Earnings Release • May 9, 2023
Earnings Release
Open in ViewerOpens in native device viewer
PRESS RELEASE – FIRST QUARTER 2023 – FINANCIAL INFORMATION
Resilient revenue despite challenging market conditions
| First quarter | ||||
|---|---|---|---|---|
| (in € million) | 2023 | 2022 | Var | % Var |
| Global Advisory(1) | 326.8 | 413.5 | (86.7) | (21)% |
| Wealth and Asset Management(2) | 196.5 | 163.3 | 33.2 | 20% |
| Merchant Banking | 72.3 | 95.5 | (23.2) | (24)% |
| Other businesses(3) | 14.9 | 11.7 | 3.2 | 27% |
| TOTAL | 610.5 | 684.0 | (73.5) | (11)% |
| IFRS Reconciliation | (4.3) | (8.7) | 4.4 | (51)% |
| Total Group revenue | 606.2 | 675.3 | (69.1) | (10)% |
1 Including Redburn, which was treated as an associate until 30/11/2022 and fully consolidated from 01/12/2022
2 Excluding Asset Management US ("AM US"), sold in April 2023
3 AM US has been reclassified in "Other businesses" at Group level from 1 January 2023 following the completion of its disposal in April 2023. Comparatives have been restated
Our Global Advisory (GA) business focuses on providing advice in the areas of Strategic Advisory and M&A, and Financing Advisory. Financing Advisory encompasses Debt Advisory, Restructuring, and Equity Markets Solutions, which includes ECM Advisory, Private Capital, Investor Advisory and Redburn.
Revenue for the three months to March 2023 was €327 million, down 21%1 compared to our record Q1 last year (Q1 2022: €413 million), reflecting lower levels of completion activity in the quarter. For the last twelve months to March 2023, we ranked 6 th globally by financial advisory revenue2 .
Our M&A revenue for the three months to March 2023 was €219 million, down 29% (Q1 2022: €309 million) based on a solid performance across our main geographies and sector franchises compared to the M&A market as a whole, where completed Global M&A activity was down 50% by value and 40% by volume3 . We ranked 2nd globally by number of completed transactions for the twelve months to March 20234 . In Europe, we continue to advise on more M&A transactions than any of our competitors, a position we have held for more than 15 years4 .
Financing Advisory revenue for the three months to March 2023 was €108 million, up 4% compared to Q1 2022 (€104 million), as a result of strong performances in our Debt Advisory and Restructuring, and Private Capital businesses partly offset by lower Equity Capital Market activity. We ranked 1st in Europe and 3rd globally by number of completed restructuring transactions for the twelve months to March 20234 .
As part of our strategy to expand our equities capabilities, during the quarter Rothschild & Co took full ownership of Redburn (Europe) Limited ("Redburn"), the leading independent European equity research and agency execution broker. In addition during April, under the ownership of Rothschild & Co, Redburn and Atlantic Equities LLP ("Atlantic Equities") have agreed to merge their operations to form Redburn Atlantic, with completion expected to occur in the third quarter.
Redburn Atlantic will significantly enhance our equities capabilities in Europe and the USA, with a truly global approach, uniquely co-locating US and European research together and offering clients around the world a compelling combination of exceptional research along with an execution offering.
Global Advisory advised the following clients on significant assignments that completed in the quarter:
In addition, we continue to work on some of the largest and most complex announced transactions globally, including acting as financial adviser to:
2 Source: Company filings announced to 8 May 2023. Unannounced competitor results are based on twelve months to Dec 2022 3 Source: Dealogic
1 down 25% excluding Redburn, which was treated as an associate until 30/11/2022 and fully consolidated from 01/12/2022
4 Source: Refinitiv
Wealth and Asset Management (WAM) operates Wealth Management businesses in nine European countries (Belgium, France, Germany, Italy, Luxembourg, Monaco, Spain, Switzerland and the UK) and in Israel as well as an Asset Management business in Europe.
In Q1 2023, Rothschild & Co completed the sale of its North American Asset Management business to Wintrust Financial Corporation. Figures for WAM are now restated excluding this business.
As central banks sought to control inflation, interest rates have risen sharply, with the Bank of England hiking rates to 4.25%, the Fed taking the federal funds rate to 4.75 - 5% and the ECB increasing them to 3%. Such rapid increases in rates have exposed weaknesses in the financial system with the failure of certain banks, bringing fears of wider difficulties in the banking sector and recession. Despite all this, financial markets rose in the first quarter of 2023, marking a second quarter of increases since the fall of last year. A year after the start of the Russia-Ukraine war, European markets have almost fully recovered their previous valuations. Nonetheless, market volatility and uncertainty remain high.
In this environment, WAM delivered a strong quarter. Assets under Management (AuM) increased by 6% (or by €5.6 billion) to €99.7 billion as at 31 March 2023 (31 December 2022: €94.2 billion1 ) driven by Net New Assets of €1.5 billion and positive market performance of €4.0 billion. WAM continued to expand and attract new clients during the first quarter of 2023, recording positive NNA in all Wealth Management locations. The Asset Management business had strong NNA, notably driven by fixed income.
