Rothschild & Co Annual Report 2019 Annual Report 2019 Report Annual Our unique heritage and outstanding record of achievement are driven by a strong values-driven culture, captured in our Guiding Principles: Thoughtful, Principled and Creative Contents
Message from the Chairman of the Supervisory Board 2 Message from the Managing Partners 4 1. Overview Overview of businesses 8 Rothschild & Co business model 10 World presence 12 Corporate governance 14 Organisation chart as at 31 December 2019 17 Corporate Responsibility 18 Rothschild & Co and its shareholders 20 2. Business review Global Advisory 26 Wealth and Asset Management 32 Merchant Banking 36 3. Management report Results for the 2019 financial year 46 Information on the Company and share capital 55 Internal control, risk management and accounting procedures 71 Report on corporate governance 80 Corporate Responsibility 118 4. Financial statements Consolidated financial statements 150 Parent company financial statements 218
Rothschild & Co | Annual Report 2019 1 Message from the Chairman of the Supervisory Board
Dear Shareholders, Firstly, I would like to thank the Board members for their It is the Supervisory Board’s responsibility to ensure that continued support and engagement with Rothschild & Co. corporate governance standards and recommendations We all benefit hugely from their experience and wisdom are respected. The Supervisory Board exercises both during and outside our Board meetings. permanent oversight of the Company’s management, including in particular its financial reporting system The Managing Partner, represented by Alexandre de and internal control mechanisms. Rothschild, Executive Chairman, and the three Managing Partners, Marc-Olivier Laurent, Robert Leitão and François At the Annual General Meeting held on 16 May 2019, the Pérol, has delivered robust results in a more complex shareholders approved the re-election of Angelika Gifford, market environment than 2018 which was a record year Luisa Todini, Carole Piwnica, Arielle Malard de Rothschild, for the Group. Beyond 2019 and the current year 2020, Daniel Daeniker and Adam Keswick as members of the the Management Team are working hard together to build Supervisory Board, and François Henrot as censeur. a clear but nevertheless ambitious strategy in order to In addition, to reflect the importance the Group gives bring long-term value for shareholders. to Corporate Responsibility, Lucie Maurel-Aubert has In April, Rothschild & Co Concordia SAS (“Concordia”), accepted to act as the lead director for this area the family holding company and main shareholder of and as correspondent of the Board for the Executive Rothschild & Co announced a reorganisation of its share Management team. A Board Committee has been created capital. The French branches of the Rothschild family, that for this purpose. Furthermore, we have published a of Eric de Rothschild and that which I represent, agreed Corporate Responsibility report with the Annual Report, to acquire a major part of the Concordia shares held for which you can also find on our website. the benefit of the English branch of the Rothschild family. We, the French branch, have also contributed shares directly held in Rothschild & Co to Concordia, thereby making Concordia the main shareholder in Rothschild & Co. This operation is in line with our desire to make a long-term commitment at the head of Rothschild & Co to better pursue its development.
2 Rothschild & Co | Annual Report 2019 I must also advise you that Peter Smith, who has In this Annual Report, as well as on the Company’s been a member of the Supervisory Board for eight website, you will find detailed information on the years announced his decision to retire. Peter has been composition of the Supervisory Board and its specialised Chairman of the Audit Committee and member of the committees, as well as the other directorships held by Remuneration and Nomination Committees as well the Board members. as member of the Risk Committee. Prior to joining the In our Annual General Meeting document to be published Supervisory Board of Rothschild & Co, Peter served soon on our website, you will find the information required 19 years on the Board of NM Rothschild & Sons Limited, by law about the members of the Board due to be and 12 years on the Board of Rothschild & Co Bank AG re-elected at this year’s Annual General Meeting. and was a member of its Audit Committee. It is difficult to detail the immensely positive impact that Peter has Last, but not least, I would like to thank you as always had over his long period with the Group. His pertinent for your constant support for Rothschild & Co. advice, his astute observations and his keen mind will be deeply missed and I would like to thank him, on behalf of the Board, for the important role he has played for the David de Rothschild Group over this period. Chairman of the Supervisory Board of Rothschild & Co Sir Peter Estlin has joined the Board following Peter Smith’s departure. Sir Peter’s track record in the financial markets is exceptional and includes the role of CFO for Salomon Brothers Asia, for Citigroup Investment Banking and for Barclays plc. In addition, he is a former Lord Mayor of the City of London and currently an Alderman of the City of London Corporation. We are delighted that he has accepted our invitation to join the Board and we very much look forward to working with him. I am delighted at the prospect of working with this strong team and benefitting from their sound advice.
