Rothschild & Co Annual Report 2016/2017 Annual Report 2016/2017 Contents Message from the Chairman of the Supervisory Board 6 Message from the Chairman 7 Message from the Management Board 8 1. Overview Overview of businesses 12 World presence 14 Corporate governance 16 Organisation chart 19 Corporate Social Responsibility 20 Shareholder information 21 2. Business review Rothschild Global Advisory 26 Rothschild Private Wealth & Asset Management 32 Rothschild Merchant Banking 38 3. Management report Results for the 2016/2017 financial year 50 Information on the Company and share capital 59 Corporate governance 73 Internal control and risk management procedures 96 Corporate Social Responsibility 104 4. Financial statements Consolidated financial statements 122 Parent company financial statements 187 The Rothschild & Co offices in Paris Rothschild & Co | Annual Report | 2016/2017 3 History Preserving a first-class reputation across generations Paris Orléans streamlines Relaunch of Rothschild’s its organisation, French financial optimises its regulatory activities through capital and preserves Rothschild & Co pursues Creation of Paris Orléans following family control, with its simplification with Rothschild & Co offers Paris Orléans, the nationalisation of the its conversion into the removal of banking full-scale financial advice a French railway Rothschild a partnership licences and the sale and services around the company. French bank in 1981. limited by shares. of non-core business. world. 1838 1982 2012 2016 Today 1937 2008 2015 2017 Paris Orléans Paris Orléans acquires Paris Orléans Rothschild & Co discontinues its control of the banking changes its name completes the merger railway business. activities at a global to Rothschild & Co, with Compagnie level and completes a necessary outcome Financière Martin reorganisation of of the Group’s Maurel. family shareholdings transformation. following the unification of the worldwide Group structures in 2003. 4 Rothschild & Co | Annual Report | 2016/2017 Highlights A distinct perspective that makes a meaningful difference Key figures (as at 31 March 2017) Rothschild & Co provides independent advice Revenues on M&A, strategy and financing, as well as investment and private wealth and asset +11% management solutions to large institutions, €1,767m families, individuals and governments, worldwide. With approximately 3,400 talented employees Operating income on the ground in over 40 countries around the world, we deliver a unique global perspective. €429m +34% As a family-controlled business that has been at the centre of the world’s financial markets for over 200 years, we can rely on an unrivalled network of experts and are known for our Net profit – Group share(1) track-record of outstanding execution in financial services. €193m +43% Our integrated global network of trusted professionals and decision-makers provide in-depth market intelligence, meaning we can be closer to current issues than any other global EPS(1) (Earnings Per Share) financial institution in our core markets. Informed by experience yet not limited by +41% convention, we are able to separate insight €2.74 from information and access opportunities for our clients from a unique angle. It is this scale, local knowledge and intellectual ROTE(1) (Return On Tangible Equity) capital that allow us to provide a distinct perspective and effective long-term solutions 14.6% +29% for our partners. Shareholders’ equity – Group share €1,829m +20% (1) Excluding exceptional items. For more information, please refer to page 50. Rothschild & Co | Annual Report | 2016/2017 5 Message from the Chairman of the Supervisory Board Dear Shareholders, I would like to take this opportunity to thank the Board, It is also my responsibility to ensure that the Supervisory the management team and the employees for all their hard Board discharges its responsibilities regarding internal work this last year allowing us to announce excellent full control and risk management matters. I would particularly year financial results. The Managing Partner, represented like to thank the chairmen of our Risk and Audit Committees by its Chairman, David de Rothschild, its Executive Deputy for the time that we regularly spend together, prior to each Chairman, Alexandre de Rothschild and the four Managing Board meeting to discuss the different subjects under Partners, Nigel Higgins, Marc-Olivier Laurent, Robert Leitão debate by the respective committees. and Olivier Pécoux, lead the Group with energy and a clear vision. Together, they successfully ensure that the unique At our next Shareholders’ General Meeting, which will take culture found within Rothschild & Co is upheld, thereby place on 28 September 2017, Jacques Richier, appointed guaranteeing the exceptional high standard of work we for the first time to the Board in 2010, will end his term of offer our clients, and producing such good results. office. He would like to devote his time to his new mandate within the Group, a Board member of Rothschild Martin At