Earnings Release • Jun 25, 2014
Earnings Release
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2013/2014
"Despite challenging conditions, our operating performance held up in most of the Group's businesses in 2013/2014, thanks to resilient revenues and ongoing cost-saving initiatives. However profits have been impacted by exceptional charges. We remain confident in our ability to benefit from an improvement in market conditions, particularly in the M&A market, and to deliver sustainable performance." stated Nigel Higgins and Olivier Pécoux, co-Chief Executive Officers of the Group.
| (in €m) | Page | 2012/2013 as restated (1) |
2013/2014 | Var | Var % |
|---|---|---|---|---|---|
| Revenues | 2 - 6 | 1,147 | 1,108 | (39) | (3)% |
| Staff costs | 7 | (709) | (699) | 10 | 1% |
| Administrative expenses | 7 | (214) | (251) | (37) | (17)% |
| Depreciation and amortisation | (36) | (36) | - | - | |
| Impairments | 7 | (31) | 7 | 38 | 121% |
| Operating Income | 157 | 129 | (28) | (17)% | |
| Other income / expense (net) | 11 | 5 | (6) | (55)% | |
| Impairment of Edmond de Rothschild (Suisse) |
7 | (46) | (27) | 19 | (41)% |
| Profit before tax | 122 | 107 | (15) | (12)% | |
| Income tax | 7 | (38) | (43) | (5) | (13)% |
| Consolidated net income | 84 | 64 | (20) | (22)% | |
| Non-controlling interests | 7 | (42) | (56) | (14) | (33)% |
| Net income - Group share | 42 | 8 | (34) | (73)% | |
| Earnings per share | 0.68 € | 0.11€ |
(1) The comparative consolidated income statement has been restated to reflect the introduction of IAS 19 Employee Benefits (revised). More details are provided in Appendix 3 on page 11.
The Supervisory Board of Paris Orléans SCA met on 25 June 2014 to review the consolidated financial statements for the year to 31 March 2014; these accounts had been previously approved by PO Gestion SAS, Managing Partner of Paris Orléans.
We have two main activities within our Group: Global Financial 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 Wealth & Asset Management and Merchant Banking. In addition, we have a Specialist Finance business which predominantly relates to the legacy banking business.
For the year to March 2014, Global Financial Advisory revenue was €688.7 million, 7% down compared to last year.
M&A revenue was down 15% year on year across most regions (€442.5 million for 2013/2014), reflecting lower M&A completions for the Group during the second half of the year compared to the second half of 2012/2013 (which was our record period for M&A revenue post the financial crisis). By way of comparison, for the year to March 2014, the number of completed M&A transactions globally was down 14%1 compared to the prior year.
Financing Advisory revenue was up 13% year on year (€246.2 million for 2013/2014), supported by our leading position in providing independent, strategic capital advice to companies, governments and financial sponsors.
We continue to be positioned among the top financial advisers in the world, ranking 5th globally and 1st in Europe by number of completed M&A transactions1 ; 5th globally and 2nd in Europe by number of restructuring transactions2 . We are one of the leading global independent debt advisers and we undertake more European equity advisory assignments than any other independent advisory firm3 , a position that allowed us to benefit from the significant upturn in European equity capital markets activity during the year.
Among the largest publicly announced M&A and Financing Advisory transactions completed during the financial year on which Rothschild advised, were the following:
1 Source: Thomson Reuters. Completed transactions.
2 Source: Thomson Reuters. Completed transactions in the year to March 2014 3 Source: Dealogic. Completed transactions >\$50m in the year to March 2014
Revenues by product over 5 years (in € million)
We continue to advise on more European M&A transactions than any of our competitors, as well as working on some of the largest and most complex transactions announced globally. For example, Rothschild is currently acting as financial advisor to:
Assets under management have increased by 10% to €42.3 billion as at 31 March 2014 (€38.4 billion as at 31 March 2013) due to market appreciation of €3.2 billion and net inflows of €0.7 billion. The net new assets were driven by inflows in Wealth Management (€1.0 billion), partially offset by outflows in Asset Management (€0.3 billion), mainly in the US.
During the year ended 31 March 2014, Wealth and Asset Management generated revenue of €307.0 million, 9% better than the last year (€281.1 million). Revenue growth was mostly driven by the increase in assets under management and an excellent level of performance fees in the Asset Management business, reflecting the fact that Rothschild funds have out-performed their benchmark in the calendar year 2013.
Our European onshore Wealth Management businesses are growing in terms of assets under management and revenues, especially in Brussels, Frankfurt, Geneva, London and Paris. Strategic investments have been made with the hire of an onshore Italian team, a Swiss International team and within the Trust business, with senior appointments for our Singapore and Hong Kong subsidiaries. Looking ahead, in Wealth Management, the Group expects to successfully convert the current healthy asset pipeline into positive net client inflows over the coming year. However, the continuing pressure on our businesses arising from increased regulation, especially in Switzerland, means that conditions will remain difficult in 2014/2015. The US Department of Justice Program has required significant effort from our staff in the last year, and we expect to conclude this in 2014.
