Annual Report • Jul 7, 2016
Annual Report
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Foreground: our New Court offices in London.
Background: Detail from a £1,000 bond for the 6% sterling bonds for the Compagnie de Chemins de Fer de Paris à Orléans, issued by the Rothschild family's UK banking business in 1922.
Annual Report 2015/2016
| Message from the Chairman of the Supervisory Board | 6 |
|---|---|
| Message from the Chairman | 7 |
| Interview with the CEOs | 8 |
| 1. Overview | 11 |
| Overview of businesses | 12 |
| World presence | 14 |
| Corporate governance | 16 |
| Organisation chart | 19 |
| Corporate social responsibility | 20 |
| Shareholder information | 21 |
| 2. Business review | 25 |
| Rothschild Global Advisory | 26 |
| Rothschild Private Wealth & Rothschild Asset Management | 32 |
| Rothschild Merchant Banking | 38 |
| 3. Management report | 47 |
| Results for the 2015/2016 financial year | 48 |
| Information on the Company and share capital | 52 |
| Corporate governance | 63 |
| Internal control and risk management procedures | 84 |
| Corporate social responsibility | 92 |
| 4. Financial statements | 105 |
| Consolidated financial statements | 105 |
| Parent company financial statements | 164 |
First of all, following the strong financial results, I would like to thank the management and all our staff for their contribution this year. Thanks to the strategy put in place over the past four years by the Managing Partner represented by its Chairman, David de Rothschild, its Deputy Chairman, Alexandre de Rothschild and the Co-Chief Executive Officers Nigel Higgins and Olivier Pécoux, Rothschild & Co is on a steady track for growth even during different market cycles.
You have been notified of the decision to propose to shareholders the merger between Compagnie Financière Martin Maurel and Rothschild & Co. This proposed merger would create one of the largest private banks in the French financial market place and give our company a particularly positive potential for growth.
In early June we learnt with great sadness of the death of Lord Leach of Fairford, the eminence grise of the Jardine Matheson group, one of our major shareholders. Lord Leach joined NM Rothschild & Sons in London in 1963 and became a partner in 1968 when he was appointed joint head of corporate finance. He stayed with the firm for more than a decade returning in 2006 as a Non-Executive Director of Rothschilds Continuation Holdings AG. Following the Group's reorganisation in June 2012 he was appointed a member of the Supervisory Board. Throughout his time with Rothschild & Co, Lord Leach made a significant contribution to our discussions and we benefited immensely from his experience and his wise counsel. He will be a greatly missed member of the Supervisory Board.
One of the roles of the Supervisory Board is to ensure that Rothschild & Co maintains the highest standards of Corporate Governance. My role as Chairman of the Supervisory Board was to ensure over the past 12 months that we continually monitored the way in which the Group was managed by the Managing Partner, including in particular the financial and accounting reporting system and internal control mechanisms applicable to risk, compliance and internal audit, in accordance with the relevant laws and regulations.
The Supervisory Board, made up of 15 members, (of which nine are independent) met five times during this financial year. At the General Meeting of shareholders to be held on 29 September 2016, the terms of offices held by Daniel Daeniker, Angelika Gifford, Carole Piwnica, Arielle Malard de Rothschild and Luisa Todini will come to an end. Shareholders will be proposed to deliberate on the renewal of said offices as well as the approval of an increase of 5% in the dividend to €0.63 per share. More detailed information will be presented in the General Meeting Document, grouping all information to be presented to the shareholders, pursuant to the applicable regulations.
I would like to thank you for your support and confidence in the company's long-term success.
Chairman of the Supervisory Board
The Rothschild & Co financial results this year have been satisfactory, with revenues increasing across all our business lines, despite volatility in the financial markets. Since the reorganisation of 2012, our strategy has been to focus our business on three core activities: Global Advisory; Private Wealth & Asset Management; and Merchant Banking, and this year's performance is proof of the success of this strategy and the resilience of our business model. Our Global Advisory business saw a record performance; revenue increased significantly in Private Wealth & Asset Management and, compared to a three-year average, our Merchant Banking business has also seen double-digit growth.
Shareholders will be rewarded with a dividend payment of €0.63 per share, an increase of 5% in line with our announced progressive policy, following approval at the Annual General Meeting to be held on 29 September 2016.
The global economy has continued to grow, and is now roughly one quarter larger than it was before the financial crisis. However, the pace of growth has been lacklustre, and deflation is seen by many commentators, and several central banks, as a continuing risk. Against this backdrop, stock markets fell back from the new highs reached in May 2015, with two periods of pronounced weakness in the late summer of 2015 and the new year.
Political uncertainty increased with the growing refugee crisis and a vigorously contested US presidential election.
At the end of June we learnt that the UK electorate had voted to leave the European Union. A sad and troubling day for Europe as a whole. We sincerely hope that, notwithstanding, Britain remains a part of Europe even if it is not a part of the European Union. Markets have been consequently volatile and may remain so for some time, although we believe that the long-term impact for our business will be manageable.
This financial year has been pivotal as we have achieved several key milestones to focus on our core business.
• In September 2015, we received shareholder approval to change our name from Paris Orléans to Rothschild & Co. This was a logical and necessary outcome of the Group's transformation; underscoring the commitment of the family shareholders to the long-term success of the business. In parallel with this approval, we launched work to refresh our brand so as to demonstrate to all our different stakeholders that we share a common purpose and guiding principles that unite us as a Group. The history of the Rothschild family dates back more than 200 years and our name resonates among our clients as being of the highest standards and utmost quality, but in a highly competitive marketplace, and as we extend our reach beyond our traditional European market, it is increasingly important that we have clearly defined positioning to attract new talent and win clients. Our brand is an important competitive advantage and we need to ensure that we nurture it accordingly.
The last 12 months have been exciting and rewarding and I would like to thank our shareholders and our clients for their constant support. The Rothschild & Co strategy is now well on track and, despite current market volatility, we are able to face the future with confidence.
Chairman of Rothschild & Co Gestion, Managing Partner of Rothschild & Co
Rothschild & Co enjoyed a very good year for the 12 months ended 31 March 2016. Strong performance across all our business lines resulted in an increase in our operating income of 19%. In Global Advisory we maintained our leading position in Europe thanks to market share gain in a challenging market. Private Wealth & Asset Management saw resilient growth thanks to an increase in net new assets, while Merchant Banking continues to increase its assets under management.
This year's robust results are the result of a strategy that was put in place over four years ago and which is starting to bear fruit. Our aim has been to focus on three core businesses: Global Advisory; Private Wealth & Asset Management; and Merchant Banking. Over the past 12 months we completed the sale of our UK asset financing business, Five Arrows Leasing Group (FALG). The results are also testament to our belief in developing long-term relationships with our clients and providing a distinct perspective that will make a meaningful difference to their business and wealth.
The year to March 2016 saw significant macroeconomic activity, including central bank intervention in Europe and Asia, and a slowdown in China's economic growth. Worries about China's economy caused a drop in commodity prices, especially metals and oil, and this spilled over into the equity markets where we saw significant volatility and a general downward trend for all the major indices. This turbulence impacted the IPO market where we saw fewer companies coming to market, but by contrast M&A completed deal value rose 17% on a global level.
Despite this difficult environment, Rothschild & Co enjoyed a strong year for the year ended 31 March 2016. Revenue rose €186 million, or 13%, reaching €1,589 million. This increase was largely due to a record year in Global Advisory (+€161 million) and a steady growth in Private Wealth & Asset Management (+€43 million).
As anticipated, Merchant Banking saw a decrease of revenue (€38 million) due to unusually high investment gains from our proprietary investments portfolio in the previous year. Other revenue increased by €20 million.
Operating income increased by 19% to €319 million and net income – Group share rose to €232 million compared to €144 million in the last financial year, mainly reflecting the exceptional profit of €99 million following the sale of FALG.
Rothschild Global Advisory, which comprises M&A advisory and financing advisory, saw revenue rise 18% versus last year, representing record annual revenue. Operating income for the period was €167 million, an increase of 20% with a 16% operating income margin. By financial advisory revenue for the period, Rothschild ranked 6th globally.
Our M&A advisory revenue rose steeply by 30% to €763 million in a global market which rose 17% on a completed deal basis. This significant out-performance reflects a continuing improvement in market share, particularly in our core European markets, as well as in North America. We remain among the top M&A advisers in the world, rising to 3rd position globally by number of completed transactions, from 4th for the same period last year. In Europe, we remain the market leader, advising on more deals than any of our competitors; a position we have held for more than a decade.
Financing advisory held up well with revenues reaching €277 million, a fall of 5% in the context of lower market activity. During the financial year, we continued to be highly active in large and complex debt advisory and restructuring situations, providing independent advice to clients on approaching 200 debt and restructuring transactions with a total value of more than \$120 billion. We also provided equity advisory services on 21 IPOs with a total value of \$19 billion, including the largest European IPO, and we continued to advise on more European equity assignments than any other independent adviser.
Rothschild Private Wealth & Asset Management revenue climbed 13% to €379 million, the highest in six years. Assets under management were €50.2 billion as at 31 March 2016 compared to €52.1 billion as at 31 March 2015. Net new assets continued their positive trend and were driven by inflows of €2.3 billion in Wealth Management in all of our main offices (France, UK and Switzerland) and of €0.3 billion in Asset Management, reaching €2.6 billion. They were offset, however, by market depreciation, negative exchange rate effects and reclassification of assets from managed to custodial that totalled €4.5 billion.
Rothschild Merchant Banking revenue for 2015/2016 decreased as expected to €107 million, compared to €145 million in the prior year. When we compare this figure to the average of the previous three years, however, revenue increased 12%.
Carried interest, which is earned when funds under our management achieve certain levels of financial performance, represents a small element of revenue, but is expected to start increasing in 2016/2017.
The Group's share of the investments made by the division during the year was €62 million, of which €41 million was the Group's own investments in funds managed by Merchant Banking and €21 million in proprietary investments. Disposals generated proceeds of €144 million, notably from two proprietary investments in SIACI Saint Honoré and Perenco.
As reported at the time of the half-year results, Merchant Banking held a final closing of Five Arrows Principal Investments II ('FAPI II'), the European mid-market private equity fund, at €775 million, well above its target amount of €700 million. In addition, it completed the acquisition of West Gate, a Los Angeles-based credit manager specialising in leveraged loans. Subsequent to this, in March 2016, the Credit Management Division completed the pricing of Contego III, its second European CLO 2.0 offering, with total commitments of €308 million.
Rothschild Merchant Banking continued to expand its product offering towards its clientele of institutions, family offices and high net-worth individuals around the world, resulting in an increase in its assets under management to €4.8 billion as at 31 March 2016 compared to €3.8 billion as at 31 March 2015.
Growth will come from our three core businesses and the synergies that can be found between these three. As a Group, we aim for long-term performance rather than short-term profit, and this is important in the context of volatile markets. The disposal of FALG provided us with a release of capital which we intend to reinvest. We announced in June our intention to merge with the highly reputable Compagnie Financière Martin Maurel, with a view to combining our French activities, confirming our ambition to grow significantly our Private Wealth business.
While in the short term we expect continued good performance, the medium-term outlook is more difficult to predict with any degree of confidence.
For our Global Advisory business, the M&A market overall continues to be active, despite a slow start to the year. Our weighted pipeline remains stronger than at the same time last year at constant exchange rates. While M&A market conditions are largely positive, repeating our 2015/2016 revenue performance will be a challenge, not least given the record second half year revenue performance we delivered. We will continue to invest in the US market where we foresee a strong
potential for growth over the next few years for the Group, given our modest market share.
In Private Wealth & Asset Management, we expect to see continuing growth in revenue and asset inflows. Any significant declines in financial markets over a sustained period of time will, however, impact our assets under management and, therefore, revenue.
In Merchant Banking, we continue to grow our assets under management across our different product offerings. Following the success of FAPI II, we expect to launch further new funds both equity and debt during the year.
Thanks to its long history, exceptional high standards and supremely talented and experienced professionals, Rothschild & Co provides a distinct perspective providing impartial advice, innovative investment solutions and long-term value for clients and shareholders.
We remain committed to building shareholder value through diversifying our revenues so as to be resilient through the cycles, offering a steadily progressive return of capital to shareholders allowing us to invest in our core businesses.
We would like to take this opportunity to thank all our colleagues for their hard work and commitment over the past 12 months, to our clients for their trust in our skills and to our shareholders for their continued support.
Co-Chief Executive Officers of Rothschild & Co Gestion, Managing Partner of Rothschild & Co
| Overview of businesses | 12 |
|---|---|
| World presence | 14 |
| Corporate governance | 16 |
| Organisation chart | 19 |
| Corporate social responsibility | 20 |
| Shareholder information | 21 |
Overview
| Rothschild Global Advisory |
• M&A and strategic advisory • Financing advisory – Debt and restructuring advisory – Equity advisory • Worldwide platform with a presence in over 40 countries • 940 bankers, of which 197 are Managing Directors |
1st in Europe and 3rd globally by number of completed M&A transactions(1) |
|---|---|---|
| • Adviser on approximately 550 transactions with a total value of \$570 billion (1) Source: Thomson Reuters, completed transactions, ranked by number of deals. Excludes accountancy firms. |
6th globally by revenue |
|
| Rothschild Private Wealth & Rothschild Asset Management |
• Private Wealth • Asset Management • Trust services • Strong European presence with targeted extensions in Asia and the United States • 113 client advisers for Private Wealth • 67 investment managers for Asset Management |
€50.2bn of Assets under Management |
| Rothschild Merchant Banking |
• Corporate private equity • Secondaries, multi-managers' funds and direct lending • Credit management • Solid position in France and the United Kingdom • Proprietary investments in emerging countries • 64 investment professionals |
€4.8bn of Assets under Management |
| 711 | |
|---|---|
| 741 | |
Overview
(in billions of euros, as at 31 March)
| 2012 | 56% | 44% | 35.9 |
|---|---|---|---|
| 2013 | 56% | 44% | 38.4 |
| 2014 | 55% | 45% | 42.3 |
| 2015 | 58% | 42% | 52.1 |
| 2016 | 60% | 40% | 50.2 |
| ■ ■ Private Wealth | ■ ■ Asset Management |
| Assets under management | |||
|---|---|---|---|
| (in billions of euros, as at 31 March) | |||
| 2012 | 19% | 81% | 3.0 |
| 2013 | 18% | 82% | 2.9 |
| 2014 | 19% | 81% | 3.2 |
| 2015 | 19% | 81% | 3.8 |
| 2016 | 12% | 88% | 4.8 |
• 64 investment professionals ■ ■ Group ■ ■ Third party
Kuala Lumpur Sydney Melbourne Wellington Auckland Singapore Jakarta Hanoi Hong Kong Shanghai Manila Beijing Lisbon Madrid Barcelona Milan Guernsey Brussels Amsterdam Luxembourg Frankfurt Stockholm London Leeds Manchester Birmingham Istanbul Athens Tel Aviv Sofia Bucharest Budapest Prague Tallinn Riga Vilnius Moscow Warsaw Kiev Paris Zurich Geneva Tokyo Seoul Abu Dhabi Dubai Mumbai Johannesburg Doha
Corporate governance
Group Management
Our governance structure is based on the Group management and the Supervisory Board.
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:
Nigel Higgins Co-Chief Executive Officer
Olivier Pécoux Co-Chief Executive Officer
Alexandre de Rothschild Deputy Chairman
David de Rothschild Chairman
Overview
The Group Management Committee (GMC), whose members are the most senior corporate officers of the Group business and support divisions, is the senior executive committee at Rothschild & Co. In its role, the GMC participates in the overall management and the definition of the strategy of the Group by Rothschild & Co, represented by the Managing Partner's CEOs and Deputy Chairman, so that Rothschild & Co ensures its proper implementation across the Group.
Chaired by the CEOs, the GMC comprises:
Paul Barry Group Human Resources Director
Mark Crump Group Chief Financial Officer
Marc-Olivier Laurent Head of Merchant Banking
Robert Leitão Head of Global Advisory
Bruno Pfister Executive Chairman of Wealth Management & Trust
Richard Martin Chief Operating Officer of Wealth Management & Trust
Gary Powell Head of Group Strategy and Corporate Development
Alain Massiera Head of Private Wealth (France)
Jonathan Westcott Group Head of Legal & Compliance
Supervisory Board and specialised committees
15 Board members The Supervisory Board exercises permanent oversight of the management of the Company, including in particular the Company's financial accounting reporting system and its internal control mechanism.
The Supervisory Board relies on four specialised committees: the Audit Committee; the Strategy Committee; the Remuneration and Nomination Committee; and the Risk Committee.
| 9 | Members | Composition | Specialised committees |
|||
|---|---|---|---|---|---|---|
| Independent members | Audit Committee |
Strategy Committee |
Remuneration and Nomination Committee |
Risk Committee |
||
| Éric de Rothschild French | ■ ■ | ■ | ||||
| François Henrot French | ■ ■ | ■ | ||||
| André Lévy-Lang French | ■ ■ | ■ | ■ | ■ | ||
| 7 Nationalities |
Martin Bouygues French | ■ | ||||
| Daniel Daeniker Swiss | ■ | ■ | ■ | |||
| Angelika Gifford German | ■ | |||||
| Sylvain Héfès French | ■ | ■ | ■ ■ | |||
| Arielle Malard de Rothschild French |
■ | |||||
| Lucie Maurel-Aubert French | ■ | ■ | ||||
| Carole Piwnica Belgian | ■ | ■ | ■ | |||
| Jacques Richier French | ■ | |||||
| Anthony de Rothschild British | ■ | |||||
| Sipko Schat Dutch | ■ | ■ ■ | ||||
| Peter Smith British | ■ | ■ ■ | ■ | ■ | ||
| Luisa Todini Italian | ■ | ■ |
■ Chairman
■ Vice-Chairman
■ Independent member
■ Non-independent member
(1) Minority interests held by the Rothschild family.
(2) Including Jardine Strategic Holdings Luxembourg Sàrl and Edmond de Rothschild Group.
Overview
At the heart of Rothschild & Co's approach to business is a deeply held sense of responsibility to its people, to the environment and to the communities in which it operates.
| People | We are committed to the development and retention of a world class team |
• 2,829 employees across the world of whom 40% are female • An inclusive culture in which diversity is valued • Recruitment and promotion based on merit • A wide range of training and development opportunities • A focus on well-being and a healthy and safe working environment |
|---|---|---|
| Environment | We are committed to managing and taking action to reduce our negative environmental impact |
• 9% increase in reporting scope to cover 89% of total headcount • 10 offices reporting environmental data, up from 6 in 2014/2015 • Initiated a global environment health & safety compliance programme to cover 100% of our offices • Established a Global Environment, Health & Safety Committee |
| Community investment |
We are committed to creating change in the lives of disadvantaged young people |
• Community investment programmes in 10 cities • More than 4,000 hours volunteered this year • Over 50% of London employees volunteering each year • A focus on enhancing the prospects of disadvantaged young people • Shortlisted for Business in the Community's Responsible Business Awards (Education category) in 2016 |
| 2012 | 2013 | 2014 | 2015 | 2016 | |
|---|---|---|---|---|---|
| Market capitalisation (in millions of euro) | 552.4 | 1,262.1 | 1,279.9 | 1,402.8 | 1,545.8 |
| Share price (in euro) | |||||
| At the end of the financial year | 17.00 | 17.80 | 18.00 | 19.70 | 21.73 |
| Maximum | 20.10 | 17.90 | 20.70 | 19.70 | 30.10 |
| Minimum | 14.00 | 16.20 | 16.80 | 16.40 | 19.08 |
| Yearly average | 17.30 | 16.90 | 18.10 | 17.60 | 24.53 |
| Number of shares and investment certificates | |||||
| Issued | 32,515,587 | 70,903,029 | 71,104,108 | 71,137,036 | 71,137,036 |
| Of which treasury shares | 714,120 | 693,504 | 644,197 | 442,701 | 551,434 |
| Per share (in euro) | |||||
| Dividend | 0.50 | 0.50 | 0.50 | 0.60 | 0.63(1) |
| Earnings per share | 1.24 | 0.68 | 0.11 | 2.08 | 3.37 |
| Market data | |||||
| Total value traded (in euro) | 24,599,627 | 64,681,721 | 65,696,798 | 63,844,931 | 307,038,467 |
| Total trading volume | 1,429,983 | 3,808,255 | 3,741,749 | 3,463,602 | 12,636,659 |
| Average daily traded volume | 5,543 | 15,112 | 14,616 | 13,583 | 49,556 |
| Excluding exceptional trade blocks over the period | |||||
| Total value traded (in euro) | 24,599,627 | 28,608,201 | 37,153,977 | 63,844,931 | 213,446,000 |
| Total trading volume | 1,429,983 | 1,708,255 | 2,141,749 | 3,463,602 | 8,846,659 |
| Average daily traded volume | 5,543 | 6,779 | 8,366 | 13,583 | 34,693 |
(1) Dividend proposed at the General Meeting to be held on 29 September 2016.
■ Treasury and controlling shares(2)
Share capital
(1) More details are provided on page 57.
(2) The controlling shares held by NM Rothschild & Sons are not included as they are part of the enlarged family concert.
A dividend of €0.63 per share will be proposed by the Managing Partner, Rothschild & Co Gestion SAS, at the Rothschild & Co Annual General Meeting on 29 September 2016, called to approve the financial statements for the year ended 31 March 2016.
Ex-dividend date
Record date
Payment date
Since January 2008, Rothschild & Co has awarded a liquidity contract to Rothschild & Cie Banque, a subsidiary, in order to improve the share's liquidity, regulate the share price and avoid unjustified differences between market price and fair value. When this contract was put in place, 150,000 shares were made available to the liquidity manager.
As at 31 March 2016, 54,000 shares and €3.3 million cash were booked to the liquidity contract(1).
The Company releases half-yearly reports on the liquidity contract. All reports are posted on the corporate website under the 'Investor Relations – Regulated information' section.
Rothschild & Co provides its shareholders with information throughout the year in English and in French, through releases on the publication of the annual and half-yearly results, quarterly revenues or any other major event concerning the Group in accordance with regulations and practices for publication.
Rothschild & Co's website www.rothschildandco.com allows visitors to browse the latest updates, share prices and its own publications. The Annual Report may be reviewed and downloaded from the website.
Visitors can also join Rothschild & Co's mailing list to receive the latest news about the Company. At any time, visitors can also request information from the Investor Relations Department.
For more information about our businesses, career opportunities or our corporate social responsibility initiatives, please visit our corporate website at www.rothschild.com.
Publication for the first quarter of FY 2016/2017
29 September 2016 (10:30 am) Annual Shareholders General Meeting
Dividend payment date
29 November 2016 First half-year of FY 2016/2017 results
9 February 2017 Publication for the third quarter of FY 2016/2017
14 June 2017 FY 2016/2017 results
Financial statements
Business review
Overview
Marie-Laure Becquart [email protected] Phone: +33 (0)1 53 77 65 10 23 bis avenue de Messine 75008 Paris
Caroline Nico
[email protected] Phone: +33 (0)1 53 77 65 10 23 bis avenue de Messine 75008 Paris
www.rothschildandco.com www.rothschild.com
ISIN code: FR0000031684 Identification code: ROTH Market: Euronext Compartment A (France) Listing place: Paris
| Rothschild Global Advisory | 26 |
|---|---|
| Rothschild Private Wealth & Rothschild Asset Management | 32 |
| Rothschild Merchant Banking | 38 |
Rothschild Global Advisory has an informed and impartial perspective to help our clients reach their goals, through the design and execution of strategic M&A and financing solutions.
6th
globally by revenue
We differentiate ourselves in the following ways:
For the year to March 2016, Rothschild Global Advisory revenue was €1,040 million, 18% higher than last year, representing record revenue. Operating income for the period was €167 million compared to €139 million last year, an increase of 20%, with a 16% operating income margin. By financial advisory revenue for the period, Rothschild & Co ranked 6th globally. Within the context of a 17% rise in global completed M&A deal value over the year, M&A advisory revenue rose steeply by 30% to €763 million (2014/2015: €588 million). This out-performance reflects a continuing improvement in market share in our core European markets, as well as in North America.
Financing advisory revenue held up well with revenues reaching €277 million, a fall of 5% compared to €292 million in the prior year, and in the context of lower market activity. During the financial year, we continued to be highly active in large and complex debt advisory and restructuring situations, providing independent advice to clients on approaching 200 debt and restructuring transactions with a total value of more than US\$120 billion. For restructuring assignments completed during the financial year, we ranked 2nd by number of deals in Europe and 4th globally. We also provided equity advisory services on 21 IPOs during the financial year with a total value of US\$19 billion, including the largest
European IPO (ABN Amro), and we continued to advise on more European equity assignments than any other independent adviser.
The quality of our people is our principal competitive advantage and we continue to add to and strengthen our senior team. During the financial year, and more recently, we have recruited Managing Directors into our offices in the United Kingdom, the Nordic region, China and the United States, as well as into our Sovereign Advisory, Debt and Restructuring advisory and Business Services teams.
We also acquired on 1 April 2016 two new teams: firstly, a new M&A advisory team in Belgium, significantly enhancing our market position in the country, as well as Scott Harris, an independent specialist equity marketing consultancy, which will add to our existing investor advisory proposition around improving corporate clients' understanding of and relationships with their shareholders and 'the buy-side' in general.
We remain among the top M&A advisers in the world, rising to 3rd position globally(1) by number of completed transactions, from 4th for the same period last year. In Europe, we are market leader, advising on more deals than any of our competitors; a position we have held for more than a decade. In the US, we will continue to invest as there are interesting recruitment opportunities. We estimate that this investment could dilute our global profit before tax margin in 2016/2017 by up to 2%. Nevertheless, the strategy should be accretive to our margins in the medium term.
(in millions of euros, as at 31 March)
| 2012 | 73% | 27% | 711 | |
|---|---|---|---|---|
| 2013 | 67% | 33% | 741 | |
| 2014 | 64% | 36% | 689 | |
| 2015 | 71% | 29% | 880 | |
| 2016 | 69% | 31% | 1,040 | |
| ■ ■ M&A | ■ ■ Financing Advisory |
(1) Source: Thomson Reuters, completed transactions, ranked by number of deals. Excludes accountancy firms.
| 2014/2015 | 2015/2016 | % change | |
|---|---|---|---|
| Value of M&A (in billions of US\$) | 241 | 379 | +57% |
| Value of financing advisory (in billions of US\$) | 248 | 189 | -24% |
| Total value (in billions of US\$) | 489 | 568 | +16% |
| Number of M&A transactions | 248 | 298 | +20% |
| Number of financing advisory transactions | 284 | 249 | -12% |
| Total transactions | 532 | 547 | +3% |
(1) Source: Thomson Reuters, Rothschild & Co analysis. Completed transactions during the 12 months to March.
Business review
Management report
globally by number of completed transactions(1)
M&A transactions advised in 2015/2016 for a value of US\$380bn Our teams provide expert advice and execution services across all aspects of mergers and acquisitions, as well as strategic advice in areas such as joint ventures, corporate governance, sovereign advisory and US special committee and fiduciary matters.
In the 2015/2016 financial year, we remained among the top M&A advisers in the world, ranking 3rd globally by number of completed transactions(1) (up from 4th for the same period last year). In Europe, we continued to be the market leader by some distance, advising on more deals than any of our competitors – a position we have held for more than a decade(1).
We advised on approximately US\$380 billion of completed M&A transactions in the 12 months to March 2016, including seven out of the top 50 global M&A transactions and six out of the top 20 European M&A transactions.
Our global scale and network of relationships with key decision-makers continue to support our position as adviser in large, complex cross-border situations. We continued to improve our market share of global cross-border advisory assignments, with cross-border transactions representing over 50% of our total activity(1).
For the financial year, we held top five positions in the majority of industry sectors globally and in Europe, being particularly active in healthcare, consumer, retail, media and industrials.
We are also one of the most active advisers on deals with private equity involvement globally, and the most active in Europe.
A list of notable completed M&A transactions on which we advised during the financial year is shown on the following page.
| By value | By number | |||
|---|---|---|---|---|
| Region | 2015 | 2016 | 2015 | 2016 |
| Global | 11 | 10 | 4 | 3 |
| Global cross-border | 9 | 6 | 2 | 1 |
| Europe | 8 | 6 | 1 | 1 |
| Asia (incl. Japan) | 23 | 12 | 14 | 14 |
| North America | 22 | 15 | 20 | 15 |
| Rest of the world | 8 | 9 | 5 | 3 |
(1) Source: Thomson Reuters, completed transactions, ranked by number of deals. Excludes accountancy firms.
Brazilian bank
ChemChina (China and Italy)
Lanxess
Pirelli (€8.8bn) • The largest cross-border deal between China and Italy
• Acquisition of a controlling stake in
(Germany and Netherlands)
• Sale to Vista Equity Partners (US\$6.5bn)
• One of the largest take private transactions of 2015
certainty at attractive terms
(Germany and Saudi Arabia) • Synthetic rubber joint venture with Saudi Aramco (€2.8bn) • Competitive selection process and simultaneous negotiations with several bidders achieved transaction
c.250
financing advisory transactions with a total value of US\$190bn
Our Financing Advisory teams, encompassing debt and restructuring and equity advisory, provide advice to clients on financing strategy and solutions. On many occasions they work alongside our M&A experts to deliver integrated, comprehensive advice to clients.
A list of notable completed financing transactions on which we advised during the financial year is shown on the page opposite.
Our Debt and Restructuring advisory teams provide strategic capital structure advice to deliver the best possible refinancing and restructuring solutions. During the financial year, we continued to be highly active in large and complex debt advisory and restructuring situations despite lower market activity, providing independent advice to clients on approximately 200 debt and restructuring transactions with a total value of more than \$120 billion.
Our debt advisory capabilities include advice on capital raisings and refinancings across all markets, and expertise across banks, bonds, ratings, derivatives and hedging. We are one of the world leaders in this field. Our track record in successfully helping clients to optimise
Our Equity advisory teams provide independent advice to clients on a wide range of equity capital raising transactions including initial public offerings (IPOs), secondary offerings, block trades, spin-offs and convertible instruments. The teams work in collaboration with our industry sector specialists to deliver integrated advice to our clients, including simultaneous dual-track disposal/IPO advisory.
We have an unparalleled global footprint and deeper resources than any other independent equity adviser, with specialist teams in key equity markets around the world including New York, Hong Kong, Singapore, Sydney, Moscow and throughout Europe.
both the sources of debt and terms of debt finance continues to drive our debt advisory business generation.
Our restructuring capabilities include lender negotiations, recapitalisations, exchange offers, distressed M&A, in-court and out-of-court transactions and creditor representation. Our independence and the significant volume of deals we advise on across M&A and financing advisory place us in a unique position in terms of market knowledge, and enable us to deliver client-focused advice without the conflicts of interests often faced by bulge bracket banks.
Clients continue to engage us on large and highly complex restructuring assignments. For restructuring assignments completed during the financial year, we ranked 2nd by number of deals in Europe and 4th globally.
| By value | By number | ||||
|---|---|---|---|---|---|
| 2015 | 2016 | 2015 | 2016 | ||
| Global | 3 | 5 | 2 | 4 | |
| EMEA | 2 | 5 | 2 | 2 |
During the financial year ended March 2016, we advised on the largest European IPO (ABN AMRO IPO that raised €3.8 billion on Euronext Amsterdam) and our deal flow in Europe continued to be well above that of our competitors. Worldwide, we advised on 49 equity capital market transactions with a total value of US\$66 billion(1) and, for the third successive year, we advised on more European IPOs than any other independent adviser(2).
(1) Source: internal data.
(2) Source: Company filings, Rothschild & Co internal data.
• Block trade of its remaining ownership stake in General Motors (US\$2.6bn) • The largest block trade since 2012, and one of the largest ever US unregistered block trades
Management report
Overview
Business review
Objective, transparent and state-of-the-art advice to our high net-worth private clients and our global institutional clients underpins our business model across our Private Wealth and Asset Management divisions.
€50.2bn of assets under management as at 31 March 2016
This is demonstrated by our ability to attract clients, win new assets and generate solid investment performance. We continue to develop our activities in line with our stated strategy of diversifying our sources of income.
Our businesses are focused on the preservation, growth and transmission of our private and institutional clients' wealth and assets. We serve this diverse client base from our offices in Brussels, Frankfurt, Geneva, Guernsey, Hong Kong, London, Milan, New York, Paris, Reno, Singapore and Zurich.
€2.6bn of net new assets in 2015/2016
800+ professionals
Assets under Management
2011/12 2012/13 2013/14 2014/15 2015/16 (in billions of euros, as at 31 March) 56% 44% 56% 44% 55% 45% 58% 42% 60% 40% 35.9 38.4 42.3 52.1 50.2
■ ■ Private Wealth ■ ■ Asset Management
(in billions of euros, as at 31 March)
(1) 2011/12 excludes €1.5bn outflow related to the partial sale of Sélection R in France.
(2) 2012/13 includes €0.8bn inflow related to the merger with HDF Finance in France.
(3) 2014/15 excludes €1.9bn outflow related to the transfer of accounts from Sélection R in France.
Worries about the global economy clouded the investment outlook for much of the last 12 months. Bond yields hit new lows, and in many cases edged further into negative territory, as investors continued to shelter in safe haven assets and monetary policy mostly remained lenient. Two of the major central banks – the European Central Bank and the Bank of Japan – added to their bond purchases, and utilised negative policy rates. The Federal Reserve raised interest rates in December for the first time since 2006, but the move was later than originally expected, and expectations of subsequent increases have again been pushed further into the future.
China amplified market concerns with its decision in August 2015 to allow its currency to fluctuate more freely against the dollar. In retrospect, the markets were able to view the move as part of China's successful attempt to have its currency accepted as a component of the IMF's Special Drawing Rights basket of reserve currencies,
rather than as a competitive devaluation. Similarly, ongoing declines in oil and other commodity prices were seen as reflecting a sharp slowing in global growth, but in practice were driven not just by slowing demand but by extra supply – as in the case of the political deal paving the way for higher Iranian exports of oil.
These concerns notwithstanding, the global economy continued to grow, albeit at a below-trend rate, with slowing growth in emerging economies – including China – muted by steadier growth in the developed world. The first significant decline in US corporate profits since 2009 caused some unease, but reflected weakness in oil and mining earnings, rather than a generalised downturn. Stock markets were volatile in the late summer, and again in early 2016, but had hit new highs in early 2015, and in each case stabilised at levels close to those highs.
Our Private Wealth division provides an objective, long-term perspective on investing, structuring and safeguarding assets, to preserve and grow our clients' wealth. We provide a comprehensive range of private wealth services to some of the world's wealthiest and most successful families, entrepreneurs, foundations and charities. In an environment where short-term thinking often dominates, our long-term perspective sets us apart: we believe preservation-first is the right approach to managing wealth.
The Rothschilds are one of the few families to have successfully preserved their wealth over seven generations. We understand the issues wealth owners must address and can help them protect their assets. We advise our clients in relation to all their financial and non-financial wealth. When helping our clients invest, we aim to deliver good returns and dampen risks, even in the most complex of financial landscapes.
With over 650 private wealth professionals and an extensive network across Rothschild & Co, we have the scale, intellectual capital and resources to deliver, while still being able to provide a truly personal service. Our distinct perspective makes us a secure and enduring home for our clients' assets, safeguarding their legacy for generations.
We also provide loan facilities to our private clients: Lombard lending secured on portfolios in our custody (€713 million), overdraft facilities and guarantees secured mainly on insurance policies (€258 million), mortgages secured mainly on UK residential real estate (€317 million) and other facilities for private clients (€9 million). Lending is complementary to our investment management, wealth planning and administration services, and enables us to meet the wider private banking requirements of our clients.
Looking ahead, we believe our Private Wealth division is well placed to meet the challenges our industry faces. The demand for our advice-based, unconflicted business model, with stable and multi-generational family ownership makes us truly distinctive in a crowded market. We continue to invest in our infrastructure and top quality people who work with clients to become trusted advisers. Over the next few years, we expect to see continued growth with a sustainable improvement in our profitability as we gain scale.
During the last financial year we won seven prestigious industry awards, which we would like to think is an endorsement of everything we have achieved in our business over the last 12 months.
Overview
Spear's Wealth Management Awards 2015
• Winner, Private Bank of the Year, 2015
• Winner, Client Service Quality – Ultra High Net Worth, 2016
• Winner, Private Investment Manager, 2015
Trophées Leaders de la Finance,
• Trophée d'Or 2016, Leaders de la Finance, catégorie 'Gestion de Patrimoine – Banque spécialisée'
2016
Our Private Wealth division operates through two businesses, Rothschild Wealth Management & Trust and Rothschild Patrimoine.
Rothschild Wealth Management & Trust is the private banking arm of Rothschild & Co in Frankfurt, Geneva, Guernsey, Hong Kong, London, Milan, Reno, Singapore and Zurich.
Our goal is to preserve and then grow the real value of our clients' wealth. This involves investing in assets that increase in value over time, beating inflation, and avoiding large losses along the way. This investment management approach, coupled with the stability that comes from our seventh generation of family-controlled ownership, continues to resonate with an increasing number of clients around the world, especially in the current economic environment.
At the end of March 2016, assets under management amounted to €19.8 billion, down from €21.6 billion in the previous year.
The business environment remains challenging, with high volatility and negative interest rates, but the division's client base is well diversified, which helps our bottom line resilience.
Within our Trust business, our focus on helping clients to safeguard their assets and create a legacy has continued to attract entrepreneurs and wealth-owning families globally. Our typical clients are highly international with businesses, family members and assets that span more than one jurisdiction; these clients require wealth planning, family governance and business succession planning on an international basis, crossing many countries and jurisdictions. We have seen particular interest in our Trust offering in those parts of the world where new wealth generation is strong. More broadly, our distinctive offering and unique positioning in the market mean we are very well placed to benefit from the major trends that will continue to re-shape the international wealth management landscape in the years ahead.
Rothschild Patrimoine, the private banking department within Rothschild & Cie Gestion, is based in Paris and Brussels.
At the end of March 2016, assets under management in France and Belgium amounted to €10.2 billion, up from €8.8 billion the previous year, as a result of strong positive net new assets and a slightly negative market impact. The mergers and acquisitions activity was strong this year, which, combined with our continuous commercial efforts and good investment performance, allowed us to achieve once again record net inflows over the period.
As planned, we continue to adapt our services, our investment management offering and our organisation, but also to develop the synergies with the various businesses of the Group, while at the same time selectively reinforcing our commercial capabilities, both in France and Belgium, in order to fully benefit from our good momentum. Consequently, profitability for the period achieved a record level, which will allow us to continue to implement our development strategy, and Rothschild Patrimoine has been distinguished for the second consecutive year by its peers, winning the
Leaders de la Finance 2016 Golden Trophee in the category "specialized private bank". 2016 will be in the continuity, capitalising on 2015 success, both in France and Belgium, and on our innovation capability, not only in commercial development sources but also in digitalization of our processes.
On 6 June 2016, we announced our intention to merge Rothschild & Co with Compagnie Financière Martin Maurel, with a view to combining our French activities in private banking and asset management to create one of France's leading independent private banks. The proposed merger would:
Rothschild Asset Management offers an independent perspective in innovative investment solutions, designed around the needs of each and every client. We are a global specialist asset manager delivering bespoke investment management and advisory services to institutional clients, financial intermediaries, and third party distributors. Across our complementary fields of expertise in active high-conviction management, open architecture investment solutions or risk-based investment solutions, our business model is grounded in a deep understanding of each and every client's needs.
At Rothschild Asset Management, we know that consistent performance must be delivered in the long term. As a family-controlled business, we can pursue long-term strategies and build truly lasting partnerships with our clients. While other asset managers are involved in proprietary trading and brokerage activities, Rothschild
Rothschild Asset Management has recognised expertise in active conviction management, characterised by strong management choices. Our portfolios are sometimes contrarian and can deviate significantly from reference indexes in terms of composition.
This management is carried out by two entities, in Paris and New York.
In Paris, Rothschild Asset Management's offer is built around a few areas of expertise with the goal of becoming a leading conviction management player in Europe. Our experienced management teams are stable and have recognised know-how in the asset classes they deal with: European equities, credit and convertible bonds and flexible diversified management.
In New York, Rothschild Asset Management offers investments covering a range of US securities including large-cap, small/mid-cap, small-cap, and balanced
Asset Management is truly independent in security selection and can manage its clients' assets without conflict of interest.
With over 200 years' history in innovative investment decisions, we combine state-of-the-art technology and the latest sophisticated modelling with deep on-theground experience to develop bespoke investment solutions for our clients. With a strong track-record across our core markets, we are proud to count some of the most reputable institutional investors as our clients.
It is this innovative yet considered approach that enables us to offer a distinct perspective to our clients and make a meaningful difference to their assets in the long term.
strategies. We seek to provide superior performance while controlling risk. Our seasoned teams of investment professionals use a disciplined investment philosophy and an integrated process focused on fundamentals. We manage assets for a broad range of clients including: corporations, endowments, foundations, healthcare organisations, high net-worth investors, public pension funds, sub-advisory and Taft-Hartley plans. We are guided by a clear and strongly held investment philosophy that seeks to add value through stock selection while
We use a proven investment process focused on fundamentals to help us identify stocks with attractive valuations and improving business prospects. Our process seeks to generate consistent alpha with lower
controlling benchmark risk.
volatility than the market.
3 specialised and complementary centres of excellence
Overview
The Open Architecture expertise is run under the same operational management in Paris, Zurich, London and New York.
67
investment managers
Our Investment Solutions teams comprise experienced professionals who help our clients, whether large private or institutional investors, to manage their assets in compliance with our Company values: advice, family values, personal commitment and intellectual rigour. Rothschild Asset Management has taken several initiatives to develop innovative open-architecture investment solutions in order to broaden its offer and meet the needs of both individual and institutional investors.
We have developed assets/liabilities modelling tools that result from institutional management in order to address the problems of our major high net-worth investors. Similarly, we are combining our reporting mechanisms in order to provide these investors with a service similar to that required for institutional investors. For institutional investors, our teams have developed investment solutions that allow them to use a powerful management strategy that optimises the consumption of regulatory capital associated with investments in risky assets.
For 'traditional' asset classes, we offer diversified portfolios managed using open architecture with an optimised dynamic allocation that is particularly suited to institutional investors that are subject to the prudential Solvency II rules. In the area of alternative management,
we have been developing a competitive managed account offer for two years that makes it possible, in a completely transparent fashion, to access talented managers selected across the world by our research teams.
The dedicated managed accounts platform created in partnership with Innocap in 2013 now comprises three sub-funds within the open-ended investment company under Irish law, InRIS, which has over €3 billion in assets under management. The first sub-fund registered on the platform is R Parus, a long-short equity fund managed by British alternative management specialist Parus. This fund is currently closed for new subscription. The second launch concerned a low beta, low volatility, long-short equity fund, R BlackRock Select, invested in various strategies managed by BlackRock. The most recent addition to the range, launched in December 2014, R CFM Diversified, is the fruit of a selection of systematic strategies of Capital Fund Management (CFM), which has more than 20 years' experience in the development of quantitative models for all asset classes.
In the United States, Rothschild Asset Management has teamed up with Larch Lane Advisors LLC to provide investment advisory services in relation to an alternative management fund that is managed using an open architecture structure (40 Act fund) and that applies a weighted approach to risk in the construction of the portfolio.
Rothschild Asset Management proposes advisory services based on risk management models to a broad range of French and international institutional investors that complement the other, already widely recognised asset management activities.
Based in London and New York, the company Risk Based Investment Solutions Ltd (RBIS) takes a new approach to portfolio construction, offering investors a more efficient alternative to the traditional portfolios weighted by capitalisation (equities) or debt (bonds). We offer clients tailor-made portfolios, with no restrictions in terms of the number of underlying assets, asset classes or the combination of asset classes. Our investment process combines an academic approach, proprietary technology, case studies and the capacity to develop tailor-made solutions. These solutions are designed and adapted in accordance with the specific requirements of each client: reduction of volatility, improvement of the Sharpe ratio or reduction of the maximum drawdown.
In partnership with Source, an investment company and leading provider of exchange traded products (ETPs), Rothschild Asset Management has also launched the first ETF linked to the Risk-Based European Equity Index: Source R Equal-Risk European Equity UCITS ETF. This index is part of a range created in November 2014 by Rothschild Asset Management, in collaboration with the independent calculation agent Markit. Called the R Risk-Based Equity Index Series, it counts five new-generation, equally weighted stock indexes (European equities, US equities, UK equities, Japanese equities and developed market equities). This range of indexes and this first ETF allow investors to benefit from a methodology that is based on risk rather than market capitalisation. A range of risk-based Euro sovereign indexes has also been created in March 2016.
• Europe – Best Institutional Asset Manager Europe 2016
• R Valor
– Best flexible fund
Lipper Fund Awards 2015
– Best corporate euro bonds fund over three years
– Best international flexible fund over three, five and 10 years
Banco Swiss Hedge Funds Awards
– Best FoHF – Multi-strategy no bias
• R Investments Opal Global Trading – Best FoHF – 'Other strategies – CTA Managed Futures' over one, five and
• R Opal Multi Strategies
over one year
10 years
• R Euro Credit
• R Valor
2015
• R Conviction Convertibles Europe – Best European convertible bonds
fund over three years
• R Club
– Best 'mixed assets – flexible EUR' fund
Best corporate euro bonds fund
Rothschild & Co | Annual Report | 2015/2016 37
Overview
Business review
€4.8bn of Assets under Management
64 investment professionals
4 strategies It deploys the firm's capital, alongside that of a select set of leading institutional and private investors. With assets under management in excess of €4.8 billion, Rothschild Merchant Banking manages a series of funds dedicated to corporate and secondary private equity, and senior and junior credit.
Our business is founded on three inter-twined principles – our passion for investing, respect for risk, and culture of partnership – all of which define who we are today.
As at 31 March 2016, our assets under management are split between €2.1 billion in private equity and €2.7 billion in private debt across four strategies:
Overall, the business employs 64 investment professionals across four offices (London, Paris, Los Angeles, Luxembourg).
Our revenues comprise management fees calculated with reference to assets under management, investment profits (from direct investments and partnership interests in the funds we manage) and carried interest.
We are committed to Environmental, Social and Governance (ESG) matters through our management company (Five Arrows Managers) which is a signatory to the UN PRI (Principles for Responsible Investment).
(in billions of euros as at 31 March)
| 2014 | 19% | 81% | 3.2 |
|---|---|---|---|
| 2015 | 19% | 81% | 3.8 |
| 2016 | 12% | 88% | 4.8 |
| ■ Group | ■ Third party |
Note: Assets under management comprise committed capital where a managed fund is still in its investment period, and include net asset value after the investment period has expired.
| Private equity | Private debt | ||||||
|---|---|---|---|---|---|---|---|
| Corporate Private Equity |
Secondaries | Multi Managers Funds |
Co Investments |
Direct Lending |
Credit Management | ||
| Initiative name | FAPI | FASO | Arolla | RPI(1) | FACS | Oberon & Managed Accounts |
CLOs |
| Geography | Europe | Europe | Global | Global | Europe | US/Europe | US/Europe |
| Vintage(s) | 2010 and 2015 |
2012 and 2016(2) |
2016(2) | 2013 and 2016(2) |
2014 | 2013 / 2015 / 2016(2) |
|
| Assets under management (current) in €m |
1,469 | 259 | –(4) | 348(3) | 415 | 2,344 |
(1) RPI, formerly known as Paris Orléans Proprietary Investments. (2) To be closed post report date. (3) Including RPO. (4) Target €100 million.
During the year to March 2016 assets continued to appreciate in value, reflecting the strong investment performance of the current portfolio, and the division achieved a number of sizeable exits. We have also continued to grow our assets under management and leverage the Group's unique market edge and sourcing capabilities to invest into attractive opportunities.
The key highlights of the period include:
In the future, we plan to continue to grow our assets under management by raising the successor funds to our main strategies and continuing to broaden our product range in investment themes where we see a market opportunity. We will do so through the launch of new funds and managed accounts.
As of March 2016, the Group held private equity and private debt assets valued at €438 million.
During the year, value creation in the private equity and private debt portfolios (including managed funds) amounted to €42 million. This was partially offset by a €30 million negative change in fair value largely related to certain listed investments in the legacy portfolio.
During the year ended 31 March 2016, the new investments of our funds and initiatives amounted to €976 million (of which €139 million in private equity and €837 million in private debt), representing a total cash disbursement for the Group of €62 million. More than half of the investments made during the year were drawdowns by private equity funds FAPI, FASO and RPI and the remainder by our private debt initiatives FACS, Oberon and Contego/Ocean Trails.
Disposals generated proceeds of €144 million, notably from two proprietary investments in SIACI Saint Honoré and Perenco generating cash of €59 million and a profit of €27 million.
Overview
In private equity, we manage €2.1 billion with a team of 35 investment professionals. We have developed two different business lines:
FAPI is an initiative launched in 2010 as a roll-out of Rothschild & Co's successful European mid-market strategy. FAPI concentrates on expansion and buyout deals in the mid-market segment across Europe. It currently manages two funds: FAPI I, raised in 2010 for €583 million, and its successor FAPI II for €775 million, closed in October 2015.
FAPI I is now fully invested through 15 mid-cap companies in six different European countries. Thanks to its affiliation to Rothschild & Co, the fund has developed a rare pan-European reach and distinctive sector plays in selected segments of the economy which it believes enjoy positive tail winds: technology services (data and software), healthcare, education, business services and growth consumer. In 2015, FAPI's portfolio had a robust performance, achieving aggregate sales and EBITDA growth in excess of 8% and 11% respectively. In 2016, FAPI I completed two exits: LPCR for a multiple of invested capital of 2.65x and Grand Frais for a multiple of invested capital of 3.1x (realised and unrealised).
Its successor fund, FAPI II, builds on the same strategy and is managed by the same team. In 2015, FAPI II completed its first investment in Karnov Group.
As at the end of March 2016, the value of the Group's investment in FAPI I and II represented €130 million.
In March 2016, FAPI announced the exit of Les Petits Chaperons Rouges (LPCR), generating a 2.65x money multiple. FAPI has sold its shares to the co-founder and CEO, backed by French investment holding company Eurazeo. Founded in 2005, LPCR is a leading French operator in the privately managed nurseries market. FAPI invested in LPCR in December 2010 in the context of an owner buyout. FAPI's investment thesis was predicated on the superb growth opportunity it identified as being available to for-profit operators in the French nursery market. During FAPI's holding period, LPCR accelerated its roll-out strategy across the country, on the back of new nursery openings and significant wins of new outsourcing contracts from local authorities. FAPI also supported the company in successfully executing several bolt-on acquisitions, further consolidating LPCR's nationwide network. As a result, LPCR enjoyed five years of exceptional growth, with the company's nursery base increasing from 85 sites in 2010 to 250 today, with sales increasing by 20% per annum to over €140 million in 2015.
In July 2015, FAPI II invested in Karnov Group, a leading Scandinavian legal and tax & accounting information provider. Karnov Group's strong brand recognition, highquality, 'mission critical' content and leading technology platform makes it the preferred provider to law firms, law students, corporates, public authorities, accounting firms and tax specialists. The key brands include Karnov, PACTA and UfR, which are renowned for their authority, industry expertise and innovative technology. FAPI had been tracking Karnov closely as part of its broader technology and data services initiative for more than 18 months. FAPI's extensive outside-in work with external advisers and individuals from its internal network of operators allowed us to approach the seller pre-emptively ahead of a broader sale process. The company is performing per plan and the team is working on several value enhancement and growth initiatives.
Five Arrows Secondary Opportunities (FASO)
FASO III is a €259 million fund raised in 2012 and managed by a specialist team in European small and mid-cap secondary transactions. FASO purchases assets, whether portfolios of companies or fund shares, from sellers seeking liquidity, divesting non-core assets, or affected by regulatory constraints. With 87% of secondary direct and manager-led transactions in FASO III, the FASO team's specific expertise on secondary direct in the mid-market segment is a distinctive advantage and provides transactions, away from large auctions, where value creation can be brought to portfolio companies to enhance returns.
As of March 2016, FASO III had completed 16 transactions, of which five during the year, offering exposure to more than 170 underlying companies spanning more than 13 different sectors across all of Europe. The fund is developing very well, with a significant part of the capital already having been paid back to investors.
In February 2016, FASO launched the fundraising of FASO IV, which will follow the same successful investment strategy as its predecessor funds, with a target size of €400 million. The final closing of the fund is expected in summer 2016.
As at the end of March 2016, the Group's net investment in FASO represents €25 million.
In August 2015, FASO III purchased interests in the mid-cap buy-out funds Palamon I and Palamon II from various existing shareholders (mainly US-based). The Palamon funds were fully invested and the portfolios comprised 11 mature pan-European companies, mostly majority investments. These companies enjoy strong positions in their market segments, with the main value drivers of the portfolio combining double-digit historical top-line growth and healthy EBITDA margins. The portfolio is well diversified across sectors such as healthcare, financial services, business services and consumer goods.
Arolla is Rothschild Merchant Banking's global multimanagers private equity platform. Arolla capitalises on the Group's private equity expertise and over-the-cycle performance to invest globally across the private equity asset class: primary fund investments, secondary and direct co-investments. This combination of our flexibility and experience in multiple private equity strategies gives us a truly distinct perspective.
Arolla's focus is to give access to a carefully selected pool of top-tier managers, while enabling access to the wide array of Rothschild & Co's private equity initiatives. We pursue mid-cap investment opportunities generating appropriate risk-adjusted returns across various situations and geographies.
Arolla is targeting a €100 million fund size with a first closing that took place post-report date and is, as of March 2016, already 25% committed across six investments.
Rothschild Proprietary Investments, formerly Paris Orléans Proprietary Investments, has been the historical investment arm of the Rothschild & Co Group, investing on an opportunistic basis since the 1990s.
Since 2005 onwards, the RPI team has developed a strong co-investment expertise, investing alongside a proprietary network of international fund managers. It deployed over €500 million of capital in more than 80 transactions, mainly in growth capital and buy-out situations on a global basis, with a focus on North America, Europe and Emerging Markets.
