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Leonteq AG (SIX: LEON), an independent expert for structured investment products and longterm savings and retirement solutions, today presented a solid set of financial results for the first half of 2018. Leonteq also outlined its newly defined strategic priorities for growth and announced a fully underwritten rights offering to further strengthen its capital base.
Lukas Ruflin, Chief Executive Officer of Leonteq, stated: “Our solid first-half performance confirms the successful turnaround of our business, allowing us to now focus our full attention on the future. We have defined clear strategic priorities for the short- and mid-term to position our company for further sustainable growth and we have announced a new set of financial targets for 2020.“
Total operating income rose by 36% to CHF 136.1 million in the first half of 2018 compared to the first half of 2017, driven primarily by a solid increase in net fee income and an improved net trading result. Net fee income rose by 22% to CHF 145.7 million, mainly reflecting sustained client demand for structured investment products. Large ticket transactions (defined as transactions where Leonteq earns a fee of CHF 0.5 million or more) accounted for 7.2% of net fee income in the first half of 2018, up from 4.7% in the first half of 2017. Net trading income improved to CHF -3.7 million in the first half of 2018 from CHF -16.4 million in the prior-year period, primarily due to a CHF 10.7 million increase in the contribution from hedging activities.Total operating expenses decreased by 3% to CHF 95.7 million in the first half of 2018, including one-off costs of CHF 2.5 million. Personnel expenses increased by 7% to CHF 60.7 million due to higher variable compensation accruals on the back of improved performance. Headcount remained relatively stable at 445 full-time equivalents (FTEs) as at 30 June 2018. Other operating expenses declined by 6% to CHF 24.4 million, reflecting continued cost discipline. Provisions decreased by 65% to CHF -2.5 million compared to the prior-year period, which included one-off costs in connection with right-sizing efforts.Net profit improved to CHF 40.1 million in the first half of 2018 compared to CHF 1.2 million in the first half of 2017 and compared to CHF 21.9 million in the second half of 2017 - evidence of the rebound of the business.Leonteq’s total BIS eligible capital amounted to CHF 437.5 million as at 30 June 2018, compared to CHF 419.7 million as at 31 December 2017. Risk-weighted assets increased by 11% to CHF 2,381 million as a result of business growth, an increase in platform assets, and higher market and credit risk exposures. The BIS total capital ratio and the common equity tier 1 ratio were 18.4% and 18.3%, respectively, as at 30 June 2018, compared to 19.6% at end-2017. As announced on 8 February 2018, the implementation of IFRS 15, the new standard governing the recognition of revenue from contracts with customers, reduced eligible capital by CHF -20.7 million as at 1 January 2018 (equal to a 0.9% decrease in common equity tier 1 ratio).
Driven by sustained demand for structured products, Leonteq issued 15,746 structured products (+24%) in the first half of 2018 and grew its total turnover by 23% to CHF 15.9 billion. Total platform assets (volume outstanding) reached a record CHF 13.2 billion as at 30 June 2018, up from CHF 11.4 billion at end-2017. This increase mainly reflects the good progress achieved with its newly onboarded issuance partners Crédit Agricole CIB and Standard Chartered Bank, as well as a 17% increase in the volume of Leonteq’s own products outstanding to CHF 3.5 billion as at 30 June 2018.The Investment Solutions business line posted 21% growth in net fee income to CHF 114.2 million in the first half of 2018. Fee income margins decreased from 90 basis points to 88 basis points.The Banking Solution business line saw its net fee income rise by 27% to CHF 18.4 million in the first half of 2018. This increase was due to 21% growth in turnover combined with an increase in fee income margins to 63 basis points from 60 basis points.In the Insurance & Wealth Planning Solutions business line, net fee income grew by 24% to CHF 13.1 million. This mainly reflects its competitive product design in the prevailing low interest rate environment which enables insurers to combine sought-after guarantee components with the advantages of unit-linked life insurance. Serviced net new policies increased by 41% and 37,150 policies were outstanding on the platform as at 30 June 2018.In its home market Switzerland, Leonteq grew its revenues by 27% to CHF 63.3 million in the first half of 2018. In Europe the business generated a 29% increase in revenues to CHF 64.3 million over the same period. Leonteq expanded its presence in Asia with the opening of an office in Tokyo and it commenced onshore operations in Japan through its newly established subsidiary Leonteq Securities (Japan) Limited on 1 May 2018. The Asia region saw an 8% decrease in net fee income year on year to CHF 18.1 million.
Over the past 12 months, Leonteq has achieved the planned turnaround of the business and it delivered solid net profit for the second half of 2017 and for the first half of 2018. In addition, it addressed balance sheet restrictions and product limitations with a key issuance partner, onboarded Crédit Agricole CIB and Standard Chartered, and succeeded in increasing its business volumes while conducting a rightsizing program. The company also improved its corporate governance processes and disclosures, further strengthened the independence and skills of its Board of Directors, and implemented a leadership change with the appointment of a new Chairman and a new CEO.Leonteq is, however, faced with continued margin pressure on the back of an increasingly competitive environment, regulatory changes and a change in the cooperation mix of its issuance partners. The structured products business is expected to become a volume-driven business with margins likely to decline further. At the same time, the growth in platform assets on the back of its cooperation with issuance partners is leading to an increase in risk-weighted assets. Leonteq has therefore defined four major strategic priorities aimed at enhancing the scalability of its business and facilitating further growth while, at the same time, optimizing capital usage:
To provide greater transparency for the capital market, Leonteq is defining a new set of financial targets. It aims to grow its total operating income to approximately CHF 300 million while maintaining disciplined cost management and is targeting a cost/income ratio of less than 70% by 2020.
