Rothschild & Co: 2019 – Full-year results presentation

Results for Full-year 2019

Presentation to analysts and investors

March 2020

Contents

	Sections
1	Highlights	3
2	Business review: Global Advisory	9
3	Business review: Wealth & Asset Management	15
4	Business review: Merchant Banking	19
5	Financials	25
6	Targets and outlook	31
	Appendices	33

1

Highlights

1. Highlights

Highlights

Good results in challenging markets

Key achievements

Results

Strategy on track

• Global Advisory (GA): resilient M&A advisory with a record Q4, 7th by revenue and 2nd by number globally
• Wealth & Asset Management (WAM): 17% increase of AuM (from €64.8bn to €76.0bn) thanks to solid NNA in Wealth Management and favourable financial markets
• Merchant Banking (MB): strong growth of 27% of AuM and continuing to deliver significant profit contribution (+9% y-o-y)
• Group revenue: €1,872m, down 5% (2018: €1,976m)
• Net income - Group share excl. exceptionals: €233m, down 23% (2018: €303m)
• Earnings per share excl. exceptionals: €3.24, down 21% (2018: €4.10)
• Negative impact y-o-y of €34m on staff costs relating to deferred bonus accounting (2019: charge of €4m versus a credit of €30m in 2018)
• GA: ongoing investment in North America and acquisition of Arrowpoint, focusing on UK mid-market segment
• WAM : first collaboration across the WAM businesses to increase synergies
• MB: active fundraising, notably with the launching of Five Arrows Debt Partners II (FADP II) and Five Arrows Global Loan Investments (GLI)

Public	4

1. Highlights

Group revenue

Increasing revenue in WAM and MB; GA revenue decline as anticipated

Group revenue (in €m)

CAGR 15-19:

+6%

1,910

1,71310%

1,5078%

25%

8%19%

23%

68%62%

63%

-5%
1,976	1,872
9%
+13%	11%
24%
+3%	27%

64%	-9%
62%

2015	2016	2017	2018	2019
		Global Advisory			Wealth & Asset Management		Merchant Banking		Other

Public	5

1. Highlights

Group EPS

Leverage effect of lower revenue impacting EPS

EPS excluding exceptionals (in €)		EPS (in €m)	Average number
			of shares - 000s

2015/16

1.95

3.37

68,586

2016

2.66

2.60

68,672

2017

3.33

2018

4.10

-21%

2019

3.24

3.18	74,180

3.88	73,388

	-13%
3.38	71,340

Note

1 Average number of shares decreasing as a consequence of the share buy back as part of Edmond de Rothschild deal in August 2018

Public	6

1. Highlights

Dividend

In line with our progressive dividend policy, increase of 8%

Dividend progression over 5 years

+35%

since 2016

+8%

			€0.79	€0.85
	€0.68	€0.72
€0.63

2015/16	2016/17	2017	2018	2019
Payout	32%	26%	22%	19%	26%
ratio 1, 2

Notes

1. In 2017, €0.72 was the pro forma equivalent dividend on a full year basis, in relation to the shorter financial year of 2017 following the change of year end from March to December
2. Payout ratio is calculated excluding exceptional items

Public	7

2

Business review: Global Advisory

2. Business review: Global Advisory

Global Advisory

Global M&A market by values

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

-

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Announced Deal Value ($bn)		Completed Deal Value ($bn)
				16 vs 15	17 vs 16	18 vs 17	19 vs 18
	% var Announced	(17)%	(4)%	19%	(3)%
	% var Completed	(0)%	(8)%	15%	(14)%

Source: Refinitiv

Note: 2019 announced value includes 3 US domestic deals >$80bn with a cumulative value of $267bn (Bristol-Myers Sqibb / Celgene, United Technologies / Raytheon and AbbVie / Allergan (vs none in 2018)

10

Public

2. Business review: Global Advisory

Global Advisory

Revenue outperforming M&A markets, with record revenue in Q4 of €394m (+16% QoQ)

Revenue by product (in €m)