As at the end of March 2016, the Group's net investment in RPI represents €191 million.
Siaci Saint Honoré is the fourth leading French group in insurance brokerage and consulting. The company counts over 1,700 employees worldwide and serves more than 3,500 customers across a number of sectors.
RPI has been a longstanding shareholder of Siaci Saint Honoré for over a decade and has supported a number of corporate initiatives alongside the company's management and its other shareholders (LCF Edmond de Rothschild, Jardine Lloyd Thompson). Over the past few years, we have initiated a gradual exit of this investment before eventually selling our minority stake in April 2015 to Ardian's Mid Cap Buyout Fund.
In conjunction with RPI balance sheet investment activity, the RPI team also manages the Rothschild Private Opportunities (RPO) co-investment programme, an investment club launched in 2013 as a joint initiative between Rothschild Merchant Banking and Rothschild Private Wealth divisions of the Rothschild & Co Group for the exclusive benefit of key relationships of the Group.
Since its inception, RPO has invested in nine companies (including one post-report date) on a global basis spanning geographies ranging from the United States to Western Africa.
Rothschild Merchant Banking is active in the leveraged credit market through two different business lines:
Our private debt activities account for over €2.7 billion of assets under management and our team comprises 29 investment professionals.
As for all Merchant Banking initiatives, the affiliation with Rothschild & Co's other business activities provides significant market insight and sector knowledge which we believe materially enhance our credit selection processes.
Through our private debt activities, we are able to offer investors access to both the European mid-size corporate credit market and the larger, broadly syndicated European and US LBO credit markets. We employ specific risk and yield credit strategies, in an asset class currently generating increased investor demand, as investors look to diversify away from lower yielding products and traditional fixed-income products.
FACS, the Group's junior debt fund, closed with €415 million of commitments in May 2014 and is focused on the growing European direct lending market, originating and structuring customised financing solutions for middle-market companies. The fund supports private equity sponsor, entrepreneur and family-owned businesses in transactions including leveraged buyouts, expansion and acquisition financings, as well as recapitalisations and refinancings. The fund has continued to demonstrate very strong investment momentum during the year and is, as of March 2016, c.66% deployed into 10 high-quality middle-market companies with very attractive risk-reward propositions in line with the fund's investment mandate.
As at the end of March 2016, the Group's net investment in FACS represents €29 million.
In May 2015 FACS closed a sponsor-less acquisition financing for IT Lab. Owned by its founding entrepreneur, IT Lab is a leading provider of IT managed services and cloud-based IT services to small and medium-sized enterprises across the UK. The business benefits from a strong, recurring customer base with high loyalty and limited churn. FACS provided the financing to enable IT Lab to complete a transformational and highly synergistic acquisition, significantly enhancing the size of the group, expanding its product offering and widening its geographic footprint. FACS structured and provided a well-priced senior-ranking unitranche loan with opening leverage of only 2.7x. This was an entirely proprietary opportunity sourced from within the Rothschild & Co network.
In March 2016 FACS supported the secondary buyout of the Feu Vert group by Alpha Private Equity. Feu Vert is a leading European provider of automotive maintenance and repair services, operating principally in France, where it enjoys a c.30% market share, and Spain, where it is the market leader. In addition to this core activity, the business also has windscreen repair and replacement and car part and equipment wholesale business units. FACS provided mezzanine financing in support of the buyout, with total leverage of 4.4x constituting an attractive set-up multiple for a large, stable, cash-generative business with a defensible market position and strong historic track record. FACS had a pre-existing relationship with Feu Vert, having supported a refinancing of the business during its previous ownership.
Given the strong growth seen in the European direct lending market, driven by the regulatory and capital constraints faced by traditional bank lenders and evidenced by the high volume of relevant deal-flow already being sourced by the FACS team, Rothschild Merchant Banking has taken the decision to raise a new investment vehicle, Five Arrows Direct Lending, to address this opportunity. This vehicle will focus on providing senior-ranking unitranche financings to middlemarket European borrowers, in contrast to the junior debt financing provided by FACS. We believe that the combination of high contractual gross returns, regular income distributions and strong downside protection represents a highly attractive value proposition for investors at a time when yields on conventional fixed income products are at historical lows.
Rothschild Credit Management (RCM) is active in both the European and, following the acquisition of CLO manager West Gate Horizons Advisors LLC, US leveraged loan markets. It has €2.3 billion of assets under management
across CLO funds, senior credit funds and managed accounts. RCM's investment strategy is to actively manage a diversified portfolio of secured loans and bonds across the corporate leveraged loan market in Europe and the US.
As at the end of March 2016, the Group's net investment in the Oberon Strategy and Contego CLOs represented €60 million.
During 2015 the RCM team closed its second Oberon fund, a €306 million closed end fund invested across a portfolio of secured, fully performing LBO credits. A total of €760 million has been raised in the Oberon strategy since inception, with fundraising for Oberon III currently underway. The Oberon strategy continues to deliver predictable quarterly cash yields to its investors and to demonstrate strong levels of return when compared to the benchmark Credit Suisse Western European Leveraged Loan Index.
Commercial rights to the FIA Formula 1 Championship €27 million participation in €4,155 million senior and second lien debt facilities to support recapitalisation
2014
UK motorway service operator £370 million senior secured debt facilities to support overall £550 million refinancing of the business
2015
Telecom, broadband and pay-TV operator in Basque and Galicia regions in Spain €1.4 billion of senior
secured debt to support R Cable acquisition by Euskaltel
2015
Global distributor of laboratory equipment €573 million senior secured debt to support refinancing
2015
Global supplier of woundcare and medical products €11.5 million participation in €380 million senior secured debt to support refinancing
2015
Business review
Financial statements
The combined European and US teams consist of 21 investment professionals who currently manage seven CLO funds:
• the five Ocean Trails CLOs invested in US assets; and • the two Contego CLOs invested in European assets.
In total the business has €1.7 billion of assets under management, predominantly sourced from institutional investors. All the funds are characterised by a highly selective, conservative investment strategy designed to deliver consistent returns from performing credits. The funds will typically invest in senior secured loans in mid to large-cap borrowers with EBITDA in excess of €75 million. We plan to issue two new CLO funds each year, with the US team recently completing an innovative \$300 million fund, which has been structured to accommodate both US and European investors.
The team actively manages a portfolio of European and US CLO funds. All exhibited strong performance during the year, with both the European and US teams continuing to maintain performance levels above their respective benchmark indices. Furthermore, during 2015/2016 it launched its second CLO 2.0 transaction, Contego III CLO B.V., a €308 million European CLO on the back of strong investor demand for this type of product and Rothschild & Co's strong track record in credit management.
US\$2.14 billion term loan US\$2.73 billion term loan US\$9.75 billion term loan B US\$1.83 billion term loan B
| 2015 | 2016 |
|---|---|
| Managed funds | |
| FAPI (Equity) 110 |
130 |
| FASO (Equity) 18 |
25 |
| Oberon/Contego (senior credit) 66 |
60 |
| FACS (junior credit) 13 |
29 |
| Sub-total 207 |
244 |
| Rothschild Proprietary Investments (RPI)(1) | |
| LBO/Equity 80 |
33 |
| LBO/Mezzanine 21 |
8 |
| Growth capital 82 |
73 |
| External private equity funds 46 |
33 |
| Strategic holdings 60 |
44 |
| Real estate 8 |
0 |
| Sub-total 297 |
191 |
| Other | |
| Other 4 |
3 |
| Sub-total 4 |
3 |
| TOTAL GROSS ASSETS 508 |
438 |
(1) Including Rothschild Private Opportunities (RPO).
| Results for the 2015/2016 financial year | 48 |
|---|---|
| Information on the Company and share capital | 52 |
| Corporate governance | 63 |
| Internal control and risk management procedures | 84 |
| Corporate social responsibility | 92 |
Overview
| In millions of euro | 2015/2016 | 2014/2015 |
|---|---|---|
| INCOME STATEMENT | ||
| Revenues | 1,588.9 | 1,403.2 |
| Operating income | 319.4 | 268.0 |
| Profit before tax | 422.3 | 316.7 |
| Consolidated net income | 357.2 | 253.9 |
| Net income – Group share | 231.9 | 143.6 |
| BALANCE SHEET | ||
| Total assets | 9,022.3 | 9,079.3 |
| Cash and amounts due from central banks | 3,500.1 | 3,643.9 |
| Loans and advances to customers | 1,488.4 | 1,601.6 |
| Due to customers | 5,468.4 | 5,686.9 |
| Shareholders' equity – Group share | 1,529.2 | 1,419.4 |
| Non-controlling interest | 515.9 | 556.0 |
Details on the consolidated results for the 2015/2016 financial year are set out on pages 101 onwards of this report. A review of the Group's activities by businesses during the 2015/2016 financial year is presented on pages 25 onwards of this report.
| In millions of euro | 2015/2016 | 2014/2015 |
|---|---|---|
| INCOME STATEMENT | ||
| Current income before tax | 42.3 | 6.0 |
| Income from capital transactions | 21.8 | 1.9 |
| Net income | 61.5 | 11.8 |
| BALANCE SHEET | ||
| Balance sheet total | 1,572.0 | 1,575.2 |
| Non-current financial assets | 1,479.5 | 1,471.5 |
| Current assets | 88.9 | 98.4 |
| Borrowings and other financial liabilities | 29.1 | 60.9 |
| Shareholders' equity | 1,441.5 | 1,423.0 |
Details on the activity and results of the Company for the 2015/2016 financial year are set out on pages 160 onwards of this report.
| In euro | 2015/2016 | 2014/2015 | 2013/2014 | 2012/2013 | 2011/2012 |
|---|---|---|---|---|---|
| I – Financial position at the end of the financial year | |||||
| a) Share capital | 142,274,072 | 142,274,072 | 142,208,216 | 141,806,058 | 65,031,174 |
| b) Number of shares and investment certificates issued | 71,137,036 | 71,137,036 | 71,104,108 | 70,903,029 | 32,515,587 |
| c) Maximum number of future shares to be created | – | – | – | – | – |
| II – Overall result of effective operations | |||||
| a) Revenues exclusive of tax (financial and operating income) | 68,170,967 | 26,542,974 | 25,238,744 | 132,789,534 | 20,636,932 |
| b) Income before tax, amortisation and provisions | 63,837,937 | 8,507,693 | 6,478,796 | (746,339) | 4,643,901 |
| c) Corporate income tax(1) | 2,580,799 | (3,832,636) | (2,029,187) | 1,829,465 | (201,947) |
| d) Income after tax, amortisation and provisions | 61,498,968 | 11,764,158 | 9,985,781 | 119,878,114 | (114,297,251) |
| e) Distributed income, excluding treasury shares | 44,816,333(2) | 42,423,795 | 35,233,340 | 35,161,483 | 15,885,984 |
| III – Earnings per share data | |||||
| a) Income after tax, but before amortisation and provisions | 0.93 | 0.07 | 0.06 | (0.04) | 0.15 |
| b) Income after tax, amortisation and provisions | 0.86 | 0.17 | 0.14 | 1.69 | (3.52) |
| c) Dividend per share | 0.63(2) | 0.60 | 0.50 | 0.50 | 0.50 |
| IV – Employees | |||||
| a) Average employee headcount | 23 | 25 | 29 | 27 | 26 |
| b) Total of the payroll | 3,164,335 | 3,451,711 | 5,230,484 | 3,411,558 | 3,667,596 |
| c) Total employee benefits (social security, welfare, etc.) | 1,816,360 | 1,595,239 | 2,887,383 | 2,012,034 | 1,889,761 |
(1) Negative amounts correspond to tax benefits.
(2) Dividend proposed to the General Meeting of shareholders on 29 September 2016.
The Managing Partner will propose to the General Meeting of shareholders that the income for the 2015/2016 financial year be appropriated as follows:
| In euro | |
|---|---|
| Net profit for the financial year | 61,498,967.83 |
| Appropriation to the legal reserve | (671,301.57) |
| Credit retained earnings | 87,717,978.37 |
| Distributable profit | 148,545,644.63 |
| Profit share allocated to the General Partners | (742,728.22) |
| Appropriation | |
| to the payment of a gross dividend of €0.63 per share(1) to shareholders • |
44,816,332.68 |
| • to retained earnings |
102,986,583.73 |
(1) Out of a total of 70,991,996 shares and 145,040 investment certificates eligible to a dividend.
The parent company's net profit amounts to €61,498,967.83 which, less the amount of €671,301.57 assigned to create the legal reserve and in addition to retained earnings of €87,717,978.37, makes a distributable net profit of €148,545,644.63.
In accordance with the provisions of article 14.1 of the articles of association, an amount of €742,728.22, equal to 0.5% of this distributable profit, will be automatically allocated for payment to the two General Partners, Rothschild & Co Gestion SAS and Rothschild & Co Commandité SAS.
The payment of a dividend of €0.63 per share to shareholders will be submitted for approval to the General Meeting. The ex-dividend date shall be 3 October 2016 and the dividend shall be payable on 5 October 2016. In accordance with applicable statutory provisions, the dividends distributed by the Company to the shareholders in respect of the last three financial years were as follows:
| 2014/2015 | 2013/2014 | 2012/2013 | |
|---|---|---|---|
| Number of shares and investment certificates which could qualify for a dividend payment(1) | 70,706,325 | 70,466,680 | 70,322,966 |
| Gross dividend per share (in euro) | 0.60 | 0.50 | 0.50 |
| Total amount distributed (in euro) | 42,423,795(2) | 35,233,340 | 35,161,483 |
(1) Number of shares and investment certificates that could qualify for a dividend, held on the ex-dividend date and excluding treasury shares and investment certificates held by the Company.
(2) As authorised by the General Meeting on 24 September 2015 in its 2nd resolution, the Managing Partner revised the final amount of the actual distribution as the Company did not receive a dividend in respect of the shares it held on the payment date; the amount of the dividend corresponding to these shares was automatically added to retained earnings.
During the 2015/2016 financial year, Rothschild & Co SCA did not acquire, directly or indirectly, any significant shareholdings or controlling interests in companies or groupings, whose registered offices are located in France, as defined in article L. 233-6, paragraph 1 of the French Commercial Code.
The Company's settlement periods for its accounts payable comply with article L. 441-6 of the French Commercial Code. Accounts payable are settled within 30 days of receiving the invoice, unless otherwise arranged as part of a sales agreement or pursuant to a dispute.
| As at 31 March 2016 | As at 31 March 2015 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Gross | Amounts | Amounts not yet due | Gross | Amounts | Amounts not yet due | |||||
| In thousands of euro | due | <30 days | 30 to 60 days |
>60 days | due | <30 days | 30 to 60 days |
>60 days | ||
| Accounts payable | 790.4 | – | 790.4 | – | – | 477.0 | – | 477.0 | – | – |
| Accounts payable – invoices not yet received |
518.3 | – | – | – | – | 432.0 | – | – | – | – |
| Total accounts payable | 1,308.7 | – | 790.4 | – | – | 909.0 | – | 477.0 | – | – |
On 6 June 2016, Rothschild & Co and Compagnie Financière Martin Maurel announced a plan to merge, with a view to combining their French activities in private banking and asset management to create one of France's leading independent private banks.
The transaction would take the form of a merger between Rothschild & Co and Compagnie Financière Martin Maurel. Shareholders in Compagnie Financière Martin Maurel would be offered either 126 Rothschild & Co shares per existing share or, prior to the completion of the merger, be able to sell their Compagnie Financière Martin Maurel shares in cash. The Maurel family would receive Rothschild & Co shares and, as a result of the merger, would replace Compagnie Financière Martin Maurel in the extended family concert.
The vote on the transaction by the shareholders of Compagnie Financière Martin Maurel is secured; Compagnie Financière Martin Maurel has already received irrevocable support for the merger from shareholders representing more than the qualified majority required to vote the merger.
Compagnie Financière Martin Maurel is valued at €240 million, with the 2015 dividend attached. The transaction would be financed by a mixture of newly issued Rothschild & Co shares, Rothschild & Co's own cash resources and external credit facilities.
Rothschild & Co's Supervisory Board and Compagnie Financière Martin Maurel's board of directors have both favourably welcomed the principle of the merger. The merger is conditional on the approval of the shareholders of Compagnie Financière Martin Maurel and Rothschild & Co, as well as the usual conditions, in particular competition and regulatory authorities' approvals.
Following consultation processes with work councils from both groups, the merger proposals should be put before general meetings of Compagnie Financière Martin Maurel and Rothschild & Co in September 2016 so as to complete the transaction by the end of the financial year.
The Group has capitalised this year on its market positions, resulting in strong financial results for 2015/2016. The macro economic environment remains volatile and our businesses, which rely on more stable economic and financial markets, face tough challenges. While in the short term we expect continued good performance, the medium-term outlook is more difficult to predict with any degree of confidence.
In Global Advisory, the M&A market overall continues to be active, despite a slow start to the year. Our weighted pipeline remains stronger than at the same time last year. Nevertheless, repeating our 2015/2016 revenue performance will be a challenge. We will continue to invest in the US market where we foresee a strong potential for growth over the next few years for the Group, given our modest market share. This would dilute our Global Advisory profit margin during the investment phase, however the strategy should be accretive to our profitability in the medium term.
In Private Wealth and Asset Management, we expect to see continuing growth in revenue and asset inflows. Any significant declines in financial markets over a sustained period of time will, however, impact our assets under management and, therefore, revenue. Pending the different approvals and consultations, we expect to complete the merger with Compagnie Financière Martin Maurel only by the end of the financial year and, therefore, the impact of this on our 2016/2017 results will be limited.
In Merchant Banking, we continue to grow our assets under management across our different product offerings. Following the success of FAPI II, we expect to launch further new funds, both equity and debt, during the year.
Rothschild & Co (formerly named Paris Orléans) was converted into a French partnership limited by shares (société en commandite par actions or SCA) by decisions of the General Meeting of shareholders of 8 June 2012 which approved a reorganisation of the Group(1) that constituted a major step forward in its ongoing international expansion and in the simplification of its structure.
One of these reorganisation stages consisted of converting the Company's form of incorporation into a partnership limited by shares to ensure the commitment and control of the Rothschild family over the long term, leading to changes in the Company's structure and governance.
Under this legal form, the Company's share capital is divided into shares and the Company's structure as a partnership limited by shares is based on two categories of partners: the General Partners, with the status of 'commerçant', who have an active role in the Company's business and are jointly and severally liable for the Company's debts, and the Limited Partners (also called shareholders), who are not actively engaged in the Company's business and whose liability is limited to the amount of their investment.
The Company's General Partners were designated in the articles of association when the Company was converted into a partnership limited by shares on 8 June 2012, for an unlimited period, and are controlled by members of the French and English branches of the Rothschild family:
The General Partners shall have unlimited joint and several liability for the Company's debts. However, they shall be held liable only if the creditors have already issued the Company with a formal demand by extrajudicial instrument to settle its debts.
Losses shall be supported between the General Partners in equal shares (50% for Rothschild & Co Commandité and 50% for Rothschild & Co Gestion).
However, in the event of an annual distributable profit, a profit share (dividende préciputaire) equal to 0.5% of said annual distributable profit is allocated automatically to the General Partners who held such position during the year in question, and is distributed between them in the same proportions as the distribution of losses specified above. However, it is hereby specified that in the event that the status of General Partner was lost during the course of the year, the remuneration of the Partner in question in respect of the year will be calculated on a pro rata temporis basis and the remainder shall be distributed between the other General Partners.
The General Partners have the power to appoint or revoke the Company's Managing Partner at any time, except for Managing Partners appointed under the Company's articles of association for which an approval from the Extraordinary General Meeting of shareholders is required in addition.
In the event of cessation of duties of the Company's Managing Partner, the General Partners shall manage the Company pending the appointment of one or more new Managing Partners under the terms and conditions of the articles of association.
Under the provisions of the law, no decision is valid unless adopted by both categories of partners. As a result, the General Partners vote on all resolutions proposed to the General Meeting of shareholders, except the appointment of members of the Supervisory Board, the appointment and dismissal of the Statutory Auditors, the distribution of dividends for the year and the approval of regulated agreements and commitments, for which legal provisions expressly exclude General Partners' vote. Also, pursuant to Article 11.3 of the Company's articles of association, any transaction whose purpose or effect could fundamentally call into question the Group's independence, tradition of excellence, links to the Rothschild family or the role played by the Rothschild family, its use of the Rothschild name or the fact that the Group's main activities are financial activities must be approved by the General Partners, including when such transactions do not require authorisation from the General Meeting of shareholders.
The General Partners take decisions at the Managing Partner's discretion at a General Meeting or by written consultation. Whenever a decision requires the approval of the General Partners and the General Meeting of shareholders, pursuant to the law or the Memorandum and articles of association, the Managing Partner collects the General Partners' votes, in principle, before the General Meeting of shareholders and, in any event, no later than the close thereof.
Decisions or proposals that fall within the remit of the General Partners shall be adopted unanimously, except if the Company is converted to a French limited company (société anonyme) or a French limited liability company (société à responsabilité limitée) which only requires a majority of the General Partners.
The Limited Partners contribute capital and therefore have the status of 'shareholders'.
They do not take an active part in the Company's business but take decisions such as, but not limited to:
Decisions are adopted by Limited Partners during General Meetings of shareholders by a simple majority of the votes for ordinary decisions, and by a majority of two-thirds of the votes for extraordinary decisions.
General Meetings are convened by the Managing Partner or by the Supervisory Board and decisions are made, in the conditions provided for by law, by a simple majority of the votes of shareholders attending or represented at the meeting in the case of Ordinary General Meetings and by a two-thirds majority of the votes of shareholders attending or represented at the meeting in the case of Extraordinary General Meetings.
(1) Detailed information on the Company's reorganisation is provided in the information memorandum filed with the AMF on 16 May 2012 under registration No. E.12-019 and attached to the Executive Board's report presented to the General Meeting of shareholders on 8 June 2012. These documents are available on Rothschild & Co's website (www.rothschildandco.com).
Overview
General Meetings are held at the registered office or any other place indicated in the notice of meeting. General Meetings are chaired by one of the statutory Managing Partners or, with the agreement of the Managing Partner, by the Chairman of the Supervisory Board; failing this, the General Meeting elects its chairman.
In application of Article 11 of the Company's articles of association, any shareholder or holder of voting rights certificates is entitled to attend General Meetings in accordance with the conditions provided for by law and by the articles of association. These persons may send their proxy forms or mail voting forms concerning any General Meeting in paper format or electronically. The Managing Partner has the power to accept any proxy form, voting form or shareholding certificate received or presented up to the General Meeting. By the decision of the Managing Partner to use such telecommunication methods, indicated as such in the notice of meeting or invitation to attend, shareholders and holders of voting rights certificates who attend and vote at General Meetings of shareholders by videoconference or any other telecommunication that enables their identity to be verified are deemed to be present at the meeting for the purposes of quorum and majority.
In case of division of ownership of shares or voting rights certificates, the voting rights attached to the shares or the voting rights certificates belong to the bare owner (nus-propriétaires), except for decisions on the allocation of income, which belong to the beneficial owners (usufruitiers).
More details on the terms and conditions of shareholders' attendance of Rothschild & Co's General Meetings are provided to shareholders in the notice of meeting to be published on the Company's website prior to the General Meeting in accordance with law.
As at 31 March 2016, the Company's share capital is divided into 70,991,996 ordinary shares and 145,040 investment certificates. Moreover, 145,040 voting right certificates, not included in the share capital, are also circulating. A whole share is automatically consolidated by combining an investment certificate with a voting right certificate.
There was no modification of the share capital during the financial year.
As at 31 March 2016, the total number of voting rights was as follows:
| Total number of voting rights | 31/03/2016 |
|---|---|
| Exercisable | 101,551,213 |
| Theoretical(1) | 104,032,561 |
(1) The total number of theoretical voting rights includes voting rights attached to shares without the capacity to exercise the voting rights attached to them pursuant to applicable legal or regulatory provisions. The shares concerned are treasury shares and controlling shares. Pursuant to applicable legal and regulatory provisions, the crossing upwards of voting rights thresholds provided for by law or by the articles of association must be calculated based on the total number of theoretical voting rights, as rendered public by Rothschild & Co every month.
Each month, the Company issues a report on the total number of shares and voting rights comprised in the share capital available on its website (www.rothschildandco.com under section 'Regulated Information').
Each share and voting right certificate entitles to one voting right in the General Meetings. However, Article 11.1 of the Company's articles of association provides that, as from the General Meeting of shareholders of 8 June 2012, the holder of any fully paid share, held in the form of registered shares for at least two years in the name of a single holder, shall be entitled to two voting rights per share, without any limitation.
In case of capital increase, by incorporation of reserves, benefits or issue premiums, the double voting right is, as from the issuance date, attributed to the registered shares allocated to a shareholder as a consequence of former shares for which he benefits from a double voting right.
In the event of any transfer following inheritance, liquidation of marital property between spouses or donation inter vivos in favour of a spouse or relative entitled to inherit, the right remains acquired and the period hereinabove referred to is not interrupted. The double voting right is cancelled ipso jure of any share transferred for any other cause.
In case of division of shares and voting right certificates ownership, the voting right attached to the share or to the voting right certificate is exercised by the bare owner (nus-propriétaires), except on decisions relating to the appropriation of income, where it is exercised by the beneficial owner (usufruitiers).
The Combined General Meeting of 26 September 2013 authorised the Managing Partner to grant stock options to the benefit of the senior employees and executive corporate officers of the Company and its subsidiaries, to promote the alignment of interests between the Rothschild family, shareholders and stock options beneficiaries.
As at 31 March 2016, two incentive schemes with grant of stock options have been implemented within the Group: the 2013 and 2015 Equity Schemes.
On 11 October 2013, Rothschild & Co implemented a long-term incentive scheme (the '2013 Equity Scheme') for Global Advisory partners, as well as members of the Group Management Committee, representing 57 persons operating in ten countries around the world.
Under the 2013 Equity Scheme rules, the participants have been required to invest in Rothschild & Co shares and for each share owned they are granted four stock options. Shares invested are subject to a four-year lock-up period and the share options granted are subject to a vesting period before exercise.
The 2013 Equity Scheme participants have invested in a global amount of 780,000 Rothschild & Co shares representing 1.10% of Rothschild & Co's share capital at grant date:
In accordance with the authorisation granted to it by the General Meeting on 26 September 2013, on 11 October 2013 the Managing Partner then set up a stock option plan for the benefit of the 2013 Equity Scheme participants, resulting in a total of 3,120,000 stock options granted.
The options granted under the 2013 Equity Scheme are divided into four distinct categories: Options 2013-1, Options 2013-2, Options 2013-3 and Options 2013-4, respectively vesting on each of the third, fourth, fifth and sixth anniversaries of the 2013 Equity Scheme and exercisable from the vesting dates at a price of €17.50, €18, €19 and €20 per option, either by share subscription or by share purchase (by decision of the Managing Partner no later than the exercise date).
(2) In relation to the restricted units under the Equity Scheme, a number of Rothschild & Co shares were acquired by certain entities of the Rothschild & Co Group of which the Equity Scheme participants are employees or executive officers. Those shares, to be granted to the restricted share units holder on the vesting date and subject to determined conditions, are currently, and until the restricted share units' vesting date, controlling shares without voting rights.
The 2013 Equity Scheme participants may not exercise the options unless the participants have remained senior employees and executive officers within the Group up to the date of the exercise of the stock options subject to certain exceptions provided for in the 2013 Equity Scheme rules and regulations.
As a continuation of the 2013 Equity Scheme, on 10 December 2015 Rothschild & Co implemented a second incentive scheme (the '2015 Equity Scheme'), and participation to the scheme was extended to Wealth Management & Trust and Merchant Banking partners, for a total of ten participants in the 2015 Equity Scheme.
This new incentive scheme has the same characteristics as the 2013 Equity Scheme: a first stage consisting of an investment by the participants in Rothschild & Co shares and for each share invested they are granted, in a second stage, four stock options.
The 2015 Equity Scheme participants have invested in a global amount of 115,000 Rothschild & Co shares representing 0.16% of Rothschild & Co's share capital at grant date. The Managing Partner then set up a stock option plan for the benefit of the Equity Scheme participants, resulting in a total of 460,000 stock options granted.
The options granted under the Equity Scheme are divided into four distinct categories: Options 2015-1, Options 2015-2, Options 2015-3 and Options 2015-4, respectively vesting on each of the third, fourth, fifth and sixth anniversaries of the 2015 Equity Scheme and exercisable from the vesting dates at a price of €23.62, €24.12, €25.12 and €26.12 per option, either by share subscription or by share purchase (by decision of the Managing Partner no later than the exercise date).
The exercise of stock options is subject to the condition that each of the participants remain within the Group up to the exercise date subject to certain exceptions provided for in the 2015 Equity Scheme rules and regulations.
| Options 2013-1 |
Options 2013-2 |
Options 2013-3 |
Options 2013-4 |
Options 2015-1 |
Options 2015-2 |
Options 2015-3 |
Options 2015-4 |
Total | |
|---|---|---|---|---|---|---|---|---|---|
| Date of authorisation by the | 26 Sept. | 26 Sept. | 26 Sept. | 26 Sept. | 26 Sept. | 26 Sept. | 26 Sept. | 26 Sept. | – |
| General Meeting | 2013 | 2013 | 2013 | 2013 | 2013 | 2013 | 2013 | 2013 | |
| Grant date by the Managing Partner | 11 Oct. | 11 Oct. | 11 Oct. | 11 Oct. | 10 Dec. | 10 Dec. | 10 Dec. | 10 Dec. | – |
| 2013 | 2013 | 2013 | 2013 | 2015 | 2015 | 2015 | 2015 | ||
| Total of options granted | 780,000 | 780,000 | 780,000 | 780,000 | 115,000 | 115,000 | 115,000 | 115,000 | 3,580,000 |
| Number of beneficiaries | 57 | 57 | 57 | 57 | 10 | 10 | 10 | 10 | – |
| Share capital % at the grant date | 1.10% | 1.10% | 1.10% | 1.10% | 0.16% | 0.16% | 0.16% | 0.16% | 5.03% |
| Performance requirement achievement | None | None | None | None | None | None | None | None | – |
| rate | |||||||||
| Exercise period start date | 11 Oct. | 11 Oct. | 11 Oct. | 11 Oct. | 10 Dec. | 10 Dec. | 10 Dec. | 10 Dec. | – |
| 2016 | 2017 | 2018 | 2019 | 2018 | 2019 | 2020 | 2021 | ||
| Expiration date | 11 Oct. | 11 Oct. | 11 Oct. | 11 Oct. | 10 Dec. | 10 Dec. | 10 Dec. | 10 Dec. | – |
| 2023 | 2023 | 2023 | 2023 | 2025 | 2025 | 2025 | 2025 | ||
| Subscription or purchase price in euro | 17.5 | 18.00 | 19.00 | 20.00 | 23.62 | 24.12 | 25.12 | 26.12 | – |
| Total options exercised as at 31 March | – | – | – | – | – | – | – | – | – |
| 2016 | |||||||||
| Total options cancelled as at 31 March | – | – | – | – | – | – | – | – | – |
| 2016 | |||||||||
| Total options remaining as at 31 March 2016 |
780,000 | 780,000 | 780,000 | 780,000 | 115,000 | 115,000 | 115,000 | 115,000 | 3,580,000 |
The following table summarises the outstanding delegations in force and their use during the financial year ended 31 March 2016.
| Purpose | Resolution number |
Individual limit |
Period of validity |
Use during the financial year |
|---|---|---|---|---|
| Combined General Meeting of 26 September 2013 | ||||
| To grant options to subscribe for or purchase the Company's shares to employees and corporate officers of the Company and/or associated companies |
13 | Limited to 10% of the share capital as of the date of the General Meeting of shareholders of 26 September 2013(1) |
38 months | Granting of 460,000 options by decisions of the Managing Partner on 10 December 2015(2) |
| Combined General Meeting of 25 September 2014 | ||||
| To decrease the share capital by cancelling treasury shares | 19 | Limited to 10% of the share capital per 24-month periods |
26 months | None |
| To increase the share capital by incorporation of all or part of reserves, income or issue, merger or contribution premiums, by granting bonus shares, by increasing the par value of existing shares or by using such two methods jointly |
20 | Limited to a nominal amount of €50 million |
26 months | None |
| Purpose | Resolution number |
Individual limit |
Period of validity |
Use during the financial year |
|---|---|---|---|---|
| To issue transferrable securities with preferential subscription rights maintained, giving access to the Company's share capital |
21 | Limited to a nominal amount of €70 million (share capital securities) or €300 million (debt instrument)(1) |
26 months | None |
| To issue transferrable securities with waiver of preferential subscription rights, giving access to the Company's share capital by public offer |
22 | Limited to a nominal amount of €15 million (share capital securities) or €200 million (debt instrument)(1) |
26 months | None |
| To issue transferrable securities with waiver of preferential subscription rights and free fixing of issue price, giving access to the Company's share capital |
23 | Limited to 10% of the share capital per year (share capital securities) or €200 million (debt instrument)(1) |
26 months | None |
| To increase the number of securities to be issued when increasing the share capital with waiver or not of preferential subscription rights |
24 | To be deducted on the individual limit as stipulated in the resolution in respect thereof the initial issuance is decided(1) |
26 months | None |
| Combined General Meeting of 24 September 2015 | ||||
| To grant bonus shares to employees and corporate officers of the Company and/or associated companies |
14 | 5% of the share capital as of the date of the decision to grant bonus shares |
38 months | None |
| To issue transferrable securities with waiver of preferential subscription rights and giving access to the Company's share capital to the benefit of members of one or several employee savings schemes |
15 | Limited to a nominal amount of €1,000,000(1) |
26 months | None |
(1) To be deducted from the aggregate limit fixed by resolution No. 27 adopted by the General Meeting of shareholders of 25 September 2014 to €70 million for the share capital securities and to €300 million for the debt instruments. (2) See details on page 54.
As their validity will come to an end during the financial year 2016/2017, the following delegations will be submitted for approval to the General Meeting of shareholders on 29 September 2016:
In accordance with the provisions of Article L. 225-209 of the French Commercial Code, the share buyback programmes approved by the shareholders at the General Meetings and in force during the 2015/2016 financial year were as follows:
| General Meeting of 25 September 2014 |
General Meeting of 24 September 2015 |
|
|---|---|---|
| Period of validity | From 1 April 2015 to 24 September 2015 | From 24 September 2015 to 31 March 2016 |
| Resolution approving the programme | 18 | 12 |
| Maximum number of shares | 7,110,410 | 7,110,410 |
| Maximum purchase price per share | €35 | €50 |
| Maximum amount | €248,864,350 | €355,685,150 |
Under both programmes, the shares could be purchased, sold or otherwise transferred for the purposes set out in the European regulations and in accordance with the market prices accepted by the French Financial Markets Authority (Autorité des marchés financiers or AMF), namely to:
As required under Article L. 225-211 of the French Commercial Code, the table below summarises the transactions carried out by the Company under these authorisations during the 2015/2016 financial year.
| Liquidity contract(1) |
Stock options coverage |
Other purposes | Not covered by share buyback programmes(1) (2) |
TOTAL | |
|---|---|---|---|---|---|
| Number of shares as at 31 March 2015) | 500 | – | – | 297,161 | 297,661 |
| Shares purchased | 343,477 | 238,095(4) | – | – | 581,572 |
| Shares sold | (289,977) | – | – | (182,862) | (472,839) |
| Shares loaned to members of the Supervisory Board | – | – | – | – | – |
| Number of shares cancelled | – | – | – | – | – |
| Average price of purchases and sales(3) | |||||
| – Purchases (in euro) | 24.46 | 21.00 | – | 25.13 | n/a |
| – Sales (in euro) | 25.03 | – | – | – | n/a |
| Number of shares as at 31 March 2016 | 54,000 | 238,095 | – | 114,299 | 406,394 |
(1) The transactions are recorded after settlement/delivery.
(2) These treasury shares are not shares previously purchased by the Company under a share buyback programme but shares automatically consolidated by combining investment certificates historically held by the Company with purchased voting right certificates. These treasury shares are therefore not subject to the allocation obligations provided for by Article L. 225-209 of the French Commercial Code.
(3) Arithmetic mean of the share market prices for transactions settled from 1 April 2015 to 31 March 2016.
(4) Transactions disclosed to the AMF and published on the website of Rothschild & Co (press release of 22 October 2015).
In accordance with Article L. 225-212 of the French Commercial Code, Rothschild & Co provides the AMF with a monthly report on the shares acquired, sold, cancelled or transferred by the Company in application of Article L. 225-209 of said code.
The General Meeting of shareholders on 29 September 2016 will be invited to adopt a new share buyback programme, in accordance with the provisions of Article L. 225-209 of the French Commercial Code, whose main characteristics are the following:
In accordance with statutory requirements, the table below lists the shareholders of Rothschild & Co holding, a percentage of the share capital or of the voting rights that exceeds the thresholds for disclosure as required under Article L. 233-9 of the French Commercial Code:
| 31 March 2016 | 31 March 2015 | |||||
|---|---|---|---|---|---|---|
| Shareholders | Total capital | % of share capital |
% of exercisable voting rights |
Total capital | % of share capital | % of exercisable voting rights |
| • Rothschild Concordia SAS(1) | 24,806,341 | 34.87% | 39.93% | 24,806,341 | 34.87% | 39.32% |
| • David de Rothschild subtotal | 111,115 | 0.16% | 0.11% | – | – | – |
| • Éric and Robert de Rothschild subtotal | 437,763 | 0.62% | 0.69% | 267,130 | 0.38% | 0.52% |
| • Holding Financier Jean Goujon SAS(2) | 3,657,079 | 5.14% | 6.91% | 3,581,685 | 5.03% | 6.19% |
| • NM Rothschild & Sons Ltd(3) | 1,822,283 | 2.56% | – | 1,774,221 | 2.49% | – |
| • Other members of the Enlarged Family Concert(4) | 4,491,632 | 6.31% | 7.02% | 4,275,202 | 6.01% | 7.06% |
| Total Enlarged Family Concert(4) | 35,326,213 | 49.66% | 54.66% | 34,704,579 | 48.79% | 53.08% |
| Treasury shares | 551,434 | 0.78% | – | 442,701 | 0.62% | – |
| Other controlling shares(3) | 252,671 | 0.33% | – | 220,245 | 0.31% | – |
| Edmond de Rothschild Group(5) | 5,573,586 | 7.83% | 10.58% | 5,573,586 | 7.83% | 10.42% |
| Jardine Matheson Group | 4,217,310 | 5.93% | 8.31% | 4,217,310 | 5.93% | 7.97% |
| Float | 25,215,822 | 35.45% | 26.46% | 25,978,615 | 36.52% | 28.54% |
| TOTAL | 71,137,036 | 100.00% | 100.00% | 71,137,036 | 100.00% | 100.00% |
(1) For the composition of the Enlarged Family Concert, see details in section 3.1.1 below.
(2) Controlled by Édouard de Rothschild.
(3) Group entities controlled by Rothschild & Co. According to applicable legal provisions, controlling shares cannot have voting rights.
(4) For the composition of the Enlarged Family Concert, see details on page 58.
(5) Entities of the Edmond de Rothschild Group acting in concert as disclosed to the AMF (AMF Decision & Information No. 214C2351 of 7 November 2014).
To the Company's knowledge, no other shareholder holds as at 31 March 2016 directly or indirectly, alone or acting in concert, above 5% of the Company's share capital or voting rights.
The Company is controlled, since 2008, by a concert of members of the Rothschild Family (the 'Initial Family Concert'), which extended to new members as from the Group reorganisation of 2012 (the 'Enlarged Family Concert'). The relations between concert members in relation to their shareholding in the Company are ruled by shareholders' agreements whose main provisions are presented on pages 60 onwards.
The Group reorganisation in January 2008 resulted in the establishment of two shareholders' agreements still effective at the date of this report.
The first shareholders' agreement was entered into on 25 January 2008 between shareholders of Rothschild Concordia SAS (the 'Rothschild Concordia Shareholders' Agreement'), all being members of the Rothschild family. The main provisions of this Rothschild Concordia Shareholders' Agreement are summarised on page 60 of this report and set up an action in concert between the shareholders of Rothschild Concordia SAS in respect of the Rothschild & Co shares held by Rothschild Concordia SAS.
As at 31 March 2016, the shareholders of Rothschild Concordia SAS were as follows:
| Shareholders | Shares | % of share capital |
% of voting rights |
|---|---|---|---|
| David de Rothschild subtotal(1) | 269,551,815 | 33.02% | 33.02% |
| Éric and Robert de Rothschild subtotal(2) | 374,927,451 | 45.94% | 45.94% |
| Integritas subtotal(3) | 171,728,995 | 21.04% | 21.04% |
| Total Rothschild Concordia SAS | 816,208,261 | 100% | 100% |
(1) David de Rothschild, his family and holding companies controlled by his family.
(2) Éric de Rothschild and controlled holding companies controlled by his family.
(3) Controlled by the English branch of the Rothschild family.
Overview
The second agreement concerns relations between Rothschild & Co and the Eranda Rothschild Foundation, covering in particular the terms and conditions of sale by Eranda of its shares in Rothschild & Co.
Pursuant to the provisions of Article L. 233-11 of the French Commercial Code, those two agreements were published by the AMF on 25 January 2008 (AMF Decision & Information No. 208CO180 of 25 January 2008).
Following the Group reorganisation in June 2012, the AMF was informed on 12 June 2012 of the new composition of the family concert extended to new members: Rothschild Concordia, the David, Éric and Édouard de Rothschild branches, certain members of the management bodies and Compagnie Financière Martin Maurel. On this occasion, the AMF was informed of the existence of a new shareholders' agreement, whose main dispositions were published by the AMF (AMF Decision & Information No. 212C0752 of 13 June 2012 and Decision & Information No. 212C0783 of 19 June 2012), summarised on page 60 of this report.
In December 2014, the AMF was informed of the addition of four new members to the Enlarged Family Concert: Nicolas Bonnault, Laurent Baril, Philippe Le Bourgeois and Christophe Desprez (through his holding company CD GFA SARL), being four of the Group's senior managers. On this occasion, the AMF was informed of the execution of an amendment to the Shareholders' Agreement of June 2012, which main dispositions were published by the AMF (AMF Decision & Information No. 215C0073 of 14 January 2015).
During the financial year ended 31 March 2016, certain members of the Enlarged Family Concert (the David, Édouard, Éric and Robert family branches and Olivier Pécoux) acquired 404,142 additional Rothschild & Co shares on 19 October 2015, representing 0.39% of the Company's share capital. At this occasion, declarations were made to the AMF (AMF Decisions & Information No. 215DD396509, 215DD396510 and 2015DD396511 of 23 October 2015).
On 4 January 2016, the AMF was informed of the addition to the Enlarged Family Concert of a new member, Nigel Higgins, Chief Executive Officer of Rothschild & Co Gestion SAS, after the acquisition of 4,362 shares (AMF Decision & Information No. 2016C0119 of 12 January 2016).
Moreover, the AMF was informed of a series of share reclassifications by certain members of the Enlarged Family Concert. At this occasion, six individuals within the concert contributed their shares to their holding companies, also members of the concert. This series of share reclassifications, which was completed on 31 March 2016, resulted in a loss of double voting rights for members who had held their shares under the registered form for more than two years, representing a gross loss of 434,000 voting rights for the family concert.
As at 31 March 2016, the composition of the Enlarged Family Concert is as follows:
| Shares | % of share capital | Voting rights | % of exercisable voting rights |
|
|---|---|---|---|---|
| Rothschild Concordia SAS | 24,806,341 | 34.87% | 40,544,341 | 39.93% |
| David de Rothschild subtotal(1) | 111,115 | 0.16% | 111,115 | 0.11% |
| Éric and Robert de Rothschild subtotal(1) | 437,763 | 0.62% | 704,893 | 0.69% |
| Holding Financier Jean Goujon SAS(2) | 3,657,079 | 5.14% | 7,017,764 | 6.91% |
| NM Rothschild & Sons Ltd(3) | 1,822,283 | 2.56% | – | – |
| Eranda Rothschild Foundation | 1,183,480 | 1.66% | 2,366,960 | 2.33% |
| Philippe de Nicolay–Rothschild | 102 | <0.01% | 202 | <0.01% |
| Alexandre de Rothschild | 7,538 | 0.01% | 15,038 | 0.01% |
| François Henrot subtotal(1) | 762,470 | 1.07% | 1,238,730 | 1.22% |
| Olivier Pécoux subtotal(1) | 484,339 | 0.68% | 783,668 | 0.77% |
| Nigel Higgins | 4,362 | <0.01% | 4,362 | <0.01% |
| Rothschild & Co Gestion SAS | 1 | <0.01% | 2 | <0.01% |
| Compagnie Financière Martin Maurel SA | 639,250 | 0.90% | 1,278,500 | 1.26% |
| Nicolas Bonnault subtotal(1) | 328,260 | 0.46% | 338,260 | 0.33% |
| Laurent Baril subtotal(1) | 404,570 | 0.57% | 414,570 | 0.41% |
| Philippe Le Bourgeois subtotal(1) | 293,260 | 0.41% | 303,260 | 0.30% |
| Christophe Desprez subtotal(1) | 384,000 | 0.54% | 384,000 | 0.38% |
| Total concert | 35,326,213 | 49.66% | 55,505,665 | 54.66% |
(1) Including their family holding company.
(2) Controlled by Édouard de Rothschild.
(3) Group entity controlled by Rothschild & Co without voting rights, in accordance with applicable legal provisions.
Pursuant to Article L. 233-7 of the French Commercial Code, any individual or legal entity, acting alone or in concert with others, that comes into possession of more than 5%, 10%, 15%, 20%, 25%, 30%, 33.33%, 50%, 66.66% or 90% of Rothschild & Co's share capital or voting rights, must inform the Company and the AMF no later than the close of business on the fourth trading day following attainment of the threshold, and disclose the total number of shares, investment certificates or voting rights held. This disclosure obligation shall apply under the same conditions when the portion of the share capital or voting rights held drops below these thresholds.
In addition to threshold crossing subject to legal provisions, Article 7.3 of Rothschild & Co's articles of association establishes disclosure obligations for shareholders who come into possession of a number of shares or voting rights equal to or greater than 1% of the Company's share capital or voting rights, or any multiple of this threshold.
This disclosure obligation shall apply under the same conditions when the portion of the share capital or voting rights held drops below these thresholds. The shareholders must inform the Company within the timeframe provided for by law, by registered letter with acknowledgement of receipt, stating whether the number of shares, investment certificates or voting rights are or are not held on behalf of, under the control of or in concert with other individuals or legal entities. Subject to the specific provisions stated above, this statutory obligation is governed by the same rules that apply to the legal obligation, including in particular the cases of assimilation of securities held provided for by law.
| Thresholds (%) | Disclosure to the Company |
Disclosure to the AMF |
Related obligations |
|---|---|---|---|
| 1.00% and any multiple | Yes | No | |
| 5.00% | Yes | Yes | |
| 10.00% | Yes | Yes | Statement of intent |
| 15.00% | Yes | Yes | Statement of intent |
| 20.00% | Yes | Yes | Statement of intent |
| 25.00% | Yes | Yes | Statement of intent |
| 30.00% | Yes | Yes | Public takeover bid or offer of exchange(1) |
| 33.33% | Yes | Yes | |
| 50.00% | Yes | Yes | |
| 66.66% | Yes | Yes | |
| 90.00% | Yes | Yes |
(1) Requirement also applicable in the event of an increase of more than 1% of the share capital or voting rights within a period of 12 consecutive months for persons holding between 30% and 50% of the Company's share capital or voting rights.
In the event of failure to comply with the disclosure requirements provided for above, the securities that exceed the fraction that should have been declared may be deprived of voting rights at all General Meetings held for a period of two years.
Each month, the Company publishes a report on its website disclosing the total number of shares and voting rights composing the share capital on the last day of the previous month (www.rothschildandco.com under the section 'Regulated Information'). Shareholders are invited to refer to these monthly publications to determine whether they are subject to the threshold disclosure requirements described above.
By notice received on 8 January 2016, Nigel Higgins declared that he had surpassed, acting in concert with the members of the Enlarged Family Concert, the thresholds of 5%, 10%, 15%, 20%, 30% and 33.33% of Rothschild & Co's share capital and voting rights and of 50% of Rothschild & Co's voting rights and that he held directly 4,362 shares representing less than 0.01% of the Company's share capital and the voting rights (AMF Decision & Information No. 214C1769).
This threshold crossing resulted from the addition of Nigel Higgins to the Enlarged Family Concert, materialised by the acquisition of Rothschild & Co shares by Nigel Higgins as payment of part of his deferred variable remuneration, pursuant to provisions of the CRD3 regulations applicable to the Rothschild & Co Group.
As required under Article L. 225-102 of the French Commercial Code, employee share ownership in the share capital of the Company as at 31 March 2016 amounted to 0.08% of the share capital, held by a company mutual fund (Fonds Commun de Placement d'Entreprise) within the frame of an employee share ownership scheme (Plan d'Épargne d'Entreprise).
Business review
As at 31 March 2016, Rothschild & Co held 551,434 of its own shares and certificates, without voting rights, as follows:
| Total number of shares held by Rothschild & Co | 406,384 |
|---|---|
| • Allocated to the liquidity contract |
54,000 |
| • Allocated to the stock options coverage |
238,095(1) |
| • Other treasury shares |
114,299 |
| Number of investment certificates held by Rothschild & Co | 145,040 |
| Total of shares and investment certificates held by Rothschild & Co | 551,434 |
| % of the share capital | 0.78% |
| Book value | €7,885,929.21 |
(1) Transactions disclosed to the AMF and published on the website of Rothschild & Co (press release of 22 October 2015).
As at 31 March 2016, a total of 2,074,954 shares are held by entities controlled by Rothschild & Co, representing 2.92% of the share capital. These shares are by nature without voting rights.
4.1.1 Rothschild Concordia Shareholders' Agreement The AMF has published the main provisions of this agreement, entered into on 25 January 2008 between shareholders of Rothschild Concordia SAS (Decision & Information No. 208C0180). The main provisions, in particular with respect to Rothschild & Co or the Group, are the following:
The Chairman of Rothschild Concordia SAS will consult the Board of Directors of Rothschild Concordia SAS, prior to any decision or action by the Supervisory Board of Rothschild & Co, with the objective of reaching consensus at the Rothschild Concordia SAS level on matters likely to have an impact on the Rothschild & Co Group.
For a duration of ten years as from the date of the Rothschild Concordia Shareholders' Agreement, unless decided otherwise by at least 90% of the Rothschild Concordia SAS shareholders, no transfer of the shares to any third party or any exit transaction (as defined in the Shareholders' Agreement) is authorised.
The provisions of the Rothschild Concordia Shareholders' Agreement coexist with the provisions of the Share Disposal Agreement signed on 22 January 2008 between the Eranda Foundation and Rothschild & Co. The main provisions of this agreement were notified to the AMF by letter dated 23 January 2008 and duly published by the AMF (Decision & Information No. 208C0180 of 25 January 2008). This Share Disposal Agreement, which covers the terms and conditions of sale by the Eranda Foundation of its shares in Rothschild & Co, provides in particular for a right of first refusal for Rothschild & Co, or any person it shall designate, which shall apply, with some exceptions, in the event of transfer of the shares held by the Eranda Foundation.
The AMF has published the main provisions of this agreement (AMF Decision & Information No. 212C0752 dated 13 June 2012 and Decision & Information No. 212C0783 dated 19 June 2012). These are summarised below.
Business review
Management report
Financial statements
shares in Rothschild & Co, it being specified that such shares will not be governed by the agreement and that any shareholders planning to increase their shareholdings in Rothschild & Co must first:
It is hereby specified that the Shareholders' Agreement of 8 June 2012 also provided that the parties to the Agreement have a right to give their shares to their family members and that such shares, while held in the names of the family members, will still be subject to the terms of the Shareholders' Agreement (including the agreement to act in concert with respect to those shares).
In this respect, the AMF was informed that Éric de Rothschild and Olivier Pécoux, both members of the family concert, donated, in July 2012, a part of their Rothschild & Co shares to members of their families, who also became members of the family concert upon the French regulator having received notification of the donations. Their adhesion was formalised by the execution of an amendment to the Shareholders' Agreement of 8 June 2012, without modification to its main terms and conditions.
On 7 January 2015, the AMF was informed of the addition of Nicolas Bonnault, Laurent Baril, Philippe Le Bourgeois and CD GFA SARL to the family concert. On this occasion, the AMF was informed of the execution of a second amendment to the Shareholders' Agreement of June 2012 which main dispositions were published by the AMF and are available on its website (AMF Decision & Information No. 215C0073 of 14 January 2015).
The following agreements, falling within the scope of the Dutreil Act and concluded or still in force in 2015/2016, were communicated to the Company:
| Agreement | Governed by | Date of signature |
Collective commitment to retain shares |
% of share capital and voting rights covered by agreement |
Signatories who hold the quality of corporate officer within the meaning of Article 621-18-2 of the Monetary and Financial code(1) |
|---|---|---|---|---|---|
| Agreement 2012.9 |
CGI Art. 885 I bis (ISF) |
20 December 2012 |
6 years from registration date (i.e. 27 December 2018) |
Over 20% of share capital and voting rights |
• Rothschild & Co Gestion SAS, Managing Partner • David de Rothschild, Chairman of Rothschild & Co Gestion SAS |
| Agreement 2012.11 |
CGI Art. 885 I bis (ISF) |
27 December 2012 |
6 years from registration date (i.e. until 28 December 2018) |
Over 20% of share capital and voting rights |
• Rothschild & Co Gestion SAS, Managing Partner • David de Rothschild, Chairman of Rothschild & Co Gestion • Éric de Rothschild, Chairman of the Supervisory Board • François Henrot, member of the Supervisory Board |
| Agreement 2013.1 |
CGI Art. 885 I bis (ISF) |
27 December 2013 |
2 years from registration date (i.e. until 30 December 2015) |
Over 20% of share capital and voting rights |
• Rothschild & Co Gestion SAS, Managing Partner |
| Agreement 2014.1 |
CGI Art. 885 I bis (ISF) |
12 December 2014 |
2 years from registration date (i.e. until 18 December 2016) |
Over 20% of share capital and voting rights |
• Rothschild & Co Gestion SAS, Managing Partner |
(1) As of this report.
