Outlook for the current financial year/forecast
Future macroeconomic situation
MLP’s relevant core market is Germany where we generate around 98% of our total revenues. The development of the German economy is therefore of major importance to our business success. Following the significant breakdown in the economy during the middle of 2008 due to the intensification of the international financial crisis and its effects on the real economy, the macroeconomic development perspectives in Germany for this year and next year have further deteriorated in the first quarter of 2009. Whereas the expectations at the beginning of the year were for a decline in economic performance of 2%, the federal government has now revised its forecast downwards for the current year and is now expecting a fall of 6%. It is hoped that there will be a slight upturn during next year that could lead to growth of 0.5%.
Anticipated economic growth in Germany
With respect to the development of disposable incomes, economic researchers are basing their arguments for the current year above all on a further decrease in price inflation. If energy prices in the coming quarters remain stable or fall further, this should increase the level of disposable income in Germany and facilitate continued sales of savings and provision products. Opposing influences are expected in the form of negative developments within the labor market. Concerns about job security or the level of income are unsettling clients and deterring them from making long-term investment decisions.
The macroeconomic framework conditions consequently remain difficult for MLP.
Future situation within the industry
MLP’s business activities are focussed on the areas of old-age pension provision and health insurance as well as wealth management. The financial and economic crises remain the determining factors for development in the old-age pension and wealth management markets. Due to the degree of uncertainty about future economic development we continue to believe that clients will remain hesitant and restrained with respect to their investment decisions.
The topic of health insurance will remain a subject of public discussion during this current financial year as some state health insurance funds will need to levy additional premiums, probably with effect from the middle of the year. The funding allocated to them from the new central healthcare fund will not be adequate to cover their costs. The public discussions surrounding this topic are helping to convince our clients of the need to maintain or improve their level of health cover by switching to private health insurance or by taking out private supplementary insurance policies.
The consolidation process that was set in motion as a result of the changes to the statutory framework conditions within the financial services industry is likely to continue during the current financial year. The financial and economic crisis is accelerating this process as, particularly for many smaller providers, it is becoming increasingly difficult, to operate profitably within the worsening economic environment.
Anticipated business development
As expected, the macroeconomic framework conditions continued to worsen during the first quarter of 2009 and economic experts have again revised and lowered their forecasts for further development during the current year. In this respect, for example, the federal government is expecting a 6% decline in German economic output. As a decline of this magnitude is without precedent in the last 60 years, it is currently not possible to issue a respectable prediction of the effects of the crisis on the demand and investment behavior of clients. We therefore continue to refrain from giving a specific revenue and earnings forecast for the current financial year. We have initiated a cost reduction program in order to protect the profitability of the company. In doing so, we have introduced measures designed to reduce our fixed cost base by € 34 million by the end of 2010. The cost reduction programme announced in February is on schedule. The cost base should fall by € 12 million in the financial year 2009; additional savings of €10 million are planned for the financial year 2010. Furthermore, previous one-off expenses amounting to €12 million will not be incurred in 2009.
Planned reduction of the fixed cost basis by € 34 million by the end of 2010
A decisive factor concerning our ability to emerge from the continuing economic crisis in a stronger position is our financial strength. Both our excellent equity capital situation as well as our very good liquidity strengthen our relative competitive position. With the necessary prudence we are cautiously optimistic for 2009 and strive to outperform the market.
Events subsequent to the reporting date
There were no notable events after the balance sheet reference date that affected the MLP Group’s net assets, financial position or profit situation.