Leonteq AG (LEON) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the press conference call of Leonteq's full year 2021 results. All presentation materials can be found in the IR section of our website. There we also published the annual report 2021, which includes our inaugural sustainability report. And we have also provided a comparison of the analyst consensus summary versus our actual reported results. Here with me today are Chief Executive Officer Lukas Ruflin and Deputy CEO and CFO Marco Amato. We will start the presentation with an overview of the highlights of 2021. We will then discuss the financial performance of the year, continued by a review of our strategic plan from 2018 and the presentation of our Growth Strategy 2026, before closing the presentation with a summary. The presentation will last about 50 minutes, after which we are happy to take the questions -- take your questions. We intend to close the conference call at around 11:20 a.m. So it's now my pleasure to hand over to our CEO, Lukas Ruflin.

Thank you, Dominik. Dear ladies and gentlemen, dear shareholders, analysts and media representatives, I would like to start this presentation by stating that 2021 was a record year for Leonteq. Our record results demonstrated the effectiveness of key initiatives that we have made over the past years and that you will hear more about throughout our presentation today, beginning now on Page 4 of the slide deck. I'm happy to report record results for 2021. We achieved the total operating income of CHF 418 million, up 78% year-on-year. And our total operating expenses amounted to CHF 255.6 million, which were primarily affected by performance-driven variable costs. The combination of strong top line growth with moderate cost growth went straight to the bottom line. Our group net profit tripled to CHF 156 million. And our earnings per share amounted to close to CHF 8.50 in 2021. In line with our plans to transition to a progressive dividend policy and on the back of these strong results, the Board of Directors will propose to our shareholders a distribution of CHF 3 per share, which is an increase of 300% compared to the prior financial period. And looking at a few key performance indicators depicted in the gray bubbles on the slide. Our turnover and platform assets also saw decent growth to CHF 29 billion and CHF 16 billion, respectively, both driven by record growth in our own issued products. Margin came in at a solid level of 102 basis points, which compares to the exceptional high level of 180 (sic) [ 118 ] basis points in 2020. Additionally, our already strong capital base increased further by 21% to CHF 874 million. And we posted a strong return on our shareholders' equity of 21%. These record results validate our focused execution over the past years, which is also visible in terms of business mix and improved earnings quality. If we now look on Page 5, you can see that we have recorded growth throughout our platform. We issued 42,000 products, which is up 29% year-on-year. Our client transactions increased by 28% to more than 264,000. Our turnover with new partners, excluding our historic partnerships with EFG and Raiffeisen, increased by 73% to CHF 3.8 billion. In terms of own issued products, Leonteq's volumes and revenues reached record levels. We generated a 34% increase in turnover from our balance sheet-light business to CHF 2.6 billion in '21 and recorded a [ sevenfold ] increase in revenues to CHF 28 million with fund derivatives. In addition, revenues from crypto assets as underlyings grew to CHF 17.4 million, '21, a sixfold increase compared to the previous year. And our asset management-like business rose by 59% to close to CHF 58 million. This impressive growth is also visible on a longer time horizon. Looking at our quarterly economic revenue chart on Page 6, you can see that we have had a solid track record of revenue growth since inception around 15 years ago. Our average quarterly earnings have increased by 24% annually compared to 2008, and I believe this graph speaks for itself. With these results and the strategic progress achieved following our 2018 to '21 investment phase, Leonteq is now entering a new 5-year strategy cycle, which you can see on Page 7. In essence, we are executing a growth strategy based on 4 dimensions. Firstly, we are expanding and diversifying our offering across product, asset classes and issuers. Secondly, we are investing in our digital client solutions leveraging on Leonteq's scalable technology platform. Thirdly, we continue to focus on our strong home market position in Switzerland and will expand our offering across regions to an informational client base. And fourthly, sustainability is important, and we are further going to integrate ESG aspects into all levels of our business activities and product offering. With these 4 dimensions which are closely connected to one and another, we are also committing to a set of 2026 targets and aim to achieve total operating income of CHF 450 million to CHF 500 million and a return on equity of more than 15% by 2026. I will elaborate more on this strategy shortly, but before I do that, I want to pause and hand over to Marco Amato for the discussion of our '21 financial performance.

