017.
In February 2017 MLP decided to further optimise the corporate structure of the Group. This will result in one-off expenses. This matter and its effects on the forecast are outlined under events subsequent to the reporting date.
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 comparatively low capitalintensive business model, we intend to maintain an attractive and consistent dividend policy for the future. At the same time, we will retain a portion of the profit to comply with the revised capital requirements resulting from the amended definition of equity capital, as well as the stricter capital adequacy requirements as per Basel III. Set against this background, we have been paying out between 50% and 70% of Group net profit as dividends since the financial year 2014.
On this basis, the Executive Board and Supervisory Board will propose a dividend of € 0.08 per share at the Annual General Meeting on June 29, 2017. The one-off expenses accrued within the scope of our efficiency measures had an impact on Group net profit in 2016 and thereby also on the dividends. The distribution rate is around 60%. However, we will continue to pay out between 50% and 70% of Group net profit as dividends in future.
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. Me 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 € 18.4 million in the last financial year, whereby the focus remained on IT. Oou can find more detailed information on this in the chapter entitled ¹Economic report – Performanceº. Me will continue to make investments in the financial year 2017, focusing primarily on IT. Due to the capital expenditure of the last few years, however, we anticipate an annual investment volume significantly below the 2016 level. Mithin our projects, we use further funds that will flow directly into our income statement as expenses. Me expect to be able to finance all investments from cash flow.
The return on equity declined from 5.1% to 3.8% in the financial year 2016. This decrease can essentially be attributed to the one-off expenses accrued within the scope of our efficiency measures. However, we are anticipating a significant increase for 2017.
The Group's liquidity rose from € 174 million to around € 265 million in the financial year 2016. However, the overall liquidity situation remains good. Liquidity will be reduced by the intended dividend payment of € 8.7 million for the financial year 2016. It will increase again in the second half of 2017 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. Me are not anticipating any liquidity squeepes for the coming financial year.
Dividends of € 0.08 per share
Significant increase in return on equity anticipated
MLP anticipates that the challenging market conditions will continue throughout the financial year 2017. As a result of the successfully implemented efficiency measures, we are anticipating a significant increase in EBIT over the 2015 figure of € 30.7 million – and also the 2016 figure. Me therefore expect to see a positive overall development within the Group. Me 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.
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.
In contrast with the consolidated financial statements, the financial statements of MLP AG are not prepared to International Financial Reporting Standards (IFRS), but rather to the rules of the German Commercial Code (HGB).
MLP AG is the holding company for the MLP Group. The company's primary role is to manage the Corporate Group. It defines strategic goals and ensures coordinated and aligned corporate policy within the Group. Three subsidiaries are arranged under the umbrella of MLP AG0 MLP Finanpdienstleistungen AG is the Group's consulting company for private and corporate clients. It holds a banking licence and, as an insurance broker, is registered for brokering insurance policies. The second subsidiary FERI AG (including its own subsidiaries) primarily looks after wealthy private clients and institutional investors. As an underwriting agency, DOMCURA examines all offers in the market when designing, developing and implementing its extensive coverage concepts for private and commercial clients in the field of non-life insurance. In addition, the DOMCURA Group also includes specialist brokers for commercial and industrial insurance. Oou can find more information on this in the chapter entitled ¹Performanceº in the joint management report of the MLP Group.
The following changes were made to the corporate structure in 2016. FERI AG announced the sale of FERI EuroRating Services AG in the reporting period. The transaction was then concluded on August 1, 2016. FERI is now continuing to focus on its core strengths of investment management, investment consulting and investment research, as well as on strategic further development to become the leading investment company in Germany, Luxembourg, Switperland and Austria.
In the course of the ongoing focus on the corporate structure in the DOMCURA Group, companies including Ralf M. Barth GmbH and FF Makler AG amongst others were merged into nordias GmbH Versicherungsmakler in the financial year. All activities of the broker business segment have been bundled in this company, which includes specialist brokers for commercial and industrial products.
Due to the profit%loss transfer agreements in place, business performance at MLP AG is largely determined by the economic development of its investments, the performance of which is also described in the Group report. A profit%loss transfer agreement was concluded between MLP AG and the DOMCURA Group over the course of the year 2016 and then approved by the MLP AG Annual General Meeting on June 16, 2016.
In the light of the above, the economic framework conditions, the industry situation and the competitive environment are essentially the same as those of the MLP Group and are described in detail in the sections entitled ¹National economic climateº and ¹Industry situation and competitive environmentº.
The German Accounting Directive Implementation Act (BilRUG) came into force on January 1, 2016. This led to a redefinition of revenues. Based on the new rules, revenues must now also be disclosed alongside other operating income.
Revenue in the reporting year was € 5.7 million. These essentially include income from the letting of buildings to affiliated companies. Other operating expenses were € 12.3 million, following € 11.0 million in the previous year. If it had already been necessary to apply the changes resulting from the German Accounting Directive Implementation Act (BilRUG) in the previous year, this would have led to revenue of € 6.6 million and other operating income of € 4.4 million in 2015. On this basis the increase in other operating income can among other things be attributed to the sale of a property and a settlement payment made in connection with judicial proceedings.
Personnel expenses were down from the previous year to € 4.0 million. This reduction can be attributed to lower expenses for salaries and wages, as well as lower expenses for pension commitments as a result of an interest rate adjustment.
At € 3.7 million, amortisation of intangible assets and property, plant and equipment remained virtually constant (€ 3.8 million). Other operating expenses rose to € 10.6 million (€ 9.7 million). Among other factors, this was due to higher consulting expenses. This item also includes expenses of € 0.8 million accrued within the scope of our efficiency programme.
The results of operations of MLP AG are influenced to a great extent by the business development of its largest subsidiary MLP Finanpdienstleistungen AG. As is also the case with FERI AG and the Schwarper Familienholding GmbH (DOMCURA Group), a profit%loss transfer agreement is in place with this company that is reflected in the finance cost.
The finance cost dropped from € 22.7 million (€ 33.7 million) in the reporting period. Higher profit transfers from FERI AG and DOMCURA were more than offset by the lower profit transfer from MLP Finanpdienstleistungen AG, caused by one-off expenses within the scope of our efficiency programme.
The tax expense dropped to € 4.0 million (€ 8.8 million) in the last financial year. This decrease can be attributed to increased expenses in the previous year pertaining to a retrospective tax payment, as well as a lower assessment basis in 2016. The net profit recorded was therefore € 18.2 million (€ 15.6 million).
The balance sheet total of MLP AG was € 413.3 million (€ 406.7 million) on December 31, 2016.
On the assets side of the balance sheet, the item ¹Property, plant and equipmentº declined slightly from € 42.1 million to € 36.3 million due to the sale of a property. Financial investments increased to € 258.0 million (€ 248.0 million) which is attributable to redeployments of other forms of investment. The receivables and other assets declined to € 36.6 million (€ 51.6 million). The receivables from affiliated companies included in this item also declined to € 24.1 million. This increase is primarily attributable to receivables due from subsidiaries of MLP AG, resulting from profit%loss transfer agreements in place with these companies. Other assets declined to € 12.2 million (€ 15.1 million). This development was in particular influenced by lower overall receivables from income taxes.
The item ¹Cash on hand and on deposit with the Deutsche Bundesbank, bank deposits and chequesº increased to € 79.7 million (€ 63.2 million). This increase can essentially be attributed to the payment received from the sale of a property.
On the equity side of the balance sheet, shareholders' equity increased slightly to € 392.9 million (€ 387.6 million), while share capital and capital reserves remain unaltered at € 109.3 million and € 139.1 million respectively.
At € 17.1 million, provisions were slightly above the previous year's level (€ 16.1 million), whereby at € 10.8 million (€ 10.6 million) provisions for pensions and similar obligations remained virtually unchanged year on year. Tax reserves rose to € 2.5 million (€ 0.3 million). Other provisions declined to € 3.8 million (€ 5.1 million). The previous year's higher figure is essentially due to the provisions for interest established that year within the scope of the general tax audit.
As of the balance sheet date, December 31, 2016, MLP AG had cash holdings (cash on hand and on deposit with the Deutsche Bundesbank, bank deposits and checks) of € 79.7 million (€ 63.2 million). This item was reduced by the dividend payout to our shareholders with a total volume of € 13.1 million at € 0.12 per share, while the profit transfers from our subsidiaries had the opposite effect.
At 95.0% (95.3%), the equity ratio remained virtually constant. MLP AG therefore continues to enjoy a good equity capital backing. In addition to this, MLP AG has open lines of credit of € 50.0 million as of the balance sheet date.
As of the balance sheet date, the liabilities of MLP AG increased to € 3.6 million (€ 3.0 million). This was primarily due to an increase in trade payables from € 0.3 million to € 0.6 million, as well as an increase in other liabilities to € 0.9 million (€ 0.6 million). The liabilities at MLP AG are all current liabilities. Cash and cash equivalents therefore exceed current liabilities several times over.
The dividend payments of MLP AG are made in accordance with the financial and profit situation, as well as future liquidity requirements. As announced, the distribution rate for the financial year 2016 will be between 50% and 70%. In concrete terms, the Executive Board and Supervisory Board will propose a dividend of € 0.08 per share at the Annual General Meeting on June 29, 2017. This corresponds to a distribution rate of around 60% of the Group's net profit.
Business development at MLP AG is essentially dependent on the business development of the MLP Group. Me therefore make reference to the comparison of actual business development with the forecast development of the MLP Group.
Despite market conditions that generally remained difficult for its subsidiaries, MLP AG was overall able to meet its own objectives and expectations in 2016.
In the last financial year, MLP AG employed an average of 7 employees, following 7 employees in the previous year.
Stipulations for promoting equal participation of women in management positions pursuant to § 76 (4) and § 111 (5) of the German Stock Corporation Act (AktG) apply equally to MLP AG and the MLP Group. Me make reference to stipulations of the MLP Group for promoting equal participation of women in management positions pursuant to § 76 (4) and § 111 (5) of the German Stock Corporation Act (AktG) in this regard. For details see the corporate governance report of the MLP Group.
The basic structure and design of the compensation system at MLP AG are the same as those of the MLP Group. Me therefore make reference to the remuneration report of the MLP Group.
The risks and opportunities at MLP AG are essentially the same as the opportunities and risks of the MLP Group. Me therefore make reference to the risk report and opportunity report of the MLP Group.
As the parent company of the MLP Group, MLP AG is incorporated in the Group-wide risk management system. Oou can find further information on this in the section of the MLP Group's risk report entitled ¹Risk managementº.
The description of the internal monitoring and risk management system with regard to the accounting process of MLP AG is also the same as that of the MLP Group. Me therefore also make reference to the MLP Group's risk report here.
For further information with regard to the financial instruments and their deployment, we also make reference to the MLP Group's risk report and accompanying notes.
The development of MLP AG in its role as the holding company is largely dependent on the development and profit transfer of its investments. Set against this background, we make reference to the forecast for the MLP Group.
The explanatory report on acquisition-relevant disclosures applies equally to MLP AG and the MLP Group. Me therefore make reference to the MLP Group's explanatory report on the disclosures pursuant to § 176 (1) of the German Stock Corporation Act (AktG), as well as § 289 (4) and § 315 (4) of the German Commercial Code (HGB).
The declaration on corporate governance applies equally to MLP AG and the MLP Group. Me therefore make reference to the MLP Group's declaration on corporate governance.
As of December 31, 2016, the company's share capital amounts to € 109,334,686 and is divided into 109,334,686 ordinary bearer shares with a nominal value of € 1 per share.
There are no restrictions on voting rights or on the transfer of MLP AG's shares.
The German Securities Trading Act (MpHG) requires any investor whose share of voting rights reaches, exceeds or falls below certain thresholds as the result of purchases, disposals or otherwise, to notify the company and the German Federal Financial Supervisory Authority (BaFin) thereof. The lowest threshold for the duty of notification to apply is 3%. Any stakes that reach or exceed 10% of voting rights must be recorded in this explanatory report. MLP AG has been notified of two shareholders who directly or indirectly exceeded 10% of the voting rights0
| Number of shares | Shareholding | |
|---|---|---|
| Dr. h.c. Manfred Lautenschlger, Gaiberg | 25,383,373 | 23.22% |
| Angelika Lautenschlger Beteiligungen Verwaltungs GmbH, Gaiberg | 22,796,771 | 20.85% |
Status known to MLP AG as of December 31, 2016
Based on information provided by Dr. h.c. Manfred Lautenschlger, 22,796,771 voting rights (320.85% of the share capital of MLP AG) are attributable to him by Angelika Lautenschlger 1
Beteiligungen Verwaltungs GmbH in accordance with § 22 (1) Sentence 1 No. 1 of the German Securities Trading Act (MpHG).
Shares which confer special control rights have not been issued.
Mhere MLP AG has in the past issued shares to employees within the scope of its employee participation programme, these shares were transferred to the employees directly. Said employees can or could then exercise the control rights granted by the shares issued directly in line with the legal requirements and the company's Articles of Association.
The appointment and replacement of members of the Executive Board are governed by §§ 84 and 85 of the German Stock Corporation Act (AktG). The company's Articles of Association specify that the Executive Board must comprise at least two people. The members of the Executive Board are appointed for a maximum of five years. A further appointment or extension of the time in office, each for a maximum of five years, is permitted. The Supervisory Board can terminate the appointment of a member of the board before the time in office expires for important reasons. Such reason could be a gross breach of duty, inability to manage the company properly or a vote of no confidence by the Annual General Meeting. The Supervisory Board decides on the number of Executive Board members, their appointment and the revocation of their appointment as well as the conclusion, amendment and termination of the employment contracts with Executive Board members. The Supervisory Board may appoint a Chairman and one or more Vice Chairmen (Chairmen deputies).
In accordance with § 179 (1) of the German Stock Corporation Act (AktG), each amendment to the Articles of Association requires a resolution by the Annual General Meeting. In deviation from § 179 (2) Sentence 1 of the German Stock Corporation Act (AktG), § 17 (4) of the company's Articles of Association stipulates that resolutions on amendments to the Articles of Association can be passed by the Annual General Meeting with a simple majority of the share capital votes entitled to vote on the resolution, unless a greater majority is required due to overriding legal requirements. However, the Supervisory Board is authoriped, pursuant to § 21 of the company's Articles of Association, to make amendments to the company's Articles of Association that affect the version.
A resolution passed by the Annual General Meeting on June 5, 2014 authorised the Executive Board, with the Supervisory Board's approval, to increase the company's share capital by up to € 22 million in total by June 5, 2019 by issuing on one or more occasions new ordinary bearer shares in exchange for cash or non-cash contributions and, with the Supervisory Board's approval, to exclude the shareholders' subscription rights for the issuance of shares in exchange for non-cash contributions. On the basis of this authorisation and with the consent of the Supervisory Board, the Executive Board utilised the resolution from July 27, 2015 to increase the company's share capital by € 1,456,948.00 by issuing 1,456,948 ordinary bearer shares in MLP AG to Mr. Gerhard Schwarper in return for shares in Schwarper Familienholding GmbH, the parent company of the DOMCURA Group, thereby excluding the subscription right. The Executive Board is therefore still authorised to increase the share capital by up to € 20,543,052 million in the aforementioned scope.
If the share capital is increased in exchange against cash contributions, shareholders must be granted subscription rights. However, the Executive Board has been authorised, with the approval of the Supervisory Board, to exclude the subscription right of the shareholders if the issue price does not fall significantly short of the stock market price of company shares with the same structure. However, this authorisation is subject to the condition that shares issued in exclusion of subscription rights as per § 186 (3) Sentence 4 of the German Stock Corporation Act (AktG) do not exceed 10% of the share capital, either at the time of coming into effect or at the time they are exercised (authorised capital).
A resolution passed at the Annual General Meeting on June 6, 2013 also authorised the company, as per § 71 (1) No. 8 of the German Stock Corporation Act (AktG) to purchase up to 10% of the share capital during the authorisation period up to June 5, 2018. No shares were bought by the company on the basis of this authorisation up to December 31, 2016.
There are no significant agreements that take effect in the event of a change of control of the company following a takeover bid.
The contracts of employment between the company and the Chairman of the Board, Dr. Uwe Schroeder-Mildberg, and Executive Board members Manfred Bauer and Reinhard Loose contain a clause stating that said members are entitled to terminate their contracts with a notice period of one month in the event that a third party who had a share in MLP of less than 10% at the time at which the contracts were concluded acquires a share of at least 50% of the voting rights. If any of these Executive Board members chooses to exercise this right to terminate, MLP is obliged to pay said member remuneration corresponding to four times (4x) the respective fixed annual salary if the contract has not been terminated as a result of the change in control, provided that the respective contract is terminated more than two years before it reaches its normal termination date. For all members of the Executive Board, the remuneration to be paid in the event of a ¹change of controlº corresponds to no more than twice the average remuneration, based on the total remuneration of the last full financial year prior to termination of their contract and the total anticipated remuneration for the year still in progress when their contract is terminated. The service contract of Dr. Uwe Schroeder-Mildberg is set to run until December 31, 2017, the service contract of Mr. Bauer is set to run until April 30, 2020 and the service contract of Mr. Reinhard Loose is set to run until January 31, 2019. In the case of a termination of contract within two years of the scheduled termination date, the severance payment will only be paid pro rata temporis.