Within the context of the Group's reorganisation in June 2012, lock-up agreements were concluded. In this context, shareholders' agreements were signed with the contributor shareholders, not members of the Extended Family Concert, which contributed their interests in Rothschild & Cie Banque SCS and their shares in Financière Rabelais SAS.
The contributors, not members of the Extended Family Concert, of interests in Rothschild & Cie Banque SCS and shares in Financière Rabelais SAS are under an obligation to hold all the Rothschild & Co shares received in exchange for their contributions for lock-up periods ranging from one to 18 years and also have an obligation to notify Rothschild & Co and Rothschild Concordia SAS before any sale of said shares. Some of these agreements, which concern natural persons occupying functions within the Group, grant Rothschild & Co a call option on the shares in the event the shareholder ceases to occupy his/her functions before the end of the applicable lock-up period.
Rothschild & Co is a French partnership limited by shares; it therefore benefits from the specificities of such legal form, which include specific legal and statutory provisions that may have an impact in the event of a takeover bid.
The share ownership structure is described on page 52 of this report. Following Rothschild & Co's conversion into a French partnership limited by shares, this structure has a particularity linked to the existence of two categories of partners: General Partners and Limited Partners.
A change of control therefore implies a change in the composition of these two categories of partners. Subject to the other elements described below that could have an impact in the event of a takeover bid on the Company's shares, a third party could, through a takeover bid, acquire control of the capital and the related voting rights. It could not, however, take control of the General Partners. In these conditions, a third party that would acquire the control of Rothschild & Co would, in particular, be unable to modify the articles of association or dismiss the Managing Partners; such decisions can only be made with the unanimous agreement of the General Partners. Also, General Partners may not transfer the shares they hold without the unanimous agreement of all the General Partners. These provisions are such as to prevent a change of control of Rothschild & Co without the unanimous agreement of the General Partners.
Rothschild & Co's articles of association do not put any direct restrictions on the exercise of voting rights and share transfers.
However, in addition to threshold crossings subject to legal provisions, Article 7.3 of Rothschild & Co's articles of association establishes statutory disclosure obligations as described on page 59 of this report.
As at the date of this report, there were no securities granting special rights of control. However, Rothschild & Co's General Partners, Rothschild & Co Gestion SAS and Rothschild & Co Commandité SAS, have some rights that could be assimilated to special rights of control, as described on page 52 of this report.
Pursuant to the articles of association, the Managing Partners are appointed by unanimous decision of Rothschild & Co's General Partners, with approval from the Extraordinary General Meeting of Limited Partners (the shareholders) acting by a qualified majority of two-thirds when the Managing Partner has been designated by the Company's articles of association (as is the case at the date of this report). The same rule applies to dismissals, solely on fair grounds. Managing Partners are free to resign subject to giving nine months' notice. If the position of Managing Partner is unoccupied, it shall be filled by the General Partners until a new Managing Partner has been appointed.
The rules that apply to the appointment and replacement of members of the Supervisory Board are set forth in the articles of association. Supervisory Board members are appointed and dismissed by the Ordinary General Meeting of Limited Partners based on deliberations in which the General Partners may not take part.
It is nonetheless specified that Rothschild Concordia SAS, following on from the contribution of shares in Rothschilds Continuation Holdings AG made by Jardine Strategic Investment Holdings Sàrl, a company of the Jardine Matheson Group, and approved by the General Meeting of shareholders of 8 June 2012, has given an undertaking to vote in favour of the appointment to the Supervisory Board of a representative of Jardine Matheson for as long as Jardine Matheson holds at least 5% of the share capital of Rothschild & Co. This resulted in the appointment on 8 June 2012 of a representative of Jardine Matheson, Lord Leach, to the Supervisory Board of the Company under its new form of partnership limited by shares.
Some of the loan agreements entered into by the Group with third parties contain early call clauses in the event of a change of control, which are normal clauses in this type of loan agreement. They could be triggered by a takeover bid for the Company's shares.
As from the Group reorganisation implemented in June 2012, the Company's corporate governance structure is based on the Managing Partner, assisted by the Group Management Committee, and the Supervisory Board, which relies on four specialised committees: the Audit Committee, the Strategy Committee, the Risk Committee and the Remuneration and Nomination Committee.
Rothschild & Co Gestion SAS, the sole Managing Partner (Gérant) and legal representative of Rothschild & Co, was appointed by Rothschild & Co's articles of association for the duration of the Company. Rothschild & Co Gestion SAS, as Managing Partner of Rothschild & Co, is responsible for the overall management of Rothschild & Co, the Group's lead holding company.
The Managing Partner has full power to act in all circumstances in the Company's name and on its behalf, in order to, among others:
David de Rothschild, in his capacity as Chairman of the Company's Managing Partner, represents Rothschild & Co vis-à-vis third parties. Subject to the powers granted to Rothschild & Co Gestion SAS' shareholders, the Chairman is vested with the broadest powers to act in Rothschild & Co Gestion SAS' name, and therefore in the Company's name, in any circumstances.
Two Co-Chief Executive Officers, Nigel Higgins and Olivier Pécoux, assist the Chairman based on and within the limit of the powers granted to them by the Chairman. In accordance with the terms of a delegation of powers given by the Chairman, each Chief Executive Officer may act in the name of and on behalf of Rothschild & Co Gestion SAS when it represents Rothschild & Co in its capacity as Managing Partner.
The decision-making process of the Managing Partner relies on its Management Board, a collective body which aims to assist the Chairman of the Company's Managing Partner to fulfil the commitments of Rothschild & Co Gestion SAS acting in its capacity as the Managing Partner of Rothschild & Co.
The Management Board is composed of David de Rothschild, Chairman; Alexandre de Rothschild, Deputy Chairman; and Nigel Higgins and Olivier Pécoux, Co-Chief Executive Officers.
As regards the oversight management and supervision of the Group, the following areas are reserved to the Management Board, without prejudice to and consistent with other significant Group companies' local requirements:
The Management Board meets at least four times a year ahead of the meetings of the Supervisory Board and the Supervisory Board's specialised committees, so as to in particular enable an adequate preparation and review ahead of presentations to the Supervisory Board and its committees.
In addition to those quarterly meetings, in order to maintain the proper and consistent functioning of the Group management and supervision and to streamline the process of information of the Management Board, the Management Board can meet more frequently if so required by the Chairman.
The list of positions held by the Managing Partner and David de Rothschild, its Chairman, is presented on the following page.
Overview
• Statutory Managing Partner
| French partnership limited by shares (société par actions simplifiée) | Date of last renewal: n/a | |
|---|---|---|
| Date of first appointment: 8 June 2012 | End of term of office: n/a | |
| Number of shares directly held as at 31 March 2016: 1 | ||
| Other directorships and positions held | ||
| Within the Group | Outside the Group | |
| In France: | None | |
| Managing Partner of RCB Gestion SNC | ||
| In other countries: | ||
| None | ||
| Positions no longer held (but held within the last five years) | ||
| In France: | In other countries: | |
| None | None |
• Chairman of Rothschild & Co Gestion SAS in its capacity as Managing Partner
| French | Date of last renewal: n/a |
|---|---|
| Born in 1942 | End of term of office: statutory |
| Date of first appointment: 8 June 2012 | Number of shares directly held as at 31 March 2016: None |
Vice-Chairman of Rothschild Bank AG (Switzerland) Member of the Board of Directors of Rothschilds Continuation Holdings AG (Switzerland) Member of the Board of Directors of Rothschild Holding AG (Switzerland) Member of the Board of Directors of Continuation Investments NV (the Netherlands) Member of the Board of Directors of Rothschild Employee Trustees Limited (United Kingdom) Member of the Board of Directors of Rothschild Asia Holding Limited (China) Member of the Board of Directors of Rothschild Concordia AG (Switzerland)
| Positions no longer held (but held within the last five years) | ||||
|---|---|---|---|---|
| In France: | In other countries: | |||
| Member of the Board of Directors of Edmond de Rothschild SA (2015) (Outside the Group) | Chairman of Rothschild North America Inc. (United States of America) (2015) | |||
| Chairman of RCG Gestion SAS (2013) | Chairman of Rothschilds Continuation Holdings AG (Switzerland) (2014) | |||
| Chairman of RCB Gestion SNC (2013) | Member of the Board of Directors of Rothschild Asia Holding Limited (China) (2014) | |||
| Chairman of RCBP Gestion SAS (2013) | Chairman and Director of NM Rothschild & Sons Ltd (United Kingdom) (2014) | |||
| Chairman of RCI Gestion SAS (2013) | Member of the Remuneration and Nomination Committee of Rothschilds Continuation | |||
| Chairman of Norma SAS (2013) | Holdings AG (Switzerland) (2013) | |||
| Member of the Board of Directors of De Beers SA(1) (Luxemburg) (2013) (Outside the Group) |
(1) Listed company.
This report, established pursuant to paragraphs 7 to 9 of Article L. 225- 68 of the French Commercial Code with reference to Article L. 226-10-1 of that code, sets forth the principles of the corporate governance of Rothschild & Co.
This report describes the Supervisory Board's powers and duties, the duties of its members, and the status, powers and duties of the Supervisory Board's specialised committees. These arise from the provisions of the Company's articles of association and the Supervisory Board's terms of reference and internal rules of procedure of the specialised committees.
All of the work that went into the preparation of this report was presented to the Supervisory Board, which approved its terms at its meeting of 22 June 2016.
In accordance with the articles of association, the Supervisory Board is composed of a maximum of 18 members, all of whom are shareholders in the Company. The Supervisory Board members are appointed by the Ordinary General Meeting of shareholders, which in accordance with the articles of association, sets the duration of their term of office. The number of members of the Supervisory Board over the age of 75 years may not exceed one-third of the members in office; if this proportion is exceeded, the members who are required to leave the Supervisory Board in order to restore compliance with this proportion will be considered to have resigned, starting with the oldest.
As at 31 March 2016, the Supervisory Board was composed of 16 members:
Among the 16 members of the Supervisory Board, ten members are independent members: Martin Bouygues, Dr. Daniel Daeniker (also member of the Strategy Committee and Risk Committee), Angelika Gifford, André Lévy-Lang (also member of the Audit Committee, Strategy Committee and Remuneration and Nomination Committee), Lord Leach (also member of the Strategy Committee), Carole Piwnica (also member of the Strategy Committee and Audit Committee), Jacques Richier, Sipko Schat (also Chairman of the Risk Committee), Peter Smith (also Chairman of the Audit Committee and member of the Strategy Committee and Remuneration and Nomination Committee) and Luisa Todini (also member of the Remuneration and Nomination Committee).
The Group Company Secretary (and Directeur Juridique of the Company) also acts as Secretary to the Supervisory Board under the supervision of the Chairman of the Supervisory Board.
A summary profile for each of the members of the Supervisory Board and the list of their directorships and positions held as at 31 March 2016, within and outside the Group, in France and in other countries, is presented on the following pages.
More information, including a short biography for each of the members, is available on the Company's website at www.rothschildandco.com.
Overview
| French | Date of last renewal: 25 September 2014 | |
|---|---|---|
| Born in 1940 | End of term of office: AGM to be held in 2017 | |
| Date of first appointment: 29 October 2004 | Number of shares directly held as at 31 March 2016: 10 | |
| Within the Group | Outside the Group |
|---|---|
| In France: | In France: |
| Member of the Board of Directors and General Manager of Rothschild Concordia SAS | Permanent representative of Béro SCA as: |
| Partner of RCB Partenaires SNC | • Chairman of Société du Château Rieussec SAS |
| General Partner and Manager of Béro SCA | • Manager of Château Lafite Rothschild SC |
| Permanent representative of Béro SCA as Chairman of Ponthieu Rabelais SAS | • Manager of Château Duhart-Milon SC |
| • Manager of La Viticole de Participation SCA, co-Manager of Domaines Barons de |
|
| In other countries: | Rothschild (Lafite) SCA |
| Chairman of Rothschild Holding AG (Switzerland) | Chairman of Fondation nationale des Arts graphiques et plastiques |
| Chairman of Rothschild Asset Management Holdings AG (Switzerland) | Member of the Supervisory Board of Milestone SAS |
| Member of the Board of Directors of Continuation Investments NV (the Netherlands) | Member of the Supervisory Board of SIACI Saint-Honoré SA |
| Member of the Board of Directors of Rothschilds Continuation Holdings AG (Switzerland) | Member of the Board of Directors of Baronnes et Barons Associés SAS |
| Member of the Board of Directors of Rothschild Concordia AG (Switzerland) | Member of the Board of Directors of Christie's France SA |
| Member of the Board of Directors of The Rothschild Archive Ltd (United Kingdom) | Member of the Board of Directors of Société des Amis du Louvre |
| Member of the Board of Directors of Rothschild Employee Trustees Ltd (United Kingdom) | Member of the Board of Directors of Centre national de la Photographie |
| In other countries: | |
| Chairman and Director of DBR USA Inc. (United States of America) | |
| Member of the Board of Directors of Los Vascos SA (Chile) | |
In France: None
Chairman of Rothschild Bank AG (Switzerland) (2014)
Member of the Board of Directors of NM Rothschild & Sons Ltd (United Kingdom) (2014) Member of the Remuneration and Nomination Committee of Rothschilds Continuation Holdings AG (Switzerland) (2013)
Member of the Board of Directors of Rothschild North America Inc (United States of America) (2013)
Date of last renewal: 25 September 2014 End of term of office: AGM to be held in 2017
Number of shares directly held as at 31 March 2016: 4,305
French Born in 1937 Date of first appointment: 29 October 2004
| Within the Group | Member of the Board of Directors of Institut Français des Relations Internationales |
|---|---|
| None | (association) |
| Member of the Board of Directors of Hôpital Américain de Paris (association) | |
| Outside the Group | Member of the Board of Directors of Institut des Hautes Études Scientifiques (association) |
| In France: | Member of the Board of Directors of Paris Sciences et Lettres (association) |
| Chairman of the Supervisory Board of Les Échos SAS | |
| Chairman of La Fondation du Risque (association) | In other countries: |
| Chairman of Institut Louis Bachelier (association) | None |
In France:
Chairman of Institut Français des Relations Internationales (association) (2015) (Outside In other countries: None
the Group)
Chairman of the Audit Committee of Paris Orléans SCA(1) (2013)
Vice-Chairman of Institut Europlace de Finance (association) (2013) (Outside the Group) Member of the Board of Directors of Groupe des Ecoles Nationales d'Economie et
Statistique (2013) (Outside the Group) Member of the Board of Directors of Scor (2011) (Outside the Group)
(1) Listed company.
French Born in 1949 Date of first appointment: 29 March 2012 Date of last renewal: 25 September 2014 End of term of office: AGM to be held in 2017 Number of shares directly held as at 31 March 2016: 476,260
| Member of the Supervisory Board of Rexel SA(1) |
|---|
| Chairman of the Board of Directors of Copeba (Belgium) |
| Member of the Board of Directors of Yam Invest NV (the Netherlands) |
| Non-Executive member of the Board of Directors of BMCE Bank SA(1) (Morocco) |
| Positions no longer held (but held within the last five years) | ||
|---|---|---|
| In France: | In other countries: | |
| Non-voting member (censeur) of the Supervisory Board of Vallourec SA(1) (2015) (Outside | Member of the Board of Directors of Rothschilds Continuation Holdings AG (Switzerland) | |
| the Group) | (2013) | |
| General Partner and Manager of Rothschild & Cie SCS (2014) | ||
| Managing Partner of de RCB Partenaires SNC (2014) | ||
| Member of the Supervisory Board of 3 Suisses SA (2013) (Outside the Group) |
• Independent member of the Supervisory Board
| French Born in 1952 |
Date of last renewal: 25 September 2014 End of term of office: AGM to be held in 2017 |
|---|---|
| Date of first appointment: 7 December 2007 | Number of shares directly held as at 31 March 2016: 35,697 |
| Other directorships and positions held | |
| Within the Group | Member of the Board of Directors of Fondation d'entreprise Francis Bouygues |
| None | Permanent representative of SCDM SAS as: |
| • Chairman of SCDM Participations SAS |
|
| Outside the Group | • Chairman of Actiby SAS |
| In France: | |
| Chairman and Chief Executive Officer of Bouygues SA(1) | In other countries: |
| Chairman of SCDM SAS | Member of the Board of Directors of Fondation Skolkovo (Russia) |
| Member of the Board of Directors of TF1 SA(1) | |
| Chairman of the Selection Committee of TF1 SA(1) |
In France: Permanent representative of SCDM SAS as Chairman of SCDM Invest 3 SAS (2015) (Outside the Group) Member of the Strategy Committee of Paris Orléans SCA(1) (2014)
In other countries: None
Overview
| General information | |
|---|---|
| Swiss | Date of last renewal: n/a |
| Born in 1963 Date of first appointment: 25 September 2014 |
End of term of office: AGM to be held in 2016 Number of shares directly held as at 31 March 2016: 2,010 |
| Other directorships and positions held | |
| Within the Group | In other countries: |
| None | Member of the Board of Directors of dorma+kaba Holding AG(1) (Switzerland) Member of the Board of Directors of Homburger AG (Switzerland) |
| Outside the Group | |
| In France: | |
| None |
| In France: | In other countries: |
|---|---|
| None | Member of the Board of Directors of GAM Holding AG(1) (Switzerland) (2015) (Outside the |
| Group) | |
| Independent member of the Board of Directors of Rothschilds Continuation Holdings AG (Switzerland) (2014) |
|
| French | Date of last renewal: 24 September 2015 |
|---|---|
| Born in 1952 | End of term of office: AGM to be held in 2018 |
| Date of first appointment: 29 March 2012 | Number of shares directly held as at 31 March 2016: 10 |
| Within the Group Outside the Group In France: In France: |
|
|---|---|
| Member of the Board of Directors of Rothschild Concordia SAS None |
|
| Member of the Advisory Committee of Five Arrows Managers SAS | |
| In other countries: | |
| In other countries: Member of the Board of Directors of Rhone Capital LLC (United States of America) |
|
| Senior Adviser of NM Rothschild & Sons Ltd (United Kingdom) | |
| Member of the Investment Committee of Five Arrows Principal Investments SCA SICAR | |
| (Luxemburg) | |
| Member of the Board of Directors of Five Arrows Capital Ltd (British Virgin Islands) | |
| Chairman of Francarep, Inc. (United States of America) |
Chairman of the Executive Board of Paris Orléans SA(1) (Until 29 March 2012) Member of the Rothschild Group Risk Committee (2014)
In other countries:
Member of the Board of Directors of Intercontinental Exchange Group, Inc(1) (United States of America) (2015) (Outside the Group) Director of NYSE Euronext Inc. (United States of America) (2013) (Outside the Group)
Member of the Advisory Committee of General Atlantic LLC (United States of America) (2013) (Outside the Group)
(1) Listed company.
Member of the Audit Committee of Rothschild Bank AG (Switzerland) (2013) Member of the Board of Directors of Rothschild Bank AG (Switzerland) (2013) Non-Executive member of the Board of Directors of Rothschilds Continuation Holdings AG (Switzerland) (2013)
• Independent member of the Supervisory Board
| General information | |
|---|---|
| German Born in 1965 Date of first appointment: 25 September 2014 |
Date of last renewal: n/a End of term of office: AGM to be held in 2016 Number of shares directly held as at 31 March 2016: 10 |
| Other directorships and positions held | |
| Within the Group None Outside the Group In France: None |
In other countries: Executive Director and Vice-President of Hewlett-Packard GmbH (Germany) Member of the Executive Board of Atlantik-Brücke e.V. (Germany) Member of Board of Directors of ProSieben Sat.1 Media SE(1) (Germany) |
| Positions no longer held (but held within the last five years) | |
| In France: None |
In other countries: Member of the Board of Directors of TUI AG(1) (Germany) (2015) (Outside the Group) Member of the Executive Board of Microsoft Germany GmbH (Germany) (2011) (Outside the Group) |
| Lord LEACH† | Positions held within Rothschild & Co • Independent member of the Supervisory Board • Member of the Strategy Committee |
| General information | |
| British Born in 1934 Date of first appointment: 8 June 2012 |
Date of last renewal: 24 September 2015 End of term of office: AGM to be held in 2018 Number of shares directly held as at 31 March 2016: 10 |
| Other directorships and positions held | |
| Within the Group None Outside the Group In France: None |
In other countries: Member of the Board of Directors of Jardine Lloyd Thompson Group plc(1) (United Kingdom) Member of the Board of Directors of Dairy Farm International Holdings Ltd (Bermuda) Member of the Board of Directors of Hong Kong Land Holdings Ltd (Bermuda) Member of the Board of Directors of Jardine Matheson Holdings Ltd (Bermuda) Member of the Board of Directors of Jardine Strategic Holdings Ltd (Bermuda) Member of the Board of Directors of Mandarin Oriental International Ltd (Bermuda) Member of the Board of Directors of Matheson & Co. Ltd (United Kingdom) |
| Positions no longer held (but held within the last five years) | |
| In France: None |
In other countries: None |
(1) Listed company.
(†) Deceased on 12 June 2016.
Overview
• Member of the Supervisory Board
End of term of office: AGM to be held in 2016 Number of shares directly held as at 31 March 2016: 10
Date of last renewal: n/a
• Member of the Risk Committee as from 22 June 2016
French Born in 1963 Date of first appointment: 25 September 2014
| Other directorships and positions held | ||
|---|---|---|
| Within the Group | Member of the Board of Directors of Groupe Lucien Barrière SAS | |
| In France: | Member of the Board of Directors of Imerys SA(1) | |
| Managing Director of Rothschild & Cie SCS | Member of the Remuneration and Nomination Committee of Imerys SA(1) | |
| In other countries: | In other countries: | |
| None | Vice-Chairwoman of CARE International (Switzerland) | |
| Member of the Board of Directors of Electrica SA(1) (Romania & United Kingdom) | ||
| Outside the Group | Member of the Nomination and Remuneration Committee of Electrica SA(1) (Romania & | |
| In France: | United Kingdom) | |
| Chairwoman of CARE France | Member of the Audit and Risk Committee of Electrica SA(1) (Romania & United Kingdom) |
In France: None
In other countries: None
| French | Date of last renewal: 24 September 2015 |
|---|---|
| Born in 1962 | End of term of office: AGM to be held in 2018 |
| Date of first appointment: 8 June 2012 | Number of shares directly held as at 31 March 2016: 10 |
| Vice-Chairwoman of the Association Française des Banques Permanent representative of Banque Martin Maurel as member of the Supervisory Board of Optigestion SA Member of the Board of Directors of Compagnie Plastic Omnium SA(1) |
|---|
| Member of the Board of Directors of Théâtre du Châtelet |
| Member of the Board of Directors of Montupet SA(1) |
| Member of the Board of Directors of Fondation Hôpital Saint-Joseph |
| In other countries: |
| Manager (Type A) of Mobilim International Sàrl (Luxemburg) |
In other countries:
None
In France: Member of the Supervisory Board of Aéroport Marseille Provence (2015) (Outside the Group) Chairwoman of Groupement Européen de Banques (2015) (Outside the Group)
Member of the Supervisory Board of Foncière INEA SA (2014) (Outside the Group) Vice-Chairwoman of the Supervisory Board of Optigestion SA (2013) (Outside the Group)
(1) Listed company.
• Independent member of the Supervisory Board
Member of the Board of Directors of Naxos UK Ltd (United Kingdom) Member of the Board of Directors of Big Red (United States of America) Member of the Board of Directors of Elevance (United States of America) Member of the Board of Directors of Amyris Inc.(1) (United States of America)
Member of the Board of Directors of I20 (United Kingdom)
| Belgian | Date of last renewal: n/a |
|---|---|
| Born in 1958 | End of term of office: AGM to be held in 2016 |
| Date of first appointment: 25 September 2014 | Number of shares directly held as at 31 March 2016: 10 |
In other countries:
Within the Group None
In France:
(2014) (Outside the Group)
(1) Listed company.
Outside the Group In France: Independent Member of the Board of Directors of Sanofi SA(1) Member of the Audit Committee of Sanofi SA(1) Independent Member of the Board of Directors of Eutelsat Communications SA(1) Chairwoman of the Governance, Remunerations and Selection Committee of Eutelsat Communications SA(1)
None In other countries: Member of the Board of Directors of RecyCoal Ltd (United Kingdom) (2015) (Outside the Group) Member of the Board of Directors of Louis Delhaize(1) (Belgium) (2013) (Outside the Group) Member of the Board of Directors of Dairy Crest Plc(1) (United Kingdom) (2011) (Outside the Group)
Member of the Board of Directors of Aviva Plc(1) (United Kingdom) (2011) (Outside the Group) Chairwoman of the Corporate Social Responsibility of Aviva Plc(1) (2011) (United Kingdom) (Outside the Group) Member of the Remuneration Committee of Aviva Plc(1) (United Kingdom) (2011) (Outside the Group)
• Member of the Supervisory Board
| General information | |
|---|---|
| British Born in 1977 Date of first appointment: 8 June 2012 |
Date of last renewal: 24 September 2015 End of term of office: AGM to be held in 2018 Number of shares directly held as at 31 March 2016: 10 |
| Other directorships and positions held | |
| Within the Group | Outside the Group |
| In France: Member of the Board of Directors of Rothschild Concordia SAS |
In France: None |
| In other countries: None |
In other countries: Member of the Board of Directors of Ascott Farms Ltd (United Kingdom) Member of the Board of Directors of Ascott Nominees Ltd (United Kingdom) Member of the Board of Directors of Southcourt Stud Company Ltd (United Kingdom) Member of the Board of Directors of Sculpt the Future Company Ltd (United Kingdom) |
| Positions no longer held (but held within the last five years) | |
| In France: None |
Member of the Board of Directors of Rothschilds Continuation Holdings AG (Switzerland) (2013) |
| In other countries: Member of the Board of Directors of Ascott Properties Ltd (United Kingdom) (2015) (Outside the Group) Member of the Board of Directors of William and Suzue Curley Ltd (United Kingdom) |
Member of the Board of Directors of A7 Music Ltd (United Kingdom) (2013) (Outside the Group) |
Overview
• Independent member of the Supervisory Board
| French | Date of last renewal: 25 September 2014 |
|---|---|
| Born in 1955 | End of term of office: AGM to be held in 2017 |
| Date of first appointment: 27 September 2010 | Number of shares directly held as at 31 March 2016: 10 |
Within the Group None
Outside the Group
In France:
(Outside the Group)
(Outside the Group)
In France: Chairman and Chief Executive Officer of Allianz IARD SA Chairman and Chief Executive Officer of Allianz Vie SA Chairman and Chief Executive Officer of Allianz France SA Chairman of the Supervisory Board of Allianz Worldwide Partners SAS Member of the Board of Directors of AWP Health & Life SA Member of the Supervisory Board of Euler Hermès SA(1)
Positions no longer held (but held within the last five years)
Chairman of the Board of Directors of Allianz Worldwide Care SA (2015)
Chairman of Allianz Worldwide Partners SAS (2015) (Outside the Group) Member of the Supervisory Board of Allianz Global Assistance SAS (2013)
Member of the Supervisory Board of Oddo & Cie SCA (2012) (Outside the Group)
Non-executive member of the Board of Directors of Georgia Healthcare Group plc(1) (United Kingdom)
Member of the Audit Committee of Georgia Healthcare Group plc(1) (United Kingdom) Member of the Nomination Committee of Georgia Healthcare Group plc(1) (United Kingdom)
In other countries: Chairman of Allianz Worldwide Care Ltd (Ireland) (2014) (Outside the Group) Member of the Supervisory Board of Allianz Global Corporate & Specialty AG (Germany) (2014) (Outside the Group)
| Dutch Born in 1960 Date of first appointment: 8 June 2012 |
Date of last renewal: 24 September 2015 End of term of office: AGM to be held in 2018 Number of shares directly held as at 31 March 2016: 10 |
|
|---|---|---|
| Other directorships and positions held | ||
| Within the Group | In other countries: |
|---|---|
| None | Chairman of the Supervisory Board of Vion N.V (the Netherlands) |
| Non-executive member of the Board of Directors of OCI N.V(1) (the Netherlands) | |
| Outside the Group | |
| In France: | |
| None | |
| Positions no longer held (but held within the last five years) | |||||
|---|---|---|---|---|---|
| Chairman of the Wholesale Management Team of Rabobank International (the Netherlands) | |||||
| (2013) (Outside the Group) | |||||
| Member of the Board of Directors of Bank Sarasin & Cie AG (Switzerland) (2013) | |||||
| (Outside the Group) | |||||
| Member of the Board of Directors of Rabo Real Estate (the Netherlands) (2013) | |||||
| (Outside the Group) | |||||
| Representative of Rabobank as Director of VNO-NCW (Confederation of Netherlands Industry and Employers) (2013) (Outside the Group) |
|||||
(1) Listed company.
| Peter SMITH General information |
Positions held within Rothschild & Co • Independent member of the Supervisory Board • Chairman of the Audit Committee • Member of the Remuneration and Nomination Committee • Member of the Strategy Committee |
|---|---|
| British | Date of last renewal: 24 September 2015 |
| Born in 1946 Date of first appointment: 27 September 2012 |
End of term of office: AGM to be held in 2018 Number of shares directly held as at 31 March 2016: 10 |
| Other directorships and positions held | |
| Within the Group In France: None |
Outside the Group In France: None |
| In other countries: Non-executive Chairman and member of the Board of Directors of NM Rothschild & Sons Ltd (United Kingdom) Member of the Board of Directors of Rothschild Bank AG (Switzerland) Member of the Audit Committee of Rothschild Bank AG (Switzerland) |
In other countries: Non-executive Chairman of the Board of Directors of Savills Plc(1) (United Kingdom) Chairman of the Board of Directors of Land Restoration Trust (a charity) (United Kingdom) Member of the Board of Directors of Associated British Foods Plc (United Kingdom) Member of the Board of Directors of Casa San Damian Limited (United Kingdom) |
| Positions no longer held (but held within the last five years) | |
| In France: None In other countries: Non-executive Chairman of the Board of Directors of Templeton Emerging Markets Investment Trust Plc(1) (United Kingdom) (2015) (Outside the Group) |
Non-executive member of the Board of Directors of Rothschilds Continuation Holdings AG (Switzerland) (2014) Chairman of the Audit Committee of Rothschilds Continuation Holdings AG (Switzerland) (2013) Member of the Remuneration Committee of Rothschilds Continuation Holdings AG (Switzerland) (2013) |
| Luisa TODINI | Positions held within Rothschild & Co • Independent member of the Supervisory Board • Member of the Remuneration and Nomination Committee |
| General information | |
| Italian Born in 1966 Date of first appointment: 25 September 2014 |
Date of last renewal: n/a End of term of office: AGM to be held in 2016 Number of shares directly held as at 31 March 2016: 10 |
| Other directorships and positions held | |
| Within the Group None Outside the Group In France: |
Chairwoman of Todini Finanziaria SpA, Ecos Energia Srl, Uni-Esco Srl (Italy) Chairwoman of Comitato Leonardo – Italian Quality Committee (Italy) Chairwoman of Fondazione Poste Insieme (Italy) Co-Chairwoman of the Italian and Russian Civil Society Dialogue Forum (Italy) Sole Managing Director of Proxima Srl (Italy) |
None
In other countries: Chairwoman of Poste Italiane(1) (Italy) Chairwoman of Todini Costruzioni Generali SpA (Italy)
Positions no longer held (but held within the last five years)
| In France: None |
Chairwoman of FIEC (European Construction Industry Federation) (Italy) (2012) (Outside the Group) Chairwoman of Cantina Todini Srl (Italy) (2013) (Outside the Group) |
||
|---|---|---|---|
| In other countries: | Member of the Board of Directors of Salini SpA (Italy) (2013) (Outside the Group) | ||
| Member of the Board of Directors of RAI SpA(1) (Italy) (2014) (Outside the Group) | Member of the Board of Directors of Tiesse Holding Srl (Italy) (2013) (Outside the Group) | ||
| Member of the Board of Directors of Cediv SpA (Italy) (2014) (Outside the Group) | Member of the Board of Directors of AGI (Italy) (2011) (Outside the Group) |
Member of the Board of Directors of Salini Costruttori SpA (Italy)
Member of the Steering Committee of Assonime (Italy)
into Childhood and Adolescence (Italy)
Member of the Board of Directors of Foundation Child for Study and Research
(1) Listed company.
Overview
Financial statements
It is hereby specified that the terms of offices held by Daniel Daeniker, Angelika Gifford, Carole Piwnica, Arielle Malard de Rothschild and Luisa Todini will come to an end by the General Meeting of shareholders to be held on 29 September 2016. Shareholders will be proposed to deliberate on the renewal of said offices. More detailed information will be presented on these proposed renewals in the General Meeting Document, grouping all information to be presented to the shareholders, pursuant to the applicable legal provisions.
The Supervisory Board continually monitors the way in which the Company is managed by the Managing Partner, including in particular the Company's financial and accounting reporting system and its internal control mechanisms applicable to risk, compliance and internal audit, in accordance with the laws and regulations applicable to the Company.
The Supervisory Board may call a General Meeting of shareholders.
In addition to the powers granted to it by law, using the methods set forth in Article 10.2.3 of the Company's articles of association, the Supervisory Board issues:
Moreover, the Supervisory Board presents a report to the shareholders and a reasoned opinion on any resolution submitted to the shareholders at their General Meeting and on any matter that is the subject of a report by the Company's Statutory Auditors.
The Supervisory Board may be assisted by experts of its choosing, whose expenses shall be paid by the Company. It has the broadest powers of investigation and may submit written questions to, or seek the opinion of, the Managing Partner at any time.
Before assuming a seat on the Supervisory Board, each member must be aware of the general and special obligations incumbent on them. In particular, they must familiarise themselves with the laws and regulations governing the duties of Supervisory Board members.
The Company provides new members with its articles of association and the Supervisory Board's internal rules of procedure before they take office. By accepting a seat on the Supervisory Board, members agree to abide by its internal rules of procedure.
When taking part in Supervisory Board meetings and casting a vote, Supervisory Board members are representing all of the Company's shareholders and acting in the interests of the Company.
Supervisory Board members must allocate the required time to preparing for Board meetings and meetings of any committees on which they sit (as the case may be) by carefully reading the documentation provided to them. They may ask the Chairman for any further information they require.
Board members must attend all Supervisory Board meetings and meetings of any committees of which they are members (as the case may be), as well as General Meetings of shareholders, unless subject to an impediment and provided that they notify the Chairman and/or the Secretary accordingly beforehand.
Documentation for Supervisory Board meetings as well as information collected before or during Supervisory Board meetings are confidential. In accordance with applicable regulations, Supervisory Board members and all other persons invited to attend the meetings may not pass on such information to a third person other than within the ordinary scope of their work or occupation, or for any purpose or activity other than those for which the information was provided to them. They take appropriate measures to protect the confidentiality of such information. Such information ceases to be personal and confidential when published externally by the Company, particularly in the form of a press release.
Supervisory Board members are not permitted to use their position and/ or duties to procure any kind of benefit, whether financial or otherwise, either for themselves or for a third party.
Members must notify the Supervisory Board of any actual or potential conflict of interest with the Rothschild & Co Group. They must abstain from voting on the corresponding decision and from taking part in the discussion held prior to the vote.
The direct or indirect involvement of any Supervisory Board member in an operation or a transaction in which the Rothschild & Co Group has a direct interest, or of which he is aware as a result of his membership of the Board, must be disclosed to the Board prior to the conclusion of such operation or transaction.
Supervisory Board members are not permitted to assume personal responsibilities in undertakings or affairs that compete directly or indirectly with those of the Rothschild & Co Group without notifying the Board in advance.
Overview
Business review
Supervisory Board members and all other persons who are invited to attend Board meetings must not engage (either in person or via an intermediary) in transactions involving financial instruments of the Company and/or any other issuer for as long as they possess (as a result of their duties or presence at a Board meeting) confidential information that might have a material effect on the price of the said financial instruments or on the price of related financial instruments. This duty applies without the Company being required to stipulate that the relevant information is confidential or privileged. Similarly, Supervisory Board members must refrain from disclosing such information to any other person outside the ordinary scope of their functions or for any purpose other than those for which the information was provided to them. Lastly, members must refrain from advising any other person to purchase or sell the financial instruments to which such information relates.
To this end, the following measures in particular must be taken:
On a proposal by its Chairman, the Supervisory Board prepares a schedule of meetings each year, for the following year.
The Supervisory Board meets as often as required in the interests of the Company and at least four times a year, further to a notice of meeting issued by any means by the Chairman, at least one half of Supervisory Board members, the Managing Partner, Rothschild & Co Gestion SAS, or a General Partner, subject to reasonable notice unless circumstances require a meeting to be called at very short notice.
The person(s) who call(s) a Supervisory Board meeting prepares the agenda of the meeting and informs the Supervisory Board members in a timely manner and by any appropriate means.
All Supervisory Board members may consult the Secretary and benefit from the latter's services. The Secretary is responsible for all procedures relating to the Supervisory Board practices and for the organisation of the meetings.
Documents provided to Supervisory Board members to enable them to express an opinion in full knowledge of the facts on items included on the agenda are provided to Supervisory Board members at least 48 hours prior to Supervisory Board meetings, except in an emergency or if there is a requirement to keep such documents strictly confidential.
The Managing Partner and Group management are informed of Supervisory Board meetings, and may attend such meetings in an advisory capacity. Any other person outside the Supervisory Board may be invited to attend the whole or part of a Supervisory Board meeting by the Chairman of the Supervisory Board.
Under any circumstances, at any of its meetings, in the event of an emergency and on a proposal by the Chairman of the meeting, the Supervisory Board may discuss matters referred to its members that are not included on the agenda.
At each Supervisory Board meeting, the Chairman informs Supervisory Board members of the main facts and significant events concerning the Group's operations that have occurred since the date of the previous Supervisory Board meeting.
Supervisory Board meetings may be held at the registered office or at any other location indicated in the notice of meeting, as well as by videoconferencing or teleconferencing facilities that identify members of the Supervisory Board and guarantee their effective involvement through the use of technical resources that continually and simultaneously transmit discussions. Meetings shall be chaired by the Chairman or, in the latter's absence, by the longest-standing Vice-Chairman present or, in the absence of a Vice-Chairman, by the member appointed for that purpose by the Supervisory Board.
The Supervisory Board members are entitled to be represented at any meeting by another member, pursuant to specific authorisation set out in a letter, a fax, an email or any other method of communication deemed reasonable and acceptable by both parties.
The Supervisory Board members who take part in a Supervisory Board meeting via the technical resource methods referred to above are deemed present, except where the Supervisory Board is meeting to verify and check the annual report and the statutory and consolidated financial statements.
Decisions are taken by an ordinary majority of members who are present or represented and authorised to vote. In the event of a tie, the chairman of the meeting shall have a casting vote.
The Supervisory Board meets at least four times a year, in March, June, September and November. The Supervisory Board met five times during the 2015/2016 financial year, with an average attendance rate of 83.75% for all meetings. Before each meeting, every member receives a file containing all the documentation, notes and reports relating to each item on the agenda.
Each meeting of the Supervisory Board is preceded by a meeting of the Audit and Risk Committees.
At its meeting on 24 June 2015, the Supervisory Board, in particular:
• upon recommendations from the Remuneration and Nomination Committee, deliberated on the renewal of the terms of office of six Board members.
At its meeting on 1 September 2015, the Supervisory Board reviewed a request made by Edmond de Rothschild Holding SA, a shareholder who met the conditions provided for in article R. 225-71 of the French Commercial Code, for draft resolutions to be included on the agenda.
At its meeting on 24 September 2015, the Supervisory Board, in particular:
At its meeting on 24 November 2015, the Supervisory Board, in particular:
At its meeting on 24 March 2016 the Supervisory Board, in particular:
In accordance with the AFEP-MEDEF Corporate Governance Code for listed corporations to which Rothschild & Co refers to, the Group Company Secretary, in liaison with the Remuneration and Nomination Committee, conducted an assessment of the Supervisory Board's organisation and working methods as regards the 2014/2015 financial year. A new self-assessment will be conducted thereafter.
During the 2015/2016 financial year, the Group Company Secretary conducted more specifically an assessment of the effectiveness of the Audit Committee. The objective was to check that important issues are properly prepared and discussed.
The Audit Committee's self-assessment is based on a questionnaire with a grading system with scores ranging from 1 (excellent) to 5 (poor), with possibility to provide further comments. 13 general topics were covered in the questionnaire: terms of reference of the committee, its composition, training and resources provided, organisation of meetings, financial reporting, internal control and financial risk management, internal audit process, external audit, reliance of the work of subsidiaries' audit committees, whistleblowing and relationships with the Supervisory Board, the Risk Committee and the shareholders.
Answers received in response to the questionnaire showed committee members had a favourable opinion on the majority of the statements. The committee approved an action plan for those identified which required attention.
In accordance with legal and regulatory provisions, the Supervisory Board set up an Audit Committee, a Remuneration and Nomination Committee and a Risk Committee, and defined the composition of those committees as well as their tasks and practices.
In addition, according to the articles of association which provide the creation of any additional committee to assist the Supervisory Board, the Supervisory Board decided to set up a Strategy Committee.
Only members of the Supervisory Board may sit on these committees and only for their term of office on the Supervisory Board. The composition of each committee is determined by the Supervisory Board.
As at 31 March 2016, the Audit Committee was composed of four members: Peter Smith (Chairman and independent member), Carole Piwnica (independent member), Sylvain Héfès and André Lévy-Lang (independent member).
Specifically the Audit Committee is responsible for:
The Audit Committee can draw on the help of Company employees as necessary. It is empowered to obtain any information it considers necessary to fulfil its task from the Company's executive body, its staff, and the Company's or its subsidiaries' Statutory Auditors. Audit Committee members have the opportunity, if necessary, to seek the opinion of the senior executives of the Group as well as that of the Statutory Auditors.
The Audit Committee meets at least four times a year, in March, June, September and November, or more frequently if so required. The Audit Committee met four times during the 2015/2016 financial year, with an average attendance rate of 87.50% for all meetings. Before each meeting, every member receives a file containing all the documentation, notes and reports relating to each item on the agenda.
The Group Chief Financial Officer, the Group External Reporting Director, the Group Head of Internal Audit, the Group Head of Legal & Compliance, the Group Chief Risk Officer, the Group Company Secretary and the Statutory Auditors are permanent attendees to the meetings of the Audit Committee.
The Chief Executive Officers of Rothschild & Co Gestion SAS may be invited to participate for part of the meeting, if so required by the Chairman of the Audit Committee.
Business review
The June and November meetings are mainly focused respectively on the review of annual and half-year accounts and the presentation by the Statutory Auditors of their report after review of these accounts. In addition, at the June meeting, the Audit Committee reviews the section of the Chairman's report issued in accordance with the provisions of article L. 225-37 of the French Commercial Code, on risk management procedures implemented by the Company on pages 84 onwards of this report. The June meeting includes in addition a focus on the Banking book and the November meeting includes a review of the Merchant Banking division.
The March and September meetings mainly focus on internal control matters. In March, the Audit Committee receives for consideration, the Group internal control report to be submitted to the Autorité de contrôle prudentiel et de resolution (the "ACPR"). In advance of each meeting, the Audit Committee members receive the Internal Audit activity report and the status of Statutory Auditors' recommendations. The activities of the Group subsidiary audit committees are also presented to the Audit Committee during those two meetings. This year, the Audit Committee also reviewed the list of non-audit fees and took note of the new auditors' rotations and audit governance requirements under the revised Statutory Audit Directive.
At the end of each meeting, the Audit Committee usually meets with the Group Head of Internal Audit and the Statutory Auditors without the presence of any representative of senior management.
After each meeting of the Audit Committee, the Chairman of the Audit Committee submits a report on the work of the Audit Committee to the Supervisory Board members.
In addition, the Audit Committee receives, in advance of each meeting, the Group Risk and Compliance quarterly report presented to the Group Risk Committee.
As at 31 March 2016, the Remuneration and Nomination Committee was composed of four members: Sylvain Héfès (Chairman), André Lévy-Lang (independent member), Peter Smith (independent member) and Luisa Todini (independent member).
The role of the Remuneration and Nomination Committee is to assist the Supervisory Board with its remuneration-related duties and in particular with the preparation of its decisions in correction with the Group's remuneration policy principles. It also makes recommendations to the Supervisory Board on all matters relating to the composition of the Supervisory Board, such as appointments or renewals of terms of office, or the compliance with AFEP-MEDEF recommendations.
Specifically, the Remuneration and Nomination Committee is responsible for:
supervising the remuneration paid/awarded to members of the Compliance and Risk divisions and, where appropriate, the employment and remuneration arrangements of the Group Management Committee;
identifying Regulated Persons as we define them in each of Rothschild & Co, Rothschild & Cie Banque SCS and its subsidiaries, NM Rothschild & Sons Limited and its subsidiaries and Rothschild Wealth Management for the purposes of the ACPR, FCA and PRA as appropriate;
The Remuneration and Nomination Committee met two times during the 2015/2016 financial year, with an average attendance rate of 75% for all meetings. Before each meeting, every member receives a file containing all the documentation, notes and reports relating to each item on the agenda.
The meetings of the Remuneration and Nomination Committee were mainly convened to set and to periodically review the principles and parameters of its remuneration policies and their adequacy and effectiveness, review developments in remuneration regulations and ensure that Rothschild & Co Gestion SAS and business divisions are in compliance.
In addition, the Remuneration and Nomination Committee reviews the proposals submitted by business divisions regarding fixed and variable compensation with absolute discretion to adjust fixed compensation proposals, bonus pools and individual payments, and supervise and review the broad policy framework for the remuneration of senior employees, including the Regulated Population across the Rothschild & Co Group.
No Group employee was permitted to participate in discussions or decisions relating to his or her remuneration.
The Chairman of the Supervisory Board, the Chairman and the Chief Executive Officers of Rothschild & Co Gestion SAS, the Group HR Director and the Group Chief Financial Officer are permanent attendees to the meetings of the Remuneration and Nomination Committee.
In addition, as regards the meetings of the Remuneration and Nomination Committee to review the proposals submitted by business divisions regarding fixed and variable compensation, the Heads of Group business divisions attend the meetings for part of the meeting to present their own business division.
As at 31 March 2016, the Risk Committee was composed of two members: Sipko Schat (Chairman and independent member) and Dr. Daniel Daeniker (independent member).
Specifically, the Risk Committee is responsible for:
The Risk Committee meets at least four times a year, in March, June, September and November, or more frequently if so required. The Risk Committee met four times during the 2015/2016 financial year, with an average attendance rate of 100%. Before each meeting, every member receives a file containing all the documentation, notes and reports relating to each item on the agenda.
The Chairman of the Audit Committee, the Group Heads of Risk, Legal & Compliance and Internal Audit, the Group Chief Financial Officer, the Group External Reporting Director and the Group Company Secretary are permanent attendees to the meetings of the Risk Committee.
The Chief Executive Officer of the Managing Partner, to whom the Group Chief Risk Officer reports, and the Statutory Auditors may be invited to participate for part of the meeting, if so required by the Risk Committee.
During those meetings, the Risk Committee reviewed the four quarterly Group Legal, Compliance and Risk Reports and examined the Group Strategic and Operational Risk Assessments. In addition, the Risk Committee reviewed various Group policies, and checked the implementation of crisis management plans across the Group.
The Chairmen of the Audit Committee and the Risk Committee consult each other, whenever they deem it necessary and at least once a year, on various subjects, including but not limited to, subjects of common interest and/or cross-cutting topics falling within the missions assigned to them, related to the internal control and risk management system.
As at 31 March 2016, the Strategy Committee was composed of eight members: Éric de Rothschild, Dr. Daniel Daeniker (independent member), François Henrot, André Lévy-Lang (independent member), Lord Leach (independent member), Lucie Maurel-Aubert, Peter Smith (independent member) and Carole Piwnica (independent member).
The main role of this committee is to support the Supervisory Board in advising Rothschild & Co Gestion SAS on strategy matters.
Meetings of the Strategy Committee are prepared beforehand by Rothschild & Co Gestion SAS assisted by the Group Management Committee.
The Strategy Committee meets at least once a year, or more frequently if so required. The Strategy Committee met once during the 2015/2016 financial year, with an attendance rate of 85.71%. Before each meeting, every member receives a file containing all the documentation, notes and reports relating to each item on the agenda.
The Chairman and the members of the Management Board of Rothschild & Co Gestion SAS, the Group Chief Financial Officer, the Head of Group Strategy and Corporate Development, Senior Group advisers and the Group Company Secretary are permanent attendees to the meetings of the Strategy Committee.
In addition, the Group Heads of business divisions may be invited to participate for part of the meeting, if so required by the Strategy Committee.
The Company has decided voluntarily to adhere to the Corporate Governance code for listed corporations published by the AFEP and the MEDEF, last amended in November 2015 and available at www.medef.com (the 'AFEP-MEDEF code').
The Company is very committed to the principles of good governance and to the recommendations of the AFEP-MEDEF code. It should however be stressed that the very principle of partnerships limited by shares, the Company's form of incorporation, gives a unique structure to governance providing a clear separation of powers between the Managing Partner, Rothschild & Co Gestion SAS, and the Supervisory Board, which cannot comply with the AFEP-MEDEF recommendations without adaptation. In this situation, the Board takes into account the specific characteristics of this form of incorporation, and the Board is organised in a way that is adapted to the nature of the functions conferred upon it by law and the articles of association as well as by the recommendations of the AFEP-MEDEF code.
Overview
Business review
Management report
Pursuant to the AMF recommendations, the recommendations of the AFEP-MEDEF code not applied by the Company are described in the table below, with an explanation for each of them:
| AFEP-MEDEF recommendations | Explanations by the Company | ||||
|---|---|---|---|---|---|
| Independence criterion for members of the Supervisory Board related to the length of office (§9.4 of the AFEP-MEDEF Code): Criterion providing that in order to be considered as independent, a Director must not "have been a |
Given the Company's ownership structure, which is controlled by an enlarged Rothschild family concert acting in concert, by companies owned by members of the Rothschild family and by other shareholders with long-standing ties to the Rothschild family, and given the legal and statutory characteristics of a French partnership limited by shares, the Supervisory Board has expressly decided to waive the criterion relating to the duration of Supervisory Board members' terms of office. |
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| Director for more than 12 years". | This particular criterion was therefore expressly waived in the Supervisory Board's Internal rules of procedure as follow: |
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| "The independence criteria that apply are those referred to in Article 9.4 of the AFEP/MEDEF Corporate Governance code of December 2008, amended in November 2015, excluding the criteria relating to terms of office, which is expressly set aside." |
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| The Supervisory Board considers that the length of service is a key element for assessing and understanding the Rothschild & Co Group's activities and that the effectiveness of the Supervisory Board is ensured by a wide-ranging composition in terms of diversity, professional experience and expertise of its members. |
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| Independence criterion for members of the Supervisory Board related to directorship in a company the corporation consolidates (§9.4 of the AFEP-MEDEF Code): |
Peter Smith is non-executive Chairman of the Board of Directors of NM Rothschild & Sons Ltd (NMR) and non-executive Director of the Board of Directors of Rothschild Bank AG, two of the Group's entities. However, the Supervisory Board considered that bearing in mind that Peter Smith performed duties in important international groups, this gives him a good perspective and a strong vision which contributes to the effectiveness of the Supervisory Board. Moreover, |
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| Criterion providing that in order to be considered as independent, a Director must not "be an employee or executive director of the corporation, or an employee or director of its parent or a company that the latter |
his experience and Group knowledge give him a freedom of speech and opinion which is a guarantee of independence. He is therefore able to challenge the Supervisory Board and make an extremely valuable contribution to the discussions of the Supervisory Board. |
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| consolidates, and not having been in such a position for the previous five years". |
Sipko Schat is a senior adviser at NMR. However, he performed management duties in an important banking group and it gives him expertise and capacity of judgement which contributes to the effectiveness of the Supervisory Board. |
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| Accordingly, the Supervisory Board considers their situations do not affect their independence and they can be deemed as independent members. |
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| Assessment of the actual contribution of each director of the Supervisory Board (§10.2 of the AFEP-MEDEF Code): |
The self-assessment questionnaire of the Supervisory Board does not expressly measure the actual contribution of each member. |
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| The evaluation should measure "the actual contribution of each director to the Board's work through his or her competence and involvement in discussions." |
All members of the Supervisory Board express a positive assessment on the collective functioning of the Supervisory Board which implies that the individual contribution is also positive. Measuring the actual contribution of each Director creates a risk to the general climate of confidence within the Supervisory Board. However, the current evaluation process allows the Directors to express their personal opinion on the individual contribution as general remark. |
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| Status of the Chairman of the Remuneration and Nomination Committee (§18.1 of the AFEP-MEDEF |
Mr Sylvain Héfès, non-independent member of the Supervisory Board, is the Chairman of the Remuneration and Nomination Committee despite his status of non-independent member. |
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| Code): | |||||
| "The committee (in charge of compensation) should not include any executive directors, and should have a majority of independent directors. It should |
Mr Héfès' experience and expertise in the banking area make him fully aware of the governance practices to be followed in a group such as Rothschild & Co, in particular concerning remuneration and nomination matters. |
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| be chaired by an independent director. It is advised that an employee director be a member of this committee." |
Therefore, the Supervisory Board considers his situation as not jeopardising his ability to be the Chairman of the Remuneration and Nomination Committee and to act in the best interests of the Rothschild & Co Group. |
The composition of the Supervisory Board complies with the provisions of Law No. 2011-103 of 27 January 2011, which imposed the equal representation of both genders on the Supervisory Board.
It is also hereby specified that this representation is also respected in the Audit Committee (25%), the Remuneration and Nomination Committee (25%) and the Strategy Committee (25%).
In application of Rothschild & Co's articles of association, no compensation is paid to Rothschild & Co Gestion SAS in respect of its position of Rothschild & Co's Managing Partner. Accordingly, the summary tables relating to compensation and other benefits granted to the Managing Partner required in accordance with AMF recommendations are not relevant.