Rothschild & Co | Annual Report 2019 3 Message from the Managing Partners
Dear Shareholders, Following a record year for the Group in 2018, we Despite this, we continued to be highly active in large and are pleased that Rothschild & Co has again in 2019 complex debt advisory and restructuring situations. Once produced good results thanks to our outstanding again, we advised on more European equity assignments employees, balanced business mix, broad client reach than any other independent adviser(4) during the year. and underlying strong European position. In addition, our relatively new Investor Advisory business continues to grow successfully. Our Global Advisory business performed well despite lower market activity. We continue to advise on more During 2019, we promoted 19 new MDs across the transactions than any other adviser in Europe, providing business, demonstrating our focus on growing talent solid revenue streams and placing us in a unique position from within. In addition, we recruited new MDs into our to understand market trends and enabling us to provide German, Asian and French businesses, as well as a the best advice to our clients. new Head of Sovereign Advisory and a new Co-Head of Shareholder Engagement to enhance our Investor Global Advisory delivered record quarterly revenue of Advisory practise. We also continued our ongoing €394 million in the fourth quarter of 2019, up 16% QoQ, strategic investment in North America, with five new reflecting continued momentum in the business. For the MDs joining. full year of 2019, revenue was €1,160 million, 9% lower than 2018 which was our record year. For the twelve During the last quarter of 2019, Global Advisory months to December 2019, we ranked 7th globally completed the acquisition of Livingstone in the United by financial advisory revenue(1). Kingdom. The acquired business, which focuses on the UK lower-mid market segment, has been renamed Operating income for 2019 was €182 million, Arrowpoint Advisory and will give us a unique opportunity representing an operating income margin of 16%. for us to take advantage of a significant transactional M&A advisory revenue for the year was €875 million, flow. Also, in the same quarter, we acquired a significant down 7% compared to last year but compared favourably minority investment in Redburn, an independent producer to a 14% fall in global M&A activity(2). For 2019, we of premium European equity research and agency maintained our market leading position ranking 2nd execution services. globally and 1st in Europe by number of completed Our Wealth and Asset Management business continues transactions(3). to attract new clients thanks to our long-term investment Financing Advisory revenue decreased by 14% to €285 approach. The business model, based on organic growth million. This reflected more challenging equity markets and helped significantly by the synergies between our and cyclically low levels of corporate restructuring activity. three businesses, continues to flourish.
(1) Source: Company filings. (2) Source: Refinitiv. (3) Source: Refinitiv, completed transaction, excludes accountancy firms. (4) Source: Dealogic.