Every year, the Executive Board and Supervisory Board report on the company's corporate governance in the Annual Report as required by the German Corporate Governance Code (GCGC)\$ The following statements and details are provided as a Declaration on Corporate Governance in the sense of § 289a of the German Commercial Code (HGB)\$
Pursuant to § 161 of the German Stock Corporation Act (AktG), the Executive Board and Supervisory Board of MLP AG hereby declare that the company has complied with and will continue to comply with the recommendations of the ¹German Corporate Governance Codeº government commission (version dated May 5, 2015) since the last Declaration of Compliance was issued\$ Only the recommendations specified in Sections 4\$1\$5 and 4\$2\$3 page 10, Section 4\$2\$3 pages 11 to 13, Section 5\$1\$2\$ sentence 2, Section 5\$1\$2 sentence 8 and Section 5\$4\$1 (2) were not and will not be followed\$
The reasons for these deviations from the recommendations are as follows0
Based on the recommendations of the German Corporate Governance Code, the Executive Board must pay attention to diversity when filling management positions and aim for an appropriate consideration of women\$ The Executive Board sets out targets for the proportion of women at the two management levels below the Executive Board\$
Throughout the current financial year, the Executive Board has strengthened its efforts to secure diversity when filling management positions and in particular aim for an appropriate consideration of women at the management levels within the company\$ The Executive Board at MLP AG has already implemented measures in the past with the ob`ective of making it easier for staff to combine their career with a family\$ It also continued to review these measures in the financial year 2016 to determine their effectiveness and passed a complete concept back in November 2013 to ensure that appropriate consideration is given to women in the company's management ranks, taking into account the company's specific situation\$ Guidelines on diversity-compliant staff promotion also form part of this concept, although these still need to be finaliped\$ No criteria for specific selection decisions when filling vacant positions have therefore been defined to date\$ Nevertheless, the Executive Board at MLP AG only passed a resolution for a 0 percentage of women at the first management level below the Executive Board, since MLP AG is a holding company with very limited staffing and few managers\$ In addition to this, there is no second management level below the Executive Board at MLP AG\$
The measures are therefore not yet fully compliant with the requirements of Section 4\$1\$5 of the Code\$ As was also the case in the financial year 2016, MLP declares not to follow this recommendation in the financial year 2017\$
Based on the recommendations of the German Corporate Governance Code, the Supervisory Board should specify the targeted level of benefits in each case when making benefit obligations · including the total service time on the Executive Board · and then take into account both the annual and longterm costs associated with these benefits for the company\$
The new remuneration system introduced by the Supervisory Board within the context of implementing the stipulations of the Appropriateness of Management Board Remuneration Act (VorstAG) provides for a contribution-based commitment to grant benefits when appointing new members of the Executive Board\$ The level of specific contributions to be made by the company is laid down for each respective member of the Executive Board\$ They do not hold the risk of any unexpected knock-on effects for the company, since the respective member of the Executive Board actually bears the investment risk in relation to the company\$ In the course of implementing the new remuneration system, a decision was therefore taken to dispense with the notion of switching over any employer's pension commitments for members of the Executive Board which provide a fixed benefit above a contractually defined age limit to a purely contribution-based system at the time of contract changeover\$ Mith specific regard to these employer's pension commitments, which are to remain in place, the company does not comply in full with this recommendation\$
Therefore the Supervisory Board is of the opinion that the implementation progress made to date is not yet sufficient to fulfil the requirements of Section 4\$2\$3 Sentence 10 of the Code in full\$ As was also the case in the financial year 2016, MLP declares not to follow this recommendation in the financial year 2017\$
As per the recommendations of the German Corporate Governance Code, attention must be paid when concluding Executive Board member contracts to ensure that any payments to members of the Executive Board do not exceed the value of two years' remuneration including fringe benefits (severance payment cap) of these Executive Board members, should their position be terminated prematurely without serious cause\$ If the employment contract is terminated for an important reason, for which the member of the Executive Board in question is responsible, no payments are made to said member of the Executive Board\$ Calculation of the severance payment cap should be based on the total remuneration of the previous financial year and, if available and appropriate, also the total anticipated remuneration of the current financial year\$ In the event of premature termination of Executive Board membership due to a change of control, any commitment for payments should not exceed 150 of the severance payment cap\$
In the course of the financial year 2011, MLP changed all service contracts with members of the Executive Board to a new remuneration system\$ Following on from this, particular attention was paid in 2014 to ensuring compliance with the requirements the German Banking Act (AMG) and the Ordinance on the Supervisory Requirements for Institutions' Remuneration Systems (InstitutsVergV)\$ MLP has been complying with the aforementioned recommendations since the changeover in 2011\$
There is no entitlement to severance payment in the case of termination of contract by mutual agreement\$ For contractual reasons, provisions regulating severance payment arrangements concerning the termination of contracts by mutual agreement can in any case only be seen as a guideline\$ And the parties involved are free to deviate from these provisions at any time with mutual consent\$ For this reason, any provisions of this nature would be no more than a formality\$
As was also the case in 2016, MLP has therefore once again elected not to comply with this recommendation in 2017\$
Based on the recommendations of the German Corporate Governance Code, the Supervisory Board should also pay attention to diversity in the composition of the Executive Board and in particular aim for an appropriate consideration of women\$ Based on this, the Supervisory Board is to set out targets for the proportion of women on the Executive Board\$
The Supervisory Board at MLP AG aims at increasing its efforts in respecting diversity and, in particular, ensuring appropriate consideration of women in future appointments of Executive Board members\$ The Supervisory Board gives specific consideration to applications from suitable women in its selection procedures\$ It continued to address this topic in the financial year 2014 and will implement further measures so that appropriate consideration is also given to women on the company's Executive Board, following on from the Group-wide overall concept passed by the Executive Board for implementation of the recommendation in the Code pursuant to Section 4\$1\$5 (taking into account diversity when filling managerial positions), considering the company's specific situation\$ Irrespective of this, the Supervisory Board at MLP AG intends to continue basing its selection decisions primarily on personal and professional qualifications\$ For this reason, the Supervisory Board has set a target of 0 for the proportion of women on the Executive Board · which currently only has three members anyway\$
The Supervisory Board is of the opinion that the implementation progress made to date is not yet sufficient to fulfil the requirements of Section 5\$1\$2 Sentence 2 of the Code in full\$ As was also the case in the financial year 2016, MLP declares not to follow this recommendation in the financial year 2017\$
Based on the recommendations of the German Corporate Governance Code, an age limit should be set for members of the Executive Board\$
MLP did not follow this recommendation in 2016\$ No age limit is set for members of the Executive Board at MLP\$ The appointment of members of the Executive Board should be based solely on their knowledge, skills and specialist experience\$ As was the case in 2016, MLP has therefore also opted not to follow this recommendation in 2017\$
Based on the recommendations of the German Corporate Governance Code, an age limit and an overall limit regarding the length of membership in the Supervisory Board should be set and taken into account when considering proposals for the election of Supervisory Board members\$
MLP did not follow this recommendation in 2016\$ No age limit or overall limit regarding the length of membership is specified for members of the Supervisory Board\$ In light of the knowledge, skills and specialist experience stipulated in Section 5\$4\$1 Sentence 1 of the Code, it seems inappropriate to specify an age limit or overall limit regarding the length of membership\$ As was the case in 2016, MLP has therefore also opted not to follow this recommendation in 2017\$
Based on the recommendations of the German Corporate Governance Code, the Supervisory Board is to stipulate concrete obectives regarding its composition\$ As well as giving consideration to the company's specific situation, these obectives also take into account the company's international operations, any potential conflicts of interest, the number of independent members of the Supervisory Board in the sense of Section 5\$4\$2, an age limit to be specified for members of the Supervisory Board and diversity\$ These concrete obectives should, in particular, stipulate an appropriate degree of female representation\$ Recommendations by the Supervisory Board to the respective selection committees should also take these obectives into account\$ Based on this, the Supervisory Board is to set out targets for the proportion of women on the Supervisory Board\$ The ob`ectives and present status of implementation are to be published in the corporate governance report\$
MLP did not follow this recommendation in 2015\$ In its meetings during the financial years 2010, 2012, 2014, 2015 and 2016, the Supervisory Board at MLP AG addressed the topic of setting concrete targets for the composition of the Supervisory Board, paying particular attention to diversity\$ In the past, assuming equivalent professional and personal suitability of the candidates, the Supervisory Board set itself the goal of filling at least 25 of the positions on the Supervisory Board on the shareholder side with suitable female members\$ Meanwhile however, the legal standpoint predominantly taken is that the Supervisory Board should set a target for the entire Supervisory Board · and not ust for shareholder or employee representatives\$ Based on this, the entire Supervisory Board at MLP AG has set itself the target of filling at least 16\$5 of the positions on the Supervisory Board with suitable female members\$ However, largely due to the low number of members that sit on the Supervisory Board as per the company's Articles of Association, the Supervisory Board does not currently consider it prudent to specify a concrete timetable for implementation of this obective\$ Therefore, it is currently also not possible to report on any concrete measures for the achievement of ob`ectives in the corporate governance report\$ Nevertheless, in 2015 the Supervisory Board submitted the resolution to the Annual General Meeting of electing one woman to the company's Supervisory Board\$ The Annual General Meeting approved this resolution\$ The target was therefore reached\$
Nevertheless, MLP declares · as it also did in the financial year 2016 · that it will not follow this recommendation in the financial year 2017, since MLP has not approved any such targets and instead prefers to appoint members based on their respective qualifications\$
Miesloch, December 2016
MLP AG The Executive Board, The Supervisory Boardº
In December 2016, the Executive and Supervisory Boards issued the above Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act (AktG) and made it permanently available to shareholders via the company's website\$ Oou can also view the text of the Declaration of Compliance from December 14, 2016 at www\$mlp-ag\$com\$
Oou can also find more information on the topic of corporate governance at MLP on the aforementioned homepage\$
By mainly complying with the stipulations of the German Corporate Governance Code (GCGC) in the version of May 5, 2015, MLP continues to reinforce the confidence of its shareholders, clients, employees and other stakeholders in the management of the company\$ Responsible management geared toward long-term added value is a high priority for us\$ The Executive and Supervisory Boards ensure that MLP continues to review and develop corporate governance across the Group\$
As the management body of an ¹Aktiengesellschaftº (public limited company), the Executive Board runs the business and is tied to the interests and business principles of the company within the scope of corporation law\$ The responsibilities and duties of the Executive Board are laid down in the German Stock Corporation Act (AktG), in MLP AG's Articles of Association, as well as in a set of rules of procedures and the schedule of responsibilities of the Executive Board attached to it\$
The members of the Executive Board hold oint responsibility for the entire management\$ Decisions made by the Executive Board are reached during Executive Board meetings held at regular intervals\$ Resolutions are drafted as ordinary resolutions with maority votes and recorded accordingly\$
The members of the Executive Board are Dr\$ Uwe Schroeder-Mildberg (Chairman), Manfred Bauer and Reinhard Loose\$
The Supervisory Board advises and monitors the Executive Board\$ The responsibilities and duties of the Supervisory Board are derived from the German Stock Corporation Act (AktG), MLP AG's Articles of Association and a set of rules of procedures for the Supervisory Board\$
Resolutions of the Supervisory Board are made during meetings convened by the Chairman of the Supervisory Board or on his behalf and require a maority vote\$ The Supervisory Board is informed of particularly important or urgent proects outside of the regular meetings\$ Mhere necessary, resolutions can also take the form of circular resolutions or be passed via telephone\$ A transcript of each meeting is drafted\$
The Supervisory Board currently consists of six members\$ These are four shareholder representatives, elected by the Annual General Meeting in 2013, and two employees' representatives, also elected in 2013 by the employees\$ The members of the Supervisory Board are currently Ms\$ Tina Mller, Dr\$ Peter Ltke-Bornefeld (Chairman of the Supervisory Board), Dr\$ h\$c\$ Manfred Lautenschlger, Dr\$ Claus-Michael Dill, Mr\$ Burkhard Schlingermann (employee representative) and Mr\$ Alexander Beer (employee representative)\$
Based on the recommendations of the GCGC, the Supervisory Board is to stipulate concrete ob`ectives regarding its composition, which, whilst considering the company's specific situation, take into account the company's international operations, any potential conflicts of interest, the number of independent members of the Supervisory Board, an age limit to be specified for members of the Supervisory Board and diversity\$
Responsible and value adding management
Executive Board
Supervisory Board
Supervisory Board composition
The Supervisory Board has set itself concrete targets for its composition\$ One item worthy of particular note here is a requirements profile for Supervisory Board candidates, which was passed in the financial year and which summarises the knowledge, skills, professional experience and personal aptitude characteristics necessary for candidates to be considered\$ In addition to this, appraisals were made regarding diversity and the number of independent members\$ Oou can find further information on the equal participation of women and men in the Supervisory Board in the disclosures on corporate governance practices provided below\$
As per the new revisions to § 100 (5) of the German Stock Corporation Act (AktG) that became effective in 2016, members of the Supervisory Board no longer need to meet the personal independence prerequisites due to legal obligations\$ Instead, the Supervisory Board should comprise what it deems to be an appropriate number of independent members as per Section 5\$4\$2 of the German Corporate Governance Code (DCGA)\$ For this reason, the Supervisory Board continues to adhere to the requirement for independence\$ The Supervisory Board considers itself as already consisting of a suitable number of independent members who have no business or personal relationship with the company or members of the Executive Board which could form grounds for a conflict of interest\$ The Supervisory Board has also set itself the additional goal of filling at least 16\$5 of Supervisory Board member positions with suitable female members, in the presence of candidates of equal professional and personal suitability\$ However, largely due to the low number of members that sit on the Supervisory Board as per the company's Articles of Association, the Supervisory Board does not currently consider it prudent to specify a concrete timetable for implementation of this ob`ective\$ Nevertheless, this quota was already reached over the course of the year 2015 with the election of Ms\$ Mller to the company's Supervisory Board\$ The Supervisory Board also reviewed the knowledge and experience required of the Supervisory Board members and of the Chairman of the Audit Committee under the German Corporate Governance Code with regard to reporting and internal control procedures\$ The Chairman of the MLP AG Audit Committee fully complies with these requirements\$
In the absence of the Executive Board, the Supervisory Board also reviewed the efficiency of its own activities in 2016\$ Particular attention was paid to the efficiency of the procedures in the Supervisory Board, the information flow between the committees and the Supervisory Board and the timeliness and sufficient content of reporting by the Executive Board to the Supervisory Board\$ Further measures aimed at increasing efficiency were drafted in the course of intensive discussions\$
The Supervisory Board of MLP AG has set up committees in order to improve the effectiveness of its work\$ The Personnel Committee prepares the resolutions on HR issues concerning Executive Board members with the company\$ The Audit Committee is responsible for auditing the accounting processes, risk management issues and the auditing system itself, as well as ensuring the independence of the auditors, awarding the audit contract to the auditors, determining the focal points of the audits and agreements on fees\$ The Committee also discusses the annual financial statements, the consolidated financial statements and the management reports of MLP AG and the MLP Group and submits a recommendation for resolution to the Supervisory Board\$ In the financial year 2016, the Supervisory Board also focused intensively on the new legislation of EU Directive 2014/56/EU regarding account auditing, as well as Germany's audit reform legislation (AReG)\$ It adapted procedures to the new legal regulations, so that the stipulations of both the Directive and Germany's audit reform legislation (AReG) can be met\$ The Supervisory Board has also formed a Nomination Committee, composed exclusively of shareholder representatives, that proposes suitable Supervisory Board candidates for recommendation to the Annual General Meeting and addresses the requirements that these candidates must meet\$ The members of the Personnel Committee are Ms\$ Tina Mller, Dr\$ Peter Ltke-Bornefeld (Chairman of the Personnel Committee) and Mr\$ Burkhard Schlingermann\$ The Audit Committee comprises Dr\$ Claus-Michael Dill (Chairman of the Audit Committee), Dr\$ h\$c\$ Manfred Lautenschlger, Dr\$ Peter Ltke-Bornefeld and Mr\$ Alexander Beer\$ The Nomination Committee comprises Ms\$ Tina Mller, Dr\$ Peter Ltke-Bornefeld (Chairman of the Nomination Committee), Dr\$ h\$c\$ Manfred Lautenschlger and Dr\$ Claus-Michael Dill\$
Efficiency of the Supervisory Board
Supervisory Board committees
In 2016, the Executive and Supervisory Boards of MLP AG again dealt intensively with the German Corporate Governance Code and further new legislation significant to the work performed by the Supervisory Board and its committees\$ The Code, and its amendments passed on May 5, 2015, were the obect of intensive discussions by the Supervisory Board\$ Stipulations were analysed and corresponding adustments to the internal regulations and procedures followed by the Supervisory Board were either proposed or submitted for verification\$
Intensive dialogue between the Executive and Supervisory Boards forms the basis of transparent and responsible company management\$ The Executive Board of MLP AG provides the Supervisory Board with regular, timely and comprehensive information on the Group's position, including information on its risk situation, risk management and compliance\$ The Supervisory Board is informed of particularly important or urgent pro`ects outside of the regular meetings\$ Furthermore, the Chairman of the Supervisory Board meets with the Executive Board on a regular basis to discuss specific issues\$ The Chairman of the Supervisory Board informs the other members of the Supervisory Board in detail about the content of his meetings with the Executive Board\$ The Supervisory Board discussed the Group's corporate planning and plans for strategic growth with the Executive Board\$
Significant legal transactions by the Executive Board require the consent of the Supervisory Board\$ A set of rules of procedures issued by the Supervisory Board in particular governs the distribution of business, powers of approval and co-operation with the Executive Board\$ Further details on the cooperation between Executive Board and Supervisory Board can be found in the report by the Supervisory Board\$
Further disclosures on the Supervisory Board's activities can be found in the report by the Supervisory Board\$
As of December 31, 2016, the shares held by the members of the company's Executive and Supervisory Boards were distributed as follows0
| Superlisory Board member | Number of shares as of Dec. )1" 2016 |
Number of shares as of Dec. )1" 201+ |
|---|---|---|
| Dr\$ Peter L"tke-Bornefeld | 190,000 | 150,000 |
| Dr\$ h\$c\$ Manfred Lautenschlger | 25,383,373 | 25,383,373 |
| Tina M"ller | · | · |
| Dr\$ Claus-Michael Dill | · | · |
| Burkhard Schlingermann | 55 | 55 |
| Alexander Beer | · | · |
Incl\$ additional voting rights in line with § 22 of the German Securities Trading Act (MpHG) 1
Corporate governance in the Supervisory Board
Cooperation between Executive Board and Supervisory Board
| Enecutile Board member | Number of shares as of Dec. )1" 2016 |
Number of shares as of Dec. )1" 201+ |
|---|---|---|
| Dr\$ Uwe Schroeder-Mildberg | · | · |
| Manfred Bauer | 11,254 | 11,254 |
| Reinhard Loose | 10,000 | 10,000 |
Directors' Dealings Pursuant to § 15a of the German Securities Trading Act (MpHG), persons discharging managerial responsibilities as an issuer of shares must notify the issuer and the Federal Financial Supervisory Authority (BaFin)\$ This duty also applies to persons with a close relationship to such a person\$
Pursuant to § 15a of the German Securities Trading Act (MpHG), four transactions were reported to us in the financial year 2016\$ These can be viewed on our website www\$mlp-ag\$com\$
The trust of our clients, shareholders and business partners in our capacity to act professionally and responsibly forms the basis of our business operations\$ Compliance with all relevant legislation and codes of conduct for the capital market represents the foundation of our business activities and an integral part of our corporate culture\$ Violations against applicable legislation and regulations not only have the potential to lead to legal disputes and financial losses, but can also have a negative effect on our Group's reputation\$ The Executive Board at MLP ensures Group-wide compliance with legal provisions and internal company guidelines, while also guaranteeing both a trusting and transparent system of corporate governance\$
The basic principles of abidance to laws, integrity and economically successful business practices are firmly anchored in our internal compliance guidelines\$ Our compliance activities are based on a Groupwide compliance strategy, which is specifically designed with preventive measures to avoid risks that could arise from non-compliance with applicable legislation, internal standards and processes\$ The primary focus here is on compliance with the key legal provisions and internal company directives, as well as preventing and combating illegal practices, such as insider trading, money laundering, fraud or any other criminal conduct\$ In the interests of our clients, shareholders and employees, the Compliance department supports and advises the Executive Board in establishing uniform standards for all Group companies\$ Taking into account the constantly changing regulatory requirements and market conditions, Compliance steers the continuous further development of our internal behavioural standards and monitors implementation of all applicable requirements\$
On the basis of a Group-wide risk analysis, the Compliance department identifies, analyses and evaluates the compliance risks relevant to MLP's business operations\$ Compliance also collaborates with the specialist departments responsible for developing risk-reducing measures and continuously monitors their effectiveness in our day-to-day business\$