It is however hereby specified that the Company's articles of association provide that Rothschild & Co Gestion SAS is entitled to reimbursement of its operating expenses. In this respect, a total amount of €1,172,352.61 has been paid to Rothschild & Co Gestion SAS as reimbursement of its operating expenses for the financial year ended 31 March 2016.
In accordance with the provisions of Article 14.1 of the articles of association, an amount of €742,728.22, equal to 0.5% of the distributable profit of the 2015/2016 financial year, will be automatically allocated for payment to the two General Partners, Rothschild & Co Gestion SAS and Rothschild & Co Commandité SAS. This does not constitute compensation for their services as General Partners.
Pursuant to the AMF recommendations, the table below presents an overview of compensation due or paid to David de Rothschild, Chairman of Rothschild & Co Gestion SAS.
| In thousands of euros | 2015/2016 | 2014/2015 |
|---|---|---|
| Fixed compensation | 500 | 382(1) |
| Variable compensation | – | – |
| Extraordinary compensation | – | – |
| Directors' fees | – | – |
| Benefits in kind(2) | – | 4 |
| TOTAL | 500 | 386 |
(1) Received from controlled companies.
(2) This amount related to the use of a car for the period.
Moreover, it is hereby specified that David de Rothschild has not benefited from employment contracts, supplementary pension schemes, compensation or benefits due in the event of termination of office or change in function and non-compensation clauses during the financial year ended 31 March 2016.
Pursuant the AFEP-MEDEF Code to which the Company refers, compensation paid or due to Rothschild & Co Gestion SAS, as Managing Partner of Rothschild & Co, and David de Rothschild, as the Chairman and sole legal representative of Rothschild & Co Gestion SAS, will be submitted to the shareholders' consultative vote at the next General Meeting of shareholders on 29 September 2016.
Rothschild & Co's articles of association provide that the Supervisory Board shall freely distribute all or some of any remuneration that the Ordinary General Meeting of shareholders grants to it between its members.
The General Meeting of shareholders of 25 September 2014 set at €500,000 the maximum amount of fees available for allocation to members of the Supervisory Board of Rothschild & Co, until a new decision is taken.
During its meeting on 24 March 2016, the Supervisory Board approved, for the financial year 2015/2016 and for the years thereafter until a new decision is taken, a compensation policy based on a fixed-fee structure for Supervisory Board and committee memberships, as follows:
| Fees in euro (per member each year) |
|
|---|---|
| Supervisory Board membership | 20,000 |
| Committee membership (per committee) | 5,000 |
| Position as Chairman of Board/committees | 10,000 |
Distribution of fees is subject to the following:
The table following shows the compensation allocated by the Company to the members of the Supervisory Board, in respect of their positions held at Rothschild & Co's Supervisory Board and its committees, during the 2015/2016 financial year.
| Supervisory Board |
Audit Committee |
Strategy Committee |
Remuneration and Nomination Committee |
Risk Committee |
2015/2016 gross remuneration (in euro) |
|
|---|---|---|---|---|---|---|
| Éric de Rothschild | ■ ■ | ■ | – | |||
| André Lévy-Lang | ■ ■ | ■ | ■ | ■ | 35,000 | |
| François Henrot | ■ ■ | ■ | – | |||
| Martin Bouygues | ■ | 20,000 | ||||
| Dr. Daniel Daeniker | ■ | ■ | ■ | 30,000 | ||
| Sylvain Héfès | ■ | ■ | ■ ■ | 40,000 | ||
| Angelika Gifford | ■ | 20,000 | ||||
| Lord Leach(†) | ■ | ■ | 25,000 | |||
| Arielle Malard de Rothschild | ■ | – | ||||
| Lucie Maurel-Aubert | ■ | ■ | 25,000 | |||
| Carole Piwnica | ■ | ■ | ■ | 30,000 | ||
| Anthony de Rothschild | ■ | 20,000 | ||||
| Jacques Richier | ■ | 20,000 | ||||
| Sipko Schat | ■ | ■ ■ | 35,000 | |||
| Peter Smith | ■ | ■ ■ | ■ | ■ | 45,000 | |
| Luisa Todini | ■ | ■ | 25,000 | |||
| TOTAL | 370,000 | |||||
■ Chairman ■ Independent member ■ Vice-Chairman ■ Non-independent member
The table below summarises compensation received by the members of the Supervisory Board (in function during the financial year) in respect of their positions held at Rothschild & Co and at any other Group company during the 2015/2016 financial year.
| In thousands of euro | 2015/2016 | 2014/2015 | ||||
|---|---|---|---|---|---|---|
| Members of the Supervisory Board |
Rothschild & Co(1) | Other compensation(2) | Rothschild & Co(1) | Other compensation(2) | ||
| Éric de Rothschild | – | Benefits in kind | 6 | – | Benefits in kind | 6 |
| André Lévy-Lang | 35 | – | 35 | – | ||
| François Henrot | – | – | – | – | ||
| Martin Bouygues | 20 | – | 20 | – | ||
| Dr. Daniel Daeniker(3) | 30 | – | 15 | – | ||
| Directors fees | 205 | Directors' fees | 175 | |||
| Sylvain Héfès | 40 | 2 | 40 | Benefits in kind | 2 | |
| Angelika Gifford(3) | 20 | – | 10 | – | ||
| Lord Leach(†) | 25 | – | 25 | – | ||
| Fixed | 242 | Fixed | 261 | |||
| Arielle Malard de Rothschild(3) |
– | Variable | 222 | – | Variable | – |
| Benefits in kind | 20 | Benefits in kind | – | |||
| Lucie Maurel-Aubert | 25 | – | 25 | – | ||
| Carole Piwnica(3) | 30 | – | 15 | – | ||
| Fixed | n/a | Fixed | 66 | |||
| Alexandre de Rothschild(4) | n/a | Benefits in kind | n/a | – | Benefits in kind | 19 |
| Anthony de Rothschild | 20 | – | 20 | – | ||
| Jacques Richier | 20 | – | 20 | – | ||
| Sipko Schat | 35 | – | 35 | – | ||
| Peter Smith | 45 | Fixed | 171 | 45 | Fixed | 159 |
| Luisa Todini(3) | 25 | – | 13 | – |
Overview
(1) Includes compensation due or received from Rothschild & Co in respect of the position of member of the Supervisory Board and, if applicable, its committees.
(2) Received from controlled companies.
(3) Member of the Supervisory Board as from 25 September 2014.
(4) Member of the Supervisory Board until September 2014.
(†) Deceased on 12 June 2016.
Pursuant to the provisions of Article 223-26 of the AMF General Regulations, the transactions involving the Company's securities during the 2015/2016 financial year executed by persons mentioned in Article L. 621-18-2 of the French Monetary and Financial code, disclosed to the Company and the AMF, are summarised in the table below.
| Name | Quality | Transaction date | Nature of the transaction |
Unit price (in euro) |
Total amount (in euro) |
AMF Decisions(1) |
|---|---|---|---|---|---|---|
| Béro SCA | Entity related to Éric de Rothschild |
19/10/2015 | Acquisition | 21 | 3,583,293 | 2015DD396509 |
| Financière de Reux | Entity related to David de Rothschild |
19/10/2015 | Acquisition | 21 | 2,333,415 | 2015DD396510 |
| Olivier Pécoux | Chief Executive Officer of Rothschild & Co Gestion SAS |
19/10/2015 | Acquisition | 21 | 987,000 | 2015DD396511 |
| Nigel Higgins | Chief Executive Officer of Rothschild & Co Gestion SAS |
04/01/2016 | Acquisition | 28.195 | 232,947.09 | 2016DD408281 |
| Nigel Higgins | Chief Executive Officer of Rothschild & Co Gestion SAS |
04/01/2016 | Sale | 23.45 | 91,455 | 2016DD408282 |
| Olivier Pécoux | Chief Executive Officer of Rothschild & Co Gestion SAS |
31/03/2016 | Contribution of shares to Olivier Pécoux EURL |
23 | 3,174,000 | 2016DD423815 |
| François Henrot | Member of the Supervisory Board |
31/03/2016 Contribution of shares to FH GFA SARL |
23 | 6,582,600 | 2016DD423816 | |
| FH GFA SARL | Entity related to François Henrot |
31/03/2016 Contribution of shares from François Henrot |
23 | 6,582,600 | 2016DD423819 | |
| Olivier Pécoux EURL | Entity related to Olivier Pécoux |
31/03/2016 | Contribution of shares from Olivier Pécoux |
23 | 3,174,000 | 2016DD423820 |
(1) These decisions are available on the AMF website (www.amf-france.org).
The General Meeting of shareholders of 27 September 2011:
In the continuity of Rothschild & Co's conversion into a French partnership limited by shares approved by the General Meeting of shareholders of 8 June 2012, the Statutory Auditors and Alternate Auditors' appointments were confirmed.
The Statutory Auditors' terms of office will end after the Annual General Meeting to be held in September 2017 to approve the accounts for the financial year ended 31 March 2017.
The information relating to the fees paid to the Statutory Auditors in respect of the financial year ended 31 March 2016 is presented in page 154 of this present report.
In accordance with applicable legal and regulatory provisions, the Statutory Auditors have been informed of all the regulated agreements and undertakings entered into during the 2015/2016 financial year, and of agreements and undertakings entered into during the previous financial years but still into effect during the 2015/2016 financial year.
The information below concerning the Group's internal control system was provided by Executive Management. This section of the report was prepared using information provided by the following Group functions: Legal, Compliance and Risk, Finance, and Internal Audit and based on the Rothschild & Co Report on internal control in accordance with Articles 258, 259, 261, 262, 264 and 266 of the 3 November 2014 Ministerial Decree applicable to financial holding companies supervised on a consolidated basis by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) and addressed for the attention of the Supervisory Board.
It was submitted to the Audit Committee on 15 June 2016 for the matters falling within its scope, and approved by the Supervisory Board at its meeting on 22 June 2015.
Given the fact that Rothschild & Co has been designated by the Autorité de Contrôle Prudentiel et de Résolution as the Group consolidating entity for the purposes of prudential oversight, the rules applicable to financial holding companies apply to Rothschild & Co. The rules which impact upon the Group arrangements for Group risk management systems and controls are set out in the French Monetary and Financial code ('code monétaire et financier' or 'COMOFI') and the 3 November 2014 Ministerial Decree, which defines the conditions for implementing and monitoring internal control systems in banks and investment firms. The 3 November 2014 Ministerial Decree lays down the principles relating to control systems for transactions and internal procedures, accounting systems and information processing, risk and performance measurement systems, risk supervision and control systems, and internal control documentation and reporting systems.
As required by the 3 November 2014 Ministerial Decree, the Group internal control system established by Rothschild & Co operates a distinction between organisations and managers in charge of permanent controls (including Compliance and Risk Management) and periodic controls (i.e. internal audit).
The internal control system of Rothschild & Co must also take into account, as appropriate, the AMF's (French Securities Regulator) General Regulations, local regulations applicable to branches and subsidiaries outside France and to specialised operations such as portfolio management, the most widely accepted industry practices in this area and the recommendations of international bodies dealing with the capital adequacy framework issues of international banks, foremost among which are the Basel Committee, the Financial Stability Board and the European authorities (European Banking Authority, European Securities and Markets Authority).
The internal control system refers to Rothschild & Co's own internal control system and the Group's internal control system on a consolidated basis.
The internal control system seeks to provide Directors, officers and shareholders with reasonable assurance that the following objectives are achieved:
It also fulfills the internal control objectives specific to financial companies supervised by the Autorité de Contrôle Prudentiel et de Résolution on a consolidated basis.
Internal control at Rothschild & Co consists of permanent and periodic controls. While they are complementary, they are distinct and independent of one another:
Rothschild & Co's internal control framework is based on the 'three lines of defence' model. The first line comprises senior management in the business itself. The second line includes independent Risk, Compliance and Legal functions and, to a lesser extent, Finance and Human Resources to monitor on a continuous basis the activity of the business, and the third line comprises Internal Audit as well as the Group's external auditors, who both oversee the Group's activities.
The chart below shows the internal control governance structure as at 31 March 2016 through which Rothschild & Co seeks to comply with these obligations.
Rothschild & Co Gestion SAS, as Managing Partner (Gérant) of Rothschild & Co, is responsible for the overall management of Rothschild & Co, 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. Rothschild & Co Gestion exercises its management and supervising responsibilities through its Chairman, David de Rothschild, assisted by the Management Board (Conseil de gérance). In addition, a senior committee at Rothschild & Co, the Group Management Committee (GMC), assists Rothschild & Co's Managing Partner, represented by its Co-Chief Executive Officers Nigel Higgins and Olivier Pécoux, in the overall management, the definition of the strategy of the Group by Rothschild & Co and the direction of the Group internal control framework, so that Rothschild & Co ensures its proper implementation across the Group. Rothschild & Co Gestion SAS, its Management Board and the GMC are referred to as 'Executive Management') but for the avoidance of doubt, the final decision-making process relies on the Company's Managing Partner, Rothschild & Co Gestion SAS.
Executive Management, reporting to the Supervisory Board, are responsible for the Group's overall internal control system. The Company's Managing Partner defines the general guidelines of the internal control and risk management systems and monitors the actions implemented within the Group that are supervised by the internal audit functions of the Group and the local management committees of each business unit.
Group Legal and Compliance ensures that the Group conforms to legal and regulatory provisions, professional standards and codes of conduct, as well as the overall strategy of the Supervisory Board and Executive Management directives. The responsibilities of Group Legal and Compliance mainly include: development and maintenance of compliance policies and procedures (together with legal policies and procedures), operation of monitoring programmes, or the supervision of monitoring programmes, identification of any failure to follow compliance policies and procedures, monitoring and review of legislation and regulatory developments which might affect the Group's business and reporting results of monitoring programmes to Senior Management and agreeing any remedial action or changes to relevant procedures with Senior Management. This independent internal control function reports to the Group Head of Legal, Compliance and Risk, who is a member of the Group Management Committee. The Group Head of Legal, Compliance and Risk reports to the Company's Managing Partner, the Supervisory Board's Committees (Audit and Risk Committees) and Boards around the Group.
Group Risk is responsible for ensuring that suitable risk management processes are in place across the Group and for reporting a consolidated view of risk exposures across the Group. As part of its role, Group Risk assesses the risks run in each business and how they are managed, aims to establish a forward-looking view over emerging risks within the businesses or the external environment and delivers an independent and objective perspective on the risks in the business and whether they
Overview
are consistent with approved strategy and risk appetite. The Group Chief Risk Officer reports to Olivier Pécoux in his capacity as Chief Executive Officer of the Company's Managing Partner and dirigeant responsable within the meaning of the provisions of the French Monetary and Financial code applicable to the financial holding company Rothschild & Co. Group Risk reports to Executive Management on significant incidents in accordance with the provisions of the Group Operational Risk Policy. This policy sets out the criteria and thresholds for identifying significant operational risk incidents and the process for escalating them and ensuring that any remedial actions are appropriately monitored.
Group Finance is responsible for the preparation of statutory financial reports, in accordance with legal requirements and accounting standards; preparation of Group management accounts reports; maintenance and development of the Group reporting system; preparation and submission of regulatory reports; monitoring of compliance with regulatory capital requirements, coordination of business planning and budget process; and planning and implementation of tax planning and Group structuring arrangements. Through the Regulatory Capital Monitoring Division, Group Finance is also responsible for the Group's capital monitoring and the follow-up of large exposures monitoring. Its head, the Group Chief Financial Officer, who is a member of the Group Management Committee, reports directly to Executive Management.
Other functions are important and participate in the internal control system in their specific areas of responsibilities, such as Group Human Resources.
Periodic control is independently exercised by Group Internal Audit. The Group Head of Internal Audit meets formally every three to four months with the Company's Managing Partner Co-Chief Executive Officers, and whenever necessary, to present the activity of the Internal Audit function and discuss any material findings raised during the period. The Group Head of Internal Audit presents the activity of Internal Audit to the Audit Committee, which meets four times a year. In March, the Audit Committee approves the audit plan for the coming year and during its meetings in March and September it reviews in detail the activity of the Internal Audit function as described below. The Group Head of Internal Audit meets regularly, usually every quarter, with the heads of the main lines of business to discuss the evolution of the activity and the evolution of risks for their respective area of responsibility. This forms part of the regular information of the Internal Audit function on the evolution of the Group's risk profile.
Each of the Internal Audit Officers is responsible for the audit coverage of some specific lines of business: Global Advisory, Private Wealth, Asset Management, Merchant Banking, Banking and Treasury and Information Technology, in parallel to their local geographical coverage. The other members of the Internal Audit function are not specialised by business and are assigned to the different audits according to the scheduling of the annual audit plan.
The Supervisory Board, through the workings and reporting of the Risk Committee and the Audit Committee, ensures the implementation by Executive Management of reliable procedures and processes for monitoring the internal control systems of the Group in order to identify, assess and manage risk.
Every quarter, a Group Legal, Compliance and Risk report is presented to the Risk Committee and Audit Committee and both committees report to the Supervisory Board.
The Heads of the Compliance, Risk and Internal Audit functions report on the performance of their duties to the Company's Managing Partner, and whenever it is necessary in accordance with legal and regulatory provisions, to the Supervisory Board via the Supervisory Board's committees. They may be interviewed by the Supervisory Board or the competent Supervisory Board's committee.
The Group's internal control framework is based on the 'three lines of defence' model. The first line comprises senior management of the business itself, which has overall responsibility for risk management. The second line includes independent Risk, Compliance and Legal functions and, to a lesser extent, Finance and Human Resources to monitor on a continuous basis the activity of the business, and the third line comprises Internal Audit as well as the Group's external auditors who both exercise periodic surveillance of the Group's activities.
The close involvement of the major shareholder in the active oversight of the Group's businesses is a defining characteristic of the culture and environment within which the Group manages its risks. The guiding philosophy is for management to adopt a prudent and conservative approach to the taking and management of risk.
The principal elements which underpin this approach are the following:
The Rothschild Group is a unique institution with a prestigious reputation which extends beyond normal banking circles and which belies the actual scale of business undertaken. The maintenance of reputation is a fundamental driver of risk management. Business is to be conducted according to the highest ethical standards. The protection of reputation guides the type of clients and businesses the Group will involve itself with.
The continuation of family ownership and control shapes the Group's long-term strategy, time horizon for planning, and allocation of capital. Capital allocation is managed within the constraints of raising capital as a family-controlled company.
Business strategy and risk appetite are predicated on the limited access to capital. Capital available to the Group is allocated by the Group Management Committee across the key business lines. Business activities are diversified in terms of the markets within which they operate and the geographical distribution of their activities to reduce the probability of risk concentrations. Responsibility and accountability for the day-to-day management of significant pools of capital is devolved to Group committees and local boards.
Advice and intellect are the heart of the Group's business philosophy. The emphasis of the business is towards products which have a high value added intellectual and structured content.
The Group articulates risk appetite through:
The Group's activities expose it to several types of risk. Risk arises in Group entities in relation to the specific business activities conducted by them. Responsibility for identifying, communicating and managing risk lies with each business and its management.
The principal Group business activities are:
The following table summarises the material risk categories and the significant exposure to each category by Group business activity.
| Risk by business activity | |||||||
|---|---|---|---|---|---|---|---|
| Risk category | Rothschild Global Advisory |
Rothschild Private Wealth & Asset Management |
Rothschild Merchant Banking |
||||
| Group | ✓ | ✓ | ✓ | ||||
| Business | ✓ | ✓ | ✓ | ||||
| Capital planning | ✓ | ✓ | |||||
| Credit | ✓ | ✓ | |||||
| Operational (incl. reputational) |
✓ | ✓ | ✓ | ||||
| Market | ✓ | ✓ | |||||
| Liquidity | ✓ | ✓ |
The material risk categories are defined as follows:
Group risk is the risk of an occurrence in one part of the Group, such as a failure or a significant reputational event in a line of business, causing damage to another business line in the Group or to the Group as a whole.
Systemic risk is the risk of disruption of the financial system with the potential to have serious negative consequences for the financial system and the real economy.
The Group and each of its business lines are exposed to business risk. Business risk covers the risk of loss (or opportunity cost) relating to each of: the business strategy, economic cycle, competitive business environment, political landscape and strategy execution.
This is the risk that the Group and/or entities engaged in banking activities do not hold sufficient capital to protect against expected and unexpected losses arising from the risks described above. For planning purposes, the Group considers credit risk capital requirements from both a regulatory and economic capital perspective.
This includes the identification, management and monitoring of the risks of excessive leverage.
Overview
Credit risk is the risk of loss that may occur through (primarily) an exposure to customer default or counterparty default. This risk is particularly prevalent in individual, corporate and structured lending, corporate hedging, inter-bank lending and traded credit positions with which Banking & Asset Finance are involved (although other Group businesses also have limited exposure to credit risk).
Concentration risk is the risk arising from exposures to each counterparty, including central counterparties, groups of connected counterparties, and counterparties in the same economic sector, geographic region or from the same activity or commodity, and is treated as a subset of credit risk.
Settlement risk is the risk incurred during the period between the time when the payment or delivery order for a financial instrument that has been sold can no longer be unilaterally cancelled and the final receipt of the purchased instrument or corresponding cash, and is considered as part of credit risk.
Intermediation risk is the risk that a principal or counterparty will default in a transaction involving financial instruments for which a supervised institution has guaranteed final settlement.
Securitisation risk is the risk arising from securitisation transactions in relation to which the credit institutions are investor, originator or sponsor, and is considered as part of credit risk.
Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems as well as external events.
Operational risk arises in all of the Group's business activities. The Basel Committee on Banking Supervision has identified the following broad areas of operational risk:
The Group takes the view that the failure to control operational risk can, in varying degrees, give rise to reputational risk (i.e. the potential that negative publicity regarding the business practices of a member of the Group, whether true or not, will cause a decline in the customer base of that entity, costly litigation or revenue reductions) as reputational risk is inherent in most aspects of the business and features as a consideration in all decision-making. The Group monitors the management of this risk closely and requires that issues with a material reputational impact are escalated quickly to senior management.
Operational risk includes residual risk, which is the risk that credit risk mitigation techniques may prove less efficient than expected, and model risk, which is the risk of the potential loss an institution may incur as a consequence of decisions that could be principally based on the output of internal models, due to errors in the development, implementation or use of such models.
Traded market risk is the risk of loss that may occur through a trading exposure to market factors such as interest rates, exchange rates, implied volatilities, spreads and equities. This risk is particularly prevalent in Banking & Asset Finance through the trading book activities.
Non-traded market risk is the risk of loss due to market factors that may occur through non-trading activities. This risk arises primarily in relation to:
Market risk includes interest rate risk in the banking book, that is risk arising from potential changes in interest rates that affect an entity's non-trading activities, and basis risk, which arises when the value of the instrument used to hedge a financial risk exposure does not move in line with the value of the original exposure.
Liquidity risk is the risk that a subsidiary cannot meet its payment obligations as and when they fall due. This risk arises mainly through a mismatch in maturity of balance sheet assets and liabilities relating to a subsidiary's lending activities and treasury funding activities.
Group Finance has the necessary people to produce the financial, accounting and regulatory information of the Group on a consolidated and regulatory basis. The Finance Department consists of three sections: management accounting, financial accounting (including consolidations) and regulatory reporting.
The local accounting departments are responsible for local statutory accounts. Group Finance produces the consolidated Rothschild & Co accounts only.
The consolidation department of Rothschild & Co manages the chart of accounts and the associated databases, performs the Group consolidation, controls the consistency and completeness of data and draws up the consolidated accounts and related notes.
In BFC, the consolidation tool of Group Finance, all subsidiaries report their individual accounting information using a chart of accounts and a format that are common to the whole Group.
Accounting data are reported directly under IFRS in BFC. The Group defines in its data dictionary how to record specific transactions and defines how the notes to the accounts should be prepared. The data dictionary, as well as other accounting guidance, is available for all offices on Rothschild & Co's Intranet. There are also quarterly reporting instructions and a quarterly Group Finance Newsletter/Circular.
Once data has been input into BFC, 'blocking' controls defined by the Group are applied in order to validate the consistency of the accounting data, the correctness of the flows and the completeness of the analyses. In addition to these controls, the procedure for preparing the consolidated accounts includes:
These controls are subsequently repeated at the global Rothschild & Co consolidation level.
The accounting control process at Group level complements the control systems implemented at each level of the Group's organisation.
Group Finance relies on a decentralised system where the primary control functions are assigned to the persons responsible locally for producing the financial statements.
Accounting data is collected using BFC, the Group's consolidation tool. The local finance departments are responsible for validating the accounting data entered in BFC through three levels of control:
Local entities' accounting information is input on an IFRS basis into BFC templates. Once data has been input, 'blocking' system controls are applied.
In addition to the control procedures described above, the consolidation process is accompanied by additional checks on the integrity of the consolidated accounting information. These checks are carried out by:
Business review
During 2015 reporting, Group Finance recorded areas of potential improvement for local teams. A presentation which summarised these was presented to the senior local accountants responsible for the key reporting entities. The local team agreed actions with Group Finance to address the observed shortcomings, and these will be followed up for the next quarter's reporting.
The Group Regulatory Reporting Division draws up the relevant Group procedures and ensures the quality and reliability of calculations of the solvency ratio, credit risk, market risk, operational risk and regulatory capital. At Group level, the regulatory reports prepared for the Autorité de Contrôle Prudentiel et de Résolution are those related to:
Following CRD4 implementation, current procedures are currently still under revision to take into account the new CRD4 rules and changes coming from EBA detailed interpretations of rules that are still ongoing in the Q&A process.
There are currently four main procedures related to the regulatory reporting process:
Furthermore, each quarter the regulatory reporting team circulates quarterly regulatory reporting instructions and a quarterly Group regulatory finance newsletter to all relevant finance staff in the Group.
Overview
This is a free translation into English of the statutory auditors' report prepared in accordance with Article L.226-10-1 of the French Commercial Code, on the report of the Chairman of the Supervisory Board issued in French. It is provided solely for the convenience of English-speaking readers.
This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
For the financial year ended 31 March 2016
In our capacity as Statutory Auditors of Rothschild & Co S.C.A. and in accordance with Article L. 226-10-1 of the French Commercial Code (Code de commerce), we hereby report to you on the report prepared by the Chairman of the Supervisory Board of your company in accordance with Article L. 226-10-1 of the French Commercial Code (Code de commerce) for the year ended 31 March 2016.
It is the Chairman's responsibility to prepare, and submit to the Supervisory Board for approval, a report on the internal control and risk management procedures implemented by the Company and containing the other disclosures required by Article L. 226-10-1 particularly in terms of the corporate governance measures.
It is our responsibility:
We conducted our work in accordance with professional standards applicable in France.
These standards require that we perform the necessary procedures to assess the fairness of the information provided in the Chairman's report in respect of the internal control and risk management procedures relating to the preparation and processing of the accounting and financial information. These procedures consisted mainly in:
On the basis of our work, we have nothing to report on the information in respect of the Company's internal control and risk management procedures relating to the preparation and processing of accounting and financial information contained in the report prepared by the Chairman of the Supervisory Board in accordance with Article L. 226-10-1 of the French Commercial Code (Code de commerce).
We hereby attest that the Chairman's report includes the other disclosures required by Article L. 226-10-1 of the French Commercial Code (Code de commerce).
Paris-La Défense, 22 June 2016 Paris, 22 June 2016 Partner Partner
KPMG Audit FS II Cailliau Dedouit et Associés Pascal Brouard Jean-Jacques Dedouit
Over the years, the Group has been gradually developing and implementing policies designed to take environmental and social issues into greater account in its businesses, and circulating these among its employees. Given the Group's structure, the initiatives are usually taken locally. However, they are informed by a common set of values on which the Group's internal operations, relations with stakeholders and investment decisions are based.
Social and environmental information has become an integral part of the Group's reporting practice. These issues are governed by a number of committees, including an Environment Committee, Community Investment Committee and a Diversity Committee.
As the parent company of the Group, Rothschild & Co monitors the policies and activities of these committees on a consolidated basis.
The Group is strongly committed to taking into account the impact of its activities on society and the environment. However, as a group carrying out banking and financial activities, the disclosure of some of the information listed in article R. 225-105-1 of the French Commercial Code is not relevant. Explanation is provided where information has been excluded.
In accordance with the provisions of article L. 225-102-1 of the French Commercial Code which provides that corporate social responsibility (CSR) information disclosed in this report must be certified by an independent third party, the Managing Partner has appointed KPMG as the Group's independent certifier. The report by KPMG on this report is presented on pages 100 onwards.
Coordination of the CSR reporting procedure is conducted at the Group level by members of the Group Human Resources, Central Group in charge of the Environment and Community Investment, Group External Reporting, Property and Corporate Services and Group Company Secretary departments within the Rothschild & Co Group (the 'CSR Working Group').
The CSR Working Group has met on a periodic basis to set up the scope of the reporting, to organise the collection of the relevant information for the 2015/2016 period and consolidate the indicators included in the reporting campaign.
In the absence of recognised reporting standards on corporate social responsibility that are relevant to its activities, Rothschild & Co, as the Group's parent company, has defined its own reporting procedures based on best practice and on information required by the legal provisions, consolidated in the Rothschild & Co CSR Reporting Guidelines.
These guidelines are updated on an annual basis taking into consideration the CSR objectives fixed for the financial year and set out a formal framework by covering the human resources, environmental and community components and provides guidelines on methodology for all those involved in preparing the CSR information to be included in this report. These guidelines have been updated by the CSR Working Group for the 2015/2016 financial year and then reviewed and validated by Rothschild & Co to incorporate changes affecting the Group or the performance indicators from last year.
For the 2015/2016 financial year, given the Group's organisation complexity, the scope of the reporting did not include all of its entities for some of the required information. It had been decided to take into account, regarding most of the disclosed information, the Group's six main offices: London, Paris, Zurich, New York, Frankfurt and Johannesburg (for the environmental information).
For the financial year under review, it has been decided to maintain that scope, with an extension of scope for environmental information, with the overall objective of a better qualitative approach and an improved verification process based on the following:
In consideration of the above, the reporting scope in respect of this report has been defined as follows:
The information collected covers the period from 1 April 2015 to 31 March 2015, except for data relating to human resources information collected for the Paris office which covers the period from 1 January 2015 to 31 December 2015. Data is also provided for the 2014/2015 financial year in order to allow a comparison between those two financial years.
| By geography (as at 31 March) |
2016 | 2015 | By business (as at 31 March) |
2016 | 2015 |
|---|---|---|---|---|---|
| United Kingdom and Channel Islands | 924 | 1,059 | Global Advisory | 1,203 | 1,112 |
| France | 684 | 642 | Private Wealth & Asset Management | 839 | 796 |
| Switzerland | 359 | 351 | Merchant Banking | 91 | 70 |
| Other Europe | 307 | 335 | Specialist Finance | 54 | 258 |
| North America | 267 | 219 | Central & Support | 642 | 617 |
| Rest of the world | 288 | 247 | Total Group | 2,829 | 2,853 |
| Total Group | 2,829 | 2,853 |
| Employee age profile(1) (as at 31 March) |
2016 | 2015 | Employee gender profile (as at 31 March) |
2016 | 2015 |
|---|---|---|---|---|---|
| < 30 years | 22.3% | 22.5% | Male | 60.8% | 60.3% |
| 30 to 39 years | 33.1% | 32.7% | Female | 39.2% | 39.7% |
| 40 to 49 years | 25.8% | 26.6% | Total Group | 100.0% | 100.0% |
| > 50 years | 18.7% | 18.2% | |||
| Total Group | 100% | 100% |
(1) Age distribution based on 97% of data.
The Group attracts, develops and retains some of the industry's brightest minds. We strive to create an inclusive culture that encourages the highest standards of quality, professionalism and ethics.
The Group has over 2,800 employees across the world, of which 40% are female. Our team is truly global; we draw on local talent from each of the 43 countries in which we are based and beyond, hiring and developing the best each region has to offer.
The Group offers structured Graduate and Internship programmes in our Global Advisory, Private Wealth & Asset Management, Merchant Banking and Asset Management businesses, for both students in their final year of university and those who have already graduated. 123 students were hired and placed onto the Global Graduate Training Programme. A large number of the graduates had completed an internship with Rothschild prior to joining the full-time programme and the remainder were hired via our online and campus recruitment campaigns. We have a keen focus on diversity for all our Internship and Graduate programmes.
The Group also recruits experienced professionals to help grow our business and in order to fill critical gaps in our succession planning. However, our key focus is always to offer growth potential and progression to our employees internally, and as such we keenly promote internal mobility as a first priority. When Human Resources do recruit externally, candidates are sourced in partnership with our Business Unit Heads and Departmental Managers. Human Resources also work with specialised recruitment agencies/head-hunters to identify candidates, again considering the broader diversity of the candidates we select.
During the 2015/2016 financial year, the number of redundancies was not significant, representing 1% of the total headcount, and the amount of new joiners was 547, including the graduates mentioned above throughout the year.
| (as at 31 March) | 2016 | 2015 |
|---|---|---|
| 2016 | 2015 | Employee gender profile (as at 31 March) |
2016 | 2015 |
|---|---|---|---|---|
The Group's remuneration policies, procedures and practices are in line with our business strategy, objectives, values and long-term interests and are designed to promote sound and effective risk management. The Remuneration and Nomination Committee is responsible for overseeing remuneration-related matters.
We reward our people at a total compensation level, paying fixed and variable compensation. We ensure that fixed and variable components of total compensation are balanced appropriately.
Fixed compensation is driven by the local market for the job taking into account responsibilities, skills and experience and annual variable compensation is awarded on a discretionary basis, driven by a combination of the results of the Group as a whole and the financial performance of the business division in which an individual works as well as local market competitiveness and is then truly differentiated based on individual performance against financial and non-financial metrics.
In some cases we operate deferral arrangements to defer a proportion of variable compensation over three years. For our regulated population, part of this deferral is awarded in non-cash instruments.
Detailed information is presented in the consolidated financial statements, on page 150, under note 28 'Operating expenses'.
Working hours vary from country to country depending on national legislation and are therefore managed and monitored by local management and Human Resources teams.
Absenteeism is actively monitored and managed by local offices. Currently we do not have a uniform system for reporting this, but are embarking on a global systems project to renew our software by 2017 to support this and other reporting initiatives.
Business review
Communication and feedback to employees form a key aspect of our values. In particular, two of these values (long-term focus and teamwork) underpin our commitment to our workforce. Attracting, developing and rewarding people is at the heart of what we do. Therefore, providing regular and thorough feedback is critical to this. This is done most formally through our appraisal system, where employees receive an end of year review. Managers are encouraged to meet with their direct reports on a regular basis to ensure dialogue on progress and twoway feedback is promoted. More generally, Group and division-wide communication is regularly promoted through email updates, and the various businesses have their own form of face-to-face divisional gatherings. Regarding our four largest offices, we only have collective agreements in France. During the 2015/2016 financial year we have signed six collective agreements.
Over the last financial year the Group has further strengthened and improved its health & safety compliance requirements. The Group has also established a continuous improvement programme to ensure it maintains legal compliance across the globe.
We have developed a more appropriate governance structure, the Global Environment, Health & Safety Committee. With senior representatives across the business, the committee will direct the relevant health & safety activities of the Group, its level of seniority being such that it will relieve the CEOs of the task of addressing health & safety matters directly, although they, along with the Board, will retain overall responsibility.
In the UK, the Health & Safety at Work Act sets out the general duties which employers have towards employees and members of the public, and employees have to themselves and to each other.
The London Office publishes and communicates a policy stating the intention to minimise the risk of injury and ill health by providing and maintaining, so far as reasonably practicable, a safe and healthy working environment for all employees, clients, visitors and contractors, and to enlist the support of employees towards achieving these ends.
The London Office employs a Health & Safety Manager who enables direct communication and consults with employees on health & safety matters in London and the Regional Offices Manchester, Leeds and Birmingham. Health & safety management includes, but is not limited to:
In the UK, the Health & Safety Manager uses risk assessment, inspection and audit to proactively measure and monitor health & safety performance in the business.
In France, we have a Health & Safety Committee, where we pay great attention to health, hygiene, safety and the working conditions of our employees. We evaluate and anticipate risks, offer information and implement training on these subjects and we regularly review our procedures and systems at least once a year through the 'Document d'évaluation des risques' (report identifying the risk on health, safety and working conditions) and the 'Document de prévention des risques' (report which identifies the action plan implemented to control the risk). These two documents are regularly reviewed with the social representatives.
There are no collective agreements in place with regard to health & safety matters in the UK. In France, our collective agreements also cover Health & Safety.
For the 2015/2016 financial year, the UK offices have not had any reportable workplace accidents resulting in lost working days and the Paris office reported five workplace accidents resulting in lost working days.
The Group offers training and development opportunities, enabling employees to improve their professional competencies. There are local and international training programmes, face to face, or virtually.
The Learning and Development team is dedicated to assisting the Group's aim to build and provide solutions to satisfy all aspects of an employee's development through services in training, mentoring, coaching and team development.
Some examples of our key programmes:
Bankers' Development Programme: the Bankers' Development Programme is a comprehensive technical training curriculum comprised of mandatory, recommended and available courses for bankers at all levels in Global Advisory. Organised by grade, the courses are designed to further develop employees' skills as they progress through the firm. As well as offering face-to-face instructor led training, WEBEX training is also offered for global offices.
Each area of Wealth Management & Trust has its own bespoke Career Development Framework and Curriculum which provides guidance to employees on the learning available to them and their specific roles. This year, we have run a pilot on management development: Driving Performance – Getting the best out of yourself and others. 11 delegates attended from London, Zurich, Geneva and Guernsey. The plan is to roll out to all staff with people responsibilities. In addition, we have developed a structured development programme for Analysts and Associates which provides technical and client skills training alongside on-the-job training.
Global Graduate Training Programme: is run on an annual basis for Global Advisory and Wealth Management graduates consisting of four weeks of intensive technical training followed by business-specific training for Global Advisory and Wealth Management. The programme is held in the UK for Global Graduates and the US for Americas Analysts. In addition to the technical training, the programme includes a Corporate Induction (presentations from the business) as well as a two-day residential programme.
Compliance Training: is provided through e-learning and face-toface training workshops to all staff depending on their role and local regulatory requirements.
Performance Review: line managers are offered training prior to the Performance Review process each year to enhance their skills in managing performance and giving feedback. In Wealth Management, ten workshops were held in London and Zurich and a number of individual coaching sessions for line managers were organised. In Global Advisory, seven workshops were held in London, New York and via WEBEX for overseas employees.
Financial statements
Within Global Advisory, a number of bespoke training programmes have been organised by sector or products. For example, the Financial Institutions team attended Banking and Insurance Valuation, and all Managing Directors within UK GA have attended communication skills training.
The Group does not record the number of training hours, however, in the UK 137 training events took place with 1,479 employees attending. In France, we allocate a large budget to the individual training of our employees well above our legal obligation and we provided 243 training sessions.
In addition to these global training programmes each country has its own training policy and programmes.
We hire the most talented individuals, from a diverse range of backgrounds, cultures and experiences. The Group is committed to providing equal opportunities in employment and aims to ensure that it will not unlawfully discriminate in employment because of race, colour, religion or belief, gender, national or ethnic origin, disability, age, nationality, marriage or civil partnership, pregnancy or maternity, sexual orientation or gender-reassignment. It is therefore the Group's policy to make every effort to provide a working environment free from harassment, intimidation and discrimination which the Group considers unacceptable behaviour.
The policy applies to all areas of employment including recruitment, the terms and conditions of employment, training, career development, replacement, promotion, transfer, redundancy, rehiring, benefits, compensation, retirement and termination.
As an equal opportunity employer, the Group seeks to recruit based on experience and ability ensuring that the best candidate for the position is recruited. Only those qualifications and skills which are important to the job will be the criteria of selection for recruitment and promotion.
Respect for diversity and an inclusive culture are both central to our success. As such, we support various personal development initiatives including mentoring and membership of networking organisations and forums to connect our professionals and promote inclusivity across the firm.
We have been participating in the 'Charte de la Diversité' since 2005. In this regard, we aim at having objective criteria in our recruitment, appraisal and compensation processes and we inform and train our managers on this important subject.
The Network for Knowledge (NFK) Committee is a City-wide, crossfirm organisation in London for women founded by Goldman Sachs International in 2007. The Committee is comprised of senior women from law firms and banks, including representation from Rothschild. It aims to connect female professionals from across these fields and to address the issues that affect their career development. The NFK organises regular networking events, training sessions and seminars including an annual flagship event. There is a cross-firm mentoring programme in which a number of professionals from Rothschild participate.
David de Rothschild is one of the 54 Chairmen of the 30% Club which aims to increase female representation on UK corporate boards from the current industry average of 12% to 30%. This initiative was launched to support and encourage women's career development and to garner support from chairmen and companies to recognise and cultivate talented women up to board level. We now have women on our major board, with a view to further enhance this and bring yet greater diversity to this Group.
In the UK, we have formed a Diversity Committee which is chaired by a senior investment banker in cooperation with a number of senior representatives from each major area of the bank. Alongside this, our female professionals have formed a Rothschild Women's Network (RWN) to further assist in the attraction and retention of women in our various businesses. The RWN has now organised several events targeted at different levels of employees and sends a regular newsletter out to its membership. This year, colleagues have also formed an LGBT Network and the firm has become a member of Stonewall's Diversity Champions Programme which is Britain's good-practice forum on sexual orientation in the workplace. We also have a focus on our junior professionals in particular and have launched initiatives to help them manage their work-life balance. This approach very much involves the assistance of our senior colleagues to help champion this. To support all of the above efforts, we have also launched Balance@Rothschild, which is a series of workshops and seminars on health and well-being.
In France, we have put in place measures to promote gender equality in three key areas: recruitment, compensation and work-life balance. Action plans are presented and reviewed every year with our social representatives. We also have a plan in favour of more seasoned employees and measures to enhance their professional development.
The Group ensures that no discriminatory criteria is applied for recruitment, career development and compensation decisions. Where an employee has a disability, we work closely with them and our Occupational Health advisers to provide the appropriate adjustments and support to ensure they can be successful and fulfilled in the workplace. We also collaborate with specific organisations and charities, for example Blind in Business, to ensure that we are providing the best possible care and support to our employees.
In France, we also contribute to the employment of disabled persons by financing specialised companies or by choosing suppliers who employ disabled people and we invest in educational projects for disabled people.
The policies implemented by the Group adhere to and are in line with the main provisions of the ILO Convention, for example the elimination of all forms of forced labour, abolition of child labour, elimination of all forms of discrimination in respect of employment and occupation examples of which we have detailed above under Equal opportunities, but also in respect of freedom of association and collective bargaining.
The Group's operations have an impact on the environment and as a Group we have a responsibility to manage and take action to reduce the negative environmental impact as far as practicable and to promote a culture of environmental stewardship. In order to do this we must understand our material impacts and legal environmental obligations in a structured, meaningful way.
In 2014/2015 we reported environmental data from six offices: London, Paris, Zurich, New York, Frankfurt and Johannesburg. The 2015/2016 report expands this scope to include Guernsey, Milan, Sydney and Hong Kong. This represents an increase in percentage terms of approximately 9% to 86% total coverage by headcount. Our ambition is to report on 100% of our office portfolio.
The apparent increases in total environmental impacts for 2015/2016 are a direct consequence of introducing four new offices to the reporting process, increased business activity and continuous improvements in data quality and collection. Further overall reporting improvements will be made as we move towards a more automated data gathering and reporting process.
Improvements in material use efficiency have been localised with some offices implementing their own measures. Across European Union (EU) member states, the Group has conducted energy assessments in line with Article 8 of the EU Energy Efficiency Directive. At a Group level, improvements in all elements of environmental management will be signed off by the Environment, Health & Safety (EH&S) Committee to ensure a consistent and aligned approach.
We have again normalised our total impact against full time equivalents (FTE), enabling us to understand our environmental impact at an employee level. As such, and due to the FTE count increasing at a greater rate than the total impact, we have seen a decrease in impact/FTE. This is recognised in all categories with the exception of business flights, where the increased travel requirements due to increased business activity grew at a faster rate.
Over the last financial year the Group has further strengthened and improved its environmental compliance requirements. The Group has also established a continuous improvement programme to ensure it maintains legal compliance across the globe.
During 2015/2016 we have become more globally connected on environmental concerns. As a consequence, we have developed a more appropriate governance structure, the Global Environment, Health & safety Committee. It is responsible for the Group's activities, within the orientations defined by the management.
The Group has agreed the development of a Group Environment Policy. Historically, our offices have either had no policy to align with, aligned with their building landlord's policies or aligned to the UK Environment Policy Statement.
Employee environmental training and awareness has been limited to locally driven initiatives. However, a global environmental training programme has been identified and will be rolled out over the coming years to all offices.
To ensure a common understanding of environmental aspects globally, the Group will begin the alignment of an Environmental Ambassador network of best practice idea sharing across offices in an effort to ensure environmental improvement activities have a formalised structure.
Given the current understanding and with a continuous improvement compliance programme in place, no particular provisions or guarantees have been identified or are required for environmental risk.
As an office-based business, the Group does not consider its discharges into air, water and soil to be material environmental risks.
While some offices manage their own waste and recycling, generally speaking, waste management is driven by the facilities provided and managed by building landlords.
The increase in totals is a direct consequence of increasing the scope of offices reporting environmental data, as well as increased business activity and more accurate weighing of waste and recycling material. Increased accuracy of weights provides a clearer understanding of the impact from waste production and recycling. This increase is reflected in the higher total Group waste numbers.
The decrease in incineration and increase in recycling is a direct consequence of an error correction from 2014/2015, whereby the waste streams were incorrectly allocated.
| Waste disposal in tonnes | 2015/2016 | 2014/2015 |
|---|---|---|
| Recycling | 399.5 | 145.5 |
| Composting(2) | 24.5 | 17.7 |
| Incineration | 121.8 | 303.2 |
| Landfill | 46.2 | 15.5 |
| Total waste disposal | 591.4 | 481.9 |
| Tonnes/FTE | 0.2 | 0.2 |
(1) For more information on waste disposal data please refer below to the additional notes for section 4.1 to 4.3 inclusive.
(2) Compostable waste includes food waste.
As an office-based business, the Group does not consider sound pollution to be of material environmental risk. The Group does not contribute to any other business-specific forms of pollution.
As we increase the scope of our reporting we will have a better understanding of water stresses in the local areas. We will assess and redefine what water stress means to the Group.
The increase in totals is a direct consequence of increasing the scope of offices reporting environmental data. Approximately 2,500m3 of water is from the new office locations.
| Water use in m3 | 2015/2016 | 2014/2015 |
|---|---|---|
| Water consumption | 37,873.2 | 36,114.0 |
| m3/FTE | 14.8 | 18.0 |
(3) For more information on water use data please refer below to the additional notes for section 4.1 to 4.3 inclusive.
Raw materials are interpreted predominately to mean paper. However, the increased reporting scope has resulted in more materials being measured.
The increase in totals is a direct consequence of the increase in business activity and the inclusion of more paper-based consumables, including cups and paper towels.
| Material use in tonnes | 2015/2016 | 2014/2015 |
|---|---|---|
| Paper consumption (recycled content) | 29.5 | 21.4 |
| Paper consumption (virgin content) | 173.7 | 147.9 |
| Paper towels (recycled content) | 5.4 | 5.4 |
| Paper towels (virgin content) | 2.3 | 2.0 |
| Paper cups (recycled content) | 0.5 | – |
| Paper cups (virgin content) | 0.5 | – |
| Plastics | 0.02 | – |
| Total paper consumption | 211.8 | 176.7 |
| Tonnes/FTE | 0.1 | 0.1 |
(4) For more information on materials use data please refer below to the additional notes for section 4.1 to 4.3 inclusive.
The combination of increased business activity and reporting scope has been the major contributor to the increase in Group energy consumption.
| Energy use in MWh | 2015/2016 | 2014/2015 |
|---|---|---|
| Natural gas combustion | 3,484.8 | 3,272.5 |
| Gasoil/diesel combustion | 69.0 | 5.5 |
| Electricity consumption | 11,848.7 | 10,705.9 |
| Heat consumption | 386.8 | 464.0 |
| Total energy consumed | 15,789.4 | 14,448.0 |
| MWh/FTE | 6.2 | 7.2 |
(5) For more information on energy use data please refer below to the additional notes for section 4.1 to 4.3 inclusive.
The Group does not consider land use to be of material environmental risk since its sites are for office use only and are located in major cities. No sites are located in or adjacent to areas of high biodiversity value.
Over the coming reporting year, the Group will begin investigation into the level of risk from climate change and the effects that it will have on its business divisions.
Our greenhouse gas (GHG) emissions are calculated as tonnes of carbon dioxide equivalent (tCO2e), a universal unit of measurement expressing the impact of each different GHG in terms of the amount of CO2 that would create the same amount of warming. We calculate CO2e by multiplying our activity data, for example waste incineration, landfill and miles travelled by air, by the UK DEFRA-approved conversion factors.
The scope of emissions reporting includes Scope 1 and Scope 2 emissions, and Scope 3 emissions in respect of business travel, water supply and wastewater treatment, materials, waste disposal, and electricity transmission and distribution losses.
With our scope expansion in 2015/2016 we see increases in energy and subsequent GHG emission.
Overview
| Greenhouse gas emissions in tCO2e (except electricity for New York, Zurich, Paris, Frankfurt, Johannesburg, Hong Kong, Sydney and Milan which is tCO2) |
2015/2016 | 2014/2015 | |||
|---|---|---|---|---|---|
| Direct Emissions (Scope 1) | Natural Gas | 608.8 | 605.3 | ||
| Gasoil | 18.7 | 1.5 | |||
| Owned Vehicles | Distance | 42.3 | 25.8 | ||
| Petrol | 86.0 | 57.2 | |||
| Diesel | – | 63.0 | |||
| TOTAL SCOPE 1 | 755.9 | 752.9 | |||
| Indirect Emissions (Scope 2) | Electricity Consumption | 3,658.8 | 3,398.3 | ||
| Heat Consumption | 86.5 | 100.6 | |||
| TOTAL SCOPE 2 | 3,745.3 | 3,498.8 | |||
| Indirect Emissions from Flights (Scope 3) Business Travel – Flights Domestic All Classes (Av Passenger) | 54.1 | – | |||
| Short-Haul Average Passenger | – | 347.4 | |||
| Short-Haul Economy Class | 392.5 | 848.4 | |||
| Short-Haul Premium Economy Class | 4.1 | n/c | |||
| Short-Haul Business Class | 927.8 | 1,266.5 | |||
| Short-Haul First Class | 0.3 | n/c | |||
| Long-Haul Economy Class | 60.2 | 264.5 | |||
| Long-Haul Premium Economy Class | 12.9 | 65.0 | |||
| Long-Haul Business Class | 3,111.9 | 6,462.4 | |||
| Long-Haul First Class | 421.4 | 998.9 | |||
| International (Av Passenger) | 292.1 | n/c | |||
| International Economy Class | 1,109.1 | n/c | |||
| International Premium Economy | 8.6 | n/c | |||
| International Business Class | 6,246.4 | n/c | |||
| International First Class | 1,139.4 | n/c | |||
| Total Emissions – Flights | 13,780.6 | 10,253.0 | |||
| Other Travel Emissions (Scope 3) | Business Travel – Rail | National | 40.5 | 79.3 | |
| International | 24.5 | 13.4 | |||
| Business Travel – Taxis | 169.6 | 125.8 | |||
| Total Emissions – Other Travel | 234.6 | 218.5 | |||
| Other Emissions (Scope 3) | Water | Water Supply | 13.0 | 12.4 | |
| Water Treatment | 26.8 | 25.6 | |||
| Materials | Paper | 189.8 | 161.5 | ||
| Plastics | 0.1 | n/c | |||
| Waste | Re-use | – | 0.1 | ||
| Recycling | 8.4 | 3.1 | |||
| Composting | 0.1 | 0.1 | |||
| Incineration | 2.6 | 6.4 | |||
| Landfill | 4.3 | 3.1 | |||
| Company Leased Vehicles | 172.1 | 64.7 | |||
| Electricity Transmission and Distribution Losses | 319.2 | 300.2 | |||
| Total Emissions – Other | 736.5 | 577.1 | |||
| TOTAL SCOPE 3 | 14,751.8 | 11,048.6 | |||
| TOTAL SCOPE 1,2 and 3 | 19,253.2 | 15,300.3 |
Business review
No specific measures have been taken to preserve or develop biodiversity at a Group level.
The reporting period is the financial year 1 April 2015 to 31 March 2016.
The total Group FTE headcount used to calculate the environmental impact per FTE uses HR finance headcount data provided by the Global HR team. This figure is added to the site representative reported third party and contractor headcount. The result of adding the two headcount numbers is used to calculate the impact per FTE (Impact/FTE).
Impact per FTE is used to normalise the total impact against headcount.
Our full time equivalent headcount is taken from the Human Resources (HR) system as a 'snapshot in time' on 31 March 2016. Third party or service provider employee headcount is not captured by the HR system; instead, this headcount is manually captured and through aggregation those employees on site.
In order of largest headcount, the 2013/2014 offices that provided environmental data include: London, Paris, Zurich and New York.
In order of largest headcount, the 2014/2015 offices that provided environmental data include: London, Paris, Zurich, New York, Frankfurt and Johannesburg.
In order of largest headcount, the 2015/2016 offices that provided environmental data include: London, Paris, Zurich, New York, Frankfurt, Guernsey, Milan, Sydney, Hong Kong and Johannesburg.
DEFRA national electricity factors for Zurich, Paris and New York are available only for CO2, rather than CO2e. The total electricity figure is reported as CO2e.
Where assumptions or estimates have been made, this is explained in the following notes for each section.
Total waste from the Frankfurt office is estimated on the basis of information provided by the city authorities. The waste produced by the city is divided by its population. This figure is multiplied by the number of employees at the Frankfurt office to establish the total.
London and Zurich waste data is now accurately weighed, not estimated as in previous years.