4 Rothschild & Co | Annual Report 2019 1. Overview
Net New Assets (NNA) were strong at €2.4 billion. All Outlook European countries in Wealth Management saw positive At the start of 2020, the outlook for our three businesses net inflows, with a record year in France. Assets under was positive with a strong pipeline in Global Advisory and Management (AuM) increased by 17% to €76.0 billion the expectation of good AuM growth in both Wealth and as at 31 December 2019. The growth was driven both Asset Management and Merchant Banking. However, by strong NNA as well as more favourable market since the announcement of our results on the 10 March, conditions, which recovered during 2019 following the the impact of Covid-19 has worsened significantly decline in the fourth quarter of 2018. resulting in further declines in financial markets and Wealth and Asset Management delivered strong quarterly increased volatility. Further, the measures taken in revenue of €134 million in the fourth quarter of 2019 up many countries to counteract the virus are having a 2. Business review 12%. For the full year of 2019, revenue was €497 million, major impact on economic activity. Although there is up 3%. Operating income for 2019 was €73 million still significant uncertainty around how this will develop representing an operating margin of 15%. and, hence, the degree to which this will impact our 2020 financial results, it is clear that the effect will be Merchant Banking enjoyed another strong year with materially detrimental compared to 2019. positive developments across all of our strategies. The division continued to perform strongly during 2019, Despite the difficult trading environment, the Group generating revenue of €197 million, up 13%. When benefits from a strong balance sheet with a capital compared to the average full-year revenue for the ratio of 19% and a significant level of liquidity. We are last three years, revenue is up 20%. confident that we will see a significant improvement in performance once markets start to return to a more Carried interest in 2019 was higher than last year as normal situation. several funds achieved their respective carried interest accrual thresholds during the year. The combined At Rothschild & Co we take pride in attracting the contribution of carried interest and investment income industry’s brightest minds to form our distinct demonstrates the ongoing strong performance of the perspectives. It is this diverse set of skills, personalities
Merchant Banking funds in 2019. and experiences that allows us to achieve such strong 3. Management report results and I would like to take this opportunity to thank Operating income was €111 million in 2019, up 9%, all our colleagues across the world for their hard work representing a 56% operating margin. Investment and dedication during this year. performance-related revenue from core strategies remained strong in 2019, as Merchant Banking’s flagship European mid-market private equity funds, FAPI I and FAPI II, continued to deliver successful Alexandre de Rothschild exits as well as generating significant unrealised Executive Chairman of Rothschild & Co Gestion gains on their existing investments. Marc-Olivier Laurent The alignment of interests between the Group and our Robert Leitão third-party investors remains a key differentiator for this François Pérol business. During 2019 the Group’s share of the capital Managing Partners of Rothschild & Co Gestion deployed by the division amounted to €126 million and receipts of €104 million following the sale of the underlying funds.
Merchant Banking’s AuM were €14 billion as at statements 4. Financial 31 December 2019, up 27%, mainly due to new fund launches FAPI III and FASO V, and new CLO vehicles in Europe and the US.
Rothschild & Co | Annual Report 2019 5 We place high emphasis on good conduct, personal accountability and commitment in the way we work with each other and our clients.
6 Rothschild & Co | Annual Report 2019 Overview
Overview of businesses 8 Rothschild & Co business model 10 World presence 12 Corporate governance 14 Organisation chart as at 31 December 2019 17 Corporate Responsibility 18 Rothschild & Co and its shareholders 20
Rothschild & Co | Annual Report 2019 7 Overview
Key figures for 2019 (versus 2018)
Revenue Net profit – Group shares(1) €1,872m -5% €233m -23%
EPS (Earnings per share)(1) ROTE (Return on Tangible Equity)(1) €3.24 -21% 12.6%
Shareholders’ equity – Group share Number of employees €2,240m +10% 3,559 -2%
Global Advisory
• M&A and Strategic Advisory nd st • Financing Advisory 2 globally and 1 in Europe –– Debt Advisory and Restructuring by number of completed M&A transactions(2) –– Equity Advisory • Worldwide platform with a presence in over 40 countries • 1,163 bankers, of which 239 th by revenue are Managing Directors 7 globally (12 months to December 2019) • Advisor on 581 transactions with a total value of US$480 billion
Revenue (in millions of euros)
2017 68% 32% 1,183
2018 74% 26% 1,271
2 1 2 1 1
M&A Advisory Financing Advisory
(1) Excluding exceptional items. For more information, please refer to page 48. (2) Source: Refinitiv.
8 Rothschild & Co | Annual Report 2019 1. Overview
Wealth and Asset Management
• Wealth Management • Asset Management €76.0bn • Strong European presence Assets under management • 226 client advisors for Private Wealth (as at 31 December 2019)
• 53 investment managers for 2. Business review Asset Management
Assets under management (in billions of euros)
2017 63% 37% 67.3
2018 66% 34% 64.8
2 1 33 . 3. Management report Wealth Management Asset Management
Merchant Banking
• Corporate private equity • Secondaries, multi-manager funds €14.0bn and co-investments Assets under management • Direct lending (as at 31 December 2019) • Credit management 4. Financial statements 4. Financial • Solid position in Europe • 91 investment professionals
Assets under management (in billions of euros)
2017 11% 89% 8.3
2018 9% 91% 11.1
2 1 1 14.
