Leonteq : Half-Year 2020 Results Presentation

LEONTEQ AG

RESULTS PRESENTATION | HALF-YEAR2020

ZURICH, 23 JULY 2020

LEGAL DISCLAIMER

This presentation of Leonteq AG (the "Company") serves for information purposes only and does not constitute research. This presentation and all materials, documents and information used therein or distributed in the context of this presentation do not constitute or form part of and should not be construed as, an offer (public or private) to sell or a solicitation of offers (public or private) to purchase or subscribe for shares or other securities of the Company or any of its affiliates or subsidiaries in any jurisdiction or an inducement to enter into investment activity in any jurisdiction, and may not be used for such purposes. Copies of this presentation may not be made available (directly or indirectly) to any person in relation to whom the making available of the presentation is restricted or prohibited by law or sent to countries, or distributed in or from countries, to, in or from which this is restricted or prohibited by law

This presentation 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 the Company or any of its affiliates or subsidiaries and those explicitly or implicitly presumed in these statements. These factors include, but are not limited to: (1) general market, macroeconomic, governmental and regulatory trends, (2) movements in securities markets, exchange rates and interest rates and (3) other risks and uncertainties inherent in our business. In addition, currently, it is very difficult to provide a meaningful prediction on how the governmental actions in response to the ongoing outbreak of a novel coronavirus disease (COVID-19) and other COVID-19 related factors will affect Leonteq's operations and how long such measures will remain in place. The COVID-19 outbreak has caused, and may continue to cause, uncertainty, economic instability and a significant decrease of total economic output in the affected areas and globally. The impact of the COVID-19 outbreak on the general economic environment in the markets in which Leonteq operates remain uncertain and could be significant. Against the background of these uncertainties, you should not rely on forward-looking statements. Neither the Company nor any of its affiliates or subsidiaries or their respective bodies, executives, employees and advisers assume any responsibility to prepare or disseminate any supplement, amendment, update or revision to any of the information, opinions or forward-looking statements contained in this presentation or to adapt them to any change in events, conditions or circumstances, except as required by applicable law or regulation.

All figures in this presentation that are part of the consolidated IFRS financial statements for the six months ended 30 June 2020 and 2019 are reviewed. All figures in this presentation that are part of the consolidated IFRS financial statements for the twelve months ended 31 December 2019, 2018 and 2017 are audited.

By attending this presentation or by accepting any copy of the material presented, you agree to accept the terms set out above and to be bound by the foregoing limitations.

© Leonteq AG 2020. All rights reserved.

23.07.2020 2

HIGHLIGHTS

LUKAS RUFLIN | CEO

23.07.2020 3

FIRST-HALF 2020 HIGHLIGHTS

Results impacted

by Covid-19

situation

Client franchise

strengthened

Issuer network

extended

Content & technology enhancers

Marketplace

advanced

• In line with previous guidance, net profit of CHF 5.5 million (1H 2019: CHF 30.2 million)
• Record net fee income of CHF 213.0 million (+76%)
• Net trading result of CHF -107.1 million significantly impacted by hedging related losses
• Total operating expenses up 5% to CHF 98.7 million driven by investments in hiring and key initiatives
• Full client service at all times under unprecedented market conditions
• Turnover increased to CHF 15.4 billion, up 3%
• Record 114,480 client transactions (+53%)

• SHIP now operational as previously guided - Seven hedging counterparties connected
• Balance sheet light turnover increased to 6% of total turnover (1H 2019: 1%)
• Digital marketplace LynQs with new features and launched mobile app

23.07.2020 4

ROBUSTNESS OF LEONTEQ'S TECHNOLOGY PLATFORM AND SOLIDITY OF CLIENT FRANCHISE PROVEN THROUGHOUT H1 2020

Stable platform

Significant platform traffic as a result of high client activity and unprecedented market environment

213 million

Record fee income (CHF)

>15 billion

Turnover (CHF)

>95,000

Secondary market trades processed

99.9%

Platform availability

Engaged employees

Full home office capabilities across company established ahead of lockdown including high-demanding trading and IT development set-up

>95%

Leonteq employees working remotely from home (March-May)

>4,900

Webex meetings held

80%

Participation rate at virtual group townhall meetings

Client service at all times

Excellent feedback from clients & partners on service level and consistent liquidity provided in the secondary market