CAGR 15-19:
+5%	-9%

		1,271
1,171	1,183	1,160

			26%	-14%
947	24%	32%		25%
29%
			74%	-7%
	76%			75%
	68%

71%

2015	2016		2017	2018	2019
			M&A Advisory			Financing Advisory

Public	11

2. Business review: Global Advisory

Global Advisory

Maintaining a very strong position by revenue and number of deals

	Ranking by advisory revenue (in €m) - 12m to December 2019
								Ranking by	% of Total
								# deals	revenue
	Goldman Sachs						2,855	1	9%
	JP Morgan	2,123	3	2%
	Morgan Stanley	1,894				4	5%
	Evercore	1,479				10	80%
	Lazard	1,213						5	53%
	BoA / Merrill Lynch	1,196						7	1%
		1,160						2	62%
	Citigroup	1,124						6	2%
	Houlihan Lokey	1,026						20	100%
	Barclays	885						8	4%
				2019			2018
	Source: Company's filings, Thomson Reuters, global ranking by # of deals based on completed transactions

Public	12

2. Business review: Global Advisory

Global Advisory

Profitability compressed by several factors
Profit Before Tax (in €m) and PBT margin - pre US investment costs1
					Main reasons for profit
			255		compression
			-29%
				⚫	Revenue down by 9%
	212	211			⚫	Ongoing strategic
				182		investment in North
					America despite an
						unfavourable mid-
						market M&A and
						significantly lower
						restructuring market
			20%		⚫	Poor market
					conditions in China
	18%	18%
			⚫	Increase in Non
				16%
					personnel costs in
						line with the market
	2016	2017	2018	2019
		PBT excluding US investments costs	% PBT margin excl. US investments
Compensation	65.6%	65.0%	63.4%	64.9%
ratio2
Note

1. US investment costs were €23m in 2016, €25m in 2017, €22m 2018 and €16m in 2019. Our US investment costs are expected to be around 2% of revenue subject to the right opportunities
2. On an awarded basis

Public	13

2. Business review: Global Advisory

Update on our North America development

Overview

6 offices

New York, Washington and Toronto and more recently Los Angeles (2014), Chicago (2016) and Palo Alto (2018)

c.200			40
advisory bankers					MDs
30				5
new M&A MDs since 2014					new MDs in 2019
Our North American progression1
		2014	2019		Var		Market
		14-19		% change
Deal value		$43bn			$56bn		30%		23%
Deal number	76	115	51%	14%
League table position	#19	#14	36%
(# of Announced deals)

Broadening sector coverage

		Restructuring
	Debt	Activism
	Metals &
	Advisory
	Mining
Technology		Financial
	Sponsors

FIG / Asset			Established presence	Equity
Management			Enhanced since 2016	Advisory
Retail			Initiated since 2016	Consumer
			Enhanced in 2019
Healthcare						Industrials
Infrastructure			Telecoms
& Power	Chemicals		Business
	Paper &
	Services
				Packaging

Objective to build a

comprehensive platform

in North America

consistent with our overall global franchise

Source: Refinitiv, any US or Canadian involvement on announced transactions

Public	14

3

Business review: Wealth & Asset Management

4

3. Business Review: Wealth & Asset Management

Wealth & Asset Management

Strong increase in AuM thanks to high level of net new assets and very positive market conditions

Assets under management (in €bn)

					+17%
							8.8
							76.0
	67.3			2.4		​
	64.8
			​		​
					​			33%
51.0	54.0
37%	34%
	41%			WM: €2.5bn
40%			AM: (€0.1)bn
								67%
	63%	66%
60%	59%

31 Dec	31 Dec		31 Dec	31 Dec		Net	Market and	31 Dec
2015	2016	2017	2018		New	FX effect	2019
					Assets
			Wealth Management			Asset Management

Public	16

3. Business Review: Wealth & Asset Management

Wealth & Asset Management

Positive revenue trend despite being penalised by low interest rate environment

Revenue1,2 (in €m)

CAGR 17-19:

+3%

			+3%
	+2%	480	497
470
	21
	20
20

Asset

Management

22%

Wealth

Management

78%

370	+3%	380

72

73

	-
80	80

+6%	404
	71
-10%	72

	RoW
	19%
	France
UK	47%
17%
	Sw itzerland

2017			2018		2019
		NII		Fees and commissions		Others		Revenue bps margin

Note

1. Revenues are calculated excluding Trust business following its sale in February 2019
2. France includes France, Belgium and Monaco

