ROTHSCHILD (EPA:ROTH) - Press release - Financial information 1st quarter 2020

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12/05/2020 17:40

Press release - Financial information
1st quarter 2020
Paris, 12 May 2020

Very strong start to 2020 impacted by COVID-19 in March

Business highlights

* Global Advisory: revenue down 8% to EUR269.1 million (Q1 2019: EUR292.5
  million), with the effects of the economic shocks caused by the COVID-19
  pandemic being felt only later in the quarter

* Wealth & Asset Management: record first quarter with revenue up 10% to
  EUR130.8 million (Q1 2019: EUR118.5 million), reflecting the strong growth
  of Assets under Management (AuM) during 2019 and high level of transaction
  fees in Q1 2020

* Merchant Banking: revenue down 14% to EUR20.7 million (Q1 2019: EUR24.1
  million), reflecting unrealised negative asset valuation effects in March,
  and down 9% when compared to the average first quarter revenue for the
  previous three years

* First quarter revenue impacted positively by currency translation effects of
  EUR5 million

                                   First quarter
In EUR million                  2020   2019    % Var
VarGlobal Advisory             269.1   292.5    (8)%
Wealth & Asset Management      130.8   118.5     10%
Merchant Banking                20.7    24.1   (14)%
Other businesses                 3.1     9.8    (68)%
TOTAL before IFRS
reconciliation                 423.7   444.9     (5)%
IFRS Reconciliation             (7.3)   (1.0)    n/a
Total Group revenue            416.4   443.9     (6)%

Our response to COVID-19

* Our priority is the safety and welfare of our employees. Nearly all of our
  employees are now working remotely. A small number of critical staff are
  still working in our offices and we have ceased all travel.
* Our service to our clients has not been affected. We remain in constant
  dialogue with them through various secured technologies allowing us to
  maintain our efficiency and responsiveness.
* The Managing Partner monitors the situation on a daily basis and an
  Operations Committee meets frequently to respond to operational issues as
  they  arise, while trying to anticipate the next potential phases and their
  possible impact.
* The Group is financially resilient; we have a strong balance sheet with a
  capital ratio of 20% and high levels of liquidity. Our prudent approach to
  the business is also reflected in our conservative loan book.
* Thanks to our staff, clients and operating synergies from our three-business
  model, the Group is confident it will emerge from this crisis stronger and
  fully able to continue to support our clients and future business
  opportunities.

1. Business activities

1.1 Global Advisory
Our Global Advisory business focuses on providing advice in the areas of
Strategic Advisory and M&A, Financing Advisory encompassing Debt Advisory,
Restructuring and Equity Advisory, as well as Investor Advisory where we
advise clients around engaging with shareholders on a variety of topics
including activism, sustainability and governance.

Global Advisory revenue for the three months to March 2020 was EUR269.1
million, 8% below the same period in 2019 (EUR292.5 million), with the effects
of the economic shocks caused by the COVID-19 pandemic being felt only later
in the quarter. This solid quarterly revenue performance compares to a 31%
reduction in global completed M&A deal values over the same period(1).

We expect these challenging market conditions to continue for some time, with
most M&A situations currently on hold or delayed. Notwithstanding, our breadth
of independent advice and global footprint will position us well to
effectively serve existing and new clients through the current crisis. At the
moment, our teams of experienced Financing Advisory bankers are working
extensively with clients to support them on liquidity and financing matters.
Alongside this, all our teams worldwide are focused on maintaining active
dialogues with existing and potential clients in order to offer our assistance
and advice in supportingthem through this difficult period.

We continue to maintain a strong competitive position. For the last twelve
months to March 2020, we ranked 8th globally by financial advisory revenue(2).
Our M&A business ranked 2nd globally by number of completed transactions for
the twelve months to March 2020(3). In Financing Advisory, we ranked 3rd in
Europe by number of completed restructuring transactions for the twelve months
to March 20203, and we advised on more European equity assignments than any
other independent financial adviser1 over the same period.

