Leonteq AG (LEON) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the press conference call of Leonteq's Half Year 2021 Results. All presentation materials as well as the half year report can be found in the Investor Relations section of our website. In the same section, we have also published a time series excel spreadsheet and the comparison of the analyst consensus summary versus today's reported results. With me today are Chief Executive Officer, Lukas Ruflin; Deputy CEO and Chief Financial Officer, Marco Amato. We will start the presentation with an overview of the highlights of the first half of 2021. We will then discuss the financial performance of H1 2021, continued by an update on our strategy and business before closing the presentation with a summary and outlook. Presentation will last about 40 minutes, after which we are happy to take your questions. We intend to close the conference call at 11:15 a.m. It is now my pleasure to hand over to our CEO, Lukas Ruflin.

Thank you, Dominik. Dear ladies and gentlemen, dear shareholders, analysts and media representatives. Before we start today's presentation, I would like to quickly look back 3 years to mid-2018. For those of you who followed us back then, we shared with you our plans regarding the journey we were embarking on as a company. A journey to overcome certain limitations we faced and to grow and transform our business. A transformation complemented by set of strategic priorities that we would diligently execute on in the years to come. In February this year, I shared with you that the results of our efforts resulted in major strategic progress with our investments starting to bear fruit. And today, I want to start our presentation with a look at the financial and strategic highlights of the first half of 2021, which are testament to the work we have done over the past 3 years. Let's begin on Page 4 of the presentation with a look at the financial highlights of the first half of 2021. I'm happy to report that we achieved record results for the first half of the year. Results that validate investments that we have made into our platform and into our strategic initiatives over the last 3 years. And these investments are now starting to pay off. Concretely, Leonteq's total operating income increased by 99% to approximately CHF 206 million, whilst we saw an increase on the expense side to circa CHF 125 million, which overall resulted in a record net profit of approximately CHF 74 million. This compares to CHF 5.5 million in the prior half year. Our earnings per share accordingly amounted to approximately CHF 4 a share for the first half of 2021. And looking at the key -- at a few key performance indicators, depicted in the gray bubbles on the slide, the outstanding volume of platform assets increased by 9% to CHF 15.4 billion while turnover amounted to CHF 15.9 billion, which compares to the number for the prior half year and thus represents a 3% increase. As expected, our margin remained at the level of around 100 basis points, which compares to the exceptionally high margin of 129 basis points we reported in H1 2020. Additionally, our capital base, which is defined as the sum of our shareholders' equity and deferred fee income, amounted to CHF 800.2 million. With that, we have comfortably reached our capital target 6 months ahead of the initial guidance we provided to you in February of this year. On Page 5, looking at the strategic progress we achieved in the first 6 months of 2021, you can see that we continued to execute on our strategic priorities. In terms of product offering and regional expansion, we have been busy working these past 6 months with the launch and the expansion of several product operations with financial news platforms as well as with Morningstar, and we opened our Dubai office at the start of the year. On the expansion of our issuer universe, we completed a white-labeling setup with Basler Kantonalbank and Banque Internationale à Luxembourg in March and June, respectively. Since the go-live of these 2 issuers, they have already generated more than CHF 350 million in turnover with the 2 of them. And in our IWPS business line, we delivered a new partner with Glarner Kantonalbank with whom we developed a new innovative pension saving solutions, which is the first of its kind in the Swiss market. Our initiatives to drive our digital offering also reached important milestones with the launch of our new growth module on our digital marketplace, LynQs, which offers our clients a unique click and trade platform for more than 10 issuers and with the go-live of our new AMC gateway. Our sustainability initiative also yielded for us tangible results with the launch of the world's first donation certificate. Underpinning these achievements, we have also won a number of prestigious awards, including for best technological solution at SRP Europe Awards, best ESG product at the Swiss Derivative Awards. I would like to now hand over to our Deputy CEO and CFO, Marco Amato, for a more in-depth look at our financial performance.

