Earnings Release • Aug 4, 2022
Earnings Release
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PRESS RELEASE - HALF YEAR 2022 RESULTS
Paris, 4 August 2022
"The performance in the first six months of 2022 has continued to be strong, after a record year in 2021.
"The strength of our business model, which is based on client focus and clear long-term strategies for each business, means that we are reasonably confident that the positive momentum seen in the first half will continue for the remainder of the year, but, as always, subject to the evolution of geopolitical events and the financial environment."
1 There were no exceptional items in H1 2022 or H1 2021
The Rothschild & Co Supervisory Board met on 4 August 2022 and reviewed the full-year summary consolidated financial statements1 for the period from 1 January to 30 June 2022.
| (in € million) | Page | H1 2022 | H1 2021 | Var | Var % |
|---|---|---|---|---|---|
| Revenue | 3 - 7 | 1,375 | 1,350 | 25 | 2% |
| Staff costs | 8 | (763) | (693) | (70) | 10% |
| Administrative expenses | 8 | (160) | (119) | (41) | 34% |
| Depreciation and amortisation | 8 | (41) | (34) | (7) | 21% |
| Cost of risk | 8 | 3 | 2 | 1 | 50% |
| Operating Income | 414 | 506 | (92) | (18)% | |
| Other income / (expense) (net) | 8 | 0 | 4 | (4) | (100)% |
| Profit before tax | 414 | 510 | (96) | (19)% | |
| Income tax | 8 | (82) | (58) | (24) | 41% |
| Net income | 332 | 452 | (120) | (27)% | |
| Non-controlling interests | 9 | (83) | (106) | 23 | (22)% |
| Net income - Group share | 249 | 346 | (97) | (28)% | |
| Earnings per share* | 3.43 € | 4.78 € | (€1.35) | (28)% | |
| Return On Tangible Equity (ROTE) | 17.9% | 31.8% |
* Diluted EPS is €3.37 (H1 2021: €4.71)
There were no exceptional items in H1 2022 or H1 2021.
A presentation of Alternative Performance Measures is shown respectively in Appendix H.
1 The limited review procedures of the half-year consolidated financial statements have been completed. The limited review report is being prepared by the Statutory auditors. Figures have been rounded. Rounding differences may exist, including for percentages.
Our Global Advisory (GA) business focuses on providing advice in the areas of Strategic Advisory and M&A, and Financing Advisory encompassing Debt Advisory, Restructuring and Equity Markets Solutions, which includes ECM Advisory, Private Capital, Investor Advisory, Investor Marketing and Redburn.
Revenue for H1 2022 was €857 million, up 3% compared to H1 last year (€833 million) reflecting continued strong performance. For the last twelve months to June 2022, we ranked 7 th globally by revenue1 .
Profit before tax for H1 2022 was €163 million, down 1% (H1 2021: €165 million). This was due to cost growth compared to the same stage last year as a result of the resumption of marketing related travel and other activity as coronavirus restrictions have lifted, as well as inflationary and foreign exchange effects. This represents an operating margin of 19.0% (H1 2021: 19.8%).
Our M&A revenue for H1 2022 was €642 million, up 12% (H1 2021: €573 million), driven by continued strong deal activity by volume and by value within our main geography and sector franchises, across both corporate and financial sponsor clients. We ranked 2nd globally by number of completed transactions for the first half of 20222 . 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 years3 .
Financing Advisory revenue for H1 2022 was €215 million, down 17% (H1 2021: €260 million), as a result of a lower capital markets activity, partly offset by increasing activity in our private capital business. Notwithstanding the more challenging market backdrop, we ranked 1st in Europe by number of completed restructuring transactions for the first half of 20222 . During the period, Global Advisory was also active in advising clients on innovative sustainability linked financing transactions and continued its leading role in raising financing for renewable energy projects.
During the first half of 2022, we continued our ongoing strategic investment in North America with the recruitment of a new Vice Chairman in the Consumer, Retail & Leisure group, and five new Managing Directors, with two in the Technology sector, one covering the Consumer Retail sector, one focused on the Infrastructure, Power & Renewables sector as well as a new Head of Canada.