Compliance regulations
Regular training sessions, during which all employees of the MLP Group familiarise themselves with the key regulations as a way of preventing any accidental infractions while also providing support in applying our compliance guidelines, represent an important element of our risk prevention measures\$ They include in particular web-based training sessions on the topics of securities compliance, data and consumer protection as well as the prevention of money laundering, financing terrorist activities and criminal conduct\$ Compliance is also available to all employees as a point of contact for reporting anything suspicious with regard to criminal activities or violations against our compliance regulations\$ Any violations determined are investigated immediately, comprehensively clarified and then used to eliminate any weaknesses identified\$ The Executive Board and Supervisory Board are regularly informed of all relevant actions and measures taken by the Compliance department\$
The Compliance Policy in the MLP Group also sets out the measures for insider trading prevention and describes the internal guidelines for execution of employee transactions\$ The compliance guidelines also ensure that confidential information is handled responsibly at MLP and define standards for advising and supporting our clients, as well as the policy on giving and accepting invitations and gifts\$ To prevent any impairment of client interests, we have defined policies regarding the avoidance and monitoring of conflicts of interest and the acceptance and granting of benefits\$ These policies are regularly reviewed and adapted to changing requirements\$
MLP defined its core values1 a process in which a large number of employees and consultants were involved\$ ¹Performanceº and ¹Trustº were identified as values which the corporate mission relies and builds on\$ Oou can find details on our corporate mission on our homepage at www\$mlp-ag\$com\$ In a further step, the following management principles were then derived from this for MLP\$
MLP managers0
In accordance with the recommendation of the Corporate Governance Code in Section 4\$1\$5\$, the Executive Board has further reinforced its efforts to secure diversity when filling management positions\$ It will also continue to test the effectiveness of the adopted measures in the financial year 2017 and either make any changes deemed necessary or implement additional measures to ensure that women are given appropriate consideration at the management levels of the company, taking into account the company's specific situation\$
An explanation of the business and risk strategy as well as the risk management system can be found in the chapter ¹Risk and disclosure reportº of the Annual Report\$
Defined company values
The legislation on equal participation of women and men in management positions came into force on May 1, 2015\$ It stipulates an obligation to specify targets for members of supervisory and executive boards, as well as the two upper management levels, although it does not define an actual minimum target\$ Insofar as the percentage of women is below 30, the targets must then not fall below the percentage reached\$ The deadline to be specified for achievement of the initial targets is set as June 30, 2017\$ After that deadlines can be up to five years\$ The targets and deadlines are to be specified in concrete terms\$ In addition to this, it must be stated whether the specified targets have been achieved and, if not, information as to the reasons must be specified\$
MLP places great emphasis on promoting women and helping employees combine a career with a family\$ The company has therefore already made this topic a focus over the last few years and implemented various measures to promote women into management positions\$ The concept for example includes measures such as family-friendly meeting arrangements or flexible workplace designs\$ As a sign of its public commitment to diversity, MLP signed the Diversity Charter in 2014\$ To help staff more effectively combine their career with a family, MLP opened a parent child office in February 2015 to provide parents that are struggling to find childcare with the option of taking their children to work with them\$
Based on the experience gained within the scope of implementing the individual measures, MLP will stick to the targets already achieved for management levels and thereby comply with the minimum legal requirements stipulated for June 30, 2017\$ For MLP AG, these are 25 on the shareholder side of the Supervisory Board\$ Since both the Executive Board and the first management level below the Executive Board now comprise fewer members, we do not consider a fixed quota to be expedient\$ There is no second management level below the Executive Board, since MLP AG is a holding company and does not employ any further managers beyond its three-person Executive Board and one first level manager\$ For this reason, we have chosen to continue applying the existing ruling\$ The Supervisory Board and Executive Board targets at MLP Finanpdienstleistungen AG are the same as those at MLP AG\$ Targets of 11\$11 and 20\$69 have been set respectively for the first and second management levels below the Executive Board\$ In the financial year 2016, the quotas were 21\$05 and 18\$75 respectively\$ The changes can be attributed to female managers being promoted from the second to the first management level below the Executive Board, as well as new hirings\$ In addition to this, MLP has set internal rules for the composition of its Executive Board and Supervisory Board\$ These stipulate a 25 proportion of women, assuming equal personal and professional aptitude\$ MLP will also continue to consistently pursue its ob`ective of increasing the number of women in management positions\$
Stipulations for promoting equal participation of women in management positions pursuant to § 76 (4) and § 111 (5) of the German Stock Corporation Act (AktG)
By law, the shareholders are involved in all fundamentally important decisions at MLP AG, such as decisions on amendments to the Articles of Association and the issue of new shares\$ In order to help shareholders assert their rights, MLP offers them the option of having their voting rights exercised in writing by non-discretionary proxies appointed by the company or by postal vote\$ Me report on the main content of the Annual General Meeting on our website at www\$mlp\$com, where the Chairman's speech can also be accessed online\$
Me also use the internet in order to provide comprehensive and timely information on the company's position and significant changes in a way that ensures all stakeholders are treated equally\$ Me provide access to both German and English versions of annual and quarterly reports, press releases, conference calls and presentations on our homepage at www\$mlp-ag\$com\$ Our financial calendar includes important events and dates for investors\$ Analysts' and media conferences are held at least once a year\$ In accordance with legal provisions, ad-hoc notices are published on our website, where we also provide comprehensive information on corporate governance at MLP\$ Me provide access to our Declaration of Compliance on our homepage for at least five years\$
Group accounting is performed in line with International Financial Reporting Standards (IFRS)\$ APMG AG Mirtschaftsprfungsgesellschaft, Berlin, was appointed as auditor by the Annual General Meeting and has audited the 2016 consolidated financial statements\$ The Supervisory Board gave its assurance that the relations existing between the auditors and MLP or its governing bodies give no cause for doubting the independence of the auditor\$ The Supervisory Board at MLP AG also discusses the annual and Group financial statements\$
Provision of information to all target groups
| All figures in €000 | Notes | 2016 | 2015 |
|---|---|---|---|
| Revenue | (8) | 590,559 | 535,651 |
| Other revenue | (9) | 19,810 | 18,667 |
| Total relenue | 610"369 | 554"31. | |
| Commission expenses | (10) | -298,505 | -253,584 |
| Interest expenses | (11) | -1,711 | -1,921 |
| Loan loss provisions | -1,619 | 156 | |
| Personnel expenses | (12) | -121,847 | -113,457 |
| Depreciation and impairment | (13) | -23,962 | -15,113 |
| Other operating expenses | (14) | -145,137 | -141,528 |
| Earnings from investments accounted for using the equity method | (15) | 2,106 | 1,836 |
| Earnings before interest and tan EB?T | 19"694 | 30"-06 | |
| Other interest and similar income | 906 | 509 | |
| Other interest and similar expenses | -1,851 | -3,263 | |
| Finance cost | 16 | #946 | #2"-53 |
| Earnings before tan EBT | 1."-4. | 2-"953 | |
| Income taxes | (17) | -4,052 | -8,170 |
| Net profit | 14"696 | 19"-.3 | |
| Of which attributable to | |||
| owners of the parent company | 14,696 | 19,783 | |
| Earnings per share in € | 1. | ||
| basic/diluted | 0\$13 | 0\$18 |
Previous years figures adusted\$ The adustments are disclosed under Note 3\$
| All figures in €000 | Notes | 2016 | 2015 |
|---|---|---|---|
| Net profit | 14"696 | 19"-.3 | |
| Gains/losses due to the revaluation of defined benefit obligations | (28) | -5,387 | 2,489 |
| Deferred taxes on non-reclassifiable gains/losses | (17) | 1,602 | -727 |
| Non#reclassifiable gains%losses | #3"-.4 | 1"-62 | |
| Gains/losses from changes in the fair value of available-for-sale securities | (24) | 140 | -339 |
| Deferred taxes on reclassifiable gains/losses | (17) | -100 | 91 |
| Reclassifiable gains%losses | 40 | #24. | |
| Other comprehensile income | #3"-44 | 1"514 | |
| Total comprehensile income | 10"952 | 21"29- | |
| Of which attributable to | |||
| owners of the parent company | 10,952 | 21,297 |
Assets as of :ecember 31" 2016
| All figures in €000 | Notes | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|---|
| Intangible assets | (19) | 168,419 | 174,504 |
| Property, plant and equipment | (20) | 63,365 | 65,745 |
| Investments accounted for using the equity method | (15) | 3,751 | 3,481 |
| Deferred tax assets | (17) | 9,063 | 7,033 |
| Receivables from clients in the banking business | (22) | 626,479 | 542,696 |
| Receivables from banks in the banking business | (23) | 590,972 | 600,339 |
| Financial assets | (24) | 162,286 | 147,916 |
| Tax refund claims | (17) | 12,115 | 14,893 |
| Other receivables and assets | (25) | 122,776 | 112,531 |
| Cash and cash equivalents | (26) | 184,829 | 77,540 |
| Non-current assets held for sale | (21) | · | 6,040 |
| Total | 1"944"055 | 1"-52"-19 |
| All figures in €000 | Notes | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|---|
| Shareholders' equity | (27) | 383,585 | 385,753 |
| Provisions | (28) | 91,225 | 86,536 |
| Deferred tax liabilities | (17) | 9,898 | 10,549 |
| Liabilities due to clients in the banking business | (29) | 1,271,070 | 1,102,569 |
| Liabilities due to banks in the banking business | (29) | 37,720 | 23,095 |
| Tax liabilities | (17) | 3,646 | 4,006 |
| Other liabilities | (30) | 146,911 | 140,211 |
| Total | 1"944"055 | 1"-52"-19 |
Itatement of cash flow for the period from @anuary 1 to :ecember 31" 2016
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Net profit total | 14"696 | 19"-.3 |
| Income taxes paid/reimbursed | 2,899 | -2,422 |
| Interest received | 21,418 | 21,951 |
| Interest paid | -3,296 | -4,990 |
| Earnings from investments accounted for using the equity method | -2,106 | -1,836 |
| Dividends received from investments accounted for using the equity method | 1,836 | 1,127 |
| Dividends received | 2 | 1 |
| Depreciation/impairments/write-ups of intangible assets and property, plant and equipment | 23,962 | 15,113 |
| Depreciation/impairments/write-ups of financial assets | -327 | 71 |
| Allowances for bad debts | 1,968 | 18 |
| Earnings from the disposal of intangible assets and property, plant and equipment | 545 | 121 |
| Earnings from the disposal of financial assets | -45 | -74 |
| Ad`ustments from income taxes, interest and other non-cash transactions | -23,262 | -20,811 |
| Changes in operating assets and liabilities | ||
| Receivables from banks in the banking business | 9,366 | -41,022 |
| Liabilities due to banks in the banking business | 14,626 | 5,715 |
| Receivables from clients in the banking business | -84,745 | -46,650 |
| Liabilities due to clients in the banking business | 168,501 | 94,840 |
| Other assets | -12,377 | 2,447 |
| Other liabilities | 6,341 | 20,906 |
| Provisions | 4,689 | -5,513 |
| Cash flow from operating actilities | 144"691 | 5."--5 |
| Purchase of intangible assets and property, plant and equipment | -18,351 | -12,776 |
| Proceeds from disposal of intangible assets and property, plant and equipment | 6,773 | 440 |
| Repayment of/investment in time deposits | -20,000 | -15,000 |
| Repayment of/investment in held-to-maturity investments | -1,980 | -23,506 |
| Purchase of other financial assets | -14,999 | 19,916 |
| Proceeds from disposal of other financial assets | 5,196 | 10,785 |
| Net cash inflow/outflow from the acquisition of subsidiaries | 2,078 | 2,127 |
| Cash flow from inlesting actilities | #41"2.2 | #1."014 |
| Dividends paid to shareholders of MLP AG | -13,120 | -18,339 |
| Cash flow from financing actilities | #13"120 | #1."339 |
| Change in cash and cash equivalents | 90,288 | 22,422 |
| Cash and cash equivalents at beginning of period | 94,540 | 72,119 |
| Cash and cash eguilalents at end of period | 1.4".29 | 94"540 |
| Composition of cash and cash eguilalents | ||
| Cash and cash equivalents | 184,829 | 77,540 |
| Loans ≤ 3 months | · | 17,000 |
| Cash and cash eguilalents at end of period | 1.4".29 | 94"540 |
The notes on the statement of cash flow appear in Note 31\$
All figures in
€000 Eguity attributable to MLP AG shareholders
| Ihare capital | Capital reserles | Gains%losses from changes in the fair lalue of alailable# for#sale securities |
Relaluation gains%losses related to defined benefit obligations after tanes |
Retained earnings | Total shareholders¼ eguity |
|
|---|---|---|---|---|---|---|
| As of @an\$ 1" 2015 | 10-".-. | 142"1.4 | 1"460 | #10"-30 | 136"004 | 3-6"-95 |
| Dividend | · | · | · | · | -18,339 | -18,339 |
| Increase in capital stock as per § 202 of the German Stock Corporation Act (AktG) |
1,457 | 4,543 | · | · | · | 6,000 |
| Transactions with owners |
1"45- | 4"543 | · | · | #1."339 | #12"339 |
| Net profit | · | · | · | · | 19,783 | 19,783 |
| Other comprehensile income |
· | · | #24. | 1"-62 | · | 1"514 |
| Total comprehensile income |
· | · | #24. | 1"-62 | 19"-.3 | 21"29- |
| As of :ec\$ 31" 2015 |
109"335 | 146"-2- | 1"212 | #."96. | 13-"44. | 3.5"-53 |
| As of @an\$ 1" 2016 | 109"335 | 146"-2- | 1"212 | #."96. | 13-"44. | 3.5"-53 |
| Dividend | · | · | · | · | -13,120 | -13,120 |
| Transactions with owners |
· | · | · | · | #13"120 | #13"120 |
| Net profit | · | · | · | · | 14,696 | 14,696 |
| Other comprehensive income |
· | · | 40 | -3,784 | · | -3,744 |
| Total comprehensile income |
· | · | 40 | #3"-.4 | 14"696 | 10"952 |
| As of :ec\$ 31" 2016 |
109"335 | 146"-2- | 1"252 | #12"-52 | 139"024 | 3.3"5.5 |
Reclassifiable gains/losses\$
The notes on the statement of changes in equity appear in Note 27\$
The consolidated financial statements were prepared by MLP AG, Miesloch, Germany, the ultimate parent company of the MLP Group. MLP AG is listed in the Mannheim Commercial Register under the number HRB 332697 at the address Alte Heerstrae 40, 69168 Miesloch, 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.
The consolidated financial statements of MLP AG 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 § 315a (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 accounting policies applied are the same as those used in the previous year, with the following exceptions0
?n the financial year 2016 the following new or amended standards and interpretations were to be applied for the first time\$
In May 2014, the IASB published amendments to ?FRI 11 ¹Acguisition of an ?nterest in a @oint Operationº. This clarifies that acquisitions of shares and additional shares in joint operations that represent business operations in the sense of IFRS 3 ¹Business Combinationsº are to be recorded based on the principles for recognising business combinations pursuant to IFRS 3 and other IFRS standards, insofar as these are not in conflict with the provisions of IFRS 11.
In December 2014, the IASB published its amendments to ?AI 1 ¹Presentation of Financial Itatementsº. The amendments are intended to improve the way information is presented in financial statements. In future, disclosures are to be more relevant and company-specific.
In December 2014, the IASB published its amendments to ?FRI 10" ?FRI 12 and ?AI 2. ¹Consolidation Enceptionº. These amendments serve to clarify various issues relating to application of the exception from the consolidation obligation pursuant to IFRS 10 if the parent company fulfils the definition of an ¹investment companyº. The standard is to be applied to financial years beginning on or after January 1, 2016.
In August 2014, the IASB published amendments to ?AI 2- ¹Ieparate Financial Itatements Eguity Methodº. As a result of the amendments, investments in subsidiaries, joint ventures and associates will in future also be recognised in the balance sheet using the equity method for IFRS separate financial statements.
In May 2014, the IASB published amendments to ?AI 16 and ?AI 3. ¹Clarification of Acceptable Methods of :epreciation and Amortisationº. The objective of these amendments is to clarify the correct methods with regard to amortisation of tangible and intangible assets.
The lASB published its improlements to ?FRI 2012·2014 in September 2014. The amendments concern the standards IFRS 5, IFRS 7, IAS 19 and IAS 34. They eliminate inconsistencies and clarify certain formulations.
The standards and amendments to be applied for the first time were predominantly not relevant for the consolidated financial statements. As such, no significant effects resulted from these.
Adoption of the following new or relised standards and interpretations was not yet binding for the financial year commencing on @anuary 1" 2016\$ The standards were not adopted early0
EU endorsement has already taken place
In July 2014, the IASB completed its project to replace IAS 39 ¹Financial ?nstruments0 Recognition and Measurementº with publication of the final version of ?FRI 9 ¹Financial ?nstrumentsº. 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 addition to this, it 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. The new standard is to be applied to financial years beginning on or after January 1, 2018. Early adoption is also permitted. As a consequence of the new model for recording credit defaults, we are anticipating higher impairment losses, although without currently being able to quantify these. The company is currently reviewing what effects adoption of IFRS 9 would have on its consolidated financial statements.
In May 2014, the IASB published the new standard ?FRI 15 ¹Relenue from Contracts with Customersº. 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 also contains stipulations regarding disclosure of performance surpluses or obligations in place at contractual level. These are assets and liabilities resulting from customer contracts that are based on the relationship between the service performed by the company and the payment made by the customer. In addition to this, the new standard requires disclosure of a whole host of quantitative and qualitative information to allow readers of the consolidated financial statements to understand the type, level and timing of revenue and cash flows from contracts with customers, as well as the uncertainty associated with these. IFRS 15 replaces IAS 11 ¹Construction Contractsº and IAS 18 ¹Revenueº, as well as the accompanying interpretations. The standard is to be applied to financial years beginning on or after January 1, 2018. Early adoption is also permitted. The company is currently reviewing what effects adoption of IFRS 15 would have on the Group's consolidated financial statements and will then stipulate the timing of the initial application, as well as the transmission methods.
The IASB published its new ?FRI 16 ¹Leasesº 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. Mhile 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.
In September 2014, the IASB published amendments to ?FRI 10 and ?AI 2. ¹Iales or Contributions of Assets between an ?nlestor and its Associate%@oint Lentureº. This eliminates an inconsistency that has previously existed between the two standards. The IASB has postponed the timing for initial adoption of this standard indefinitely. The Group currently does not expect this to lead to any significant effects on the consolidated financial statements.
The IASB published amendments to ?FRI 2 ¹Ihare#Based Paymentº in June 2016. The amendments concern the effects of vesting and non-vesting conditions on the measurement of cash-settled sharebased payments1 share-based payment transactions with a net settlement feature for withholding tax obligations1 and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. If endorsed in its current form by the EU, the amendments are to be applied for the financial years beginning on or after January 1, 2018. The Group currently does not expect this to lead to any significant effects on the consolidated financial statements.
The IASB published its amendments to ?AI - ¹:isclosure ?nitiatileº in January 2016. The amendments target improvement of the information on a company's indebtedness. If endorsed in its current form by the EU, the amendments are to be applied for the financial years beginning on or after January 1, 2017. The Group currently does not expect this to lead to any significant effects on the consolidated financial statements.
The IASB published its amendments to ?AI 12 ¹Recognition of :eferred Tan Assets for Unrealiped Lossesº in January 2016. The amendments clarify how deferred tax assets relating to unrealised losses are recorded for debt instruments measured at fair value. If endorsed in its current form by the EU, the amendments are to be applied for the financial years beginning on or after January 1, 2017. The Group currently does not expect this to lead to any significant effects on the consolidated financial statements.
The IASB published an amendment to ?AI 40 ¹?nlestment propertyº in December 2016. The amendment serves to clarify transfers of property to, or from, investment property. More specifically, the question was whether a property under construction or development that was previously classified as inventory could be transferred to investment property when there was an evident change in use. If endorsed in its current form by the EU, the amendment is to be applied for the financial years beginning on or after January 1, 2018. The Group currently does not expect this to lead to any significant effects on the consolidated financial statements.
The IASB published clarifications on ?FRI 15 ¹Relenue from Contracts with Customersº in April 2016. The amendments include clarifications on various provisions of IFRS 15, as well as simplifications regarding the transition to the new standard. If endorsed in its current form by the EU, the amendments are to be applied for the financial years beginning on or after January 1, 2018.
The IASB published ?FR?C 22 ¹Foreign Currency Transactions and Adlance Considerationº in December 2016. ?FR?C 22 addresses an application guestion regarding ?AI 21 ¹The Effects of Changes in Foreign Enchange Ratesº. If endorsed in its current form by the EU, the interpretation is to be applied for the financial years beginning on or after January 1, 2018.
The lASB published its improlements to ?FRI 2014·2016 in December 2016. The amendments concern the standards IFRS 12, IFRS 1 and IAS 28. They eliminate inconsistencies and clarify certain formulations. If endorsed by the EU, the amendments to IFRS 12 are to be applied to financial years beginning on or after January 1, 2017, while the amendments to IFRS 1 and IAS 28 are to be applied for the first time to financial years starting on or after January 1, 2018. The Group currently does not expect this to lead to any significant effects on the consolidated financial statements.
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.
For greater clarity, since January 1, 2016 MLP has disclosed loan loss provisions as a separate item in the income statement – and thereby separately from administrative expenses. Among other things, depreciation and impairment costs which were previously recorded under administrative expenses are now recognised under loan loss provisions. The following table shows the adjusted figures from the previous year0
| All figures in €000 | 2015 | ||
|---|---|---|---|
Before adustment | Adustment |
After ad`ustment | ||
| Other operating income | 21,529 | -2,862 | 18,667 |
| Total revenue | 557,180 | -2,862 | 554,318 |
| Loan loss provisions | 0 | 156 | 156 |
| Other operating expenses | -144,234 | 2,706 | -141,528 |
MLP AG and all significant subsidiaries that are controlled by MLP AG are included in the consolidated financial statements. Associates are accounted for using the equity method.
The following changes to the scope of consolidation were made in the financial year. FERI AG announced the sale of FERI Eurorating Services AG to Scope Corporation AG on June 30, 2016. The transaction was then concluded on August 1, 2016. FERI is now continuing to focus on its core strengths of investment management, investment consulting and investment research, as well as on strategic further development to become the leading investment company in Germany, Luxembourg, Switperland and Austria. Profit of € 469 thsd was recorded in connection with the sale of the shares. This is recognised under other revenue.
In the course of the ongoing focus on the corporate structure in the DOMCURA Group, Ralf M. Barth GmbH and FF Makler AG were merged into nordias GmbH Versicherungsmakler, and Nordische Informations-Technologie AG was merged into DOMCURA AG in the financial year.