Thank you, Lukas. Also good morning and warm welcome to all participants, from my side. I would like to begin by highlighting 3 important points which I also will discuss throughout my presentation. First of all, as mentioned by Lukas, Leonteq has in particular over the last 12 to 18 months diversified its business and significantly enhanced earnings quality. Second important point is we have managed to increase profitability by strengthening our market position and enhancing our digital ecosystem. And last but not least, we have reached ahead of plan our capital target. And we'll continue to run a strong capitalized business whilst committing to ambitious returns on capital for our shareholders. With that in mind, let's move into Leonteq's financial performance for the full year 2021, and this begins on Page 9. Looking at our financial results. We reported 78% growth in our total operating income to CHF 418 million, reflecting strong fee income and a positive net trading result. Moving to the middle column: Total operating expenses also rose to CHF 256 million compared to CHF 198 million in 2020. This was due to an increase in planned investments into our strategic initiatives, a performance-driven increase in variable costs and provisions for legal cases and taxes. And lastly, in line with the guidance that we provided back in November 2021, our group net profit reached a record level of CHF 156 million, which compares to CHF 40 million in the prior year. Let's look now a bit more closely at the drivers for our strong top line development on Page 10. 2021 was characterized by a benign market environment with generally positive equity markets, the absence of significant across-asset market shocks and attractive volatility levels overall. Against this backdrop, we recorded strong growth in each quarter of 2021 compared to the respective quarters of 2020. You can see here that even the best quarter of 2020 was only as good as our lowest quarter in 2021. Looking at the composition of our top line. Leonteq generated strong net fee income of CHF 306.7 million in 2021 resulting from high levels of client activity across the full range of investment solutions. There was also a further diversification of revenue streams across products, underlyings and issuers. And volumes and revenues in own issued products reached record levels. The strong fee income performance compares to the exceptionally strong result of CHF 334.6 million in 2020, reflecting COVID-19-related market development. At the same time, we continued to focus on disciplined risk management and recorded a positive net trading result of CHF 112.4 million in 2021. This was driven primarily by substantial positive contributions from hedging activities in the amount of CHF 88.5 million. In addition, the strict investment policy and treasury framework resulted in positive contribution from these activities totaling CHF 23.9 million. On the back of this record growth on our top line, we also saw our costs increase mainly due to 3 reasons. On Page 11, you see that we reported total operating expenses of CHF 256 million in 2021 compared to CHF 198 million in the previous year. This increase was mainly driven by an increase in performance-driven variable costs as well as provisions for legal cases and provisions for income taxes. I would like to note here that Leonteq continued to significantly invest in growth initiatives in 2021, and we continue to attract new talent. I am also pleased to report that we have delivered on our nearshoring initiative in Lisbon. We have now a fully operational office with around 40 employees working across the full range of our shared service functions. The benefits of this initiative amounted to approximately CHF 4 million, so excluding performance-driven costs and the additional provisions built, our cost base increased only slightly year-on-year. Let's now look at the performance of the Investment Solutions business line on Page 12. In recent years, Leonteq has become the single largest issuer on its platform for investment solutions based on the issuance of its own products. Demonstrating Leonteq's position as an established counterparty and the positive impact of its investment-grade rating, platform assets in Leonteq's owned products grew to CHF 6.3 billion as of the end of the year 2021. This is an increase of 29% compared to the end of 2020. This trend is also underpinned by an increase in turnover in own issued products by 27% to CHF 14.7 billion in 2021. Margins for Leonteq products remained high at 108 basis points compared to 116 basis points in the previous year. The outstanding volumes of products issued by our platform partners increased by 5% to CHF 9.7 billion at the end of 2021. Turnover generated with platform partners decreased to CHF 14.2 billion in 2021 from CHF 14.8 billion in the previous year. Margins continued to normalize, returning to 96 basis