Global Advisory advised the following clients on significant selected assignments that completed in H1 2022:
1 Source: Company filings
2 Source: Refinitiv
3 Source: Dealogic
In addition, we continue to work on some of the largest and most complex announced transactions globally, including acting as financial adviser to:
For further examples of Global Advisory assignments completed during H1 2022, please refer to Appendix F.
Wealth and Asset Management (WAM) is made up of our Wealth management businesses in Belgium, France, Germany, Italy, Luxembourg, Monaco, Spain, Switzerland and the UK, and our Asset Management activity in Europe. In addition, we operate an Asset Management business in North America.
The risks arising from the conflict in Ukraine and its long-term geopolitical consequences remain unclear. Market volatility has mostly been driven by cyclical concerns. Central banks are aggressively increasing interest rates to fight inflation. In this context, equity and bond markets are all showing significant negative performance year to date, which has impacted our clients' portfolios.
Wealth and Asset Management delivered a solid half-year in this challenging environment. Net New Assets (NNA) for H1 2022 were €1.8 billion (representing 3.5% annualised NNA growth). WAM European business continued to expand, recording solid NNA of €2.8 billion, with all our European geographies generating positive NNA in the first half of the year (+€2.6 billion in Wealth Management and +€0.2 billion in Asset Management).
This performance confirms the strength of our business model as well as the quality of our offerings, services and teams, which continue to attract new clients. In the US, AuM decreased due to outflows and negative market effect.
AuM decreased by 4% (or €4.3 billion) to €99.6 billion as of 30 June 2022 (31 December 2021: €103.9 billion) with negative market performance of €9.1 billion, offsetting solid NNA of €1.8 billion.
After the successful acquisition of Banque Pâris Bertrand in July 2021, Rothschild & Co acquired a French IFA in April 2022, managing a €3.0 billion AuM portfolio, almost entirely invested in an insurance-based savings scheme.
The table below presents the variation in AuM:
| Quarter ended | 6 months to June | ||||
|---|---|---|---|---|---|
| In € billion | 30/06/2022 | 31/03/2022 | 30/06/2021 | 2022 | 2021 |
| AuM opening | 102.8 | 103.9 | 89.0 | 103.9 | 83.4 |
| of which Wealth Management | 73.8 | 73.9 | 60.9 | 73.9 | 55.8 |
| of which AM Europe | 20.2 | 21.1 | 19.9 | 21.1 | 19.4 |
| of which AM US | 8.8 | 8.9 | 8.2 | 8.9 | 8.2 |
| Acquisition of French IFA | 3.0 | - | 3.0 | - | |
| Net new assets | 0.7 | 1.1 | 1.5 | 1.8 | 3.4 |
| of which Wealth Management | 1.2 | 1.4 | 1.3 | 2.6 | 3.7 |
| of which AM Europe | - | 0.2 | 0.3 | 0.2 | 0.4 |
| of which AM US | (0.5) | (0.5) | (0.1) | (1.0) | (0.7) |
| Market and exchange rate | (6.9) | (2.2) | 2.4 | (9.1) | 6.1 |
| AuM closing | 99.6 | 102.8 | 92.9 | 99.6 | 92.9 |
| of which Wealth Management | 73.4 | 73.8 | 63.7 | 73.4 | 63.7 |
| of which AM Europe | 18.6 | 20.2 | 20.7 | 18.6 | 20.7 |
| of which AM US | 7.6 | 8.8 | 8.5 | 7.6 | 8.5 |
| % var / AuM opening | (3%) | (4%) |
Revenue for H1 2022 was strong at €337 million, up 23% (H1 2021: €274 million). Revenue benefitted from the AuM growth achieved last year despite a decrease since the beginning of 2022. Average AuM in H1 2022 remained higher than in 2021, helped by the two recent acquisitions, Banque Pâris Bertrand and the French IFA.
Fees and commissions from our managed and advisory portfolios increased by 21% to €280 million (H1 2021: €232 million).