Alongside MLP AG as the parent company, 13 (previous year0 16) 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 of December 31, 2016.
| As of :ecember 31" 2016 | Ihare of capital in |
Ihareholders¼ eguity €¼000 |
Net profit €¼000 |
|---|---|---|---|
| Fully consolidated subsidiaries | |||
| MLP Finanpdienstleistungen AG, Miesloch | 100.00 | 109,548 | 6,775 |
| TPC GmbH, Hamburg (Mholly-owned subsidiary of MLP Finanpdienstleistungen AG) | 100.00 | 314 | 64 |
| PSH GmbH Finanpdienstleistungen, Heidelberg (Mholly-owned subsidiary of MLP Finanpdienstleistungen AG) |
100.00 | 1,190 | 718 |
| FERI AG, Bad Homburg v.d. Hhe | 100.00 | 19,862 | 14,092 |
| FERI Trust GmbH, Bad Homburg v.d. Hhe (Mholly-owned subsidiary of FERI AG) | 100.00 | 8,386 | 2,199 |
| FEREAL AG, Bad Homburg v.d. Hhe (Mholly-owned subsidiary of FERI AG) | 100.00 | 1,949 | 22 |
| FERI Trust (Luxembourg) S.A., Luxembourg (Mholly-owned subsidiary of FERI AG) | 100.00 | 18,242 | 13,646 |
| Schwarper Familienholding GmbH, Aiel | 100.00 | 2,215 | 2,701 |
| DOMCURA AG, Aiel (Mholly-owned subsidiary of Schwarper Familienholding GmbH) | 100.00 | 2,380 | 2,946 |
| Nordvers GmbH, Aiel (Mholly-owned subsidiary of DOMCURA AG) | 100.00 | 26 | -1,073 |
| nordias GmbH Versicherungsmakler, Aiel (Mholly-owned subsidiary of Schwarper Familienholding GmbH) |
100.00 | 435 | -388 |
| Milly F. O. Aster GmbH, Hamburg (Mholly-owned subsidiary of nordias GmbH Versicherungsmakler) | 100.00 | 2,025 | 148 |
| Siebert GmbH Versicherungmakler, Jens%Arnstadt (Mholly-owned subsidiary of nordias GmbH Versicherungsmakler) |
100.00 | 26 | -185 |
| MLPdialog GmbH, Miesloch (Mholly-owned subsidiary of MLP Finanpdienstleistungen AG) | 100.00 | 717 | 222 |
| Associates consolidated at eguity | |||
| MLP Hyp GmbH, Miesloch (49.8% subsidiary of MLP Finanpdienstleistungen AG) | 49.80 | 6,216 | 3,216 |
| Companies not consolidated due to immateriality | |||
| MLP Consult GmbH, Miesloch | 100.00 | 2,320 | -8 |
| Michel Cortesi Asset Management AG, Purich (Switperland) ² ³ (Mholly-owned subsidiary of FERI AG) | 100.00 | 715 | 251 |
| CORESIS Management GmbH, Bad Homburg v.d. Hhe ² (25% held by FERI AG) | 25.00 | 366 | 112 |
| FPE Private Equity Beteiligungs-Treuhand GmbH, Munich ² (Mholly-owned subsidiary of FERI Trust GmbH) |
100.00 | 181 | 144 |
| FPE Private Equity Aoordinations GmbH, Munich ² (Mholly-owned subsidiary of FERI Trust GmbH) | 100.00 | 74 | 47 |
| FPE Direct Coordination GmbH, Munich² (Mholly-owned subsidiary of FERI Trust GmbH) | 100.00 | 45 | 14 |
| FERI Private Equity GmbH Co. AG, Munich² (Mholly-owned subsidiary of FERI Trust GmbH) | 100.00 | 31 | 179 |
| FERI Private Equity Nr. 2 GmbH Co. AG, Munich² (Mholly-owned subsidiary of FERI Trust GmbH) | 100.00 | 5 | -5 |
| AIF Aomplementr GmbH, Munich⁴ (25% held by FERI AG) | 25.00 | 3 | -21 |
| AIF Register-Treuhand GmbH, Munich⁴ (Mholly-owned subsidiary of FERI AG) | 100.00 | 18 | -7 |
| DIEASS GmbH, Aiel (Mholly-owned subsidiary of DOMCURA AG) | 100.00 | 26 | -9 |
| Portus Assekuranp Vermittlungsgesellschaft mbH, Aiel (Mholly-owned subsidiary of DOMCURA AG) | 100.00 | 25 | -60 |
| Malther Versicherungsmakler GmbH, Hamburg (Mholly-owned subsidiary of nordias GmbH Versicherungsmakler) |
100.00 | 25 | 0 |
A profit and loss transfer agreement is in place. Presentation of the net result for the year before profit transfer.
² Shareholders' equity and net profit as of December 31, 2015.
³ Exchange rate as at the balance sheet date € 1 3 CHF 1.07364.
⁴ Shareholders' equity and net profit as of December 31, 2014.
Itructured 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 AG controls them.
Non-consolidated structured entities of the MLP Group are prilate eguity companies. Due to the fact that 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 approaches1 firstly via regular dividend payouts 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 € 457 thsd as of December 31, 2016 (previous year0 € 521 thsd). In the financial year 2016, MLP AG recorded an income of € 68 thsd from non-consolidated structured entities (previous year0 € 216 thsd).
The MLP Group's maximum risks of loss from non-consolidated structured entities corresponds to the investment carrying amount.
On occasions, 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 notes0
Revenue is generally recognised if it is probable that MLP will derive definable economic benefit from it.
MLP generates relenue 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 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 consultants and office managers under ¹Other receivables and assetsº 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 prolision, 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, relenue is generated from the interest rate business. Revenue from the interest rate business also includes interest income from the investment of funds of MLP Finanpdienstleistungen 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.
The euro is the functional currency of all companies consolidated in MLP's consolidated financial statements. The Group operates exclusively in Germany and Luxembourg.
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 130
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.
Oou can find further information on the assumptions made when determining fair values in the following notes0
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.
:efinite#liled 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.
?ntangible 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#liled 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-fromroyalty 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 cashgenerating 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 development of funds under management, future sales volumes and expenses. The cash flow estimate is based on detailed planning periods with a planning horipon of four years. In addition to this, an appropriate discount rate must be selected to determine the present value of this cash flow.
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.
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.
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 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 33.
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.
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 categories0
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 lalue through profit and loss comprise the subcategories ¹Held for tradingº and ¹Designated at fair value through profit and lossº. MLP's financial instruments are ¹designated at fair value through profit and lossº 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 assets0
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 ¹significantº and a time period of nine months as an ¹extendedº 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-tomaturity investments can temporarily drop below their carrying amount. Insofar as this drop is not due to credit risks, no impairment is recognised.
Loans and receilables 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 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 debt on a portfolio basis in connection with loan loss prolision 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 receilables 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 22 and 25.
Alailable#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 lalue 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.
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 ¹Employee Benefitsº, 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 28.
In accordance with IAS 37 ¹Provisions, contingent liabilities and contingent assetsº 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.
Mhere 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 in line with IFRS 2 ¹Share-Based Paymentº comprise remuneration systems paid for in cash.
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.
Oou can find further details on the share-based payments in Note 32.
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 segments0
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 ¹financial servicesº and ¹occupational pension provisionº business segments under the reportable ¹financial servicesº business segment in accordance with IFRS 8.12. The reportable Financial serlices business segment consists of consulting services for academics and other discerning clients, particularly with regard to insurance, investments, occupational pension provision schemes and loans and mortgages, as well as the brokering of contracts concerning these financial services. This segment also includes finance portfolio management, the trustee credit business and the loan and credit card business. The financial services segment incorporates the divisions focused on the brokerage business of MLP Finanpdienstleistungen AG, TPC GmbH, PSH GmbH Finanpdienstleistungen, MLPdialog GmbH and the associate MLP Hyp GmbH.
The business operations of the reportable FER? 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 :OMCURA 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 Schwarper Familienholding GmbH, DOMCURA AG, Nordvers GmbH, nordias GmbH insurance brokers, Milly F.O. Aster GmbH and Siebert GmbH insurance brokers.
The >olding business segment consists of MLP AG. The main internal services and activities are combined in this segment.
Intrasegment supplies and services are settled in principle at normal market prices. In the case of intragroup 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 services 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 € 290,152 thsd was generated with three product partners in the financial services, FERI and DOMCURA business segments. In the previous year, revenue of € 179,988 thsd was generated with two product partners in the financial services, FERI and DOMCURA business segments.
| All figures in €000 | Financial serlices | FER? | :OMCURA | >olding | Consolidation | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| Revenue | 400,446 | 395,515 | 123,583 | 123,885 | 70,664 | 20,007 | – | – | -4,134 | -3,757 | 590,559 | 535,651 |
| of which total inter-segment revenue |
3,825 | 3,242 | 309 | 515 | – | – | – | – | -4,134 | -3,757 | – | – |
| Other revenue | 10,313 | 10,498 | 5,081 | 6,021 | 3,212 | 2,052 | 13,694 | 10,995 | - 12,490 |
- 10,900 |
19,810 | 18,667 |
| of which total inter-segment revenue |
1,916 | 2,017 | 7 | 8 | 1,095 | – | 9,473 | 8,875 | - 12,491 |
- 10,900 |
– | – |
| Total relenue | 410"-59 | 406"014 | 12."664 | 129"906 | -3".-6 | 22"059 | 13"694 | 10"995 | # 16"624 |
# 14"656 |
610"369 | 554"31. |
| Commission expenses |
-183,578 | -172,542 | -72,072 | -70,693 | -46,574 | -13,454 | – | – | 3,719 | 3,105 | - 298,505 |
- 253,584 |
| Interest expenses | -1,719 | -1,923 | – | – | – | – | – | – | 8 | 2 | -1,711 | -1,921 |
| Loan loss provisions | -839 | 161 | -768 | 73 | 2 | 58 | -13 | -137 | – | – | -1,619 | 156 |
| Personnel expenses | -76,015 | -74,187 | -28,114 | -30,361 | -14,114 | -5,144 | -3,604 | -3,765 | – | – | - 121,847 |
- 113,457 |
| Depreciation | -8,704 | -7,889 | -1,545 | -1,762 | -1,370 | -686 | -1,908 | -2,003 | – | – | -13,528 | -12,339 |
| Impairments | -10,399 | -1,584 | – | - | – | – | -36 | -1,190 | – | – | -10,434 | -2,774 |
| Other operating expenses |
-126,766 | -124,316 | -11,848 | -13,434 | -8,804 | -4,672 | -10,534 | - 10,586 |
12,815 | 11,482 | - 145,137 |
- 141,528 |
| Earnings from investments accounted for using the equity method |
2,106 | 1,836 | – | – | – | – | – | – | – | – | 2,106 | 1,836 |
| Iegment earnings | ||||||||||||
| before interest and tan EB?T |
4".45 | 25"569 | 14"316 | 13"-29 | 3"015 | #1".39 | #2"400 | #6"6.6 | #.3 | #6- | 19"694 | 30"-06 |
| Other interest and similar income |
362 | 178 | 361 | 50 | 44 | 21 | 172 | 286 | -33 | -26 | 906 | 509 |
| Other interest and similar expenses |
-686 | -468 | -480 | -370 | -21 | -3 | -777 | -2,598 | 113 | 176 | -1,851 | -3,263 |
| Finance cost | #324 | #290 | #119 | #319 | 23 | 19 | #605 | #2"312 | -9 | 149 | #946 | #2"-53 |
| Earnings before tan EBT |
4"521 | 25"2-9 | 14"19. | 13"409 | 3"039 | #1".20 | #3"005 | #."99. | #4 | .2 | 1."-4. | 2-"953 |
| Income taxes | -4,052 | -8,170 | ||||||||||
| Net profit | 14"696 | 19"-.3 | ||||||||||
| ?nlestments accounted for using the eguity method |
3"-51 | 3"4.1 | · | · | · | · | · | · | · | · | 3"-51 | 3"4.1 |
| ?nlestments in intangible assets and property" plant and eguipment |
16"632 | 11"20. | 645 | -6. | -30 | 454 | 344 | 346 | · | · | 1."351 | 12"--6 |
| Ma`or non#cash enpenses0 |
||||||||||||
| Impairments%reversal of impairments on receivables |
1,189 | 12 | 768 | -73 | -2 | -58 | 13 | 137 | – | – | 1,968 | 18 |
| Increase%decrease of provisions%accrued liabilities |
53,178 | 42,961 | 8,125 | 9,624 | 3,558 | 1,239 | 2,036 | 2,612 | – | – | 66,897 | 56,435 |
Previous year's figures adjusted. The adjustments are disclosed under Note 3.
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Old-age provision | 221,480 | 215,738 |
| Mealth management | 166,360 | 165,982 |
| Non-life insurance | 105,626 | 54,878 |
| Health insurance | 45,777 | 45,918 |
| Loans and mortgages | 15,433 | 16,186 |
| Other commission and fees | 15,414 | 15,579 |
| Total commission income | 5-0"090 | 514"2.2 |
| ?nterest income | 20"469 | 21"369 |
| Total | 590"559 | 535"651 |
Other commission and fees include revenue from property brokerage of € 11,345 thsd (previous year0 € 11,325 thsd).
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Income from the reversal of provisions | 2,005 | 2,714 |
| Income from the reversal of deferred obligations | 1,786 | 2,253 |
| Cost transfers to commercial agents | 1,622 | 745 |
| Offset remuneration in kind | 1,088 | 1,018 |
| Own work capitalised | 876 | 1,322 |
| Remuneration of management | 809 | 896 |
| Income from the disposal of fixed assets | 584 | 915 |
| Rent | 396 | 1,644 |
| Income from the disposal of fixed assets | 89 | 80 |
| Sundry other income | 10,554 | 7,080 |
| Total | 19".10 | 1."66- |
Previous year's figures adjusted. The adjustments are disclosed under Note 3.
For more information on income from the reversal of provisions, please refer to Note 28.
Income from the reversal of deferred obligations essentially comprises income from the reversal of provisions for profit-sharing payments and performance-based remuneration, as well as income from the reversal of provisions for outstanding invoices.
The item ¹Cost transfers to commercial agentsº essentially comprises income from cost transfers of insurance companies, services and material costs.
Own work capitalised results from the collaboration of Group employees in the development of acquired software.
The item ¹Remuneration for managementº contains pre-allocated profits due to management tasks for private equity companies.
Income from the disposal of investments results from the sale of FERI EuroRating Services (FERI segment), as well as sale of the stake in NAA Programm Service AG (DOMCURA segment).
In the previous year, rental income included rent from the operating lease for an office and administration building operated by MLP AG, which ended on December 31, 2015.
Sundry other income includes interest income on tax credit, income from cost reimbursement claims, offset remuneration in kind and income from the performance of IT services.
Commission expenses mainly consist of the commission payments and other remuneration components for the self-employed MLP consultants.
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| ?nterest and similar enpenses | ||
| Financial instruments measured at amortised cost | 1,710 | 1,807 |
| Available-for-sale financial instruments | 2 | 40 |
| Change fair lalue option | ||
| Financial instruments at fair value through profit and loss | 0 | 74 |
| Total | 1"-11 | 1"921 |
Interest expenses of € 829 thsd (previous year0 € 1,259 thsd) are attributable to interest charges for liabilities due to clients in the banking business.
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Salaries and wages | 104,981 | 98,115 |
| Social security contributions | 14,339 | 12,932 |
| Expenses for old-age provisions and benefits | 2,527 | 2,410 |
| Total | 121".4- | 113"45- |
Personnel expenses essentially include salaries and wages, remuneration and other payments to employees. The social security contributions include the statutory contributions to be borne by the company in the form of social security insurance premiums. Expenses for old-age provisions and benefits mainly include the employer's shares of supplementary occupational pension provision.
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Depreciation | ||
| Intangible assets | 7,500 | 6,598 |
| Property, plant and equipment | 6,027 | 5,710 |
| Investment property | – | 32 |
| 13"52. | 12"339 | |
| Impairments | ||
| Intangible assets | 10,399 | 1,584 |
| Property, plant and equipment | 36 | – |
| Investment property | – | 1,190 |
| 10"434 | 2"--4 | |
| Total | 23"962 | 15"113 |
Impairments include impairment losses for a software development of € 10,399 thsd (previous year0 € 1,584 thsd). Development work on this software has been stopped.
Based on the measurement pursuant to IFRS 5.25, the real estate reclassified under ¹Assets held for saleº in the previous year was not subject to any depreciation in the financial year 2016 (previous year0 € 32 thsd). No impairments due to lower fair value were necessary (previous year0 € 1,190 thsd).
The development of non-current assets is disclosed in Note 19 (intangible assets), Note 20 (property, plant and equipment) and Note 21 (non-current assets held for sale).
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| IT operations | 48,075 | 47,610 |
| Consultancy | 15,898 | 12,995 |
| Rental and leasing | 14,824 | 14,376 |
| Administration operations | 11,381 | 11,528 |
| Other external services | 7,638 | 6,528 |
| External services – banking business | 7,560 | 7,277 |
| Representation and advertising | 6,935 | 7,941 |
| Premiums and fees | 5,180 | 4,231 |
| Travel expenses | 4,460 | 3,863 |
| Expenses for commercial agents | 3,240 | 2,532 |
| Insurance | 2,814 | 2,624 |
| Training and further education | 2,663 | 4,369 |
| Entertainment | 2,297 | 2,588 |
| Maintenance | 2,030 | 2,390 |
| Goodwill | 1,190 | 1,319 |
| Other employee-related expenses | 1,138 | 1,290 |
| Audit | 1,104 | 1,071 |
| Supervisory Board remuneration | 973 | 969 |
| Sundry other operating expenses | 5,738 | 6,027 |
| Total | 145"13- | 141"52. |
Previous year's figures adjusted. The adjustments are disclosed under Note 3.
The costs of IT operations are mainly attributable to IT services and computer centre services that have been outsourced to an external service provider.
The consulting costs are made up of tax advice costs, legal advice costs as well as general and IT consulting costs.
The expenses for administration operations include costs relating to building operations, office costs and communication costs.
The item ¹External services - banking businessº mainly contains securities settlement and transaction costs in connection with the MLP credit card.
Expenses for representation and advertising include costs incurred due to media presence and client information activities.
Expenses for commercial agents include costs for former consultants and the training allowance granted for new consultants.
Sundry other operating expenses essentially comprise expenses for other taxes, charitable donations, disposal of fixed assets and cars.
Earnings from investments accounted for using the equity method were € 2,106 thsd in the financial year (previous year0 € 1,836 thsd) and resulted from the share of earnings in MLP Hyp GmbH. In line with a company agreement, the profit distribution of MLP Hyp GmbH is disproportionate.
Investments accounted for using the equity method relate only to the 49.8% share in MLP Hyp GmbH, Miesloch. The company operates the joint mortgage financing business of MLP Finanpdienstleistungen AG, Miesloch, and Interhyp AG, Munich.
The shares developed as follows0
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Ihare as of @an\$ 1 | 3"4.1 | 2"--2 |
| Dividend payouts | -1,836 | -1,127 |
| Pro rata profit after tax | 2,106 | 1,836 |
| Ihare as of :ec\$ 31 | 3"-51 | 3"4.1 |
The following table contains summarised financial information on MLP Hyp GmbH0
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| Non-current assets | 53 | 53 |
| Current assets | 8,823 | 7,640 |
| Non-current liabilities | – | – |
| Current liabilities | -2,660 | -1,868 |
| Net assets (100 %) | 6,216 | 5,825 |
| of which MLP's share in net assets (49.8 %) | 3,096 | 2,901 |
| ?ncidental acguisition costs | 151 | 151 |
| :ilidend payout | #1"-0. | #1"2-9 |
| Cumulatile disproportionate profit | 2"213 | 1"-0. |
| Carrying amount of the inlestment | 3"-51 | 3"4.1 |
| Revenue | 14,579 | 12,526 |
| Total comprehensive income (100 %) | 3,216 | 2,825 |
| of which MLP's share in total comprehensive income (49.8 %) | 1,601 | 1,407 |
| :isproportionate profit for the current financial year 65\$5%prelious year 65 | 505 | 429 |
| MLPs share in total comprehensile income | 2"106 | 1".36 |
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Other interest and similar income | 906 | 509 |
| Interest expenses from financial instruments | -133 | -145 |
| Interest expenses from net obligations for defined benefit plans | -489 | -481 |
| Other interest costs | -1,229 | -2,637 |
| Other interest and similar enpenses | #1".51 | #3"263 |
| Finance cost | #946 | #2"-53 |
Other interest and similar income of € 52 thsd (previous year0 € 140 thsd) is attributable to interest income from deposits with financial institutions which were not included in the banking business segment and € 260 thsd (previous year0 € 49 thsd) is attributable to income from the discounting of provisions. Other interest and similar expenses include expenses from the accrued interest of other provisions totalling € 627 thsd (previous year0 € 584 thsd).