Thank you, Lukas. All good morning and warm welcome to all participants from my side. Before I dive into the numbers, you can see on Page 7, I would like to highlight 3 key points, which I will circle back at the end of my presentation. These are, first of all, we delivered a strong fee income also on the back of a diversified revenue streams. Second, we continued to execute the disciplined risk management with regards to our trading books as well as the management of our bond portfolio. And last but not least, we continued to report a strong balance sheet, a strong liquidity and a strong capital position. Let's move into the financial performance for the first half of 2021 on Page 7. The numbers in front of you are our key income statement items. Starting with the left-hand chart, you can see that total operating income increased by 99% to approximately CHF 206 million in the first half of 2021. This strong development is primarily a result of a strong fee income of CHF 170 million and a positive net trading result of CHF 35 million. As you will recall, in the prior-year period, Leonteq reported a record fee income which was exceptionally high at CHF 213 million. But at the same time, also reported a net trading result of minus CHF 107 million, which was primarily an effect of the significant increases in hedging related costs and one-off losses on the back of the COVID-19 related market turmoil. Moving to the middle column. Total operating expenses increased by 27% to CHF 125.2 million. This reflects investments in our key strategic initiatives and increase in variable compensation on the back of the strong performance and additional one-off provisions for legal cases and legal costs. And lastly, in line with the guidance we provided in mid-June, we're reporting a record group net profit, which amounted to CHF 74.4 million for the first half 2021. Looking at the next slide on Page 8, we are putting our quarterly performance in the historic context. As you can see on this chart, our record H1 2020 result was a consequence of an exceptional first quarter 2021 and a strong second quarter in 2021. On the fee income side, we registered high levels of client activity in a favorable market environment during the first 6 months of 2021. We saw strong client demand across our entire range of innovative investment solutions and further diversified our revenue streams across products, underlyings and issuers. We also saw volumes and revenues in own issued products reach record levels. Concretely, net fee income from Leonteq products grew to CHF 86.2 million, which is an increase of 9% compared to the very strong performance in the prior-year period. Further, we generated also a notable increase in large ticket transactions. Overall, our strong performance is also reflected by a 24% increase in client transactions to a total of approximately 142,000 transactions. And a 28% increase in issued products to 20,610 products in the first half year. On the trading income side, we continued to focus on disciplined risk management and recorded positive contributions, both from our hedging activities as well as from our investment portfolio activities. Our hedging result amounted to CHF 21.2 million compared to minus CHF 99.4 million in the prior-year period. The prior-year period was primarily affected by significant increase in hedging-related costs and one-off hedging-related losses in the amount of CHF 58 million. Following the significant market disruption in 2020, we saw overall the market for exotic derivatives to price risks at different levels than prior to the pandemic. An environment which was also characterized with historical low volatility levels in the years 2018 and 2019. Now similar to the reinsurance market following significant risk events, the premiums charged by The Street increased, a factor we benefited from going into the year 2021. On the investment portfolio side, we continued to invest proceeds from our own issued products into bonds issued primarily by corporates and banks. Our investment portfolio comprises of AA-rated bonds on average. This shift -- this is a shift we introduced back in 2018 when the majority of all our investments were made solely in AAA-rated government bonds. On the back of this new investment strategy, our treasury carry amounted to CHF 14.2 million, which compares with minus approximately CHF 8 million in the prior-year period. On the cost side, you can see on Page 9 that the measured increase in cost base was driven by a couple of factors. If you look at the prior-year numbers, you must take into account that the first half of last year's reported figure also included a release in the provisions for a pending VAT case, which benefited Leonteq in the amount of CHF 4 million. That means we basically have an adjusted cost base of CHF 102.7 million that we were looking at for the figures in the prior-year period. This year, we reported a cost base of CHF 125.2 million in the first half year. There have been 4 main drivers that impacted our cost base. First, we saw a CHF 2 million cost benefit from our nearshoring initiative in Lisbon. Second, we have an additional cost increase of CHF 4.2 million for new