Leonteq AG (LEON) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Leonteq Full Year 2020 Results Conference Call. I'm Placentino, the Chorus Call operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Dominik Ruggli, Head of Investor Relations, Communication and Marketing of Leonteq. Please go ahead.

Good morning, everyone, and welcome to the press conference call for Leonteq's Full Year 2020 results. All presentation materials as well as the annual report can be found in the Investor Relations section of our website since this morning since 6:30 a.m. In the same section, we have also published a comparison of the analyst consensus summary versus our actual results. Here with me today are Chief Executive Officer, Lukas Ruflin; and Deputy CEO and Chief Financial Officer, Marco Amato. We will start the presentation with an overview of the highlights of 2020. We'll then discuss the financial performance of 2020, continued by an update on our business and strategic priorities before closing the presentation with a summary and outlook. The presentation will last about 50 minutes, after which we are happy to take questions. We intend to close the conference call at 10:30 AM. It is now my pleasure to hand over to our CEO, Lukas Ruflin.

Thank you very much, Dominik. Good morning, ladies and gentlemen, dear shareholders, analysts and media representatives. Before we start today's presentation, I would like to quickly look back at mid-2018. If you recall, at that time, we shared with you our plans regarding the journey we were embarking on as a company, the journey to overcome certain limitations we faced and to grow and transform our business. Its transformation completed by a set of strategic priorities that we have diligently executed in the last few years. In 2020, the results of these efforts resulted in major strategic progress with our investments starting to bear fruit. Let me please start now on Page 4 of the presentation by expanding on our progress. 2020 was a pivotal year in which we achieved significant progress against our strategy as promised 3 years ago, despite the global pandemic and unprecedented market turmoil since March and April this year. At the same time, Leonteq improved its profitability in the second half of 2020 after challenging first half of the year, impacted by the onset of the COVID-19 pandemic, we reported on this extensively when we presented to you the half year numbers in July 2020. The second half of the year was particularly driven by a record fourth quarter where we reported CHF 80 million in economic revenues. As a result, Leonteq's group net profit in the second half of the year improved to CHF 34.4 million compared to CHF 5.5 million in the first half and that is 6% from the prior year period. Our shareholders' equity also remained strong with about CHF 648 million at the end of 2020. At the same time, we are also reporting to you today that our Board of Directors will propose a 50% increase in the distribution to shareholders at the upcoming Annual General Meeting which will take place at the end of March this year, so a dividend per share of CHF 0.75. Looking at our strategic progress, I can confidently say today that strategically 2020 was the best year in Leonteq's history. Let me now highlight some progress before going into more detail later in the presentation. SHIP is up and running, with 7 hedging providers connected to the platform in addition to obviously Leonteq being a hedging provider for our clients are facing 8 counterparties, and contributing to 9% of the balance sheet line turnover we have reached in the second half of 2020. We have signed cooperation agreements with 4 new white-labeling partners and initiated 2 content and technology enhancing projects. Lastly, as part of our growth strategy, to strengthen our operations in these regions, we have opened new sales offices in Milano and Dubai this year. Okay. Let's now move on to Page 5. 2020 has also shown how Leonteq can withstand one of the most severe capital market shocks and global pandemic in modern history, steering through the difficult periods of market stress, which if you want was a stress scenario becoming relative both from a financial market stress point of view, but obviously also from a technology point of view. We moved our staff very quickly into a local home office setup that obviously for a very active and expanding platform like ours was a stress test, which I think we have withstood with remarkable resilience. Throughout the period of this market stress we had the strength of our client business becoming very skilled. We were certainly helped by our capital position and the robust and effective financial structure and business continuity management we have put in place before the onset of the crisis. Important, our platform has remained available to our employees, stakeholders and particularly our clients without any major faults during the entire period. It enabled our business to remain up and running. Our employees to seamlessly transition to remote working arrangements and our colleagues on the sales front-facing clients to serve those clients at all times throughout the year. This environment and on the back of increased activity on the client side, we were able to report for the year 2020, a record fee income of CHF 335 million, up 26% from 2019. Particularly pleased I am with the feedback we have received from our clients on our consistent service, both in the first and second half of the year. But in particular, I had some very complimentary comments from major clients when it came to the very turbulent year and weeks of March and April when sometimes we saw highly liquid markets being much less liquid. And when despite these external restrictions, Leonteq consistently and without breaks offered these clients fullest liquidity on all products traded through the platform. As a result, today, for our clients, available at all times. We proactively engage with them in conversations and new business. And I'm also proud to see that on the back of those conversations in the dark days of 2020, we saw clients confidently engaging new business transactions, which obviously with hindsight benefits have turned very profitable in terms of performance records, helped by high-end markets starting sometimes middle to late March onwards. We posted record levels of secondary market rates, client transactions and life cycle events and created more than 2,500 client portfolios on our platform, LynQs, we will come to this a bit later today. Moving on to Page 6. We have tried on this stage to visualize our progress over the last 3 years. And as I said before, 2020 was the best year ever in Leonteq's history when it came to strategic development. And we believe that this didn't just happen coincidentally. What we think 2020 shows is that a focused execution of strategic priorities eventually pays off. And we see early signs of our execution, but also significant investments in new growth projects, which we have embarked on since 2018 become reality. Take for example SHIP. We told you in '18 that SHIP would be up and running in 2020, and that it was vital for our future because obviously, it's reducing our hedging exposure on our own balance sheet, and thus making the business in many ways, more scalable. 