Annual report 2007/2008 This is a free translation into English of a report issued in the French language and fi led with the “Autorité des marchés fi nanciers” on August 1, 2008. This translation is provided solely for the convenience of English speaking readers and shareholders. This report should be read in conjunction with, and construed in accordance with, French law and regulatory standards applicable in France. Combined annual general meeting dated September 29th, 2008 02 Message from the Chairman of the Executive Board 04 Key fi gures 06 Historical data for the last three years 1. GENERAL OVERVIEW 11 The Group 17 Shareholders’ guide 23 Banking activities 37 Private equity 2. LEGAL AND FINANCIAL INFORMATION 57 Report of the Executive Board 97 Consolidated fi nancial statements 175 Individual fi nancial statements 201 Resolutions The 2007/2008 Þ nancial year saw the completion of a major restructuring of the Rothschild Group: the reuniÞ cation of worldwide banking activities. The long-term sustainability, independence and stability of the share ownership and 01 family control of Paris Orléans were enhanced through the creation of Rothschild Concordia, the controlling shareholder of Paris Orléans. MESSAGE FROM THE CHAIRMAN OF THE EXECUTIVE BOARD 02 Dear shareholders, As announced in the press on 17 July 2007, The strategy refl ecting the family shareholders’ common 2007/2008 marked the successful completion of goal to create a major group is now bearing fruit. The a major restructuring of the Rothschild group. This Group’s infl uence and reputation are underpinned by move, consisting of grouping the banking activities at the quality of its people and the standing of its clients a global level, had been long sought and awaited by as well as by a corporate culture that values innovation, the markets. clear thinking and integrity. With 100% of the capital of Concordia BV, the holding The reorganisation of the family share ownership company for Rothschild’s banking activities, Paris structure and acquiring control of the banking group Orléans now heads a group that has been active at have therefore significantly changed Paris Orléans’ the heart of the world’s fi nancial markets for more than position. two centuries. The survival, independence and stability of the family Concordia BV, which through its subsidiary Rothschilds ownership and control of Paris Orléans over the Continuation Holdings holds 100% of NM Rothschild long term have been reinforced through the creation & Sons Limited in London and 44% of the Rothschild of Rothschild Concordia, Paris Orléans’ controlling & Cie Banque group in Paris, posted net consolidated shareholder, which groups the members of the French income of €99.1 million in 2007/2008 compared with and English branches of the Rothschild family. €113.5 million the previous year. 03 These results refl ect the favourable conditions in the 2007/2008 was therefore a year of growth for Paris first part of the financial year followed by the major Orléans. Consolidated net income for the financial upheaval experienced by the fi nancial markets towards year ended 31 March 2008 came to €125.9 million the end of the period. (compared with €54 million for the year ended 31 March 2007) after the accounting adjustments linked The Group’s investment banking business once again to acquiring control of Concordia BV. Group share led the way in its role as advisor to businesses and of consolidated net income came to €109.1 million governments, achieving a record volume of business compared with €54.1 million in 2006/2007. We are in Europe refl ected by its head ranking in the United therefore proposing a higher dividend of €0.55 per Kingdom, France and Germany. share this year versus €0.50 per share in 2006/2007. As you know, we already have a private equity business Lastly, the earnings outlook for 2008/2009 can at the Paris Orléans level, which we present later on already count on our recent exit from the Manufaktura in this report. We actively continued our development commercial centre at Lodz (Poland), which will generate strategy, investing €151 million in 2007/2008 compared a contribution of €54.1 million net of tax. with €83 million the previous year. Disposals during the year amounted to €107.5 million and generated €75.5 million in consolidated capital gains before tax. In particular, completion of the secondary LBO on insurance broker SIACI contributed €59.2 million (of which €31.7 million from the LBO carried out in September 2003). Sylvain Hefes KEY FIGURES 04 €109 million €633 million in consolidated net income shareholders’ equity (group share) (group share) €1,081 million €34.2 of net asset value of net asset value per share Net asset value of Paris Orléans as at 31 March 2008 % total % private Business 31/03/2008 assets equity 31/03/2007 % Change Banking 774 62% - 354 48% 420 Long-term