points from the exceptionally high levels of 120 basis points seen back in 2020. If we move now to Page 13. The Insurance & Wealth Planning Solutions business line continued to be impacted by the challenging long-term interest rate environment as well as pandemic-related effects which affected the in-person sales activities of third-party distribution channels. Net fee income decreased by 45% to CHF 11.9 million in 2021, while outstanding policies serviced on the platform increased by 3% to 53,000 at the end of 2021. In early 2022, we decided to rename our Insurance & Wealth Planning Solutions business Pension Savings and to integrate client-facing functions into the Investment Solutions business line. By combining these 2 areas, we want to further streamline our operations and expect to gain additional synergies to further reduce functional overlaps and clarify roles and responsibilities. I would like to clarify that our long-term commitment to the Pension Savings business will be maintained and platform investments will continue. Additionally, we are still working on the go-live of our cooperation with Glarner Kantonalbank. The launch of our innovative product concept for the retirement savings market in Switzerland is expected to be launched in the course of 2022. Therefore, our financial statements will comprise, going forward, one single reportable segment. This is also in line with our strategy and business model. Let's now continue on to Page 14 to look at our solid balance sheet. Our balance sheet is driven by 2 factors. First, we issue Leonteq own structured products, which are recognized on the liability side. To hedge these liabilities, we invest approximately half of the proceeds from own issuance into high-quality investment portfolio and the other half into hedging positions such as equities or indices or derivatives. Likewise, as a result of the issuance partner business, we mostly hedge for our partners their structured product exposure by purchasing into either the underlying securities of the products or options. We reported a growth of 16% in total assets to CHF 14.4 billion, which was driven by the already mentioned record growth in own issued products. Our AA-rated investment portfolio amounted to CHF 2.3 billion at the end of 2021. And we have string -- and we have strong liquidity position with more than CHF 2 billion in excess liquidity and a strong shareholders' equity amounting to approximately CHF 800 million. As communicated on the 2nd of February 2022, these factors, together with our solid position as a recognized counterparty for structured products, combined with our investment-grade rating from Fitch, allowed us to cancel all OTC [indiscernible] guarantees provided by Raiffeisen to various counterparties. It also enabled us to continuously reduce and eventually terminate the unsecured credit facility from Raiffeisen ahead of the agreed date. Now looking ahead, we are considering issuing an inaugural public bond in due course. This will further strengthen our already strong capital and liquidity position and further diversify our funding sources. As mentioned, our solid balance sheet is underpinned by a strong capital base, which we illustrate on Page 15. We define the capital base as the aggregate amount of shareholders' equity and deferred fee income. In 2021, we increased our already strong capital base from CHF 648 million to CHF 874 million, primarily driven by the record group net profit generated in 2021. Let's now move to Page 16 to see how our capital base is a factor when determining distribution to our shareholders and how we are consistently delivering on the communicated dividend policies. Back in 2018, we did not pay any dividends on the back of executing a rights issue and a communicated ambition to further strengthen our capital base. In 2019, we started a new phase of conservative dividend policy, which continued into 2020. Now already, back in June 2021, we reached our communicated target of CHF 800 million already. And we are now continuing on our path towards a progressive dividend policy. This year, at the general meeting on the 31st of March 2022, the Board of Directors will propose a shareholder distribution of CHF 3 per share for the financial year 2021. This corresponds to a 300% increase compared to CHF 0.75 per share for 2020. The proposed distribution to shareholders for 2021 represents a payout ratio of 36% of net profits, which is to be paid in equal amounts out of retained earnings and capital contribution reserves. As we have previously announced, Leonteq is transitioning towards a progressive dividend policy. And we expect to pay out more than 50% of net profits from the financial year 2022 onwards. This underscores our confidence in the company's ability to generate attractive and sustainable returns over time. With that, I conclude my section. And I hand back over to you, Lukas.