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Income taxes | 4,052 | 8,170 |
| of which current taxes on income and profit | 5,340 | 9,783 |
| of which deferred taxes | -1,287 | -1,613 |
The current taxes on income and profit include expenses of € -388 thsd (previous year0 € 1,967 thsd) which relate to previous periods.
The current and deferred tax is calculated using the relevant country-specific income tax rate. The anticipated combined income tax rate for domestic companies is made up of corporation tax at 15.0% (previous year0 15.0%), the solidarity surcharge at 5.5% (previous year0 5.5%) and an average municipal trade tax rate of 13.53% (previous year0 13.37%) and amounts to 29.36% (previous year0 29.19%).
The taxation rates likely to be applicable at their time of implementation should be used to calculate deferred income taxes. The taxation rates used here are those that are valid or have been announced for the periods in question as of the balance sheet date.
The following reconciliation account shows the relationship between the earnings before tax and the taxes on income and profit in the financial year0
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Earnings before tan | 1."-4. | 2-"953 |
| Group income tax rate | 29.36% | 29.19% |
| Calculated income tan enpenditure in the financial year | 5"504 | ."159 |
| Tax-exempt earnings and permanent differences | -4,901 | -3,587 |
| Non-deductible expenses | 1,465 | 1,485 |
| Divergent trade taxation charge | 180 | 211 |
| Effects of other taxation rates applicable abroad | -21 | 4 |
| Income tax not relating to the period (current and deferred) | 2,044 | 2,249 |
| Other | -219 | -351 |
| ?ncome tanes | 4"052 | ."1-0 |
The effective income tax rate applicable to the earnings before tax is 21.6% (previous year0 29.2%).
The item of tax-exempt earnings and permanent differences in earnings includes profit contributions from the FERI Group and the tax-free capital gains of MLP Hyp GmbH.
Non-deductible expenses result from entertainment expenses, gifts, as well as non-deductible operating expenses incurred in the context of tax-exempt dividends and capital gains, Supervisory Board remuneration, business tax additions and other relevant factors.
The tax deferrals result from the balance sheet items as follows0
| :eferred tan assets | :eferred tan liabilities | |||
|---|---|---|---|---|
| All figures in €000 | ||||
| :ec\$ 31" 2016 | :ec\$ 31" 2015 | :ec\$ 31" 2016 | :ec\$ 31" 2015 | |
| Intangible assets | 1,288 | 1,381 | 12,387 | 13,579 |
| Property, plant and equipment | – | – | 3,854 | 3,577 |
| Financial assets | – | 110 | 201 | 262 |
| Investment property | – | – | – | 833 |
| Other assets | 1,267 | 3,509 | 467 | 210 |
| Provisions | 10,998 | 10,347 | 2 | 1,843 |
| Liabilities | 2,523 | 1,474 | 0 | 33 |
| Gross lalue | 16"0-6 | 16".21 | 16"911 | 20"33- |
| Netting of deferred tax assets and liabilities | -7,013 | -9,788 | -7,013 | -9,788 |
| Total | 9"063 | -"033 | 9".9. | 10"549 |
The deferred tax expense recognised under other comprehensive income outside the income statement is € 1,502 thsd (previous year0 € 636 thsd).
Tax refund claims include € 6,906 thsd (previous year0 € 9,378 thsd) of corporation tax and € 5,209 thsd (previous year0 € 5,515 thsd) of trade tax. The major portion of € 12,090 thsd (previous year0 € 14,668 thsd) is attributable to MLP AG.
Tax liabilities are made up of € 1,712 thsd (previous year0 € 2,638 thsd) of corporation tax and € 1,935 thsd (previous year0 € 1,369 thsd) of trade tax, of which € 2,511 thsd (previous year0 € 333 thsd) is attributable to MLP AG.
The tax liabilities are due to taxes on the income and profit of the individual companies based on the corresponding national tax regime. Contingent tax liabilities are shown under deferred tax liabilities.
As of December 31, 2016, MLP established a provision of € 2.5 million for anticipated retrospective tax payments arising from a tax audit by the fiscal authorities. In two disputed cases, MLP anticipates being able to assert its legal position based on the expert's reports available. In this respect, MLP has recognised an asset for the retrospective tax payment made.
The calculation for the basic and diluted earnings per share is based on the following data0
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Basis of the basic % diluted net profit per share | 14,696 | 19,783 |
| All figures in number of units | ||
|---|---|---|
| Meighted average number of shares for the basic % diluted net profit per share | 109,334,686 | 108,484,800 |
The basic and diluted earnings per share are € 0.13 (previous year0 € 0.18).
| All figures in €000 |
Goodwill | Ioftware created internally |
Ioftware purchased |
Adlance payments and delelopments in progress |
Other intangible assets |
Total |
|---|---|---|---|---|---|---|
| Acguisition costs | ||||||
| As of @an\$ 1" 2015 | 90"616 | 16"09. | -6"291 | 25"252 | 46"-95 | 255"051 |
| Changes to the scope of consolidation |
5,663 | – | 5,984 | 1 | 12,215 | 23,863 |
| Additions | – | 382 | 434 | 7,118 | – | 7,934 |
| Disposals | – | – | -2 | – | – | -2 |
| Transfers | – | 2 | 8,523 | -8,525 | – | 0 |
| As of :ec\$ 31" 2015 |
96"2-. | 16"4.2 | 91"231 | 23".46 | 59"010 | 2.6".46 |
| Changes to the scope of |
||||||
| consolidation | -1,314 | -1,770 | -312 | – | -1,154 | -4,549 |
| Additions | – | 273 | 2,453 | 11,027 | 1 | 13,754 |
| Disposals | – | -1,948 | -9,950 | -12,292 | -9 | -24,200 |
| Transfers | – | – | 22,089 | -22,089 | – | 0 |
| As of :ec\$ 31" 2016 |
94"964 | 13"03- | 105"510 | 492 | 5-".4. | 2-1".51 |
| :epreciation and impairments |
||||||
| As of @an\$ 1" 2015 | 3 | 9"6-6 | -3"160 | · | 16"030 | 9.".69 |
| Changes to the scope of |
||||||
| consolidation | – | – | 5,294 | – | – | 5,294 |
| Depreciation | – | 1,822 | 2,596 | – | 2,180 | 6,598 |
| Impairments Disposals |
– – |
– – |
– -2 |
1,584 – |
– – |
1,584 -2 |
| As of :ec\$ 31" 2015 |
3 | 11"49. | .1"04. | 1"5.4 | 1."211 | 112"343 |
| Changes to the scope of |
||||||
| consolidation Depreciation |
– – |
-1,556 1,744 |
-312 3,413 |
– – |
-1,154 2,344 |
-3,022 7,500 |
| Impairments | – | – | – | 10,399 | – | 10,399 |
| Disposals | – | -1,948 | -9,847 | -11,983 | -9 | -23,788 |
| As of :ec\$ 31" | ||||||
| 2016 | 3 | 9"-3- | -4"301 | 0 | 19"392 | 103"432 |
| Carrying amount Jan. 1, 2015 |
90,613 | 6,422 | 3,131 | 25,252 | 30,764 | 156,182 |
| Carrying amount :ec\$ 31" 2015 |
96"2-6 | 4"9.4 | 10"1.3 | 22"262 | 40"-99 | 1-4"504 |
| Carrying amount Jan. 1, 2016 |
96,276 | 4,984 | 10,183 | 22,262 | 40,799 | 174,504 |
| Carrying amount :ec\$ 31" 2016 |
94"962 | 3"300 | 31"209 | 492 | 3."456 | 16."419 |
The change to the scope of consolidation in the financial year concerns the sale of FERI EuroRating Services. The outgoing carrying amount for intangible assets is € 1,528 thsd. In the
previous year, the scope of consolidation changed as a result of the acquisition of the DOMCURA Group.
Intangible assets comprise definite-lived and indefinite-lived assets. Depreciation%amortisation and impairment on intangible assets are presented in Note 13.
| Useful life as of :ec\$ 31" 2016 |
Useful life as of :ec\$ 31" 2015 |
|
|---|---|---|
| Acquired software % licenses | 3-7 years | 3-7 years |
| Software created internally | 3-5 years | 3-5 years |
| Acquired trademark rights | 10 years | 10-15 years |
| Client relations % contract inventories | 10-25 years | 10-25 years |
| Goodwill % brand names | undefinable | undefinable |
The goodwill originating from company acquisitions was allocated by MLP at the level of the cashgenerating units. The disclosures take into account the sale of FERI EuroRating Services, which was completed within the FERI business segment in the financial year. Oou can find information on this in Note 4. The reportable Financial Services business segment contains the following groups of cashgenerating units0 (1) Financial Services, (2) Occupational Pension Provision, (3) PSH. The reportable FERI business segment includes the cash-generating unit FERI Assetmanagement. The reportable DOMCURA business segment contains one DOMCURA cash-generating unit. Cash-generating units were allocated the following goodwill values arising from business combinations0
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| Financial services | 22,042 | 22,042 |
| Occupational pension provision | 9,955 | 9,955 |
| PSH | 4,072 | 4,072 |
| Financial serlices | 36"069 | 36"069 |
| FERI Asset Management | 53,230 | 53,230 |
| FERI EuroRating Services | – | 1,314 |
| FER? | 53"230 | 54"544 |
| DOMCURA | 5,663 | 5,663 |
| :OMCURA | 5"663 | 5"663 |
| Total | 94"962 | 96"2-6 |
As was already the case in the previous year, there was no need for an impairment of capitalised goodwill in the financial year 2016. The significant assumptions presented in the following were based on the impairment test performed.
| Financial serlices | ||
|---|---|---|
| Meighted alerage in | 2016 | 2015 |
| Discount rate (before tax) | 10.6 | 10.6 |
| Growth rate of the terminal value | 1.0 | 1.0 |
| Planned EBT growth rate (relative average EBT increase per year) | 76.3 | 0.5 |
| Occupational pension prolision | ||
| Meighted alerage in | 2016 | 2015 |
| Discount rate (before tax) | 10.2 | 9.3 |
| Growth rate of the terminal value | 1.0 | 1.0 |
| Planned EBT growth rate (relative average EBT increase per year) | 29.0 | 30.0 |
| PI> | ||
| Meighted alerage in | 2016 | 2015 |
| Discount rate (before tax) | 10.1 | 9.5 |
| Growth rate of the terminal value | 1.0 | 1.0 |
| Planned EBT growth rate (relative average EBT increase per year) | – | 18.5 |
| FER? Assetmanagement | ||
|---|---|---|
| Meighted alerage in | 2016 | 2015 |
| Discount rate (before tax) | 14.7 | 13.6 |
| Growth rate of the terminal value | 1.0 | 1.0 |
| Planned EBT growth rate (relative average EBT increase per year) | 8.1 | 0.0 |
| FER? EuroRating Ierlices | ||
| Meighted alerage in | 2016 | 2015 |
| Discount rate (before tax) | – | 10.0 |
| Growth rate of the terminal value | – | 1.0 |
| Planned EBT growth rate (relative average EBT increase per year) | – | – |
| :OMCURA | ||
|---|---|---|
| Meighted alerage in | 2016 | 2015 |
| Discount rate (before tax) | 10.4 | 9.5 |
| Growth rate of the terminal value | 1.0 | 1.0 |
| Planned EBT growth rate (relative average EBT increase per year) | 7.9 | 4.7 |
Growth rates cannot be arithmetically determined due to a negative starting basis.
Mithin the scope of its impairment testing MLP carried out sensitivity analyses. These analyses examine the effects of an increase of discount interest rates by half a percentage point and the effects of a reduction of the forecast EBT growth by 12% (previous year0 15%). In the asset management cashgenerating unit, the reduction in planned EBT growth caused the carrying amount to exceed the recoverable amount by € 4.1 million (previous year0 € 9.4 million). However, since the cash-generating unit has in the past been able to confirm the planned EBT growth rates, the Executive Board considers this scenario unlikely. The table below shows the percentage by which the planned EBT growth rate would need to change for the estimated recoverable amount to equal the carrying amount0
| Change reguired for the recolerable amount to egual the carrying amount | 2016 | 2015 |
|---|---|---|
| Planned EBT growth rate (relative average EBT increase per year) | -9.0% | -7.3% |
The items ¹Ioftware in#house" software purchased" and adlance payments and delelopments in progressº contain own work in the context of the development and implementation of software. In the financial year 2016, own services with a value of € 876 thsd were capitalised (previous year0 € 1,322 thsd). All development and implementation costs incurred complied in full with the criteria for capitalisation pursuant to IAS 38 ¹Intangible assetsº. In the financial year 2016 the existing software landscape was consolidated and streamlined.
The item ¹Other intangible assetsº contains acquired trademark rights, client relationships%contract inventories with a defined term, as well as indefinite-lived brand names acquired within the scope of company acquisitions. In view of the recognition of these brands, at present no definite end of their useful lives can be specified.
The ¹FERIº brand is fully attributed to the cash-generating unit of the ¹FERIº reportable business segment0
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| FERI Asset Management | 15,829 | 15,138 |
| FERI EuroRating Services | – | 691 |
| FER? | 15".29 | 15".29 |
The ¹DOMCURAº brand is fully attributed to the cash-generating unit of the ¹DOMCURAº reportable business segment0
| :OMCURA | -"023 | -"023 |
|---|---|---|
| :OMCURA | 2016 | 2015 |
Previous year's figures adjusted.
There are no restraints on disposal or pledges with regard to intangible assets. As of December 31, 2016 contractual obligations for the purchase of intangible assets have a net total of € 69 thsd (previous year0 € 512 thsd).
| Acguisition costs As of @an\$ 1" 2015 -9"-50 64"-4. Changes to the scope of consolidation 350 3,349 Additions 720 3,092 |
1"46. – 1,031 – |
145"965 3,698 4,842 |
|---|---|---|
| Disposals -2,411 -6,957 |
-9,368 | |
| Transfers 998 1,359 |
-2,357 | 0 |
| As of :ec\$ 31" 2015 -9"406 65"590 |
141 | 145"13. |
| Changes to the scope of consolidation – -21 |
– | -21 |
| Additions 469 2,964 |
1,164 | 4,597 |
| Disposals -1,540 -9,518 |
-569 | -11,627 |
| Transfers 254 91 |
-345 | 0 |
| As of :ec\$ 31" 2016 -."590 59"105 |
392 | 13."0.- |
| :epreciation | ||
| As of @an\$ 1" 2015 2-"964 51"964 |
· | -9"92. |
| Changes to the scope of consolidation 206 2,356 |
– | 2,562 |
| Depreciation 1,991 3,718 |
– | 5,710 |
| Disposals -2,065 -6,742 |
– | -8,807 |
| As of :ec\$ 31" 2015 2."09- 51"296 |
· | -9"393 |
| Changes to the scope of consolidation – -23 |
– | -23 |
| Depreciation 1,986 4,041 |
– | 6,027 |
| Impairments – 36 |
– | 36 |
| Disposals -1,514 -9,197 |
– | -10,711 |
| As of :ec\$ 31" 2016 2."569 46"153 |
· | -4"-22 |
| Carrying amount Jan. 1, 2015 51,786 12,784 |
1,468 | 66,037 |
| Carrying amount :ec\$ 31" 2015 51"309 14"295 |
141 | 65"-45 |
| Carrying amount Jan. 1, 2016 51,309 14,295 |
141 | 65,745 |
| Carrying amount :ec\$ 31" 2016 50"021 12"952 |
392 | 63"365 |
The change to the scope of consolidation in the financial year concerns the sale of FERI EuroRating Services, as well as other minor mergers. The property, plant and equipment included in the sale has been fully amortiped. In the previous year, the scope of consolidation changed as a result of the acquisition of the DOMCURA Group.
| Useful life%residual lalue :ec\$ 31" 2016 |
Useful life%residual lalue :ec\$ 31" 2015 |
|
|---|---|---|
| Administration buildings | 33 years to residual value (30% of original cost) |
33 years to residual value (30% of original cost) |
| Land improvements | 15-25 years | 15-25 years |
| Leasehold improvements | 10 years or duration or the respective tenancy agreement |
10 years or duration or the respective tenancy agreement |
| Furniture and fittings | 8-25 years | 8-25 years |
| IT hardware, IT cabling | 3-13 years | 3-13 years |
| Office equipment, office machines | 3-23 years | 3-23 years |
| Cars | 2-6 years | 2-6 years |
| Morks of art | 15 -20 years | 13-20 years |
Depreciation%amortisation and impairment of property, plant and equipment are disclosed in Note 13.
There are no restraints or pledges with regard to property, plant and equipment. Contractual obligations for the purchase of property, plant and equipment amount to € 50 thsd net as of December 31, 2016 (previous year0 € 86 thsd).
The office and administration building in Heidelberg was sold in the financial year 2016. As of December 31, 2015, the property was classified as a long-term asset held for sale. The carrying amount as of December 31, 2015 was € 6,040 thsd.
The sale price was € 6,200 thsd. Selling costs of € 209 thsd were incurred in connection with the sale. Minus selling costs, this results in a loss on disposal of € 49 thsd, which is recognised under sundry other operating expenses in the Holding segment.
| :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|
| 276,782 | |
| 172,000 | 145,500 |
| 87,771 | 95,475 |
| 35,602 | 33,651 |
| 370 | 189 |
| 634"603 | 551"596 |
| -8,124 | -8,900 |
| 626"4-9 | 542"696 |
| 338,859 |
As of December 31, 2016, receivables (net) with a term of more than one year remaining to maturity are € 457,320 thsd (previous year0 € 370,031 thsd).
| All figures in €000 |
Gross lalue | Of which financial assets |
Financial assets" neither impaired nor olerdue |
Financial assets" not impaired but olerdue within the following | time span | |
|---|---|---|---|---|---|---|
| 2 90 days | 90#1.0 days | 4 1.0 days | ||||
| Receivables from clients (gross) as per Dec. 31, 2016 |
634,603 | 634,603 | 628,039 | 1,499 | 280 | 486 |
| Receivables from clients (gross) as per Dec. 31, 2015 |
551,596 | 551,596 | 546,698 | 1,315 | 248 | 513 |
At Receivables of € 2,266 thsd (previous year0 € 2,076 thsd) for which no specific allowance has been made but which are overdue as of December 31, 2016 are secured with customary banking collaterals.
Receivables from clients due to originated loans are partly secured by mortgages (December 31, 20160 € 94,018 thsd1 previous year0 € 77,570 thsd), assignments (December 31, 20160 € 46,466 thsd1 previous year0 € 37,919 thsd) or liens (December 31, 20160 € 20,280 thsd, previous year0 € 14,824 thsd). Receivables from current accounts and credit cards are generally not collateralised. Mith regard to receivables from the banking business which are neither impaired nor overdue, there were no signs at the closing date that debtors will not meet their payment obligations.
As in the previous year, there were no receivables from banking business on the closing date for which new terms were agreed and which would otherwise have been overdue or impaired.
The Group holds forwarded loans of € 36,694 thsd (previous year0 € 22,045 thsd) in the form of collateral for liabilities due to refinancing banks.
Due to defaults of debtors, financial and non-financial assets of € 99 thsd (previous year0 € 718 thsd), serving as collateral for originated loans and receivables, were utilised. The assets mainly concern property and receivables from claimed life insurance policies.
The loan loss provisions in the lending business cover all identifiable credit risks. Impairment losses are formed on a portfolio basis for the deferred loans risk. Risks are provided for by loan loss provisions carried under assets, and by the recognition of provisions for credit risks (see Note 28).
The disclosed loan loss provisions due to receivables from clients in the banking business developed as follows0
| All figures in €000 |
Allowances for losses on indilidual account |
?mpairment loss on portfolio basis | Total | |||
|---|---|---|---|---|---|---|
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| As of @an\$ 1 | 2"34- | 3"006 | 6"553 | -"664 | ."900 | 10"6-0 |
| Allocation | 933 | 34 | 352 | 35 | 1,285 | 69 |
| Utilisation | -116 | -215 | -1,411 | -886 | -1,527 | -1,101 |
| Reversal | -497 | -478 | -37 | -261 | -534 | -738 |
| As of :ec\$ 31 | 2"66- | 2"34- | 5"45- | 6"553 | ."124 | ."900 |
| of which allowances for bad debts measured at amortised cost |
2,667 | 2,347 | 5,457 | 6,553 | 8,124 | 8,900 |
For reasons of materiality, a decision was taken not to determine the interest income from impaired receivables from clients (unwinding) in accordance with IAS 39.A93 (Unwinding).