17%

Public	17

3. Business Review: Wealth & Asset Management

Wealth & Asset Management

Margin contraction due to low interest rate environment and higher costs

Profit Before Tax (in €m) and PBT margin

Excluding Martin Maurel integration costs

85	73
18%	15%
2018	2019

PBT excl. Martin Maurel costs				% PBT margin

Including Martin Maurel integration costs

-5%

76	73
16%	15%

2018	2019
PBT incl. Martin Maurel costs				% PBT margin

Target change
Before		Updated to:
Around 20%		Around 20%
by 2020		by 2022

Rationale for change

• Impact of structurally low or even negative interest rates environment, set to last for the foreseeable future
• Cost to integrate Martin Maurel higher than expected
• Need of an increase investment in digital, automation and technology
• Higher regulatory costs due to tighter industry controls

Roadmap to reach the updated target

• Continued strong NNA from new clients assuming a stable market environment
• Benefiting from Martin Maurel synergies
• Tight cost management

Note

1 PBT calculated excluding Trust business following its sale in February 2019

Public	18

4

Business review: Merchant Banking

5

4. Business review: Merchant Banking

Merchant Banking

Continuing strong growth of AuM thanks to launch of new funds

Assets under Management (in €bn)

		14.0
CAGR 15-19:	+27%
+29%

11.1

8.3

Private

Equity

Credit 25%

Management

47%

Secondaries

/ Co-

Direct investments

Lending 19% 9%

91%

5.0	5.8		91%
				90%
86%	88%
14%	12%	10%	9%	9%
31 Dec	31 Dec	31 Dec		31 Dec	31 Dec
2015	2016	2017	2018	2019
			Group			Third party

Note

1 At the beginning of 2018, Merchant Banking decided to update its definition of Assets under Management (AuM) to align it with generally accepted industry practices. AuM are now calculated on the basis of the funds' Net Asset Value plus all investors' undrawn/callable capital commitments, according to the rules specified in the funds' prospectus

Public	20

4. Business review: Merchant Banking

Merchant Banking

Continuing value creation in portfolio for Rothschild & Co shareholders

Change in net asset value of the Group's investment (in €m)

		9	84	(22)
	126		75	(82)	617
	52
511	74
	(104)	179
140

438

371

Asset value	Additions	Value creation		Disposals	Asset value
31/12/2018							31/12/2019
			Private Equity		Private Debt

Public	21

4. Business review: Merchant Banking

Merchant Banking

Strong revenue growth driven by increasing recurring revenue stream

Revenue (in €m)

	CAGR 16-19:
	+14%	+13%	197
	185
	175
		186
		164
133	145	-15%	58
131
		69
53	93	+32%	48
	36	91
	31
29
61	70
51	+31%
	38%

2016	2017	2018	2019
Recurring Revenue		Carried interest		Gains (realised and unrealised)				Revenue - average 3 years

• Recurring / total revenue :
  46%

Public	22

4. Business review: Merchant Banking

Merchant Banking

High level of profits and return on adjusted capital

Profit Before Tax (in €m) and RORAC1

CAGR 16-19:

+11%

120		+9%
		111
	102

82

62%	65%	58%	56%

	2016	2017	2018	2019
			Profit before tax					PBT margin
3 year average	25%	26%	28%	28%
RORAC 1

Note

1 RORAC stands for Return On Risk Adjusted Capital - an internal measure of risk capital invested in the business, being profit before tax divided by risk weighted capital

Public	23

5

Financials

9

5. Financial review

Summary consolidated P&L

(in €m)		2019		2018		Var	Var %	FX effects
Revenue		1,872		1,976	(104)	(5)%	23
Staff costs		(1,065)		(1,098)	33	(3)%	(17)
Administrative expenses		(289)		(309)	20	(6)%	(4)
Depreciation and amortisation		(66)		(30)	(36)	120%	(1)
Impairments		(6)		(4)	(2)	50%	0
Operating Income		446		535	(89)	(17)%	1
Other income / (expense) (net)		19		(4)	23	N/A	0
Profit before tax		465		531	(66)	(12)%	1
Income tax		(68)		(77)	9	(12)%	0
Consolidated net income		397		454	(57)	(13)%	1
Non-controlling interests		(154)		(168)	14	(8)%	0
Net income - Group share		243		286	(43)	(15)%	0
Adjustments for exceptionals		(10)		17	(27)	(159)%	0
Net income - Group share excl.		233		303	(70)	(23)%	0
exceptionals
Earnings per share 1		3.38 €		3.88 €		(0.50) €	(13)%
EPS excl. exceptionals		3.24 €		4.10 €		(0.86) €	(21)%
Return On Tangible Equity (ROTE)		13.2%		17.0%
ROTE excl. exceptionals		12.6%		18.0%