| Quarter ended | ||||
|---|---|---|---|---|
| (in € billion) | 31/03/2023 | 31/12/2022 | 31/03/2022 | |
| AuM opening(1) | 94.2 | 98.6 | 103.9 | |
| of which Wealth Management | 73.9 | 72.8 | 73.9 | |
| of which AM | 20.3 | 18.4 | 21.1 | |
| of which AM US | n/a | 7.4 | 8.9 | |
| Net new assets | 1.5 | (0.3) | 1.1 | |
| of which Wealth Management | 0.8 | (0.3) | 1.4 | |
| of which AM | 0.7 | 0.2 | 0.2 | |
| of which AM US | n/a | (0.2) | (0.5) | |
| Market and exchange rate | 4.0 | 3.3 | (2.2) | |
| AuM closing | 99.7 | 101.6 | 102.8 | |
| of which Wealth Management | 76.6 | 73.9 | 73.8 | |
| of which AM | 23.1 | 20.3 | 20.2 | |
| of which AM US | n/a | 7.4 | 8.8 | |
| % var / AuM opening | 6% |
The table below presents the progress in AuM:
1 Excluding Asset Management US, sold in April 2023
million), primarily due to the improved interest rate environment. Net interest income was up 363% to €60 million compared to Q1 2022 (€13.0 million). Within fees and commissions revenue, management fees were slightly up (+2% at €108 million), as both transaction fees and performance fees declined (respectively by 34% at €14.6 million and 89% at €1.1 million). This compared to a first strong quarter in 2022 where we benefitted from an increase in transactional activity due to higher market volatility and performance fees linked to the strong investment performance in 2021.
Merchant Banking is the investment arm of Rothschild & Co which manages capital in private equity and private debt for the firm and third parties.
Revenue for the three months to March 2023 was €72.3 million, down 24% (Q1 2022: €95.5 million). When compared to the average first quarter revenue over the last three years, revenue was down 1%. The table below illustrates the progress in revenue.
| (in € million) | Q1 2023 | Q1 2022 | Var | % Var |
|---|---|---|---|---|
| Recurring revenue | 52.7 | 33.1 | 19.6 | 59% |
| Investment performance revenue | 19.6 | 62.4 | (42.8) | (69)% |
| of which carried interest | 2.4 | 23.8 | (21.4) | (90)% |
| of which realised and unrealised investments gains and dividends |
17.2 | 38.6 | (21.4) | (55)% |
| Total revenue | 72.3 | 95.5 | (23.2) | (24)% |
| % recurring / total revenue | 73% | 35% |
The revenue reduction reflects two opposing effects:
In the current macroeconomic environment, the close alignment of interests between the Group and our third-party investors represents an even stronger differentiator for Merchant Banking. As at 31 March 2023, the Rothschild & Co exposures to Merchant Banking assets totalled €942 million (of which €751 million was in private equity1 and €191 million in private debt2 ). During Q1 2023, the Group invested €50 million in Merchant Banking assets (of which €36 million was in private equity1 and €14 million in private debt2 ) and received distributions of €183 million (of which €179 million was from private equity1 and €4 million from private debt2 ).
Merchant Banking's AuM as at 31 March 2023 was €23.1 billion, 1% higher than at 31 December 2022 (€22.9 billion). During Q1 2023, the positive contribution from our fundraising activities was significantly offset by large distributions from our Corporate Private Equity funds following the exits of A2Mac1 and The Binding Site agreed in Q4 2022. Rothschild & Co's share of Merchant Banking's AuM was €2.0 billion.
1 Private equity includes Corporate Private Equity and Multi Strategies
2 Private debt includes Direct Lending and Credit Management
We remain convinced that our investment approach, centred around three key sectors (Data & Software, Healthcare and Technology-Enabled Business Services) and a portfolio of carefully selected, high-quality assets, will continue to create value for our investors and offer them adequate downside protection in a market environment that remains uncertain.
For a detailed description of the investment activities and business development of Merchant Banking in Q1 2023, please refer to appendix A.
In Global Advisory, in line with expectations we set out in our full year results release, we have seen a significantly weaker M&A market in Q1 2023. Macro-economic headwinds continue and have been exacerbated by recent volatility in the banking sector, which have combined to have a dampening effect on deal-making, with significant declines in announced transaction levels and transactions taking longer to complete. Deal activity for the rest of 2023 will be impacted by level of capital markets activity, availability of financing, valuation expectations and CEO confidence, and so there remains significant uncertainty for the remainder of the year. Notwithstanding this, our backlog of mandated business is encouraging, and we foresee meaningful levels of pent-up demand, should market conditions improve. We nevertheless remain cautious in assessing the outlook for the rest of the financial year.
In Wealth and Asset Management, the outlook remains positive for new assets resulting from our investments in the business in all locations. However, we remain cautious on the revenue outlook as the recent strength in markets is fragile. Moreover, the record high net interest income growth this quarter is likely to slow and then reverse as our cost of funding increases.
In Merchant Banking, we expect to continue to grow our recurring revenue on the back of current fundraising activities and capital deployment plans, albeit at a slower pace than that achieved in Q1 2023. We remain focused on investing according to our founding principles – centred around capital preservation and attractive risk-adjusted returns – and are confident that our investments will continue to fulfil their full value creation potential.
Subject to external events, we expect our core businesses to continue to perform well during 2023, albeit below levels of 2022. The clear long-term strategies of each business give us confidence for the future, but 2023 will be a more challenging year given the macroeconomic and geopolitical environment.
Investor Relations Marie-Laure Becquart [email protected]
Media Relations Caroline Nico [email protected]
Primatice: Olivier Labesse [email protected]
Rothschild & Co is a family-controlled and independent group and has been at the centre of the world's financial markets for over 200 years. With a team of c.4,200 talented financial services specialists on the ground in over 40 countries, Rothschild & Co's integrated global network of trusted professionals provides in-depth market intelligence and effective longterm solutions for our clients in Global Advisory, Wealth and Asset Management, and Merchant Banking.
Rothschild & Co is a French partnership limited by shares (société en commandite par actions) listed on Euronext in Paris, Compartment A with a share capital of €€154,059,554. Paris trade and companies registry number 302 519 228. Registered office: 23 bis avenue de Messine, 75008 Paris, France.
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.