2020, zoom forward, we believe we have delivered on the promise. Again, bear in mind that SHIP only went live in the middle of the year as a full functioning technology platform and of course, we expect higher turnover and higher share of business going through SHIP in the years to come than in 2020. We also told you in '18 of our intentions to focus on our client digital experience, LynQs and our AMC gateway has made major progress in 2020. And as time goes by, we are increasingly seeing the share of client business executed through this digitalized platforms increase. We told you about our regional growth strategies. And on the back of these, have opened new offices in Milan and Dubai to cover the Middle East in 2020. We told you that we were in discussions with potential new clients, many of you asked repetitively when we would announce those. We told you that you should please bear with us that it was taking time, but conversations there are ongoing. And clearly, 2020, has shown those conversations turning into signed agreements. We are in the process of launching these 4 new white-label projects. So we expect 2021 for all of them to see new product issuances. We are, of course, also in parallel conversations with other potential partners. We also started collaborations with BlackRock and with Google Cloud, which will help us further leverage on this ecosystem and digital platforms Leonteq is expanding on. We finally expanded on our product offering. We launched new investment thematic certificates where we cooperate with Finanz und Wirtschaft with Morningstar and The Market and these sort of content partnerships will certainly also continue going forward. So all in all, the trend of focused execution that we have been diligently working on for the past 3 years and that is starting to become visible will continue. We will continue to invest which explains why our cost guidance for 2021 is increasing. And as we continue to invest, we obviously also expect, over time, for these investments to yield a return, which should then be visible both in the top line and ultimately bottom line of the business. I would like to pause for a second and thank all of the employees of Leonteq for the very focused execution, in particular, in 2020, when sometimes there are concerns on the mind of all of us than just business-related issues, but I'm very pleased to see the strong commitment and strong support I'm seeing all our colleagues showing towards Leonteq and that's another reason why I'm personally quite positive about the outlook of the business going forward. With that, I'd like to go on to Page 7. In the last 14 years since starting Leonteq in 2007 as a very focused expert of structural products, we have developed into more than just an expert of structured products, so namely, first, we are today a provider of investment solutions and we offer one of the largest universal structured products with over 2,000 underlyings that include major asset classes as well as fund derivative cryptocurrencies, systematic indices. The last 3 being notably strong growth areas where the firm takes to do significantly more business in the coming years. At the same time, our offering is very much a function of the big technology investments we have made throughout over 14 years. And that -- and those investments have enabled us to become a leading technology platform, which support different of hundreds of products a day and of large amount of client transactions every day. So provider of investment solutions on the back of leading technology platform is clearly one pillar, but it's not the only one . As a second pillar we are a service and technology provider for banks and insurance companies and has by now successfully established the white-labeling business model with state-of-the-art services in the areas of structured investment products as well as savings and retirement solutions. And as we expect the pressure on both bank and the insurance companies in terms of the macro environment, which is clearly now defined by low interest rates if not negative interest rates in all major currencies to continue, we believe that the needs for leading banks and insurance companies to rely on highly specialized and focused outsourcing partners when it comes to certain of their own client offerings will increase. And we believe that a specialized service and technology provider to those institutions, we are very well positioned to play a role in this certain, I would almost call it mega trend, we believe has been exacerbated by the macro environment, again defined by low interest rates. Third, we are by now clearly a marketplace for structured products, where it becomes almost irrelevant what Leonteq as an institution does in terms of product offering but where the key point is that the Leonteq marketplace enables our clients on a one-stop-shop principle to lead parties, not all of the structured platform flow through this platform. We have built an additional platform, have connected to 30 issuers and are connecting those 30 issuers with over 1,000 clients. You add to that highly innovative and as far as I know today unique offering we have on the SHIP side, you enable your clients to really be in a position to have best execution on any 0 bond embedded in a structure product, they can just choose the 0 bond of their choice. And of course, through SHIPs, They can then also marry that 0 bond with a base execution on the derivative element. All of these efforts are still in its infant state. We onboarded those 30 platform issuers in the last 12 months. And then SHIP, as I've explained before, has only been up and running in the middle of 2020. So whilst at this stage, you might still think that this is a small offer, it's probably the area where I definitely see the highest growth to come. And we will certainly continue the significant investments we have made in the last 4 years into our marketplace and into SHIP and the related services that are offered. I'll just name one potential avenue, where we see a lot of potential but have not yet been able to grasp that potential, that's obviously all the data relating to this transaction happening on the marketplace. Finally, as a fourth pillar. Leonteq savings and retirement solution platforms. We have today already more than 50,000 policies serviced through that platform. Clearly again here, we offer service for our B2B clients, but ultimately for them, so then offer those products to their end clients. So it's B2B4C service offering, where we again believe that there is a lot of further potential. So in summary, these 4 areas are in many ways, deeply interconnected but at the same time, standalone 4 pillars on which we feel quite positive in terms of future potential. With that, I would like to transition now to our financial performance. I hand over to our deputy CEO and CFO, Marco Amato.