Thank you, Marco. Throughout 2021, Leonteq continued to make significant strategic progress in implementing the priorities defined in mid-2018 to increase scalability, drive growth and enhance investment experience. Looking now at Page 18, you can see that we have successfully executed on the strategic plan we defined in 2018. Our first priority was to reduce our hedging exposures through the launch of our so-called balance sheet-light business model. Here we successfully implemented SHIP, a unique platform which allows for the automated pricing and execution of both the bond and the option components from third-party providers. Today, 7 leading investment banks are connected to the platform, of which 6 are [ actively quoting ] and executing trades. In addition, we also expanded the universe of third-party issuers to a total of 25 providers. As a result of this, our balance sheet-light turnover amounted to [ CHF 2.3 billion ] in '21. We also took targeted steps to grow our business through investments in innovation and technology. We delivered and launched our digital marketplace LynQs, our AMC Gateway for asset managers; onboarded 4 new partners; launched new content and technology partnerships; extended our product offering; [ the opened ] offices in Milan, Dubai and Lisbon. These targeted measures contributed to an overall net fee income of more than CHF 300 million in 2021. We also said that we would strengthen our capital base to facilitate and support the continued growth in our business volumes. We did this and have now a strong capital base of CHF 874 million. Back in '18, we finally set financial targets to grow our total operating income and cost-income ratio to CHF 300 million and less than 70%, respectively. Due to the COVID-related market moves, we did not deliver this in the year 2020 as originally planned. However, now 1 year behind schedule, we significantly exceeds those targets [ safely ]. On Page 19, I would like to look more closely at the short-term priorities we communicated to you 1 year ago. On the partners side, we continue to further expand and streamline our B2B white labeling model, enabling and enhancing the structured product capabilities of our issuance partners. After intensive development and implementation work, Basler Kantonalbank joined Leonteq's multi-issuer platform in March '21 for the distribution of its products in Switzerland. Banque Internationale à Luxembourg joined our multi-issuer platform in June '21. These products are available for distribution in more than 30 markets across EMEA and in selected APAC countries. Additionally, the start of '22, we signed new cooperation agreements with VP Bank and Swissquote, January; and extended our cooperation agreement with Raiffeisen Switzerland until 2030, recently. We also further developed LynQs, Leonteq's one-stop shop for structured products which forms one of the cornerstones of Leonteq's strategy. In '21, we launched our third LynQs module, Quote, offering investors a fully automated click-and-trade platform. We, by now, have onboarded more than 100 clients and partners under a new innovative white labels platform format. We also launched a fourth module in LynQs in '21 already, the newly redesigned AMC Gateway integrated into LynQs. We additionally made further progress in broadening our product offering in '21. We significantly expanded our funds derivatives business, offering existing client segments downside protection, upside potential or greater investment flexibility while keeping their exposure to the underlying funds. Further, we continued to build out our market-leading position for crypto assets in a securitized format by launching tracker certificates on a total of 25 single crypto assets; and expanded our offering in Germany, Austria and Switzerland. We also introduced the first thematic crypto basket tracked on themes such as decentralized finance, smart contract platforms and data; just recently launched a broadly diversified crypto market index. Leonteq is, as a result, giving investors easy, convenient and secure access to growing trends in the crypto asset space. Additionally, as part of our sustainability initiatives, we are issuing our first sustainability report, which forms an integrated part of the annual report 2021. Prepared in accordance with international standards of the Global Reporting Initiative, we've identified 13 material topics that we are focusing and reporting on in the context of responsible investing and environmental, social and governance aspects. We consider continued and increased sustainability efforts in these areas to be an important driver of Leonteq's long-term development, so our sustainability strategy aims to contribute to this sustainable development as well as to our ambition of becoming a leading ESG provider for structured products. I invite you to consult our annual report, which we published today, and then particularly read through the relevant ESG-related reportings. The strategic progress I've mentioned has resulted in the build-out and the establishment of our ecosystem as well as the strengthening of our market position as a leading fintech platform for structured investment products. On Slide 20, you can see how far this ecosystem expands, from our white labeling partners on the left side to our 25 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 engage with ] on a regular basis. The bottom right, we also have 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, among others. Since 2018, we have added more than 40 partners across the different system components in connection to