strategic initiatives. Third, the strong H1 performance resulted in an increase in variable costs of approximately CHF 12 million, in particular in accrued variable compensation. Lastly, we also built provisions for legal cases and legal costs in the amount of CHF 8.1 million. I would also like to highlight the progress we have made on our nearshoring initiative in Lisbon, which is being implemented in a phased approach. In Phase 1, which commenced in the first half of 2020 and has since been successfully completed, we established a serviced office setup, employing a handful of external IT development personnel as well as other shared services functions. As of the end of June 2021, we have a total of 36 employees working in this serviced office setup. Phase 2 is currently a work in progress and consists of Leonteq setting up its own office and hiring up to 100 designated roles along the entire value chain. We expect to open this new office in the second half of 2021 and complete Phase 2 by the end of 2022. We expect an even bigger benefit that we already reported in the first half of 2021 through the optimization of our personnel expense cost structure from 2022 onwards. Let's now move on to Page 10. On Page 10, you will see the results of our Investment Solutions business line. On the chart, on the left-hand side, you can see that total turnover grew by 3% to CHF 15.9 billion, which was primarily driven by 26% growth in turnover from own issued products. Margins for Leonteq remained at elevated levels of 111 basis points in the first half of 2021, which compares with the exceptionally high margin of 127 basis points in the prior-year period, driven by the market turmoil and increased volatility which we have seen in the first half year of 2020. On the platform partners business, margins continued to normalize to 96 basis points compared to exceptionally high levels of 130 basis points in the first half of 2020 and compared to 104 basis points in the second half year of 2020. Looking at the fee income on the right-hand side chart, we report that for the first time in our history, Leonteq owned products contributed more than 50% to the overall segment performance. This positive development is also, in part, a result of our investment-grade rating that we obtained in 2019 and that was reaffirmed in 2020. Fee income from platform partners decreased year-over-year by 35% to CHF 78.1 million, but increased by 35% if compared to the second half year of 2020. Within our Insurance & Wealth Planning Solutions, the IWPS business line, which you see on Page 11, you can see that number of outstanding unit-linked products continued to increase, albeit somewhat at a lower pace with an increase of 2% -- with a 2% increase to 52,500 policies from the end of 2020 to the end of June 2021. The segment income, which you see depicted on the right-hand side, amounted to CHF 8.8 million compared to CHF 24.7 million in the first half and compared to the same figures in the second half of 2020. We have identified 3 drivers for this development. First, as Leonteq depends on the external distribution channels of its insurance partners and insurance brokers, communication and in-person meetings with potential end clients have been severely impacted by the COVID-19 pandemic, also affecting our fee income development. The second driver for the significant drop is due to one-off revenues that we reported in the context of the first half year 2020, totaling CHF 6.1 million, which reflects the effects of the changes in future service obligations. Third and most importantly, the segment income was significantly impacted by the low long-term interest rate environment in 2020 and 2021. As the below zero trend did break in early 2021, we remain confident that in the course of the second half of this year, pricing attractiveness for products from our white-labeling issuance partners is expected to improve. Let's now continue on Page 12 with a look at Leonteq's capital base. Over the past years, Leonteq has built up a strong shareholders' equity. Looking at the left chart, you can see that our shareholders' equity increased from CHF 647.5 million at the end of 2020 to CHF 721.4 million at the end of June 2021. Then looking at the chart on the right, you see that we report a slight increase also in our deferred fee income to approximately CHF 79 million as of the end of June 2021. Aggregating shareholders' equity and deferred income together, we reported a strong capital base totaling CHF 103 million at the end of June 2021. We have thus reached our capital base target in the area of CHF 800 million 6 months ahead of the guidance we provided with our full year 2020 results. Now before I conclude, I would just reiterate the 3 points I made in the beginning, reiterating that we had seen -- we have seen, in the first half year 2021, a very strong fee income on our top line. We have continued to execute a very diligent risk management approach with regards to our investment portfolio as well as our trading books. And we see a strong balance sheet, a strong liquidity position as well as a strong capital position, as just mentioned. With that, I hand over back to you, Lukas.