During the first quarter of 2020, we promoted 22 new Managing Directors across
the business, demonstrating our focus on growing talent from within. In
addition, we recruited one new Managing Director into our Swiss business and
continued our ongoing strategic investment in North America with a new Vice
Chairman in North America, advising clients across Restructuring, Debt
Advisory and M&A.

Global Advisory advised the following clients on significant assignments that
completed in the quarter:
* Cobham on its sale to Advent International (£4.2 billion, United Kingdom)
* Cision on its sale to Platinum Equity (US$2.74 billion, United States)
* HCOB on its Liability Management Exercise (EUR2.3 billion, Germany)
* Accor on its disposal of its 85.8% stake in Orbis to AccorInvest (EUR1.1
billion, France and Poland)
* Boels on its public offer for Cramo plc and associated underwritten senior
loan financing (EUR1 billion, Netherlands and Finland)

In addition, despite the extremely challenging market environment, we continue
to work on some of the largest and most complex announced transactions
globally, including acting as financial adviser to:

(1) Dealogic
(2) Company filings
(3) Refinitiv

* Abu Dhabi Power Corporation on its combination with TAQA (US$55 billion,
  United Arab Emirates)
* PG&E on its restructuring (advisor to creditors - US$52 billion, United
  States)
* Ingenico Group on its combination with Worldline (EUR21 billion, France)
* Consortium led by Advent, Cinven and RAG-Stiftung on its acquisition of
  ThyssenKrupp's Elevator Technology business (EUR17.2 billion, Germany,
  United Arab Emirates and Singapore)
* Asahi Group Holdings on its acquisition of Carlton & United Breweries from
  Anheuser-Busch InBev (US$11.3 billion, Japan, Australia and Belgium)

1.2 Wealth & Asset Management

Wealth & Asset Management is made up of our Wealth Management businesses in
France, Switzerland, UK, Belgium, Germany, Monaco and Italy and our Asset
Management activity in Europe. In addition, we operate a small Asset
Management business in North America.

Wealth & Asset Management delivered record first quarter revenue of EUR130.8
million, up 10% (Q1 2019: EUR118.5m). The revenue increase has been driven
mainly by strong growth in AuM in 2019, the full effect of the market
movements late in the quarter not yet having been felt, as well as high
transaction fees, despite the continuing impact of lower interest rates on
revenue.

Net New Assets (NNA) were strong at EUR0.6 billion, of which Wealth Management
contributed positive net inflows of EUR1.3 billion offset by Asset Management
net outflows of EUR0.7 billion.

The positive NNA of EUR0.6 billion has been more than offset by negative
market performance and exchange rate movements of EUR9.9 billion, following
the sharp decline in stock markets in the last part of the first quarter of
2020 due to the COVID-19 crisis. AuM decreased by 12% (or EUR9.3 billion) to
EUR66.7 billion as at 31 March 2020 (31 December 2019: EUR76.0 billion).

The table below presents the progress in Assets under Management.

                                       Quarter ended
In EUR billion                 31/03/2020 31/12/2019 31/03/2019
AuM opening                    76.0         73.7       64.3
Net new assets                  0.6         (0.4)       0.9
of which Wealth Management      1.3         (0.1)       0.9
of which Asset Management      (0.7)        (0.3)       0.0
Market and exchange rate       (9.9)         2.7        3.9
AuM closing                    66.7         76.0       69.1
% var / AuM opening

We are very pleased that in each business in Europe we saw positive net inflows
in Wealth Management. Despite the impact of COVID-19 activity, levels in the
business have been very high as we have made a particular effort to communicate
with clients in these difficult conditions. This has been rewarded by customer
satisfaction and increased levels of business.

Asset Management recorded a net outflow of EUR0.7 billion largely due to North
America (EUR0.6 billion), where our value investment strategy has proved
difficult, even in the current downturn.

As a result of our conservative lending strategy, the loan book has proved
resilient in the recent challenging market conditions. There have been
relatively few margin calls, and these have been rectified in accordance with
normal procedures.