The decrease in incineration and increase in recycling is also a consequence of the correct allocation of waste streams from the Paris office, which were incorrectly allocated in 2014/2015.
Raw materials are interpreted to predominately mean office paper; however, the increased reporting scope has resulted in more materials being measured, including paper towels, cups and plastic, where the data has been provided.
It is assumed that one sheet of A4 paper weighs 5 grams, except in the US where an A4 sheet weighs 4.5 grams.
In 2014/2015 New York paper consumption (virgin content) incorrectly included the paper towel tonnes. This has been updated in this financial year's report and correctly categorised.
Greenhouse gas emissions have been calculated using most recent DEFRA emissions factors.
Zurich natural gas in 2014/2015 was incorrect due to a transposition error to the final spreadsheet. Last year's reported figure for Zurich has been updated for this report.
In 2014/2015 the Paris electricity figure was incorrectly taken as the sum of total consumption (office consumption and landlord consumption) plus landlord consumption, not total consumption minus landlord consumption. This has been updated for this year's report.
The factor for CO2 equivalent (CO2e) has been used, with the exception of electricity in New York, Zurich, Paris, Frankfurt, Johannesburg, Hong Kong, Sydney and Milan offices which use the factor for tCO2.
In 2014/2015 the incorrect emission factor was used for London-owned vehicles (distance). The miles emission factor was used rather than the km emission factor. This has been amended for this year's report.
In 2014/2015 the incorrect emission factor was used for Company Owned Vehicles – Diesel. The emission factor was for gas oil in litres rather than car diesel fuel. This has been updated for this year's report.
In 2014/2015 the kgCO2 UK electricity emission factor used was rather than the kgCO2e emission factor; as a result, the UK emissions were understated. This has been updated for this year's report.
In 2014/2015 the Paris electricity figure was incorrectly taken as the sum of total consumption (office consumption and landlord consumption) plus landlord consumption, not just the portion relating to ICG Paris. This has been updated for this year's report.
The 2014/2015 emission calculation for New York used an incorrect calculation formula. This has been updated for this year's report.
Management report
In 2014/2015 the New York emissions from electricity transmission and distribution (T&D) losses were incorrectly reported due to a correction of occupied floor space. This has been corrected and updated for this year's report.
In 2014/2015 New York paper consumption (virgin content) incorrectly included the paper towel tonnes (2.45 tonnes); this been updated and correctly categorised.
In 2014/2015 the municipal waste landfill emission factor was used (289.83) rather than the commercial waste landfill emission factor. This has been corrected for this year's report.
In 2014/2015 non-UK 'domestic' flights were incorrectly allocated and have been changed to 'short-haul average passenger'. This has resulted in a change in emission factor from 0.2932 to 0.1663, meaning that there are now no 'domestic all classes' flights in 2014/2015, instead these are under 'short-haul average passenger'.
In 2015/2016 flights have been allocated into the following categories:
Domestic (within the UK)
Flights to/from the UK (short haul and long haul by class)
International flights (between and within non-UK countries) (by class)
Due to the lack of granularity available in flight data, we are unable to define flights originating from outside the UK that travel to the UK or other countries and as such, we can only apply the international emissions factor as stated by DEFRA
In 2014/2015 the incorrect emission factor for national rail was used (0.0582 instead of 0.0474). This has been updated in this year's report.
In 2014/2015 the incorrect emission factor for international rail was used (0.0151); this has been updated to use the correct emission factor for this year's report.
In 2014/2015 the incorrect emission factor for national rail was used (0.0582 instead of 0.0474). This has been updated to use the correct emission factor for this year's report.
In 2014/2015 the incorrect emission factor for international rail was used (0.0151); this has been amended to use the correct emission factor for this year's report.
As a leading financial services business, the Group carries out financial advisory, specialist finance and investment activities. As a consequence, it participates actively in the financing of the economy of the countries where it operates, through its 56 offices implemented in 43 countries.
The Group is also strongly involved in charity support and community partnerships all over the world, which have become an integral part of Rothschild's Community Investment ('CI') programme. The Group encourages its employees to contribute in these actions. Its initiatives mainly focus on addressing educational disadvantage.
In accordance with the definition provided by the GRI Guidelines, the Group's stakeholders are all entities or individuals that can reasonably be expected to be significantly affected by the Group's activities, products, and/or services, and whose actions can reasonably be expected to affect the ability of the organisation to successfully implement its strategies and achieve its objectives.
The Group has identified as its key stakeholders its shareholders, potential investors and financial analysts. The Group seeks to maintain a dialogue with those stakeholders to be in the position to take their interests into account and to promote its own values, essentially through the Investor Relations Department.
During the 2015/2016 financial year, several meetings have been organised between the Group's Head of Investor Relations and those stakeholders. Members of Rothschild & Co's Senior Management and people holding strategic positions within the Group have also attended these meetings. In addition, the Head of Investor Relations participated in conferences dedicated to facilitate relations between listed companies and investors.
The Group also attaches great importance to comply with the rules regarding transparency. It discloses, as soon as possible, in French and in English, the information that is necessary to investors and shareholders to assess its situation and outlook. This financial and extrafinancial information is available on Rothschild & Co's internet website (www.rothschildandco.com) in a section entitled 'Investor Relations'. Information is also disclosed in a subsection named 'Shareholders', including all information relating to General Meetings and the exercise of the voting rights, or explanations about the different ways to hold securities issued by Rothschild & Co.
Across the UK, we have been making donations through the Charities Committee since 1975, continuing the philanthropic traditions of the Rothschild family, dating from the early 1800s. Rothschild's employee volunteering programme was formally established in 2009 by Baron David de Rothschild.
We aim to achieve our mission by working in partnership with community organisations and schools, and through the combination of financial contributions and employee volunteering. In 2016/2017 we have committed to investing over 1% – £385,500 – of our pre-tax profit in the UK on our community investment programme. c. £40,000 of our overall Community Investment budget is reserved for supporting our employees' personal causes.
Overview
Financial statements
Employees are entitled to unlimited volunteer leave to volunteer for a Rothschild & Co initiative that is skills based and creates longterm change and impact. In addition they are permitted two full days' volunteering leave for a cause of their choice. In 2015/2016, over 50% of our staff in London volunteered once or more.
Our Core Partners for 2016 are Teach First, Future First, Ashoka, The Access Project, Bow School, Regent High School and Old Palace Primary School. Initiatives include mentoring and coaching, tutoring, work experience, and career insight events.
In 2016, we were shortlisted for the Business in the Community Responsible Business Award in the Education category.
While our offices act independently from one another in respect of CI, many are engaged in community investment. However, it is our ambition to have one global and coordinated approach to community investment, starting with our four largest offices in Germany, France, Zurich and America, in order to maximise business and societal impact.
In the last year, the Paris office has continued to support entrepreneurs via Ashoka, and in 2016 will work with new entrepreneurs that are aligned with the mission.
Our Frankfurt office focuses on local schools and children's centres. In New York, through a partnership with New York Cares, staff have this year volunteered with a wide range of local charities including foodbanks and homeless shelters, and our offices in Milan have a partnership with the Theodora Foundation.
In Johannesburg, a scholarship programme helps historically underprivileged South Africans to continue their postgraduate studies in a financial discipline at the University of the Witwatersrand. Rothschild offers more than just financial assistance, ensuring students are supported by a mentor as well as through internship opportunities.
Over the coming year we plan to establish a clearer position on the environmental consequences of our choice of suppliers and the services they provide.
Given the Group's activities, subcontracting is not significant as it does not concern the main businesses.
We are developing a supplier engagement tool which will help us to consider the social and environmental responsibility policies of prospective suppliers.
The Group conducts its activities with a high level of professional ethics with the clients' interests as its priority. This is done by implementing a rigorous internal control system and risk control adapted to the Group's size and covered activities. More details on the Group's internal control and risk control structure are presented in the report of the Chairman on internal control on pages 84 of this report.
As the Group's parent company, Rothschild & Co is in charge of the consolidated prudential supervision of the Group and of the implementation and the monitoring of the efficiency of the internal control system at the Group's scale. This involves the elaboration of procedures and policies implemented homogeneously.
Within the Group's internal organisation, Legal, Compliance and Risk functions were centralised to enable a better-coordinated global approach.
Policies were implemented through different recent initiatives, sharing and harmonising best practices. Approximately 20 different policies are currently implemented in the Group throughout all five main regions of the world, with 13 of them reviewed in the course of the 2015/2016 financial year. Employees' awareness regarding those matters is ensured by dedicated training sessions and the disclosures of guides on the Group's intranet.
Regarding the fight against corruption, the Group requires its employees to act with honesty and integrity and has a zero-tolerance approach. Involvement in any form of corruption has serious consequences, including dismissal or termination of employment. A Group Policy on Anti-Corruption has been established, in order to comply with the applicable regulations such as the UK Bribery Act which aims at preventing such crimes.
It deals, for instance, with the acceptance or the offering of gifts and entertainment by employees within the framework of their jobs since this can lead to suspicious or reprehensible situations. In order to avoid such situations, each entity must determine proportionate limits for the acceptance or the offering of gifts that do not require approval. Any gift or entertainment that exceeds these limits must be approved by the relevant head and the local Compliance function. In addition to this, persons to whom this policy applies must not accept gifts such as cash or any other gift convertible into cash such as shares, share options or bonds.
Given the Group's activities, there is no specific need to implement measures to ensure clients' health & safety.
The Group does not carry out other activities to promote human rights, other than those mentioned in the previous sections of this report.
This is a free English translation of the independent third party's report issued in French and is provided solely for the convenience of Englishspeaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France.
In our capacity as independent third party of Rothschild & Co S.C.A. company (the 'Company'), certified by COFRAC under number 3-1049(1), and member of the KPMG International network as your statutory auditor, we hereby report to you on the consolidated human resources, environmental and social information for the year ended 31 March 2016, included in the management report (hereinafter named 'CSR Information'), pursuant to article L.225-102-1 of the French Commercial Code.
The Board of Directors is responsible for preparing a company's management report including the CSR Information required by article R.225-105-1 of the French Commercial Code in accordance with the guidelines used by the Company (hereinafter the 'Guidelines'), summarised in the management report and available on request from the company's head office.
Our independence is defined by regulatory texts, the French Code of ethics of our profession and the requirements of article L.822-11 of the French Commercial Code. In addition, we have implemented a system of quality control including documented policies and procedures regarding compliance with the ethical requirements, professional standards and applicable legal and regulatory requirements.
On the basis of our work, our responsibility is to:
Our work involved six persons and was conducted between May and June 2016 during a four-week period. We were assisted in our work by our CSR experts.
We performed our work in accordance with the professional standards and with the order dated 13 May 2013 defining the conditions under which the independent third party performs its engagement and with ISAE 3000(2) concerning our conclusion on the fairness of CSR Information.
On the basis of interviews with the individuals in charge of the relevant departments, we obtained an understanding of the Company's sustainability strategy regarding human resources and environmental impacts of its activities and its social commitments and, where applicable, any actions or programmes arising from them.
We compared the CSR Information presented in the management report with the list provided in article R.225-105-1 of the French Commercial Code.
For any consolidated information that is not disclosed, we verified that explanations were provided in accordance with article R.225-105, paragraph 3 of the French Commercial Code.
We verified that the CSR Information covers the scope of consolidation, i.e., the Company, its subsidiaries as defined by article L.233-1 and the controlled entities as defined by article L.233-3 of the French Commercial Code within the limitations set out in the methodological note, presented in the chapter 'Methodology' of the Report of the Board of Directors.
Based on the work performed and given the limitations mentioned above, we attest that the required CSR Information has been disclosed in the management report.
We conducted six interviews with the persons responsible for preparing the CSR Information in the departments in charge of collecting the information and, where appropriate, responsible for internal control and risk management procedures, in order to:
We determined the nature and scope of our tests and procedures based on the nature and importance of the CSR Information with respect to the characteristics of the Company, the human resources and environmental challenges of its activities, its sustainability strategy and industry best practices.
Regarding the CSR Information that we considered to be the most important(3):
• at the consolidation level, including the parent company, subsidiaries and controlled entities, we referred to documentary sources and conducted interviews to corroborate the qualitative information (organisation, policies, actions), performed analytical procedures on
(1) Whose scope is available at www.cofrac.fr
(2) ISAE 3000 – Assurance engagements other than audits or reviews of historical financial information.
(3) Human resources indicators: Total headcount (breakdown of employees by gender, age and geographical area), Number of training sessions Environmental indicators: Water consumption, Energy consumption (electricity, gas, heat and fuel), Paper consumption, Waste produced, CO2 emissions related to business travels Qualitative information: Policies implemented regarding training, Summary of collective agreements, Policy against discriminations, Measures implemented to promote gender equality, Working time organisation, The organisation of the company to integrate environmental issues and, if appropriate, the assessments and certification process regarding environmental issues, Conditions of the dialogue with stakeholders.
the quantitative information and verified, using sampling techniques, the calculations and the consolidation of the data. We also verified that the information was consistent and in agreement with the other information in the management report;
• at the level of a representative sample of entities selected by us(4) on the basis of their activity, their contribution to the consolidated indicators, their location and a risk analysis, we conducted interviews to verify that procedures are properly applied and to identify potential undisclosed data, and we performed tests of details, using sampling techniques, in order to verify the calculations and reconcile the data with the supporting documents. The selected sample represents 48% of headcount and between 45% and 67% of quantitative environmental data disclosed.
For the remaining consolidated CSR Information, we assessed its consistency based on our understanding of the Company.
We also assessed the relevance of explanations provided for any information that was not disclosed, either in whole or in part.
We believe that the sampling methods and sample sizes we have used, based on our professional judgement, are sufficient to provide a basis for our limited assurance conclusion; a higher level of assurance would have required us to carry out more extensive procedures. Due to the use of sampling techniques and other limitations inherent to information and internal control systems, the risk of not detecting a material misstatement in the CSR Information cannot be totally eliminated.
Based on the work performed, no material misstatement has come to our attention that causes us to believe that the CSR Information, taken as a whole, is not presented fairly in accordance with the Guidelines.
Paris-La Défense, 22 June 2016
Anne Garans Pascal Brouard
Partner Partner Climate Change & Sustainability Services
Overview
| Consolidated financial statements | 107 |
|---|---|
| Parent company financial statements | 164 |
Business review
Overview
The Paris Orléans General Meeting held on 24 September 2015 approved by a majority of 87.1% the change of name from Paris Orléans to Rothschild & Co with immediate effect. This year end report reflects the new name.
| Term | Definition |
|---|---|
| ACPR | Autorité de Contrôle Prudentiel et de Résolution (French Prudential and Resolution Authority) |
| AFS | Available for sale |
| Asset Management | Asset Management business segment, comprising Rothschild Private Wealth, Rothschild Asset Management and Rothschild Merchant Banking |
| Banking | Banking business line |
| bp | Basis point |
| CGU | Cash-generating unit |
| Company | Rothschild & Co SCA (formerly Paris Orléans SCA) |
| CRD3 | Capital Requirements Directive 3 |
| DCF | Discounted cash flow |
| EdRS | Edmond de Rothschild (Suisse) SA |
| FALG | Five Arrows Leasing Group |
| GA/Global Advisory | Rothschild Global Advisory business line (formerly GFA) |
| GFSC | Guernsey Financial Services Commission |
| GICS | Global Industry Classification Standards |
| GMC | Group Management Committee |
| Group | Rothschild & Co SCA consolidated Group |
| Group ALCO | Group Assets and Liabilities Committee |
| LCR | Liquidity Coverage Ratio |
| NCI | Non-controlling interest |
| Managing Partner | Rothschild & Co Gestion SAS (the gérant) |
| Merchant Banking | Rothschild Merchant Banking business line |
| NMR | N M Rothschild & Sons Limited |
| NMRP | N M Rothschild & Sons Limited pension fund |
| NMROP | N M Rothschild & Sons Limited overseas pension fund |
| PCCC | Private Client Credit Committee |
| PCL | Private Client Lending |
| R&Co | Rothschild & Co SCA (formerly Paris Orléans SCA) |
| R&Co Gestion | Rothschild & Co Gestion SAS (the gérant/Managing Partner) |
| RBCI | Rothschild Bank C.I. Limited |
| RBI | Rothschild Bank International Limited |
| RBZ | Rothschild Bank AG Zurich |
| RBZP | Rothschild Bank AG Zurich pension fund |
| RCB | Rothschild & Cie Banque |
| RHAG | Rothschild Holding AG |
| Supervisory Board | Rothschild & Co Supervisory Board |
| In thousands of euro Notes |
31/03/16 | 31/03/15 |
|---|---|---|
| Cash and amounts due from central banks | 3,500,132 | 3,643,942 |
| Financial assets at fair value through profit or loss | 1 452,867 |
363,170 |
| Hedging derivatives | 2 2,798 |
20,023 |
| Available-for-sale financial assets | 3 1,096,009 |
669,437 |
| Loans and advances to banks | 4 1,242,947 |
1,530,914 |
| Loans and advances to customers | 5 1,488,372 |
1,601,605 |
| Current tax assets | 8,431 | 15,121 |
| Deferred tax assets | 16 72,278 |
92,760 |
| Other assets | 6 528,751 |
455,416 |
| Investments accounted for by the equity method | 7 42,442 |
47,688 |
| Tangible fixed assets | 8 307,068 |
360,485 |
| Intangible fixed assets | 9 168,397 |
168,159 |
| Goodwill | 10 111,853 |
110,533 |
| TOTAL ASSETS | 9,022,345 | 9,079,253 |
| In thousands of euro | Notes | 31/03/16 | 31/03/15 |
|---|---|---|---|
| Due to central banks | 1,158 | 1,240 | |
| Financial liabilities at fair value through profit or loss | 1 | 76,733 | 67,012 |
| Hedging derivatives | 2 | – | 8,195 |
| Due to banks and other financial institutions | 11 | 281,952 | 292,584 |
| Customer deposits | 12 | 5,468,388 | 5,686,863 |
| Debt securities in issue | 124,168 | 13,500 | |
| Current tax liabilities | 38,011 | 33,971 | |
| Deferred tax liabilities | 16 | 43,369 | 55,053 |
| Other liabilities, accruals and deferred income | 13 | 788,162 | 730,855 |
| Provisions | 14 | 155,385 | 214,500 |
| TOTAL LIABILITIES | 6,977,326 | 7,103,773 | |
| Shareholders' equity | 2,045,019 | 1,975,480 | |
| Shareholders' equity – Group share | 1,529,169 | 1,419,446 | |
| Share capital | 142,274 | 142,274 | |
| Share premium | 981,692 | 981,692 | |
| Unrealised or deferred capital gains and losses | 61,533 | 134,859 | |
| Consolidated reserves | 111,750 | 17,070 | |
| Net income – Group share | 231,920 | 143,551 | |
| Non-controlling interests | 18 | 515,850 | 556,034 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 9,022,345 | 9,079,253 |
Business review
Overview
| In thousands of euro | Notes | 31/03/16 | 31/03/15 | |
|---|---|---|---|---|
| + | Interest income | 23 | 97,268 | 93,889 |
| - | Interest expense | 23 | (48,144) | (47,734) |
| + | Fee income | 24 | 1,474,825 | 1,251,200 |
| - | Fee expense | 24 | (52,739) | (45,215) |
| +/- | Net gains/(losses) on financial instruments at fair value through profit or loss | 25 | 58,315 | 60,659 |
| +/- | Net gains/(losses) on available-for-sale financial assets | 26 | 51,080 | 78,827 |
| + | Other operating income | 27 | 13,106 | 18,516 |
| - | Other operating expenses | 27 | (4,798) | (6,943) |
| Net banking income | 1,588,913 | 1,403,199 | ||
| - | Staff costs | 28 | (953,509) | (820,157) |
| - | Administrative expenses | 28 | (267,297) | (257,064) |
| - | Amortisation, depreciation and impairment of tangible and intangible fixed assets | 29 | (36,769) | (35,597) |
| Gross operating income | 331,338 | 290,381 | ||
| +/- | Cost of risk | 30 | (11,939) | (22,358) |
| Operating income | 319,399 | 268,023 | ||
| +/- | Net income from companies accounted for by the equity method | 7 | 267 | 3,598 |
| +/- | Net income/(expense) from other assets | 31 | 102,638 | 45,072 |
| Profit before tax | 422,304 | 316,693 | ||
| - | Income tax expense | 32 | (65,079) | (62,839) |
| CONSOLIDATED NET INCOME | 357,225 | 253,854 | ||
| Non-controlling interests | 18 | 125,305 | 110,303 | |
| NET INCOME – GROUP SHARE | 231,920 | 143,551 | ||
| Earnings per share in euro – Group share (basic) | 36 | 3.37 | 2.08 | |
| Earnings per share in euro – continuing operations (basic) | 36 | 3.37 | 2.08 | |
| Earnings per share in euro – Group share (diluted) | 36 | 3.32 | 2.08 | |
| Earnings per share in euro – continuing operations (diluted) | 36 | 3.32 | 2.08 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Consolidated net income | 357,225 | 253,854 |
| Gains and losses recyclable in profit or loss | ||
| Translation differences | (85,626) | 135,370 |
| Translation loss transferred to income on sale of subsidiary | (703) | – |
| Revaluation of available-for-sale financial assets | (2,434) | 66,150 |
| (Gains)/losses transferred to income on available-for-sale financial assets | (43,289) | (67,855) |
| Loss transferred to income on exit of cash flow hedge | 8,065 | – |
| Revaluation of cash flow hedges | (7) | 5,990 |
| Gains and losses recognised directly in equity for companies accounted for by the equity method | 1,659 | 2,194 |
| Taxes | 6,843 | 3,854 |
| Total gains and losses recyclable in profit or loss | (115,492) | 145,703 |
| Gains and losses not recyclable in profit or loss | ||
| Remeasurement gains/(losses) on defined benefit pension funds | 6,436 | (45,734) |
| Taxes | (5,381) | 9,398 |
| Other | (198) | (1,321) |
| Total gains and losses not recyclable in profit or loss | 857 | (37,657) |
| Total unrealised or deferred capital gains or losses | (114,635) | 108,046 |
| TOTAL COMPREHENSIVE INCOME | 242,590 | 361,900 |
| attributable to equity shareholders | 153,649 | 186,977 |
| attributable to non-controlling interests | 88,941 | 174,923 |
Overview
| Unrealised or deferred capital gains and losses (net of tax) |
||||||||
|---|---|---|---|---|---|---|---|---|
| In thousands of euro | Capital and associated reserves(1) |
Consolidated reserves(3) |
Related to translation differences |
Available for-sale reserves |
Hedging reserves |
Share holders' equity, Group share |
Share holders' equity, non -controlling interests |
Total shareholders' equity |
| SHAREHOLDERS' EQUITY AT 31 MARCH 2014 |
1,123,399 | 74,866 | (18,711) | 98,514 | (9,274) 1,268,794 | 473,933 | 1,742,727 | |
| Increase in share capital | 567 | – | – | – | – | 567 | – | 567 |
| Impact of elimination of treasury shares | – | 3,361 | – | – | – | 3,361 | – | 3,361 |
| Dividends | – | (35,059) | – | – | – | (35,059) | (75,299) | (110,358) |
| Charge related to share-based payments | – | 1,012 | – | – | – | 1,012 | 13 | 1,025 |
| Interest on perpetual subordinated debt | – | – | – | – | – | – | (14,267) | (14,267) |
| Effect of a change in shareholding without a change of control |
– | 4,542 | (370) | 63 | (113) | 4,122 | (2,531) | 1,591 |
| Sub-total of changes linked to transactions with shareholders |
567 | (26,144) | (370) | 63 | (113) | (25,997) | (92,084) | (118,081) |
| 2014/2015 net income for the year | – | 143,551 | – | – | – | 143,551 | 110,303 | 253,854 |
| Net gains/(losses) from changes in fair value |
– | – | – | 55,969 | 4,614 | 60,583 | 1,791 | 62,374 |
| Net (gains)/losses transferred to income on disposal |
– | – | – | (57,948) | 84 | (57,864) | (2,355) | (60,219) |
| Net (gains)/losses transferred to income on impairment |
– | – | – | 1,973 | – | 1,973 | 30 | 2,003 |
| Remeasurement gains/(losses) on defined benefit funds |
– | (31,728) | – | – | – | (31,728) | (4,609) | (36,337) |
| Translation differences and other movements |
– | 76 | 72,798 | (11,758) | (982) | 60,134 | 69,025 | 129,159 |
| SHAREHOLDERS' EQUITY AT 31 MARCH 2015 |
1,123,966 | 160,621 | 53,717 | 86,813 | (5,671) 1,419,446 | 556,034 | 1,975,480 | |
| Impact of elimination of treasury shares | – | (3,810) | – | – | – | (3,810) | – | (3,810) |
| Dividends(2) | – | (41,846) | – | – | – | (41,846) | (99,581) | (141,427) |
| Charge related to share-based payments | – | 1,026 | – | – | – | 1,026 | 12 | 1,038 |
| Interest on perpetual subordinated debt | – | – | – | – | – | – | (14,775) | (14,775) |
| Effect of a change in shareholding without a change of control |
– | (9,955) | 69 | 10,411 | (9) | 516 | (14,705) | (14,189) |
| Sub-total of changes linked to transactions with shareholders |
– | (54,585) | 69 | 10,411 | (9) | (44,114) (129,049) | (173,163) | |
| 2015/2016 net income for the year | – | 231,920 | – | – | – | 231,920 | 125,305 | 357,225 |
| Net gains/(losses) from changes in fair value |
– | – | – | 1,938 | (5) | 1,933 | 2,449 | 4,382 |
| Net (gains)/losses transferred to income on disposal |
– | – | – | (37,753) | 6,358 | (31,395) | (13) | (31,408) |
| Remeasurement gains/(losses) on defined benefit funds |
– | 5,439 | – | – | – | 5,439 | (4,470) | 969 |
| Translation differences and other movements |
– | 275 | (53,602) | (60) | (673) | (54,060) | (34,406) | (88,466) |
| SHAREHOLDERS' EQUITY AT 31 MARCH 2016 |
1,123,966 | 343,670 | 184 | 61,349 | – 1,529,169 | 515,850 | 2,045,019 |
(1) Capital and associated reserves at the year end consists of share capital of €142.3 million and share premium of €981.7 million.
(2) This allocation includes €41.1 million of dividends to R&Co shareholders and a total of €0.7 million of dividends to R&Co Gestion and Rothschild & Co Commandité SAS. Distributions to non-controlling interests are analysed in note 18.
(3) Consolidated reserves consist of retained earnings of €125.0 million less treasury shares of €13.3 million plus the Group share of net income.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Consolidated profit before tax (I) | 422,304 | 316,693 |
| Depreciation and amortisation expense on tangible fixed assets and intangible assets | 38,371 | 37,923 |
| Impairments and net charge for provisions | 14,625 | 46,805 |
| Remove (income)/loss from associates and long-standing shareholding | (6,931) | (7,494) |
| Remove (profit)/loss from disposal of a subsidiary | (98,748) | – |
| Remove (profit)/loss from investing activities | (88,500) | (157,040) |
| Non-cash items included in pre-tax profit and other adjustments (II) | (141,183) | (79,806) |
| Net (advance)/repayment of loans to customers | (259,296) | (39,923) |
| Cash (placed)/received through interbank transactions | (15,942) | (145,746) |
| Increase/(decrease) in due to customers | 19,274 | 27,738 |
| Net inflow/(outflow) related to derivatives and trading items | 3,027 | 21,585 |
| Issuance of debt securities in issue | 110,668 | 13,500 |
| Net (purchases)/disposals of AFS assets held for liquidity purposes | (586,250) | 15,228 |
| Other movements in assets and liabilities related to treasury activities | 2,099 | 42,979 |
| Total treasury-related activities | (467,124) | (24,716) |
| (Increase)/decrease in working capital | (63,805) | (60,210) |
| Tax paid | (48,073) | (21,217) |
| Other operating activities | (111,878) | (81,427) |
| Net (decrease)/increase in cash related to operating assets and liabilities (III) | (838,298) | (146,066) |
| Net cash inflow/(outflow) related to operating and treasury activities (A) = (I) + (II) + (III) | (557,177) | 90,821 |
| Purchase of investments | (84,484) | (118,403) |
| Purchase of associates and subsidiaries | (4,343) | (4,757) |
| Purchase of property, plant and equipment and intangible fixed assets | (19,568) | (18,068) |
| Total cash invested | (108,395) | (141,228) |
| Cash received from investments (disposal and dividends) | 179,138 | 272,642 |
| Cash received from subsidiaries, associates and long-standing shareholding (disposal and dividends) | 174,080 | 9,910 |
| Repayment of FALG funding (see note 22) | 267,126 | – |
| Cash from disposal of property, plant and equipment and intangible fixed assets | 570 | 49,457 |
| Total cash received from investments | 620,914 | 332,009 |
| Net cash inflow/(outflow) related to investing activities (B) | 512,519 | 190,781 |
| Dividends paid to shareholders of parent company | (41,846) | (34,492) |
| Dividends paid to minority interests | (99,581) | (75,299) |
| Repayment of subordinated debt | – | (34,559) |
| Interest paid on perpetual subordinated debt | (14,775) | (14,267) |
| (Acquisition)/disposal of own shares and additional interests in subsidiaries | (7,764) | (5,351) |
| Net cash inflow/(outflow) related to financing activities (C) | (163,966) | (163,968) |
| Impact of exchange rate changes on cash and cash equivalents (D) | (245,165) | 594,417 |
| NET INFLOW/(OUTFLOW) OF CASH (A) + (B) + (C) + (D) | (453,789) | 712,051 |
| Net cash and cash equivalents at the beginning of the year (note 20) | 4,775,769 | 4,063,718 |
| Net cash and cash equivalents at the end of the year (note 20) | 4,321,980 | 4,775,769 |
| NET INFLOW/(OUTFLOW) OF CASH | (453,789) | 712,051 |
Overview
There are two main activities within our Group: Global Advisory, which focuses on providing advice in the areas of M&A, debt, restructuring and equity; and Asset Management in a broad sense which comprises Private Wealth & Asset Management and Merchant Banking. In addition, we have a Banking business which predominantly relates to the legacy banking business.
For the year to 31 March 2016, Rothschild Global Advisory revenue was €1,040 million, 18% higher than last year, representing record revenue.
Within the context of a 17% rise in global completed M&A deal values over the year, M&A advisory revenue rose steeply by 30% to €763 million (2014/2015: €588 million). This out-performance reflects a continuing improvement in market share in our core European markets, as well as in North America.
Financing advisory revenue held up well with revenues reaching €277 million, a fall of 5% compared to €292 million in the prior year, and in the context of lower market activity.
Our Asset Management business, in a broad sense, comprises Rothschild Private Wealth, Rothschild Asset Management and Rothschild Merchant Banking. Revenue for the year to 31 March 2016 was €486 million, compared to €482 million for the prior year, up 1%, while operating income decreased from €134 million to €82 million due to lower Merchant Banking investment gains, as previously indicated.
Private Wealth & Asset Management revenue for the year to 31 March 2016 was €379 million, up 13% compared to the prior year (€336 million), the highest in six years. Assets under management were €50.2 billion as at 31 March 2016 compared to €52.1 billion as at 31 March 2015.
Net new assets continued their positive trend (€2.6 billion) but were offset by market depreciation, negative exchange rate effects and reclassification of assets from managed to custodial that totalled €4.5 billion. Net new assets were driven by inflows of €2.3 billion in Private Wealth in all of our main offices (France, UK and Switzerland) and of €0.3 billion in Asset Management.
Rothschild Merchant Banking revenue for 2015/2016 was €107 million, compared to €145 million in the prior year. The expected decrease is largely attributable to unusually high investment gains from our proprietary investments portfolio in the previous year. Revenue increased 12% when compared to the average of the previous three years (2012–2015), a more relevant benchmark of performance in the business.
The Group's share of the investments made by the division during the year was €62 million, of which €41 million was the Group's own investments in funds managed by Merchant Banking and €21 million in proprietary investments. Disposals generated proceeds of €144 million, notably from two proprietary investments in SIACI Saint Honoré and Perenco generating cash of €59 million and a profit of €27 million.
As announced in October 2015, the Group sold its UK asset finance business, FALG, to Paragon Bank. The transaction resulted in an exceptional accounting gain after tax of €98.7 million, accounted for in the second half of 2015/2016 in 'Net income/(expense) from other assets'. FALG's contribution to revenue and profit before tax for the seven months of 2015/2016, prior to disposal, was €23 million and €6 million respectively.
The legacy banking book continues to reduce in line with the previously announced reduction plan. Net of specific provision, legacy drawings fell to €154 million as at 31 March 2016, down from €262 million as at 31 March 2015.
For the year ended 31 March 2016, staff costs were €954 million compared to €820 million in the prior year, representing an increase of €134 million. This increase was largely due to higher variable staff compensation in connection with record revenues in Global Advisory, as well as the translation impact of exchange rate fluctuations which resulted in an increase in staff costs of €54 million.
Overall Group headcount decreased from 2,853 to 2,829 as at 31 March 2016, largely due to the sale of FALG partially offset by new junior staff recruitment and hires in the US.
For the year ended 31 March 2016, administrative expenses were €267 million compared to €257 million for 2014/2015, representing a net increase of €10 million. This increase was largely due to the translation impact of exchange rate fluctuations which resulted in an increase in administrative expenses of €13 million.
For the year ended 31 March 2016, impairment charges and loan provisions were €12 million compared to €22 million the previous year. Of this amount, €8 million is related to Merchant Banking impairments on specific debt investments; the remainder mainly relates to receivables.
Other income and expense largely comprised the exceptional gain of €98.7 million following the sale of the Group's UK asset finance business, FALG, to Paragon Bank, that occurred early November 2015.
For the year ended 31 March 2016, the income tax charge was €65 million, comprising a current tax charge of €61 million and a deferred tax charge of €4 million, giving a reported tax rate of 15.4% or 20.1% excluding the FALG sale.
For the year ended 31 March 2016, the charge for non-controlling interests was €125 million compared to €110 million in 2014/2015. The increase is due to a higher partners' profit share in France in line with the significant improvement in the profitability of our French operations and an increase of profitability attributed to minority interests in the Swiss Private Wealth business.
The Group continues to maintain a high level of liquidity. At 31 March 2016, cash placed with central banks and banks accounted for 53% of total assets (57% at 31 March 2015).
The Group is regulated by the French Prudential and Resolution Authority (ACPR) as a financial company (Compagnie Financière). The ratios, under full application of the Basel 3 rules (including a capital conservation buffer), are comfortably ahead of the minimum requirement with a Core Tier 1 ratio of 20.6% (minimum 8.5%) and a global solvency ratio of 22.4% (minimum 10.5%).
The consolidated financial statements of Rothschild & Co SCA Group (the Group) for the year ended 31 March 2016 are presented in accordance with the IFRS standards in force at the reporting date, as adopted in the European Union by EC Regulation No. 1606/2002. The format used for the summary financial statements is a banking format. It is consistent with Recommendation No. 2013-04 of 7 November 2013 of the French Accounting Standards Authority (Autorité des normes comptables). The statements cover the period from 1 April 2015 to 31 March 2016.
The consolidated accounts were approved by Rothschild & Co Gestion SAS (R&Co Gestion), the Managing Partner (gérant) of R&Co, on 13 June 2016 and considered for verification and control purposes by the R&Co Supervisory Board on 22 June 2016.
At 31 March 2016, the Group's holding company was R&Co, a French partnership limited by shares (société en commandite par actions), headquartered at 23 bis, avenue de Messine, 75008 Paris (Paris Trade and Companies Registry Number 302 519 228). The Company is listed on the Eurolist market of Euronext Paris (Compartment A).
The notes were drawn up taking into account the understanding, relevance, reliability, comparability and materiality of the information provided.
• During the year, Rothschild & Co announced that its subsidiary, NM Rothschild & Sons Limited (NMR), had sold Five Arrows Leasing Group. As a result of this sale, NMR announced on 13 April 2016 that it no longer requires UK deposit funding and will therefore retire its UK deposit taking licence, subject to regulatory consent.
This represents a further simplification of the Group following the reorganisation completed in 2012. NMR will continue to be FCA regulated in the UK and focus on its core advisory activities. The Group will continue to undertake deposit-taking activities and hold banking licences in France, Switzerland and Guernsey.
• On 6 June 2016, Rothschild & Co and Compagnie Financière Martin Maurel announced a plan to merge, with a view to combining their French activities in private banking and asset management to create one of France's leading independent private banks.
The transaction would take the form of a merger between Rothschild & Co and Compagnie Financière Martin Maurel. Shareholders in Compagnie Financière Martin Maurel would be offered either 126 Rothschild & Co shares per existing share or, prior to the completion of the merger, be able to sell their Compagnie Financière Martin Maurel shares in cash. The Maurel family would receive Rothschild & Co shares and, as a result of the merger, would replace Compagnie Financière Martin Maurel in the extended family concert.
The vote on the transaction by the shareholders of Compagnie Financière Martin Maurel is secured; Compagnie Financière Martin Maurel has already received irrevocable support for the merger from shareholders representing more than the qualified majority required to vote; the merger.
Compagnie Financière Martin Maurel is valued at €240 million, with the 2015 dividend attached. The transaction would be financed by a mixture of newly issued Rothschild & Co shares, Rothschild & Co's own cash resources and external credit facilities.
Rothschild & Co's Supervisory Board and Compagnie Financière Martin Maurel's board of directors have both favourably welcomed the principle of the merger. The merger is conditional on the approval of the shareholders of Compagnie Financière Martin Maurel and Rothschild & Co, as well as the usual conditions, in particular competition and regulatory authorities' approvals.
Following consultation processes with work councils from both groups, the merger proposals should be put before general meetings of Compagnie Financière Martin Maurel and Rothschild & Co in September 2016 so as to complete the transaction by the end of the financial year.
The standards and interpretations used in preparation of the financial statements to 31 March 2016 were supplemented by the IFRS as adopted by the European Union at 31 March 2016 whose first-time application is mandatory in the 2015/2016 financial year. These concern:
New amendments and interpretations of accounting standards, which are mandatory for the Group's financial statements for the year ended 31 March 2016, have been reviewed and they are considered to have no material effect on the Group. The Group did not choose to apply any new standards, amendments and interpretations adopted by the European Union, for which the application in the year ended 31 March 2016 was optional.
Financial statements
Standards and interpretations that have been published by the IASB, but not yet been adopted by the European Union, are not applied in the Group financial statements at 31 March 2016. The most significant of these are as follows:
IFRS 9 Financial Instruments is intended to replace IAS 39 Financial Instruments: Recognition and Measurement. It sets new principles governing the classification and measurement of financial instruments, impairment of credit risk and hedge accounting. IFRS 9 is effective for periods beginning on or after 1 January 2018, subject to its adoption by the European Union.
In preparation for applying this standard, the Group's finance function is working with the business lines and support functions which will be most affected by the changes. In early 2016, the Group began a project to implement IFRS 9, which began with an assessment of the main challenges set by IFRS 9 as well as an assessment by the businesses of the main impacts. These are expected to relate to two main changes:
Financial assets are required to be classified in one of three categories according to the measurement methods applied (amortised cost; fair value through profit or loss; and fair value through other comprehensive income). Classification will depend on the contractual cash flow characteristics of the instruments and the entity's business model for managing its financial instruments.
By default, financial assets will be classified as measured at fair value through profit or loss.
Debt instruments (loans, receivables and bonds) will be measured at amortised cost only if the contractual cash flows consist solely of payments of principal and interest, and the business model is to collect the contractual cash flows.
Debt instruments will be measured at fair value through other comprehensive income (with cumulative gain or loss reclassified in profit or loss when the instruments are derecognised) only if the contractual cash flows consist solely of payments of principal and interest, and the business model is to collect either the contractual cash flows or to sell the instruments.
Non-trading equity instruments will be measured at fair value through profit or loss, except where an irrevocable election is made at initial recognition to measure them at fair value through other comprehensive income without subsequent reclassification to income.
Accounting for financial liabilities is largely unchanged and is not expected to have an impact on R&Co.
IFRS 9 changes the credit risk impairment model, moving from one in which provisions are set aside for incurred credit losses to one in which provisions can be set aside for expected credit losses. The aim of the new approach is to allow credit losses to be recognised at the earliest possible time, removing the need to wait for an objective incurred loss event. A wide range of information can be used to estimate expected credit losses, including historical data on observed losses, cyclical and structural adjustments, and loss projections based on reasonable scenarios.
Work on implementing IFRS 9 will continue in 2016/2017.
IFRS 15 Revenue from Contracts with Customers will replace the current standards and interpretations on revenue recognition. It will be applicable retrospectively as of 1 January 2018, subject to adoption by the European Union.
Under IFRS 15, the entity must recognise income arising from ordinary activities at an amount that reflects the consideration that the entity expects to receive in exchange for the transfer of goods and services promised to customers.
R&Co is assessing the impact of the new standard.
In January 2016, the IASB issued IFRS 16 Leases, which will replace IAS 17 Leases. Under the new requirements, lessees would be required to recognise assets and liabilities arising from both operating and finance leases on the balance sheet. The expected effective date is 1 January 2019. The standard has not yet been endorsed by the European Union.
The Group is in the process of considering the financial impacts of this new standard.
To prepare the financial statements in accordance with the Group's accounting methods, management has made assumptions and estimates that could have an impact on the book value of certain assets and liabilities and items of income and expense.
By their nature, such valuations carry risks and uncertainties as to their realisation in the future. Management has taken care to take into consideration the counterparty's financial situation and outlook as well as multiple-criteria valuations that take observable parameters into account to determine whether there are objective signs of impairment. At each closing date, the Group draws conclusions from past experience and all relevant factors relating to its business.
The financial statements of the Group are drawn up to 31 March 2016 and consolidate the financial statements of the Company and its subsidiary undertakings.
R&Co and the majority of its subsidiaries are consolidated on the basis of a financial year end of 31 March 2016. A few entities report on the basis of a 31 December 2015 year end. If a material subsequent event occurs between the closing date of these subsidaries and 31 March 2016, this event is accounted for in the consolidated financial statements of the Group as at 31 March 2016.
Subsidiaries are all entities which are controlled by the Group. The Group controls an entity if it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. Subsidiaries are fully consolidated from the date on which the Group acquires control, and cease to be consolidated from the date that control ceases.
Some subsidiaries are limited partnerships (sociétés en commandité simple). The percentage interest recorded in the consolidated accounts is calculated in accordance with the statutory regulations applicable to limited partnerships based on the individual results of each partnership, taking into consideration the share attributable to workers' remuneration.
Associates are companies over whose financial and operational decisions the Group exercises significant influence but not control (generally demonstrated when the percentage of voting rights is equal to or greater than 20% but less than or equal to 50%).
Joint arrangements are where two or more parties, through a contractual arrangement, have joint control over the assets and liabilities of an arrangement. Depending on what those rights and obligations are, the joint arrangement will either be a joint operation (where the parties subject to the arrangement have rights to the assets and obligations for the liabilities of the arrangement) or a joint venture (where the parties subject to the arrangement have rights to the net assets of the arrangement).
The Group's investments in associated undertakings are initially recorded at cost. Subsequently they are increased or decreased by the Group's share of the post-acquisition profit or loss, or by other movements reflected directly in the equity of the associated undertaking. Positive goodwill arising on the acquisition of an associated undertaking is included in the cost of the investment (net of any accumulated impairment loss).
Business combinations are accounted for using the acquisition method stipulated by IFRS 3 Business Combinations. Thus, upon initial consolidation of a newly acquired company, the identifiable assets, assumed liabilities and any contingent liabilities of the acquired entity are measured at fair value in accordance with the provisions of IFRS. The costs directly attributable to business combinations are recognised in the income statement for the period.
Contingent cash consideration is normally included in the acquisition cost at its fair value on the acquisition date, even if its payment is not certain. It is recognised as a liability in the balance sheet; any subsequent adjustments to its value are booked in the income statement in accordance with IAS 39. However, sometimes arrangements are made in which contingent payments to acquire a company are made to a vendor who is an employee, and these can be forfeited if the employee leaves voluntarily. In this case, these contingent payments are not considered as part of the acquisition cost. Instead, these payments are accounted for as a post-purchase staff expense.
Goodwill in an associate or subsidiary represents the excess, at the date of acquisition, of an acquisition's cost over the fair value of the Group's share of net identifiable assets acquired. Identifiable intangible assets are those which can be sold separately or which arise from legal rights, regardless of whether those rights are separate. If the fair value exceeds the cost, the difference is immediately recognised in the income statement. All necessary valuations of assets and liabilities must be carried out within 12 months from the date of acquisition, as must any corrections to the value based on new information.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised, but is tested annually for impairment, or more frequently when circumstances indicate that its carrying amount is too high. Goodwill is allocated to cash-generating units for the purposes of impairment testing. If the value of each of the cash-generating units is insufficient to support its carrying value, then the goodwill is impaired. Impairment losses on goodwill are recognised in the income statement and are not reversed.
Income from subsidiaries acquired or sold during the financial year is included in the consolidated income statement respectively from their acquisition date and up to their disposal date.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
For all business combinations, the Group assesses non-controlling interests as either:
On the date of acquisition of an entity, any stake in this entity already held by the Group is revalued at fair value through profit or loss. In such a case, taking control is accounted for as a sale of the shares previously held and the purchase of all shares held after control is obtained.
In the event of an increase in the Group's stake in entities over which it already exercises control, the difference between the price paid for the additional stake and the fair value of the share of net assets acquired at this date is booked in the Group's reserves as a reallocation from noncontrolling interests to other equity. In the same way, any reduction in the Group's stake in an entity which it continues to control is accounted for as an equity transaction between shareholders. At the date when the Group loses control of a consolidated subsidiary, any investment retained in the former subsidiary is revalued at fair value through the income statement.
Where non-controlling shareholders have a contract to sell their equity interests in a subsidiary to the Group, the Group applies the anticipatedacquisition method of accounting for the unowned interests. This means that the contract is accounted for as if the non-controlling shareholders had sold their shares to the Group, even though legally they are still NCIs. This happens regardless of how the exercise price is determined (e.g. fixed or variable) and how likely it is that the contract will be exercised.
The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the accounting policies.
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value used to measure a financial instrument is, in principle, the listed price when the financial instrument is listed on an active market. In the absence of an active market, fair value is determined using measurement techniques.
A description of the valuation techniques used, analysis of assets and liabilities carried at fair value by valuation hierarchy, and a sensitivity analysis of valuations not primarily based on observable market data, is provided in the notes to the financial statements.
Assets are assessed at each balance sheet date to determine whether there is objective evidence that a financial asset or group of financial assets is impaired as a result of one or more events occurring after initial recognition of the asset (a 'loss event'). If there is such objective evidence, and this has a negative effect on the estimated future cash flows from the asset, then an impairment loss is incurred. Management determines the size of the impairment allowance required using a range of factors such as the realisable value of any collateral, the likely recovery on liquidation or bankruptcy, the viability of the customer's business model and their capacity to trade successfully out of financial difficulties and generate sufficient cash flow to service debt obligations.
Portfolios of financial assets with similar economic characteristics where there is objective evidence to suggest that they contain impaired assets, but the individually impaired items cannot yet be identified, are collectively assessed for impairment. The collectively assessed impairment allowance is calculated on the basis of future cash flows that are estimated based on historical loss experience.
The accuracy of the allowances made depends on how accurately the Group estimates future cash flows for specific counterparties, in particular the fair value of any collateral, and the model assumptions and parameters used in determining collective allowances. While this necessarily involves judgement, the Group believes that its allowances are reasonable and supportable.
The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method and the principal assumptions used are set out in note 19. The assumptions that have the greatest impact on the measurement of the pension fund liability, along with their sensitivities, are also set out in note 19.
Deferred tax assets, including those in relation to tax losses carried forward, are only recognised where it is probable that future taxable profits will be available against which the temporary differences can be utilised. Further details are provided in note 16.
Goodwill is assessed at each balance sheet date to determine whether it is impaired. The assessment includes management assumptions on future income flows and judgements on appropriate discount rates. Management performs sensitivity analysis of these assumptions as part of this assessment. Further details of management's goodwill assessment are contained in note 10.
From time to time the Group is involved in legal proceedings or receives claims arising from the conduct of its business. Based upon available information and, where appropriate, legal advice, provisions are made where it is probable that an outflow of resources will be required and the amount can be reliably estimated.
The consolidated financial statements are presented in euros, which is the Company's functional currency and the Group's reporting currency. Items included in the financial statements of each of the Group's entities are measured using their functional currency. The functional currency is the currency of the primary economic environment in which the entity operates.
Income statements and cash flows of foreign entities are translated into the Group's reporting currency at average exchange rates for each quarter where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Their balance sheets are translated at the exchange rate at the end of the period. Exchange differences arising from the translation of the net investment in foreign subsidiaries, associates and joint ventures are taken to shareholders' equity. On disposal of a foreign entity, these translation differences are recognised in the income statement as part of the gain or loss on sale.
Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transaction. Gains and losses resulting from the settlement of such transactions, and from the translation at period end exchange rates of monetary items that are denominated in foreign currencies, are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Translation differences on equities classified as at fair value through profit or loss are reported as part of the fair value gain or loss in the income statement. In the absence of hedge accounting, translation differences on equities classified as available for sale are included in the available-for-sale reserve in equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate.
The table below shows the main exchange rates against the euro that were used to prepare the consolidated accounts.
| Currency | Closing rate |
Average rate Average rate quarter ended quarter ended |
Average rate quarter ended |
Average rate quarter ended |
Opening rate |
|
|---|---|---|---|---|---|---|
| 31/03/16 | 31/03/16 | 31/12/15 | 30/09/15 | 30/06/15 | 31/03/15 | |
| GBP | 0.7916 | 0.7695 | 0.7220 | 0.7177 | 0.7224 | 0.7273 |
| CHF | 1.0931 | 1.0955 | 1.0846 | 1.0720 | 1.0413 | 1.0463 |
| USD | 1.1385 | 1.1026 | 1.0957 | 1.1124 | 1.1060 | 1.0759 |
| Currency | Closing rate |
Average rate quarter ended |
Average rate quarter ended |
Average rate quarter ended |
Average rate quarter ended |
Opening rate |
|---|---|---|---|---|---|---|
| 31/03/15 | 31/03/15 | 31/12/14 | 30/09/14 | 30/06/14 | 31/03/14 | |
| GBP | 0.7273 | 0.7444 | 0.7889 | 0.7941 | 0.8152 | 0.8264 |
| CHF | 1.0463 | 1.0756 | 1.2045 | 1.2116 | 1.2193 | 1.2180 |
| USD | 1.0759 | 1.1285 | 1.2490 | 1.3268 | 1.3717 | 1.3779 |
Derivatives are entered into for trading or risk management purposes. Derivatives used for risk management are recognised as hedging instruments when they qualify as such under IAS 39.
Derivatives are initially recognised at fair value and are subsequently measured at fair value with changes in fair value recognised in the income statement. If there is a designated hedging relationship between a hedging instrument and a hedged item, the recognition of the profit or loss on the hedging instrument and the hedged instrument must comply with the conditions of IAS 39, depending on the hedging relationship.
The Group may apply hedge accounting when transactions meet the criteria set out in IAS 39. At the inception of the hedge, the Group assesses whether the hedging derivatives meet the effectiveness criteria of IAS 39 in offsetting changes in the fair value or cash flows of the hedged items. The Group then documents the relationship between the hedging instrument and the hedged item. It also records its risk management objectives, its strategy for undertaking the hedge transaction and the methods used to assess the effectiveness of the hedging relationship.
After inception, effectiveness is tested on an ongoing basis. Hedge accounting is discontinued when it is determined that a derivative has ceased to be highly effective, or when the derivative or the hedged item is derecognised, or when the forecast transaction is no longer expected to occur.
Changes in value of fair value hedge derivatives are recorded in the income statement, together with fair value changes to the underlying hedged item in respect of the risk being hedged.
If the hedge no longer meets the criteria for hedge accounting, the difference between the carrying value of the hedged item on termination of the hedging relationship and the value at which it would have been carried had the hedge never existed is amortised to the income statement over the residual period to maturity based on a recalculated effective interest rate. Where the hedged item is an available-for-sale equity security, the adjustment remains in equity until the disposal of the equity security.
Changes in the fair value of the effective portion of derivatives designated as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised in the income statement.
Amounts accumulated in equity are recycled to the income statement when the item being hedged impacts profit or loss.
When hedge accounting is discontinued, any cumulative gain or loss in equity remains in equity and is only recognised in the income statement when the forecast transaction is recognised in the income statement. When the forecast transaction is no longer expected to occur, the cumulative balance in equity is immediately transferred to the income statement.
Hedges of net investments in foreign operations are accounted for in a way similar to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are transferred to the income statement when the foreign operation is disposed of.
The net gains or losses on financial instruments at fair value through profit or loss result from changes in the fair value of the financial assets held for trading and financial assets designated as being at fair value through profit or loss.
The Group earns fee and commission income from services provided to clients. Fee income from advisory and other services can be divided into two broad categories: fees earned from services that are provided over a period of time, which are recognised over the period in which the service is provided; and fees that are earned on completion of a significant act or on the occurrence of an event, such as the completion of a transaction, which are recognised when the act is completed or the event occurs.
The Group recognises revenue from providing services when the following criteria are met: there is persuasive evidence of an arrangement with a client; the agreed-upon services have been provided; the amount of fees has been determined; and collection is probable.
Fees and commissions that are an integral part of a loan, and loan commitment fees for loans that are likely to be drawn down, are deferred (together with related direct costs) and recognised over the life of the loan as an adjustment to the effective interest rate.
Portfolio and other management fees are recognised based on the applicable service contracts. Asset management fees related to investment funds are recognised over the period the service is provided. The same principle is applied to the recognition of income from wealth management, financial planning and custody services that are continuously provided over an extended period of time.
Interest receivable and payable represents all interest arising out of banking activities, including lending and deposit-taking business, interest on related hedging transactions and interest on debt securities. Interest on all financial instruments, excluding those classified as held for trading or designated at fair value through profit or loss, is recognised in the income statement using the effective interest rate method.
Where negative interest arises from financial assets, the negative interest income is disclosed within interest expense.