our ecosystem. Now rather than again going through each single addition, I would like to highlight the very recent highlights. Together with IMD, we have launched just yesterday, now finally in front of our clients, a new online training course in structured investment products that combines the excellence and the academic rigor of IMD's executive education with Leonteq's expertise and innovation in the structured products business. This fully digital program will provide Leonteq's clients, partners and employees with online training in structured investment products, leading to special IMD-Leonteq certificate of completion. To be entered in the Swiss client adviser register, clients must provide evidence that they have the required knowledge as defined in the Swiss Financial Services Act, FinSA. This training is accepted as evidence of the required professional knowledge for entering client advisers in the register of the registration office. It is cooperation that supports our ambition to ensure broader access to structured investment products, higher education across our stakeholders; make investment solutions available to a wider investment base; and generally strengthen know-how about these products. As a result of these enhanced ecosystems and the measures I just laid out to you, we delivered a solid financial track record and have measurably improved our earnings quality in the last few years. As you can see on Page 21, our traditional structured product business, which comprises revenues from products such as autocallables and barrier reverse convertibles on equity underlyings predominantly, has decreased by 2% annually since 2017 and contributed 56% of our group revenues compared to 85% 4 years ago. On the other hand, our investments into existing and new businesses, some of which also with lower balance sheet intensity, have strongly grown by 54% and amounted to close to CHF 150 million in '21 and comprised revenues from the activities we have marked in orange column on the right-hand side of this slide. Concretely, these are basically the same initiatives I've spoken about for the past 10 minutes or so. In addition, we are also considering revenues from our treasury activities in this bucket, as we have strategically changed the way we invest our net issuance proceeds; [ and moves from a negative-carrying ] portfolio to a portfolio which yields positive return, something which we absolutely believe will be recurring over the years to come. Looking at our geographical diversification, you can see on Page 22 that we have achieved our growth over the past years, predominantly through growth in our European office locations, whilst maintaining a strong home market position in Switzerland. We also diversified our client base; and today generate more than 50% of our revenues with financial institutions such as private banks, commercial, universal and regional banks. This compares to a dominant focus on independent asset managers as a client [ basis ] back in 2017, demonstrates the -- Leonteq's overall position as a recognized counterparty for structured products across a wide range of client segments. We also significantly reduced the dependency of our largest white labeling partners, which you can see on Page 23. Today, Leonteq is, with its own products, the largest issuer on our platform. At the same time, our new partnerships, which exclude our historic partners EFG and Raiffeisen, also contributed to the growth in both platform assets and turnover over the past few years. This context, we are also really happy to extend our cooperation with Raiffeisen until 2030 whilst refocusing our partnership, taking into account the developments within the 2 companies and Leonteq's ambition to further increase the percentage of balance sheet-light transactions on its platform. Lastly, these significant advancements wouldn't have been possible without a highly scalable technology platform. We try to illustrate this on Page 24. The number of client transactions increased on average by 28% from 97,000 to 264,000 transactions this year. This compares to an average annual growth rate of 5%, clearly demonstrating the operating leverage of our platform -- sorry. I got the number wrong. It's obviously a growth rate of 28%, whilst we kept the costs under control. And those increased by 5%. As a result of all these measures I've presented to you, so far, Leonteq has significantly enhanced its ecosystem and strengthened its market position as a leading fintech platform for structured investment solutions. Now building on this progress achieved over the past 4 years, we have developed our Growth Strategy 2026, which we are reporting to you for the first time this morning. 2022, therefore, marks the beginning of a new 5-year strategy cycle; and on Page 26, we are laying out this plan for you. The pandemic-related trends affecting [ end investor ] behavior, digitalization and online connectivity have accelerated the growth opportunities for Leonteq in terms of product distribution and white labeling offerings. Against this background, we are managing our Growth Strategy 2026 based on 4 dimensions: offering, platform, regions, sustainability. As we continue to grow our activities beyond the traditional structured products business, we will focus on further expanding and diversifying our offering across products, asset classes and issuers. Through these expansions, we intend to further grow the revenue contribution from growth initiatives and/or activities with lower balance sheet intensity. With our scalable technology platform, we want to stay at the