Thank you, Lukas. Good morning, and warm welcome to all participants from my side. Let's move into the Leonteq's financial performance for the full year 2020. That begins on Page 9. I would like to start by highlighting to you today that Leonteq has fully recovered from the COVID-19 impact, which negatively impacted, in particular, our hedging results during the first half year 2020. The chart on the left-hand side of Slide 9 highlights that we are back on track in terms of delivering total operating income. You can see here that total operating income notably improved from the first half of 2020 to CHF 131 million. Our net profit, which you see on the right-hand side, is back in line with the track record built throughout 2018 and 2019. Of the reported CHF 5.5 million in bottom line in H1 2020, group net profit improved significantly to CHF 34 million, up 6% compared to H2 2019 results. For the full year, group net profit totaled CHF 39.9 million compared to CHF 62.7 million in 2019. Now looking at the weekly revenue development on Page 10, let me continue to provide you with the fully transparent illustration of the business development on a weekly basis. Of the challenging first half of 2020, which we reported 6 months ago, Leonteq had uphill start to the second half of the year, with a lower than usual summer period, expanding well into September, as you can see from the graph. Our recent performance further stabilized in October, but client demand was lower than in the prior year period. This was mainly on track with investor uncertainty due to concerns about the second wave of COVID and the tensions in the run-off to the U.S. elections. Following that, we saw a strong pickup in client demand from mid-November onwards until year-end, resulting in best quarter results in Leonteq's history with economic revenues of CHF 80 million, as mentioned already by Lukas. On the cost side on Page 11, I'd like to note here that Leonteq significantly invested both in initiatives in 2020 as well as in hiring. Our staff grew from 508 to 519 year-on-year, yet our total operating expenses remained in line with our guidance at CHF 197.9 million for 2020. I'm also pleased to report the notable progress we have made on our nearshoring initiatives in Lisbon, which is being implemented in a phased approach. In Phase 1, which commenced in the first half 2020, we established a serviced office setup, employing a handful of external IT development personnel as well as other shared service functions. We hired by now 20 employees in 2020 as part of Phase 1. The Phase 2 consists of Leonteq setting up its own office and legal entity and carry up to up 100 designated roles along the entire value chain. We expect to open this new office in 2021 and complete Phase 2 by the end of 2022. We expect them to see enhanced cost efficiency through the optimization of our personal expense cost structure from 2022 onwards. Let's turn now to Page 12. On Page 12, you will see the results of our Investment Solutions business line. You can see that margins both for Leonteq and its platform partners remained elevated in the second half year of 2020. This is mainly due to the fact that following the onset of COVID-19 in the first half of the year, we took the decision to limit activity to the high-turnover, low-margin flow business in particular with OTC options and leverage certificates. Furthermore, we saw that the overall pricing levels became less competitive following the market turmoil in March, allowing us to price more conservatively our product and charge a slightly higher margin. These circumstances are also one of the key drivers behind the decrease in turnover in the platform partner business to CHF 14.8 billion in 2020 compared to a very strong prior year period performance of CHF 18.8 billion. Looking at our own issued products, so the Leonteq product. We report platform assets reached a record of CHF 4.9 billion as of the end of year 2020, which is an increase of 20% compared to the end of 2019. We generated a turnover of CHF 11.6 billion in 2020, which is up 1% from the prior year. This positive development is also in part a result of our investment-grade rating -- credit rating that we obtained in January 2019. Looking at Insurance & Wealth Planning Solutions business line on Page 13, you can see that the number of outstanding unit-linked products continue to increase. Even though somewhat slowly, it is a consistent increase with a 9% increase to almost 52,000 policies from the end 2019 to the end of 2020. The net fee income, which you see the picture on the right-hand side was heavily impacted by the long-term interest rate environment in 2020. Furthermore, as Leonteq depends on each external distribution channel of its insurance partners and insurance brokers, communication and meetings with potential end clients have been severely impacted by the COVID-19 pandemic, also affecting our fee income development. As you can see, the net fee income in the second half of the year dropped significantly compared to the first half of 2020 but this was also -- was also due to a bit on the back of the one-off revenues that we reported in the context of our 2019 and first half 2020 results, which reflects the effect of changes in the future service applications. To put this into context, the 30-year Swiss franc swap traded negatively with long-term interest rates, particularly below 0 throughout most of 2020. This is the first time in history that this happened and the unprecedented market environment put high pressure on the product condition, competing with product not directly linked to the market rates. We see this below 0 trend to break in 2021, and we remain confident that it will be beneficial for our IWPS offering in 2021 onwards. Let's now continue on Page 14 with a look at Leonteq capital base. Over the past years, Leonteq has built out a strong shareholder equity. Looking at the left chart, you can see that our shareholder equity decreased slightly from CHF 662 million to CHF 647 million at the end of 2020. This compares to a capital base of approximately CHF 400 million from 3 years ago. Since the beginning of 2020, Leonteq has been operating under new regulatory framework for securities firms. The new capital requirement of CHF 20 million was significantly exceeded as of 31st of December 2020. And looking at the chart on the right, you can see -- you see that we report a CHF 25.9 million decrease in our deferred fee income to CHF 75.9 million as of the end of the year 2020. This is on the back of a review of the estimates inherent in the revenue recognition model for fee income in the Investment Solutions division to take account of the increasingly competitive market environment in recent years. We reported of this effect already in the first half year 2020. Overall, to conclude, we report a strong capital base, which we find as aggregate amount of our shareholders' equity and deferred fee income together and totaling CHF 723 million in 2020. I would like to turn now to discuss how this normal is relevant for Leonteq capital management and also dividend policy on Page 15. I'm pleased to report to you today that in line with Leonteq's conservative dividend policy, the Leonteq Board of Directors will propose a shareholder distribution of CHF 0.75 per share for the financial year 2020 with the Annual General Meeting, which will take place on the 31st of March 2021. This is a 50% increase from the CHF 0.50 per share distribution for 2019 and will be paid in equal amount out of returned earnings and capital contribution reserves. Today, we are also providing transparency about our ambition to move to a progressive dividend policy. As a prerequisite, we are targeting from our capital base, which just for clarity's sake, includes also other fee income to reach the CHF 800 million area by the end of 2021. This area is defined as a range of plus/minus 3% of the level indicated. Once this threshold is reached, we intend to transition to a progressive dividend policy and intend to propose a shareholder distribution of more than CHF 0.75 per share for financial year 2021. Thereafter, we aim to maintain a minimum capital base in the CHF 800 million area and foresee payout ratio of over 50% of net profit for the financial year 2022 and onwards. Before I conclude, I want to leave you with 3 takeaway messages. First, Leonteq is back on track financially and we have recovered our profitability, putting it back in line with what we delivered with half years in the prior year and also 2018. Second, our cost remains well under control, and we're making good progress with our new showing initiatives, which will improve our cost efficiency from 2022 onwards. And last, but I'm pleased, we are proposing a 50% increase in shareholder distribution for 2020 and are providing transparency about our ambition to transition for a progressive dividend policy. With that, I hand back over to you, Lukas.