Net interest income (NII) was up 30% at €32 million (H1 2021: €25 million). The contribution of NII to total revenue is increasing due to the impact of the successive USD and GBP interest rate increases. This trend will accelerate in the coming months as central banks have announced further interest rate increases, including in EUR. This should benefit our treasury revenue and positively contribute to our global revenue. We have also significantly increased our private client loan portfolio (+9%), which continues to be predominantly lombard loans. Increasing interest rates and uncertain markets may slow the growth in the loan book but it continues to be very well collateralised.
Excluding AM US, Profit before tax for H1 2022 for WAM Europe was up 22% at €71 million (H1 2021: €58 million), representing an operating margin of 22.0% similar to H1 2021.
This level of operating margin may not be maintained for the full year, as investment in the business continues, such as recruiting new teams and investing in new technology.
All investment business lines continue to further integrate ESG considerations into their investment framework and day-to-day organisation. This work included the deployment of the Group's Sustainability Academy, significant effort to implement and prepare for the new MIFID ESG regulation, and the publication of additional Responsible Investment disclosures.
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 six months to June 2022 was €188 million (H1 2021: €235 million) driven by solid investment performance revenue combined with year-on-year growth in recurring revenue. As expected, despite this robust performance, revenue was down 20% compared to the first half of 2021, a period characterised by exceptional investment gains. When compared to the average first half-year revenue over the last three years, revenue was up 42%.
The table below illustrates the progression in revenue.
| (in € million) | H1 2022 | H1 2021 | Var | % Var |
|---|---|---|---|---|
| Recurring revenue | 74 | 59 | 15 | 25% |
| Investment performance revenue | 114 | 176 | (62) | (35)% |
| of which carried interest | 38 | 64 | (26) | (41)% |
| of which realised and unrealised investments gains and dividends |
76 | 112 | (36) | (32)% |
| Total revenue | 188 | 235 | (47) | (20)% |
| % recurring / total revenue | 39% | 25% |
The year-on-year revenue reduction is the result of two opposing effects:
The contraction in investment performance revenue versus H1 2021 reflects the exceptional gains achieved in the first half-year of 2021, which were driven by successful exits from the private equity portfolio and significant uplifts, versus the conservative valuations retained at the end of 2020 due to Covid-19.
The level of investment performance revenue attained in H1 2022 continued to validate our investment algorithm centred around three key industry sectors (Data & Software, Healthcare and Technology-Enabled Business Services) and a portfolio of carefully selected high quality growing assets with a focus on downside protection.
Sustained revenue generation in H1 2022 led to Profit before tax of €121 million. While this result is lower compared to H1 2021 (€185 million), it represents the second best first-half profit before tax on record. Operating margin was 64% (H1 2021: 79%). The profitability margin of Merchant Banking's fund management activities (which excludes investment performance revenue) reached 10% (H1 2021: 16% and full-year 2021: 9%) and is expected to improve during H2 2022. The decline was mainly driven by (i) the way management fees are generated from the ramp-up in new funds, with a catch-up effect expected in H2 2022 as further funds closings are held, and (ii) higher personnel costs related to headcount growth to support new funds/investment activities.
A critical indicator used to measure the performance of Merchant Banking across the investment cycle is Return On Risk Adjusted Capital (RORAC), a ratio comparing the adjusted Profit before tax and an internal measure of risk capital invested in the business, on a rolling three year basis. As at 30 June 2022, RORAC was 30%, higher than 30 June 2021 (27%), and well above the division's stated target (above 15% over the cycle). The use of a three-year rolling average to calculate this metric has reduced the impact of the profit variance over the last three years, providing a fairer representation of the underlying performance of the business.
The alignment of interests between the Group and our third-party investors continues to represent a key differentiator for Merchant Banking. As at 30 June 2022, Rothschild & Co's positions in Merchant Banking assets totalled €973 million (of which €802 million were in private equity and €171 million in private debt). In the six months to June 2022, the Group invested €147 million (of which €131 million was in private equity and €16 million in private debt) in Merchant Banking assets and received distributions of €197 million (of which €160 million were from private equity and €37 million were from private debt).
Merchant Banking AuM as at 30 June 2022 was €21.6 billion, up 18% (31 December 2021: €18.3 billion), of which Rothschild & Co's share was €2.0 billion.