The effective interest rate is the rate that exactly discounts the estimated future cash flows of a financial instrument to its net carrying amount. It is used to calculate the amortised cost of a financial asset or a financial liability and to allocate the interest over the relevant period (usually the expected life of the instrument). When calculating the effective interest rate, the Group considers all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes any premiums or discounts, as well as all fees and transaction costs that are an integral part of the loan.
The Group initially recognises loans and advances and deposits on the date on which they are originated. All other financial assets and liabilities are recognised on trade date.
On initial recognition, IAS 39 requires that financial assets be classified into the following categories: at fair value through profit or loss; loans and receivables; held-to-maturity investments or available for sale. The Group does not hold any assets that are classified as held-to-maturity investments.
Financial assets at fair value through profit or loss This category comprises financial assets held for trading (i.e. primarily acquired for the purpose of selling in the short term), assets that are designated as fair value through profit or loss and derivatives that are not designated as hedges.
These financial assets are recognised at fair value, with transaction costs recorded immediately in the income statement; they are subsequently measured at fair value. Gains and losses arising from changes in fair value, or on derecognition, are recognised in the income statement as net gains or losses on financial assets at fair value through profit or loss. Interest and dividend income from financial assets at fair value through profit or loss is recognised in net gains or losses on financial assets at fair value through profit or loss.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans which are intended to be sold in the short term are classified as held for trading and are recorded at fair value through profit or loss.
Loans and receivables are initially recorded at fair value, including any transaction costs, and are subsequently measured at amortised cost using the effective interest rate method. Gains and losses on loans and receivables that are derecognised are booked as 'other operating income'.
Available-for-sale investments comprise non-derivative financial assets that are either designated as available for sale on initial recognition or are not classified into the categories described above. Available-for-sale investments include some loans and debt securities that do not meet the criteria for classification as loans and receivables as they are quoted in an active market. They are initially recognised at fair value, including direct and incremental transaction costs, and are subsequently measured at fair value.
Gains and losses arising from changes in the fair value of available-for-sale financial assets are recognised in equity until the financial asset is sold or impaired, at which time the cumulative gain or loss is transferred to the income statement. Interest (determined using the effective interest rate method), impairment losses and translation differences on monetary items are recognised in the income statement as they arise. Dividends on available-for-sale equity instruments are recognised in the income statement when the Group's right to receive payment is established.
Financial liabilities are carried at amortised cost using the effective interest rate method, except for derivatives that are classified as at fair value through profit or loss on initial recognition (unless designated as cash flow hedges).
The Group derecognises a financial asset when:
When a sale is followed by an immediate buyback and the Group considers that it has substantially retained the risks and rewards of ownership, it would not derecognise the asset.
The Group may enter into funding arrangements with lenders in order to finance specific financial assets.
In general, the assets from these transactions are held on the Group's balance sheet on origination. However, to the extent that substantially all the risks and returns associated with the assets have been transferred to a third party, the assets and liabilities are derecognised in whole or in part.
Interests in securitised financial assets may be taken in the form of senior or subordinated tranches of debt securities, or other residual interests. Such interests are primarily recorded as available-for-sale assets.
Objective evidence that a financial asset or group of assets is impaired includes observable data about the following loss events:
The Group first assesses whether objective evidence of impairment exists; individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Impairment losses are calculated on a collective basis for any losses on loans that are subject to individual assessment for impairment, where those losses have been incurred but not yet identified. Collective assessment is also used for homogeneous groups of loans that are not considered individually significant. If no objective evidence of impairment exists for an individually assessed financial asset, it is included in a collective assessment for impairment with other assets with similar risk characteristics.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of expected future cash flows discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced using an allowance account. The amount of the loss is recognised in the income statement.
The calculation of the present value of the estimated future cash flows of a financial asset reflects the cash flows that may result from scheduled interest payments, principal repayments or other payments due, including liquidation of collateral where available. In estimating these cash flows, management make judgements about a counterparty's financial situation and the value of any underlying collateral or guarantees in the Group's favour. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are reviewed by the relevant Credit Committee on a regular basis. The methodology and assumptions used for estimating both the amount and the timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
Collectively assessed credit risk allowances cover credit losses inherent in portfolios of financial assets with similar economic characteristics where there is objective evidence to suggest that they contain impaired assets but the individual impaired items cannot yet be identified. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics. Future cash flows are estimated on the basis of historical loss experience. These estimates are subject to regular review and adjusted to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the original effective interest rate which was used to discount the future cash flows for the purpose of measuring the impairment loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related to an objective event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the previously recognised impairment loss is reversed by adjusting the allowance for loan impairment. The amount of the reversal is recognised in the income statement.
When a loan is deemed uncollectable, it is written off against the related allowance for loan impairment. Recoveries received in respect of loans previously written off are recorded as a decrease in the impairment losses on loans and advances recorded in the income statement in the year in which the recovery was made. Loans whose terms have been renegotiated and which would have been past due or impaired had they not been renegotiated, are reviewed to determine whether they are impaired or past due.
Available-for-sale assets are assessed at each balance sheet date to determine whether there is objective evidence that these are impaired.
For equity instruments, a significant or prolonged fall in their price below their acquisition cost is an objective indication of value impairment. The Group considers that this is the case, in particular, for equity instruments which at the reporting date show unrealised losses exceeding 40% of their acquisition cost and for those in a situation of an unrealised loss during a continuous five-year period. Even if the criteria mentioned above were not met, management may decide to examine the results for other criteria (financial position of the issuer, outlook for the issuer, multiple-criteria valuations, etc.) in order to determine whether the fall in value is of a permanent nature. Where there is an objective indication of value impairment, the cumulative loss is removed from equity and recognised in the income statement. If, in a subsequent period, the fair value on an impaired AFS equity increases, the impairment loss is not reversed through the income statement. However, any further decline in the fair value will be recognised as a further impairment charge.
Impairment of available-for-sale debt securities is based on the same criteria as for all other financial assets. If in a subsequent period the fair value of a debt instrument classified as available for sale increases, and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.
The loss recognised in the income statement is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in the income statement.
Under IFRS, the critical feature in differentiating a debt instrument from an equity instrument is the existence of a contractual obligation of the Group to deliver cash (or another financial asset) to another entity. Where there is no such contractual obligation, the Group will classify the financial instrument as equity; otherwise it will be classified as a liability and carried at amortised cost. The terms of the perpetual debt instruments issued by subsidiaries in the Group permit interest payments to be waived unless discretionary dividends have been paid in the previous six months. These instruments are, therefore, considered to be equity.
Intangible assets include acquired brands, software, intellectual property rights, and client relationships. These are carried at historical cost less amortisation, if any, and less any accumulated impairment losses. These intangible assets are reviewed at each reporting date to determine whether there is objective evidence of impairment. If such evidence exists, an impairment test is performed.
Tangible assets comprise plant, property and equipment and are stated at cost or deemed cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The deemed cost refers to the situation in which, on transition to IFRS, the Group elected, as IFRS 1 First-time adoption of IFRS permits, to consider the fair value of a tangible asset at that time to be its deemed cost.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to write down the cost of assets to their residual values over their estimated useful lives, as follows:
| Computer equipment | 2–10 years |
|---|---|
| Cars | 3–5 years |
| Fixtures and fittings | 3–10 years |
| Leasehold improvements | 4–24 years |
| Buildings | 10–60 years |
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These gains and losses are recognised in the income statement, in Net income/(expense) from other assets.
At each balance sheet date, or more frequently where events or changes in circumstances dictate, tangible assets are assessed for indications of impairment. If such indications are present, these assets are subject to an impairment review. If impaired, the carrying values of assets are written down by the amount of any impairment and the loss is recognised in the income statement in the period in which it occurs. A previously recognised impairment loss relating to a fixed asset may be reversed when a change in circumstances leads to a change in the estimates used to determine the fixed asset's recoverable amount. The carrying amount of the fixed asset is only increased up to the amount that it would have been had the original impairment not been recognised.
A finance lease is a lease that transfers substantially all of the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease.
When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised in interest receivable over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return.
Assets acquired for use by customers under operating lease agreements, including initial direct costs incurred by the lessor in negotiating an operating lease, are capitalised in the relevant category of fixed assets. Depreciation is charged on a straight-line basis to write down the value of the asset to the expected residual value over a period consistent with other assets of a similar type.
Operating lease income and the initial direct costs are then recognised in other operating income on a straight-line basis over the period of the lease.
The Group has entered into operating leases. The total payments made under those operating leases are charged to the income statement as operating expenses. Commitments arising from operating leases are separately disclosed.
Business review
The Group is entitled to receive carried interest in relation to certain of the private equity and private debt funds that it manages. Carried interest receivable is accrued if the performance conditions associated with earning it would be achieved, on the assumption that the remaining assets in the fund were realised at the balance sheet date at fair value. Fair value is determined using the valuation methodology applied by the Group in its role as manager to its funds and is measured at the balance sheet date. An accrual is made equal to the Group's share of profits in excess of the performance conditions, taking into account any cash already paid to the fund's investors and the fair value of assets remaining in the fund.
Certain employees may also hold classes of share capital which give them a right to receive carried interest from investments managed by the Group. Where such carry shares held by staff are in an investment vehicle which is not consolidated, the interests of the staff are reflected in a reduced investment return of the Group's own interests. Where the carry shares held by staff are in a vehicle which is consolidated, the interests of the staff are treated as non-controlling interests of the Group. The valuation of the interests held by staff is calculated at the balance sheet date using the same method as the valuation of the Group's interests, as described above.
The Group operates long-term profit share schemes for the benefit of employees. The costs of such schemes are recognised in the income statement over the period in which the services are rendered that give rise to the obligation. Where the payment of profit share is deferred until the end of a specified vesting period, the deferred amount is recognised in the income statement over the period up to the date of vesting.
The Group has issued share options which are treated as equity-settled share-based payments. These are valued at the date they are granted to employees and that value is recognised in staff costs over the vesting period, with a corresponding adjustment to shareholders' equity. The fair value is calculated on the basis of the overall plan value at the date of grant. In the absence of any market for stock options, models are used to value the share-based payments. The only assumptions revised after the initial measurement, and hence resulting in a revaluation of the expense, are those relating to the probability that employees will leave the Group.
The Group operates a number of pension and other post-retirement benefit schemes, both funded and unfunded, and of the defined benefit and defined contribution types.
For defined contribution schemes, the contribution payable in respect of the accounting period is recognised in the income statement.
Remeasurement gains and losses for defined benefit schemes are recognised outside the income statement and are presented in the statement of comprehensive income.
The amount recognised in the balance sheet in respect of defined benefit schemes is the difference between the present value of the defined benefit obligation at the balance sheet date, and the fair value of the plan's assets. Independent actuaries calculate the defined benefit obligation annually using the projected unit credit method. The obligations' present values are determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currencies in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability.
Tax payable on profits and deferred tax are recognised in the income statement, except to the extent that they relate to items that are recognised in equity.
Deferred tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred tax is determined using tax rates and laws that are expected to apply when a deferred tax asset is realised, or the deferred tax liability is settled.
Deferred tax assets, including the tax effects of income tax losses available for carry forward, are only recognised where it is probable that future taxable profits will be available against which the temporary differences can be utilised. Deferred tax liabilities are provided on temporary differences arising from investments in subsidiaries and associates, unless the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will not reverse in the foreseeable future.
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company's shareholders at the Annual General Meeting or, in the case of interim dividends, when they are paid by the Company after decisions of the Managing Partner, R&Co Gestion.
The Group acts as custodian and in other fiduciary capacities that result in the holding or placing of assets on behalf of customers. These assets and the income arising therefrom are excluded from these financial statements, as they are not assets or income of the Group.
Financial statements
Provisions are recognised only when the Group has a present obligation (legal or constructive) as a result of past events. In addition, it must be probable that a transfer of economic benefits will be required to settle the obligation, and it must also be possible to make a reliable estimate of the amount of the obligation.
Contingent liabilities are possible obligations arising from past events whose existence will be confirmed by one or more uncertain future events not wholly within the Group's control, or present obligations that are not recognised either because it is not probable that an outflow of resources will be required to settle the obligation or the amount of the obligation cannot be reliably estimated. Contingent liabilities are disclosed unless the possibility of a transfer of economic benefits is remote.
The risks relating to financial instruments, and the way in which these are managed by the Group, are described below, along with a general description of the Group's governance environment.
Within the framework of the worldwide operational and functional organisation of the Group, the oversight management of the Group, without prejudice to the responsibilities of legal entities, is carried out by the Company. The Company's governance structure is based on an executive body, the Managing Partner and a supervisory body, the Supervisory Board, which relies on four specialised committees stemming from it.
The Supervisory Board is the supervising body of the Company and the Group on a consolidated basis overseeing the management of R&Co by R&Co Gestion. The Supervisory Board submits to the Annual General Meeting of shareholders a report on the results of its supervision. In addition, pursuant to the provisions of Article L. 225-68 of the French Commercial Code, the Chairman of the Supervisory Board submits to the Annual General Meeting of shareholders a report on corporate governance and on the internal control and risk management procedures implemented by the Company.
The Supervisory Board has appointed four specialised committees to address particular matters: the Audit Committee, the Remuneration and Nomination Committee, the Risk Committee and the Strategy Committee. Each committee reports to the Supervisory Board after each meeting. Members and chairpersons of the Supervisory Board's committees are appointed by the Supervisory Board from its own members. The terms of reference of these committees are approved by the Supervisory Board.
The Audit Committee is responsible for reviewing the effectiveness of the Group's internal control systems, in addition to its responsibility for reviewing the process for drawing up the consolidated and parent company financial information.
The Risk Committee is mainly responsible for advising the Supervisory Board on the overall current and future risk appetite and strategy of the Group and reviewing on a consolidated basis the material risks of the Group.
At least once a year, the Chairmen of the Audit Committee and Risk Committee consult each other on various subjects, including, but not limited to, subjects of common interest and/or topics falling within the parameters assigned to them and related to internal control and risk management systems.
The Remuneration and Nomination Committee assists the Supervisory Board with its remuneration-related duties and in particular with the preparation of its decisions aimed at implementing the Group's remuneration policy principles.
The Strategy Committee gives guidance to the Supervisory Board with respect to the long-term development strategies, significant investments and significant technical proposals or initiatives of the Managing Partner affecting R&Co and the Group strategy on a consolidated basis.
More detailed information on the Supervisory Board, its committees and the internal control and risk management procedures implemented by the Company is available in the aforesaid report the Chairman of the Supervisory Board is required to establish for each financial year pursuant to the provisions of Article L. 225-68 of the French Commercial Code.
R&Co Gestion is the legal representative of the Company in charge of the management of the Company with full power to act in all circumstances in the Company's name and on its behalf under the oversight of the Supervisory Board, in order to, among other things:
The Company relies on the Group Management Committee (GMC) for the management of the Group and the oversight of the other business management and internal control executive Group committees. The GMC is the Group senior executive committee assisting the two Co-Chief Executive Officers of the Managing Partner R&Co Gestion.
At the date of this report, the Group's key committees involved in risk monitoring and internal control and supporting R&Co Gestion and the GMC are:
The terms of reference and membership of these committees are regularly reviewed.
Credit risk arises from the potential failure of counterparties and customers to meet their obligations.
The Group's ongoing credit activities are in:
The Group also has credit risk exposure from its legacy Banking activities undertaken in NMR (comprising commercial loans to corporates).
The Group has a Credit Risk Policy which has been implemented by R&Co Gestion and reviewed by the Risk Committee. The policy sets out the credit risk appetite of the Group, and the limits that have been established at Group level and establishes reporting protocols. It also requires each subsidiary that conducts banking activities to have a credit risk policy which is consistent with the Group Credit Risk Policy and with the requirements of local regulators.
All exposure to credit risk is managed by detailed analysis of client and counterparty creditworthiness prior to entering into an exposure, and by continued monitoring thereafter. A significant proportion of the Group's lending exposures is secured on property or assets; the Group monitors the value of any collateral obtained. The Group also uses netting agreements to restrict credit exposure to counterparties. For internal monitoring purposes, credit exposure on loans and debt securities is measured as the principal amount outstanding plus accrued interest.
Reflecting the Group's focus on Private Client Lending, a Group Private Client Credit Committee (PCCC) approves and periodically reviews the Private Client Lending exposures and credit policies consistent with the Private Client Lending strategy approved by R&Co Gestion.
The Private Client Lending policies and associated delegated authorities are confirmed by the relevant Board (or Board committee as appropriate) of each of the banking entities on an annual basis. Any material changes to the Private Client Lending policies will be approved by R&Co Gestion.
Interbank exposures are subject to a limit structure that is monitored by the Group ALCO. Those limits are monitored within the Group on a weekly basis. The Group also has a Large Exposures policy for interbank loans, which is reviewed annually by R&Co Gestion.
Overview
| Category 1 | Exposures which are considered to be fully performing. |
|---|---|
| Category 2 | Exposures where the payment of interest or principal is not in doubt, but which require closer observation than usual due to some deterioration in the position of the client. Examples include: poor trading results; difficult conditions in the client's market sector; competitive or regulatory threats; or the potential impact from currency or other factors. |
| Category 3 | Exposures where there has been further deterioration in the position of the client. Although the exposure is not considered to be impaired, the relationship requires close monitoring by the front office team. |
| Past due but not impaired financial assets |
A financial asset is considered to be past due when the counterparty has failed to make a payment when contractually due (unless this is caused by short-term administrative delays). Financial assets that are past due but not impaired are exposures for which a provision is not considered necessary despite non-payment of the contractual obligations. |
| Category 4 | Exposures that are considered to be impaired and which carry a provision against part of the loan (unless collateral exists which exceeds the exposure's carrying value). At least some recovery is expected to be made. |
| Category 5 | Exposures that are considered to be impaired and which carry a full provision. No significant recovery of value is expected. |
The Group reviews credit exposures on loans and debt securities on a quarterly basis and for this purpose they are classified as follows:
All Group companies map their own credit monitoring to these categories for the purposes of Group reporting.
The tables below disclose the maximum exposure to credit risk at 31 March 2016 and at 31 March 2015 for financial assets with exposure to credit risk, without taking account of collateral held or other credit risk mitigation.
| In millions of euro | Category 1 | Category 2 | Category 3 | Past due but not impaired |
Category 4 | Category 5 | Impairment allowance |
31/03/16 |
|---|---|---|---|---|---|---|---|---|
| Financial assets at fair value through profit or loss(1) | 172.7 | – | – | – | – | – | – | 172.7 |
| Hedging derivatives | 2.8 | – | – | – | – | – | – | 2.8 |
| Loans and advances to banks | 1,242.9 | – | – | – | – | – | – | 1,242.9 |
| Loans and advances to customers | 1,345.7 | 5.1 | 102.9 | 1.6 | 85.6 | 22.1 | (74.6) | 1,488.4 |
| Available-for-sale debt securities | 797.8 | – | 5.6 | – | 15.8 | 10.5 | (18.2) | 811.5 |
| Other financial assets | 333.0 | – | – | 35.0 | 4.6 | 11.4 | (14.3) | 369.7 |
| Sub-total assets | 3,894.9 | 5.1 | 108.5 | 36.6 | 106.0 | 44.0 | (107.1) | 4,088.0 |
| Commitments and guarantees | 181.3 | – | 0.2 | – | 0.1 | – | – | 181.6 |
| TOTAL | 4,076.2 | 5.1 | 108.7 | 36.6 | 106.1 | 44.0 | (107.1) | 4,269.6 |
(1) Excluding equity.
| In millions of euro | Category 1 | Category 2 | Category 3 | Past due but not impaired |
Category 4 | Category 5 | Impairment allowance |
31/03/15 |
|---|---|---|---|---|---|---|---|---|
| Financial assets at fair value through profit or loss(1) | 152.1 | – | – | – | – | – | – | 152.1 |
| Hedging derivatives | 20.0 | – | – | – | – | – | – | 20.0 |
| Loans and advances to banks | 1,530.9 | – | – | – | – | – | – | 1,530.9 |
| Loans and advances to customers | 1,347.4 | 19.8 | 149.5 | 9.8 | 141.2 | 35.2 | (101.3) | 1,601.6 |
| Available-for-sale debt securities | 268.1 | – | 10.4 | – | 11.7 | 12.8 | (23.3) | 279.7 |
| Other financial assets | 263.8 | 0.0 | 0.1 | 37.7 | 3.6 | 13.6 | (16.9) | 301.9 |
| Sub-total assets | 3,582.3 | 19.8 | 160.0 | 47.5 | 156.5 | 61.6 | (141.5) | 3,886.2 |
| Commitments and guarantees | 192.8 | 1.9 | 0.0 | – | – | – | – | 194.7 |
| TOTAL | 3,775.1 | 21.7 | 160.0 | 47.5 | 156.5 | 61.6 | (141.5) | 4,080.9 |
(1) Excluding equity.
The table below analyses amounts considered by the business as past due but not impaired by how far they are past their due date:
| 31/03/16 | 31/03/15 | ||||||
|---|---|---|---|---|---|---|---|
| In millions of euro | Loans and advances to customers |
Other financial assets |
TOTAL | Loans and advances to customers |
Other financial assets |
TOTAL | |
| Less than 90 days | – | 0.3 | 0.3 | 6.2 | 4.6 | 10.8 | |
| Between 90 and 180 days | – | 22.9 | 22.9 | 1.5 | 20.9 | 22.4 | |
| Between 180 days and 1 year | – | 6.1 | 6.1 | 0.7 | 8.3 | 9.0 | |
| More than 1 year | 1.6 | 5.7 | 7.3 | 1.4 | 3.9 | 5.3 | |
| TOTAL | 1.6 | 35.0 | 36.6 | 9.8 | 37.7 | 47.5 |
Where refinancing and sale options are difficult, it is generally in the lender's and borrower's interest to extend certain facilities at maturity and not to foreclose on the security. This assumes there are no underlying issues regarding the borrower's ability to continue to service the loan and the level of collateral is expected to be of sufficient quality to secure the principal.
Unimpaired loans extended in this manner are not categorised as either past due or as renegotiated. As at 31 March 2016 the cumulative value of all loans within this category was €42.7 million (March 2015: €103.5 million). All of these loans were property loans. There are a small number of loans which are overdue, but not impaired, pending an extension of maturity. As at 31 March 2016, these amounted to €13.0 million (31 March 2015: €6.0 million).
Some loans were renegotiated on substantially different terms than before. Typically these loans will include revised covenants and higher margins to reflect higher credit risk as well as having extended maturities. But for these renegotiations the loans would have been deemed to have been impaired. As at 31 March 2016, the carrying value of all loans renegotiated was €29.6 million (31 March 2015: €31.9 million).
The Group holds collateral against loans to customers. Substantially all third-party commercial lending is secured. Collateral is split by type as either specific or general.
Specific collateral is a readily identifiable asset. The majority of specific collateral is in the form of charges over property assets, or over marketable securities (Lombard lending). There is a realistic possibility, if necessary, of both taking possession of, and realising, the collateral. General collateral will be more difficult to both identify and realise. It will usually be a charge over the assets of a business, and is typically attached to leveraged finance assets. It is not practicable to ascribe a specific value to this collateral.
Unimpaired loans (categories 1 to 3) are covered by both specific and general collateral. For category 1, 2 and 3 loans the level of collateral at expected exit is expected to be sufficient to cover the balance sheet exposure. Where a loan is deemed to be impaired (categories 4 and 5), the level of the impairment charge is primarily driven by any expected shortfall in the collateral value, though it is also influenced by the ability of the borrower to service the debt.
Collateral is valued independently at the time the loan is made and periodically thereafter on a rolling basis. Management are able to roll forward a valuation for reporting purposes via a combination of specific knowledge of the collateral and the application of general indices.
The table below gives an estimate of the fair value of collateral held by the Group as security against its loans to customers that are individually impaired and past due but not impaired.
| 31/03/16 | 31/03/15 | |||
|---|---|---|---|---|
| In millions of euro | Past due but not impaired |
Individually impaired |
Past due but not impaired |
Individually impaired |
| Tangible assets collateral | 1.6 | 50.7 | 10.8 | 90.8 |
| Financial assets collateral | – | 6.7 | – | 6.7 |
| TOTAL | 1.6 | 57.4 | 10.8 | 97.5 |
| Gross value of loans | 1.6 | 107.7 | 9.8 | 176.4 |
| Impairment | – | (48.9) | – | (75.1) |
| Net value of loans | 1.6 | 58.8 | 9.8 | 101.3 |
The tables below show an analysis of credit risk by location and by sector as at 31 March 2016 and 31 March 2015.
Location for loans and advances is measured by reference to the location of the borrower. Debt securities are recorded based on the location of the issuer of the security.
| In millions of euro | UK and Channel Islands |
France | Switzerland | Rest of Europe |
Americas | Australia and Asia |
Other | 31/03/16 |
|---|---|---|---|---|---|---|---|---|
| Financial assets at fair value through profit or loss(1) | 71.0 | 33.7 | 35.2 | 16.2 | 12.6 | 3.8 | 0.2 | 172.7 |
| Hedging derivatives | 2.8 | – | – | – | – | – | – | 2.8 |
| Loans and advances to banks | 234.1 | 573.9 | 30.7 | 145.5 | 182.6 | 48.5 | 27.6 | 1,242.9 |
| Loans and advances to customers | 705.0 | 279.4 | 116.9 | 215.0 | 72.0 | 91.0 | 9.1 | 1,488.4 |
| Available-for-sale debt securities | 526.8 | 219.7 | 33.9 | 20.2 | 10.3 | 0.6 | – | 811.5 |
| Other financial assets | 69.7 | 107.9 | 17.9 | 79.1 | 53.9 | 33.0 | 8.2 | 369.7 |
| Sub-total assets | 1,609.4 | 1,214.6 | 234.6 | 476.0 | 331.4 | 176.9 | 45.1 | 4,088.0 |
| Commitments and guarantees | 27.5 | 70.9 | 24.9 | 44.9 | 6.4 | 2.0 | 5.0 | 181.6 |
| TOTAL | 1,636.9 | 1,285.5 | 259.5 | 520.9 | 337.8 | 178.9 | 50.1 | 4,269.6 |
| (1) Excluding equity. | ||||||||
| In millions of euro | UK and Channel Islands |
France | Switzerland | Rest of Europe |
Americas | Australia and Asia |
Other | 31/03/15 |
| Financial assets at fair value through profit or loss(1) | 59.6 | 57.1 | 8.6 | 18.5 | 2.0 | 2.8 | 3.5 | 152.1 |
| Hedging derivatives | 18.2 | 0.8 | – | 1.0 | – | – | – | 20.0 |
| Loans and advances to banks | 403.7 | 672.5 | 71.8 | 198.6 | 108.8 | 49.3 | 26.2 | 1,530.9 |
| Loans and advances to customers | 999.0 | 163.8 | 132.3 | 179.4 | 47.2 | 42.7 | 37.2 | 1,601.6 |
| Available-for-sale debt securities | 163.5 | 28.6 | 0.1 | 62.7 | 19.0 | 4.8 | 1.0 | 279.7 |
| Other financial assets | 56.2 | 80.9 | 24.9 | 63.9 | 42.1 | 18.4 | 15.5 | 301.9 |
| Sub-total assets | 1,700.2 | 1,003.7 | 237.7 | 524.1 | 219.1 | 118.0 | 83.4 | 3,886.2 |
| Commitments and guarantees | 47.1 | 75.9 | 10.8 | 52.3 | 5.5 | 2.7 | 0.4 | 194.7 |
(1) Excluding equity.
The sector is based on Global Industry Classification Standards (GICS).
| In millions of euro | 31/03/16 | % | 31/03/15 | % |
|---|---|---|---|---|
| Financial | 1,895.7 | 44% | 2,037.9 | 50% |
| Private clients | 1,190.2 | 28% | 967.1 | 24% |
| Real estate | 226.1 | 5% | 307.6 | 8% |
| Industrials | 192.6 | 5% | 188.7 | 5% |
| Government | 516.6 | 12% | 181.1 | 4% |
| Consumer discretionary | 40.7 | 1% | 134.4 | 3% |
| Consumer staples | 23.2 | 1% | 53.2 | 1% |
| Healthcare | 42.8 | 1% | 51.2 | 1% |
| Utilities | 20.7 | 0% | 44.3 | 1% |
| Materials | 21.2 | 1% | 31.8 | 1% |
| IT and telecoms | 27.3 | 1% | 30.0 | 1% |
| Energy | 17.5 | 0% | 5.3 | 0% |
| Other | 55.0 | 1% | 48.3 | 1% |
| TOTAL | 4,269.6 | 100% | 4,080.9 | 100% |
TOTAL 1,747.3 1,079.6 248.5 576.4 224.6 120.7 83.8 4,080.9
The 'Government' exposure above predominantly consists of high-quality government securities.
The balances above do not include 'cash and amounts due from central banks', which are not considered to have a significant credit risk. These amounted to €3,500 million at 31 March 2016 (31 March 2015: €3,644 million).
Financial and real estate sector exposures may be further analysed as follows:
| In millions of euro | 31/03/16 | % | 31/03/15 | % |
|---|---|---|---|---|
| Short-term interbank exposures | 1,323.6 | 69% | 1,558.6 | 77% |
| Treasury marketable securities – investment grade | 223.4 | 12% | 17.5 | 1% |
| Cash/investment-backed lending | 108.7 | 6% | 225.0 | 11% |
| Finance companies | 14.5 | 1% | 28.6 | 1% |
| Other | 225.5 | 12% | 208.2 | 10% |
| TOTAL FINANCIAL SECTOR | 1,895.7 | 100% | 2,037.9 | 100% |
Short-term interbank lending and marketable securities are held for liquidity management purposes.
| In millions of euro | 31/03/16 | % | 31/03/15 | % |
|---|---|---|---|---|
| Senior loans | 194.8 | 86% | 258.2 | 84% |
| Mezzanine | 12.7 | 6% | 36.2 | 12% |
| Other | 18.6 | 8% | 13.2 | 4% |
| TOTAL REAL ESTATE SECTOR | 226.1 | 100% | 307.6 | 100% |
Real estate exposures are supported by income generated by a large number of tenants from a wide variety of industry sectors. Exposures are, broadly, evenly split between the major property types, and are located predominantly within the UK.
Market risk arises from changes in the market value of assets and liabilities. It arises as a result of the Group's activities in interest rate, currency, equity and debt markets and comprises interest rate, foreign exchange, equity and debt position risk.
Exposure to market risk on trading activities is small in relation to capital, as trading activity is focused on servicing client requirements rather than on proprietary risk-taking. Foreign exchange and interest rate derivative contracts are predominantly used for hedging purposes.
Exposure to market risk also arises from the Group's proprietary investments in funds and other portfolios. These risks are further explained in the section on 'Equity investments' below.
The Group requires that each of its regulated banking entities manages market risk on a stand-alone basis in accordance with its individual risk appetite and limits approved by Group ALCO.
Merchant Banking, which holds largely unquoted private equity investments, and NMR, RBZ and RBCI are the principal entities that are exposed to market risk within the Group. For NMR, RBZ and RBCI, monitoring of trading market risk limits and determination of trading profits are undertaken daily, independently of the dealing area. Risk limits are complemented by other measures and controls, including stress testing, to estimate the losses that could occur when markets behave in unusually volatile ways and with little liquidity.
Market risks associated with treasury and equity positions are described below with a description of the levels of risk.
As described above, the Group has exposure to equity price risk through holdings of equity investments. Each of these positions is individually approved by management and is monitored on an individual basis.
If the price of these equities were to fall by 5%, then there would be a post-tax charge to the income statement of €12.3 million (31 March 2015: €10.4 million) and a charge to equity of €12.3 million (31 March 2015: €16.9 million).
Moreover, the Group is exposed through its investments to the risks affecting the companies in which it invests.
Financial statements
The table below shows the Group's equity price risk in relation to these investments, by location.
| In millions of euro | 31/03/16 | % | 31/03/15 | % |
|---|---|---|---|---|
| France | 126.8 | 22% | 224.5 | 38% |
| Switzerland | 114.0 | 20% | 103.4 | 17% |
| Americas | 78.4 | 14% | 90.4 | 15% |
| United Kingdom and Channel Islands | 103.0 | 18% | 72.5 | 12% |
| Rest of Europe | 88.0 | 16% | 49.1 | 8% |
| Australia and Asia | 31.1 | 6% | 30.0 | 5% |
| Other | 23.6 | 4% | 30.8 | 5% |
| TOTAL | 564.9 | 100% | 600.7 | 100% |
The Group takes on exposure to the effects of fluctuations in foreign currency exchange rates on its financial position and cash flows. The table below summarises exposure to foreign currency exchange rate risk. The net positions in the table are measured by reference to the net carrying amounts of monetary assets and liabilities other than those in a subsidiary's functional currency, and are shown after taking account of positions in derivatives.
| In thousands of euro | 31/03/16 |
|---|---|
| Long/(short) | |
| USD | 10,993 |
| EUR | (2,860) |
| GBP | (1,733) |
| CHF | 1,443 |
| Other | 9,553 |
If the euro strengthened against these currencies by 5%, then the effect on the Group would be a profit to the income statement of €0.1 million.
Because of the nature of its business, only a few entities in the Group are exposed to significant interest rate risk, and these entities manage it primarily through the use of derivatives. Each December, the Group reports its combined interest rate risk to its regulator in the form of a table which collates the impact at an entity level on the fair value of interest-bearing assets and liabilities and of interest rate derivatives of a uniform 200 basis point rise over one year. The combined impact of such a shock at 31 December 2015 would have been a fall in fair values of €2.6 million (31 December 2014: €3.1 million).
Liquidity risk arises from the mis-match between the legal maturity of assets and liabilities.
The Group adopts a conservative approach to liquidity risk and its management and it has designed its management of liquidity risk in the overall context of the Banking and Private Wealth strategy. Each banking entity must have in place a liquidity risk policy approved by the Group ALCO and which defines its liquidity risk limits and how liquidity risk is measured, monitored and controlled. In summary, each entity is required:
The Group's four main banking groups each manage their own liquidity independently of each other. An illustration of how they manage their short-term liquidity is summarised below.
NMR measures its liquidity risk quantitatively against an LCR limit. This is in line with the requirements of the regulator's liquidity regime. The LCR considers NMR's eligible 'buffer' assets against the cumulative net cash flows payable under its most severe stress test. Only those assets of the highest quality can be treated as eligible for inclusion in the LCR.
NMR's liquidity policy requires it to keep an LCR in excess of 100% at the one-month time horizon. At 31 March 2016, the ratio was 807% (31 March 2015: 168%).
RBI complies with the liquidity regime of the GFSC which prescribes cumulative cash flow deficit limits for periods up to the one-month time horizon using standard behavioural adjustments (i.e. not institution specific).
At 31 March 2016, the RBI regulatory liquidity ratio for the eight-day to one-month period as a percentage of total deposits was 18% (31 March 2015: 16%), well in excess of the limit set by the GFSC of -5%.
RBZ's liquidity policy includes a behavioural adjustment applied across different client types, which allows for approximately one-third of client deposits to be withdrawn over 30 days. Although the regulatory framework would permit significant mismatches within the 30-day time bucket, RBZ maintains a more conservative approach to liquidity.
Internal limits provide for RBZ to be cumulatively cash positive in all periods (after behavioural adjustments). The behavioural adjustments are complemented by an additional requirement that 20% of all client call deposits are held in cash and assets realisable within 48 hours. RBZ's liquid assets at 31 March 2016 were 446% of liquid liabilities, as measured for regulatory purposes (31 March 2015: 451%). The regulatory limit is 100%.
RCB's liquidity management process involves the maintenance of a high-quality buffer of liquid assets: typically cash, money held with the central bank or reverse bond repos against its client deposit balances. Its treasury committee, which meets monthly, authorises the counterparties for these liquidity investments within overall bank counterparty group limits set by Group ALCO.
RCB's regulatory liquidity ratio corresponds to the ratio of cash assets and short-term loans to short-term liabilities. It is calculated on a monthly basis, with the minimum threshold set at 100%.
At 31 March 2016, RCB's one-month liquidity ratio set by the French regulator was 345% (31 March 2015: 705%). This will shortly be replaced by a Europe-wide LCR.
The following table shows the Group's financial assets and liabilities, analysed by remaining contractual maturity at the balance sheet date.
| In millions of euro | Demand – 1m |
1m – 3m | 3m – 1yr | 1yr – 2yr | 2yr – 5yr | >5 yr | No contractual maturity |
31/03/16 |
|---|---|---|---|---|---|---|---|---|
| Cash and balances at central banks | 3,500.1 | – | – | – | – | – | – | 3,500.1 |
| Financial assets at FVTPL | 41.5 | 22.4 | 9.3 | 0.3 | 249.9 | 17.1 | 112.4 | 452.9 |
| Hedging derivatives | – | 2.8 | – | – | – | – | – | 2.8 |
| AFS financial assets | 331.6 | 218.1 | 173.6 | 28.5 | 13.9 | 45.8 | 284.5 | 1,096.0 |
| Loans and advances to banks | 1,058.9 | 180.7 | 3.3 | – | – | – | – | 1,242.9 |
| Loans and advances to customers | 389.9 | 340.4 | 414.3 | 51.0 | 261.9 | 30.9 | – | 1,488.4 |
| Other financial assets | 337.8 | 26.2 | 5.2 | 0.4 | 0.1 | – | – | 369.7 |
| TOTAL | 5,659.8 | 790.6 | 605.7 | 80.2 | 525.8 | 93.8 | 396.9 | 8,152.8 |
| Financial liabilities at FVTPL | 37.3 | 31.8 | 7.2 | 0.1 | 0.3 | – | – | 76.7 |
| Due to banks and other financial institutions | 70.6 | 1.3 | 12.3 | 9.2 | 11.7 | 178.0 | – | 283.1 |
| Due to customers | 4,871.3 | 346.6 | 89.7 | 105.9 | 54.9 | – | – | 5,468.4 |
| Debt securities in issue | 24.4 | 5.4 | 94.4 | – | – | – | – | 124.2 |
| Other financial liabilities | 85.7 | 19.3 | 1.2 | 1.3 | 3.2 | – | – | 110.7 |
| TOTAL | 5,089.3 | 404.4 | 204.8 | 116.5 | 70.1 | 178.0 | – | 6,063.1 |
For financial reporting purposes, IFRS 13 requires fair value measurements applied to financial instruments to be allocated to one of three Levels, reflecting the extent to which the valuation is based on observable data.
Level 1 comprises instruments whose fair value is determined based on directly usable prices quoted on active markets. This mainly includes listed securities and derivatives traded on organised markets (futures, options, etc.) whose liquidity can be demonstrated, and shares of funds where the value is determined and reported on a daily basis.
Level 2 comprises instruments not directly quoted on an active market, measured using a valuation technique incorporating parameters that are either directly observable (prices) or indirectly observable (price derivatives) through to maturity.
Derivatives are classified in Level 2 in the following circumstances:
Level 2 debt securities are less liquid than Level 1 securities. They are predominantly government bonds, corporate debt securities, mortgage-backed securities, and certificates of deposit. They can be classified in Level 2 when external prices for the same security can be regularly observed from a reasonable number of market makers that are active in this security, but these prices do not represent directly tradable prices (when supplied, for example, by consensus pricing services with a reasonable number of contributors that are active market makers as well as indicative runs from active brokers and/or dealers). Where prices are not directly observable on the markets, a DCF valuation is used. The discount rate is adjusted for the applicable credit margin determined by similar instruments listed on an active market for comparable counterparties.
In the absence of a price available on an active market, fair value of Level 2 equity securities is determined using parameters derived from market conditions, based on data from comparable companies at the closing date.
The measurement techniques are:
The preferred measurement technique is based on transaction multiples. This technique uses recent transactions in the sector under consideration. Multiples are established based on the enterprise value of comparable transactions and accounting measures such as EBITDA, EBIT or profit, which are applied to the asset to be measured.
This consists of applying a multiple to the earnings of the company to be valued. It is based on multiples from a sample of listed companies, which are in the peer group of the company to be valued. The earnings multiples used are the price/earnings ratio (PER), enterprise value/earnings before interest and tax (EV/EBIT) and enterprise value/earnings before interest, tax, depreciation and amortisation (EV/EBITDA). These are historical multiples of the company to be valued and of the peer-group companies. They are restated to exclude all non-recurring and exceptional amounts, as well as the amortisation of goodwill.
Companies in the selected peer group must operate in a similar sector to that of the target company. They are of a relatively comparable size and have similar growth prospects. Specific factors may also be taken into account in the selection: country, regulatory aspects specific to each market, and the presence or otherwise of related business activities.
The value of the peer group companies is obtained by adding together the market capitalisation, net financial debt and non-controlling interests, based on the most recently available financial data.
Stock exchange multiples are calculated excluding any control premium. The valuation is made from the point of view of a non-controlling shareholder. However, if the investment to be valued is not listed, any control premium may be partially or wholly offset by the lack of liquidity relative to listed companies in the peer group.
If the company is not listed, a 'tradability' discount is applied to reflect market practices. It is determined from the viewpoint of market operators, not from that of the existing investor.
Securities providing access to the capital, which generally take the form of share subscription warrants, are regularly assessed to determine the probability of exercise and the possible impact thereof on the value of the investment. At each closing date, the probability of exercise of the warrants is determined by comparing the cost of exercise with the expected benefit derived from exercise.
When the Group has recently made an investment in an unquoted instrument, the transaction price (i.e. an entry price) is often considered as a reasonable starting point for measuring the fair value of this unquoted equity instrument at the measurement date.
The net asset value is, for a company, the amount a shareholder would receive if the company sold all its assets at their current market value, paid off any outstanding debts with the proceeds, and then distributed the remainder to the stockholders. For funds, the net asset value is based on the value of securities and working capital held in a fund's portfolio.
Business review
Level 3 comprises instruments which are measured, at least in part, using non-observable market data which is liable to impact materially the valuation. This could include:
The fair value of financial instruments is determined at the reporting date in accordance with the accounting principles and methods described in this report.
| 31/03/16 | ||||||
|---|---|---|---|---|---|---|
| In millions of euro | Carrying value | Fair value | Level 1 | Level 2 | Level 3 | |
| Financial assets | ||||||
| Loans and advances to banks | 1,242.9 | 1,242.9 | – | 1,242.9 | – | |
| Loans and advances to customers | 1,488.4 | 1,505.9 | – | 1,459.1 | 46.8 | |
| TOTAL | 2,731.3 | 2,748.8 | – | 2,702.0 | 46.8 | |
| Financial liabilities | ||||||
| Due to banks and other financial institutions | 283.1 | 285.4 | – | 285.4 | – | |
| Due to customers | 5,468.4 | 5,469.4 | – | 5,469.4 | – | |
| Debt securities in issue | 124.2 | 124.2 | – | 124.2 | – | |
| TOTAL | 5,875.7 | 5,879.0 | – | 5,879.0 | – |
| 31/03/15 | ||||||
|---|---|---|---|---|---|---|
| In millions of euro | Carrying value | Fair value | Level 1 | Level 2 | Level 3 | |
| Financial assets | ||||||
| Loans and advances to banks | 1,530.9 | 1,530.9 | – | 1,530.9 | – | |
| Loans and advances to customers | 1,601.6 | 1,560.4 | – | 1,180.5 | 379.9 | |
| TOTAL | 3,132.5 | 3,091.3 | – | 2,711.4 | 379.9 | |
| Financial liabilities | ||||||
| Due to banks and other financial institutions | 293.8 | 293.8 | – | 293.8 | – | |
| Due to customers | 5,686.9 | 5,690.2 | – | 5,690.2 | – | |
| Debt securities in issue | 13.5 | 13.5 | – | 13.5 | – | |
| TOTAL | 5,994.2 | 5,997.5 | – | 5,997.5 | – |
• Loans to customers and their associated interest rates: these are compared, by maturity, with similar recent transactions. In the event of a material difference in interest rates or any other factor indicating that an asset's fair value is materially different from the net carrying amount, the fair value is adjusted accordingly. To determine the assets' fair value, the Group estimates counterparties' default risk and calculates the sum of future cash flows, taking into account the debtors' financial standing.
• Delivered repurchase agreements, repurchase agreements and amounts due to customers: the fair value of these instruments is determined using a DCF technique, the discount rate of which is adjusted for the appropriate credit margin.
• Debt securities in issue: the fair value of these instruments is determined using external prices which can be regularly observed from a reasonable number of market makers. However, these prices do not represent a directly tradable price.
| 31/03/16 | |||||
|---|---|---|---|---|---|
| Measured using | |||||
| In millions of euro | TOTAL | Level 1 | Level 2 | Level 3 | |
| Financial assets | |||||
| Trading securities – short term | 7.3 | 7.3 | – | – | |
| Financial assets designated at FVTPL – long term | 374.8 | 32.1 | 342.7 | – | |
| Derivative financial instruments | 73.6 | – | 73.6 | – | |
| AFS public bills and similar securities | 505.9 | 505.9 | – | – | |
| AFS bonds and other fixed income securities | 305.1 | 248.7 | 53.8 | 2.6 | |
| AFS accrued interest | 0.5 | 0.1 | 0.3 | 0.1 | |
| AFS equity securities | 284.5 | 155.1 | 50.6 | 78.8 | |
| TOTAL FINANCIAL ASSETS | 1,551.7 | 949.2 | 521.0 | 81.5 | |
| Financial liabilities | |||||
| Derivative financial instruments | 76.7 | – | 76.7 | – | |
| TOTAL FINANCIAL LIABILITIES | 76.7 | – | 76.7 | – |
| Measured using | ||||
|---|---|---|---|---|
| In millions of euro | TOTAL | Level 1 | Level 2 | Level 3 |
| Financial assets | ||||
| Trading securities – short term | 26.4 | 26.4 | – | – |
| Financial assets designated at FVTPL – long term | 290.1 | 2.0 | 288.1 | – |
| Derivative financial instruments | 66.7 | – | 66.7 | – |
| AFS public bills and similar securities | 147.8 | 147.8 | – | – |
| AFS bonds and other fixed income securities | 124.2 | 41.8 | 72.5 | 9.9 |
| AFS accrued interest | 7.8 | 0.4 | 5.5 | 1.9 |
| AFS equity securities | 389.7 | 153.3 | 72.7 | 163.7 |
| TOTAL FINANCIAL ASSETS | 1,052.7 | 371.7 | 505.5 | 175.5 |
| Financial liabilities | ||||
| Derivative financial instruments | 75.2 | – | 75.2 | – |
| TOTAL FINANCIAL LIABILITIES | 75.2 | – | 75.2 | – |
Overview
| Description | Fair value at 31 March 2016 (in millions of euro) |
Valuation technique |
Unobservable input |
Range (weighted average) |
|---|---|---|---|---|
| Mezzanine debt securities | 2.6 | Carrying value is based on original investment plus accrued interest less any impairment provisions |
Expected repayment cash flow taking into account shareholders' equity of the borrower |
n/a |
| Other | 0.1 | n/a | n/a | n/a |
| AFS debt | 2.7 | |||
| Private equity fund investments | 38.2 | External valuation based on net asset value |
n/a | n/a |
| Other equities | 39.1 | External valuation based on net asset value |
n/a | n/a |
| 0.8 | Valued at cost | n/a | n/a | |
| 0.7 | Earnings multiples adjusted | Non-observable valuation discounts; for example, non controlling interests, lack of liquidity and adjustments to the multiple to reflect a specific sector or activity |
4–20 for EBITDA multiple 20%–40% discount for lack of liquidity/non-controlling interest discount |
|
| AFS equity | 78.8 |
Out of €78.8 million of AFS equity securities classified in Level 3 as at 31 March 2016, €77.3 million were subject to a third party valuation. To quantify the fair value sensitivity of these instruments, measured using unobservable inputs, the Group has determined the impact in net income and in equity in the event of a fall of 5% of the net asset value. In such an event, there would be a post-tax charge to the income statement of €0.1 million and a charge to equity of €3.4 million.
The following table presents the movement in assets valued using Level 3 valuation methods in the period:
| In millions of euro | Bonds and other fixed income securities |
Funds | Other equities | TOTAL | |
|---|---|---|---|---|---|
| As at 1 April 2015 | 11.8 | 53.5 | 110.2 | 175.5 | |
| Transfer into/(out of) Level 3 | (1.0) | (0.2) | (12.3) | (13.5) | |
| Total gains or losses for the period | Included in income statement | (6.6) | 0.6 | (2.4) | (8.4) |
| Gains/(losses) through equity | – | 5.5 | (1.6) | 3.9 | |
| Purchases, issues, sales and settlements |
Additions | 0.4 | 2.3 | 0.5 | 3.2 |
| Disposals | (1.7) | (23.1) | (53.5) | (78.3) | |
| Exchange | (0.1) | (0.5) | (0.2) | (0.8) | |
| Other | (0.1) | 0.1 | (0.1) | (0.1) | |
| AS AT 31 MARCH 2016 | 2.7 | 38.2 | 40.6 | 81.5 |
The calculation of fair value is subject to control procedures aimed at verifying that fair values are determined or validated by an independent function. Fair values determined by reference to external quoted prices or market parameters are validated by the relevant fund's valuation committee.
These committees review, twice a year, the valuation of the investments made by Merchant Banking.
The parameters of valuation that are reviewed in committee include the following:
Merchant Banking funds are valued by their management companies in accordance with the international private equity and venture capital valuation (IPEV) guidelines developed by the Association Française des Investisseurs en Capital (AFIC), the British Venture Capital Association (BVCA) and the European Private Equity and Venture Capital Association (EVCA). An Advisory Committee exists to approve half-yearly investment valuations, which are sent to investors in the Group's merchant banking funds. As such, this committee acts as the valuation committee under the Alternative Investment Fund Managers Directive (AIFMD) requirements.
The Group's OTC (i.e. non-exchange traded) derivatives are valued using external valuation models. These models calculate the present value of expected future cash flows. The Group's derivative products are of a 'vanilla' nature, such as interest rate swaps and cross currency swaps; for these, the modelling techniques used are standard across the industry. Inputs to the valuation models are determined from observable market data, including prices available from exchanges, dealers, brokers or providers of consensus pricing.
Exchange traded derivatives are valued by the exchange on which they are traded, which asks for margin calls depending on the value.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Public bills and similar securities | 3,003 | 20,950 |
| Equities | 4,323 | 5,422 |
| Trading instruments | 7,326 | 26,372 |
| Equities | 275,825 | 205,615 |
| Other financial instruments | 98,925 | 84,509 |
| Financial assets designated at fair value through profit or loss | 374,750 | 290,124 |
| Trading derivative assets (see note 2) | 70,791 | 46,674 |
| TOTAL | 452,867 | 363,170 |
| of which financial assets at fair value through profit or loss – listed | 39,382 | 28,310 |
| of which financial assets at fair value through profit or loss – unlisted | 413,485 | 334,860 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Trading derivative liabilities (see note 2) | 76,733 | 67,012 |
| TOTAL | 76,733 | 67,012 |
A derivative is a financial instrument, the value of which is derived from another financial instrument, an index or some other variable (the 'underlying'). Typically, the underlying is an interest rate, a currency exchange rate or the price of a debt or equity security. Derivatives require little or no net investment or a lower investment than a non-derivative financial instrument to obtain the same sensitivity to changes in the underlying.
Derivative instruments are carried at fair value, shown in the balance sheet as separate totals of positive fair values (assets) and negative fair values (liabilities). Positive fair values represent the cost to the Group of replacing all transactions with a fair value in the Group's favour if the counterparties default. Negative fair values represent the cost to the Group's counterparties of replacing all their transactions with the Group with a fair value in the counterparties' favour if the Group were to default. Positive and negative fair values on different transactions are only netted if there is legal right of set-off, the transactions are with the same counterparty and the cash flows will be settled on a net basis. Changes in fair values of derivative instruments are recognised in trading income unless they qualify as hedges for accounting purposes.
Derivatives may be transacted for trading or hedging purposes. Trading involves taking positions with the intention of profiting from changes in market variables such as interest rates. The Group also enters into derivative transactions for the purpose of hedging exposures in the non-trading book. The accounting treatment of hedge transactions depends on the nature of the hedging relationship and whether the hedge qualifies as such for accounting purposes. Derivative transactions that qualify as hedges for accounting purposes are either fair value or cash flow hedges.
| 31/03/16 | 31/03/15 | |||||
|---|---|---|---|---|---|---|
| In thousands of euro | Notional principal |
Of which: asset |
Of which: liability |
Notional principal |
Of which: asset |
Of which: liability |
| Firm interest rate contracts | 61,721 | 2,671 | 349 | 78,742 | 2,177 | – |
| Firm foreign exchange contracts | 9,743,925 | 63,482 | 75,670 | 7,094,701 | 38,312 | 62,039 |
| Conditional foreign exchange contracts | 205,128 | 693 | 487 | 325,929 | 4,448 | 4,431 |
| OTC commodity options | 65,120 | 3,717 | 200 | 23,450 | 1,510 | 500 |
| Other derivatives | 272 | 228 | 27 | 270 | 227 | 42 |
| TOTAL | 10,076,166 | 70,791 | 76,733 | 7,523,092 | 46,674 | 67,012 |
| 31/03/16 | 31/03/15 | |||||
|---|---|---|---|---|---|---|
| In thousands of euro | Notional principal |
Of which: asset |
Of which: liability |
Notional principal |
Of which: asset |
Of which: liability |
| Firm interest rate contracts | 190,434 | 2,798 | – | 558,408 | 8,950 | 8,195 |
| Firm foreign exchange contracts | – | – | – | 86,003 | 11,073 | – |
| TOTAL | 190,434 | 2,798 | – | 644,411 | 20,023 | 8,195 |
The Group's fair value hedges consist of interest rate swaps that are used to protect against changes in the fair value of fixed rate lending, fixed rate debt securities and fixed rate borrowing.
For the year ended 31 March 2016, the Group recognised a net loss of €4 thousand (net gain of €4 thousand for 31 March 2015) representing the change in fair value of the ineffective portions of fair value hedges.
The fair value of derivatives designated as fair value hedges was €2,798 thousand at 31 March 2016 and €8,910 thousand at 31 March 2015.