the Shareholders’ General Meeting held on Maurel. We are particularly pleased that Jacques Richier 29 September 2016, the merger by absorption of the wishes to dedicate his time to this new entity for which we company Compagnie Financière Martin Maurel was widely thank him profusely. approved. This merger, completed on 2 January 2017, will create a leading independent private bank in France, In our Shareholders’ General Meeting document to be Rothschild Martin Maurel. It builds upon the relationship published soon, you will find more detailed information on that has existed between the Rothschild and Maurel the Board’s composition and in particular regarding those families for three generations. members whose re-election will be on the agenda of the Shareholders’ General Meeting this year. Shareholders will As Chairman of the Supervisory Board, my role is to ensure also be asked to approve an increase of 8% in the dividend that the Company maintains a high level of corporate to €0.68 per share at the same meeting. governance. The composition of the Supervisory Board has changed over the past 12 months, two members have left As always, I would like to thank you for your continued the Board and a new member has been nominated. It was support for Rothschild & Co. with great sadness that we informed you of the passing away of Lord Leach of Fairford on 12 June 2016. Adam Keswick was appointed his successor at the Shareholders’ General Meeting held on 29 September 2016. Martin Éric de Rothschild Bouygues, after many years as a Board member, resigned Chairman of the Supervisory Board of on 27 September 2016 for personal reasons. Rothschild & Co Among the 14 members of the Supervisory Board, two-thirds are independent. During the last Shareholders’ General Meeting, five members’ terms of office were renewed as follows: Angelika Gifford, Luisa Todini, Carole Piwnica, Arielle Malard de Rothschild and Dr. Daniel Daeniker. François Henrot was also appointed as a non-voting member (censeur) of the Supervisory Board at the same General Meeting. 6 Rothschild & Co | Annual Report | 2016/2017 Message from the Chairman Dear Shareholders, This year’s financial results are extremely encouraging and Following our announcement last June of the merger confirm that the combination of our heritage, independent between the Compagnie Financière Martin Maurel and model and focus on hiring the best talent are key to the Rothschild & Co, we announced on 2 January 2017 its Company’s success. We are witnessing the true partnership successful completion. The operational integration of the that exists between our three businesses as each goes from two banks Rothschild & Cie Banque and Banque Martin strength to strength. Maurel should be finalised in the next quarter to create Rothschild Martin Maurel. The combination of two family Our Global Advisory business had a record breaking year, owned businesses that share a similar history, culture and with revenues and profits progressing 14% thanks to an vision of their industry creates an outstanding combination increase in our market share of global M&A, and our and will build upon the strong relationship that has existed growing activity in financing advisory. Private Wealth & Asset between the Rothschild and Maurel families for three Management improved revenue by 7% in difficult market generations. conditions and our Merchant Banking business saw revenue jump 32%. We are continuing our focus on the North American market where we believe there are good opportunities for us to Thanks to these strong results, shareholders will be grow, particularly in Global Advisory. Over the past 12 rewarded with a dividend of €0.68 per share, an increase months we have announced the opening of two new offices, of 8% in line with our announced progressive dividend in Chicago and San Francisco, and we have strengthened policy, subject to approval at the Shareholders’ General our core M&A sector coverage and professional talent by Meeting to be held on 28 September 2017. recruiting six new Managing Directors. We now have a total of 170 advisory bankers based in our seven offices in the The global economy has again continued to grow, and the United States, Canada and Mexico. consensus recently has been less pessimistic than usual: even the International Monetary Fund has reviewed its We have also announced this year that we will be changing outlook positively. The new US administration is so far our financial year end from 31 March to 31 December. The having less of an impact on the global economy than many next accounting period will therefore be for the nine months had suggested, and a much-hyped populist backlash to 31 December 2017 with the results for this period being against the EU has faltered in France and also in the published in March 2018. Netherlands and Germany. Meanwhile, a year after the vote for Brexit, the full impact of this decision on the relationship It has been a full and rewarding year and I would like to take between the UK and the EU is far from clear.