For a detailed description of the investment activities and business development of Merchant Banking in H1 2022, please refer to appendix G.
For H1 2022, revenue was €1,375 million (H1 2021: €1,350 million), representing an increase of €25 million or 2%. The translation effect of exchange rate fluctuations increased revenue by €31 million.
1 Net Banking Income under IFRS
Overall Group headcount as at 30 June 2022 was 4,281, up 13% versus June 2021 (3,797) and up 9% versus 31 December 2021 (3,941). This increase is to support the development of the three businesses and the strengthening of all support functions.
For H1 2022, staff costs were €763 million, up 10% or €70 million (H1 2021: €693 million) reflecting the increased headcount. The translation impact of exchange rate fluctuations resulted in an increase in staff costs of €24 million.
The adjusted compensation ratio, as defined in Appendix H on Alternative Performance Measures, was 66.0% as at 30 June 2022 (30 June 2021: 65.9%).
The accounting effect of deferred bonus compensation plans is included in the statutory accounts. In H1 2021 this resulted in a net credit of €23 million. In H1 2022, it represented a net credit of €14 million.
The compensation ratio, if adjusted for the deferred bonus effect, would be 67.1% (30 June 2021: 67.6%).
For H1 2022, administrative expenses were €160 million (H1 2021: €119 million) an increase of €41 million as a result of the headcount increase and related costs (recruitment, IT and market data), the resumption of travel and entertainment as coronavirus restrictions have lifted, as well as inflationary and foreign exchange effects. The translation impact of exchange rate fluctuations resulted in an increase in administrative expenses of €4 million.
For H1 2022, depreciation and amortisation were €41 million (H1 2021: €34 million) due to an increase in depreciation expense on IT equipment / software and amortisation of intangible assets following WAM acquisitions. The translation impact of exchange rate fluctuations resulted in an increase on depreciation and amortisation of €1 million.
(d) Cost of risk
For H1 2022, cost of risk was a credit of €3 million (H1 2021: credit of €2 million) reflecting the reversal of previous impairment provisions.
For H1 2022, other income and expenses were nil (H1 2021: net income of €4 million).
For H1 2022, the income tax charge was €82 million (H1 2021: €58 million) comprising a current tax charge of €79 million and a deferred tax charge of €3 million, giving an effective tax rate of 20% (H1 2021: 11.4% and FY 2021: 15%).
For H1 2022, the charge for non-controlling interests was €83 million (H1 2021: €106 million). This mainly comprises interest on perpetual subordinated debt and profit share (préciput) payable to French partners.
Rothschild & Co, as a financial holding company (compagnie financière holding), is supervised by the Autorité de Contrôle Prudentiel et de Résolution (ACPR) on a consolidated basis. The Group has a solid balance sheet with Group shareholder's equity – Group share as at 30 June 2022 of €3.25 billion (31/12/2021: €3.13 billion).
The Common Equity Tier 1 (CET 1) ratio was 20.3%1 as at 30 June 2022, slightly lower from prior year (31/12/2021: 21.3%). The CET 1 capital is calculated in accordance with applicable CRR/CRD rules. The solvency ratios are presented including current profits2 , net of dividends, for the current financial year, unless specified otherwise.
| 30/06/2022 | 31/12/2021 | Full Basel 3 minimum with CBR (Combined Buffer Requirements) |
|
|---|---|---|---|
| Common Equity Tier 1 ratio (CET 1) | 20.3% | 21.3% | 7.1% |
| Global solvency ratio | 20.3% | 21.3% | 10.6% |
High levels of liquidity are maintained with cash and treasury assets accounting for 51% of the total assets of €17.8 billion (31/12/2021: 58%). Lending remains conservatively funded by customer deposits with a loan to deposit ratio of 42% as at 30 June 2022 (31/12/2021: 38%).
Operating cash flow3 (OCF) is normally negative in the first half of the financial year reflecting the payment of variable remuneration in respect of the previous year, although strongly positive on a full year basis. For the first half of 2022, the OCF was a negative outflow of €245 million (H1 2021: inflow of €105 million).