The Group is exposed to variability in future interest cash flows on non-trading assets and issued debt securities that receive or pay interest at variable rates. Gains and losses on the effective portion of interest rate swaps designated as cash flow hedges are recorded in shareholders' equity. Gains or losses on any ineffective portion of these swaps are recognised immediately in the income statement.
For the year ended 31 March 2016, the Group recognised a gain of €3 thousand in the income statement in respect of the ineffective portion of cash flow hedges. As at 31 March 2015, the Group recognised a gain of €106 thousand in the income statement.
The fair value of derivatives designated as cash flow hedges at 31 March 2016 was €nil thousand and €2,919 thousand at 31 March 2015.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Public bills and similar securities | 505,921 | 147,787 |
| Other fixed income securities | 305,087 | 124,165 |
| Accrued interest | 540 | 7,777 |
| Total AFS debt securities | 811,548 | 279,729 |
| of which impairment losses | (20,013) | (24,357) |
| Total AFS equity securities | 284,461 | 389,708 |
| of which impairment losses | (133,424) | (143,066) |
| TOTAL | 1,096,009 | 669,437 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| As at 1 April | 669,437 | 748,042 |
| Additions | 1,355,346 | 291,828 |
| Disposals (sale and redemption) | (895,012) | (468,829) |
| Gains/(losses) from changes in fair value, recognised directly in equity | (1,041) | 67,501 |
| Impairment losses recognised in income statement | (3,938) | (13,147) |
| Exchange differences | (30,035) | 49,419 |
| Reclassifications and other movements | 1,252 | (5,377) |
| AT THE END OF THE PERIOD | 1,096,009 | 669,437 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Demand deposits and overnight loans | 779,584 | 783,974 |
| Term deposits and loans | 74,197 | 70,756 |
| Reverse repos and loans secured by bills | 388,965 | 674,989 |
| Accrued interest | 201 | 1,195 |
| Loans and advances to banks – gross amount | 1,242,947 | 1,530,914 |
| Allowance for credit losses | – | – |
| TOTAL | 1,242,947 | 1,530,914 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Debit balances on current accounts | 25,438 | 73,105 |
| Other loans to customers | 1,530,196 | 1,621,710 |
| Accrued interest | 7,299 | 8,045 |
| Loans and advances to customers – gross amount | 1,562,933 | 1,702,860 |
| Specific provisions | (48,876) | (75,099) |
| Collective provisions | (25,685) | (26,156) |
| Allowance for credit losses | (74,561) | (101,255) |
| TOTAL | 1,488,372 | 1,601,605 |
At 31 March 2015, loans and advances to customers included €321 million of finance lease receivables. Following the sale of FALG on 3 November 2015, as described in note 22, there are no finance lease receivables in the Group as at 31 March 2016.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Accounts receivable | 218,506 | 171,243 |
| Guarantee deposits paid | 11,838 | 5,806 |
| Settlement accounts on securities transactions | 54,257 | 43,348 |
| Defined benefit pension scheme assets | 11,701 | 977 |
| Other sundry assets | 129,163 | 135,581 |
| Other assets | 425,465 | 356,955 |
| Prepaid expenses | 23,594 | 20,078 |
| Accrued income | 79,692 | 78,383 |
| Prepayments and accruals | 103,286 | 98,461 |
| TOTAL | 528,751 | 455,416 |
The amounts in the balance sheet and income statement for associates are shown below:
| 31/03/16 | 31/03/15 | |||
|---|---|---|---|---|
| In thousands of euro | Equity accounted value |
Share of profit after tax |
Equity accounted value |
Share of profit after tax |
| JRAC Proprietary Investments LP Incorporated | 20,244 | 27 | 16,506 | 8 |
| Quintus fund | – | (178) | 6,633 | 1,111 |
| Financière Nextpool | – | – | – | 1,462 |
| Merchant Banking investments | 20,244 | (151) | 23,139 | 2,581 |
| Sélection 1818(1) | 12,160 | 99 | 13,247 | 254 |
| St Julian's Properties Limited(1) | 8,318 | 276 | 8,983 | 343 |
| Other | 1,720 | 43 | 2,319 | 420 |
| Other investments | 22,198 | 418 | 24,549 | 1,017 |
| TOTAL | 42,442 | 267 | 47,688 | 3,598 |
(1) Financial year ended 31 December 2015.
Information about the underlying accounts of the associates is as follows:
| 31/03/16 | |||||
|---|---|---|---|---|---|
| JRAC Proprietary Investments LP Incorporated |
Quintus fund |
Sélection 1818(1) | St Julian's Properties Limited(1) |
||
| 487 | – | – | 129 | ||
| 40,201 | – | – | – | ||
| 2 | – | 24,636 | 16,753 | ||
| 40,690 | – | 24,636 | 16,882 | ||
| 203 | – | – | 245 | ||
| 179 | (82) | 536 | – | ||
| 76 | (355) | 536 | 725 | ||
| 54 | (355) | 397 | 552 | ||
| 7,422 | (867) | – | (1,468) | ||
| 7,476 | (1,222) | 397 | (916) | ||
| – | 929 | 298 | 207 | ||
(1) Financial year ended 31 December 2015.
All associates are accounted for using the equity method. Information about business activities, Group voting rights and ownership interest is disclosed in note 37 – Consolidation scope.
| In thousands of euro | 01/04/15 | Additions | Disposals/ write-offs |
Sale of a subsidiary (note 22) |
Depreciation charge |
Exchange rate movement |
Other movements |
31/03/16 |
|---|---|---|---|---|---|---|---|---|
| Gross tangible fixed assets: | ||||||||
| Operating land and buildings | 346,325 | 2,952 | (1,882) | – | (24,904) | 1,297 | 323,788 | |
| Assets used to generate lease income | 18,488 | 2,056 | (1,520) | (19,258) | 337 | (103) | – | |
| Other tangible fixed assets | 151,262 | 10,007 | (22,354) | (12,418) | (6,478) | (1,774) | 118,245 | |
| Total gross tangible fixed assets | 516,075 | 15,015 | (25,756) | (31,676) | (31,045) | (580) | 442,033 | |
| Depreciation and allowances: | ||||||||
| Operating land and buildings | (62,442) | 1,881 | – | (12,852) | 4,451 | (1,527) | (70,489) | |
| Assets used to generate lease income | (7,600) | 1,319 | 7,975 | (1,602) | (132) | 40 | – | |
| Other tangible fixed assets | (85,548) | 22,010 | 6,232 | (14,223) | 3,754 | 3,299 | (64,476) | |
| Total depreciation and allowances | (155,590) | 25,210 | 14,207 | (28,677) | 8,073 | 1,812 | (134,965) | |
| TOTAL | 360,485 | 15,015 | (546) | (17,469) | (28,677) | (22,972) | 1,232 | 307,068 |
| In thousands of euro | 01/04/15 | Additions | Disposals/ write-offs |
Disposal of subsidiaries |
Amortisation charge |
Exchange rate movement |
Other movements |
31/03/16 |
|---|---|---|---|---|---|---|---|---|
| Intangible fixed assets – gross amount | 231,649 | 10,563 | (42,833) | (2,560) | (819) | (313) | 195,687 | |
| Amortisation and allowances – intangible fixed assets |
(63,490) | 42,833 | 2,560 | (9,694) | 516 | (15) | (27,290) | |
| TOTAL | 168,159 | 10,563 | – | – | (9,694) | (303) | (328) | 168,397 |
| In thousands of euro | RCB | Concordia Holding |
Other | TOTAL |
|---|---|---|---|---|
| As at 1 April 2015 | 47,718 | 59,346 | 3,469 | 110,533 |
| Additions | – | – | 4,343 | 4,343 |
| Disposals and other decreases | – | – | (2,896) | (2,896) |
| Translation difference | – | – | (127) | (127) |
| AS AT 31 MARCH 2016 | 47,718 | 59,346 | 4,789 | 111,853 |
On 14 September 2015 the Group announced that its Merchant Banking business had acquired West Gate Horizons Advisors, LLC, a Los Angelesbased credit manager specialising in leveraged loans and related assets with approximately \$1.5 billion (€1.35 billion) assets under management across five collateralised loan obligation (CLO) structures. As a consequence of the acquisition, the Group has recorded goodwill of €4.3 million, and intangibles of €3.5 million, the latter to be amortised over their estimated useful lives.
As at 31 March 2016, the Group performed an annual impairment test for each of the cash-generating units (CGU) to which goodwill has been allocated.
The recoverable amount of the CGU was calculated using the most appropriate method. For Concordia Holding, the value-in-use calculation has been calculated on a multi-criteria approach based on peer-group stockmarket valuations, deal multiples and discounted future cash flows. For RCB, which represents Global Advisory and Asset Management activity in France, trading multiples have been applied to the normalised profit after tax. Additionally, a sum-of-the-parts valuation has been performed, in which each RCB business has been valued separately with consistent valuation methods and in line with market standards.
The following assumptions were used:
Results of sensitivity tests on the Concordia Holding DCF show that a 50 bp increase in the discount rate combined with a 50 bp reduction in the perpetual growth rate would reduce the value in use of the CGU by 11% (€143 million) and would not result in an impairment.
Similarly, a 10% decrease in the normalised cash flow in the future business plan cash flows would reduce the value in use of the CGU by:
Such a decrease would not result in an impairment recorded for those CGUs.
At 31 March 2016, the recoverable amount of each CGU was higher than its carrying amount. The Group did not, therefore, record any goodwill impairment in the year.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Interbank demand deposits and overnight | 59,579 | 71,859 |
| Interbank term deposits and borrowings | 220,559 | 217,559 |
| Accrued interest | 1,814 | 3,166 |
| TOTAL | 281,952 | 292,584 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Demand deposits | 4,494,422 | 4,278,497 |
| Term deposits | 865,996 | 1,366,715 |
| Borrowings secured by bills | 99,915 | 20,726 |
| Accrued interest | 8,055 | 20,925 |
| TOTAL | 5,468,388 | 5,686,863 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Due to employees | 454,096 | 445,882 |
| Other accrued expenses and deferred income | 134,938 | 119,728 |
| Accrued expenses | 589,034 | 565,610 |
| Settlement accounts on securities transactions | 76,870 | 52,800 |
| Accounts payable | 32,510 | 41,025 |
| Sundry creditors | 89,748 | 71,420 |
| Other liabilities | 199,128 | 165,245 |
| TOTAL | 788,162 | 730,855 |
| In thousands of euro | 01/04/15 | Charge/(release) | Utilised | Exchange movement |
Other movements | 31/03/16 |
|---|---|---|---|---|---|---|
| Provision for counterparty risk | 142 | – | – | – | (110) | 32 |
| Provision for claims and litigation | 37,570 | (546) | (18,512) | 318 | 150 | 18,980 |
| Provisions for restructuring | 2,100 | (1,458) | – | – | – | 642 |
| Provisions for property | 1,011 | 443 | (162) | (45) | (220) | 1,027 |
| Other provisions | – | 2,599 | (2,640) | (9) | 202 | 152 |
| Sub-total | 40,823 | 1,038 | (21,314) | 264 | 22 | 20,833 |
| Retirement benefit liabilities (note 19) | 173,677 | (39,125) | 134,552 | |||
| TOTAL | 214,500 | 1,038 | (21,314) | 264 | (39,103) | 155,385 |
From time to time the Group is involved in legal proceedings or receives claims arising from the conduct of its business. Based upon available information and, where appropriate, legal advice, provisions are made where it is probable that an outflow of resources will be required and the amount can be reliably estimated.
Included within provisions for claims and litigation at 1 April 2015 were amounts to cover the estimated financial liability and professional and other costs relating to the Group's Swiss private banking business participation in the U.S. Program in connection with undeclared U.S. related accounts. On 3 June 2015, a non-prosecution agreement was finalised with the U.S. Department of Justice and the settlement of US\$11.5 million was within the amounts provided.
Also within provisions for claims and litigation are amounts set aside to cover estimated costs of other legal proceedings and claims arising from the conduct of business.
Management believe that the level of provisions made in these financial statements continues to be sufficient for any potential or actual proceedings or claims which are likely to have an impact on the Group's financial statements, based on information available at the reporting date.
| In thousands of euro | 01/04/15 | Income statement charge |
Income statement reversal |
Written off | Exchange rate and other movements |
31/03/16 |
|---|---|---|---|---|---|---|
| Loans and advances to customers | (101,255) | (11,077) | 6,172 | 26,053 | 5,546 | (74,561) |
| Available-for-sale financial assets | (167,423) | (11,264) | 5,702 | 19,747 | (199) | (153,437) |
| Other assets | (17,435) | (7,284) | 2,717 | 6,662 | 610 | (14,730) |
| TOTAL | (286,113) | (29,625) | 14,591 | 52,462 | 5,957 | (242,728) |
Deferred taxes are calculated on all temporary differences using the liability method.
The movement on the deferred tax account is as follows:
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Net asset as at beginning of period | 37,707 | 30,657 |
| of which deferred tax assets | 92,760 | 89,627 |
| of which deferred tax liabilities | (55,053) | (58,970) |
| Recognised in income statement | ||
| Income statement/(charge) | (4,030) | (13,274) |
| Recognised in equity | ||
| Defined benefit pension arrangements | (5,451) | 9,398 |
| Available-for-sale financial assets | 7,880 | 4,058 |
| Tax losses carried forward | 119 | – |
| Cash flow hedges | (1,611) | (1,217) |
| Reclassification to current tax | 5,214 | (2,533) |
| Payments/(refunds) | 121 | (175) |
| Exchange differences | (4,866) | 9,447 |
| Sale of a subsidiary (see note 22) | (5,733) | – |
| Other | (441) | 1,346 |
| NET ASSET AS AT END OF PERIOD | 28,909 | 37,707 |
| of which deferred tax assets | 72,278 | 92,760 |
| of which deferred tax liabilities | (43,369) | (55,053) |
Deferred tax net assets are attributable to the following items:
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Accelerated tax depreciation | 6,015 | 14,348 |
| Defined benefit pension liabilities | 22,893 | 29,428 |
| Provisions | 1,516 | 239 |
| Deferred profit share arrangements | 26,606 | 29,240 |
| Losses carried forward | 12,982 | 17,574 |
| Available-for-sale financial assets | 347 | 208 |
| Other temporary differences | 1,919 | 1,723 |
| TOTAL | 72,278 | 92,760 |
Overview
NMR, a subsidiary in the UK, recognises deferred tax assets corresponding to losses carried forward. As part of its assessment of recoverability of deferred tax as at the balance sheet date, and using medium-term profit forecasts, NMR considers the period over which sufficient taxable profits would arise to utilise the deferred tax assets. During the year ended 31 March 2015, the UK government announced restrictions on the ability of banks to utilise historic tax losses. This affects the period over which the deferred tax assets will be utilised and, accordingly, NMR decided to derecognise €8.7 million of deferred tax assets in the year ended 31 March 2015. For these financial statements to 31 March 2016, NMR considers that there will be sufficient profits within a reasonable timeframe to utilise deferred tax assets that remain recognised on the balance sheet.
In the United States, Canada and Asia, deductible temporary differences have not given rise to the recognition of deferred tax assets.
Deferred tax net liabilities are attributable to the following items:
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Accelerated tax depreciation | 1,549 | 2,032 |
| Defined benefit pensions | 1,829 | – |
| Cash flow hedges | – | (1,602) |
| Available-for-sale financial assets | 13,070 | 23,061 |
| Intangible assets recognised on acquisition of subsidiaries | 11,838 | 11,838 |
| Other temporary differences | 15,083 | 19,724 |
| TOTAL | 43,369 | 55,053 |
Deferred tax assets and liabilities are offset if, and only if, there is a legally enforceable right to set-off and the balance relates to income tax levied by the same tax authority on the same taxable entity or tax group. There must also be the intention and the will to settle on a net basis or to realise the assets and liabilities simultaneously.
The deferred tax expense/(income) in the income statement comprises the following temporary differences:
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Accelerated tax depreciation | 2,025 | (80) |
| Defined benefit pension liabilities | 1,345 | 4,177 |
| Allowances for loan losses | (1,359) | 1,046 |
| Tax losses carried forward | 3,337 | 8,934 |
| Deferred profit share arrangements | 2,504 | 1,149 |
| Available-for-sale financial assets | (522) | 422 |
| Other temporary differences | (3,300) | (2,374) |
| TOTAL | 4,030 | 13,274 |
A structured entity is one which has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. It will often have restricted activities and a narrow or well-defined objective and can include some investment funds.
In most cases it is clear under IFRS 10 that the Group need not consolidate its investments in structured entities. However, some structured entities are managed by the Group in the form of funds in which the Group's own money is also invested. In these situations, a judgement must be made whether there is a need to consolidate these funds or not. To do this, a combined assessment of two key indicators is made:
To assess economic interests it is considered, at a particular level of returns, how much of any further increase in the performance of a fund accrues to the manager ('the variability of the economic interest'). The level of returns at which this is measured is the level at which performance fees begin to accrue.
A high level of variability would support the conclusion that a manager might be a principal (and would probably consolidate the managed fund). Meanwhile, a low level of variability would indicate that a manager might be an agent for the other investors (and would probably not consolidate).
Additionally, negligible rights for the investors to remove the manager or transfer their funds might indicate that a manager is a principal (and would probably consolidate) while strong rights might suggest that a manager is an agent (and would probably not consolidate).
The Group's judgement is guided by both IFRS 10 and its understanding of market practice.
The following table shows the Group's interest in unconsolidated structured entities which it manages.
| 31/03/16 | |||
|---|---|---|---|
| In thousands of euro | Equity funds | Debt funds | Total |
| Total assets within the underlying vehicles | 1,107,302 | 2,549,853 | 3,657,155 |
| Assets under management including third party commitments | 1,861,449 | 2,882,315 | 4,743,764 |
| Interest held in the Group's balance sheet: | |||
| Financial assets designated at fair value | 234,621 | 76,454 | 311,075 |
| Financial investment available for sale | – | 16,769 | 16,769 |
| Loans and receivables | 4,589 | 10,321 | 14,910 |
| Total assets in the Group's balance sheet | 239,210 | 103,544 | 342,754 |
| Off-balance sheet commitments made by the Group | 150,868 | 28,174 | 179,042 |
| Group's maximum exposure | 390,078 | 131,718 | 521,796 |
In addition, the Group has established and manages investment funds to provide customers with investment opportunities, as a sponsor. The Group, as fund manager, may be entitled to receive a management fee and a performance fee based on the assets under management. The Group made no investment in these funds, and the assets under management amounted to €50.2 billion as at 31 March 2016 with revenue earned of €379.3 million.
Non-controlling interests (NCI) represent the share of fully consolidated subsidiaries that are not directly or indirectly attributable to the Group. These comprise the equity instruments which have been issued by these subsidiaries and which are not held by the Group. The Group's income, net assets and distributions which are attributable to NCI arise from the following sources:
| 31/03/16 | 31/03/15 | |||||
|---|---|---|---|---|---|---|
| In thousands of euro | Net income | Amounts in the balance sheet |
Distributions | Net income | Amounts in the balance sheet |
Distributions |
| Preferred shares | 100,881 | 30,783 | 96,993 | 85,839 | 39,823 | 72,175 |
| Perpetual subordinated debt | 14,775 | 319,813 | 14,775 | 14,267 | 346,030 | 14,267 |
| Rothschild Holding AG group | 7,022 | 153,641 | 2,407 | 7,289 | 157,273 | 2,149 |
| Other | 2,627 | 11,613 | 181 | 2,908 | 12,908 | 975 |
| TOTAL | 125,305 | 515,850 | 114,356 | 110,303 | 556,034 | 89,566 |
Preferred shares within NCI mainly consist of amounts calculated in accordance with legal clauses applicable to French limited partnerships owned by Rothschild & Compagnie Banque SCS, the French holding company of our Private Wealth and Global Advisory businesses located in France. The preferred amounts are based on the partnerships' individual local earnings, and take into account the share that relates to workers' remuneration.
The Group has issued perpetual subordinated debt instruments which have discretionary clauses related to the payment of the interest. Under IFRS, these instruments are considered to be equity instruments and are shown as part of NCI. The interest payable on these instruments is shown as a charge to NCI.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Perpetual fixed rate subordinated notes 9 per cent (£125 million) | 186,835 | 203,343 |
| Perpetual floating rate subordinated notes (€150 million) | 65,346 | 71,119 |
| Perpetual floating rate subordinated notes (US\$200 million) | 67,632 | 71,568 |
| TOTAL | 319,813 | 346,030 |
The Group holds a 72.87% economic interest in the equity of Rothschild Holding AG (RHAG), the Swiss holding company of part of our Private Wealth business. The non-controlling interest in its income statement and balance sheet is calculated based on this economic interest.
The following table shows a summarised income statement and balance sheet of the RHAG group of companies.
| RHAG group | ||||
|---|---|---|---|---|
| In thousands of euro | 31/03/16 | 31/03/15 | ||
| Income statement information | ||||
| Net banking revenue | 216,253 | 189,136 | ||
| Net income | 30,686 | 21,710 | ||
| Total other comprehensive income for the period, after tax(1) | (19,472) | 58,161 | ||
| Total comprehensive income for the period | 11,214 | 79,871 | ||
| Balance sheet information | ||||
| Cash and amounts due from central banks | 2,749,608 | 2,753,309 | ||
| Loans and receivables to banks | 138,230 | 135,461 | ||
| Loans and receivables to customers | 1,102,499 | 845,525 | ||
| Other assets | 467,256 | 488,470 | ||
| Total assets | 4,457,593 | 4,222,765 | ||
| Due to customers | 3,581,066 | 3,401,037 | ||
| Other liabilities | 265,937 | 213,176 | ||
| Total liabilities | 3,847,003 | 3,614,213 | ||
| Shareholder equity | 610,590 | 608,552 |
(1) Other comprehensive income in RHAG comprises gains and losses from translation, actuarial movements and revaluation of long-standing shareholdings.
The Group supports various pension schemes for the employees of operating subsidiaries. Where material, these are described below.
The NMR Pension Fund (NMRP) is operated by NMR for the benefit of employees of certain Rothschild Group companies in the United Kingdom. The Fund comprises a defined benefit section, which closed to new entrants in 2003, and a defined contribution section, established with effect from the same date.
The NMR Overseas Pension Fund (NMROP) is operated for the benefit of employees of certain Rothschild Group companies outside the United Kingdom. The defined benefit section also closed to new entrants and a defined contribution section was opened in 2003.
Rothschild North America Inc maintains an unfunded qualified non-contributory defined benefit pension plan and other pension agreements for certain employees (RNAP). Neither the plan nor the pension agreements provide for health or other benefits for employees or retirees. The last time that new benefits were accrued was 2001.
RBZ also operates a funded pension scheme (RBZP). This scheme has been set up on the basis of the Swiss method of defined contributions but has characteristics of a defined benefit pension plan. Current employees and pensioners (former employees or their surviving partners) receive benefits upon retiring as well as in the event of death or invalidity. These benefits are financed through employer and employee contributions.
Additionally, certain companies in the Group have smaller unfunded obligations in respect of pensions and other post-employment benefits.
The latest formal actuarial valuations of the NMRP and the NMROP were carried out as at 31 March 2013. The value of the defined benefit obligation has been updated to 31 March 2016 by qualified independent actuaries. Valuations of RBZP are performed each September and March, also by qualified actuaries.
The defined benefit obligations expose the Group to a number of risks, including longevity, inflation, interest rate and investment performance. These risks are mitigated where possible by applying an investment strategy for the funded schemes which aims to minimise the long-term costs. This is achieved by investing in a diversified selection of asset classes, which aims to reduce the volatility of returns and also achieves a level of matching with the underlying liabilities. Overall, the objective is to select assets which will generate income and capital growth to meet, together with new contributions, the cost of current and future benefits payable by the funds.
| In thousands of euro | NMRP and NMROP |
RBZP | RNAP | Other | 31/03/16 |
|---|---|---|---|---|---|
| Present value of funded obligations | 981,362 | 245,123 | – | – | 1,226,485 |
| Fair value of plan assets | (911,854) | (226,018) | – | – | (1,137,872) |
| Sub-total | 69,508 | 19,105 | – | – | 88,613 |
| Present value of unfunded obligations | – | – | 23,737 | 10,501 | 34,238 |
| TOTAL | 69,508 | 19,105 | 23,737 | 10,501 | 122,851 |
| of which schemes with net liabilities | 75,946 | 24,368 | 23,737 | 10,501 | 134,552 |
| of which schemes with net (assets) | (6,438) | (5,263) | – | – | (11,701) |
| In thousands of euro | NMRP and NMROP |
RBZP | RNAP | Other | 31/03/15 |
| Present value of funded obligations | 1,128,294 | 249,108 | – | – | 1,377,402 |
| Fair value of plan assets | (1,001,232) | (244,685) | – | – | (1,245,917) |
| Sub-total | 127,062 | 4,423 | – | – | 131,485 |
| Present value of unfunded obligations | – | – | 29,190 | 12,025 | 41,215 |
| TOTAL | 127,062 | 4,423 | 29,190 | 12,025 | 172,700 |
| of which schemes with net liabilities | 128,039 | 4,423 | 29,190 | 12,025 | 173,677 |
| of which schemes with net (assets) | (977) | – | – | – | (977) |
| In thousands of euro | Plan (assets) | Defined benefit obligations |
Net defined benefit liability |
|---|---|---|---|
| As at 1 April 2015 | (1,246,118) | 1,418,818 | 172,700 |
| Current service cost (net of contributions paid by other plan participants) | – | 16,917 | 16,917 |
| Contributions by the employees | (3,088) | 3,088 | – |
| Past service costs | – | (10,433) | (10,433) |
| Interest (income)/cost | (35,103) | 39,682 | 4,579 |
| Remeasurements due to: | |||
| – actual return less interest on plan assets | 54,668 | – | 54,668 |
| – changes in financial assumptions | – | (45,921) | (45,921) |
| – changes in demographic assumptions | – | 4,644 | 4,644 |
| – experience (gains)/losses | – | (19,773) | (19,773) |
| Benefits paid | 49,592 | (49,592) | – |
| (Contributions) by the Group | (47,599) | – | (47,599) |
| Administration expenses | 1,978 | – | 1,978 |
| Exchange and other differences | 87,798 | (96,707) | (8,909) |
| AS AT 31 MARCH 2016 | (1,137,872) | 1,260,723 | 122,851 |
Following the March 2013 triennial actuarial valuation of the NMRP, the trustees of the defined benefit pension fund agreed a contribution plan with the Group to reduce the deficit in accordance with pensions regulation. The aim was to eliminate the pension deficit over ten years with £13.8 million of additional contributions per year (increasing by 3.6% per annum). In addition, participating employers in the scheme have agreed to pay 33.5% of in-service members' pensionable salaries. The arrangement will be reviewed in 2016, at the next triennial actuarial valuation of the fund.
It is estimated that total contributions of €44 million will be paid to the defined benefit pension schemes in the year ending 31 March 2017.
The weighted average maturity of the fund's liabilities is projected to be 19 years for the NMRP and 17 years for the RBZP.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Current service cost (net of contributions paid by other plan participants) | 16,917 | 12,611 |
| Net interest cost | 4,579 | 5,056 |
| Negative past service cost | (10,433) | (2,500) |
| Administration costs | 1,978 | 1,912 |
| Other pension income | 106 | 296 |
| TOTAL (included in staff costs) | 13,147 | 17,375 |
As a result of changes implemented during the year to the RBZP, the 2016 income statement includes a credit of €10.4 million in respect of past service costs. During the prior year, changes to the RBZP generated a credit of €2.5 million in respect of past service costs.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Remeasurement gains/(losses) recognised in the year | 6,382 | (48,646) |
| Cumulative remeasurement losses recognised in the statement of comprehensive income | (216,808) | (223,190) |
The principal actuarial assumptions used as at the balance sheet date were as follows:
| 31/03/16 | 31/03/15 | |||||
|---|---|---|---|---|---|---|
| NMRP and NMROP |
RBZP | RNAP | NMRP and NMROP |
RBZP | RNAP | |
| Discount rate | 3.6% | 0.4% | 2.5% | 3.4% | 0.8% | 2.3% |
| Retail price inflation | 2.9% | n/a | n/a | 3.0% | n/a | n/a |
| Consumer price inflation | 1.9% | 0.5% | n/a | 2.0% | n/a | n/a |
| Expected rate of salary increases | 2.0% | 0.5% | n/a | 2.0% | 0.5% | n/a |
| Expected rate of increase of pensions in payment: | ||||||
| Uncapped increases | n/a | 0.0% | n/a | n/a | 0.0% | n/a |
| Capped at 5.0% | 2.8% | n/a | n/a | 2.9% | n/a | n/a |
| Capped at 2.5% | 2.0% | n/a | n/a | 2.0% | n/a | n/a |
| Life expectancy of a: | ||||||
| – male pensioner aged 60 | 28.7 | 26.4 | 26.1 | 28.6 | 26.3 | 26.1 |
| – female pensioner aged 60 | 29.5 | 29.0 | 28.6 | 29.5 | 28.9 | 28.6 |
| – male pensioner aged 60 in 20 years' time | 30.7 | 28.1 | n/a | 30.6 | 28.1 | n/a |
| – female pensioner aged 60 in 20 years' time | 30.7 | 30.7 | n/a | 30.7 | 30.6 | n/a |
The defined benefit plan net liability calculation is sensitive to the actuarial assumptions used above. Those that have the most significant impact on the measurement of the liability are as follows:
| 31/03/16 | ||
|---|---|---|
| Approximate increase/(decrease) in balance sheet liability |
||
| In thousands of euro | NMRP and NMROP |
RBZP |
| 0.5% increase in discount rate | (85,000) | (19,000) |
| 0.5% increase in inflation | 70,000 | 1,000 |
| 1 year increase in life expectancy | 29,000 | n/a |
The sensitivities shown above reflect only an estimate of the change in the assessed defined obligation for the funds. In practice, any movement leading to a change in the discount rate or price inflation is likely to be partially offset by a change in asset values, and the corresponding overall impact on the net liability is therefore likely to be lower than the amounts above.
| 31/03/16 | 31/03/15 | |||||
|---|---|---|---|---|---|---|
| NMRP | NMROP | RBZP | NMRP | NMROP | RBZP | |
| Equities – quoted | 35% | 43% | 26% | 33% | 43% | 27% |
| Bonds – quoted | 18% | 18% | 46% | 18% | 17% | 45% |
| Cash and gilts | 9% | 8% | 8% | 7% | 23% | 8% |
| Hedge funds and private equity | 20% | 13% | 12% | 21% | 13% | 13% |
| Liability hedges | 17% | 16% | 2% | 18% | – | 2% |
| Property and others | 1% | 2% | 6% | 3% | 4% | 5% |
| TOTAL | 100% | 100% | 100% | 100% | 100% | 100% |
Equities includes €0.9 million (2015: €0.9 million) of shares in companies that are related parties of the sponsoring company.
NMR and certain subsidiaries of the NMR group have entered into a trust agreement for the benefit of NMRP. The trust arrangement gives the pension fund security over certain NMR group assets which would provide up to £50 million of value to NMRP in the event that specific financial triggers are breached. The financial triggers relate to the NMR group's ongoing viability and any breach is therefore considered extremely unlikely. The NMR group retains control of the assets, and income relating to them continues to be recognised in the Group's results.
For the purposes of drawing up the cash flow statement, the 'cash and cash equivalents' items are analysed as follows:
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Cash and accounts with central banks | 3,500,132 | 3,643,942 |
| Interbank demand deposits and overnight loans (assets) | 779,584 | 783,974 |
| Other cash equivalents | 103,001 | 420,952 |
| Interbank demand deposits and overnight loans (liabilities) and due to central banks | (60,737) | (73,099) |
| TOTAL | 4,321,980 | 4,775,769 |
Other cash equivalents comprise overnight interbank reverse repos and public bills and securities which are held for trading.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Given to customers | 83,588 | 117,554 |
| Loan commitments | 83,588 | 117,554 |
| Given to banks | 21,384 | 20,672 |
| Given to customers | 76,657 | 56,442 |
| Guarantee commitments | 98,041 | 77,114 |
| Investment commitments | 183,754 | 234,839 |
| Pledged assets and other commitments given | 106,244 | 140,977 |
| Total other commitments given | 289,998 | 375,816 |
Investment commitments relate to Merchant Banking funds and investments.
The commitment to employees in respect of deferred remuneration is set out in note 28.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Received from banks | 135,000 | 61,000 |
| Loan commitments | 135,000 | 61,000 |
| Received from customers | 9,900 | 15,365 |
| Guarantee commitments | 9,900 | 15,365 |
| 31/03/16 | 31/03/15 | |||
|---|---|---|---|---|
| In thousands of euro | Land and buildings |
Other | Land and buildings |
Other |
| Up to 1 year | 32,708 | 2,332 | 34,006 | 2,099 |
| Between 1 and 5 years | 111,904 | 4,284 | 110,763 | 6,126 |
| Over 5 years | 132,015 | – | 141,796 | 118 |
| TOTAL | 276,627 | 6,616 | 286,565 | 8,343 |
On 2 October 2015, the Group announced that it had entered into an agreement to sell its UK asset finance business, Five Arrows Leasing Group Limited, to Paragon Bank PLC.
The transaction completed on 3 November 2015. Consideration for the sale amounted to €164 million. The transaction generated an exceptional accounting gain of €98.7 million, with the proceeds to be used for general corporate purposes and for investing in the growth of our three core businesses. On completion, in addition to the sale proceeds, the funding of €267 million provided by the Group to FALG was repaid to the Group.
The major categories of assets and liabilities in FALG at the date of disposal are set out below:
| In thousands of euro | 03/11/15 |
|---|---|
| Loans and advances to banks | 4,760 |
| Loans and advances to customers | 312,859 |
| Other assets | 12,950 |
| Tangible fixed assets | 17,304 |
| Goodwill | 3,459 |
| Deferred tax assets | 5,477 |
| Total assets | 356,809 |
| Due to banks | 716 |
| Intercompany borrowing | 267,126 |
| Other liabilities, accruals and deferred income | 22,244 |
| Current tax liabilities | 1,184 |
| Total liabilities | 291,270 |
Interest income
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Interest income – loans to banks | 8,118 | 9,920 |
| Interest income – loans to customers | 47,283 | 55,145 |
| Interest income – available-for-sale instruments | 5,716 | 6,556 |
| Interest income – derivatives | 34,174 | 20,353 |
| Interest income – other financial assets | 1,977 | 1,915 |
| TOTAL | 97,268 | 93,889 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Interest expense – due to banks and other financial institutions | (10,208) | (4,701) |
| Negative interest income from loans to banks | (19,536) | (3,533) |
| Interest expense – due to customers | (15,765) | (26,355) |
| Interest expense – debt securities in issue | (216) | – |
| Interest expense – subordinated debt | – | (211) |
| Interest expense – derivatives | (1,882) | (11,628) |
| Interest expense – other financial liabilities | (537) | (1,306) |
| TOTAL | (48,144) | (47,734) |
Fee and commission income
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Fees for advisory work and other services | 1,060,420 | 891,709 |
| Portfolio and other management fees | 400,434 | 338,981 |
| Banking and credit-related fees and commissions | 2,264 | 5,362 |
| Other fees | 11,707 | 15,148 |
| TOTAL | 1,474,825 | 1,251,200 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Fees for advisory work and other services | (8,699) | (7,062) |
| Portfolio and other management fees | (37,531) | (30,138) |
| Banking and credit-related fees and commissions | (75) | (564) |
| Other fees | (6,434) | (7,451) |
| TOTAL | (52,739) | (45,215) |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Net income – equity securities and related derivatives held for trading | 1,023 | 943 |
| Net income – foreign exchange operations | 28,015 | 31,206 |
| Net income – other trading operations | (7,807) | 165 |
| Net income – financial instruments designated at fair value through profit or loss | 37,084 | 28,345 |
| TOTAL | 58,315 | 60,659 |
Net gains and losses on financial instruments at fair value through profit or loss include the changes in fair value (excluding accrued interest) of financial instruments held in the trading portfolio and classified as financial instruments designated at fair value through profit or loss by option. These also include gains and losses on hedging transactions, foreign exchange gains and losses, and gains or losses arising from the ineffectiveness of hedging instruments.
In April 2015, the Group repaid a floating rate loan which had a swap attached to it to fix the interest rate. This swap, which was accounted for as a cash flow hedge, had a negative mark-to-market value of €7.9 million at the time of closure, which has been recycled in the line 'Net income – other trading operations'. The loan, which was refinanced on more favourable terms, relates to our London office property.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Gains or losses on disposal | 49,798 | 74,203 |
| Impairment losses | (3,095) | (5,647) |
| Dividend income | 4,377 | 10,271 |
| TOTAL | 51,080 | 78,827 |
Dividend income from the Group's interest in EdRS is included as dividend income within 'net income/(expense) from other assets' (note 31). The impairment charged in the year to 31 March 2015 is also included in note 31.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Income from leasing | 9,821 | 14,784 |
| Other income | 3,285 | 3,732 |
| TOTAL OTHER OPERATING INCOME | 13,106 | 18,516 |
| Expenses relating to assets used to generate lease income | (4,522) | (6,677) |
| Other expenses | (276) | (266) |
| TOTAL OTHER OPERATING EXPENSES | (4,798) | (6,943) |
Other operating income and expenses include leasing income from FALG. As detailed in note 22, FALG was sold on 3 November 2015.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Compensation and other staff costs | (928,321) | (792,520) |
| Defined benefit pension expenses (see note 19) | (13,147) | (17,375) |
| Defined contribution pension expenses | (12,041) | (10,262) |
| Staff costs | (953,509) | (820,157) |
| Administrative expenses | (267,297) | (257,064) |
| TOTAL | (1,220,806) | (1,077,221) |
As part of its variable pay strategy, the Group pays bonuses to employees. In some cases, the cash payment is deferred to future years, and, for certain key staff, deferred shares in R&Co are awarded in place of cash.
The cash awards are paid one, two and three years after the year of the award, and the expense is recognised over the two, three and four-year periods from the start of the year of the award to the date of payment. These awards are paid on the condition that the recipient is still an employee of the Group. For certain significant employees, a portion of the awards will be settled in the form of R&Co shares rather than cash, in response to the Capital Requirements Directive 4 (CRD4). The R&Co shares are released to the employees six months following the vesting date of the award.
A commitment to employees exists in connection with this deferred remuneration. Some of this has not yet accrued because it relates to a future service period. The amount of potential future payments that have not yet accrued is €85.7 million (€78.1 million as at 31 March 2015).
The objective of the deferred share-based payment awards is to link the reward of certain key staff with the performance of the Group. In addition to the requirement to remain employed by the Group, these awards may also be cancelled under specific circumstances.
R&Co also operates an Equity Scheme for some of its senior staff. Equity Scheme participants are required to invest in R&Co shares and for each share owned they are granted four share options. Shares invested are subject to a four-year lock-up period and the share options granted are subject to a vesting period before exercise.
Movements in the number of share options outstanding are as follows:
| 31/03/16 | 31/03/15 | |||
|---|---|---|---|---|
| Number | Weighted average exercise price, € |
Number | Weighted average exercise price, € |
|
| As at 1 April | 3,120,000 | 18.6 | 3,120,000 | 18.6 |
| Issued | 460,000 | 24.7 | – | – |
| AS AT 31 MARCH | 3,580,000 | 19.4 | 3,120,000 | 18.6 |
| Exercisable at the end of the year | – | – | – | – |
Share options outstanding at 31 March were as follows:
| 31/03/16 | 31/03/15 | |||
|---|---|---|---|---|
| Exercise price € | Number | Weighted average contractual life (years) |
Number | Weighted average contractual life (years) |
| €17.50–€18.00 | 1,560,000 | 7.5 | 1,560,000 | 8.5 |
| €18.01–€20.00 | 1,560,000 | 7.5 | 1,560,000 | 8.5 |
| €20.01–€22.00 | – – |
– | – | |
| €22.01–€24.00 | 115,000 | 9.5 | – | – |
| Over €24.00 | 345,000 | 9.5 | – | – |
| 3,580,000 | 7.8 | 3,120,000 | 8.5 |
The fair value of the share options awarded in the year was €0.9 million. This amount is charged to the income statement over the period of employee service required under the vesting conditions. As the options are equity-settled, there is no liability booked in the balance sheet in respect of these options, and there is no periodic charge or credit in the income statement as the options change in value.
On issuance, options are valued by an independent valuer using a Black-Scholes option valuation model. The key inputs into this model are the price of the underlying R&Co shares, the expected volatility of the share price (for which the historic volatility has been the primary consideration), and the estimated exercise date of the options (which is the mid-point between the dates of vesting and expiry). The valuation is based on the assumption that all recipients will remain with the Group.
The charge arising in the year that relates to share-based payments is included in the line 'Compensation and other staff costs', and amounts to €1.0 million (2015: €1.0 million).
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Amortisation of intangible assets | (9,694) | (9,843) |
| Depreciation of tangible assets | (27,075) | (25,754) |
| TOTAL | (36,769) | (35,597) |
No tangible or intangible fixed assets were impaired in the year (2015: nil).
| In thousands of euro | Impairment | Impairment reversal |
Recovered loans |
31/03/16 | 31/03/15 |
|---|---|---|---|---|---|
| Loans and receivables | (11,077) | 3,222 | 2,950 | (4,905) | (11,011) |
| Debt securities | (8,169) | 5,702 | – | (2,467) | (6,337) |
| Other assets | (7,284) | 2,717 | – | (4,567) | (5,010) |
| TOTAL | (26,530) | 11,641 | 2,950 | (11,939) | (22,358) |
Overview
Financial statements
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Impairment of long-standing shareholding | – | (3,212) |
| Long-standing shareholding dividend | 4,562 | 3,896 |
| Gains/(losses) on sales of tangible or intangible assets | 45 | 17,304 |
| Gains/(losses) on acquisition, disposal or impairment of subsidiaries and associates | 98,031 | 27,084 |
| TOTAL | 102,638 | 45,072 |
Gains on disposal of subsidiaries include a profit of €98.7 million from the sale of FALG. More information is given in note 22. Included in the prior period is the profit on the sale of Fircosoft, an associate, which realised a gain of €21.3 million.
'Net income/(expense) from other assets' includes an impairment loss of €nil (€3.2 million for the year ended 31 March 2015) relating to the Group's 8.4% equity investment in EdRS. Since the impairment was booked, the value of the Group's investment has increased by €15.7 million. In accordance with IFRS, the increase over the previously impaired value is taken to the available-for-sale reserve after adjusting for consequential tax and noncontrolling interest impacts. This investment, which is accounted for as an available-for-sale financial asset, has been consistently fair valued since 2007 in accordance with IFRS using the listed price.
| TOTAL | (65,079) | (62,839) |
|---|---|---|
| Deferred tax | (4,030) | (13,274) |
| Current tax | (61,049) | (49,565) |
| In thousands of euro | 31/03/16 | 31/03/15 |
The net tax charge can be analysed between a current tax charge and a deferred tax charge as follows:
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Tax charge for the period | (52,471) | (46,073) |
| Adjustments related to prior years | (974) | (269) |
| Irrecoverable dividend withholding tax | (7,133) | (2,447) |
| Other | (471) | (776) |
| TOTAL | (61,049) | (49,565) |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Temporary differences | (5,926) | (13,465) |
| Changes in tax rates | (154) | 9 |
| Adjustments related to prior years | 2,050 | 182 |
| TOTAL | (4,030) | (13,274) |
| In thousands of euro | 31/03/16 | 31/03/15 | ||
|---|---|---|---|---|
| Profit before tax | 422,304 | 316,693 | ||
| Expected tax charge at standard French rate | 34.4% | 145,399 | 34.4% | 109,037 |
| Main reconciling items | ||||
| Irrecoverable dividend withholding tax | +1.7% | 7,133 | +0.8% | 2,447 |
| Adjustments related to prior years | (0.3%) | (1,076) | +0.0% | 87 |
| Impairment of EdRS in lower tax area | – | – | +0.3% | 820 |
| Deferred tax rate changes | +0.1% | 556 | +2.8% | 8,732 |
| (Gains)/losses where no deferred tax recognised | +0.0% | 166 | (1.6%) | (5,165) |
| Profits and losses in lower tax areas | (5.6%) | (23,604) | (9.9%) | (31,250) |
| Partnership tax recognised outside the Group | (7.2%) | (30,536) | (8.1%) | (25,316) |
| Sale of FALG with nil tax charge | (8.0%) | (33,999) | – | – |
| Other | +0.3% | 1,040 | +1.1% | 3,447 |
| Actual tax charge | 15.4% | 65,079 | 19.8% | 62,839 |
| EFFECTIVE TAX RATE | 15.4% | 19.8% |
The term 'Executive Directors', in the context of this note and the Group governance arrangements surrounding the decision-making process at R&Co Gestion level, refers to corporate officers (mandataires sociaux) of R&Co Gestion, the Managing Partner of R&Co. The following remuneration was received by the corporate officers in 2015/2016:
| In thousands of euro | 31/03/16 |
|---|---|
| Fixed remuneration | 500 |
| Payments in kind | – |
| TOTAL | 500 |
Corporate officers did not benefit from payments in shares in respect of 2015/2016 and no severance benefits were provided for termination of work contracts. No other long-term benefits were granted.
The transactions during the year and balances at the end of the year between Group companies, which are fully consolidated, are eliminated on consolidation. Transactions and balances with companies accounted for by the equity method are shown separately in the table below.
Other related parties are the members of the supervisory board of R&Co; people with active control of the Group; people with active control in the parent company of R&Co as Rothschild Concordia SAS directors; companies that are controlled by the principal officers; and any person directly or indirectly responsible for management or control of the activities of R&Co. They also include close members of the family of any person who controls, exercises joint control or significant influence on R&Co, and persons related to Executive Directors and members of the Supervisory Board of R&Co or its parent company.
| 31/03/16 | 31/03/15 | |||||
|---|---|---|---|---|---|---|
| In thousands of euro | Companies accounted for by the equity method |
Executive Directors |
Other related parties |
Companies accounted for by the equity method |
Executive Directors |
Other related parties |
| Assets | ||||||
| Loans and advances to customers | – | 877 | 7,796 | 85 | 931 | 4,519 |
| Equity instruments | – | – | 2,999 | – | – | 11,304 |
| Other assets | – | – | 3 | 469 | – | 4 |
| TOTAL ASSETS | – | 877 | 10,798 | 554 | 931 | 15,827 |
| Liabilities | ||||||
| Due to customers | 75 | 5,817 | 91,476 | 479 | 989 | 120,937 |
| Other liabilities | – | – | 489 | – | – | – |
| TOTAL LIABILITIES | 75 | 5,817 | 91,965 | 479 | 989 | 120,937 |
| Loan and guarantee commitments | ||||||
| Guarantees and commitments given | – | 1,545 | 73 | – | 1,987 | 73 |
| TOTAL COMMITMENTS | – | 1,545 | 73 | – | 1,987 | 73 |
| Realised operating income from transactions with related parties | ||||||
| Interest received | – | – | 10 | – | 20 | 40 |
| Interest paid | – | – | (332) | – | – | (273) |
| Commissions received | 164 | – | – | 333 | – | – |
| Commissions paid | – | – | – | – | – | (29) |
| Other income | 1,827 | – | 3,531 | 668 | – | 781 |
| TOTAL INCOME | 1,991 | – | 3,209 | 1,001 | 20 | 519 |
| Other expenses | (911) | – | (3,000) | (849) | (386) | (1,550) |
| TOTAL EXPENSES | (911) | – | (3,000) | (849) | (386) | (1,550) |
| Cailliau Dedouit et Associés | KPMG Audit | |||||||
|---|---|---|---|---|---|---|---|---|
| 31/03/16 | 31/03/15 | 31/03/16 | 31/03/15 | |||||
| In thousands of euro | % | % | % | % | ||||
| Audit | ||||||||
| Fees related to statutory audit, certification, examination of individual and consolidated accounts: | ||||||||
| R&Co (parent company) | 174 | 45% | 170 | 48% | 174 | 5% | 170 | 5% |
| Subsidiaries fully consolidated | 174 | 45% | 176 | 49% | 2,474 | 69% | 2,641 | 77% |
| Sub-total | 348 | 89% | 346 | 97% | 2,648 | 74% | 2,811 | 82% |
| Fees related to audit services and related assignments: | ||||||||
| R&Co (parent company) | 13 | 3% | – | – | 22 | 1% | 18 | 1% |
| Subsidiaries fully consolidated | 30 | 8% | 11 | 3% | 612 | 17% | 244 | 7% |
| Sub-total | 43 | 11% | 11 | 3% | 634 | 18% | 262 | 8% |
| Other services from the network of consolidated subsidiaries: | ||||||||
| Law, tax and social | – | – | – | – | 289 | 8% | 312 | 9% |
| Other | – | – | – | – | 23 | 1% | 54 | 2% |
| Sub-total | – | – | – | – | 312 | 9% | 366 | 11% |
| TOTAL | 391 | 100% | 357 | 100% | 3,594 | 100% | 3,439 | 100% |
The 2014/2015 audit fee analysis has been restated to be consistent with the 2015/2016 analysis. Total audit fees for 2014/2015 remain unchanged.
The table below presents a segmental analysis by business line, prepared from non-IFRS data, and its reconciliation with IFRS data. The 'IFRS reconciliation' column includes items that mainly relate to the treatment of profit share paid to French partners as non-controlling interests; accounting for deferred bonuses over the period that they are earned; the application of IAS 19 (R) for defined benefit pension schemes; and reallocation of impairments and certain operating expenses.
| In thousands of euro | Rothschild Global Advisory |
Asset Management(1) |
Other(2) | Total before IFRS reconciliation |
IFRS reconciliation |
31/03/16 |
|---|---|---|---|---|---|---|
| Net banking income | 1,040,383 | 486,431 | 56,019 | 1,582,833 | 6,080 | 1,588,913 |
| Operating expenses | (873,031) | (404,250) | (101,379) | (1,378,660) | 121,085 | (1,257,575) |
| Impairments | – | (588) | (1,463) | (2,051) | (9,888) | (11,939) |
| Operating income | 167,352 | 81,593 | (46,823) | 202,122 | 117,277 | 319,399 |
| Share of profits of associated entities | 267 | |||||
| Net income/(expense) from other assets | 102,638 | |||||
| Profit before tax | 422,304 |
(1) Asset Management comprises Rothschild Private Wealth, Rothschild Asset Management and Rothschild Merchant Banking.
(2) Other comprises central costs, legacy businesses, including Banking & Asset Finance, and other.
As explained in note 25, the closure of an interest rate swap resulted in a negative mark-to-market cost of €7.9 million. This cost is shown in the 'other' business line segment as an expense, and then reclassified as an IFRS reconciling item to net banking income.
| In thousands of euro | Rothschild Global Advisory |
Asset Management(1) |
Other(2) | Total before IFRS reconciliation |
IFRS reconciliation |
31/03/15 |
|---|---|---|---|---|---|---|
| Net banking income | 879,639 | 481,619 | 63,514 | 1,424,772 | (21,573) | 1,403,199 |
| Operating expenses | (740,741) | (348,215) | (99,225) | (1,188,181) | 75,363 | (1,112,818) |
| Impairments | (38) | 502 | (14,961) | (14,497) | (7,861) | (22,358) |
| Operating income | 138,860 | 133,906 | (50,672) | 222,094 | 45,929 | 268,023 |
| Share of profits of associated entities | 3,598 | |||||
| Net income/(expense) from other assets | 45,072 | |||||
| Profit before tax | 316,693 |
(1) Asset Management comprises Rothschild Private Wealth, Rothschild Asset Management and Rothschild Merchant Banking. (2) Other comprises central costs, legacy businesses, including Banking & Asset Finance, and other.
| In thousands of euro | 31/03/16 | % | 31/03/15 | % |
|---|---|---|---|---|
| United Kingdom and Channel Islands | 560,082 | 35% | 475,724 | 34% |
| France | 414,677 | 26% | 355,788 | 25% |
| Americas | 236,577 | 15% | 157,791 | 11% |
| Rest of Europe | 180,725 | 11% | 217,664 | 16% |
| Switzerland | 117,057 | 7% | 108,160 | 8% |
| Australia and Asia | 57,324 | 4% | 74,758 | 5% |
| Other | 22,471 | 2% | 13,314 | 1% |
| TOTAL | 1,588,913 | 100% | 1,403,199 | 100% |
The breakdown by geographic segment is based on the geographic location of the entity that records the income or which holds the asset. Further information about geographical results is shown in note 38.
Business review
| In millions of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Net income – Group share | 231.9 | 143.6 |
| preferred dividends adjustment | (0.7) | (0.8) |
| Net income – Group share after preferred dividends adjustment | 231.2 | 142.8 |
| Basic average number of shares in issue – 000s | 68,586 | 68,545 |
| Earnings per share – basic (euro) | 3.37 | 2.08 |
| Diluted average number of shares in issue – 000s | 69,646 | 68,545 |
| Earnings per share – diluted (euro) | 3.32 | 2.08 |
Basic earnings per share are calculated by dividing 'net income – Group share' (after removing accrued preferred dividends, which are not part of the profit earned by ordinary shareholders) by the weighted average number of ordinary shares in issue during the period.
Diluted earnings per share are calculated using the treasury share method, after taking into account the effects of all dilutive potential ordinary shares.
As there were no gains or losses on discontinued activities, the earnings per share on continuing activities are the same as earnings per share.
Article 7 of Law No. 2013-672 of the French Monetary and Financial Code of 26 July, 2013, amending Article L.511-45, requires credit institutions to publish information on their locations and activities in each country or territory.
The following table shows the material subsidiaries and associates which are included in the Group consolidated accounts, and the territory in which they are domiciled. The list below does not include dormant or nominee companies, on account of their immateriality.