forefront of digitalization and further automate processes and services across the entire value chain of our business. We will continue to create innovative digital solutions for our clients and partners. We will do this with the aim to increase the number of client transactions processed. Additionally, while further strengthening our market-leading position in Switzerland, we intend to expand our offering to an international client base. At the same time, we will take targeted measures to strengthen our brand in Europe, Asia and the Middle East, with intention to increase our revenue contribution from offices outside of Switzerland. Lastly and underscoring our ambition to become a leading ESG provider for structured investment solutions, we will continue implementing responsible investing opportunities for our clients and partners. To bring this into fruition, we launched a sustainability initiative in 2020. And we will further integrate ESG aspects into all our business activities as well as our product and service offering, with the ambition to improve overall our ESG rating. On Page 27, let me spend a few minutes on detailing the selection of key initiatives that will drive our growth strategy '26 which go hand-in-hand across those 4 dimensions. Our product offering will be expanded by further building out our offerings in AMCs, systematic indices, fund derivatives and crypto assets. And we will newly launch a large range of securitized leverage products, including warrants. Our B2B issuer universe will be expanded by building out our existing setups and adding new white labeling partners as well as by decreasing the time to market with a new innovative onboarding setup. Our new D2C pension savings offering will be established through the launch of a new innovative product concept for the voluntary retirement savings market in Switzerland. And as a matter of fact, we believe that we will see good client response on the back of the recent long-term interest rates pickup in Switzerland. On the platform dimension, we are expanding our operating platform through the investment in platform capabilities for crypto assets. And we will invest into a new automated flow platform. We will accelerate our digital offering by rolling out white labeling features to clients and continuing to add new features and functionalities on B2B4C LynQs platform. And we will continue to invest in our Sigma platform and build it out to enable savings solutions on an automated and scalable basis. Underpinning all these efforts, we are also committing to clear targets for '26, which we are presenting again here on Page 28. Leonteq aims to generate total operating income of CHF 450 million to CHF 500 million for '26. And we want to deliver a return on equity of more than 15% by end '26 driven by the profitable growth of the business while maintaining our strong capital base. We will pursue our plan for the next growth phase in a disciplined manner and aim to achieve our financial targets for '26. With this, we are convinced to have created a clear and comprehensible plan for Leonteq's continued sustainable growth building on the successful execution of our current strategy. As I close today's press conference, I would like to leave you with some key points, which can be found summarized on Page 30. Leonteq generated record results resulting from strong client activity and disciplined risk management which was supported by a benign market environment for '21. The Board of Directors will propose a distribution to shareholders of CHF 3 per share, which is a 300% increase compared to the year before. Through the disciplined execution of our 2018 strategic plan, we significantly enhanced our business diversification and earnings quality. LynQs was established as our one-stop shop for investment solutions. We completed the white labeling setup with Basler Kantonalbank and Banque Internationale à Luxembourg. We entered into new white labeling partnerships with [ VP Bank ] and Swissquote and extended our cooperation with Raiffeisen Switzerland until 2030. Looking ahead at our growth strategy '26, we are launching an ambitious 5-year strategy cycle based on 4 dimensions. We are committed to clear targets for '26. And we are transitioning to a progressive dividend policy with a payout ratio of over 50% of net profits, effective for the first time for 2022, payable in 2023. We also communicated today that we have had a very strong start to 2020 (sic) [ 2022 ] driven by a substantial increase in net trading results compared to the same period in the prior year. This was driven by higher levels of market volatility, including exceptional share price fluctuations of large-scale companies in the context of their recent earnings announcements. Before I close this call today, I want to highlight again that, over the last few years, Leonteq has successfully followed [indiscernible] and realized the goals we set out to achieve. Our record '21 results are a testament to our market-leading offering as a fintech platform for structured investment solution. This performance demonstrates the effectiveness of the investments we have made in key strategic initiatives. As a result, Leonteq today has a much more diversified business than 4 years ago and a significantly enhanced earnings quality, providing us with strong foundations for the generation of long-term value for all our stakeholders. And with our Growth Strategy 2026, we have created a clear and comprehensible plan for Leonteq's continued sustainable growth building on our past track record. Thank you very much for your attention.