114,480

Client transactions

16,105

New products issued

>55,000

Lifecycle events processed

~2,000

Client portfolios created in LynQs

23.07.2020 5

FINANCIAL PERFORMANCE

MARCO AMATO | DEPUTY CEO & CFO

23.07.2020 6

FIRST-HALF 2020 PROFITS AROUND BREAK-EVEN LEVEL

CHFm	H1 2020	H2 2019	H1 2019		Change
y-o-y
Net fee income	213.0	144.0	120.9		76%
Net trading result	(107.1)	(10.7)	7.5		NA
Net interest result	(5.0)	(3.1)	(5.2)	(4%)
Other ordinary income	2.6	1.4	1.4		86%
Total operating income	103.5	131.6	124.6		(17%)
Personnel expenses	(63.4)	(58.1)	(58.8)	8%
Other operating expenses	(23.0)	(21.5)	(19.3)	19%
Depreciation	(16.3)	(15.8)	(14.3)	14%
Changes to provisions	4.0	(1.6)	(1.7)	NA
Total operating expenses	(98.7)	(97.0)	(94.1)	5%
Profit before taxes	4.8	34.6	30.5		(84%)
Taxes	0.7	(2.1)	(0.3)	NA
Group net profit	5.5	32.5	30.2		(82%)

Record net fee income

• Net fee income rose by 76% to a record CHF 213.0 million driven by high client demand
• Growth in turnover of 3% and exceptional increase in margins to 129 bps

Net trading result impacted by

Covid-19 situation

• Contribution from hedging activities was CHF -99.4 million and treasury carry was CHF -7.7 million
• Four main drivers impacting net trading result:
• 1. long volatility position (positive),
  2. oil price shock (negative),
  3. unexpected cancellations of already announced dividend payments (negative),
  4. increase in hedging-related costs (negative)

23.07.2020 7

REVENUE DEVELOPMENT H1 2020

Weekly economic revenues (CHFm)1

30

20

10

0

-10

-20

-30

Long volatility

position results in positive hedging contribution

						Dividend
	First oil price shock					cancellations
	approx. CHF -20m					approx. CHF -38m		Increased
									hedging costs

Jan

Feb

Mar

Apr

May

Jun

1 Economic revenues are defined as sales and trading income earned and are considered as recognized at trade date without applying IFRS revenue recognition rules; economic revenues do not include certain other income components such as partner project cost reimbursements

23.07.2020 8

FLEXIBLE COST MANAGEMENT AND FOCUS ON SUPPORTING GROWTH INITIATIVES AT LOWER COST

Cost management

Nearshoring

to Portugal

• Total operating expenses up 5% to CHF 98.7 million driven by investments in hiring and key initiatives in the first half of 2020
• Given strong strategic progress in Q2 2020, Leonteq decided to selectively invest in new growth areas most notably for the onboarding of new white-labelling partners, implementation of additional features and modules of Leonteq's digital marketplace LynQs and regional expansion to Milan and Dubai
• In a scenario with substantial drop in client demand in the second half of 2020, Leonteq has the ability to implement cost measures if necessary; in a scenario of stabilised market environment with normalised client activity, Leonteq plans to further invest
• Total operating expenses expected to amount to approx. CHF 200 million for the full-year 2020
• To balance the continued need to invest in the further platform development with the ambition to safeguard its profitability, Leonteq decided to build-up a nearshoring centre in Lisbon, Portugal
• Phase 1: serviced office set-up employing a handful of external IT Development personnel and other shared services functions (Q3 2020 - Q4 2020)
• Phase 2: set-up of own office with up to 100 designated roles along the entire value chain (Q1 2021 - Q4 2022)

23.07.2020 9

STRONG GROWTH IN NET FEE INCOME IN ALL REGIONS

Switzerland

Zurich

Geneva

(in CHFm)			+56%

EuropeAsia (incl. Middle East)

London

London		Tokyo
Amsterdam	Tokyo
Dubai
Guernsey Paris Frankfurt
Hong Kong
Monaco	Milan	Singapore

(in CHFm)	+105%		(in CHFm)			+34%

63.3 52.0 52.4 59.3

82.0

			113.2		18.1	13.8	13.3	14.9	17.8
64.3	61.0	55.2	69.8

H1 2018

H2 2018

H1 2019

H2 2019

H1 2020

H1 2018

H2 2018

H1 2019

H2 2019

H1 2020

H1 2018

H2 2018

H1 2019

H2 2019

H1 2020

New offices in Milan and Dubai expected to be opened in H2 2020

23.07.2020 10

INVESTMENT SOLUTIONS PROVIDED FULL CLIENT SERVICE AT ALL TIMES UNDER UNPRECEDENTED MARKET CONDITIONS

Turnover (CHF billion)

+3%

Margin (basis points)

Net fee income (CHF million)