Thank you, Marco. Let's now take a look at our business and strategy update on Page 17, please. As I presented to you in the beginning of this call, Leonteq has made significant achievements both in terms of establishing a certain financial track record notwithstanding, obviously, the COVID impact experienced in the first half year and 2020 and also visible there, but also in terms of our business model and comprehensive offering. We feel confident that our business model for structured products, coupled with attractive markets which is structurally benefiting from a low interest rate environment has positioned us well today to now deliver attractive and sustainable returns to our shareholders going forward. Let's look at Page 18 and talk first about the attractive markets we see. So markets, and that you see on the left-hand side, we are active in, which is ultimately the global wealth market has clearly shown a strong growth compounded year in and year out at roughly 12%. Likewise, the market turnover for structured products in Switzerland has been growing 13% each year. We are taking this [indiscernible] other markets, too, but the Swiss Structured Products market is both well researched and published, and we use that data as a proxy, given that about 1/3 of our business activities are in Switzerland. We are and remain convinced that structured products should play an important part when it comes to considering asset allocation in a portfolio context for investors. And therefore, has used those wealth market growth numbers to illustrate, I would say, macro picture in terms of the development. What has fundamentally changed with the decrease of U.S. dollar interest rates in 2020 is the structural macro equation. Now all major current currencies showing low, respectively, negative interest rates, which makes obviously the issues surrounding investments an attractive pay-off structure respectively underlying increasingly difficult. We have seen similar developments in Japan starting much earlier than in Europe and the U.S. And we have seen, on the back office should then becoming the world's largest market for structured investment products, the trend which we believe structurally will continue in Europe and in the U.S. as well. And in this environment, we believe we are well positioned with our expertise and our offering. Clearly on the right-hand side of this chart, you see that when it comes to Switzerland, as reported by the SIX Swiss Exchange, we rank overall third place covering 9% of the market share. And when it comes to yield enhancement products, we have been consistent in the last 10 years, ranked #1 with a 32% market share. These are obviously data based on listed product at the SIX Swiss Exchange and also both listed products, non-listed products. So you have to use those numbers with a certain caution because they are not entirely representing the market, but they give a good indication of our relative position. With that, I would like to go on to Page 19. We have built, as I said at the beginning, over the years out into a service and technology platform have created the marketplace that connects and enables investors and providers of investment and retirement solutions. On the investor side, we have numerous different financial intermediaries in over 50 different markets across Europe, Asia, Middle East, and Latin America. We work with more than 1,000 clients, which are financial intermediaries. They could be private, regional or universal banks, independent asset managers, independent financial advisers, family offices and other institutional investors. We do not service end clients. We bring those intermediaries together with providers of structured products and saving solutions. We have today on the platform 10 white-labeling partners: 4 of them, we are in the process of onboarding, I referred to that before. And furthermore, we offer nowadays product from 20 third-party issuers, which includes Societe Generale, Barclays, I named those 2, as we have created in 2020 to both of them automated connectivity between our marketplace and their respective pricing platforms. That's important because it increases the velocity of decision-making at the end of our clients and technology developments will continue. We believe that automated connection through the technology platform of these third-party issuers will obviously continue. With Societe Generale and Barclays, we have 2 renowned markets participants now connected and obviously providing their respective pricing to our client base on a daily basis. So if you then at on top, the Leonteq issuance, so our historical business activity, we can confidently show to clients now the availability of 31 different providers on the platform. We think that's quite an attractive marketplace for any potential client to consider. As I referred to it before, we have now 7 leading investment banks connected as hedging counterparties. As I said also before, Leonteq, in addition, obviously always provides prices so investors and clients get selection of 8 prices when they go through the SHIP platform. We have added 2 content and technology enhancers BlackRock and Google Cloud, work today together with 3 product partners locally in Switzerland. That's The Market and Finanz und Wirtschaft. And we have also added Morningstar to the content provider universe. We will obviously continue adding additional content and technology enhancers in the coming years. So again, 2020 shows the beginning of the trend, it doesn't show at all the end of our additions. So these investors and providers formed together