Note

1 Diluted EPS is €3.35 for 2019 (2018: €3.82)

Public	26

5. Financial review

"Exceptionals" reconciliation

(in €m)	2019			2018
PBT	PATMI	EPS	PBT	PATMI	EPS

As reported		465	243	3.38 €		531	286	3.88 €
- Net profit on legacy assets	(18)	(10)	(0.14) €	-	-		-
- Martin Maurel integration costs	-	-	-	9	7	0.09	€
- Trust impairment provision	-	-	-	5	5	0.07	€
- Guaranteed minimum pension provision	-	-	-	6	5	0.06	€
Total Exceptional Costs / (Gains)	(18)	(10)	(0.14) €	20	17	0.22	€
Excluding exceptional	447	233	3.24 €	551	303	4.10 €

• Exceptional items in 2019 comprise net gains on property transactions and on legacy assets including the sale of the Trust business in February 2019
• Exceptionals items in 2019 are all included in "Other income / (expense)" in the P&L
• The Group has decided to move to a new IT infrastructure supplier. This will result in a one-off transition and transformation charge of around €15 million in 2020

Public	27

5. Financial review

Performance by business

(in €m)	Global	Wealth & Asset	Merchant	Corporate	IFRS	2019
Advisory	Management	Banking	centre	reconciliation	1
Revenue	1,160	497	197	24	(6)	1,872
Operating expenses	(994)	(426)	(86)	(53)	139	(1,420)
Impairments	-	2	-	-	(8)	(6)
Operating income	166	73	111	(29)	125	446
Other income / (expense)	-	-	-	-	19	19
Profit before tax	166	73	111	(29)	144	465
Exceptional profits	-	-	-	-	(18)	(18)
PBT excluding exceptional charges / profits	166	73	111	(29)	126	447
Operating margin %	14%	15%	56%	-		-	24%
(in €m)	Global	Wealth & Asset	Merchant	Corporate	IFRS	2018
Advisory	Management	Banking	centre	reconciliation	1
Revenue	1,271	480	175	58	(8)	1,976
Operating expenses	(1,038)	(408)	(73)	(92)	174	(1,437)
Impairments	-	4	-	-	(8)	(4)
Operating income	233	76	102	(34)	158	535
Other income / (expense)	-	-	-	-	(4)	(4)
Profit before tax	233	76	102	(34)	154	531
Exceptional charges	-	9	-	-	11	20
PBT excluding exceptional charges / profits	233	85	102	(34)	165	551
Operating margin %	18%	18%	58%	-		-	28%

Note

1 The reconciliation to IFRS mainly reflects: 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 for defined benefit pension schemes; adding back non-operating gains and losses booked in "net income/(expense) from other assets"; removing realised gains on sales of investment securities where the unrealised

gain was in the available-for-sale reserve at 31 December 2017 before the introduction on IFRS 9; and reallocating impairments and certain operating income and expenses for presentational purposes.

Public	28

5. Financial review

Compensation ratio

(in €m)	2019	2018

Revenue	1,872	1,976
Total staff costs1	(1,176)	(1,225)
Compensation ratio	62.8%	62.0%
variation due to FX	(0.2)%	0.2%
variation due to UK Guaranteed minimum pension provision 2	-	(0.3)%
variation due to GA US investment costs 3	(0.8)%	(1.1)%
Adjusted accounting Compensation ratio (INCLUDING deferred	61.8%	60.8%
bonus accounting)
variation due to deferred bonus accounting	(0.2)%	1.5%
Adjusted awarded Compensation ratio	61.6%	62.3%
(EXCLUDING deferred bonus accounting)
Headcount	3,559	3,633

Notes

1. Total staff costs include profit share paid to French Partners and effects of accounting for deferred bonuses over the period in which they are earned, as opposed to "awarded" basis but exclude redundancy costs, revaluation of share-based employee liabilities and acquisition costs treated as employee compensation under IFRS
2. UK Guaranteed minimum pension provision related to a provision estimated by actuaries to cover inequality of treatment between men and women
3. GA US investment costs are defined as compensation earned in respect of the first 12 month period of employment plus any make-wholes payable in the reporting period

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5. Financial review

Solvency ratios comfortably above minimum requirements

Risk weighted assets and ratios under full application of Basel 3 rules

Risk weighted assets (in €m)