Thank you, Marco. As mentioned in the beginning of this presentation, today's results are a validation of our focused execution of our strategy and of the priorities assigned 3 years ago and the corroboration of those investments. In the next few slides, I want to take into account this 3-year history and will refer to the situation I faced when I started as CEO of Leonteq in 2018 compared to the situation today. Looking at Slide 14. The business dynamics for Leonteq have fundamentally changed over the last 3 years. At the end of June 2018, we were in a pre-pandemic environment with significant margin pressure in the structured products market. There were first trends towards digitization and environment was characterized by low interest rates, the historically low volatility environment. Our white-labeling platform was focused on a B2B offering only. Furthermore, Leonteq had just exited the restructuring phase, was an unrated company, reported a total operating income of CHF 136 million for the first half of 2018, the capital base of CHF 515 million. Now 3 years later, the environment has significantly changed. We are looking at the new world post-pandemic, which affects all aspects of our life. There is less pressure on margins following the significant market turmoil from spring 2020. There is an acceleration in digitalization, a change in end investor behavior and more normalized volatility levels. Leonteq has gained significant momentum following the last 3 years' investment phase. We have also moved from a B2B model only to a 3-way white-labeling platform and are now offering white-label services in the area of business-to-business; business-to-business for consumer, B2B4C; and newly a direct-to-consumer model or D2C with our pioneering innovation in the retirement savings market in Switzerland. We just announced record revenues of CHF 206 million in the first half of 2021. And we have significantly strengthened our capital base, which now amounts to around CHF 800 million. This in mind, I can confidently confirm that Leonteq is stronger than ever. In the same period, we have undertaken significant transformative work, which starts to show tangible results. Let me elaborate on this point on the next page. On Page 15, I want to underscore my assessment by showing you how our initiatives have measurably improved our business diversification revenues since 2018. Let's start with our balance sheet light business. Today, balance sheet light turnover, which includes turnover generated by SHIP, third-party issuance and brokerage is contributing 9% to the group's overall turnover. From an issuer perspective, Leonteq and its new issuers, i.e., excluding the 2 largest historic white-labeling issuers on our platform, has improved their turnover contribution to total turnover over the last 3 years from 40% to 61%. Our new offices we established during the last 3 years in Japan, Italy and Dubai have generated revenues of CHF 22 million in this half year alone, up from CHF 14 million in H1 2018. We obviously did not yet have physical offices back then in these markets, but we were covering the markets from other location, and that's the comparison we are showing to you. Our asset management-like business, which comprises revenues from AMCs and tracker certificates generated CHF 31 million in revenues in H1 2021, up from CHF 18 million in H1 2018. This business is more akin to a recurrent revenue stream and today represents approximately 18% of the group's revenues. Leonteq has also been one of the first innovators in the cryptocurrency area with our innovative structured products offering with -- on a Bitcoin certificate and first short tracker certificate on Bitcoin as early as back in 2017. Since these initial products, we have continuously expanded our offering and recorded CHF 9 million in revenues from this recently evolving asset class, up from CHF 1 million 3 years ago. Finally, we significantly expanded our funds derivatives business offering existing and new clients downside protection, upside potential, operator investment flexibility while keeping their exposure to their underlying fund exposure. In this context, we also announced last year a collaboration with BlackRock. As a result, we are diversifying our business both in terms of product offering and client franchise. The business recorded an eightfold increase in revenues to CHF 21 million for the first half 2021. If you turn now to Slide 16, I would like to make an additional point about our journey besides delivering on our strategy and improving the quality and diversification of our business. In addition to this, we have also continued to invest significantly in our technology platform with the view to be able to exponentially digest more volume going forward. On the left-hand side of the slide, you can see the number of transactions developing over the last 3 years, compared to costs in the Investment Solutions business line and head count figures. Concretely, number of transactions increased by approximately 140% in this period, whilst costs and head count increased by close to 20%. We achieved this operating leverage through a number of factors that have also driven our improved scalability. First, we focused vigorously on the automation of processes across the entire value chain. This is evidenced by the improvement of our straight-through-process rate to 63% in the first half of 2021 compared to 50% in the first half of '18. Maybe for you to understand this better, straight-through-process means that the defined product goes through its entire life cycle from the setup of issuance through to all relevant systems and bookings automatically without any human intervention. Also, in order to grow and scale in the future, we partnered with Google Cloud last year to enhance the flexibility of our infrastructure capacity. And lastly, on the back of our nearshoring initiative, and also as mentioned by Marco before, we expect to further invest in talents whilst keeping costs under control as our business continues to expand. Now let's move on to Page 17. I would like to put our past 3-year investment cycle in the context of Leonteq's journey towards a scalable business model across technology, issuance, content, hedging and distribution. From the very beginning of its existence, Leonteq developed its business model focusing on a scalable platform with automation enabling very rapid and low-cost issuance. We also were able to scale on the issuance side, thanks to our B2B white-labeling investment and savings solution platforms and the collaborations we have built with partner banks and insurance companies. In 2018, we started to strengthen our ecosystem by partnering with industry-leading experts in the field of asset management, technology, education and news services. 