(1) 2011/12: net new assets exclude the outflow of €1.5 billion of assets under management linked to the partial sale of Sélection R in France.
(2) 2012/13: net new assets include the inflow of €0.8 billion of assets under management linked to the merger with HDF Finance in France
During the year ended 31 March 2014, Merchant Banking generated revenues of €73.6 million compared to €69.1 million the previous year. These revenues include:
During the year ended March 2014, disposal proceeds amounted to €65.3 million, generating net investment gains of €27.7 million. Moreover, this division invested €47.0 million, of which €11 million was in proprietary investments and €36 million was in funds managed by Merchant Banking.
The Group expanded its product offering with the launch of a new fund initiative, Five Arrows Credit Solutions ("FACS"), a fund targeted at capturing opportunities in the European high yielding junior credit market (on both primary and secondary opportunities). Shortly after the year end FACS held its final closing at €415 million. As at March 2014, the European senior credit fund (Oberon I) had closed at €200 million.
Assets under management at 31 March 2014 were €3.2 billion compared to €2.9 billion at March 2013. The majority of this increase was due to the launch of FACS, partially offset by the sale, in November 2013, of the R Capital Management team.
Merchant Banking asset value of Group's private equity assets
| in €m | 31/03/2012 | 31/03/2013 | 31/03/2014 |
|---|---|---|---|
| Managed private funds | 123 | 116 | 158 |
| Paris Orléans Proprietary investments | 350 | 333 | 347 |
| Other | 17 | 15 | 13 |
| Total gross assets | 490 | 464 | 518 |
The legacy banking book continues to reduce in line with our plans to exit the corporate lending business. Legacy drawings fell to €396 million as at 31 March 2014, down from €570 million as at 31 March 2013.
For the year ended 31 March 2014, staff costs were €699.3 million compared to €708.9 million1 in the prior year. The decrease of €9.6 million results from a one-off credit of €10.7 million arising from changes made to the UK and Swiss defined benefit pension schemes that reduce past pension costs.
Overall Group headcount increased from 2,764 to 2,804 as at March 2014.
For the year ended 31 March 2014, administrative expenses were €251.0 million compared to €214.3 million for 2012/2013, representing an increase of €36.7 million.
Staff costs & administrative expenses for the year ended 31 March 2014 included net exceptional charges of €31m (€6 million in the year to March 2013), related to:
More details on net exceptional charges are provided in Appendix 2 on page 10.
For the year ended 31 March 2014, impairment charges and loan provisions were a credit of €6.8 million, mainly as a result of recoveries on previously impaired assets, compared to a charge of €31.4 million for 2012/2013.
A further impairment of €26.6 million relating to the 8.4% shareholding in Edmond de Rothschild (Suisse) SA has been taken for the year ended 31 March 2014 (€21.9 million was taken at the half year to September 2013), reflecting a decline in the share price.
For the year ended 31 March 2014, the income tax charge was €42.7 million, split between a current tax charge of €25.2 million and deferred tax charge of €17.5 million, giving a reported tax rate of 40%.
It should be noted that the effective tax rate would have been 28% without:
For the year ended 31 March 2014, the charge for Non-controlling interests was €55.6 million compared to €42.3 million for 2012/2013. The change is largely due to losses, incurred in the prior year before the June 2012 Group reorganisation, being attributed to former minority interests.
1 Flat-rate fees paid to Senior Advisors (external advisors) are now treated as staff costs rather than administrative expenses.
The Group continues to maintain a high level of liquidity. On 31 March 2014, cash placed with central banks and banks accounted for 54% of total assets (56% at March 2013).
Shareholders' equity, excluding non-controlling interests, increased from €1,225 million as at 31 March 2013 to €1,269 million as at 31 March 2014, due to a combination of profit for the year (€8.4 million), net AFS fair value gains (€64.8 million) less dividends paid (€35 million).
The Group is regulated by the French Prudential and Resolution Authority (ACPR: Autorité de Contrôle Prudentiel et de Résolution) as a financial company ("Compagnie Financière"). Its regulatory ratios are communicated to the ACPR on 30 June and 31 December of each year. The most recent ratios are set out below:
| Basel 3 rules 31/03/2014 |
Full Basel 3 minimum with 1 the CCB |
|
|---|---|---|
| Core Tier 1 = Tier 1 ratio | 15.9% | 7.0% |
| Global solvency ratio | 18.3% | 10.5% |
1 : CCB = Capital Conservation Buffer Source: PO - unaudited figures
A dividend of €0.50 per share, the same as last year, will be proposed by the Managing Partner, PO Gestion SAS, at the Paris Orléans Annual General Meeting on 25 September 2014, called to approve the financial statements for the year ended 31 March 2014. The Managing Partner will propose to shareholders the right to elect for payment of the dividend, for the total amount of the dividend which they are entitled to, either in cash or new shares of Paris Orléans.
Our priorities remain focused on improving profitability, cost discipline and capturing the synergies between our three core businesses.
The M&A market is showing positive signs at present with deal flow picking up in recent months in Europe, but still in a highly volatile global environment. If this level of activity persists we will see a positive impact in our business performance.