on our technology platform, brings us to the marketplace for application on the marketplace are the LynQs platform, the SHIP platform and the OMEGA platform, its [indiscernible] our new proprietary savings and retirement platform and I'm confident that we'll talk about that a little bit more in the future. We are clearly replicating this technology-enhancing idea. We have executed on the investment solutions side into our second business line, investment and wealth planning solutions and the other technology platform is OMEGA. Obviously, internal development and obviously also internal, maybe as inventory. If we then move on to the next page, 20, what we are trying to show you here is the execution and achievements of our strategy in 2020. So again, and I apologize if I'm a bit repetitive, 2020, SHIP became fully operational. We have also enabled additional underlyings on SHIP. So it's not just that SHIP became operational, but we have expanded the SHIP service universe and that expansion will continue, I will come to that in a second again. And the progress we have seen on SHIP has obviously also been evident in the increased share of balance sheet line turnover we take on a year-on-year basis, gone from 3% to 9%. So partly frequent in terms of share, and we would expect that this share if market on SHIP internally will obviously continue. On LynQs, we introduced new functionalities throughout the year, including a new portfolio allocation feature for clients. We have now more than 1,500 users as being active LynQs users and have sold out LynQs as an application, you can download that through iStore functionality in 20 different countries, which gives our clients access to LynQs anytime, anywhere. I'd like to stress again, this LynQs platform is not a service offering today to end clients. We don't sell this to retail clients. So the 1,500 users have to be understood as individuals within our 1,000-client universe, so typically entities of the financial intermediaries I referred to before. Also in 2020, we signed new cooperation agreements with both Finanz, Basler Kantonalbank, Banque Internationale à Luxembourg and Rand Merchant Bank, a traditional FirstRand Bank. Additionally, we launched projects to develop and market structure products on the BlackRock and iShares fund universe as underlying ASEs and started the collaboration with Google Cloud. And lastly, we have expanded our product offering by adding production systematic indices and extended our underlying universe for actively-managed certificates. We continue to improve the operational efficiency of our AMC gateway for the technical platform which allows our clients to seamlessly execute and transact on AMCs. And we have entirely redesigned the AMC client portal. Again, efforts which explain the cost line related to the significant investments in the last years. And of course, investments, we will continue on the back of our belief that for example, in particular, on the AMC business line, growth will continue and there is a good position for Leonteq to help when it comes to that service offering to our clients. Finally, and that's probably right now a bit of a hot topic, but it's something we are very consistently focused on in the last year on the belief that the trends relating to cryptocurrency is only the beginning of the launch of technology evolution happening. We have significantly expanded our efforts in offering tracker certificates on a larger range of cryptocurrencies, which includes today Bitcoin, Bitcoin Cash, Ether, Litecoin and Ripple. We are, as we speak, continuing offering our clients new payoffs. We have seen, I believe, a lot of thrust was offered about 10 days ago a no strike product on Bitcoin. So if you want any solid payoff on an innovative new underlying, which, as such, has not existed in the market before. So we will clearly continue offering our clients interesting products on the cryptocurrencies. You see just between December '19 and December '20 what I would call an exponential growth of about 500% in terms of outstanding volumes on our platform. We have also seen this growth continue into the first weeks of 2021. And it might continue, it might also reduce in terms of investor appetite for certain periods. The message I'd like to convey to you today is that our service offering and our focus on cryptocurrencies on AMC, on digitalized product offerings, on SHIP, on the marketplace will continue no matter what the short-term trend in a given week or they might suggest. We have obviously also used 2020, I said that before, to launch new team-related products where we have teamed up Finanz und Wirtschaft, Morningstar and The Market. Our AMC business has significantly increased in size. It's also important in terms of fee income distribution we charge on AMCs, which are typically open-end certificates, an annual fixed fee on the total outstanding volumes. So we are very much expanding and diversifying into an annuity-based fee business, which obviously is a nice addition to our Investment Solution business and our IWPS business, the again being much annuity based fee related. Now while I'm quite proud of these 2020 achievements when it comes to the strategy achievements, we obviously have large plan for 2021. With that, I'd like to go on to the next page, please. So on Page 21, you see our priorities and targets for '21 again centering around the same initiatives. SHIP, we will continue to add new pay-offs and product features to the platform. We believe that will enable us to also see higher percentage of balance sheet light products being transacted