+86%

15.0 15.3 15.4

71

129

80

198.7

107.0 122.7

H1 2019	H2 2019	H1 2020

• Strong client activity with high amount of secondary market transactions driven particularly by Covid-19

H1 2019

H2 2019

H1 2020

• Exceptional increase in margin on the back of market turmoil and increased volatility

H1 2019

H2 2019

H1 2020

• Increase in fee income by 86% year-over- year

23.07.2020 11

CHALLENGING LOW INTEREST RATE ENVIRONMENT FOR INSURANCE AND WEALTH PLANNING SOLUTIONS

Unit-linked products outstanding

+5%

49,746

47,237

44,287

30.06.2019

31.12.2019

30.06.2020

• Despite the headwinds created by the significant reduction in long- term interest rates since November 2018, the number of outstanding policies serviced on the platform increased by 2,509 to 49,746 policies as of 30 June 2020

Net fee income (CHF million)

+3%

	21.3
13.9	14.3

H1 2019

H2 2019

H1 2020

• Challenging low interest rate environment
• Fee income increased by 3% in H1 2020 compared to H1 2019
• 2H 2019 was impacted by a positive one-off effect (CHF 9.7 million) in relation to changes in future service obligations

23.07.2020 12

BALANCE SHEET INCREASED BY 48% TO CHF 13.4 BILLION DRIVEN BY INCREASED LEVELS OF MARKET VOLATILITY

Assets (CHF billion)

Liabilities (CHF billion)

Cash & receivables

Trading equities & indices1

Financial assets / investments2

Derivatives3

Other assets

13.4

2.0

2.3

2.6

6.2

0.2

Cash Collateral paid & settlement receivables (+CHF 0.9 billion) as well as cash collateral received and settlement liabilities (+CHF 2.2 billion) grew significantly

Growth in positive (+CHF 3.3 billion) and negative (+CHF 2.4 billion) replacement values of derivatives mainly driven by increased levels of volatility

13.4

3.3

4.1

5.1

0.2

0.7

Short-term credit & liabilities

Own structured investment products4

Derivatives & short positions5

Other liabilities

Shareholders' equity

1. Trading financial assets CHF 2.3 billion & trading inventories CHF 0.03 billion
2. Other financial assets designated at fair value through profit or loss CHF 1.1 billion; Financial investments measured at FVOCI CHF 1.6 billion
3. Positive replacement values of derivative financial instruments
4. Other financial liabilities designated at fair value through profit or loss
5. Negative replacement values of derivative financial instruments CHF 4.9 billion; Trading financial liabilities CHF 0.2 billion

23.07.2020 13

SHAREHOLDERS' EQUITY AND DEFERRED INCOME TOGETHER TOTALLING CHF 740 MILLION

Shareholders' equity (in CHF million)

• Shareholders' equity totalled CHF 659.0

million at end-June 2020

-9.3

5.0

5.5

-4.7

• Change in regulatory framework on 01

January 2020: Leonteq operates as a

securities firm (formerly securities

662.5

659.0

dealer) and is no longer subject to

Capital Adequacy Ordinance

• New regulatory capital requirement of

CHF 20 million significantly exceeded as

of 30 June 2020

31 December 2019

Distribution to

Allocation to OCI

Retained

Other

30 June 2020

shareholders

earnings H1 2020

effects

• Beginning of 2020, Leonteq reviewed

the estimates inherent in the revenue

recognition model for fee income in the

Deferred fee income (in CHF million)