1.3 Merchant Banking

Merchant Banking is the investment arm of Rothschild & Co which manages
capital for the firm and third parties in private equity and private debt.

Revenue for the three months to March 2020 was EUR20.7 million (Q1 2019:
EUR24.1 million), down 14%. When compared to the average of the last three
years, first quarter revenue is down 9%.

The table below presents the progress in revenue.

                                    First quarter
In EUR million                 2020   2019   Var    % Var
VarRecurring revenue         27.2   16.9  10.3      61%
Investment performance
related revenue              (6.5)   7.2 (13.7)   (190)%
of which carried interest    (2.2)   2.9  (5.1)   (176)%
of which realised and
unrealised investments
gains and dividends          (4.3)   4.3  (8.6)   (200)%
Total revenue                20.7   24.1  (3.4)    (14)%
% recurring / total revenue   131%   70%

The revenue contraction of EUR3.4 million is explained by two opposing
effects:

* A strong increase in recurring revenue of EUR10.3 million as a result of
  recent fund closings and positive AuM growth over the last twelve months.
* A decrease in investment performance related revenue of EUR13.7 million.
  This was mainly the result of:
- the negative performance in credit markets which affected the valuation of
   the Group's investments in Credit Management products investing in European
   and US leveraged loans; and
- a dislocation in equity markets which negatively impacted the earnings
   multiples used to value our equity funds. This resulted in a reduction of
   the unrealised value accretion across the Merchant Banking funds as at
   31 March 2020, following a specific valuation exercise undertaken in light
   of the COVID-19 pandemic.

It is important to stress, however, that this decline in investment
performance-related revenue mainly affects the unrealised portion of the
Merchant Banking funds' value accretion. We expect valuations to recover - for
both our equity and debt positions - as macroeconomic conditions start to
stabilise.

In addition, despite the challenging market scenario, our private equity and
direct lending portfolios have proven very resilient so far, reflecting the
quality of our underlying assets and the robustness of the core sectors in
which we invest.

Despite unfavourable market conditions, Merchant Banking's business activities
have remained robust during the first part of 2020. In private equity, Five
Arrows Principal Investments III (the third-generation fund within the
division's flagship European private equity strategy) completed its third
investment. Also, Five Arrows Private Equity Programme II (the
second-generation multi-strategy fund) held its third closing, securing total
commitments of EUR399 million to date.

In private debt, Five Arrows Debt Partners III (the third-generation direct
lending fund investing in the senior secured and junior debt of mid-market
European corporates), held its first closing in March 2020 as planned, with
total capital raised for this strategy to date of EUR450 million.
Additionally, in January 2020, Five Arrows Global Loan Investments
(the new Credit Management vehicle investing in subordinated tranches of CLOs)
held its second closing, securing commitments of EUR230 million to date.

The alignment of interests between the Group and our third-party investors
remains a key differentiator for Merchant Banking, especially in the midst of
these challenging market conditions. During the first three months of 2020,
Rothschild & Co's investment in the division's products totalled EUR13.3
million, of which EUR12.0 million was attributable to the Group's own
investment in funds managed by Merchant Banking and EUR1.3 million in
proprietary investments.

Disposals and distributions generated proceeds of EUR12.9 million, of which
EUR11.0 million was from Merchant Banking's managed funds (the majority, EUR9.1
million, being from FASO III and IV following significant exits from their
underlying investment portfolios).

Assets under Management at 31 March 2020 were EUR14.0 billion, flat versus 31
December 2019 (EUR14.0 billion), of which Rothschild & Co's share is EUR1.2
billion.

2. COVID-19

Our priority during the COVID-19 crisis has been the safety and welfare of our
staff. From the end of January, we gradually ceased all business travel across
the world.

