Earnings Release • Jun 22, 2016
Earnings Release
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Paris, 22 June 2016
"The strategy introduced at the time of the 2012 reorganisation is bearing fruit, as shown by the strong performances seen across all our businesses this year which resulted in a significant increase in our operating income of 19%. We are now focussed on three core businesses following the sale of our UK asset finance business. This disposal provides a release of capital which we intend to reinvest, and we announced earlier in the month our contemplated merger with Compagnie Financière Martin Maurel, which will lead to significant growth in our Private Wealth business.
"In our Global Advisory business, we have gained market share thereby maintaining our position as the leading M&A advisor in Europe, in a particularly challenging market. We have also seen good progress in North America. In Private Wealth and Asset Management, our performance has been resilient thanks to an increase in net new assets, while Merchant Banking continues to increase its assets under management. The economic environment remains volatile and uncertain, but we are confident that we have the right strategy to develop our businesses over the next 12 months and in the future," said Nigel Higgins and Olivier Pécoux, Co-Chief Executive Officers of the Group.
| (in €m) | Page | 2014/15 | 2015/16 1 | Var | Var % |
|---|---|---|---|---|---|
| Revenue | 3 - 5 | 1,403 | 1,589 | 186 | 13% |
| Staff costs | 6 | (820) | (954) | 134 | 16% |
| Administrative expenses | 6 | (257) | (267) | 10 | 4% |
| Depreciation and amortisation | (36) | (37) | 1 | 4% | |
| Impairments | 6 | (22) | (12) | (10) | (46)% |
| Operating Income | 268 | 319 | 51 | 19% | |
| Other income / (expense) (net) | 6 | 49 | 103 | 54 | 112% |
| Profit before tax | 317 | 422 | 105 | 33% | |
| Income tax | 7 | (63) | (65) | 2 | 3% |
| Consolidated net income | 254 | 357 | 103 | 41% | |
| Non-controlling interests | 7 | (110) | (125) | 15 | 13% |
| Net income - Group share | 144 | 232 | 88 | 62% | |
| Exceptionals | 16 | (97) | (113) | n/a | |
| Net income - Group share excl. exceptionals | 10 | 160 | 135 | (25) | (16)% |
| Earnings per share | 2.08 € | 3.37 € | 1.29 € | 62% | |
| EPS excl. exceptionals | 2.31 € | 1.95 € | - 0.36 € |
(16)% |
1 The foreign exchange translation effect between 2014/2015 and 2015/2016 is:
a positive impact on revenue of €68 million
a negative impact on Net income – Group share of €4 million
An analysis of exceptional items is shown in Appendix B
* * *
The Supervisory Board of Rothschild & Co SCA met on 22 June 2016 to review the consolidated financial statements from 1 April 2015 to 31 March 2016; these accounts had been previously approved by Rothschild & Co Gestion SAS, Managing Partner of Rothschild & Co.
We have two main activities within our Group: (1) Global Advisory which focuses on providing advice in the areas of M&A, debt, restructuring and equity; and (2) 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 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 6 th globally.
Within the context of a 17%1 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. We remain among the top M&A advisers in the world, rising to 3 rd position globally by number of completed transactions, from 4 th 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. Although this would dilute our Global Advisory profit margin, the strategy should be accretive to our profitability in the medium-term.
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 2 nd by number of deals in Europe and 4 th 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.
Rothschild & Co advised the following clients on significant advisory assignments in 2015/2016:
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 Rothschild & Co's advisory assignments completed during the financial year, please refer to Appendix F.
1 Based on completed deal values – Source: Thomson Reuters
Our Asset Management business, in a broad sense, comprises Rothschild Private Wealth, Rothschild Asset Management and Rothschild Merchant Banking. Revenue for the year to 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.
Rothschild Private Wealth & Rothschild Asset Management revenue for the year to March 2016 was €379 million, up 13% compared to last 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.
The year to March 2016 saw significant macroeconomic activity including central bank intervention in Europe and Asia, and a slowdown in China's 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.
| In € billion | 12 months to 31 March 2015 |
12 months to 31 March 2016 |
|---|---|---|
| AuM opening | 42.3 | 52.1 |
| Net new assets | 3.4 | 2.6 |
| of which Private Wealth | 2.3 | 2.3 |
| of which Asset Management | 1.1 | 0.3 |
| Market, exchange rate and reclassification of assets | 6.4 | (4.5) |
| AuM closing | 52.1 | 50.2 |
The table below presents the Assets under Management progression.
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 to 2015), a more relevant benchmark of performance in this business.
This revenue includes:
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 generating cash of €59 million and a profit of €27 million.
As reported at the time of the half year results, Merchant Banking held a final closing of Five Arrows Principal Investments II (FAPI II), our 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 with approximately US\$1.5 billion (€1.35 billion) assets under management across five collateralised loan obligation (CLO) structures. Subsequent to this, in March 2016, Merchant Banking's Rothschild Credit Management Division completed the pricing of Contego III, its second European CLO offering, with total commitments of €308 million.
