Full-year 2014 results: group net profit up 61% to CHF 62.6 million

Zurich, 26 February 2015

Leonteq AG (SIX:LEON), the Zurich-based independent technology and service provider for investment solutions, today announced a good set of results for the 2014 financial year, reflecting increased earnings contributions from platform partners and particularly strong performance in Switzerland and Europe.

  • Group net profit up 61% to CHF 62.6 million, mainly driven by strong double-digit growth in turnover (up 30% to CHF 20.4 billion) and total operating income (up 26% to CHF 200.0 million)
  • Platform partners contributed 55% to turnover (up 7 percentage points) and 52% to total operating income (up 8 percentage points)
  • Continued investments and spending in the onboarding of new platform partners, the strengthening of Leonteq’s regional offices and the further development of its platform and new initiatives, in line with the announced goals of the rights offering
  • Total operating expenses up 22% to CHF 139.8 million; cost per unit continued to drop to CHF 8,034 (down 6%) reflecting operating leverage; cost-income ratio improved by 3 percentage points to 70%
  • Significant progress with platform partner strategy: addition of a second Notenstein Private Bank issuing entity, in Guernsey; DBS, a leading bank in Asia, issued close to 100 products in the first two months since the launch of the partnership
  • The board of directors will propose a shareholder distribution of CHF 3 (2013: CHF 2) per share
  • While the stronger Swiss franc will impact Leonteq’s results, current market conditions also provide opportunities as investors seek new solutions to risk-adjust their portfolios

CHF million for the year ended 31 December 2014 2013 Change in %

Net fee income

181.1

135.9

33%

Net trading income

20.6

24.9

(17%)

Other operating income

(1.7)

(2.4)

(29%)

Total operating income

200.0

158.4

26%

Personnel expenses

(85.6)

(69.1)

24%

Other operating expenses

(41.9)

(36.8)

(14%)

Depreciation and amortization

(12.3)

(9.0)

37%

Total operating expenses

(139.8)

(114.9)

22%

Profit before taxes

60.2

43.5

38%

Income tax expense

2.4

(4.7)

(151%)

Group net profit

62.6

38.8

61%

Leonteq’s turnover rose 30% year-on-year to CHF 20.4 billion in 2014. Average margin on turnover was 98 basis points, down 3% reflecting the higher share of platform partner turnover in line with the company’s strategy. Total operating income increased 26% year-on-year to CHF 200.0 million. Net fee income rose 33% to CHF 181.1 million. Net trading income was CHF 20.6 million in 2014, down 17% compared to 2013. Leonteq’s platform partners contributed 55% to Leonteq’s overall turnover (up 7 percentage points) and 52% to total operating income (up 8 percentage points) in 2014.

Outstanding volume of Leonteq’s own products stood at CHF 3.7 billion as at 31 December 2014, compared to CHF 2.7 billion at year-end 2013. In addition, Leonteq’s platform partners accounted for an outstanding product volume of CHF 3.9 billion at end-2014, up from CHF 2.6 billion a year before, reflecting an increased share of partner products volume from 49% to 51%.

Total operating expenses increased to CHF 139.8 million in 2014, up 22% compared to 2013. Personnel expenses rose 24% to CHF 85.6 million, reflecting hires and performance-related compensation. Other operating expenses rose 14% to CHF 41.9 million, mainly in the context of regional expansion and as a result of the increased business volume and staff base. Cost-income ratio further improved by 3 percentage points to 70%.

Reflecting the operating leverage of the platform, cost per unit (total operating expenses from the Banking Platform Partners and Leonteq Production segments per issued product) fell to CHF 8,034, down 6% compared to 2013 and down 69% since 2009.

Profit before taxes rose 38% to CHF 60.2 million. Due to a generally lower tax rate and a tax credit effective from 2013 onwards, a total net tax benefit of CHF 2.4 million was accounted for in 2014, resulting in group net profit of CHF 62.6 million, an increase of 61% compared to 2013. The board of directors of Leonteq will propose a dividend of CHF 3 (2013: CHF 2) per share – in the form of a shareholder distribution against capital contribution reserves which is not subject to Swiss withholding tax – at its annual general meeting on 22 April 2015.

Segment Results

The Banking Platform Partners segment (revenues and expenses related to platform partners in the banking industry, previously summarized as white-labeling business) showed a strong rise in total operating income (up 54% to CHF 83.2 million) and pre-tax profit (up 66% to CHF 44.1 million), underlining the company’s capability to increase volumes on its platform.

Total operating income of the Insurance Platform Partners segment (revenues and expenses related to platform partners in the insurance industry, previously summarized as white-labeling business) rose 37% to CHF 21.6 million, and pre-tax profit increased by 44% to CHF 13.5 million. This represents a strong development as revenues originating from the insurance business indicate recurring future income over a long period of time.

The Leonteq Production segment (revenues and expenses related to the issuance of Leonteq structured investment products) increased total operating income by 8% to CHF 95.2 million, and pre-tax profit by 11% to CHF 32.6 million, in 2014 compared to 2013. In view of Leonteq’s primary focus on the platform partner business, this moderate growth was in line with expectations.

Regional Development

Performance in Leonteq’s Asia region was constrained by the limitations of its business set-up before the grant of a capital markets license in Singapore in June 2014, and due to fewer large ticket transactions (in line with strategy). As a result, total operating income in Asia fell to CHF 18.7 million (down 22%) year-on-year. Following a significant number of hires and the onboarding of DBS, Leonteq is optimistic about the development of its Asia business going forward. Europe performed strongly in 2014, with total operating income up 44% to CHF 93.6 million. Switzerland increased total operating income by 26% to CHF 87.7 million.

Capital and Risk Development

Leonteq’s total eligible capital stood at CHF 352.6 million as of 31 December 2014, compared to CHF 147.5 million as of 31 December 2013. The increase primarily reflects the rights offering closed in August 2014, which resulted in net proceeds in the amount of CHF 173.3 million. BIS total capital ratio was 30.2% as of 31 December 2014, versus 18.1% at year-end 2013.

Usage of net proceeds of the rights offering in 2014 included investments in Leonteq’s platform and offices of CHF 8 million, as well as spending for the onboarding of platform partners, regional expansion and new growth initiatives of CHF 10 million. As a result of an increase in risk-weighted assets, FINMA-required capital rose by CHF 37 million.

Average value-at-risk (VaR) stood at CHF 1.5 million in 2014, compared to CHF 1.1 million in 2013.

Outlook

Leonteq will invest prudently in its growth strategy in 2015. Investments and spending in 2014, on an annualized basis, will result in a higher cost-base going forward. Key priorities are maintaining the operating leverage of the platform as well as the onboarding of new platform partners, the strengthening of regional offices and further investments in the platform and new initiatives.

The strengthening of the Swiss franc will impact Leonteq’s results to the extent that its income is largely generated in US dollars and euro (62% in 2014), while expenses are mostly in Swiss francs (78% in 2014). An assumed average EUR/CHF exchange rate of 1.00 (-18% compared to the average rate in 2014) and an assumed average USD/CHF exchange rate of 0.87 (-5% compared to the average rate in 2014) would have implied approximately 16% lower profit before taxes, based on the results for the financial year 2014.

Jan Schoch, CEO of Leonteq: "2014 was a year of considerable progress for Leonteq with good financial results and important strategic achievements. While the geopolitical environment remains fragile and the stronger Swiss franc will impact Leonteq’s results, the current market conditions also provide opportunities as investors seek new solutions to risk-adjust their portfolios. Leonteq has a sound business model and solid fundamentals, and we remain optimistic about the further development of our business."

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