Investment Solutions division to take

account of the increasingly competitive

market environment in recent years

-5.1

•

Revision of estimates resulted in a

-20.9

N/A

reallocation of fees earned to Leonteq's

main service offerings and an

106.9

80.9

adjustment of the deferral period

31 December 2019

Change in revenue

Net change in deferred

Other

30 June 2020

recognition

income

effects

23.07.2020 14

UPDATE ON KEY INITIATIVES

LUKAS RUFLIN | CEO

23.07.2020 15

FOUR NEW ISSUERS ANNOUNCED IN H1 2020 TO JOIN LEONTEQ'S MARKETPLACE FOR INVESTMENT SOLUTIONS

White-labelling issuers

Company	Details on collaboration	About the partner*
	•	White-labelling services; Swiss issuance programme	•	Credit rating: AA+ (S&P)
	• Distribution mandate for Leonteq in Switzerland	•	Total capital ratio: 20.0%
	• BKB to offer products to internal distribution channels	•	Balance sheet: CHF 27.3 billion
	• First products expected to be issued in H2 2020	•	Headquarters: Switzerland
	•	White-labelling services; Swiss issuance programme	•	Counterparty rating: BB (S&P)
	• Global distribution mandate for Leonteq	•	AuM: CHF 132 billion
	• Rand Merchant Bank responsible for distribution to its group	•	Total capital ratio: 17.1%
		companies and internal customers	•	Balance sheet: CHF 89 billion
	• First products expected to be issued by end-2020	•	Headquarters: South Africa
	• PostFinance acting as guarantor and Leonteq as issuer	•	Credit rating: AA+ (S&P)
	• Tender won for issuance and distribution of investment solutions	•	AuM: CHF 120 billion
	• Leonteq to provide all services along the entire value chain	• Total capital ratio: 19.3%
			• Balance sheet: CHF 126 billion
			•	Headquarters: Switzerland

Third-party issuers

• First third-party issuer on Leonteq's multi-issuer platform
• Direct connectivity between Leonteq's digital marketplace and Barclays' electronic trading platform
• Products available in Switzerland, and select key markets in Europe and Asia

• Credit rating: A (S&P)
• Total capital ratio: 21.6%
• Balance sheet: GBP 1,140 billion
• Headquarters: United Kingdom

• Financial figures and capital ratios as of 31 December 2019

23.07.2020 16

TWO CONTENT AND TECHNOLOGY ENHANCING PARTNERSHIPS WITH HIGHLY REPUTED COMPANIES ANNOUNCED IN H1 2020

Company	Details on collaboration
	• Strategic partnership
	• Development, distribution and marketing of structured products
	linked to BlackRock's Luxembourg mutual fund range and
	iShares UCITS ETF range
	• Monthly product ideas for distribution across Leonteq's global
	sales force
	• Collaboration to support platform scalability by extending
	infrastructure to the cloud
	• Additional flexibility and performance at scale for core grid
	computation processes
	• Benefits expansion of LynQs, AMC gateway, SHIP and
	Leonteq's issuance partners
	• Implementation of Site Reliability Engineering to create scalable
	and highly reliable software systems

About the partner

• Biggest asset manager worldwide with USD 7.4 trillion assets under management (as of 31 December 2019)
• Offers more than 1,000 iShares ETFs around the world
• Headquarters: United States
• Google Cloud offers cloud computing services including computing, data storage, data analytics and machine learning
• Headquarters: United States

23.07.2020 17

PROGRESS ON BALANCE SHEET LIGHT BUSINESS WITH "SHIP" NOW OPERATIONAL

Smart Hedging Issuance Platform (SHIP)

• Seven leading investment banks connected to the platform
• A total of eight counterparties (including Leonteq) actively contributing quotes to the platform (of which six are currently able to execute trades)
• Four issuers available on SHIP (Leonteq, Raiffeisen, EFG, Standard Chartered)

Third-party issuers & back-to-back hedges

• In parallel to SHIP, Leonteq built out its offering of third- party products (manufactured outside of Leonteq's platform)
• Barclays first automated third-party issuer on Leonteq's multi-issuer platform
• 14 issuers available on a bespoke basis
• Capabilities extended for back-to-back hedging transactions of complex structures with additional hedging counterparties

Balance sheet light turnover (CHF million)

		895
	464
182
H1 2019	H2 2019	H1 2020
1%	3%	6%

Approx. 6% of total turnover was directly hedged by external counterparties in H1 2020 (vs. 1% in H1 2019)

23.07.2020 18

LEONTEQ'S LEADING MARKETPLACE FOR STRUCTURED INVESTMENT SOLUTIONS IS FURTHER TAKING SHAPE

23.07.2020 19

SUMMARY

LUKAS RUFLIN | CEO

23.07.2020 20

SUMMARY & OUTLOOK

Summary

Outlook

• Half-year2020 results impacted by Covid-19 situation
• Robustness of technology platform and solidity of client franchise proven during unprecedented market turmoil
• Significant strategic progress achieved; issuer partner network expanded with FirstRand Bank, PostFinance and Basler Kantonalbank; Barclays as first third party-issuer on the platform; additional key partnerships initiated with BlackRock and Google Cloud
• Nearshoring initiative allows Leonteq to further grow its business while keeping costs under control
• Considerable uncertainty about the duration and global economic impacts of the Covid-19 pandemic likely to persist in the second half of 2020
• Interest rate environment in all main currencies at historical low or negative levels; structured investment products offer attractive yield alternatives
• Given strategic momentum, Leonteq will continue to invest in key initiatives; total operating expenses expected to reach approx. CHF 200 million (FY 2020)
• Leonteq continues to transform into a platform business and sees itself well positioned to further growth