Merchant Banking's assets under management were €4.8 billion as at 31 March 2016 compared to €3.8 billion as at 31 March 2015.
| (in €m - as at 31 March) | 2015 | 2016 |
|---|---|---|
| Managed private funds | 207 | 231 |
| Rothschild proprietary investments & other | 301 | 207 |
| Total gross assets | 508 | 438 |
1 Combination of value creation (+€42m) offset by change in value, in particular, in listed legacy assets (-€30m)
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 €99 million, accounted for in the second half of 2015/2016 in "Other income / (expense)". FALG's contribution to revenue and profit before tax for the first 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, revenue was €1,589 million compared to €1,403 million in the prior year, representing an increase of €186 million (+13%). The increase was largely due to a record year in Global Advisory (+€161 million) and a steady growth in Private Wealth and 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. The translation impact of exchange rate fluctuations resulted in an increase in revenue of €68 million.
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.
The Group's compensation ratio, which reports staff costs as a percentage of revenues, was 64.9% as at 31 March 2016 compared to 63.2% as at 31 March 2015. However adjusting for the effects of joiner costs, exchange rates and the exceptionally high levels of investment gains in 2014/2015, the ratio declined from 64.3% to 63.3%.
Overall Group headcount decreased from 2,853 to 2,829 as at 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 €99 million following the sale of the 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 March 2015). 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"). The ratios, set out below under full application of the Basel 3 rules, are comfortably ahead of the minimum requirement:
| 31/03/2015 | 31/03/2016 | Full Basel 3 minimum with the CCB (Capital Conservation Buffer) |
|
|---|---|---|---|
| Core Tier 1 ratio = Tier 1 ratio | 18.1% | 20.6% | 8.5% |
| Global solvency ratio | 20.5% | 22.4% | 10.5% |
The reasons for the increase in the ratios are the strong profit performance in the year as well as the benefits of the FALG disposal.
A dividend of €0.63 per share, an increase of 5%, 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.
We are targeting a progressive dividend policy over time in order to avoid the potential negative effect of results volatility and our desire to reinvest the capital release from the FALG disposal, as demonstrated by the recent announcement of the contemplated merger with Compagnie Financière Martin Maurel.
On 6 June, 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:
Following consultation with work councils from both groups, shareholder approval from Rothschild & Co and Compagnie Financière Martin Maurel, and subject to usual conditions, in particular competition and regulatory authorities' approval and, it is anticipated that the merger would be completed 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. Whilst 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.
9 August 2016 Publication for the first quarter of FY 2016/2017 29 November 2016 Financial half year 2016/2017 results 9 February 2017 Publication for the third quarter of FY 2016/2017 14 June 2017 Financial year 2016/2017 results
With a team of c.2,800 talented financial services specialists 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.
Investor Relations Marie-Laure Becquart [email protected] Tél. : +33 (0)1 53 77 65 10
Communication Caroline Nico [email protected] Tél. : +33 (0)1 53 77 65 10
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]
For more information, please visit Group's websites: www.rothschildandco.com,
| (in €m) | Global Advisory | Private Wealth & Asset Management and Merchant Banking |
Other 1 | IFRS Reconciliation 2 |
2015/2016 |
|---|---|---|---|---|---|
| Revenues | 1,040 | 487 | 56 | 6 | 1,589 |
| Operating expenses | (873) | (404) | (101) | 121 | (1,257) |
| Impairments | 0 | (1) | (2) | (10) | (13) |
| Operating income | 167 | 82 | (47) | 117 | 319 |
| Exceptional charges / (profits) | 0 | 0 | 8 | (10) | (2) |
| Operating income without exceptional items |
167 | 82 | (39) | 107 | 317 |
| Operating margin % | 16% | 17% | 20% |
| Global Advisory | Private Wealth & Asset Management and Merchant Banking |
Other 1 | IFRS Reconciliation 2 |
2014/2015 | |
