Outlook for the current financial year/forecast
Future macroeconomic situation
Following a period of stabilisation that was already apparent in the second quarter 2009, the state of the German economy improved slightly in the third quarter. Economic forecasts for Germany – MLP’s core market – have been upgraded slightly in recent months. In its published Autumn projection, the German federal government is now only anticipating a decline in economic performance of –5.0 % (previously –6.0 %). For 2010 expectations are now for growth of 1.2 %, compared with the previously predicted figure of 0.5 %.
Changes in anticipated economic growth in Germany:
German companies are also anticipating an improvement in the future economic development in Germany. At the end of September the ifo (Institute for Economic Research) business climate index rose by 6 points compared to the end of the half-year and stood at 95.7.
Business expectations – ifo economy test
The stable price climate and income-supporting measures of the economic stimulus packages will continue to support private consumption. However, the effects of the manufacturing slowdown on the labour market are expected to become more pronounced in the fourth quarter and during next year. Experts anticipate a rise in the rate of unemployment from 8.0 % at the end of September to 8.3 % at the end of 2009. In 2010, the unemployment rate is expected to reach 9.5 %.
Uncertainty will therefore remain concerning developments within the labour market and the level of incomes. For now, clients are thus likely to remain concerned and to postpone their long-term investment decisions. For MLP, the macroeconomic framework conditions will thus remain difficult.
Future situation within the industry and competition
For the entire financial services industry the financial and economic crisis will remain the determining factor for business development for the remainder of this year and far into next year. Almost all market participants are suffering from hesitancy on the part of clients concerning long-term investment decisions, particularly within the areas of old-age pension provision and wealth management. This reluctance in these core areas for MLP will continue to affect business development in the fourth quarter as well as in the next financial year. We do not expect this situation to change until there is a sustainable economic recovery.
Coalition agreement contains many important policy course decisions
The German coalition government agreement concluded in October between the CDU, CSU and FDP political parties for the new legislative period contains many important policy course decisions in fields of politics relevant to MLP. One of the positive aspects will be the abolition of the three-year lock-out period for a transfer to private health insurance that is expected to take effect in 2011. Furthermore, MLP welcomes other stated intentions such as the standardisation of the requirements for financial consultants, further strengthening of the capital-based old-age pension provision and the supplementation of statutory nursing care insurance through capital-based funding.
In view of our client and quality-oriented approach to financial consulting, a universal legal framework for the brokerage of financial services will assist us to continue to successfully promote ourselves vis-à-vis our competitors. The strengthening of private old-age pension provision, the increase in competition and self-responsibility in the healthcare system as well as the introduction of capital-based nursing care insurance will further increase the consultation requirements of our clients.
Anticipated business development
During the fourth quarter and the next financial year the financial and economic crisis will remain the determining factor for our business development. Although the economy in Germany has stabilised in the second and third quarters, the full year is still expected to show a 5 % decline in the gross national product. The situation within the labour market is expected to worsen in the fourth quarter and in 2010. Both of these factors are unsettling for our clients and lead to hesitancy and restraint, particularly in the areas of old-age pension provision and wealth management. The future development of our clients’ demand and investment behaviour is therefore heavily burdened with uncertainty. In view of such circumstances we continue to refrain from giving a specific revenue and earnings forecast for the current financial year.
Traditionally, the fourth quarter, particularly the last few weeks of the year, significantly influence MLP’s result for the full year. Despite the continuingly difficult business environment, MLP has been registering a pick-up in its year-end business since October. We currently anticipate that there will be a further pick-up over the coming weeks. At the same time we are continuing to benefit from our cost reduction measures and will achieve our savings objective. As previously announced, MLP will reduce its fixed costs by € 24 million to € 290 million by the end of 2009 and to € 280 million by the end of 2010. Overall, MLP’s aim remains to develop better than the market.
Planned reduction of the fixed cost basis by € 34 million by the end of 2010
Opportunities
Compared to the start of the year our opportunities (see also Annual Report 2008) our opportunities resulting from the changes in the framework conditions have altered in two respects. As a substantial economic pick-up in Germany from the third quarter has failed to materialize, the degree of willingness on the part of our clients to invest in long-term old-age pension and wealth management concepts has not improved. The changes to the framework conditions for financial consultants and brokers, in old-age pension and healthcare provision as well as for nursing care insurance (see section on “Coalition agreement contains many important policy course decisions”) decided upon by the new government improve our opportunities with respect to the brokerage of corresponding financial products.
Changes to the corporate strategy, business performance and other opportunities have not occurred.