through the platform. We will also use 2021 to expand our AMC offering and related for that initiative. For LynQs, we plan to go-live with our pricing module which will replace our click-and-trade platform constructor. Constructor was launched by us probably about 2013. By now, whilst it has been very successful, it's in many ways, old technology. LynQs is in any way, the technology of the future. And I'm very pleased to see that from a technology point of view, we concluded the biggest investments in 2020 can now really start rolling out the service offering on LynQs to clients. We will serve more, as I said many times during this presentation, focus on AMC and integrate the AMC portal into LynQs. So we are making sure that our different digital efforts will not be eventually ending up at client's desks through different applications, but all ramped up in one lead application. And as we expand LynQs with all the functionalities, we will obviously also think of how we can integrate LynQs into our white-label partners in a fully white-label menu. So our platform partner business will hopefully continue to expand as we will not only launch the sales products in 2021 with the 4 partners announced during the year, but that we will hopefully also be able to announce lot of corporation agreements as time goes by. Last but not least, we will make sure that our product offering will continue. I said it many times, AMC, we believe in growth initiatives, we see a lot of traction with clients on the systematic indices universe we have built up over the last 12 months. We are talking to clients about quantitative investment strategies and of course, about fund derivatives and in the last few weeks, in particular about cryptocurrencies. Finally, we have not surprisingly been unaffected by the vagaries that the world is facing when it comes to sustainable initiatives. We want to not just be part of these developments, but to make sure that we can become for our stakeholders, including shareholders, as one of the key companies to consider when it comes to companies executing on sustainability efforts. There is a lot of well surrounded effort and at this stage, it's probably be a little bit short on those. I think when it comes to sustainability, companies have to be measured by actions. At this stage, we like to communicate to you all that we will use 2021 to fundamentally redefine Leonteq from a sustainability point of view to make sure that when it comes to the relevant ESG criteria, we meet the -- any relevant threshold to the extent possible. And we would then turn through those when we can demonstrate to you what we have done and what consequences -- consequently also intend to publish for the first time in our history, a sustainability report next year together with the annual report. So on to Page 23, summary and outlook. Leonteq is on back on track financially. It doesn't come as a surprise for Marco and myself. We have told you in the first half year that we -- that and still are as unhappy as you have been about the first half year results, but we clearly told you the reasons why the results were a month ago, like to say that despite everything, we still showed profitable numbers. And we told you that these were one-off effects. We understand that some of your questions whether it is of one-off effects, I responded to that, that you shouldn't listen to those I conveyed to you, but by actions. I think the actions you have seen in the second half speak for itself. And we hope that actions you will see in the coming half will also speak for themselves. So we are back on track financially and are reiterating what we said to you middle of the year. 2020 first half was driven by one-off effects. I've never seen such one-off effects materialize in the first 13 years of Leonteq's history. And I certainly haven't seen them materialize in the second half, and I absolutely do not expect them to materialize in 2021. Having said so, of course, I can't predict future. And of course, if they were to materialize, we would face those challenges with a very strong balance sheet and a business model, which we will be able to withstand such as we have clearly proven in the first half. On the back of our improved performance and particularly on the back of a record quarter in Q4, we have been able to show again normalized profitability. Together with a clear communication about our total capital targets we believe we are able to achieve by the end of this year of area, CHF 800 million. We will maintain for now a conservative dividend policies, which we are doing by increasing nevertheless our dividend payout ratio by 50% to CHF 0.75 a share. And that, as Marco laid out, conservative dividend policy will eventually transition into progressive dividend policy. Before closing, I would like to briefly also address today's announcements when it comes to Jochen Kühn and him stepping down from his role as Head of Leonteq's Executive Committee and Head of IWPS, our second business line. Jochen joined in Leonteq in 2017 to lead and further develop Leonteq's insurance platform. We are all, in particular, I'm very grateful to Jochen for his contributions in building out Leonteq's business in this area over the last 4 years. I think together with the team, he has laid a strong foundation. And I look forward not just managing myself the unit going forward, but together with the team lead that unit into some concrete execution steps on which I hope we will be able to communicate in the course of the foreseeable future. With that, the floor is open for questions. Back to you, Dominik.