2018, we also -- in 2019, we also started focusing on our capabilities to scale on the hedging and balance sheet light side by launching SHIP as well as expanding our third-party issuer universe. Since this year, we are focusing on scaled distribution through our digital marketplace, LynQs. This distribution offering extends to private banks and asset managers alike and aims to integrate LynQs into their own wealth management activities. By using our platform, our clients and partners will get access to a fully white-labeled marketplace in their own corporate branding and corporate identity. This is a unique offering that highlights our B2B4C business model. And I'm very happy to report that we have already onboarded 44 counterparties onto our platform under this white-labeling format within a matter of only a few weeks. In due course, we also expect to have the direct-to-consumer model ready in collaboration with Glarner Kantonalbank, where we intend to offer innovative solution in the Pillar 3 market in Switzerland. The Pillar 3 market in Switzerland is a particularly attractive market with a size of CHF 125 billion in AUM, which is attracting additionally around CHF 10 billion of new pension contributions per year. With that journey highlight out for you, we have built our ecosystem over the past year, which you can see now on Page 18. From our white-labeling partners on the left side to our 21 third-party issuers just below that. Directly across, we have listed our main client types of whom we have more than 1,000 that we intake with on a regular basis. On the bottom right, we have shown our 7 SHIP hedging counterparties. Our content, product and technology enhancers where we work with different experts from the various industries and disciplines in the pursuit of delivering high-quality solutions to our clients are shown on the right-hand side in the middle. These are then complemented by our digital solutions and connectivity, where we have our award-winning digital marketplace and stock exchanges access among others. Moving on to Page 19. We believe that the investments we have made into our talents and platform provides a solid basis for continued profitable growth in our business. It is also a solid foundation for Leonteq to scale further across the following 5 dimensions going forward. First, we will be focusing on expanding the product offering by further building out AMCs, systematic indices, quantitative investment strategies as well as our offering of products with cryptocurrencies as underlined. Second, we plan to build-out our existing white-labeling setup and continue to onboard new white-label issuers. Third, looking at our digital marketplace, LynQs, we will build on the strong momentum we have seen recently with clients in onboarding them to our new white-label format and plan to integrate the AMC gateway on to LynQs. Fourth, with our new savings solution offering, we plan to untap the Pillar 3a market in Switzerland as a starting point. Fifth and last, with the ambition to become a leading ESG provider, we are committed towards our clients and partners innovative solutions in the area of responsible investing. As I close today's press conference, I would like to leave with you some key points which can be found summarized on Page 21. Leonteq achieved record results in the first half of 2021. This is a result of the favorable market environment and good client demand but also validation of our strategy, which resulted in an exceptional Q1 and a strong Q2 2021 performance. We reached our target capital base ahead of schedule and are strongly capitalized. We continued to diversify our business through products, issuers and underlyings and we have improved the quality of our revenues. Also, we further innovated our digital offering for our partners and clients and expanded our ecosystem for investment solutions. In terms of outlook, the post-pandemic environment brought with it some changes and trends that affect end investors' behavior globally, and it also spur the change in digitization and online connectivity. These changes have accelerated Leonteq's opportunity for growth in terms of product distribution and white-labeling offerings, and we intend to capitalize on the strong business momentum from the first half of this year by increasing our annual investments in existing and new growth initiatives while continuing to safeguard our profitability. At the same time, we are remaining mindful of the potential challenges given the current market environment and expect our performance to normalize in the second half of the year. We are targeting group net profit of more than CHF 100 million for the full year 2021. We are also reaffirming our dividend policy, which we communicated to you with our full year 2020 results in February of this year, namely, we expect to propose a shareholder distribution of more than CHF 0.75 per share for the financial year 2021. From the financial year 2022 onwards, we intend to move to a progressive dividend policy with a payout ratio of more than 50% of net profit. In closing, Leonteq has demonstrated that the diligent and focused execution of our strategy over the past 3 years is starting to yield attractive investment returns. We will continue to scale our business, expand our product offering and use issuer universe and accelerate our digital solutions. We are acting from a position of strength and are investing in our business to seize the opportunities emerging in the changed operating environment, and we are well positioned to deliver future growth. Thank you very much for your attention.