23.07.2020 21

APPENDIX

23.07.2020 22

SEGMENT RESULTS

Investment Solutions	H1 2020	H2 2019	H1 2019	Change	FY 2019	FY 2018	Change
					y-o-y			y-o-y
Total operating income (CHFm)	76.8	98.2	107.3	(28%)	205.5	250.2	(18%)
Total operating expenses (CHFm)	(82.3)	(75.1)	(74.4)	11%	(149.5)	(154.3)	(3%)
Profit before taxes (CHFm)	(5.5)	23.1	32.9	(117%)	56.0	95.9	(42%)
Platform assets (CHFbn) 1	13.1	14.7	13.8	(5%)	14.7	11.9	24%
of which platform partner business (CHFbn) 1	9.0	10.6	9.8	(8%)	10.6	8.8	20%
of which Leonteq business (CHFbn) 1	4.1	4.1	4.0	2%	4.1	3.1	32%
Turnover (CHFbn)	15.4	15.3	15.0	3%	30.3	28.8	5%
of which platform partner business (CHFbn)	9.2	9.5	9.3	(1%)	18.8	19.8	(5%)
of which Leonteq business (CHFbn)	6.2	5.8	5.7	9%	11.5	9.0	28%
Fee income margin (bps)	129	80	71	58 BPS	76	86	(10 BPS)
Platform partner margin (bps)	130	78	64	66 BPS	71	72	(1 BPS)
Leonteq margin (bps)	127	84	83	44 BPS	84	115	(31 BPS)
Insurance & Wealth Planning Solutions	H1 2020	H2 2019	H1 2019	Change	FY 2019	FY 2018	Change
					y-o-y			y-o-y
Total operating income (CHFm)	24.7	32.2	16.1	53%	48.3	29.7	63%
Total operating expenses (CHFm)	(8.5)	(8.0)	(7.4)	15%	(15.4)	(11.7)	32%
Profit before taxes (CHFm)	16.2	24.2	8.7	86%	32.9	18.0	83%
Number of outstanding policies1	49,746	47,237	44,287	12%	47,237	41,195	15%
							* At the end of the respective period
23.07.2020	23

1 At the end of the respective period

REGIONAL RESULTS

	Fee income breakdown	H1 2020	H2 2019	H1 2019	Change	FY 2019	FY 2018	Change
	CHFm				y-o-y			y-o-y
	Switzerland
	82.0	59.3	52.4	56%	111.7	115.3	(3%)
	Europe (excl. Switzerland)	113.2	69.8	55.2	105%	125.0	125.3	0%
	Asia	17.8	14.9	13.3	34%	28.2	31.9	(12%)
	Total net fee income	213.0	144.0	120.9	76%	264.9	272.5	(3%)
	Staff breakdown	30.06.2020	31.12.2020	30.06.2019	Change	31.12.2019	31.12.2018	Change
					y-o-y			y-o-y
	Switzerland	357	350	342	4%	350	335	4%
	Europe (excl. Switzerland)	95	85	79	20%	85	77	10%
	Asia	71	73	74	(4%)	73	74	(1%)
	Full-time equivalents	523	508	495	6%	508	486	5%
	of which Sales	91	92	87	5%	92	90	2%
	of which IT	139	138	128	9%	138	117	18%

23.07.2020 24

HIGH-QUALITY INVESTMENT PORTFOLIO (Ø AA RATING) WITH CHF 2.5 BILLION AT END-JUNE 2020

By credit rating

5%

31%

30%

34%

Aaa

Aa1-Aa3

A1-A3

Baa1-Baa3

By type of investment

18%

35%

47%

Governments & Supranationals

Corporates

Financials

By accounting measurement

34%

66%

Fair value through profit and loss

Fair value through other comprehensive income

23.07.2020 25

SHAREHOLDER STRUCTURE

Shareholder structure1

Significant shareholders1,2
Raiffeisen Switzerland3	29.02%
Lukas T. Ruflin	8.17%
Sandro Dorigo	2.79%

27%

17%

Subtotal shareholders' agreement	39.98%
Rainer-Marc Frey	10.03%
Credit Suisse Funds AG	5.34%
Swisscanto Fondsleitung AG	3.03%

7%

34%

Directors and Executives4	0.99%
Total	59.37%

15%

Retail investors	Banks
Funds	Other legal entities
Not registered

1. As per Leonteq share register on 30 June 2020
2. Significant shareholdings disclosures on SIX Swiss Exchange
3. Includes 2.9% of shares subject to call options held by Lukas Ruflin
4. Excluding shareholdings of Lukas Ruflin

23.07.2020 26