Thank you, Lukas. Thank you, Marco, for the presentation. We are now happy to start with the Q&A question and take the first question.

The first question comes from Michael Kunz from ZKB.

Yes. My first question refers to the SHIP project. If my numbers collection is correct, you had CHF 1.5 billion at the half year stage in turnover via SHIP. And now it's kind of CHF 2.5 billion for the half year. Is there anything kind of suspicious behind the slowdown in the second half? Or what's the explanation for that one? Then the second question would refer to the Raiffeisen cooperation. You highlighted that this got extended till 2030 under certain conditions, but at the same time, Raiffeisen has the intention to build its own platform. Kind of on what levels will they start competing with you? And where exactly will you keep cooperating? If you could clarify that a bit, please. And the third question relates to the provisioning in the P&L. What are the cases and instances between this relatively high level of provision? And to what extent have you taken the opportunity of having a very stout revenue base to book these provisions now?

Thank you very much, Michael. Your questions are appreciated. Maybe I'll just make a quick comment on the last question, and then I hand over to Marco for both the provision part and also the SHIP question. And I will then take on your question about Raiffeisen cooperation. On the provision side, you know that we are obviously reporting [ our numbers ] [indiscernible]. They are fully audited. And we don't have the latitudes to do what your question implies, which is change provision based on results. There are good reasons for that, and Marco is happy to lay these out. Marco?

Okay. So I'll start probably with the SHIP questions you had. So I think -- first of all, thanks for the question. I think it's important to state that, when compared to H2 2020, turnover actually increased by 5% year-on-year. And on a full year basis, we do the balance sheet light turnover to CHF 2.6 billion, and that's up 34%. So if -- and obviously you correctly stated that the second half year was less good than the first half year. And in fact, we faced certain limitation on our hedging counterparties which were caused by this LIBOR cessation and migration to the new alternative reference rate. We overcome this challenge. And by end of 2021, all 7 hedging counterparties on SHIP were able to start quoting under this new framework again. Then with the -- with regards to the provision, I think, as you know -- and I think we had already some questions in the first half year. The group is involved in legal proceedings and litigations from time to time that arise in the normal course of business. And such proceedings and litigations are subject to many uncertainties and the outcome is often difficult also to predict, particularly in the early stages of the case. We are not disclosing for each provision of -- the amount of provision for each legal case, but we have communicated that we built provisions totaling CHF 18 million related to legal cases. And furthermore, we have provisions for income taxes in the amount of CHF 12.3 million. And so you will appreciate that I, unfortunately, can't go beyond this disclosure that we have also in the annual report.

Thank you, Marco. So look. On the Raiffeisen competition versus cooperation, we don't look at this -- at all like this. Fact of the matter is that Raiffeisen, aside of being a large shareholder, is obviously one of our established partners. We have a very good business partnership with them, and we very much welcome the fact that they intend to further grow. There are clients-related assets also to be invested in investment solutions, including structured products. As they will over time probably increase the share of wallet clients have with them invested in structured products, we had to ask jointly the very simple question of how much of that volume should end up on the Leonteq balance sheet. We have, I think, now find a very balanced approach where we will together, I would say, leverage on each other's strengths. They will obviously continue, as they do already today, do all the distribution within their own fairly large retail banking organization. Leonteq has key, I would say, distribution capabilities in Switzerland [ and abroad ]. And I would say, in the overall context of the approach, there will be a bit of a revenue reduction. We guided that in our results announcements by saying that we expect about a 1% impact on our commission and fee income, but in the context of our own strategic ambition to increase balance sheet light turnover, I think this has to be looked at in the context of us, as a result, increasing our balance sheet light turnover. We tell all our partners that our service offering is modular, and we are very happy for them to also over time insource some of the modules. And in this particular case, as Raiffeisen has announced that they built up an only-issuance platform, they are to some extent insourcing part of the module related to hedging. And as you know yourself, this is obviously very much linked to our own strategy, so whilst it's not in itself a revenue-optimizing approach, I think it's very much a revenue-versus-capital maximizing approach for us. And we are happy about this new cooperation. We are certainly grateful to Raiffeisen also about the fact that jointly we have extended the cooperation by another 4 years. This gives both parties the comfort that we will well continue to cooperate for the next 8 years.

The next question comes from Daniel Regli from Credit Suisse.

I have 2 questions on the financial targets and then 2 questions on the provided details -- no, respectively, 1 question, obviously. [indiscernible] already asking then 1 on the organizational structure, if I may, so 4 questions in total. And first, maybe on the capital base, how shall we expect the capital base to develop from the current roughly CHF 874 million through 2026? So put differently, on what equity base shall we calculate the return on equity of 15%? Will it be now more or less stable, or shall we expect an increase in this capital base? Then secondly, the CHF 450 million to CHF 500 million operating income you're targeting for, can you maybe give us some kind of idea how these CHF 450 million to CHF 500 million operating income are composed in terms of regions and maybe products or also maybe between pension solutions and investment solutions? And then thirdly, on Page 5, you provide a number, CHF 45.5 million revenues in funds -- I'm not sure. Maybe you correct me if I'm wrong, but it looks like this is fund derivatives and crypto business together. If I remember it correctly, you provided also a number in H1 for these 2 businesses separately, at least in a percentage of revenues. And if I look at these numbers, it looks like there was a significant drop in H2 compared to H1 at least. I mean, when my numbers are correct, you had like CHF 30 million revenues in these 2 areas in H1. And now obviously then it would have been about CHF 15 million only in H2. Can you maybe explain a bit how this significant drop came? And then the last question is on the integration of IWPS, respectively Pension Savings, into let's say one single area. Can we expect that you will continue to provide at least the details on the fee income side which is coming from pension solutions and investment solutions?