Net book value per share was €45.18 (31/12/2021: €43.31) and net tangible book value per share was €39.02 (31/12/2021: €37.93).
Overall, the direct impact of the on-going conflict in Ukraine on the Group is small as there is limited exposure in terms of number of clients, assets under management, revenue, lending book or collateral held. The operations of our Russian office have been suspended.
1 Subject to permission from the ACPR to include interim profits in Common Equity Tier 1 capital (CET1)
2 Subject to the provisions of article 26.2 of Regulation (EU) No 575/2013
3 Alternative Performance Measure, please refer to Appendix H
We continue to fully comply with the expanding sanctions regulations arising from this conflict and senior management continues to monitor developments in this area.
In addition, our thorough mandate and client onboarding procedures continue to consider the heightened risks associated with acting for clients with a Russia exposure and provide for appropriate senior management involvement in these situations.
The Group continues to pursue its long-term ambition to use its influence and expertise to support the sustainability transition of the global economy. A common set of strategic ESG priorities provides our Group with a clear focus when integrating sustainability considerations in business line strategy across our business model.
In 2022, we remain focused on group-wide commitments to ensure a diverse and inclusive culture and balanced working environment, and a net-zero aligned reduction trajectory for our operational GHG emissions. A new Responsible investment roadmap for 2022-2025 has been agreed by investment businesses, providing a common direction for how the business lines' product and service offering could evolve further over the coming years to serve the Group's long-term sustainability ambition.
In Global Advisory, activity for the first half of 2022 has remained strong, particularly in M&A. This trend continues to be evident in our visible pipeline, and we expect completion activity to remain robust during the second half of 2022. However, macro headwinds are negatively impacting deal making, particularly in Financing Advisory but also in M&A. We therefore expect the development of the pipeline to slow leading to a weaker start to 2023.
In Wealth and Asset Management, after a solid first half of 2022, we are cautious for the rest of the year due to rising inflation and the war in Ukraine which have significantly increased the risks of prolonged volatility and uncertainty in the financial markets. Despite strong business developments in Europe, AuM may continue to decrease due to adverse market performance, with a negative impact on management fees. However, our recent acquisitions in France and Switzerland, combined with rapidly increasing interest rates, will help support our global revenue in the coming months.
In Merchant Banking, we anticipate our recurring revenue to grow in line with our fundraising activities and our capital deployment plans for 2022. As our business becomes more mature, fund management activities will contribute progressively more to the division and the Group results. Additionally, following a positive performance in the first half of 2022, we expect our investments to continue to fulfil their value creation potential and generate further investment revenue, although to a lesser extent than experienced in 2021, which we consider to be an exceptional year for our business. We remain confident that our fundamental investing principles, centred around capital preservation and attractive risk-adjusted returns from our chosen sectors, represent a strong foundation for the ongoing future development of Merchant Banking.
Subject to external events, we expect our core businesses to continue to perform well during 2022, albeit below levels of 2021. The clear long-term strategies of each business give us confidence for a solid performance during 2022, but 2023 is likely to 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.3,800 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 €155,495,024. Paris trade and companies registry number 302 519 228. Registered office: 23 bis avenue de Messine, 75008 Paris, France.
| 30/06/2022 | 31/12/2021 | Var | |
|---|---|---|---|
| (in € billion) | |||
| Cash and amounts due from central banks | 5.1 | 6.0 | (0.9) |
| Loans and advances to banks | 2.1 | 2.1 | 0.0 |
| Loans and advances to customers | 4.8 | 4.4 | 0.4 |
| of which private client lending | 4.4 | 4.0 | 0.4 |
| Debt and equity securities | 3.1 | 3.2 | (0.1) |
| Other assets | 2.7 | 2.0 | 0.7 |
| Total assets | 17.8 | 17.7 | 0.1 |
| Due to customers | 11.6 | 11.7 | (0.1) |
| Other liabilities | 2.6 | 2.4 | 0.2 |
| Shareholders' equity - Group share | 3.2 | 3.1 | 0.1 |
| Non-controlling interests | 0.4 | 0.5 | (0.1) |
| Total capital and liabilities | 17.8 | 17.7 | 0.1 |
The foreign exchange translation effect between 31 December 2021 and 30 June 2022 had no significant impact.
