Rothschild & Co Annual Report 2019 Annual Report 2019 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%.