Taking into account direct write-downs of € 211 thsd (previous year0 € 301 thsd), income from writtenoff receivables of € 327 thsd (previous year0 € 224 thsd), as well as income from the reversal of provisions of € 3 thsd (previous year0 € 109 thsd), the total allocations and reversals recognised in income performed in the reporting year resulted in a net loan loss provision of € 633 thsd (previous year0 net loan loss provision of € 702 thsd).
Receivables for which specific allowances have been made amount in total to € 4,299 thsd (previous year0 € 2,822 thsd). For € 1,415 thsd of these (previous year0 € 272 thsd), the impairment was less than 50% of the gross receivable, while the remaining volume was written down by more than 50%. The allowance for bad debts comes to € 2,667 thsd (previous year0 € 2,347 thsd). This corresponds to a percentage of 62% (previous year 83%).
Accounts receivable for which a specific allowance has been made are secured as per December 31, 2016 with customary banking collaterals amounting to € 1,357 thsd (previous year0 € 241 thsd).
Further information on receivables from clients in the banking business is disclosed in Note 35.
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| Due on demand | 203,569 | 227,961 |
| Other receivables | 387,403 | 317,324 |
| :omestic financial institutions | 590"9-2 | 545"2.5 |
| Due on demand | – | – |
| Other receivables | – | 55,054 |
| Foreign financial institutions | · | 55"054 |
| Total | 590"9-2 | 600"339 |
As of December 31, 2016, receivables with a term of more than one year remaining to maturity are € 59,000 thsd (previous year0 € 22,000 thsd). The receivables are not collateralised. At the closing date there are no receivables from banks which are overdue or impaired.
Further information on receivables from financial institutions in the banking business is disclosed in Note 35.
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| By public-sector issuers | 17,521 | 17,536 |
| By other issuers | 66,537 | 65,295 |
| :ebenture and other fined income securities | .4"05. | .2".31 |
| Shares and certificates | 3,565 | 3,476 |
| Investment fund shares | 3,526 | 3,456 |
| Ihares and other lariable yield securities | -"091 | 6"932 |
| Fined and time deposits | 55"102 | 52"120 |
| Loans | 10"000 | 56 |
| ?nlestments in non#consolidated subsidiaries | 6"035 | 5"9-. |
| Total | 162"2.6 | 14-"916 |
As of December 31, 2016, MLP has portfolios amounting to € 49,530 thsd (previous year0 € 61,232 thsd) that are due in more than twelve months.
As per the measurement categories for financial instruments defined in IAS 39, the financial investment portfolio is structured as follows0
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| Held-to-maturity investments | 68,535 | 67,204 |
| Available-for-sale financial assets | 15,523 | 15,627 |
| Financial assets at fair value through profit and loss | – | – |
| :ebenture and other fined income securities | .4"05. | .2".31 |
| Available-for-sale financial assets | 5,706 | 5,714 |
| Financial assets at fair value through profit and loss | 1,385 | 1,217 |
| Ihares and other lariable yield securities | -"091 | 6"932 |
| Fined and time deposits loans and receilables | 55"102 | 52"120 |
| Loans | 10"000 | 56 |
| ?nlestments in non#consolidated subsidiaries alailable#for#sale financial assets | 6"035 | 5"9-. |
| Total | 162"2.6 | 14-"916 |
Valuation changes of € 477 thsd (previous year0 € -143 thsd) were recognised directly in equity for shares and other variable yield securities that are for available for sale, and valuation changes of € -337 thsd (previous year0 € -196 thsd) were recognised in the revaluation reserve.
Due to the disposal of financial assets and recording of impairments, € -591 thsd (previous year0 € -241 thsd) was withdrawn from the revaluation reserve in the reporting period and recognised under net income for the period.
In the financial year 2016, impairments of € 598 thsd (previous year0 € 246 thsd) for available-for-sale financial assets were recognised through profit or loss.
In the reporting period, no losses from valuation changes to financial assets that are rated at fair value through profit and loss were recorded in the net income for the period (previous year0 € 104 thsd).
As at the closing date, the availability of liquidity facilities provided by Deutsche Bundesbank is collateralised by marketable securities of € 23,161 thsd (previous year0 € 24,992 thsd) with a face value of € 24,500 thsd (previous year0 € 25,000 thsd).
For further disclosures regarding financial assets, please refer to Note 35.
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| Trade accounts receivable | 69,145 | 65,007 |
| Refund receivables from recourse claims | 16,991 | 15,877 |
| Receivables from commercial agents | 11,850 | 14,629 |
| Receivables from underwriting business | 14,188 | 6,256 |
| Advance payments | 5,362 | 5,802 |
| Purchase price receivables | 330 | 330 |
| Other assets | 11,353 | 11,902 |
| Total" gross | 129"21- | 119".03 |
| Impairment | -6,441 | -7,272 |
| Total" net | 122"--6 | 112"531 |
As of December 31, 2016, receivables (net) with a term of more than one year remaining to maturity are € 13,332 thsd (previous year0 € 13,216 thsd).
The main items included in trade accounts receivable are commission receivables from insurance companies. They are generally non-interest-bearing and have an average term of payment of 30 days.
Refund receivables from recourse claims are due to MLP consultants and office managers, as well as insurance companies.
Receivables from sales representatives concern MLP consultants and branch office managers.
Receivables from the underwriting business comprise unpaid receivables due from clients, as well as receivables due from insurance companies for claims settlement.
The item ¹Advance paymentsº comprises trail commissions paid to self-employed commercial agents in advance on commissions for unit-linked life insurance policies.
| All figures in €000 |
Gross lalue | Of which financial assets |
Financial assets" neither impaired nor olerdue |
Financial assets" not impaired but olerdue within the following | time span | |
|---|---|---|---|---|---|---|
| 2 90 days | 90#1.0 days | 4 1.0 days | ||||
| Other receivables and assets as of Dec. 31, 2016 |
129,217 | 105,321 | 97,243 | 1,513 | 83 | 238 |
| Other receivables and assets as of Dec. 31, 2015 |
119,803 | 97,459 | 88,964 | 1,925 | 445 | 1,256 |
Other receivables and assets are usually not collateralised. Mith regard to receivables and other assets which are neither impaired nor overdue, there are no signs at the closing date that debtors will not meet their payment obligations. On the closing date there were no receivables and other assets for which new terms were agreed and which would otherwise have been overdue or written down.
The allowances for other receivables and other assets are as follows0
| Allowances for losses on indilidual | ||||||
|---|---|---|---|---|---|---|
| All figures in €000 | account | ?mpairment loss on portfolio basis | Total | |||
| 2016 | 2015 | 2016 | 2015 | 2016 | 2015 | |
| As of @an\$ 1 | 4"65. | 5"009 | 2"614 | 3"035 | -"2-2 | ."043 |
| Changes to the scope of consolidation |
– | 122 | – | 219 | – | 341 |
| Allocation | 1,261 | 1,399 | 106 | 60 | 1,367 | 1,458 |
| Utilisation | -307 | -1,003 | – | – | -307 | -1,003 |
| Reversal | -525 | -868 | -1,366 | -700 | -1,891 | -1,568 |
| As of :ec\$ 31 | 5"0.- | 4"65. | 1"354 | 2"614 | 6"441 | -"2-2 |
In cases where MLP institutes enforcement or where insolvency proceedings are imminent or have already started, receivables are written down based on empirical values. The same applies to receivables which are disputed and where legal action is pending.
Taking into account direct write-downs of € 1,529 thsd (previous year0 € 656 thsd) and income from written-off receivables of € 20 thsd (previous year0 € 0 thsd), the total allocations and reversals recognised in income performed in the reporting year resulted in a net loan loss provisions of € 986 thsd (previous year0 € 547 thsd).
As of December 31, 2016, receivables for which specific allowances have been made amount to a total of € 6,243 thsd (previous year0 € 4,869 thsd). For € 1,148 thsd of these (previous year0 € 116 thsd) the allowance for bad debts was less than 50% of the gross receivable, the remaining volume was written down by more than 50%. The impairment loss comes to a total of € 5,087 thsd (previous year0 € 4,658 thsd). This corresponds to an average impairment rate of 81% (previous year0 96%).
Additional disclosures on other receivables and assets can be found in Note 35.
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| Bank deposits | 69,900 | 66,451 |
| Deposits at Deutsche Bundesbank | 114,826 | 10,965 |
| Cash on hand | 103 | 124 |
| Total | 1.4".29 | --"540 |
As was the case in previous years, cash and cash equivalents include deposits at the Deutsche Bundesbank. In the financial year 2016, holding funds with commercial banks were transferred to the Bundesbank. This resulted in an increase in cash and cash equivalents, which can be seen within the scope of cash flow from operating activities.
Changes in cash and cash equivalents during the financial year are shown in the statement of cash flow.
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| Share capital | 109,335 | 109,335 |
| Capital reserves | 146,727 | 146,727 |
| Retained earnings | ||
| Statutory reserve | 3,117 | 3,117 |
| Other retained earnings and net profit | 135,906 | 134,330 |
| Revaluation reserve | -11,500 | -7,755 |
| Total | 3.3"5.5 | 3.5"-53 |
The share capital of MLP AG comprises 109,334,686 (December 31, 20150 109,334,686) no-par-value shares.
Due to partial utilisation and the amendment resolution from July 27, 20150 A resolution passed by the Annual General Meeting on June 5, 2014 authorised the Executive Board, with the consent of the Supervisory Board, to increase the company's share capital by issuing new ordinary bearer shares on one or more occasions by up to € 20,543,052 in exchange for cash or non-cash contributions up to June 5, 2019.
The capital reserves include increases%decreases in capital stock in MLP AG from previous years. The capital reserves are subject to the restraints on disposal as per § 150 of the German Stock Corporation Act (AktG).
Other equity comprises retained earnings of the MLP Group.
At € 1,562 thsd (previous year0 € 1,390 thsd), the provision includes unrealised gains and losses from the change in fair value of securities available for sale and deferred taxes attributable to this of € -310 thsd (previous year0 € -210 thsd). In addition to this, the provision includes losses from the revaluation of defined benefit obligations of € 18,051 thsd (previous year0 € 12,665 thsd) and deferred taxes attributable to this of € 5,299 thsd (previous year0 € 3,697 thsd).
The Executive Board and Supervisory Board of MLP AG will propose a dividend of € 8,747 thsd (previous year0 € 13,120 thsd) for the financial year 2016 at the Annual General Meeting. This corresponds to € 0.08 (previous year0 € 0.12) per share.
At MLP, executive members of staff have been granted direct pension benefits subject to individual contracts in the form of defined benefit plans which guarantee the beneficiaries the following pension payments0
The benefit obligations are partially financed through reinsurance policies, which essentially fulfil the prerequisites of pension scheme assets.
The defined benefit obligation for retirement income, funded only by means of provisions, amounts to € 19,950 thsd (previous year0 € 18,157 thsd). Pension insurance policies are in place for all other pension obligations (defined benefit obligation of € 30,004 thsd1 previous year0 € 26,339 thsd).
The change in net liability from defined benefit plans is summariped in the following table.
| :efined benefit obligation | Net liability from defined | benefit plans | |||
|---|---|---|---|---|---|
| 2015 | |||||
| 44"496 | 46"3-3 | #22"914 | #21"200 | 21"5.2 | 25"1-3 |
| 234 | 308 | – | – | 234 | 308 |
| – | 237 | – | – | – | 237 |
| 1,053 | 917 | -564 | -436 | 489 | 481 |
| 1"2.- | 1"462 | #564 | #436 | -23 | 1"026 |
| 5,376 | -3,288 | – | – | 5,376 | -3,288 |
| 20 | 935 | – | – | 20 | 935 |
| – | – | -9 | -137 | -9 | -137 |
| 5"396 | #2"352 | #9 | #13- | 5"3.- | #2"4.9 |
| – | – | -1,591 | -1,418 | -1,591 | -1,418 |
| -1,225 | -987 | 436 | 277 | -789 | -710 |
| #1"225 | #9.- | #1"155 | #1"141 | #2"3.0 | #2"21. |
| 49"954 | 44"496 | #24"642 | #22"914 | 25"312 | 21"5.2 |
| 2016 | 2015 | 2016 | Fair lalue of pension scheme assets 2015 |
2016 |
recognised in other comprehensive income
€ 1,090 thsd of the net liabilities recognised in the balance sheet (previous year0 € 579 thsd) are attributable to Executive Board members active at the end of the reporting period.
Mith regard to net pension provisions, payments of € 1,624 thsd are anticipated for 2017 (previous year0 € 2,378 thsd). € 779 thsd thereof (previous year0 € 792 thsd) is attributable to direct, anticipated company pension payments, while € 845 thsd (previous year0 € 1,586 thsd) is attributable to anticipated reinsurance policy premiums.
| 2016 | 2015 | |
|---|---|---|
| Assumed interest rate | 1.75% | 2.40% |
| Anticipated annual pension adjustment | 1.5%2.5% | 1.5%2.5% |
The assumptions made regarding future mortality are based on published statistics and mortality tables.
As of December 31, 2016, the weighted average term of defined benefit obligations was 18.3 years (previous year0 17.9).
If the other assumptions all remained the same, changes to one of the key actuarial assumptions which would have been realistically possible on the closing date would have influenced the defined benefit obligations by the following amounts0
| All figures in €000 | Change of parameter |
Reduction% increase of defined obligation |
|---|---|---|
| Assumed interest rate | 0.5% | -4,215 |
| -0.5% | 4,815 | |
| Salary trend | 0.5% | – |
| -0.5% | – | |
| Pension trend | 0.5% | 3,800 |
| -0.5% | -3,420 | |
| Mortality | 80.0% | 1,786 |
In order to define the sensitivity of mortality, all mortality rates stated in the mortality table were reduced to 80%. By extending life expectancy, this leads to an increase in the scope of defined benefit obligations. Although the analysis does not take into account the full distribution of anticipated cash flow based on the plan, it does provide an approximation of the sensitivity of the assumptions presented.
Alongside defined benefit plans, defined contribution plans are also in place. Mith these types of plans the company pays premiums to state or private pension insurance institutions in line with legal or contractual regulations or on a voluntary basis. The regular premiums paid for employees are disclosed as personnel expenses. In the financial year 2016 they total € 10,412 thsd (previous year0 € 9,672 thsd).
| All figures in €000 |
:ec\$ 31" 2016 | :ec\$ 31" 2015 | ||||
|---|---|---|---|---|---|---|
| Current | Non#current | Total | Current | Non#current | Total | |
| Cancellation risks | 11,500 | 15,701 | 27,201 | 11,491 | 13,064 | 24,555 |
| Bonus schemes | 22,871 | – | 22,871 | 25,572 | – | 25,572 |
| Share-based payments |
590 | 2,473 | 3,063 | 1,107 | 1,628 | 2,735 |
| Economic loss | 2,097 | – | 2,097 | 2,388 | – | 2,388 |
| Claim settlement contributions |
2,849 | – | 2,849 | 2,108 | – | 2,108 |
| Litigation risks% costs |
2,041 | 155 | 2,196 | 2,016 | 198 | 2,214 |
| Rent | 973 | 538 | 1,511 | 325 | 186 | 511 |
| Anniversaries | 157 | 338 | 495 | 265 | 228 | 493 |
| Lending business | 170 | – | 170 | 173 | – | 173 |
| Phased retirement | 77 | – | 77 | 76 | 72 | 148 |
| Other | 2,283 | 1,101 | 3,384 | 3,325 | 732 | 4,057 |
| Total | 45"60. | 20"305 | 65"913 | 4.".45 | 16"10. | 64"953 |
Other provisions have changed as follows0
| All figures in €000 |
@an\$ 1" 2016 | Change in the scope of consolidation |
Utilisation | Relersal | Compounding % :iscounting |
Allocation | :ec\$ 31" 2016 |
|---|---|---|---|---|---|---|---|
| Cancellation risks |
24,555 | – | -11,234 | – | 179 | 13,700 | 27,201 |
| Bonus schemes |
25,572 | – | -25,405 | -166 | – | 22,871 | 22,871 |
| Share-based payments |
2,735 | – | -81 | -31 | -163 | 604 | 3,063 |
| Economic loss |
2,388 | – | -402 | -66 | – | 176 | 2,097 |
| Claim settlement contributions |
2,108 | – | -4 | -1,051 | – | 1,796 | 2,849 |
| Litigation risks% costs |
2,214 | – | -130 | -538 | 7 | 642 | 2,196 |
| Rent | 511 | – | -301 | -126 | 16 | 1,412 | 1,511 |
| Anniversaries | 493 | – | -139 | -6 | -12 | 159 | 495 |
| Lending business |
173 | – | – | -3 | – | – | 170 |
| Phased retirement |
148 | – | -74 | – | 3 | – | 77 |
| Other | 4,057 | – | -2,028 | -22 | -24 | 1,401 | 3,384 |
| Total | 64"953 | · | #39"-99 | #2"00. | 6 | 42"-61 | 65"913 |
Provisions for bonus schemes are recognised as incentive agreements for self-employed commercial agents.
The provisions for cancellation risks allow for the risk of having to refund earned commissions due to a premature loss of brokered insurance policies.
Provisions for share-based payments are recognised as incentive agreements and as profit-sharing schemes for Executive Board members, employees and self-employed commercial agents.
The provisions for economic loss due to liability risks are offset by claims for reimbursement from liability insurance policies with a value of € 1,826 thsd (previous year0 € 2,210 thsd).
The provisions classed as short-term are likely to be utilised within the next financial year. The payments for long-term provisions are likely to be incurred within the next two to five years.
This summary includes the balance sheet items Liabilities due to clients in the banking business and Liabilities due to banks in the banking business.
| All figures in €000 |
:ec\$ 31" 2016 | :ec\$ 31" 2015 | ||||
|---|---|---|---|---|---|---|
| Current | Non#current | Total | Current | Non#current | Total | |
| Liabilities due to clients |
1,261,929 | 9,140 | 1,271,070 | 1,095,969 | 6,599 | 1,102,569 |
| Liabilities due to banks |
2,232 | 35,489 | 37,720 | 1,744 | 21,351 | 23,095 |
| Total | 1"264"161 | 44"629 | 1"30."-90 | 1"09-"-13 | 2-"950 | 1"125"663 |
The change in liabilities due to banking business from € 1,125,663 thsd to € 1,308,789 thsd is essentially attributable to the increase in short-term client deposits in current accounts.
As of December 31, 2016, liabilities due to clients from savings deposits with an agreed notice period of three months amounted to € 16,004 thsd (previous year0 € 15,618 thsd).
The liabilities due to clients or due to other banks do not comprise any large individual items.
Further information on liabilities due to banking business is disclosed in Notes 35 and 36.
| All figures in €000 |
:ec\$ 31" 2016 | :ec\$ 31" 2015 | ||||
|---|---|---|---|---|---|---|
| Current | Non#current | Total | Current | Non#current | Total | |
| Liabilities due to commercial agents |
44,784 | 1,076 | 45,860 | 39,390 | – | 39,390 |
| Liabilities due to underwriting business |
22,892 | – | 22,892 | 28,409 | – | 28,409 |
| Trade accounts payable |
25,712 | – | 25,712 | 20,993 | – | 20,993 |
| Advance payments received |
8,183 | – | 8,183 | 8,495 | – | 8,495 |
| Liabilities due to other taxes |
3,703 | – | 3,703 | 2,688 | – | 2,688 |
| Liabilities from social security contributions |
174 | – | 174 | 154 | – | 154 |
| Other liabilities | 37,630 | 2,757 | 40,387 | 37,116 | 2,966 | 40,082 |
| Total | 143"0-. | 3".33 | 146"911 | 13-"245 | 2"966 | 140"211 |
Liabilities due to commercial agents represent unsettled commission claims. Usually they are noninterest-bearing and due on the 15th of the month following the settlement with the insurance company.
Liabilities from the underwriting business include collection liabilities due to insurance companies, open commission claims, as well as liabilities from claims settlement.
The item ¹Advance payments receivedº concerns paid-in-advance trail commissions from unit-linked life insurance policies.
Other liabilities comprise commissions withheld from MLP consultants due to cancellations amounting to € 2,757 thsd (previous year0 € 3,326 thsd). Commissions withheld are charged with interest. Their term is mainly indefinite. The item also contains liabilities for bonus and profit-sharing payments.
MLP has agreed-upon and non-utilised lines of credit amounting to € 130,671 thsd (previous year0 € 58,082 thsd).