Thank you, Lukas. Also thank you, Marco, for the presentation. As said, happy to start the Q&A session now.

The first question is from the line of Regli Daniel with Octavian.

Congratulations from my side to on one hand, the clarity you provided on the capital targets and also for your H2 results. Nonetheless, I have a couple of questions to ask, to be specific 4. I will ask them one by one, if it's okay for you and then I would like to start with the question on this management action. You did obviously to limit turnover on the low-margin and high-volume business actually came kind of as a surprise to me. And my question there is a bit though what has triggered this? Was this a capital consideration or was considerations with regards to trading, hedging results, firstly and secondly. Is it still in place that you're limiting this kind of turnover? Or what should we expect for H1 '21?

So we answer when you ask the next question or you want to ask all 4 questions and we answer then.

I thought it's better you answer directly. And then I continue with the next questions.

No problem as long we then don't come up with additional questions, I'm fine. Daniel, and thank you for your kind words. Appreciate it. Okay, you also understand, we are facing different stakeholders and the key and core stakeholder which must be on our mind ever single day are our clients. It would be a bit strange if I went out together with Marco in middle of the year and then say we're going to limit our turnover margin, high turnover volumes because it's obviously affecting some of our clients we are in daily contact with. And that sort of management discussion, we will keep and want to keep going forward. So I can also not give you any reasonable predictions of what we do because that's our daily job of assessing how aggressive we want to be with regard to turnover flow. The high turnover, low-margin flow is not a bad flow at all to have. It also brings some diversification benefits to our autoflow. But of course, it is a bit a function of the overall market where we can also beat the function of our ability to then onload that flows to other market participants. And what we have seen following the COVID-related events was a general dry up in almost all sorts of markets, and we took then time for one market after the other to become more liquid again. Capital was never consideration at all on our side. I think the number speaks for ourself, capital is not limiting us. But we'll see a more consideration when we make those decisions was the general outlook. And it wasn't so clear to, at least myself, that the normalization we have seen happening in the last few months would happen as it did. Clearly, it was helped by vaccine and the good news around that. But then we are not scientists and we are not trying to predict markets, we're trying to manage Leonteq. So in the context of potentially additional COVID-related crisis in the context of potentially additionally negative hedging-related effect, particularly when it comes to liquidity of available markets, willingness of counterparties to take on such flow, it was the prudent thing to be a little bit less, how shall I call this, forthcoming when it came to this flow. As time goes by, there's very much discussion by counterparty. You can and should obviously expect that we will again be more flexible when it comes to that flow. The effect will be a decrease in margin with an increase in turnover. But unfortunately, we are not in a position to now just guide you for the first half. I think as a general trend, you should expect that our margins will come down. That's something we already told you in the first half. And as a general trend, you can certainly also expect that the turnover will normalize in terms of the headline figure.

Okay. The -- what is the normalized turnover numbers you have in mind? What should we look at as you talk about normalized turnover, the H1 '19 or H2 '19 ramp?

But I would say, normalized is a bit trajectory we saw and we see if you take out the COVID-related event.

Okay. The second question, you already started on discussing margins, obviously, these 2 things are offset in each other a bit. But what would kind of be the adjusted margin would you have in a normalized environment in H2? And what is kind of your expected margin for 2021? I understand that you cannot give a clear guidance, but just give us kind of an indication where margins could land or respectively, what was your exit margin of 2020, if you want?

So I think, Daniel, as I've highlighted also, I think as part of the presentation, we would have expected a margin for 2020 which will be below the 118 basis points that we reported now if we would have not taken that decision for, especially off the COVID impact. So definitely something around roughly 100 basis points and 118. And for the future, I think as highlighted by Lukas, we expect margins to still drop further. But based on -- yes, based on the aspects which we call kind of influencing incidentally also the volatility and also the market phase -- market development, it's very difficult to predict margins going forward. So I would say, yes, they will probably still further drop, but it's very difficult to give you a clear guidance for the future. Otherwise, we would have certainly done so.