Group Third Party
Rothschild & Co | Annual Report 2019 9 Rothschild & Co business model
Our purpose
With 200 years of experience we provide a distinct perspective that makes a meaningful difference to our clients’ business and wealth
Values-driven Three established culture businesses
We promote a culture of responsible One group consisting of three business and long-term value established businesses creation for our clients, stakeholders and investors
Thoughtful Global Merchant Considered Advisory Banking We provide advice We are the investment Strategic in M&A, Strategic arm of the Group deploying Long-term Advisory and Financing the firm’s and third parties’ Advisory, encompassing: capital in private equity Restructuring, Debt Advisory and private debt opportunities, and Equity Advisory. alongside a select Our clients include set of leading corporations, private institutional and equity, families, Global Reach private investors entrepreneurs and Local Presence Principled governments Responsible Family Owned Empathetic Committed Wealth and Asset Management We invest, structure and safeguard assets, creating innovative investment solutions to preserve and grow our Creative clients’ wealth Innovative Collaborative Entrepreneurial 43 62 3,559 countries locations employees
10 Rothschild & Co | Annual Report 2019 1. Overview 2. Business review
Key Business differentiators aligned strategy
Long-term view Sustainable We are a long-standing and trusted partner to large institutions, families, individuals value creation and governments: Three established businesses with strong synergies • We are an independent, family-controlled business and our focus is on 3. Management report long-term growth between them focused on long-term growth • We are unconstrained by short-term thinking and can take a long-term view in order to deliver the objectives of each client and offer sustainable shareholder return
Enduring relationships Balanced growth Talented and motivated employees are the lifeblood of our business and the Stable growth across our foundation of everything we provide to our clients: three businesses mitigating the effects of cyclical markets
• We focus on creating an inclusive culture that encourages the highest standards statements 4. Financial of quality, professionalism and ethics. Our culture is built on the quality of our people, who embody our values • The dedication and knowledge of our workforce enables us to create real value for all our stakeholders
Culture of responsible business Shareholder returns We encourage a culture of responsible business and proactively take responsibility By focusing on an efficient for the impact we have as a business on our: use of capital, we generate a sustainable profit and can • People ensure a progressive • Industry dividend policy • Environment • Communities
Rothschild & Co | Annual Report 2019 11 World presence
An unrivalled network of specialists at the centre of the world’s financial markets, Stockholm Tallinn(1) combining scale with deep local knowledge. Riga(1) Moscow Copenhagen Vilnius(1) Manchester Leeds Minsk(1) Birmingham Amsterdam Warsaw London Düsseldorf Brussels Frankfurt Guernsey Kiev(1) Luxembourg Prague(1) Paris Zurich Lyon Geneva Milan Bordeaux Aix-en-Provence Marseille Monaco
So a(1) Istanbul Madrid Lisbon Athens
Tel Aviv
Toronto Chicago Beijing New York Palo Alto (1) Washington Seoul Tokyo Los Angeles
Shanghai
Doha Dubai Hong Kong Abu Dhabi Mexico City Mumbai 62 Manila locations
Kuala Lumpur Singapore
Jakarta 43
countries São Paulo
Johannesburg
Santiago(1) Sydney Auckland(1) Global Advisory Melbourne (1) Alliance Partners Wellington(1) Wealth and Asset Management Merchant Banking
12 Rothschild & Co | Annual Report 2019 1. Overview
Stockholm Tallinn(1)
Riga(1) Moscow Copenhagen Vilnius(1) Manchester Leeds Minsk(1) Birmingham Amsterdam Warsaw London Düsseldorf 2. Business review Brussels Frankfurt Guernsey Kiev(1) Luxembourg Prague(1) Paris Zurich Lyon Geneva Milan Bordeaux Aix-en-Provence Marseille Monaco
So a(1) Istanbul Madrid Lisbon Athens 3. Management report Tel Aviv
Toronto Chicago Beijing New York Palo Alto (1) Washington Seoul Tokyo Los Angeles
Shanghai
Doha Dubai Hong Kong Abu Dhabi Mexico City Mumbai Manila 4. Financial statements 4. Financial
Kuala Lumpur Singapore
Jakarta
São Paulo
Johannesburg
Santiago(1) Sydney Melbourne Auckland(1)
Wellington(1)
Rothschild & Co | Annual Report 2019 13 Corporate governance
Managing Partner
At the date of the present report, Rothschild & Co Gestion is the Managing Partner (Gérant) of Rothschild & Co, responsible for the overall management of the Company, the Group’s lead holding company. This includes, among other things, establishing the strategic direction of the business, supervising the accounting and financial information, and directing the internal control framework for Rothschild & Co and the Group entities on a consolidated basis. The Managing Partner relies on the Management Board (Conseil de Gérance) to fulfil its role.