There were no exceptional items in H1 2022 or H1 2021.
| (in € million) | GA | WAM | MB | Total businesses |
Corporate centre |
IFRS reconciliation1 |
H1 2022 |
|---|---|---|---|---|---|---|---|
| Revenue Operating expenses Cost of risk Operating income Other income / (expense) |
857 (694) - 163 - |
337 (267) 1 71 - |
188 (67) - 121 - |
1,382 (1,028) 1 355 - |
8 (27) - (19) - |
(15) 91 2 78 - |
1,375 (964) 3 414 - |
| Profit before tax | 163 | 71 | 121 | 355 | (19) | 78 | 414 |
| Operating margin % | 19% | 21% | 64% | 26% | 30% |
| (in € million) | GA | WAM | MB | Total businesses |
Corporate centre |
IFRS reconciliation1 |
H1 2021 |
|---|---|---|---|---|---|---|---|
| Revenue | 833 | 274 | 235 | 1,342 | 8 | 0 | 1,350 |
| Operating expenses | (668) | (217) | (50) | (935) | (31) | 120 | (846) |
| Cost of risk | 0 | 1 | 0 | 1 | 0 | 1 | 2 |
| Operating income | 165 | 58 | 185 | 408 | (23) | 121 | 506 |
| Other income / (expense) | 0 | 0 | 0 | - | 0 | 4 | 4 |
| Profit before tax | 165 | 58 | 185 | 408 | (23) | 125 | 510 |
| Operating margin % | 20% | 21% | 79% | 30% | 38% |
1 IFRS reconciliation mainly reflects: the treatment of profit share (préciput) paid to French partners as non-controlling interests; accounting for normal and, in 2022, special deferred bonuses over the period between award and vesting, rather than in the year in which the associated revenues have been booked; the application of IAS 19 for defined benefit pension schemes; adding back non-operating gains and losses booked in the account Net income/(expense) from other assets or administrative expenses excluded from the management accounts; and reallocating impairments and certain operating income and expenses for presentational purposes.
| P&L | Balance sheet | ||||||
|---|---|---|---|---|---|---|---|
| Rates | H1 2022 | H1 2021 | Var | Rates | 30/06/2022 | 31/12/2021 | Var |
| € / GBP | 0.8447 | 0.8657 | (2)% | € / GBP | 0.8608 | 0.8390 | 3% |
| € / CHF | 1.0248 | 1.0958 | (6)% | € / CHF | 0.9987 | 1.0364 | (4)% |
| € / USD | 1.0878 | 1.2014 | (9)% | € / USD | 1.0462 | 1.1350 | (8)% |
P&L rates are illustrative, and P&L is actually translated at the rates of the month in which P&L is booked.
| In € million | 2022 | 2021 | Var | |
|---|---|---|---|---|
| st quarter 1 |
413.5 | 394.9 | 5% | |
| Global Advisory | nd quarter 2 |
443.1 | 438.5 | 1% |
| Total | 856.6 | 833.4 | 3% | |
| st quarter 1 |
170.1 | 134.3 | 27% | |
| Wealth & Asset Management | nd quarter 2 |
167.3 | 139.9 | 20% |
| Total | 337.4 | 274.2 | 23% | |
| st quarter 1 |
95.5 | 103.4 | (8)% | |
| Merchant Banking | nd quarter 2 |
92.4 | 131.3 | (30)% |
| Total | 187.9 | 234.7 | (20)% | |
| Other business | st quarter 1 |
4.9 | 5.0 | (2)% |
| and corporate centre | nd quarter 2 |
3.4 | 3.1 | 10% |
| Total | 8.3 | 8.1 | 2% | |
| st quarter 1 |
(8.7) | (1.4) | n/a | |
| IFRS reconciliation | nd quarter 2 |
(6.9) | 0.9 | n/a |
| Total | (15.6) | (0.5) | n/a | |
| Total Group | st quarter 1 |
675.3 | 636.2 | 6% |
| Revenue | nd quarter 2 |
699.3 | 713.7 | (2)% |
| Total | 1,374.6 | 1,349.9 | 2% |
Global Advisory advised the following clients on notable transactions completed in H1 2022.