We are happy to take now the questions.

The first question comes from the line of Daniel Regli from Octavian.

I mean congratulations to the strong set of results. I mean I have a lot of questions, stop me if I'm getting too long. Maybe the first 2 questions. I mean we probably all wonder about which part of the strong results we have seen in H1 is kind of sustainable. Can I maybe ask you therefore to color a bit the picture around fee income, particularly with regards to, let's say, monthly distribution of fee income during H1? Was there any kind of concentration to certain months? And then also maybe regarding the margin development, what do you expect in terms of margin for H2, respectively? And how far have you seen the margin pressure picking up, again, towards the end of H1 '21? Then maybe second on trading income. Obviously, we have seen the treasury carry picking up from, let's say, around CHF 2 million to CHF 5 million negative per half year to now plus CHF 14 million. I expect this is not sustainable at these levels, but what is your expectation going forward with regards to the treasury carry given that you have changed your investment portfolio a bit? And then obviously -- the obvious question on dividend, apologies for this, and I know the dividend is finally decided by the Board. But still, I mean you paid out 35% in 2020. You guide for more than 50% in 2022. 2021 is said to be a transition. Now as you have achieved your capital target earlier, I would assume that the payout ratio would be rather towards 50% rather than 35% in 2021. Can you maybe comment on this? And then maybe fourth on balance sheet light turnover, even though it has increased a bit to 9.4% in H1, it did not improve as much as I, maybe, expected compared to H2 '20 where it was 9.2%. Can you maybe elaborate a bit on why it has not edged up more? And what is your expectation in the near term there? Respectively, what are your points of actions you could take? And -- yes, maybe I'll stop here. I would have more questions, maybe I'll come back later.

Thanks a lot, Daniel. Thanks for the questions. And I'm more than happy to take them. I'll probably start with the first 2, and then I'll hand over to Lukas for the dividend and balance sheet light questions 3 and 4. So to start off with the first question on fee income. You will appreciate that we don't give guidance or transparency on the fee income on a weekly basis or a monthly basis. But from our presentation on Page 26, you will see the weekly economic revenues, which include, obviously, the fee income as well as the trading result. We have also provided some guidance that the -- on the trading side, we had a rather strong Q1. So most of the trading results, profits were generated in Q1. As a consequence, you can also a little bit elaborate that we had a good client activity throughout first half year 2021. Hopefully, that helps in terms of understanding that. But it's definitely not the same picture as we had in the first half year 2020, where most of the fee income was generated throughout March and April. Then I think the second question on the treasury carry. You're right, we have -- we had a positive result of CHF 14.2 million positive treasury carry in the first half year 2021. I think that's a consequence of our changed investment strategy, which we communicated in 2018. And obviously, that's also changed from investing into government bonds and starting to invest more into corporate and banks. And also, our average rating came down from AAA to AA. And that's, obviously, some of the consequences that we also benefited in terms of the first half year 2021. I think going forward, we expect the treasury carry to be breakeven or slightly positive. That's some sort of guidance that we would expect. And obviously, there is some volatility in those numbers as well. But I think the first half year 2021 was certainly somehow also exceptional in terms of profit from the treasury carry. And just probably the last question you might have on the margin outlook, we had communicated after the first half year and also with the full year results 2020 that we would expect some margin compression to come back as we had it in 2018 and 2019. I would still expect margins to slightly come down compared to what we have seen now in the first half year 2021. But obviously, that depends on a number of factors and also external factors which we cannot influence. I thought it's very difficult to really guide the margins. But I would be not surprised if the margins would compress still a little bit from the current levels we have seen in the first half year.