The Management Board comprises:
Alexandre de Rothschild Executive Chairman
Marc-Olivier Laurent Robert Leitão François Pérol Managing Partner Managing Partner Managing Partner Co-chairman of the GEC Co-chairman of the GEC
14 Rothschild & Co | Annual Report 2019 1. Overview
Group Executive Committee 2. Business review At the date of the present report, the Group Executive Committee (GEC), whose members 14 are the most senior corporate officers of the Group’s business and support divisions, is the members senior executive committee at Rothschild & Co. In its role, the GEC participates in the overall management and definition of the strategy of the Group, represented by the Executive Chairman and Managing Partners, so that Rothschild & Co can ensure proper implementation of this strategy across the Group. Co-chaired by Robert Leitão and François Pérol, the GEC comprises: 3. Management report
Paul Barry Grégoire Chertok Mark Crump Laurent Gagnebin Group Human Resources Head of Global Advisory, France Group Chief Financial Officer Head of Rothschild & Co Bank AG Director Deputy Head, Global Advisory Group Chief Operating Officer Co-Head, Wealth Management 4. Financial statements 4. Financial
Javed Khan Marc-Olivier Laurent Alain Massiera Jimmy Neissa Head of Merchant Banking Managing Partner Head of France Wealth and Head of Rothschild & Co, Chairman of the Merchant Executive Chairman of Asset Management North America Banking Management Merchant Banking Deputy Head, Global Advisory Committee
Gary Powell Martin Reitz Helen Watson Jonathan Westcott Executive Chairman of Wealth Head of Rothschild & Co, Head of Wealth Management, UK Group Head of Legal Management Germany Co-Head, Wealth Management and Compliance Deputy Head, Global Advisory
Rothschild & Co | Annual Report 2019 15 Corporate governance
Supervisory Board and specialised committees
At the date of the present report, the Supervisory Board exercises permanent oversight of the management of the Company, including in particular the Company’s 14 financial accounting reporting system and its internal control mechanism. board members The Supervisory Board relies on four specialised committees: the Audit Committee, the Remuneration and Nomination Committee, the Risk Committee and the Corporate Responsibility Committee. At the date of this report, the composition of the Supervisory Board and its specialised committees is shown in the table below:
Specialised committees Remuneration Corporate Supervisory Audit and Nomination Risk Responsibility 7 Members Board Committee Committee Committee Committee independent David de Rothschild – French members Lucie Maurel-Aubert – French Eric de Rothschild – French Adam Keswick – British Dr. Daniel Daeniker – Swiss 8 Anthony de Rothschild – British nationalities Angelika Gifford– German Sylvain Héfès – French Suet-Fern Lee – Singaporean Arielle Malard de Rothschild – French Carole Piwnica – Belgian 43% Sipko Schat – Dutch of women Sir Peter Estlin – British Luisa Todini – Italian François Henrot – French
Chairman Vice-chairman Independent member Non-independent member Non-voting member (Censeur)
16 Rothschild & Co | Annual Report 2019 Organisation chart as at 31 December 2019 1. Overview 2. Business review nlarge amil concert 1 Float 2 4 . 44.4 2. voting rig ts 3 .3 voting rig ts