The Credit Management business, investing in senior secured loans, high yield bonds and structured credit, was active both in business development and investing:
| APM | Definition | Reason for use | Reconciliation |
|---|---|---|---|
| Net income – Group share excluding exceptionals |
Net income attributable to holders of ordinary equity excluding exceptional items | To measure Net income Group share excluding exceptional items of a significant amount |
In the Press release, please refer to Appendix B. |
| EPS excluding exceptionals |
EPS excluding exceptional items | To measure Earnings per share excluding exceptional items of a significant amount |
In the Press release, please refer to Appendix B. |
| Adjusted compensation ratio |
Ratio between adjusted staff costs divided by consolidated Revenue of Rothschild & Co excluding MB investment performance revenue (carried interest and investment gains). Adjusted staff costs represent: 1. staff costs accounted in the income statement (which include the effects of accounting for deferred bonuses over the period in which they are earned as opposed to the awarded basis), 2. to which must be added the amount of profit share paid to the French partners (Associés gérants), 3. from which must be deducted redundancy costs, revaluation of share-based employee liabilities and business acquisition costs treated as employee compensation under IFRS, which gives total staff costs in calculating the basic compensation ratio - 4. the amount of adjusted staff costs and revenue are restated by the exchange rate effect to offset the exchange rate fluctuations from one year to the next one, which gives the adjusted staff costs for compensation ratio. - |
To measure the proportion of revenue granted to all - employees. Key indicator for competitor listed investment banks. - Rothschild & Co calculates this ratio with adjustments to give the fairest and closest calculation to the one used by other comparable listed companies. |
Please refer: in the Press release to § 3.2 Operating expenses / Staff costs and in the Investor presentation to slide 34 |
| Businesses' Operating margin |
Each business Operating margin is calculated by dividing Profit before tax by revenue, business by business. It excludes exceptional items. |
To measure business' profitability |
Please refer to § 2 |
| Return on Tangible Equity (ROTE) excluding exceptional items |
Ratio between Net income - Group share excluding exceptional items and average tangible equity Group share over the period. Tangible equity corresponds to total equity Group share less intangible assets (net of tax) and goodwill. Average tangible equity over the period equal to the average between tangible equity as at 31 December 2021 and 30 June 2022. |
To measure the overall profitability of Rothschild & Co excluding exceptional items on the Group share of tangible equity capital in the business |
In the Investor presentation release, please refer to slide 46 |
| Return on Risk Adjusted Capital (RORAC) |
Ratio of an adjusted Profit before tax divided by an internal measure of risk adjusted capital (RAC) deployed in the business on a rolling 3-year basis. The estimated amount of capital and debt which management believes would be reasonable to fund the Group's investments in Merchant Banking products is consistent with its cautious approach to risk management. Based on the mix of its investment portfolio as of the reporting dates, management believes that this risk-adjusted capital (RAC) amounts to c.70% of the Group's investments net asset value and that the remainder could be funded by debt. This percentage broadly represents the weighted average of 80% for equity exposures, 50% for junior credit exposures, 40% for CLO exposures in vertical strips and 33% for senior credit exposures. To calculate the RORAC, Merchant Banking Profit before tax is adjusted by a notional 2.5% cost of debt, computed as per the above (i.e. 30% of the Group's investments NAV), divided by the RAC. Disclosed RORAC is calculated on a 3-year rolling period average to account for the inevitable volatility in the financial results of the business, primarily relating to investment income and carried interest recognition. |
To measure the performance of the Merchant Banking business |
In the Investor presentation release, please refer to slide 46 |
| Operating Cash Flow (OCF) |
Amount of cash generated by the Group's normal business operations in the current financial year. The calculation is done via the indirect method, from the profit before tax. |
To measure the amount of cash generated by the Group's normal business operations |
In the Investor presentation release, please refer to slide 47 |
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