investments 23 2% 5% 21 3% 2 LBO/Equity funds 98 8% 20% 95 12% 3 LBO/Mezzanine 116 9% 24% 57 8% 59 Investment funds 69 6% 14% 61 8% 8 Listed investments 62 5% 13% 87 12% (25) Real estate 62 5% 13% 31 4% 31 Other 29 2% 6% 27 4% 2 Growth capital 21 1% 5% 12 2% 9 05 Total gross assets 1,254 100% - 745 100% 509 Financial debt (150) - - 21 - (171) Tax liabilities and unrealised tax (23) - - (22) - (1) on capital gain Total liabilities (173) - - (1) - (172) NET ASSET VALUE (in €M) 1,081 - - 744 - 337 Per share 34.2 - - 29.5 - 4.7 Growth in the investment portfolio (€1,254 million versus €745 million as at 31 March 2007) 1,400 16 1,200 151 1,000 30 (108) 92 480 328 800 600 391 400 774 200 354 0 Gross assets as Investments Disposals Unrealised capital gain Others Gross assets as at 31/03/2007 (net of write down) at 31/03/2008 Banking activities Private equity HISTORICAL DATA FOR THE LAST THREE YEARS 06 BANKING During the past year, Paris Orléans acquired 100% Orléans, was financed as follows: €106 million in control of Concordia BV, the ultimate holding cash (through borrowing) and €222 million through company for Rothschild Group banking activities. the issue of new Paris Orléans shares at €343.15 per share. On 22 January 2008, the acquisition, for €328 million, of the 42.5% of Concordia BV not yet held by Paris PRIVATE EQUITY Paris Orléans made 35 new direct investments Although there was little change in the number of during the financial year, compared to 31 in the transactions, however, the amount invested almost previous year. doubled. 1. Investments 2. Disposals 160 150.9 140 140 120 107.5 120 100 100 76.0 83.3 80 80 69.3 60 60 40 40 28.9 20 20 0 0 2005/2006 2006/2007 2007/2008 2005/2006 2006/2007 2007/2008 LBO/Mezzanine Growth capital Listed companies LBO/Equity Real estate Others These transactions amounted to €151 million Total disposals generated €107.5 million (versus compared to €83.3 million in 2006/2007, with €69.3 million the previous year). The most signifi cant the majority of investments going into mezzanine were the exit from the capital of Courcelles financing (€75 million) and equity (€60 million) Participations when Siaci and ACSH merged (a transactions. disposal that generated €63.3 million, of which Paris Orléans reinvested €26.9 million in the new entity), Despite the weakening economic situation, stock and the disposal of the stake in Onet following the markets in turmoil, and a non-existent LBO market simplified takeover bid by the holding company for large capitalisations, the LBO market remains Reinier, which already held 44% of Onet’s capital. active in the small and mid-caps sectors. CONSOLIDATED INCOME Net profi t for the 2007/2008 fi nancial year amounted Banking activities enjoyed favourable conditions to €109.1 million, up substantially from the previous during the fi rst part of the fi nancial year, followed fi nancial year (€54.1 million). This increase was largely by the major upheaval that impacted the fi nancial due to the private equity activity, which made a net markets in the second part of the period. Accordingly, 07 contribution of €89 million, while that of the banking the investment banking activity reached a record activities remained stable at €20.1 million. However, level of revenues and profits, whilst the US sub- in 2007/2008 Paris Orléans Group acquired 100% prime credit shock and subsequent liquidity crisis control of the capital of Concordia BV, the ultimate dislocated trading conditions for our small UK holding company for Rothschild Group banking commercial banking business. This resulted in losses activities. Therefore, the banking activities’ results are of €88.4 million in the income statement: €72 million not comparable between the two fi nancial years. in losses related to investments in structured financial products such as CDOs (collateralised More specifi cally, the private equity activity realised debt obligations),some of which were exposed to substantial capital gains from the disposal of its US sub-prime mortgages, and a €16.4 million fall, interests in Courcelles Participations (the holding resulting from fair value movements on in respect of company for the insurance broker Siaci) and Onet investments in synthetic CDOs (these nevertheless (a listed corporate services group), amounting to are not impaired and retain the potential to increase €59.2 million and €10 million respectively. in value in the future). 3. Net contribution of 4. Consolidated the businesses to shareholders’ equity consolidated income (in M€) (in M€) 120 109 1,600 1,456.6 1,400 100 20 1,200 80 1,000 823.9 54 588.3 60 800 528.9 5.3 38 600 19.6 40 20 89 13 400 632.7 20 509.3 583.0 25 34 200 0 0 2005/2006 2006/2007 2007/2008 2005/2006 2006/2007 2007/2008 Private equity net contribution Shareholders’equity (Group share) Banking activities net contribution Minority interests 08 1.