The activities shown below are defined in note 35.
| 31/03/16 | 31/03/15 | Consolidation method(1) | ||||||
|---|---|---|---|---|---|---|---|---|
| Company name | Activity | % Group voting interest |
% Group ownership interest |
% Group voting interest |
% Group ownership interest |
31/03/16 | 31/03/15 | |
| Australia | ||||||||
| Arrow Capital Pty Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| Rothschild Australia Limited | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| Belgium | ||||||||
| Rothschild Belgique – branch | Asset Management | 100.00 | 99.30 | 100.00 | 99.24 | FC | FC | |
| Transaction R Belgique – branch | Global Advisory | 99.73 | 99.00 | 99.73 | 98.95 | FC | FC | |
| Bermuda | ||||||||
| Rothschild Trust (Bermuda) Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC | |
| Brazil | ||||||||
| N M Rothschild & Sons (Brasil) Limitada | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| British Virgin Islands | ||||||||
| Five Arrows Capital Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| Master Nominees Inc. | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC | |
| Canada | ||||||||
| Rothschild (Canada) Holdings Inc. | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| Rothschild (Canada) Inc. | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| Rothschild (Canada) Securities Inc. | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| Rothschild Trust Canada Inc. | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC | |
| Rothschild Trust Protectors Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC | |
| Cayman Islands | ||||||||
| JRE Asia Capital Management Ltd | Other | 50.00 | 49.61 | 50.00 | 49.58 | EM | EM | |
| Rothschild Trust Cayman Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
(1) FC: full consolidation.
EM: equity method.
| 31/03/16 | 31/03/15 | Consolidation method(1) | |||||
|---|---|---|---|---|---|---|---|
| Company name | Activity | % Group voting interest |
% Group ownership interest |
% Group voting interest |
% Group ownership interest |
31/03/16 | 31/03/15 |
| Channel Islands | |||||||
| Blackpoint Management Limited | Asset Management | 100.00 | 95.28 | 100.00 | 95.25 | FC | FC |
| FAC Carry LP | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows Capital GP Limited | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows Mezzanine Holder LP | Asset Management | 88.00 | 86.71 | 88.00 | 86.59 | FC | FC |
| Five Arrows Partners LP | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows Proprietary Feeder LP | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows Staff Co-investment LP | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Guernsey Global Trust Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Jofran Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Lanebridge (Arena Plaza) Jersey GP Limited | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Maison (CI) Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Quintus European Mezzanine (GP) Limited | Asset Management | – | – | 100.00 | 98.40 | – | FC |
| Quintus European Mezzanine Fund Limited partnership |
Asset Management | 50.00 | 49.27 | 50.00 | 49.20 | EM | EM |
| Rothschild Asset Management Holdings (CI) Limited |
Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Bank (CI) Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild Bank International Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Mexico (Guernsey) Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Switzerland (CI) Trustees Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild Trust Financial Services Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild Trust Guernsey Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschilds Continuation Finance (CI) Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| S y C (International) Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Shield Holdings (Guernsey) Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Shield Securities Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| St. Julian's Properties Limited | Other | 50.00 | 49.27 | 50.00 | 49.20 | EM | EM |
| TM New Court Plan Trust | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| China | |||||||
| Rothschild & Sons Financial Advisory Services (Beijing) Co. Ltd |
Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Financial Advisory Services (Tianjin) Co. Ltd. |
Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Curaçao | |||||||
| N M Rothschild & Sons (Asia) NV | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| NMR Consultants NV | Other | – | – | 100.00 | 98.40 | – | FC |
| NMR International NV | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Latin America NV | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| France | |||||||
| Aix-Rabelais | Other | 100.00 | 99.30 | 100.00 | 99.24 | FC | FC |
| Concordia Holding SARL | Other | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| Financière Rabelais SAS | Other | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| Five Arrows Managers SAS | Asset Management | 100.00 | 99.92 | 100.00 | 99.01 | FC | FC |
| GIE Rothschild & Cie | Other | 100.00 | 99.30 | 100.00 | 99.24 | FC | FC |
(1) FC: full consolidation. EM: equity method.
Rothschild & Co | Annual Report | 2015/2016 157
Financial statements
| 31/03/16 | 31/03/15 | Consolidation method(1) | |||||
|---|---|---|---|---|---|---|---|
| Company name | Activity | % Group voting interest |
% Group ownership interest |
% Group voting interest |
% Group ownership interest |
31/03/16 | 31/03/15 |
| K Développement SAS | Asset Management | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| Messine Manager Investissement SAS | Other | 100.00 | 99.95 | 100.00 | 99.80 | FC | FC |
| Messine Participations SAS | Other | 100.00 | 99.22 | 100.00 | 99.15 | FC | FC |
| Monceau Rabelais SAS (ex Rothschild Investments Solutions) |
Other | 100.00 | 99.29 | 100.00 | 99.23 | FC | FC |
| Montaigne Rabelais SAS | Other | 100.00 | 99.30 | 100.00 | 99.24 | FC | FC |
| Paris Orléans Holding Bancaire SAS | Other | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| PO Capinvest 1 SAS | Asset Management | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| PO Développement SAS | Asset Management | – | – | 100.00 | 99.95 | – | FC |
| PO Fonds SAS | Asset Management | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| PO Mezzanine SAS | Asset Management | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| Rothschild & Cie SCS(2) | Global Advisory | 99.98 | 99.28 | 99.98 | 99.22 | FC | FC |
| Rothschild & Co SCA (previously Paris Orléans SCA) |
Asset Management | 100.00 | 99.95 | 100.00 | 99.95 | Parent company |
Parent company |
| Rothschild & Compagnie Banque SCS(2) | Asset Management and Other | 99.99 | 99.30 | 99.99 | 99.24 | FC | FC |
| Rothschild & Compagnie Gestion SCS(2) | Asset Management | 99.99 | 99.29 | 99.99 | 99.23 | FC | FC |
| Rothschild Assurance & Courtage SCS | Asset Management | 99.83 | 99.12 | 99.83 | 99.05 | FC | FC |
| Rothschild Europe SNC (French partnership) | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Rothschild HDF Investment Solutions SAS | Asset Management | 100.00 | 95.28 | 100.00 | 95.25 | FC | FC |
| SCS Holding SAS | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Sélection 1818 SA | Asset Management | 25.00 | 24.80 | 25.00 | 24.79 | EM | EM |
| Transaction R SCS(2) | Global Advisory | 99.81 | 99.01 | 99.83 | 98.95 | FC | FC |
| TRR Partenaires | Global Advisory | 50.00 | 49.64 | – | – | EM | – |
| Verseau SAS | Asset Management | 95.00 | 94.95 | 95.00 | 94.95 | FC | FC |
| Germany | |||||||
| Rothschild & Cie Gestion – Frankfurt branch | Asset Management | – | – | 99.99 | 99.23 | – | FC |
| Rothschild GmbH | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Rothschild Vermögensverwaltungs-GmbH | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Hong Kong | |||||||
| JRE Asia Capital (Hong Kong) Ltd | Asset Management | 100.00 | 49.61 | 100.00 | 49.58 | EM | EM |
| RAIL Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild (Hong Kong) Limited | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Wealth Management (Hong Kong) Limited |
Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| India | |||||||
| JRE Asia Capital Advisory Services (India) Private Limited |
Asset Management | 100.00 | 49.61 | 100.00 | 49.58 | EM | EM |
| Rothschild (India) Private Limited | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Indonesia | |||||||
| PT Rothschild Indonesia | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Israel | |||||||
| RCF (Israel) BV – Israel branch | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Italy | |||||||
| Rothschild & Cie Gestion – Milan branch | Asset Management | 99.99 | 99.29 | 99.99 | 99.23 | FC | FC |
| Rothschild SpA | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
(1) FC: full consolidation.
EM: equity method. (2) % ownership interest is stated before profit share.
| 31/03/16 | Consolidation method(1) | ||||||
|---|---|---|---|---|---|---|---|
| Company name | Activity | % Group | % Group | 31/03/15 % Group |
% Group | 31/03/16 | 31/03/15 |
| voting interest |
ownership interest |
voting interest |
ownership interest |
||||
| Rothschild Trust Italy Srl | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild Wealth Management (UK) Limited – Milan branch |
Asset Management | 100.00 | 80.57 | 100.00 | 80.46 | FC | FC |
| Luxembourg | |||||||
| Centrum Jonquille Sàrl | Asset Management | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| Centrum Narcisse Sàrl | Asset Management | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| Centrum Orchidée | Asset Management | – | – | 100.00 | 99.95 | – | FC |
| Fin PO SA | Asset Management | 100.00 | 99.92 | 100.00 | 99.92 | FC | FC |
| Five Arrows Co-Investments Feeder V SCA SICAR |
Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows Credit Solutions General Partner | Asset Management | 100.00 | 99.92 | 100.00 | 99.01 | FC | FC |
| Five Arrows Credit Solutions C General Partner | Asset Management | 100.00 | 99.92 | 100.00 | 99.01 | FC | FC |
| Five Arrows Investments SCA SICAR | Asset Management | – | – | 100.00 | 99.16 | – | FC |
| Five Arrows Managers SA | Asset Management | 100.00 | 99.92 | 100.00 | 99.01 | FC | FC |
| Five Arrows Mezzanine Investments Sàrl | Asset Management | 100.00 | 99.23 | 100.00 | 99.16 | FC | FC |
| Five Arrows Mircan Invest SCS | Asset Management | 100.00 | 99.40 | – | – | FC | – |
| Five Arrows Principal Investments II B SCSp | Asset Management | 100.00 | 99.92 | – | – | FC | – |
| Five Arrows Principal Investments International Feeder SCA SICAR |
Asset Management | 100.00 | 99.23 | 100.00 | 99.16 | FC | FC |
| Five Arrows Secondary Opportunities III FCPR | Asset Management | 100.00 | 99.48 | 100.00 | 99.42 | FC | FC |
| Jardine Rothschild Asia Capital (Luxembourg) Sàrl |
Other | 50.00 | 49.61 | 50.00 | 49.58 | EM | EM |
| Messine Investissement SA | Asset Management | 100.00 | 99.22 | 100.00 | 99.15 | FC | FC |
| Oberon GP Sàrl | Asset Management | 100.00 | 99.92 | 100.00 | 99.01 | FC | FC |
| Oberon II GP Sàrl | Asset Management | 100.00 | 99.92 | 100.00 | 99.01 | FC | FC |
| PO Invest 2 SA SOPARFI | Asset Management | 93.85 | 93.80 | 93.78 | 93.71 | FC | FC |
| PO Participations Sàrl | Asset Management | 99.98 | 99.92 | 99.98 | 99.92 | FC | FC |
| R Commodity Finance Fund General Partner | Asset Management | 100.00 | 95.28 | 63.00 | 95.25 | FC | FC |
| RPO Invest 1 SCSp | Asset Management | 99.48 | 99.40 | 99.50 | 99.40 | FC | FC |
| Malaysia | |||||||
| Rothschild Malaysia Sendirian Berhad | Global Advisory | 70.00 | 98.53 | 70.00 | 98.40 | FC | FC |
| Mauritius | |||||||
| JRE Asia Capital (Mauritius) Ltd | Other | – | – | 33.34 | 49.58 | – | EM |
| Mexico | |||||||
| Rothschild (Mexico) SA de CV | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Netherlands | |||||||
| Continuation Investments NV | Asset Management | 39.33 | 37.31 | 39.33 | 37.30 | EM | EM |
| RCF (Israel) BV | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| RCF (Russia) BV | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Rothschild Europe BV | Other | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Rothschilds Continuation Finance BV | Other | 69.00 | 68.22 | 69.00 | 68.15 | FC | FC |
| New Zealand | |||||||
| Rothschild Trust New Zealand Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Poland | |||||||
| Rothschild Polska Sp. z o.o. | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
(1) FC: full consolidation. EM: equity method.
Rothschild & Co | Annual Report | 2015/2016 159
Overview
| 31/03/16 | 31/03/15 | Consolidation method(1) | |||||
|---|---|---|---|---|---|---|---|
| Company name | Activity | % Group voting interest |
% Group ownership interest |
% Group voting interest |
% Group ownership interest |
31/03/16 | 31/03/15 |
| Portugal | |||||||
| Rothschild Portugal Limitada | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Qatar | |||||||
| Rothschild (Qatar) LLC | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Russia | |||||||
| RCF (Russia) BV – Moscow branch | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Singapore | |||||||
| Rothschild (Singapore) Limited | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Trust (Singapore) Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild Wealth Management (Singapore) Limited |
Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| South Africa | |||||||
| Rothschild (South Africa) Foundation | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild (South Africa) Proprietary Limited | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Southern Arrows Proprietary Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Spain | |||||||
| Rothschild SA | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Sweden | |||||||
| Rothschild Nordic AB | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Switzerland | |||||||
| Creafin AG | Other | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Equitas SA | Asset Management | 90.00 | 65.59 | 90.00 | 65.50 | FC | FC |
| ESOP Services AG | Asset Management | 100.00 | 97.52 | 100.00 | 97.52 | FC | FC |
| Five Arrows Capital AG | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| RBZ Fiduciary Ltd. | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| RCH Employees Share Trust | Other | – | – | 100.00 | 98.40 | – | FC |
| Rothschild & Cie Gestion – Zurich branch | Asset Management | 99.99 | 99.29 | 99.99 | 99.23 | FC | FC |
| Rothschild Asset Management Holdings AG | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Bank AG | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild China Holding AG | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Concordia AG | Other | 100.00 | 97.52 | 100.00 | 97.52 | FC | FC |
| Rothschild Holding AG | Other | 73.94 | 72.87 | 73.96 | 72.77 | FC | FC |
| Rothschild India Holding AG | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Private Trust Holdings AG | Other | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild Trust (Switzerland) Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschilds Continuation Holdings AG | Other | 99.87 | 98.53 | 99.77 | 98.40 | FC | FC |
| RTB Administrators AG | Asset Management | 100.00 | 72.87 | – | – | FC | – |
| RTS Geneva SA | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Turkey | |||||||
| Rothschild – Kurumsal Finansman Hizetleri Limited Sirketi |
Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| United Arab Emirates | |||||||
| Rothschild Europe BV Abu Dhabi Rep. Office | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| Rothschild (Middle East) Limited | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
(1) FC: full consolidation.
| 31/03/16 | 31/03/15 | Consolidation method(1) | |||||
|---|---|---|---|---|---|---|---|
| Company name | Activity | % Group voting interest |
% Group ownership interest |
% Group voting interest |
% Group ownership interest |
31/03/16 | 31/03/15 |
| United Kingdom | |||||||
| City Business Finance Limited | Other | – | – | 100.00 | 98.40 | – | FC |
| Continuation Computers Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Dash Commercial Finance Limited | Asset Management | – | – | 100.00 | 78.72 | – | FC |
| Elgin Capital Services Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| F.A. International Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows Managers LLP (formerly Elgin Capital LLP) |
Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows (Scotland) General Partner Limited Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| Five Arrows Business Finance plc (ex State Securities plc) |
Asset Management | – | – | 100.00 | 98.40 | – | FC |
| Five Arrows Finance Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows Leasing Group Limited | Other | – | – | 100.00 | 98.40 | – | FC |
| Five Arrows Leasing Holdings Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Five Arrows Media Finance Limited | Other | – | – | 100.00 | 98.40 | – | FC |
| International Property Finance (Spain) Limited Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC | |
| Investor Perceptions Limited | Other | 100.00 | 98.53 | 50.00 | 49.20 | FC | EM |
| Lanebridge Holdings Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Lanebridge Investment Management Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Marplace (No 480) Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| N M Rothschild & Sons Limited | Global Advisory, Asset Management and Other |
100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| N M Rothschild Holdings Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| New Court Property Services | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| New Court Securities Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| NMR Europe (UK partnership) | Global Advisory | 100.00 | 98.91 | 100.00 | 98.82 | FC | FC |
| O C Investments Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Risk Based Investment Solutions Ltd | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild Australia Holdings Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Credit Management Limited | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Gold Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild HDF Investment Adviser Limited | Asset Management | 100.00 | 95.28 | 100.00 | 95.25 | FC | FC |
| Rothschild Holdings Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Investments Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Private Fund Management Limited Asset Management | – | – | 100.00 | 80.46 | – | FC | |
| Rothschild Trust Corporation Limited | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| Rothschild Wealth Management (UK) Limited | Asset Management | 100.00 | 80.57 | 100.00 | 80.46 | FC | FC |
| Rothschilds Continuation Finance Holdings Limited |
Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschilds Continuation Finance PLC | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschilds Continuation Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Second Continuation Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Shield MBCA Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Shield Trust Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
(1) FC: full consolidation.
EM: equity method.
| Activity | 31/03/16 | 31/03/15 | Consolidation method(1) | ||||
|---|---|---|---|---|---|---|---|
| Company name | % Group voting interest |
% Group ownership interest |
% Group voting interest |
% Group ownership interest |
31/03/16 | 31/03/15 | |
| Specialist Fleet Services Limited | Other | – | – | 100.00 | 98.40 | – | FC |
| State Securities Holdings Limited | Other | – | – | 100.00 | 98.40 | – | FC |
| Third New Court Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Walbrook Assets Limited | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| United States of America | |||||||
| Five Arrows Friends & Family Feeder LP | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Francarep Inc | Asset Management | 100.00 | 99.95 | 100.00 | 99.95 | FC | FC |
| PO Black LLC | Asset Management | 100.00 | 82.87 | 100.00 | 82.87 | FC | FC |
| Rothschild Asset Management Inc. | Asset Management | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Inc. | Global Advisory | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Larch Lane Managment Company LLC |
Asset Management | 50.00 | 49.27 | 50.00 | 49.20 | EM | EM |
| Rothschild North America Holdings Inc. | Other | 100.00 | 98.53 | – | – | FC | – |
| Rothschild North America Inc. | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Realty Group Inc. | Other | 100.00 | 98.53 | 100.00 | 98.40 | FC | FC |
| Rothschild Trust North America LLC | Asset Management | 100.00 | 72.87 | 100.00 | 72.77 | FC | FC |
| West Gate Horizon Advisors LLC | Asset Management | 100.00 | 98.53 | – | – | FC | – |
(1) FC: full consolidation.
Pursuant to Article L511-45 II to V of the French Monetary and Financial Code, referred to in note 37 'Consolidation scope', the table below specifically provides information linked to net banking income, pre-tax profit, income tax and headcount as at 31 March 2016.
| Country/region of operation | Net banking income (in millions of euro) |
Profit before tax (in millions of euro) |
Current tax (in millions of euro) |
Deferred tax (in millions of euro) |
Headcount (full-time equivalent) |
|---|---|---|---|---|---|
| United Kingdom | 531.7 | 172.2 | (8.8) | (8.3) | 849 |
| France | 414.7 | 137.1 | (22.3) | 4.6 | 684 |
| Other Europe | 155.1 | 38.5 | (10.4) | (0.8) | 296 |
| North America | 202.8 | 17.3 | (7.6) | 0.2 | 267 |
| Switzerland | 117.4 | 13.6 | (2.8) | (1.8) | 359 |
| Asia-Pacific and Latin America | 91.3 | (2.0) | (6.9) | 2.0 | 242 |
| Luxembourg | 30.5 | 26.9 | (0.1) | – | 11 |
| Channel Islands | 28.5 | 13.7 | (0.9) | – | 75 |
| British Virgin Islands | 0.3 | 0.1 | – | – | – |
| Curaçao | (0.4) | (0.4) | (0.1) | – | – |
| Cayman Islands | (0.1) | (0.1) | – | – | – |
| Bermuda | – | (0.0) | – | – | – |
| Other | 22.5 | 5.4 | (1.1) | 0.1 | 46 |
| Total before intercompany elimination | 1,594.3 | 422.3 | (61.0) | (4.0) | 2,829 |
| Intercompany elimination | (5.4) | – | – | – | – |
| TOTAL | 1,588.9 | 422.3 | (61.0) | (4.0) | 2,829 |
Revenues and profits are measured before the elimination of intercompany fees and interest income and expense.
The Group has not received any public subsidies in the year.
For France, profit before tax includes amounts deducted as non-controlling interests, being profit share paid as preferred amounts to French partners who individually account for tax (see also note 32). In the UK, the profit on the sale of FALG of €98.7 million is not taxable.
Management report
Financial statements
Overview
This is a free translation into English of the statutory auditors' report on the consolidated financial statements issued in French and it is provided solely for the convenience of English-speaking users.
The statutory auditors' report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the audit opinion on the consolidated financial statements and includes an explanatory paragraph discussing the auditors' assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account balances, transactions, or disclosures.
This report also includes information relating to the specific verification of information given in the Group's management report.
This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
In compliance with the assignment entrusted to us by your General Meeting, we hereby report to you, for the year ended 31 March 2016, on:
These consolidated financial statements have been approved by the Management. Our role is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at 31 March 2016 and of the results of its operations for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union.
In accordance with the requirements of article L. 823-9 of the French Commercial Code ('Code de commerce') relating to the justification of our assessments, we bring to your attention the following matters:
• Your Group accounts for impairments in order to cover for credit risks inherent in its activities.
Our work consisted in assessing the appropriateness of the processes used by the management, in reviewing the control procedures implemented to identify and measure such exposures and their valuation, in examining data and available documentation used, in assessing the underlying assumptions and make sure appropriate disclosure is included in the notes to the financial statements, in particular in note 30.
• Your Group performs accounting estimates related to the assessment of the fair value of available-for-sale financial assets, intangible assets and goodwill.
Our work consisted in assessing the appropriateness of the processes used by the management, in reviewing, when applicable, independent valuation reports, in examining data and available documentation used, in assessing the underlying assumptions and make sure appropriate disclosure is included in the notes to the financial statements, in particular in notes 3, 9, 10 and 26.
• Your Group records some provisions to cover the risks and litigation generated by its activities (note 22 of Part III and note 14 of Part V).
We reviewed the methodology of determining these provisions as well as the main assumptions used.
• Your Group recognised deferred tax assets, some of which are relating to losses carried forward (note 19 of Part III and note 16 of Part V).
We examined the main estimates and assumptions that led to the recognition of these deferred taxes.
We also assessed whether these estimates were reasonable.
However, we point out that these estimates are based on forecasts that are therefore uncertain; realised outcomes could differ significantly from these forecasts.
These assessments were made as part of our audit of the consolidated financial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the first part of this report.
As required by law we have also verified, in accordance with professional standards applicable in France, the information related to the Group presented in the Management report.
We have no matters to report as to its fair presentation and its consistency with the consolidated financial statements.
Paris La Défense, 22 June 2016 Paris, 22 June 2016
Partner Partner
Pascal Brouard Jean-Jacques Dedouit
| 31/03/15 | |||||
|---|---|---|---|---|---|
| In thousands of euro | Notes | Gross value |
Depreciation, amortisation and provisions |
Net carrying amount |
Net carrying amount |
| Non-current assets | |||||
| Intangible assets | |||||
| Concessions, patents, brand and software | 226 | 216 | 10 | – | |
| Total intangible assets | 226 | 216 | 10 | – | |
| Property, plant and equipment | |||||
| Land | – | – | – | – | |
| Buildings | 15 | 15 | – | – | |
| Other property, plant and equipment | 495 | 354 | 141 | 102 | |
| Total property, plant and equipment | 510 | 369 | 141 | 102 | |
| Non-current financial assets | |||||
| Investments in Group and other companies | 1 | 1,461,895 | 783 | 1,461,112 | 1,454,813 |
| Portfolio holdings | 2 | 25,834 | 7,635 | 18,199 | 16,258 |
| Receivables related to portfolio holdings | – | – | – | 334 | |
| Loans | 1 | – | 1 | – | |
| Other non-current financial assets | 6 | – | 6 | 6 | |
| Total non-current financial assets | 1,487,736 | 8,418 | 1,479,318 | 1,471,411 | |
| Total non-current assets | 1,488,472 | 9,003 | 1,479,469 | 1,471,513 | |
| Current assets | |||||
| Accounts receivable | 3 | 16,910 | – | 16,910 | 33,553 |
| Marketable securities | 4 | ||||
| Treasury stock | 1,127 | – | 1,127 | 10 | |
| Other securities | 3,272 | – | 3,272 | 4,426 | |
| Cash | 67,394 | – | 67,394 | 60,206 | |
| Prepaid expenses | 215 | – | 215 | 157 | |
| Total current assets | 88,918 | – | 88,918 | 98,352 | |
| Unrealised translation losses | 5 | 3,574 | – | 3,574 | 5,314 |
| TOTAL ASSETS | 1,580,964 | 9,003 | 1,571,961 | 1,575,179 |
| In thousands of euro | Notes | 31/03/16 | 31/03/15 |
|---|---|---|---|
| Shareholders' equity | 6 | ||
| Share capital | 142,274 | 142,274 | |
| Share premium | 983,062 | 983,062 | |
| Reserves | |||
| Legal reserves | 13,556 | 12,968 | |
| Regulated reserves | – | – | |
| Other reserves | 153,044 | 153,044 | |
| Retained earnings | 87,718 | 119,620 | |
| Net income for the year | 61,499 | 11,764 | |
| Regulated provisions | 303 | 303 | |
| Total shareholders' equity | 1,441,456 | 1,423,035 | |
| Provisions for contingencies and charges | |||
| Provisions for contingencies | 7 | 3,466 | 3,650 |
| Total provisions for contingencies and charges | 3,466 | 3,650 | |
| Liabilities | |||
| Financial liabilities | |||
| Borrowings and other financial liabilities – banks | 8 | 29,084 | 60,879 |
| Borrowings and other financial liabilities – others | – | – | |
| Operating liabilities | 9 | 12,255 | 2,564 |
| Other liabilities | 10 | 85,592 | 83,387 |
| Total liabilities | 126,931 | 146,830 | |
| Unrealised translation gains | 108 | 1,664 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 1,571,961 | 1,575,179 |
Financial statements
| In thousands of euro | Notes | 31/03/16 | 31/03/15 |
|---|---|---|---|
| Income transactions | |||
| Operating income transactions | |||
| Operating income | 11 | 745 | 2,616 |
| Operating expenses | 12 | (20,275) | (13,302) |
| Net operating income | (19,530) | (10,686) | |
| Other income transactions | |||
| Income from investments in Group and other companies and portfolio holdings | 13 | 62,434 | 19,474 |
| Other financial income | 14 | 915 | 1,758 |
| Capital gains/(losses) on disposals of marketable securities | 15 | (46) | 649 |
| Charge/(recovery) of provisions on transactions affecting the income | 16 | 205 | (3,605) |
| Financial expenses | 17 | (1,693) | (1,546) |
| Income from other income transactions | 61,815 | 16,730 | |
| Income from joint ventures | |||
| Share of profit/(loss) | – | – | |
| Current income before tax | 42,285 | 6,044 | |
| Income from capital transactions | 18 | 21,795 | 1,888 |
| Income tax charge/(credit) | 19 | (2,581) | 3,832 |
| NET INCOME | 61,499 | 11,764 |
The last ordinary and extraordinary General Meeting, on 24 September 2015, decided to change the legal name 'Paris Orléans' to adopt the legal name 'Rothschild & Co'. Rothschild & Co SCA ended financial year 2015/2016 with net income of €61.5 million, compared with €11.8 million the previous year. Thus, Rothschild & Co's net income grew more than five times between both financial years.
During financial year 2015/2016, the Company received dividends of €59.2 million from its subsidiary Paris Orléans Holding Bancaire SAS (POHB), which therefore contributed significantly to the year's earnings. The Company also realised a pre-tax capital gain of €17.2 million with the disposal of the historical 4.2% stake held in Perenco Rio Del Rey, an oil company in Cameroon.
On 6 June 2016, Rothschild & Co and Compagnie Financière Martin Maurel announced a plan to merge, with a view to combining their French activities in private banking and asset management to create one of France's leading independent private banks.
The transaction would take the form of a merger between Rothschild & Co and Compagnie Financière Martin Maurel. Shareholders in Compagnie Financière Martin Maurel would be offered either 126 Rothschild & Co shares per existing share or, prior to the completion of the merger, be able to sell their Compagnie Financière Martin Maurel shares in cash. The Maurel family would receive Rothschild & Co shares and, as a result of the merger, would replace Compagnie Financière Martin Maurel in the extended family concert.
The vote on the transaction by the shareholders of Compagnie Financière Martin Maurel is secured; Compagnie Financière Martin Maurel has already received irrevocable support for the merger from shareholders representing more than the qualified majority required to vote on the merger.
Compagnie Financière Martin Maurel is valued at €240 million, with the 2015 dividend attached. The transaction would be financed by a mixture of newly issued Rothschild & Co shares, Rothschild & Co's own cash resources and external credit facilities.
Rothschild & Co's Supervisory Board and Compagnie Financière Martin Maurel's board of directors have both favourably welcomed the principle of the merger. The merger is conditional on the approval of the shareholders of Compagnie Financière Martin Maurel and Rothschild & Co, as well as the usual conditions, in particular competition and regulatory authorities' approvals.
Following consultation processes with work councils from both groups, the merger proposals should be put before general meetings of Compagnie Financière Martin Maurel and Rothschild & Co in September 2016 so as to complete the transaction by the end of the financial year.
To ensure operating continuity and consistency of methods and to adhere to the principles of prudence and reliability, the financial statements are prepared in accordance with the provisions of French law (1999 General Chart of Accounts) and with the accounting principles generally accepted in France.
The financial statements have been approved in accordance with Financial Regulations 2014-03 from the French Accounting Standards Authority (Autorité des normes comptables) approved by ministerial decree of 8 September 2014 relating to the general chart of accounts.
To provide relevant reporting on the Company's business, the income statement is presented in accordance with the so-called 'TIAP' model as recommended by the French Accounting Standards Authority for financial companies.
Income transactions are split in two: firstly, operating income transactions, followed by other income transactions (primarily financial transactions).
Current income corresponds to 'income from ordinary activities', i.e. all activities in which the company engages in the normal course of its business, and any related activities that it carries out on an add-on basis or as an extension of its ordinary activities.
Operating profit does, however, include non-recurring income and expenses from events which are clearly separate from the Company's ordinary activities and which are not, therefore, deemed to occur on a frequent or regular basis.
Capital transactions include transactions concerning holdings classified as non-current assets.
The main accounting policies applied are as follows:
Intangible assets and property, plant and equipment are valued at their acquisition cost and amortised and depreciated in the following manner:
| Estimated useful life | Method | |
|---|---|---|
| Start-up costs | 3 years | straight-line |
| Software | 3 years | straight-line |
| Buildings | 20 years | straight-line |
| Plant and general improvements | 8 to 10 years | straight-line |
| Vehicles | 5 years | straight-line |
| Office equipment | 3 years | reducing-balance |
| Office furniture | 10 years | straight-line |
Overview
Financial statements
Non-current financial assets are valued at their acquisition cost. The values of holdings denominated in foreign currencies are translated into euro at the exchange rate on the transaction date. All loans and receivables denominated in foreign currencies classified among non-current financial assets are translated at the closing rate for the financial year.
Investments in Group and other companies and portfolio holdings are recognised at their acquisition cost. An impairment loss is recognised when fair value is below acquisition cost.
The fair values of investments in Group and other companies and portfolio holdings are calculated in the following manner:
The value of the portfolio at 31 March 2016 was measured using the same methodology as applied in the preceding financial year.
Dividends are recorded in the month in which it is decided to distribute them.
Regarding FCPR-type venture capital funds, in accordance with market practice, only amounts actually called up are recorded, and the unfunded capital commitment is recorded as an off-balance sheet item.
Sales of shareholdings, long-term portfolio holdings or investment securities are recognised using the first-in, first-out (FIFO) method, i.e. the longestheld securities will be deemed to be the first sold.
Receivables are recognised at their nominal value. An impairment loss is recognised when the inventory value is lower than the carrying cost. Receivables denominated in foreign currencies are translated at the closing rate for the financial year.
Marketable securities are recognised at their acquisition cost. When their overall inventory value is lower than their acquisition cost, an impairment loss is recognised. The book value is equal to the closing price for the financial year.
Transactions denominated in foreign currencies are recognised at the rate on the transaction date. At the end of the financial year, all assets and liabilities are converted at the closing rate. For items covered by an exchange rate hedge, these are offset so that only the net balances are shown. A provision is recognised to take account of unrealised losses; where an exchange rate hedge has been set in place, only the uncovered portions of transactions are subject to provisions.
| In thousands of euro | 01/04/15 | Acquisitions | (Disposals) | 31/03/16 |
|---|---|---|---|---|
| Gross value | 1,455,906 | 6,883 | (894) | 1,461,895 |
| (Increases) | Decreases | |||
| Impairment | (1,093) | (10) | 320 | (783) |
| TOTAL | 1,454,813 | 6,873 | (574) | 1,461,112 |
The purchases/increases in equity interests during the financial year related mainly to minority preferred shares of the French subsidiary Messine Managers Investissements SAS, the share capital of which is henceforth fully owned by Rothschild & Co. The decrease of the gross and impaired values relates to the US subsidiary Francarep Inc, the share capital of which was reduced by US\$1.0 million in June 2015.
This heading includes all non-current strategic portfolio investments that cannot be classified as 'Investment in Group and other companies'.
| In thousands of euro | 01/04/15 | Acquisitions | (Disposals) | 31/03/16 |
|---|---|---|---|---|
| Gross value | 23,665 | 5,103 | (2,934) | 25,834 |
| (Increases) | Decreases | |||
| Impairment | (7,407) | (324) | 96 | (7,635) |
| TOTAL | 16,258 | 4,779 | (2,838) | 18,199 |
The increases in the financial year related exclusively to Rothschild & Co treasury shares.
The disposals/decreases in the fiscal year concerned mainly, on one hand, Rothschild & Co treasury shares, and on the other hand, the portfolio line Perenco Rio Del Rey (respectively €1,271 thousand and €1,552 thousand). The remaining €110 thousand corresponds to distributions from investment funds.
At 31 March 2016, the estimated value of the portfolio of participating interests and investments amounted to €23,614 thousand, of which €7,608 thousand were in treasury shares and €2,662 thousand were in investment certificates Rothschild & Co.
| In thousands of euro | Total | Less than 1 year |
Between 1 and 5 years |
> 5 years |
|---|---|---|---|---|
| Group and associated companies' advances and current accounts (cash pooling) | 9,595 | 9,595 | – | – |
| Current accounts related to the tax consolidation group | 7,258 | 7,258 | – | – |
| Amounts receivable from the tax authorities | – | – | – | – |
| Other accounts receivable | 57 | 57 | – | – |
| TOTAL | 16,910 | 16,910 | – | – |
Marketable securities consist of:
Unrealised foreign exchange losses which corresponded to the difference between the equivalent value in euro at the closing price for portfolio investments and other long-term investments denominated in US dollars, and their historical value, were €3,574 thousand as at 31 March 2016.
| In thousands of euro | Share capital |
Share premium |
Legal reserves |
Other reserves |
Retained earnings |
Regulated provisions |
Net income for the year |
Total shareholders' equity |
|---|---|---|---|---|---|---|---|---|
| Shareholders' equity as at 1 April 2015 |
142,274 | 983,062 | 12,968 | 153,044 | 119,620 | 303 | 11,764 | 1,423,035 |
| Capital increase | – | – | – | – | – | – | – | – |
| Appropriation of net income for 2014/2015 FY | – | – | 588 | – | 11,176 | – | (11,764) | – |
| Distribution of dividends(1) | – | – | – | – | (43,078) | – | – | (43,078) |
| Net income for 2015/2016 FY | – | – | – | – | – | – | 61,499 | 61,499 |
| Change in investment provision | – | – | – | – | – | – | – | – |
| SHAREHOLDERS' EQUITY AS AT 31 MARCH 2016 |
142,274 | 983,062 | 13,556 | 153,044 | 87,718 | 303 | 61,499 | 1,441,456 |
(1) The dividends distributed during 2014/2015 financial year in respect of the previous year were €258 thousand lower than the amount approved in the second resolution proposed to the Combined General Meeting on 24 September 2015, as no dividends were paid on treasury stock and investment certificates.
At 31 March 2016, the Company's capital comprised 70,991,996 shares and 145,040 of its investment certificates, both with a nominal value of €2 each.
As at 31 March 2016, Rothschild & Co SCA holds 145,040 of its own investment certificates (i.e. all the securities issued in this category) and 406,394 of its own shares, including 54,000 shares held as part of the liquidity contract.
| In thousands of euro | 01/04/15 | Charge for the year |
Recovery for the year (provision used) |
Recovery for the year (provision unused) |
31/03/16 |
|---|---|---|---|---|---|
| Provisions for contingencies | 3,650 | 3,466 | – | (3,650) | 3,466 |
| – Insufficient hedging of foreign currency risk | 3,650 | 3,466 | – | (3,650) | 3,466 |
| – Legal dispute | – | – | – | – | – |
| Provisions for charges | – | – | – | – | – |
| TOTAL | 3,650 | 3,466 | – | (3,650) | 3,466 |
The accounting method for retirement commitments, recommended by French General Chart of Accounts, was not applied in these accounts and would not have had a material impact on the total assets or current income of the Company.
| In thousands of euro | Total | Less than 1 year |
Between 1 and 5 years |
> 5 years |
|---|---|---|---|---|
| Medium-term loan | 19,583 | 9,167 | 10,416 | – |
| US-dollar denominated loan | 9,353 | 9,353 | – | – |
| Bank overdrafts | 4 | 4 | – | – |
| Accrued interest | 144 | 144 | – | – |
| TOTAL | 29,084 | 18,668 | 10,416 | – |
These loans have variable rates of interest.
Loan principal amortised or repaid over the financial year amounted to €19,910 thousand and US\$37,354 thousand respectively, whereas new loans taken out in the financial year amounted to US\$27,049 thousand.
| In thousands of euro | Total | Less than 1 year |
Between 1 and 5 years |
> 5 years |
|---|---|---|---|---|
| Accounts payable | 1,309 | 1,309 | – | – |
| Tax and social liabilities | 10,946 | 10,946 | – | – |
| TOTAL | 12,255 | 12,555 | – | – |
| In thousands of euro | Total | Less than 1 year |
Between 1 and 5 years |
> 5 years |
|---|---|---|---|---|
| Group advances and current accounts | 85,476 | 85,476 | – | – |
| Sundry liabilities | 116 | 116 | – | – |
| TOTAL | 85,592 | 85,592 | – | – |
Rothschild & Co ended 2015/2016 financial year with net income of €61.5 million compared with €11.8 million the previous year. Net income in 2015/2016 financial year benefited from dividends received from the subsidiary POHB (€59.2 million) and the capital gain related to the disposal of the stake held in Perenco Rio Del Rey (€17.2 million), the latter being the main contributor to the income from capital transactions of €21.8 million.
The Company recorded current income before tax of €42.3 million for 2015/2016 financial year compared with an amount of €6.0 million in the previous financial year. This was mainly due to the strong increase of €45.0 million in the income from other income transactions (mainly the dividends received from POHB), whereas the net operating loss increased by €8.8 million between both financial years due to increased external services costs.
In addition to the impact of the disposal of the shares of Perenco Rio Del Rey, the income from capital transactions comprises €3.4 million of capital gains on Rothschild & Co treasury shares, as well as capital gains relating to distributions from investment funds.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Expenses re-billed to related companies | 732 | 1,003 |
| Reversal on provisions for contingencies and charges | – | 1,500 |
| Other operating income | 13 | 113 |
| TOTAL | 745 | 2,616 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| General and administration costs | 12,311 | 6,341 |
| Taxes other than those on income | 2,495 | 1,573 |
| Salaries and payroll taxes | 4,981 | 5,047 |
| Depreciation and amortisation | 45 | 62 |
| Other expenses | 443 | 279 |
| TOTAL | 20,275 | 13,302 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Dividends from investments in Group and other companies | 59,238 | 12,231 |
| Dividends from portfolio holdings | 3,196 | 7,243 |
| Loan interest from investments in Group and other companies | – | – |
| TOTAL | 62,434 | 19,474 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Interest income on forward contracts and certificates of deposit | 359 | 1,018 |
| Interest income from advances granted to Group companies | 321 | 738 |
| Other | 235 | 2 |
| TOTAL | 915 | 1,758 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Capital gains on sales of marketable securities | 72 | 732 |
| Capital losses on sales of marketable securities | (118) | (83) |
| TOTAL | (46) | 649 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Provisions on exchange rate risk | (3,466) | (3,650) |
| Other provisions on income transactions | – | (21) |
| Recoveries of provisions on other income transactions | 3,671 | 66 |
| TOTAL | 205 | (3,605) |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Interest on medium-term borrowings | 482 | 816 |
| Other interest expense | 178 | 688 |
| Exchange losses | 1,033 | 42 |
| TOTAL | 1,693 | 1,546 |
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Capital gains on disposals of investments in Group and other companies and portfolio holdings | 21,810 | 1,935 |
| Recoveries of impairment of investments in Group and other companies and portfolio holdings | 415 | 1,961 |
| Capital losses on disposals of investments in Group and other companies and portfolio holdings | (96) | (1,548) |
| Charges for impairment of investments in Group and other companies and portfolio holdings | (334) | (460) |
| TOTAL | 21,795 | 1,888 |
In respect of 2015/2016 financial year, €21,795 thousand related to portfolio holdings, including €3,423 thousand of Rothschild & Co SCA treasury shares. The most significant capital gain realised during this financial year relates to the sale of shares held in Perenco Rio Del Rey for a gain of €17,193 thousand.
The net tax charge for 2015/2016 consisted of a tax charge of €10,620 thousand for the tax group headed by Rothschild & Co, and the 3% tax of €1,292 thousand on dividends paid during the year. These amounts are reduced by €9,332 thousand of tax income received from the subsidiaries POHB SAS, Concordia Holding SARL and Financière Rabelais SAS, which are consolidated for tax purposes.
The average headcount of 23 people in 2015/2016 included 20 executives and 3 other employees compared to 25 people the previous year.
In respect of their functions as corporate officers of Rothschild & Co for 2015/2016, members of the Supervisory Board entitled to compensation under the terms fixed by Supervisory Board, received compensation of €370 thousand. In addition, the Supervisory Board members received €6.4 thousand in benefits in kind.
Rothschild & Co is the head of a tax group that includes the following companies:
This tax grouping lasts for five years and expires on 31 March 2019.
As part of the tax consolidation process, each subsidiary in the tax consolidation group calculates its income tax as if it were taxed on a stand-alone basis.
As at 31 March 2016, the tax consolidation group headed by Rothschild & Co had no tax loss carry-forward at the standard income tax rate.
Rothschild & Co, the parent company of the Rothschild & Co Group, prepares consolidated financial statements as at 31 March 2016, which are in turn consolidated into the Rothschild Concordia SAS group, registered at 23 bis, avenue de Messine, 75008 Paris.
As at 31 March 2016, Rothschild & Co has no hedging transactions.
| In thousands of euro | 31/03/16 | 31/03/15 |
|---|---|---|
| Commitments given | ||
| Guarantees given and other commitments | 289 | 289 |
| Investment commitments in various funds | 26 | 26 |
| Earn-out amounts to be paid for shares purchased | 6,981 | – |
| TOTAL | 7,296 | 315 |
| Undrawn lines of credit | 85,000 | 111,000 |
|---|---|---|
| TOTAL | 85,000 | 111,000 |
In July 2015 and February 2016, Rothschild & Co purchased, in two steps, all the remaining preferred shares of classes b1, b2, b3 and b4 in Messine Managers Investissements SAS (MMI) from minority shareholders, which it did not previously own. Rothschild & Co committed to pay earn-out amounts to the minority shareholders, which are estimated at €6,981 thousand at 31 March 2016.
The Combined General Meeting of Shareholders on 26 September 2013 delegated the power to management to allocate to certain senior executive employees and executive directors of the Rothschild & Co Group the option to subscribe for or purchase the Company's shares. The objective was to promote the alignment of interests between the shareholders and the recipients of these options.
On 4 October 2013, as a follow-up to this delegation of power, management approved the terms and conditions of a global stock option plan. A component and condition of this plan was the implementation of an Equity Scheme, the terms and conditions of which stipulated that each beneficiary is required to first invest in Rothschild & Co shares. Under the terms and conditions of the Equity Scheme, each Rothschild & Co share invested in entitles the buyer to four stock options. All shares invested in are subject to a four-year lock-up period.
On 11 October 2013, having noted the number of Rothschild & Co shares invested in at the close of the period of subscription offered to the beneficiaries of the Equity Scheme, management:
Under the terms and conditions of the 2013 plan, the only condition governing the exercise of options by beneficiaries is a condition of employment in the Group, i.e. they must be an employee or an Executive Director at the Rothschild & Co Group when the options are exercised. In addition, the global plan does not include any performance conditions, it being specified that no options were granted to any Executive Directors of the Company.
The options of the 2013 plan are subject to a vesting period of three years (for class 2013-1), four years (for class 2013-2), five years (for class 2013-3) and six years (for class 2013-4, the last one), starting on 11 October 2013, i.e. the date they were granted.
The number of shares to be allocated to the beneficiaries of the 2013 plan at the end of the vesting period, if the options are exercised, and on condition that there are no cancellations and subject to the adjustment clauses laid down in the option plan in accordance with the legal conditions, would represent 4.39% of Rothschild & Co's share capital as at the time of this report.
As a continuation of the 2013 Equity Scheme, Rothschild & Co implemented on 10 December 2015 a second incentive scheme (the '2015 Equity Scheme'), with the same characteristics as the 2013 Equity Scheme: a first stage consisting of an investment by the participants in Rothschild & Co SCA shares and for each share invested they are granted, in a second stage, four stock options.
The 2015 Equity Scheme participants have invested in a total of 115,000 Rothschild & Co shares and the Managing Partner then set up a stock option plan for the benefit of the Equity Scheme participants, resulting in a total of 460,000 stock options granted, divided into four distinct categories (2015-1, 2015-2, 2015-3 and 2015-4), respectively vesting after a period of three years (2015-1), four years (2015-02), five years (2015-03) and six years (2015-04), as from the grant date, i.e. 10 December 2015.
The 2015 Equity Scheme participants may not exercise the share options unless the participants have remained senior employees and executive officers within the Group until the date of the exercise of the stock options pursuant to the 2015 Equity Scheme rules and regulations.
The number of shares to be allocated to the beneficiaries of the 2015 plan at the end of the vesting period, if the options are exercised, and on condition that there are no cancellations and subject to the adjustment clauses laid down in the option plan in accordance with the legal conditions, would represent 0.65% of Rothschild & Co's share capital as at the time of this report.
Overview
Financial statements
As at 31 March 2016, Rothschild & Co had not yet decided on the delivery methods for the shares resulting from the exercise of the options of the 2013 and 2015 plans; these share allocations could therefore result in either issuing new shares after a capital increase, or the delivery of existing available shares or shares acquired as part of the Rothschild & Co share buyback plan, which gives rise to a contingent liability.
The following table summarises the information on the 2013 stock option plan applicable as at 31 March 2016:
| Class of stock option | Allocated | Not exercised | Cancelled | Vesting date | Exercise price in euro |
|---|---|---|---|---|---|
| 2013-1 | 780,000 | 780,000 | – | October 2016 | 17.50 |
| 2013-2 | 780,000 | 780,000 | – | October 2017 | 18.00 |
| 2013-3 | 780,000 | 780,000 | – | October 2018 | 19.00 |
| 2013-4 | 780,000 | 780,000 | – | October 2019 | 20.00 |
| 2015-1 | 115,000 | 115,000 | – | December 2018 | 23.62 |
| 2015-2 | 115,000 | 115,000 | – | December 2019 | 24.12 |
| 2015-3 | 115,000 | 115,000 | – | December 2020 | 25.12 |
| 2015-4 | 115,000 | 115,000 | – | December 2021 | 26.12 |
As at 31 March 2016, 3,580,000 options were in circulation. None were exercisable in accordance with the terms and conditions of the 2013 and 2015 plans.
The average value of the option used as a basis for the social security contribution of 30% paid by French companies covered by the plan in 2013 was €1.33.
Rothschild & Co SCA confirms that it has not omitted any significant current off-balance sheet commitment as defined by the accounting standards in effect.
| Companies or groups of companies |
Share capital |
APIC, reserves and retained |
Share of capital held |
Carrying value of shares held |
Outstanding loans and advances from the company |
Gross revenues (excluding VAT) for the last financial year |
Net income for the last financial year |
Dividends received by the |
||
|---|---|---|---|---|---|---|---|---|---|---|
| In millions of euro | earnings excluding net income for the period |
Gross | Net | Company during the financial year |
||||||
| A. Subsidiaries (Company holds at least 50% of capital) |
||||||||||
| Paris Orléans Holding Bancaire SAS (Paris)(5) |
729.6 | 479.2 | 100% | 1,335.5 | 1,335.5 | 8.1 | – | 65.5 | 59.2 | |
| K Développement SAS (Paris)(5) |
99.0 | 156.0 | 94.87%(4) | 94.7 | 94.7 | 2.2 | – | 42.5 | – | |
| Francarep Inc. (USA)(2) (5) |
– | 1.8 | 100% | 2.6 | 2.0 | – | – | – | – | |
| Messine Managers Investissements SAS (Paris)(5) |
5.0 | 5.1 | 100% | 16.4 | 16.4 | – | – | – | – | |
| B. Participating interests (Company holds 5 to 50% of capital) |
||||||||||
| Finatis SA (Paris)(1) (2) (3) (5) |
85.0 | (43.0) | 5% | 12.3 | 12.3 | – | 46,841 | (71.0) | 0.6 |
(1) Consolidated figures.
(2) Financial year ended 31 December 2015 (used rate €1 = US\$1,13851).
(3) Reserves and net income (Group share).
(4) Rothschild & Co SCA holds 100% of the economic rights.
(5) No guarantees were given by the Company to the above companies or groups of companies.
This is a free translation into English of the statutory auditors' report on the financial statements issued in French and it is provided solely for the convenience of English-speaking users.
The statutory auditors' report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the audit opinion on the financial statements and includes an explanatory paragraph discussing the auditors' assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the financial statements taken as a whole and not to provide separate assurance on individual account balances, transactions, or disclosures.
This report also includes information relating to the specific verification of information given in the Management report.
This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
To the Shareholders,
In compliance with the assignment entrusted to us by your General Meeting, we hereby report to you, for the year ended 31 March 2016, on:
These financial statements have been approved by the Management. Our role is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the financial statements give a true and fair view of the assets and liabilities and of the financial position of the Company as at 31 March 2016 and of the results of its operations for the year then ended in accordance with French accounting principles.
In accordance with the requirements of article L. 823-9 of the French Commercial Code ('Code de commerce') relating to the justification of our assessments, we bring to your attention the following matters:
As stated in paragraph III 'Accounting principles and valuation methods' of the notes to the financial statements, your Company accounts for impairments, when necessary, in order to cover for the risk of a decrease in fair value of participating interests and portfolio holdings.
In assessing the significant accounting estimates applied by your Company for the year ended 31 March 2016, we have examined the methods used by management and described in the notes to the financial statements on the basis of the information available and we have performed tests of detail, on a sample, in order to verify the accurate application of these methods.
However, we point out that these estimates are based on forecasts that are therefore uncertain; realised outcomes could differ significantly from these forecasts.
These assessments were made as part of our audit of the financial statements taken as a whole, and therefore contributed to the opinion we formed which is expressed in the first part of this report.
We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law.
We have no matters to report as to its fair presentation and its consistency with the financial statements of the information given in the Management report, and in the documents addressed to shareholders with respect to the financial position and the financial statements.
Concerning the information given in accordance with the requirements of article L.225-102-1 of the French Commercial Code ('Code de commerce') relating to remunerations and benefits received by the directors and any other commitments made in their favour, we have verified its consistency with the financial statements or with the underlying information used to prepare these financial statements and, where applicable, with the information obtained by your Company from companies controlling your Company controlled by it. Based on this work, we attest the accuracy and fair presentation of this information.
Paris La Défense, 22 June 2016 Paris, 22 June 2016
Partner Partner
et Associés Pascal Brouard Jean-Jacques Dedouit Management report
Business review
Rothschild & Co Gestion SAS Mark Crump
Managing Partner Group Chief Financial Officer
We hereby certify that, to the best of our knowledge, the financial statements have been prepared in accordance with applicable accounting standards and present a true and fair view of the assets, financial position and results of the Company and of its consolidated group of companies and that the management report presents a true and fair picture of the business, its results and the financial condition of the Company and of its consolidated group of companies, as well as a description of the principal risks and uncertainties to which they are exposed.
Paris, 22 June 2016
Rothschild & Co Gestion SAS Mark Crump
Managing Partner, Represented by David de Rothschild, Chairman Group Chief Financial Officer
Cailliau Dedouit et Associés SA Represented by Mr Jean-Jacques Dedouit 19 rue Clément-Marot 75008 Paris, France Start date of first term: 24 June 2003 Date of last renewal: 27 September 2011 End date of term: General Meeting called to approve the financial statements for the financial year ending 31 March 2017
19 rue Clément-Marot 75008 Paris, France Start date of first term: 29 September 2009 Date of last renewal: 27 September 2011 End date of term: General Meeting called to approve the financial statements for the financial year ending 31 March 2017
Represented by Mr Pascal Brouard Tour Eqho 2 avenue Gambetta 92066 Paris la Défense Cedex Start date of first term: 27 September 2011 Date of last renewal: N/A End date of term: General Meeting called to approve the financial statements for the financial year ending 31 March 2017
Tour Eqho 2 avenue Gambetta 92066 Paris la Défense Cedex Start date of first term: 27 September 2011 Date of last renewal: N/A End date of term: General Meeting called to approve the financial statements for the financial year ending 31 March 2017
With a team of c.2,800 talented employees on the ground in 40 countries across the world, our integrated global network of trusted professionals provide in-depth market intelligence and effective long-term solutions for our clients in Global Advisory, Private Wealth, Asset Management, and Merchant Banking.
Rothschild & Co is family-controlled and independent and has been at the centre of the world's financial markets for over 200 years.
Rothschild & Co is a French partnership limited by shares (société en commandite par actions) with a share capital of €142,274,072. Paris trade and companies registry 302 519 228. Registered office: 23 bis avenue de Messine, 75008 Paris, France. Rothschild & Co is listed on Euronext in Paris, Compartment A – ISIN Code: FR0000031684.
Marie-Laure Becquart [email protected] Tel.: +33 (0)1 53 77 65 10
Caroline Nico [email protected] Tel.: +33 (0)1 53 77 65 10
For more information, please visit Group's websites: www.rothschildandco.com, www.rothschild.com
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