The Group's stable, long-term shareholding structure, its solid financial position and the quality of its people will allow it to continue the development of its activities. Because of this, the Group remains confident in its ability to deliver stronger returns to shareholders in the longer term.
| In €m | 2012/2013 | 2013/2014 | |
|---|---|---|---|
| 1st quarter | 136.9 | 141.6 | |
| Global Financial Advisory | 2nd quarter | 171.6 | 158.0 |
| 3rd quarter | 239.5 | 200.0 | |
| 4th quarter | 192.7 | 189.1 | |
| FY | 740.7 | 688.7 | |
| 1st quarter | 101.5 | 82.9 | |
| Asset Management 1 | 2nd quarter | 77.1 | 86.8 |
| 3rd quarter | 99.9 | 115.4 | |
| 4th quarter | 71.8 | 95.5 | |
| FY | 350.3 | 380.6 | |
| 1st quarter | 13.2 | 13.3 | |
| Other 2 | 2nd quarter | 13.8 | 12.7 |
| 3rd quarter | 16.1 | 15.2 | |
| 4th quarter | 19.0 | 19.8 | |
| FY | 62.1 | 61.0 | |
| 1st quarter | (5.8) | (2.3) | |
| Statutory adjustments | 2nd quarter | (3.9) | - |
| 3rd quarter | 2.5 | (8.8) | |
| 4th quarter | 1.2 | (11.5) | |
| FY | (6.0) | (22.6) | |
| 1st quarter | 245.8 | 235.5 | |
| Total Group Revenues | 2nd quarter | 258.6 | 257.5 |
| 3rd quarter | 358.0 | 321.8 | |
| 4th quarter | 284.7 | 292.9 | |
| FY | 1,147.1 | 1,107.7 |
Asset Management comprises the Wealth & Asset Management and the Merchant Banking businesses
Other comprises Central cost, legacy businesses, including Specialist Finance, and other
| Operating income | Other | Net income - | ||||
|---|---|---|---|---|---|---|
| (in €m) | Staff costs |
Admin expenses |
Depreciation | PBT | Total | Group share |
| - IT outsourcing | (3) | (12) | (1) | (16) | (11) | |
| - Legacy legal costs | (26) | (26) | (16) | |||
| - Pensions credit | 11 | 11 | 8 | |||
| - EDR (Suisse) impairment | (27) | (27) | (18) | |||
| - UK deferred tax asset write off | 0 | (6) | ||||
| Total | 8 | (38) | (1) | (27) | (58) | (43) |
| (31) | ||||||
| Net income - Group share excluding exceptionals | 51 |
| Operating income | Other | Net income - | ||||
|---|---|---|---|---|---|---|
| (in €m) | Staff costs |
Admin expenses |
Depreciation | PBT | Total | Group share |
| - Legacy legal costs | (6) | (6) | (5) | |||
| - EDR (Suisse) impairment | (46) | (46) | (31) | |||
| - UK deferred tax asset write off | 0 | (2) | ||||
| - Losses attributable to minority shareholders prior to June 2012 |
0 | 16 | ||||
| Total | 0 | (6) | 0 | (46) | (52) | (22) |
| (6) | ||||||
| Net income - Group share excluding exceptionals | 64 |
IAS 19 Employee Benefits (revised) requires changes in the recognition and measurement of defined benefits expenses. The most significant impact for the Group is to increase the net pension expense in the Income Statement by the difference between the current expected return on plan assets and the return calculated by applying the discount rate calculated in accordance with IAS 19. As a result of these changes, the income statement for the year ended 31 March 2013 has been restated:
Finally, the adoption of IAS 19 Employee Benefits (Revised) by the Group's Swiss actuaries has caused one additional change in the Balance Sheet; the mortality assumptions in Switzerland have now become more prudent. The effect has been to increase the Swiss defined benefit fund obligation by around 4% or €7 million. The balance sheet comparatives have been revised to reflect this change, with last year's shareholders' funds reducing by €4 million.
25 September 2014 9.30 am CET Annual Shareholders General Meeting
24 June 2015 after market close Financial year 2014/2015 results
7 August 2014 after market close Financial information for the first quarter of FY 2014/2015 25 November 2014 after market close Results of the first half-year of the 2014/2015 financial year 13 February 2015 after market close Financial information for the third quarter of FY 2014/2015
Paris Orléans operates in the following areas:
Paris Orléans SCA is a French partnership limited by shares (société en commandite par actions) with a share capital of €142,208,216. Paris trade and companies registry 302 519 228. Registered office: 23 bis avenue de Messine, 75008 Paris, France. Paris Orléans is listed on NYSE Euronext in Paris, Compartment A - ISIN Code: FR0000031684.
France DGM Conseil - + 33 1 40 70 11 89 Michel Calzaroni - [email protected] Olivier Labesse - [email protected]
| United Kingdom |
|---|
| Smithfield - + 44 20 7360 4900 |
| John Kiely - [email protected] |
| Alex Simmons - [email protected] |
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