Okay. And then maybe the third question is regarding the dividend policy. And again, my compliments to provide clarity today. If you -- you were talking about the payout ratio of more than 50% after you have achieved your capital target, which does not seem as aggressive as it sounded 1 year ago. Can you maybe give me some sort of detail, what kind of payout ratio you have in mind, let's say, for a normal year after you have achieved the capital target?

Look, it's a good question, and it's probably the only question where I can wisely say it's a decision the Board takes, and it's not a decision the CEO should kind try to second guess ahead of time. I think what is clear -- I knew this statement above 50% means above 50%. We also very much refer here to a dividend policy, and we do not refer per se to shareholder return policy and we have seen with some other companies, you can also see through other things and us pay dividends, such as, for example, share prices to be specific. And then, of course, I think also as Leonteq and I said that I think in an interview, a year ago when we started our conservative dividend policies, we want to have some continuity in the dividend payment. So it will not be for example, very wise, I believe to just link it to a net profit line and then make a dividend line itself, to some extent, a bit volatile. But the inherent message here is that a, Leonteq is very well capitalized; b, we will very soon, assuming our risk profile does not change, which obviously we are assuming, being in position where we don't need to further increase our total capital base and see the combination of all of that will allow us to hopefully turn to a quite attractive return on shareholder approach. But again, it is kind of inappropriate now to be too specific on such a number which anyway, the Board will decide when time comes taking into account all sort of considerations. You can rightfully assume that Board to consider it before making a proposal to shareholders.

Okay. And then my last question is on the cost line. Obviously, we have seen cost inflation of about 5% annually over the last year and now we see another 5% cost inflation for 2021. Is this kind of what we should factor into our models going forward? Or we, at one point, expect this cost inflation to slow down?

Thanks, Daniel. I'll take that question. I think we've seen over the last few years, the investments that we have done have been quite significant, and I think they will also pay out in terms of top line and bottom line development. We have also indicated for 2021, yet you would have to assume that costs will still increase. We have, at the same time, also recognized that this trend, we need to do something about it and that's why we launched the Nearshoring initiative in Portugal, Lisbon specifically to also address this one concern. And I think we're progressing pretty well. And also today as part of the presentation, we highlighted that we would expect the cost synergies to come in starting in 2022 to also reflect this big effort that we do this personnel expense side. So I think my answer in essence is for 2021, yes, then hopefully starting 2022 onwards, we will obviously see the effects of the Lisbon Nearshoring initiatives to kick in on our cost line.

The next question is from the line of Brun Andreas with Crédit Suisse.

Lukas, a question on SHIP. You said SHIP makes the business more scalable, could you split the 9% in kind of real SHIP, I mean back-to-back hedging and in other contributions? And then second one on SHIP, you said that you see the highest growth to come from SHIP going forward. Is it kind of incorrect to think that one should see a steeper start at the beginning of the launch of such a platform and not a rather linear and low growth rate?

Thank you, Andreas. As you -- of course, we know the breakdown to your first questions, but there is a reason we don't show the breakdown and that has nothing to do with transparency to you. It has to do with our -- us being a [indiscernible] to what ultimate flow becomes balance sheet light. So obviously even to the entire team, which has consolidated all the efforts in the balance sheet light turnover. The bigger share of that turnover is SHIP, but I hope you understand that we don't want to go into the specific sub-disclosure because it's really irrelevant as far as we are concerned, what currency is that the client as a transaction which is not impacting the balance sheet of Leonteq. We obviously also having as a side comment, now 20 partners on the third-party issuance. We want to obviate because I have seen some flow with these partners and they would, by its nature, not have their products going through SHIP. So third-party issuance is offering this balance sheet together with this derivatives element. And therefore, it is quite critical for us that we look at all the subsections of the balance sheet light turnover being successful. So I hope, I do want to see our team deliver SHIP turnover increase, but also the turnover increase from products by third parties issuance, et cetera. On the growth question, it is probably at the beginning, slow and linear and hopefully, over time, accelerating. So it's not, as you put it, the other way around. So I would expect it more to be of hockey-stick experience than the other way around. But in all fairness, we are only at the beginning and maybe at the end, I tell, it has been linear. Hopefully, it will not be flat or no growth anymore. Why is that simply because, obviously, SHIP on day 1 is not what SHIP will be 2 years later. We are continuously expanding the underlying universe of products which can be SHIP. We are also adding as we have done in the last few months, additional hedging partners, as we told you, that will eventually be limited because we want all of the existing hedging partners to have a good experience in the business flow. But as the platform expands, as the flexibility expands, as we are also better able to understand restrictions clients might have, and as we are addressing those, I would expect volume to increase.

The next question is from the line of Schulz Michael with JMS Invest.