Our Business Continuity plans allowed us to work initially on a rotating basis
and then to respond rapidly to the requirement to work entirely from home. We
now have nearly all of our staff working from home at full efficiency. A small
number of critical staff are still working in our offices in London, Paris and
Zurich. We are now planning for when it will be possible for some of our
employees to start returning to the office, subject to national government
requirements, but as always this will be done in a conservative and gradual
manner and the safety of our employees will be paramount in how we enact these
plans.

Our service to our clients has not been affected. We remain in contact using
various technologies allowing us to maintain our efficiency and
responsiveness.

The Managing Partner monitors the situation on a daily basis and an Operations
Committee (OpCo) meets frequently to respond to operational issues as they
arise, while trying to anticipate the next potential phases and their possible
impact.

The Group is financially resilient; we have a strong balance sheet with a
capital ratio of 20% and high levels of liquidity. Our prudent approach to the
business is also reflected in our conservative loan book.

Thanks to our staff, clients and operating synergies from our three-business
model, the Group is confident it will emerge from this crisis stronger and
fully able to continue to support our clients and future business
opportunities.

3. Outlook

In Global Advisory, whilst it is too early to predict the outcome, we expect
our M&A revenue for the rest of the year to decline substantially, partially
offset by increases in Financing Advisory revenue. Despite the current
unprecedented challenges, our highly experienced and independent advisory
teams continue to actively serve our clients across the world. Whilst most
M&A situations have been put on hold, some activity will continue, and we are
advising existing and new clients extensively with regards to liquidity and
financing matters.

In Wealth & Asset Management, although our first quarter was exceptionally
strong, we expect a decline in revenues during the rest of the year. This will
be driven by the full impact of the weakness of the equity market, together
with the effect of low and falling interest rates in most major currencies,
especially in relation to the recent cut in US Dollar and Sterling interest
rates. However, the underlying dynamics for the business are very positive and
we expect a combination of conservative positioning, decent investment
performance and excellent client service to leave us well placed to benefit
from the opportunities we expect to emerge later in the year.

In Merchant Banking, we expect to continue to maintain, and indeed grow, our
recurring revenue base, which will be our main profitability driver in 2020.
The adverse effect of the COVID-19 outbreak will largely be confined to our
investment performance-related revenues, which are primarily linked to our
investment valuations rather than the performance of our underlying portfolio
companies. Our underlying investee businesses are generally performing well,
relative both to the market and their past performance, which we attribute to
our fundamental investing principles that are centred around capital
preservation and an equal focus on risk and return. We currently anticipate
that investment performance-related revenues will be down significantly on
2019 and subject to further material changes in financial markets.

Although there is still considerable uncertainty around how the current
situation will develop and, hence, the degree to which this will impact our
2020 financial results, it is clear that the effect for the Group, will be
materially detrimental compared to 2019. However, we remain focused on our
strategy to increase revenue while maintaining a close control over costs,
and we have the advantage of being able to manage a significant element of our
cost base which is variable compensation. Experience has shown that our
business model is resilient, highly adaptable and well suited to clients'
needs at times like these. Therefore, the Group is confident it will emerge
from this crisis stronger and fully able to continue to support our clients
and future business opportunities.

Financial calendar:
* 14 May 2020:           Annual AGM
* 15 September 2020:     Half-year results 2020
* 10 November 2020:      Publication of Third quarter information 2020

For further information:

Rothschild & Co                               Media Contact
Investor Relations - Marie-Laure Becquart     DGM - Olivier Labesse
Marie-laure.becquart@rothschildandco.com      labesse@dgm-conseil.fr

Media Relations - Caroline Nico

Caroline.nico@rothschildandco.com

About Rothschild & Co

With a team of c.3,500 talented financial services specialists on the ground
in over 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, 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) listed on Euronext in Paris, Compartment A
with a  share capital of EUR155,235,024. Paris trade and companies registry
302 519 228.
Registered office: 23 bis avenue de Messine, 75008 Paris, France.

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10/10/2023 15:46

ROTHSCHILD (EPA:ROTH) - Press release - Financial information 1st quarter 2020

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