Further disclosures on other liabilities can be found in Note 35 and 36.
The consolidated statement of cash flow shows how cash and cash equivalents have changed in the course of the year as a result of inflows and outflows of funds\$ As per IAS 7 ¹Statement of Cash Flowsº, differentiation is made between cash flows from operating activities, from investing activities and from financing activities\$
Cash flow from operating actilities results from cash flows that cannot be defined as investing or financing activities\$ It is determined on the basis of net profit\$ As part of the indirect determination of cash flow, the changes in balance sheet items due to operating activities are ad`usted by effects from changes to the scope of consolidation and currency translations where necessary\$ The changes in the respective balance sheet items can therefore only be partially aligned with the corresponding values in the published consolidated balance sheets\$ For further details, please refer to the ¹Financial positionº section in the management report\$
Cash flow from inlesting actilities is essentially influenced by the investment of cash and cash equivalents in time deposits, as well as time deposits which have reached maturity\$
Cash flow from financing actilities includes cash-relevant equity changes and loans used and paid back\$
Cash and cash equivalents with a term to maturity of not more than three months are recorded under cash and cash equivalents\$ Cash equivalents are short-term financial assets which can be converted into cash at any time and which are only sub`ect to minor value fluctuation risks\$
| All figures in €000 | :ec\$ 31" 2016 | :ec\$ 31" 2015 |
|---|---|---|
| Cash and cash equivalents | 184,829 | 77,540 |
| Loans ≤ 3 months | · | 17,000 |
| Cash and cash eguilalents | 1.4".29 | 94"540 |
Receivables of MLP Finanpdienstleistungen AG due from banks are included in cash and cash equivalents provided they are separable as own-account investing activities\$ Inseparable elements are allocated to the operating business of the banking business segment and therefore to cash flow from operating activities\$ All deposits at the Deutsche Bundesbank are disclosed under cash and cash equivalents\$
In the financial year 2008, MLP launched a participation programme for office managers, consultants and employees in order to keep them loyal to the company in the long-term. The programme grants a certain number of phantom shares (stock appreciation rights – SARs) for office managers and consultants based on their sales performance in the core fields of old-age provision, health insurance and wealth management, as well as for employees based on their position and gross annual income. The SARs of the 2008-2011 tranches were allocated in 2009-2012. The assessment period for determining the number of SARs allocated was the calendar year prior to the respective allocation. The total term of each tranche is 12 years and is broken down into 3 phases of 4 years each. The first year of phase 1 represents the assessment period, from which the number of phantom shares to be allocated is calculated. At the start of the second year, the phantom shares are then allocated. Payment of the phantom shares is made no earlier than at the end of the first phase, i.e. 3 years after allocation of the SARs. At the end of the first phase, employees can also choose not to receive payment for the SARs and instead continue to participate in phase 2 (turbo I phase). Only in this case will they receive additional bonus SARs. And anyone who is eligible but chooses not to receive payment at the end of phase 2, but rather continue to phase 3 (turbo II phase), will be granted further bonus SARs. All SARs are paid no later than at the end of phase 3. In the event of termination of employment, all entitlements granted up to this time expire, assuming they have not been vested beforehand. The SARs originally granted become vested at the end of the first phase, the bonus SARs of turbo I phase at the end of phase 2 and those of turbo II at the end of phase 3. Participation in the programme ends with termination of employment or disbursement of SARs.
The level of payment is based on the value of one MLP share at the time payment is requested. A share price guarantee is in place for all previous tranches, although this expires if the eligible participant decides to continue participation in the programme beyond phase 1. If an eligible participant decides to receive the payout to which he or she is entitled from the tranche once phase 1 has expired, the value he or she receives is based on either the share price guarantee or the current MLP share price (whichever is the higher value) multiplied by the number of phantom shares held from phase 1. At all other payout times, eligible participants receive the current share price multiplied by the number of vested phantom shares held.
If the contractual relationship with an eligible participant ends at a time before December 31 in the twelfth year of eligibility, said participant can only demand payment of entitlements pertaining to the number of vested phantom shares held up to this time. Phantom shares allocated from vesting periods not yet completed are then forfeited.
Mith the 2011 tranche, the participation programme was granted for the last time. It was stopped completely from 2012 onwards.
In terms of eligibility, the 3 phases each represent completed vesting periods. Accordingly, the expenses due to the SARs originally granted are distributed over phase 1 (years 1 to 4), the expenses due to the bonus SARs of turbo I phase over years 5 to 8 and the expenses due to the bonus SARs of turbo II phase over years 9 to 12 (no front-loaded recognition of expenses).
| Tranche 200. | Tranche 2009 | Tranche 2010 | Tranche 2011 | Total | |
|---|---|---|---|---|---|
| Inventory on Jan. 1, 2016 (units) | 146,508 | 105,254 | 68,702 | 124,487 | 444,951 |
| SARs expired in 2016 (units) | -3,205 | -3,197 | -1,747 | -2,757 | -10,906 |
| Paid out in 2016 (units) | -7,750 | – | – | – | -7,750 |
| ?nlentory on :ec\$ 31" 2016 units | 135"553 | 102"05- | 66"955 | 121"-30 | 426"295 |
| Expenses recognised in 2016 (€'000) | 79 | 165 | 171 | 189 | 604 |
| Income recognised in 2016 (€'000) | -7 | -14 | -8 | -2 | -31 |
| -2 | 151 | 163 | 1.- | 5-3 | |
| Expenses recognised in 2015 (€'000) | 126 | 88 | 80 | 69 | 364 |
| Income recognised in 2015 (€'000) | -20 | -16 | -16 | -38 | -90 |
| 10- | -2 | 64 | 32 | 2-4 | |
| Provision as of Dec. 31, 2015 (€'000) | 1,107 | 448 | 559 | 620 | 2,735 |
| Provision as of Dec. 31, 2016 (€'000) | 1,040 | 590 | 689 | 744 | 3,063 |
| Inventory investment certificates on Jan. 1, 2016 (units) |
439,524 | 315,762 | 108,362 | – | 863,648 |
| Inventory investment certificates on Dec. 31, 2016 (units) |
406,659 | 306,171 | 131,612 | – | 844,442 |
MLP has hedged the fair value risk attached to the measurement of the liability of the 2008 and 2009 tranches for the SARs and also the cash flow risk from the SARs allocated.
To hedge the cash flow risk, 925,000 certificates were initially acquired for the 2008 tranche and 600,000 certificates for the 2009 tranche, with the right to return them to the issuer at any time within the term of a tranche (or later) at the MLP share price valid at that time, minus a discount. The certificates have an unlimited term. MLP has therefore classified these certificates as equity instruments, which are recognised at fair value directly in equity. The fair value of the certificates is based directly on the price of the MLP share.
The expense and the provision from the participation programme are recognised pro rata temporis throughout the individual phases (vesting period). The provision is measured at fair value through profit and loss. The provision accrued on the respective closing date depends on the price of the MLP share, the number of SARs issued and the length of the remaining vesting period. To hedge the fair value risk associated with the measurement of the provision, MLP can sell the equity-based certificates listed above to the issuer and in return acquire limited term certificates. These represent debt instruments designated by MLP to be ¹measured at fair value through profit and lossº (fair value option).
By selling the equity-based certificates, measurement gains so far recognised directly in equity are realised and expenses from the increase in liability for the participation programme are compensated. The same applies to a decrease in expenses due to a drop in the price of the MLP share.
The Group has concluded operating leases as lessee for various motor vehicles, administration buildings and office machines. The average term of the contracts is three years for motor vehicles, generally between five and ten years for buildings and four years for office machines. Some of the lease contracts also include extension options.
The following future minimum lease payments (face values) due to irredeemable operating leases were in place on the balance sheet date0
| All figures in €000 | Up to 1 year | 1·5 years | 4 5 years | Total |
|---|---|---|---|---|
| Outsourcing IT technology | 40,082 | 134,293 | – | 174,375 |
| Rent on buildings | 12,456 | 38,199 | 17,735 | 68,390 |
| Rental%leasing liabilities | 1,338 | 1,137 | – | 2,474 |
| Purchase commitment | 4,437 | – | – | 4,437 |
| Other obligation | 12,280 | 5,274 | 71 | 17,626 |
| Total | -0"593 | 1-."903 | 1-".06 | 26-"301 |
IT technology outsourcing essentially relates to a long-term outsourcing contract with Hewlett Packard.
Rented offices were sublet in parts by the Group. For 2017, the subletting contract is expected to generate € 244 thsd.
As it is composed of companies from different business segments, MLP is exposed to a variety of legal risks. These include, in particular, risks in the fields of warranty, taxes and litigation. The outcome of currently pending or future legal actions cannot be forecast with any degree of certainty and it follows that expenditure could be incurred as a result of unexpected decisions, which has not been fully covered by loan loss provisions or insurance policies and which is liable to have a material impact on the business and its results. In MLP's opinion, decisions producing a major negative effect on the net assets, financial position and results of operations at the Group's expense are not anticipated with regard to the currently pending legal actions.
On the balance sheet date, actions are pending due to incorrect disclosures in the capital market information published by the company. This predominantly concerns the years 2000 to 2002. However, MLP firmly believes that the actions will not be successful.
On the balance sheet date, there are € 2,934 thsd in contingent liabilities on account of sureties and warranties (face value of the obligation) (previous year0 € 2,577 thsd) and irrevocable credit commitments (contingent liabilities) of € 72,231 thsd (previous year0 € 60,033 thsd).
Reinsurance has been arranged for benefit obligations for independent commercial agents. Final liability for the benefit obligation lies with MLP in accordance with § 1 (1) Sentence 3 of the German Company Pension Law (BetrAVG). MLP does not currently anticipate any financial consequences as a result of this.
MLP Finanpdienstleistungen AG is a member in the depositors' guarantee fund of the Association of German Banks (BdB e.V.), Berlin, and in the Compensation Scheme of German Banks (EdB GmbH), also in Berlin. Obligations to make additional payments could potentially arise from the allocation obligation here.
The carrying amounts and fair values of financial assets and financial liabilities, including their (hierarchical) tiers, are grouped into financial instrument classes and categories as shown in the following tables.
| All figures in €000 | :ec\$ 31" 2016 | ||||||
|---|---|---|---|---|---|---|---|
| Carrying amount | Fair lalue | No financial instruments according to ?AI32%39 |
|||||
| Carrying amount corresponds to fair lalue |
Lelel 1 | Lelel 2 | Lelel 3 | Total | |||
| Financial assets measured at fair lalue |
22"614 | 11"9-4 | 10"640 | 22"614 | |||
| Fair Lalue Option | 1"3.5 | 1"3.5 | 1"3.5 | ||||
| Financial investments (share certificates and structured bonds) |
1,385 | – | 1,385 | – | – | 1,385 | – |
| Alailable#for#sale financial assets |
21"229 | 10"5.9 | 10"640 | 21"229 | |||
| Financial investments (share certificates and investment fund shares) |
5,706 | – | 5,440 | 265 | – | 5,706 | – |
| Financial assets (bonds) | 15,523 | – | 5,149 | 10,374 | – | 15,523 | – |
| Financial assets measured at amortiped cost |
1"640".32 | 6-6"-01 | 2."150 | 42-"964 | 549"0.0 | 1"6.1".95 | |
| Loans and receilables | 1"566"261 | 6-0"666 | 3.-"5-. | 549"0.0 | 1"60-"324 | ||
| Receivables from banking business – clients |
626,479 | 118,287 | – | – | 549,080 | 667,367 | – |
| Receivables from banking business – banks |
590,972 | 203,569 | – | 387,578 | – | 591,147 | – |
| Financial investments (fixed and time deposits) |
55,102 | 55,102 | – | – | – | 55,102 | – |
| Financial investments (loans) | 10,000 | 10,000 | – | – | – | 10,000 | – |
| Other receivables and assets | 98,880 | 98,880 | – | – | – | 98,880 | 23,896 |
| Cash and cash equivalents | 184,829 | 184,829 | – | – | – | 184,829 | – |
|---|---|---|---|---|---|---|---|
| >eld#to#maturity inlestments |
6."535 | 2."150 | 40"3.6 | 6."535 | |||
| Financial assets (bonds) | 68,535 | – | 28,150 | 40,386 | – | 68,535 | – |
| Alailable#for#sale financial assets |
6"035 | 6"035 | 6"035 | ||||
| Financial assets (investments) | 6,035 | 6,035 | – | – | – | 6,035 | – |
| Financial liabilities measured at amortiped cost |
1"419"-.2 | 1"35-"944 | 61"362 | 1"419"306 | |||
| Liabilities due to banking business – clients |
1,271,070 | 1,245,925 | – | 25,158 | – | 1,271,083 | – |
| Liabilities due to banking business – banks |
37,720 | 1,027 | – | 36,204 | – | 37,231 | – |
| Other liabilities | 110,992 | 110,992 | – | – | – | 110,992 | 35,919 |
| Iureties and warranties | 2"934 | 2"934 | 2"934 | ||||
| ?rrelocable credit commitments |
-2"231 | -2"231 | -2"231 |
| Carrying amount | Fair lalue | No financial instruments according to ?AI32%39 |
|||||
|---|---|---|---|---|---|---|---|
| Carrying amount corresponds to fair value |
Level 1 | Level 2 | Level 3 | Total | |||
| Financial assets measured at fair lalue |
22"559 | 11"-51 | 10".0. | 22"559 | |||
| Fair Lalue Option | 1"21- | 1"21- | 1"21- | ||||
| Receivables from banking business – clients |
– | – | – | – | – | – | – |
| Financial investments (share certificates and structured bonds) |
1,217 | – | 1,217 | – | – | 1,217 | – |
| Alailable#for#sale financial assets |
21"342 | 10"533 | 10".0. | 21"342 | |||
| Financial investments (share certificates and investment fund shares) |
5,714 | – | 5,408 | 306 | – | 5,714 | – |
| Financial assets (bonds) | 15,627 | – | 5,125 | 10,502 | – | 15,627 | – |
| Financial assets measured at amortised cost |
1"436"119 | 5-6"604 | 40"522 | 39.".62 | 449"36. | 1"465"355 | |
| Loans and receilables | 1"362"93. | 5-0"626 | 3-1"-41 | 449"36. | 1"391"-35 | ||
| Receivables from banking business – clients |
542,696 | 122,762 | – | – | 449,368 | 572,129 | – |
| Receivables from banking business – banks |
600,339 | 227,961 | – | 371,741 | – | 599,702 | – |
| Financial investments (fixed and time deposits) |
52,120 | 52,120 | – | – | – | 52,120 | – |
| Financial investments (loans) | 56 | 56 | – | – | – | 56 | – |
| Other receivables and assets | 90,187 | 90,187 | – | – | – | 90,187 | 22,344 |
| Cash and cash equivalents | 77,540 | 77,540 | – | – | – | 77,540 | – |
| >eld#to#maturity inlestments |
6-"204 | 40"522 | 2-"121 | 6-"643 | |||
| Financial assets (bonds) | 67,204 | – | 40,522 | 27,121 | – | 67,643 | – |
| Alailable#for#sale financial assets |
5"9-. | 5"9-. | 5"9-. | ||||
| Financial assets (investments) | 5,978 | 5,978 | – | – | – | 5,978 | – |
| Financial liabilities measured at amortised cost |
1"231"-6- | 1"1.-"505 | 43"-04 | 1"231"209 | |||
| Liabilities due to banking business – clients |
1,102,569 | 1,080,352 | – | 22,318 | – | 1,102,670 | – |
| Liabilities due to banking business – banks |
23,095 | 1,050 | – | 21,386 | – | 22,436 | – |
| Other liabilities | 106,103 | 106,103 | – | – | – | 106,103 | 34,108 |
| Iureties and warranties | 2"5-- | 2"5-- | 2"5-- | ||||
| ?rrelocable credit commitments |
60"033 | 60"033 | 60"033 |
Cash and cash equivalents, receivables and liabilities due to banking business without agreed terms to maturity, trade receivables, from companies in which the Group holds an interest and other assets all predominantly have short terms to maturity. Their carrying amounts on the balance sheet date are therefore almost identical to the fair values. The same applies to the trade accounts payable.
On the reporting date, MLP held financial guarantees in the form of avals of € 2,784 thsd (previous year0 € 2,427 thsd). Mithin the scope of initial measurement, these financial guarantees are stated at their fair values and netted against the present values of agreed aval commission in accordance with IAS 39. If subsequent measurement results in a higher figure, this will be recognised as a financial liability in accordance with IAS 37.
Insofar as there is an active market for financial assets and financial liabilities, the prices of the market with the greatest trading volume on the closing date are used as the basis for determining the fair value. Mith investment shares, the fair value corresponds to the redemption prices published by the capital investment companies. If there is no active market on the closing date, the fair value is determined using recognised valuation models.
For equity instruments of financial investments not listed on an active market, the fair value is generally determined on the basis of the gross rental method using non-observable parameters such as beta factors or risk-equivalent discount interest rates. If it is not possible to reliably determine the fair value, in particular due to a lack of necessary data on earning projections, equity instruments not listed on an active market are recognised at their acquisition costs, minus any impairments. As of the balance sheet date there is no indication of fair values being lower than carrying amounts. There are also no plans to dispose of these investments.
The valuation model for assets and liabilities assigned to tier 2 takes into account the present value of the anticipated future cash inflows%outflows throughout the remaining term, which are discounted using a risk-free discount rate. The discount rate is based on the current yield curve. The anticipated cash flows are adjusted for the effects of credit and default risks. Mhen determining the fair value of financial investments, on the other hand, the discount rate is adjusted to include a credit spread.
The table below shows the valuation techniques that were used to determine tier 3 fair values, as well as the significant, non-observable input factors applied0
| Type | Laluation technigue | Iignificant" non#obserlable input factors | Relationship between significant" non# obserlable input factors and measurement at fair lalue |
|---|---|---|---|
| Receivables from banking business – clients with agreed maturity |
The valuation model takes into account the present value of the anticipated future cash inflows%outflows throughout the remaining term, which are discounted using a risk-free discount rate. The discount rate is based on the current yield curve. Credit and default risks, administration costs and expected return on equity are taken into account when determining future cash flows. |
Adjustment of cash flows by0 š credit and counterparty default risks š administrative expenses š expected return on equity |
The estimated fair value would increase (decrease) if0 š the credit and default risk were to rise (fall) š the admin costs were to fall (rise) š the expected return on equity were fall (rise). |
Net gains and losses from financial instruments are distributed among the categories of IAS 39 for financial assets and financial liabilities at the amounts specified0
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Loans and receivables | 17,625 | 19,870 |
| Held-to-maturity investments | 506 | 814 |
| Available-for-sale financial assets | 375 | 1,195 |
| Financial instruments held for trading | – | – |
| Fair Value Option | 168 | -11 |
| Financial liabilities measured at amortised cost | -1,195 | -1,650 |
Net gains or net losses comprise gains and losses on fair value measurement through profit and loss, impairment losses and reversals of impairment losses, and gains and losses on the sale of the financial instruments concerned.
These items also include interest income and expenses, as well as dividends and income from financial assets derecognised in their entirety.
For financial instruments that were not measured at fair value through profit and loss, interest income of € 21,298 thsd (previous year0 € 22,216 thsd) and interest costs of € 1,843 thsd (previous year0 € 1,974 thsd) were made.
For impairment losses, we refer to the note on the items ¹Receivables from the banking businessº, ¹Other receivables and assetsº and ¹Financial investmentsº. Commission income and expenses that were not included in the process for determining the effective interest rate can primarily be attributed to early repayment penalties to a negligible extent.
The maximum default risk of the financial instruments held by MLP corresponds to the carrying amount.
Mith the exception of the disclosures in line with IFRS 7.36-39 (b), the disclosures on the type and severity of risks resulting from financial instruments (IFRS 7.31-42) are included in the risk report of the joint management report and in Note 35.
In the following maturity analysis, contractually agreed cash inflows are shown with a positive sign, while contractually agreed outflows of cash and cash equivalents are shown with a negative sign. For financial guarantees and credit commitments, the potential outflow of cash and cash equivalents is disclosed. The contractually agreed maturities do not correspond to the inflows and outflows of cash and cash equivalents actually expected – in particular in the case of the financial guarantees and credit commitments. Management of the default and liquidity risk is disclosed in the risk report of the group management report.