|---|---|---|---|---|---|
| (in €m) | |||||
| Revenues | 880 | 482 | 63 | (22) | 1,403 |
| Operating expenses | (741) | (348) | (99) | 75 | (1,113) |
| Impairments | 0 | 0 | (15) | (7) | (22) |
| Operating income | 139 | 134 | (51) | 46 | 268 |
| Exceptional charges / (profits) | 0 | 0 | 0 | 14 | 14 |
| Operating income without | 139 | 134 | (51) | 60 | 282 |
| exceptional items | |||||
| Operating margin % | 16% | 28% | 19% |
1 Other comprises central costs, legacy businesses, including Banking & Asset Finance and other
2 IFRS reconciliation mainly includes items that 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 €m) | 2014/2015 | 2015/2016 | ||||
|---|---|---|---|---|---|---|
| PBT | PATMI | EPS | PBT | PATMI | EPS | |
| Including "Exceptionals" | 317 | 144 | 2.08 € | 422 | 232 | 3.37 € |
| - Legacy legal costs | (17) | (16) | (0.23) € | 0 | 0 | - € |
| - Pensions credit | 3 | 1 | 0.02 € | 10 | 6 | 0.09 € |
| - EDR (Suisse) impairment | (3) | (2) | (0.03) € | 0 | 0 | - € |
| - UK deferred tax asset write off | 0 | (9) | (0.13) € | 0 | 0 | - € |
| - Sale of Swiss property | 16 | 10 | 0.14 € | 0 | 0 | - € |
| - Swap settlement cost | 0 | 0 | - € |
(8) | (6) | (0.09) € |
| - FALG Sale | 0 | 0 | - € |
99 | 97 | 1.42 € |
| Total Exceptional Costs (-) / Gains | (1) | (16) | (0.23) € | 101 | 97 | 1.42 € |
| Excluding "Exceptionals" | 318 | 160 | 2.31 € | 321 | 135 | 1.95 € |
| In €m | 2014/2015 | 2015/2016 | Var | |
|---|---|---|---|---|
| st quarter 1 |
216.2 | 208.3 | (4%) | |
| Global Advisory | nd quarter 2 |
196.7 | 189.0 | (4%) |
| rd quarter 3 |
250.4 | 333.8 | +33% | |
| th quarter 4 |
216.4 | 309.3 | +43% | |
| Total | 879.7 | 1,040.4 | +18% | |
| st quarter 1 |
114.4 | 121.8 | +6% | |
| Asset Management 2 | nd quarter 2 |
128.6 | 132.7 | +3% |
| rd quarter 3 |
122.6 | 128.5 | +5% | |
| th quarter 4 |
116.0 | 103.4 | (11%) | |
| Total | 481.6 | 486.4 | +1% | |
| st quarter 1 |
76.4 | 94.4 | +24% | |
| Of which Private Wealth | nd quarter 2 |
79.1 | 92.5 | +17% |
| & Asset Management | rd quarter 3 |
86.6 | 100.8 | +16% |
| th quarter 4 |
94.4 | 91.6 | (3%) | |
| Total | 336.5 | 379.3 | +13% | |
| st quarter 1 |
38.0 | 27.4 | (28%) | |
| Of which Merchant Banking | nd quarter 2 |
49.5 | 40.2 | (19%) |
| rd quarter 3 |
36.0 | 27.7 | (23%) | |
| th quarter 4 |
21.6 | 11.8 | (45%) | |
| Total | 145.1 | 107.1 | (26%) | |
| st quarter 1 |
16.7 | 19.6 | +17% | |
| Other 3 | nd quarter 2 |
12.2 | 18.9 | +55% |
| rd quarter 3 |
16.1 | 9.9 | (39%) | |
| th quarter 4 |
18.5 | 7.6 | (59%) | |
| Total | 63.5 | 56.0 | (12%) | |
| st quarter 1 |
- | (9.3) | n/a | |
| IFRS reconciliation | nd quarter 2 |
(11.5) | (1.8) | n/a |
| rd quarter 3 |
(9.9) | 4.9 | n/a | |
| th quarter 4 |
(0.2) | 12.3 | n/a | |
| Total | (21.6) | 6.1 | n/a | |
| st quarter 1 |
347.3 | 340.4 | (2%) | |
| Total Group | nd quarter 2 |
326.0 | 338.8 | +4% |
| Revenue | rd quarter 3 |
379.2 | 477.1 | +26% |
| th quarter 4 |
350.7 | 432.6 | +23% | |
| Total | 1,403.2 | 1,588.9 | +13% |
2 Asset Management in a broad sense which comprises Private Wealth & Asset Management and Merchant Banking
3 Other comprises central costs, legacy businesses, including Banking and other
| (in €bn) | 31/03/2015 | 31/03/2016 | Var |
|---|---|---|---|
| Cash and amounts due from central banks | 3.6 | 3.5 | (0.1) |
| Cash placed with banks | 1.5 | 1.2 | (0.3) |
| Loans and advances to customers | 1.6 | 1.5 | (0.1) |
| of which Private client lending | 0.9 | 1.3 | 0.4 |
| of which Legacy lending book | 0.3 | 0.2 | (0.1) |
| Debt and equity securities | 1.0 | 1.5 | 0.5 |
| Other assets | 1.4 | 1.3 | (0.1) |
| Total assets | 9.1 | 9.0 | (0.1) |
| Due to customers | 5.7 | 5.5 | (0.2) |
| Other liabilities | 1.4 | 1.5 | 0.1 |
| Shareholders' equity - Group share | 1.4 | 1.5 | 0.1 |
| Non-controlling interests | 0.6 | 0.5 | (0.1) |
| Total capital and liabilities | 9.1 | 9.0 | (0.1) |
The foreign exchange translation effect between 31 March 2015 and 31 March 2016 caused total assets to decrease by €0.4 billion.
| P&L | Balance sheet | |||||||
|---|---|---|---|---|---|---|---|---|
| Rates | 2014/2015 | 2015/2016 | Var | Rates | At March 15 | At March 16 | Var | |
| € / GBP | 0.7740 | 0.7329 | (5)% | € / GBP | 0.7273 | 0.7916 | 9% | |
| € / CHF | 1.1515 | 1.0734 | (7)% | € / CHF | 1.0463 | 1.0931 | 4% | |
| € / USD | 1.2304 | 1.1042 | (10)% | € / USD | 1.0759 | 1.1385 | 6% |
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