Thank you, Daniel, for your many good questions. [ If I look at the ] capital basis, I mean, on purpose, we didn't guide an M&A profit number, [ if you ask for that ], but what you can clearly see is that in the last 4 years we have significantly strengthened our capital basis. We have announced that we will have a progressive dividend policy which means a payout ratio above 50%, but to be very clear: It doesn't mean a payout ratio of 100% or even more than that, so you definitely can assume that the capital basis will continue to strengthen. We obviously have guided a capital basis as a target range. And when you talk about return on equity, you need to focus on shareholders' equity, but look. If you just take the last 4 years and extrapolate continued business performance and, of course, some sort of a dividend payout ratio, it doesn't take that much to assume that the number will get to 1 billion-plus. And [ that is often the number I will personally ] expect us to see. We have said that before. We think a very strong capital is helpful in terms of not just our ongoing business ventures but also in terms of, [ say ], credibility and [ recognition message ] to our counterparties and clients. But again we are in absolute term well capitalized, if not overcapitalized. And the Board will try to find the right balance between further growing the capital basis but also making sure that we deliver on this commitment made in terms of dividend policy. If I can just briefly take the question on operating income because to some extent it's also touching on the '26 targets. We don't guide down to the level that you have asked for. We believe that this is more your job than ours, but we have given certain indications. So one is we want to grow the share of revenues, compared to Switzerland, from outside of Switzerland. So that's clearly a KPI. And the other is that we want to increase further revenues [ on ] balance sheet light turnover and all the initiatives that I've referred to before. So that's -- can serve as a certain, I would say, basis for you to then make your own assumptions for '26. With that, I would then pass on the questions to Marco, the remaining questions.

Thanks, Lukas. So I'll start probably with the fund derivative question that you asked. And it's correct, that the second half year was lower in terms of economic revenues generated from the fund derivatives business. I think, to be very honest, the first half year was exceptionally high. We were all positively surprised by the performance in the first half year. We are satisfied with the performance of the second half year, but overall there was [ a gear ] towards the first half year. That's correct. Then on the framework for the pension savings going forward: You will not see from the annual report going forwards the fee income that we have generated out of the pension business. So this will not be anymore disclosed, but it will be an integral part of the investment solution business line or segment, which will be reported in line with our strategy and the business -- [ how we steer ] our business.

If I could maybe add to this. We have also announced today, among other things, a new reporting framework. That's appendix 3 to our investor relations presentation, Daniel. We have taken into account, when putting this out there, that people like you will need and want to be able to model our future business developments. And Dominik and team will be happy to lead you through in detail. It should be sufficient guidance for you to build up investments model case on that basis.

Okay. If I may quickly follow up on the fund derivatives business. So then consequentially the crypto asset business was more stable into H2. I mean I -- from gut feeling, I would have expected that the drop was more in the crypto asset business since all these crypto assets or currencies were down in exchange rates.

That's correct. Daniel, I can give you the figures. So in H1, the crypto business generated 9.2 million. H2, we had 8.2 million economic revenues from the crypto business. And if you compare that with the fund derivatives business: We had [ 20.6 ] in the first half year and [ 7.5 ] in the second half year.

If I can just add to this. In terms of client basis, when we talk about fund derivatives, we would often speak to fairly professional institutional counterparties. And they obviously, when and if they do a transaction, might well do a transaction which on our side leads to a large ticket transaction. So whilst we think there is a good recurrence in terms of the developments over the years to come, it's not necessarily the case that you should just expect first half versus second half to be the same. And there is also not really a seasonality in there, so it could well be that in another year you have the reverse trend, first half less strong than second.

Gentlemen, so far, there are no more questions.

Well, in that case, thank you very much for having taken the time to listening to us. We are obviously available for follow-up questions. And thank you again for your interest. I'm looking forward to be in direct contact with some or even all of you soon. Thank you very much. Bye-bye.