Good morning, Daniel. I guess you gave the answer yourself on the dividend, which is that it's really ultimately a Board proposal and the Board will, obviously, take into account the full year 2021 results when the time comes. They'll take into our -- account our then prevailing capital bases and the overall outlook for the firm and will make a proposal to the AGM next year. So it's a bit premature discussion. But what I can, nevertheless, say about this more detailed is that first, as you are aware, our capital target was reached CHF 800 million area. We have delivered well ahead of this -- ahead on schedule. Now revising a dividend policy, which we just announced in February, a couple of months later is not very meaningful. And in our particular case, it's also not sensible because by doing so along the lines of what you suggested, we would now short term, obviously, fall again below the CHF 800 million. So simply put, we will look at this when the time comes. Our Board of Directors will do so. They will make a proposal to our shareholders. What I can clearly say is that the strong our earnings capacity and the higher our absolute capital base is, the more the likelihood that we can positively communicate on the dividend side. But again, it's premature to go into further details at this stage. Your second question was on the balance sheet light turnover contribution. In absolute terms, and that's important to note, our balance sheet light turnover has increased by 26% to approximately CHF 1.5 billion year-on-year, which I believe is a clear success, and then evidence that the SHIP platform, among others, works well. In relative terms, I do acknowledge that the development is a bit weaker. But I think it's very important you keep in mind that some of our new business initiatives, in particular, are not covered by SHIP. So AMC, for example, fund derivatives or the crypto business would not be covered by SHIP. And of course, as those initiatives show strong progress, the relative number looks a bit weaker than it would otherwise. But as you can well understand, I'm very happy about that reality, I wouldn't want it to be different. Now we will continue to focus on growing the total balance sheet light turnover, of course. And accordingly, I would also expect a relative contribution to increase in the reporting periods ahead of us.

Okay. Can I maybe ask for 2 quick follow-ups? Maybe just 1 comment. In my definition, it wouldn't be a change of your existing dividend policy, if you would go to, let's say, 49%, which would still lie between the 35% you paid out in 2020 and the 50% you guide for 2022. And then secondly, maybe, can you quickly comment on the question about the low-margin business? You have obviously reduced in H2 2020. Given the current margins we are seeing, it has not picked up or you did not decide to reengage in this low-margin business. Is there any idea or plan going forward about this?

Yes. Well, first, again, on the dividend question. I think it's very important you read very carefully what we have said. We have said that the 2021 dividend will be higher than CHF 0.75. We didn't say more than that, but the higher means any number, which is higher than that figure. Now on the high-turnover, low-margin business, we have very selectively started again engaging there, but not to an extent that you would see it very visible in the numbers. So it's something, as I said in February, which we evaluate literally on a daily basis and we might also change this on a very short-term basis. So it's a bit difficult to guide because we are not just driven by our own considerations, but obviously also by client's expectations. We are here every day to support our clients and to the extent we can help them also on high-turnover, low-margin business. And it's important for them that we are there, then we will certainly look at this again. And therefore, it's a difficult number to use as a guidance because it's something we decide very ad hoc.

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

Just 1 question from my side. Could you give some more color on the legal costs because that's a figure or an issue which I was not aware?

Yes. Thanks, Andreas. And just to highlight, we have made it very clear that we have additional provisions of CHF 8.1 million that were built in the first half year, and you appreciate that the Leonteq's involved in legal proceedings and litigation that arise also in the normal course of the business, and such proceedings and litigation are subject to many uncertainties. And the outcome is often difficult to predict, particularly in the early stage of a case. We are not disclosing for each provision and for each legal case, but we have communicated that we have built these provisions totaling CHF 8.1 million, which is definitely more than 1 case. And we have also explicitly mentioned the ongoing case with Quilter, that's formerly known as the Old Mutual International, OMI case. In the notes -- in the interim consolidated financial statements, you will find that in Note 13. But you appreciate that we cannot comment on the case beyond this disclosure.

The next question comes from the line of Michael Kunz from ZKB.

One straightforward question. Could you give some color on how much you get distributed through third-party distribution channels as opposed to your own sales force?

Thanks, Mr. Kunz. Marco on the call. Thanks for the question. As you appreciate, we have not given that transparency anymore. We have stopped it, but we have given clear transparency on what's the amount of turnover generated with the partner business as well as with the Leonteq business, and also with the fee income generated out of the own business compared to the partner business.

The next question is a follow-up question from Daniel Regli from Octavian.