The rights offering will relate to 2,989,593 new registered shares with a nominal value of CHF 1.00 each to be issued from existing authorised capital that was created at the company’s Annual General Meeting on 23 March 2017. All new shares that will be issued in conjunction with the rights offering will be firmly underwritten, subject to customary conditions.Shareholders of Leonteq will receive one tradable subscription right for every registered share they hold on 23 July 2018, after close of trading on the SIX Swiss Exchange. By exercising their subscription rights, eligible Leonteq shareholders will be able to subscribe to 3 new shares for every 16 subscription rights granted at a price of CHF 41.50 per new share, subject to the applicable selling restrictions.The subscription rights will be traded on SIX from 24 July to 30 July 2018 and can be exercised from 24 July to 2 August 2018, 12.00 noon CEST. The listing and first trading day of the new registered shares on SIX is scheduled for 3 August 2018. The delivery of the new registered shares against payment of the subscription price is expected to occur on 3 August 2018. Upon completion of the offering, the issued share capital of Leonteq will consist of 18,934,097 registered shares, corresponding to CHF 18,934,097.Raiffeisen Switzerland (29.02% shareholding), Lukas Ruflin1 (8.15% shareholding) and Sandro Dorigo (2.45% shareholding) have committed to exercise all subscription rights allocated to their existing shareholdings in Leonteq. Raiffeisen Switzerland, Lukas Ruflin Family Interests, Sandro Dorigo, Leonteq and the members of Leonteq’s Board of Directors and Executive Committee have each agreed to a lock-up period of 180 days, subject to exemptions. The previous 2025 lock-up agreements for part of the shares held by Lukas Ruflin Family Interests remain in place. Raiffeisen has reaffirmed its previously communicated intention to reduce its stake, in consultation with Leonteq, to 20% over time.Christopher Chambers, Chairman of Leonteq, stated: “With today’s announcement of a fully underwritten rights offering, we aim to further strengthen Leonteq’s capital position. This will allow us to continue growing our business volumes while implementing key projects and initiatives, with a view to taking Leonteq’s business model to the next level.”
1 Acting both in a personal capacity and through his family interests
A press and analyst conference with Lukas Ruflin, CEO of Leonteq, and Marco Amato, CFO of Leonteq, will be held today, 19 July 2018, at 09.30 CET at Metropol.
If you wish to participate by telephone, please use the following dial-in details:
Please dial in 10-15 minutes before the start of the presentation and ask for "Leonteq half-year 2018 results".
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This document is not an offer to sell or a solicitation of offers to purchase or subscribe for shares or any other securities. This document is not a prospectus within the meaning of Article 652a of the Swiss Code of Obligations or Article 27 et seq. of the listing rules of SIX Swiss Exchange AG or any other regulated trading venue in Switzerland or a prospectus under any other applicable laws. Copies of this document may not be sent to jurisdictions, or distributed in or sent from jurisdictions, in which this is barred or prohibited by law. The information contained herein shall not constitute an offer to sell or the solicitation of an offer to buy, in any jurisdiction in which such offer or solicitation would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any jurisdiction. A decision to invest in securities of Leonteq AG should be based exclusively on the issue and listing prospectus published by Leonteq AG for such purpose. Copies of such issue and listing prospectus (and any supplements thereto) are available free of charge from Leonteq AG, Investor Relations, Europaallee 39, 8004 Zurich, Switzerland (telephone number: +41 58 800 1855; email: investorrelations@leonteq.com).This document is not for publication or distribution in the United States of America, Canada, Australia or Japan and it does not constitute an offer or invitation to subscribe for or purchase any securities in such countries or in any other jurisdiction. In particular, the document and the information contained herein should not be distributed or otherwise transmitted into the United States of America or to publications with a general circulation in the United States of America. The securities referred to herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or the laws of any state, and may not be offered or sold in the United States of America absent registration under or an exemption from registration under the Securities Act. There will be no public offering of the securities in the United States of America. The information contained herein does not constitute an offer of securities to the public in the United Kingdom. No prospectus offering securities to the public will be published in the United Kingdom. This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "FSMA Order") or (iii) persons falling within Articles 49(2)(a) to (d), "high net worth companies, unincorporated associations, etc." of the FSMA Order, and (iv) persons to whom an invitation or inducement to engage in investment activity within the meaning of Section 21 of the Financial Services and Markets Act 2000 may otherwise be lawfully communicated or caused to be communicated (all such persons together being referred to as "relevant persons"). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. Any offer of securities to the public that may be deemed to be made pursuant to this communication in any member state of the European Economic Area (each an "EEA Member State") that has implemented Directive 2003/71/EC (as amended, including by Directive 2010/73/EU, and together with any applicable implementing measures in any EEA Member State, the "Prospectus Directive") is only addressed to qualified investors in that EEA Member State within the meaning of the Prospectus Directive. This publication may contain specific forward-looking statements, e.g. statements including terms like "believe", "assume", "expect", "forecast", "project", "may", "could", "might", "will" or similar expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may result in a substantial divergence between the actual results, financial situation, development or performance of Leonteq AG and those explicitly or implicitly presumed in these statements. Against the background of these uncertainties, readers should not rely on forward-looking statements. Leonteq AG assumes no responsibility to up-date forward-looking statements or to adapt them to future events or developments.