The tables below show the maturity structure of financial liabilities with contractually fixed terms to maturity0
| Total cash flow principal and interest in €000 as of :ec\$ 31" 2016 |
:ue on demand | Up to 1 year | 1 to 5 years | More than 5 years | Total |
|---|---|---|---|---|---|
| Financial liabilities | 1"292"6-3 | 100"169 | ."-12 | 32"009 | 1"433"563 |
| Liabilities due to banking business – clients |
1,245,925 | 25,207 | – | – | 1,271,132 |
| Liabilities due to banking business – banks |
1,027 | -2,287 | 6,910 | 31,506 | 37,156 |
| Other liabilities | 45,721 | 77,249 | 1,802 | 503 | 125,275 |
| Financial guarantees and credit commitments |
-5"165 | · | · | · | -5"165 |
| Sureties and warranties | 2,934 | – | – | – | 2,934 |
| Irrevocable credit commitments | 72,231 | – | – | – | 72,231 |
| Total | 1"36-".3. | 100"169 | ."-12 | 32"009 | 1"50."-2. |
| Total cash flow principal and interest in €000 as of :ec\$ 31" 2015 |
:ue on demand | Up to 1 year | 1 to 5 years | More than 5 years | Total |
|---|---|---|---|---|---|
| Financial liabilities | 1"120"-11 | .6"445 | -"5-6 | 16".-- | 1"231"60. |
| Liabilities due to banking business – clients |
1,080,352 | 22,267 | – | – | 1,102,619 |
| Liabilities due to banking business – banks |
1,050 | 87 | 5,494 | 16,256 | 22,886 |
| Other liabilities | 39,309 | 64,091 | 2,082 | 621 | 106,103 |
| Financial guarantees and credit commitments |
62"610 | · | · | · | 62"610 |
| Sureties and warranties | 2,577 | – | – | – | 2,577 |
| Irrevocable credit commitments | 60,033 | – | – | – | 60,033 |
| Total | 1"1.3"321 | .6"445 | -"5-6 | 16".-- | 1"294"21. |
Previous year's values adjusted
The Executive and Supervisory Boards issued a declaration of compliance with the German Corporate Governance Code pursuant to § 161 of the German Stock Corporation Act (AktG) and made it permanently available to the shareholders via its website, www\$mlp#ag\$com and in the corporate governance report of this Annual Report.
| Enecutile Board | Mandates in other statutory Iuperlisory Boards of companies based in Germany |
Memberships in comparable domestic and foreign control bodies of commercial enterprises |
|---|---|---|
| Dr. Uwe Schroeder-Mildberg, Heidelberg Chairman responsible for Strategy, Communication, Policy%Investor Relations, Marketing, Sales |
š FERI AG, Bad Homburg v.d.H. (Chairman) | – |
| Reinhard Loose, Berlin responsible for Compliance, Controlling, IT, Group Accounting, Risk Management, Internal Audit, Legal, Human Resources |
š DOMCURA AG, Aiel š FF Makler AG, Hamburg (until August 2016) š Nordische Informations-Technologie AG, Aiel (until September 2016) |
– |
| Manfred Bauer, Leimen Responsible for Product management |
š DOMCURA AG, Aiel (Chairman) š FF Makler AG, Hamburg (Chairman) (until August 2016) š Nordische Informations-Technologie AG, Aiel (Chairman) (until September 2016) |
š MLP Hyp GmbH, Miesloch (Supervisory Board) |
| Iuperlisory Board | Mandates in other statutory Iuperlisory Boards of companies based in Germany |
Memberships in comparable domestic and foreign control bodies of commercial enterprises š ITAS Mutua, Trento, Italy (Member of the Governing Board) |
|
|---|---|---|---|
| Dr. Peter L"tke-Bornefeld, Everswinkel Chairman Formerly chairman of the Board General Reinsurance AG, Cologne |
š VPV Lebensversicherungs-AG, Stuttgart (until June 2016) š VHV Vereinigte Hannoversche Versicherung a.G., Hanover (Chairman) š VHV Holding AG, Hanover (Chairman) š VHV Allgemeine Versicherung AG, Hanover š Hannoversche Direktversicherung AG, Hanover (until June 2016) š Hannoversche Lebensversicherung AG, Hanover š MLP Finanpdienstleistungen AG, Miesloch (Chairman) |
||
| Dr. h.c. Manfred Lautenschlger, Gaiberg Vice Chairman Formerly Chairman of the Executive Board MLP AG, Miesloch |
– | š University Hospital Heidelberg, Heidelberg (Supervisory Board) |
|
| Dr. Claus-Michael Dill, Murnau Formerly Chairman of the Executive Board ANA Aonpern AG, Cologne |
š HUA-COBURG Holding AG, Coburg š HUA-COBURG Haftpflicht-Unterst"tpungs Aasse kraftfahrender Beamter Deutschlands a.G., Coburg š HUA-COBURG-Allgemeine Versicherung AG, Coburg š NL Catlin Europe SE, Cologne (until December 2016) |
š NL Catlin Re Switperland AG, Purich, Switperland (Member of the Governing Board) š NL Group plc, Dublin, Ireland (Non-Executive Director) (until June 2016) š NL Group Ltd., Hamilton%Bermuda (Non Executive Director) (since July 2016) š NL Europe Re SE, Dublin, Ireland (Non Executive Director) (since February 2016) |
|
| Tina M"ller, Frankfurt am Main Chief Marketing Officer and Managing Director at Opel Group GmbH, R"sselsheim |
š STADA Arpneimittel AG, Bad Vilbel (since August 2016) |
– | |
| Burkhard Schlingermann, Dusseldorf Employees' representative Employee of MLP Finanpdienstleistungen AG, Miesloch Member of the works council of MLP AG and MLP Finanpdienstleistungen AG, Miesloch |
š MLP Finanpdienstleistungen AG, Miesloch (Employees' representative) |
– | |
| Alexander Beer, Aarlsruhe Employees' representative Employee of MLP Finanpdienstleistungen AG, Miesloch |
– | – |
Mithin the scope of the ordinary business, legal transactions were made between individual Group companies and members of the Executive Board and the Supervisory Board as well as related parties. The legal transactions refer to the payment transactions and securities services of € 1,663 thsd (previous year0 € 1,772 thsd). The legal transactions were completed under standard market or employee conditions.
As of the reporting date of December 31, 2016, members of the Executive Bodies had current account credit lines and surety loans totalling € 556 thsd (previous year0 € 544 thsd). Surety loans are charged an interest rate of 1.0% (previous year0 1.0%) and the current account debits 6.25% to 8.50% (previous year0 6.50% to 8.75%).
The total remuneration for members of the Executive Board active on the reporting date is € 2,443 thsd (previous year0 € 2,029 thsd). Of which € 1,344 thsd (previous year0 € 1,344 thsd) is attributable to the fixed portion of remuneration and € 1,099 thsd (previous year0 € 685 thsd). In the financial year, expenses of € 290 thsd (previous year0 € 290 thsd) were accrued for occupational pension provision. As of December 31, 2016, pension provisions of € 18,109 thsd were in place for former members of the Executive Board (previous year0 € 16,169 thsd).
The members of the Supervisory Board received non-performance-related remuneration of € 500 thsd for their activities in 2016 (previous year0 € 494 thsd). In addition, € 17 thsd (previous year0 € 17 thsd) was paid as compensation for expenses and training measures.
For the detailed structure of the remuneration system and the remuneration of the Executive Board and Supervisory Board, please refer to the remuneration report in the ¹Corporate governanceº chapter. The remuneration report is part of the management report.
Alongside the consolidated subsidiaries, MLP AG comes into direct and indirect contact and has relations with a large number of companies within the scope of its ordinary business. This also includes subsidiaries, which are non-consolidated for reasons of materiality, as well as associates. All business dealings are concluded at conditions and terms customary in the industry and which as a matter of principle do not differ from delivery and service relationships with other companies. The services performed for the companies listed in the following essentially concern remuneration for wealth management and consulting, as well as brokerage, sales and trailer commission.
Transactions were carried out with major related companies, which led to the following items in the consolidated financial statements0
| All figures in €000 | Receilables | Liabilities | ?ncome | Enpenses |
|---|---|---|---|---|
| MLP Consult GmbH, Miesloch | – | 2,074 | 7 | – |
| MLP Hyp GmbH, Miesloch | 224 | 18 | 7,108 | 49 |
| Michel Cortesi Assetmanagement AG, Purich | 369 | 106 | 142 | – |
| Coresis Management GmbH, Bad Homburg v. d. Hhe | 23 | – | 64 | 625 |
| AIF Aomplementr GmbH, Munich | – | 23 | 21 | – |
| FPE Private Equity Beteiligungs-Treuhand GmbH, Munich | – | – | 120 | – |
| FPE Private Equity Aoordinations GmbH, Munich | – | – | 47 | – |
| DIEASS GmbH, Aiel | – | 9 | 5 | 9 |
| Portus Assekuranp Vermittlungsgesellschaft mbH, Aiel | – | 25 | 5 | 60 |
| Malther GmbH Versicherungsmakler, Hamburg | 0 | – | 99 | – |
| Total | 61- | 2"255 | -"61. | -43 |
| All figures in €000 | Receilables | Liabilities | ?ncome | Enpenses |
|---|---|---|---|---|
| MLP Consult GmbH, Miesloch | – | 2,082 | – | 13 |
| MLP Hyp GmbH, Miesloch | 179 | – | 6,203 | 63 |
| Michel Cortesi Assetmanagement AG, Purich | 633 | – | 347 | 134 |
| Coresis Management GmbH, Bad Homburg v. d. Hhe | 12 | – | 62 | 727 |
| US Treuhand Vertriebsgesellschaft mbH, Bad Homburg v. d. Hhe | – | – | 81 | 57 |
| AIF Aomplementr GmbH, Munich | – | 48 | 171 | 27 |
| FPE Direct Coordination GmbH, Munich | – | – | 12 | – |
| FPE Private Equity Beteiligungs-Treuhand GmbH, Munich | – | – | 150 | – |
| FPE Private Equity Aoordinations GmbH, Munich | – | – | 55 | – |
| DIEASS GmbH, Aiel | – | 5 | – | 5 |
| Portus Assekuranp Vermittlungsgesellschaft mbH, Aiel | – | 15 | – | 15 |
| Nordische Informations-Technologie AG, Aiel | 10 | – | 11 | – |
| Malther GmbH Versicherungsmakler, Hamburg | 0 | 24 | – | 24 |
| Total | .34 | 2"1-4 | -"092 | 1"063 |
The average number of staff employed fell from 1,802 in 2015 to 1,768 in 2016.
| 2016 | 2015 | |||||
|---|---|---|---|---|---|---|
| of which enecutile employees |
of which marginal part#time employees |
of which enecutile employees |
of which marginal part#time employees |
|||
| Financial services | 1,275 | 25 | 48 | 1,300 | 28 | 75 |
| FERI | 223 | 7 | 49 | 235 | 9 | 54 |
| DOMCURA | 264 | 7 | 16 | 261 | 7 | 25 |
| Holding | 7 | 2 | – | 7 | 2 | – |
| Total | 1"-6. | 41 | 112 | 1".02 | 46 | 154 |
An average of 116 people (previous year0 111) underwent vocational training in the financial year.
The total fees for services performed by the auditing firm APMG AG Mirtschaftsprfungsgesellschaft, Frankfurt am Main in the financial year 2016 (including expenses, but excluding statutory value added tax) are as follows0
| All figures in €000 | 2016 | 2015 |
|---|---|---|
| Audit services | 606 | 680 |
| Other assurance services | 93 | 99 |
| Tax advisory services | – | 21 |
| Other services | 112 | 107 |
| Total | .11 | 90- |
The item Audit services contains the fees paid for the audit of the consolidated financial statements and for the audit of the other legally stipulated financial statements of MLP AG and its subsidiaries.
A primary objective of equity control is to ensure that the legal solvency regulations for banking and financial services businesses, which prescribe a minimum capital adequacy, are fulfilled and that the sound quantitative and qualitative equity base is strengthened. At MLP, the examinations for the purpose of complying with the solvency regulations, which came into force on January 1, 2014, as well as Article 7 and Article 11 et seq. of EU Directive No. 575%2013 of the European Parliament and Council from June 26, 2013 regarding the supervisory requirements of financial institutions and investment firms, are performed on a consolidated basis (Group). As per Article 11 of the CRR, the relevant Group includes MLP AG, Miesloch, MLP Finanpdienstleistungen AG, Miesloch, FERI AG, Bad Homburg v. d. Hhe, FERI Trust GmbH, Bad Homburg v. d. Hhe, FEREAL AG, Bad Homburg v. d. Hhe, FERI Trust (Luxembourg) S. A., Luxembourg, PSH GmbH Finanpdienstleistungen, Heidelberg, as well as Schwarper Familienholding GmbH, Aiel (SFH Group).
Pursuant to the CRR, the following companies of the SFH Group are to be classified as ¹other companiesº. As was the case in the previous year they are voluntarily included in the scope of consolidation0 DOMCURA AG, Aiel, with its subsidiary NORDVERS GmbH, Aiel, nordias GmbH Versicherungsmakler, Aiel, with its subsidiaries Milly F. O. Aster GmbH, Hamburg and Siebert GmbH Versicherungsmakler, Arnstadt.
Pursuant to the CRR, the following companies are not included in the Group as ¹Other companiesº0 MLPdialog GmbH, Miesloch, MLP Hyp GmbH, Miesloch. At TPC GmbH, Hamburg, use is made of an exemption as per Article 19 of the CRR. These deviations from the IFRS scope of consolidation are considered insignificant.
In deviation from the disclosures in the 2015 Annual Report, the following companies are no longer included in the supervisory scope of consolidation as per CRR0 F F Makler AG, Hamburg (merged into nordias GmbH Versicherungsmakler, Aiel) and Ralf M. Barth GmbH, Hamburg (merged into nordias GmbH Versicherungsmakler, Aiel).
As a depository institution, MLP Finanpdienstleistungen AG, Miesloch is the controlling institution as per Article 11 of the CRR.
The following means and measures for controlling and adjusting the equity capital of the Group are available to MLP0 (I) Issuing new shares and (II) Making transfers to the statutory reserve to strengthen Tier 1 capital.
Pursuant to Article 92 et seq. of the CRR, MLP is obliged to back its capital adequacy requirements for both counterparty default risks and the operational risk at Group level with at least 8.625% eligible own funds (equity ratio) (previous year0 8.0%).
MLP applies the standardised approach to credit risk for determining the risk-weighted exposure values (counterparty default risks) in accordance with Article 111 et seq. of the Capital Requirements Regulation (CRR). The basic indicator approach is used for determining the amount for the operational risk (Article 315 et seq. of the CRR).
As in the previous year, the backing of risk assets with eligible own funds for Tier 1 capital generally requires a minimum ratio of 4.5% throughout.
As per Article 25 et seq. of the CRR, the Group's Tier 1 capital includes the following equity items of IFRS capital0 share capital, capital reserves, statutory reserve and retained earnings. Among other factors, the following serve to reduce Tier 1 capital0 intangible assets, treasury stock, goodwill.
As in the previous year, MLP has fulfilled all legal requirements relating to the minimum core capital backing during the financial year 2016. The relationship between core capital requirement and core capital as of the balance sheet date is illustrated below.
| All figures on the basis of the financial statements in €000 | 2016 | 2015 |
|---|---|---|
| Tier 1 common capital | 214"655 | 211"250 |
| Tier 1 additional capital | · | · |
| Tier 2 capital | – | – |
| Eligible own funds | 214"655 | 211"250 |
| Capital adeguacy reguirements for counterparty default risks | -5"502 | -0"392 |
| Capital adeguacy reguirements for operational risk | 45"-93 | 4-"532 |
| Eguity ratio at least .\$625 at least . ! 0\$625 prelious year 0\$0 capital conserlation buffer | 14\$16 | 14\$33 |
| Tier 1 common capital ratio at least 4\$5 | 14\$16 | 14\$33 |
On February 21, 2017 the MLP AG Supervisory Board consented to the change of Group structure passed by the Executive Board. Through a legal corporate separation of MLP Finanpdienstleistungen AG, the regulated banking business will be united in one company and the brokerage and consulting business in the other. Furthermore, the supervisory scope of consolidation will be narrowed down.
The objective of bundling the banking activities is to significantly increase free regulatory equity capital. On the basis of the current capital adequacy requirements, we expect the free equity capital to increase gradually by around € 75 million by the end of 2021. MLP will thereby expand its scope for action above all for acquisitions and investments, but also in terms of the distribution of dividends.
The new Group structure also has an effect on the anticipated business development. For details see the Forecast section of the Annual Report. For the implementation of the aforementioned measures, we anticipate one-off expenses of € 9 million in the financial year 2017. Taking these one-off expenses into account, MLP expects earnings before interest and tax (EBIT) of at least € 36 million for 2017.
The Executive Board intends to base its dividend proposal for the financial year 2017 on the operating net profit (before one-off expenses) and will maintain a distribution rate of 50 to 70 percent.
It is anticipated that the measures will be implemented in early 2018, assuming final approval is given by the Federal Financial Supervisory Authority (BaFin).
Beyond this there were no appreciable events after the balance sheet date affecting the net assets, financial position and results of operations of the Group.
The Executive Board prepared the consolidated financial statements on February 23, 2017 and will present them to the Supervisory Board on March 15, 2017 for publication.
Miesloch February 23, 2017 MLP AG Executive Board
Dr. Uwe Schroeder-Mildberg Manfred Bauer Reinhard Loose
We have audited the consolidated financial statements prepared by the MLP AG, Wiesloch, comprising the consolidated income statement and statement of comprehensive income, consolidated statement of financial position, consolidated statement of cash flow and consolidated statement of changes in equity and the notes to the consolidated financial statements and its joint management report on the position of the Company and the Group for the business year from January 1 to 31 December 2016. The preparation of the consolidated financial statements and the joint management report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB [Handelsgesetzbuch "German Commercial Code"] are the responsibility of the parent company's management. Our responsibility is to express an opinion on the consolidated financial statements and on the joint management report based on our audit.
We conducted our audit of the consolidated financial statements in accordance with § 317 HGB [Handelsgesetzbuch "German Commercial Code"] and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with [German] principles of proper accounting and in the joint management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the joint management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and joint management report. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The joint management report is consistent with the consolidated financial statements, is in accordance with statutory requirements and as a whole provides a suitable view of the Group's position and suitably presents the opportunities and risks of future development.
Frankfurt/ Main, March 2, 2017
KPMG AG Wirtschaftsprüfungsgesellschaft
Dr. Hübner Hahn Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor)
¹To the best of our knowledge and in accordance with the applicable reporting principles, the consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the `oint management report gives a fair view of the performance of the business including business results and the overall position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group\$º
Miesloch, February 23, 2017
Dr\$ Uwe Schroeder-Mildberg Manfred Bauer Reinhard Loose
February 23, 2017 Publication of the results for the financial year 2016\$ Annual press conference and analyst conference in Frankfurt\$
March 23, 2017 Publication of the Annual Report for the financial year 2016\$
MAO May 11, 2017 Publication of the results for the first quarter 2017\$
Annual General Meeting (AGM) of MLP AG in Miesloch\$ MLP AG holds its AGM at the Palatin Congress Center in Miesloch\$
Publication of the results for the first half-year and the second quarter 2017\$
Publication of the results for the first nine months and the third quarter 2017\$
More information at www\$mlp-ag\$com, Investor Relations, Calendar
MLP Investor Relations Team
Alte Heerstraße 40 69168 Wiesloch Germany
Phone: 0049 6222 308 8320 Fax: 0049 6222 308 1131
E-Mail at IR Team
MLP AG Alte Heerstrae 40 D-69168 Miesloch Phone0 !49 6222 308 0 Fax !49 6222 308 9000
9hairman of the Superlisory Board
Dr\$ Peter Ltke-Bornefeld
9ommercial Register Registergericht Mannheim HRB 332697
Lalue Added Tan ?dentification Number DE 143449956
9oncept" design and production heureka GmbH · einfach kommunipieren\$, Essen
Federal Financial Supervisory Authority (Bundesanstalt fr Finanpdienstleistungsaufsicht, BaFin) Graurheindorfer Str\$ 108 D-53117 Bonn Marie-Curie-Str\$ 24-28 D-60439 Frankfurt am Main www\$bafin\$de 1
Appropriate regulatory authority according German Banking Act (Areditwesengesetp, AMG) 1
European Central Bank Sonnemannstrae 20 D-60314 Frankfurt am Main www\$ecb\$europa\$eu 2
Appropriate regulatory authority according CRR 2
© MLP AG
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.