Maybe quickly coming back to the costs. And also regarding this provisions for legal cases, this CHF 8.1 million you have provisioned in H1. And I am aware you cannot provide any details on which cases you have provisioned, but was there any kind of, let's say, general provision included in this? Or was this all on specific cases you have running? And maybe secondly, on the strategic initiatives' point, which of the strategic initiative, this CHF 4.2 million you paid for strategic initiatives, let's say, you would have planned anyways. And how much did you prepone because you had kind of a strong top line and did you have the flexibility to invest more?

Okay. Thanks, Daniel. I'll take the first question regarding the provisions. The provisions of CHF 8.1 million, obviously, relates to specific cases. So there are no general provisions, which we are not allowed to make under IFRS. So we have, obviously, came up with the CHF 8.1 million, which are specific provisions for specific cases.

But it's maybe important to understand provisions could also be made, for example, for legal costs in order to defend cases. So it is not linear -- it's not possible for you to linearly deduct what, for example, the provisions are built. We have very clear accounting guidelines in this regard, Daniel. So we could, as Marco said, not, for example, build a general provision for the sake of it. On the strategic initiatives, the way we invest is that we very carefully assess an opportunity that we very diligently consider whether the opportunity fits within our wider strategic set. I think you can see that, well, if you look at the progress we have made in the last 3 years. We went from the very beginning about building out an ecosystem. And therefore, we would never decide on a new bigger investment ad hoc. What you can assume is that we have decided on additional investment cases in the first half year, that is implied when we say that we will take advantage of the good business momentum and want to further grow. The effective expenditure relating to such investments would, however, only come through then in the subsequent periods because, obviously, the way we invest is, we usually hire technology people, we develop technology tools, we hire additional knowledge carriers. So it's very much a people-driven business. And of course, from an investment decision to then starting a new initiative, we have to go through recruiting processes, which will take time. So the additional money shown is not per se in new initiatives which we wouldn't have talked about in the previous reporting periods.

Okay. I mean I didn't want to say that you have started new initiatives. So let's say, thrown out the money out of the window now given you have the opportunity, but I just wanted to kind of find out which part of this increase in costs we have seen was based on management decisions to maybe soften a bit the P&L swings on the bottom line.

Look, we are again under IFRS accounting standards and also -- and our duty is to run this firm in a fiduciary manner. We wouldn't make any such decisions based on such considerations.

The next question comes from the line of Reto Huber from Research Partners.

And also congrats from my side for your stunning results. I have 1 question, which again relates to the margin. On Slide 14, you're describing the market environment and compared the current situation to 2018. And you're saying there that in 2018, in the environment, you experienced margin pressure. And now there's less competition on the margin 3 years later. Could you maybe describe what happened during these 3 years that -- which would explain why you now have less competitional margins?

Yes. Thanks, Reto. Thanks for the question. I think if you compare 2018 and 2019 with 2020 and then also the first half year 2021, we had a significant lower volatility in markets in 2018 and 2019. This also explains why there was quite a significant margin pressure, which we also anticipated as part of our guidance at that time. And then what happened, obviously, in 2020 with the COVID-19 pandemic was a spike in volatility which also led to a margin increase, especially in the first half year, but then we saw a continued high margin also in the second half year. And now it's somehow returning to a normalized level, even though still higher than what we have seen in 2018 and '19. And one of the reasons which we highlighted is still the volatility, which is slightly higher than what we had seen in 2018 and 2019. And I think the second element is, obviously, which you also have to consider and depreciate is that in the first half year 2020, on the back of the trading losses we had but also other similar institutions faced, there was a general change in the margins for structured products. So the margins generally increased, the risk appetite declined. And as such, also the margins generally increased in the structured product business, but also in similar other businesses. And we're obviously seeing this risk appetite still not being at the same level as 2018 and 2019. And hence, I think it's a logic consequence to also see the margin still at slightly higher levels in '18 and '19.

Okay. So it's more explained by the market cyclicality and less something structural than what's going on in the market?

I would say so because I think we see similar trends also with other market participants.

Okay. Great. Thanks, everybody, for the questions. I think we're done. Thank you, all, for attending today's press conference call. We wish you all a good day.

Thank you, all, very much. Looking forward to seeing some of you in person or talking to you by video call shortly. Thank you very much.

Thank you.