Group solvency ratio1

9,069

7,997

3,307

3,310

230

342

5,532

4,345

20.4%	19.5%
20.4%	19.5%

Capital ratio min: 10.5%

CET 1 w ith buffer min: 7%

31 Dec 2018

31 Dec 2019

31 Dec 2018

31 Dec 2019

Credit risk		Market risk		Operational risk

CET 1 / Tier 1 ratio

Tier 2

• Credit RWA's increased due to the first application of IFRS 16 since January 2019, new Merchant Banking commitments, treasury investments and increase of the loan book

Note

1 The ratio submitted to ACPR as at 31 December 2019 was 18.5%, which excludes the profit of the second half of the year as non-audited at the time of the transmission

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6

Targets and outlook

6. Financial targets and Outlook

Financial targets and Outlook

		Compensation
		ratio1
Group
Return on
		tangible equity2
		Global
		Advisory:
		Profit before
		tax margin3
		Wealth & Asset
Business		Management:
	Profit before
		tax margin4
		Merchant
		Banking:
		3 years average
		RORAC5

Target

Low to mid 60's

through the

cycle

10 to 15%

through the

cycle

Mid to high-

teens

through the

cycle

Around 20%

by 2022

Above 15% through the cycle

2019 2018

61.8% 60.8%

12.6% 18.0%

16% 20%

15% 16%

28% 28%

Outlook

• Committed to delivering on our financial targets and creating further value through synergies across all businesses to generate good returns for our shareholders over the long term
• Mindful of how quickly events can change (ie. Covid-19)
• Current visible pipeline healthy across the business and above levels at the same point last year
• Recent market correction gives rise for concern, but too early to determine impact on activity levels
• Healthy uptick in client activity
• Still impacted by low and negative interest rates
• High volatility in financial markets currently which could create headwinds and impact our business
• Continue to grow AuM and to focus on deployment of funds
• Portfolios' performance remains strong
• Committed to capital preservation with an equal focus on risk and return

Notes

1. As adjusted including deferred bonus accounting- see slide29
2. ROTE based on Net income - Group share excl. exceptionals items. Would be 13.2% if exceptionals included (2018: 17.0%). See definition on slide39and calculation on slide 40
3. GA PBT margin pre-US investments. Would be 14.3% if US investments included (2018: 18.4%)
4. WAM PBT is presented excluding the Trust business following the sale in February 2019
5. See definition on slide39and calculation on slide 40

Public	32

2. Business lines

Appendices

8

Corporate Responsibility - an ambitious roadmap

Encouraging a culture of responsible business

Business practices		People		Responsible		Environment		Community
				investment				investment

⚫	Safeguarding	⚫	Talent development
	confidentiality		opportunities and
⚫	Effective compliance		assignments to
	support career
	systems and
		Balanced approach to
	technology	⚫
	Stringent		work
⚫		Equal opportunities for
	anticorruption and	⚫
	anti-bribery standards		all
⚫	Impactful governance
	and oversight

• ESG integration in investment decisions to create long-term value for investors
• Engagement policy for a constructive dialogue with companies on ESG issues
• Innovative responsible investment solutions
• Proper dedicated governance

⚫	Championing	⚫	Financial support to
	responsible		charities, social
	consumption and		enterprises and
	resource use		individuals
⚫	Responsibly	⚫	Professional expertise
	managing greenhouse		helping to drive
	gas emissions and		change for young
	proactively reducing		people
	our impact		Volunteering to help
		⚫
			young people to
			succeed in life

We encourage a culture of responsible business and proactively take responsibility for the impact

we have as a business on our people, our industry, our communities and our planet.

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Responsible Investment

Building a Common Responsible Investment framework

Three key objectives for 2022

Business lines already onboard

100% ESG Integration

• Comply with a group- wide "Exclusion Policy"
• Use a common ESG data provider
• Report on a comprehensive set of ESG / Impact data

Being an active and engaged investor

• Join international initiatives
• Engage in voting
• Promote and support sustainable investing practices

Wealth Management

⚫ Launch of an ESG

mandate by the

Rothschild Martin

Maurel Belgian

branch in 2019

⚫ Launch of a Private

assets feeder fund

targeting renewable

energies by

Asset

Management

Europe

⚫ 80% of assets are

already integrating

ESG factors covering

all assets classes

⚫ ESG oriented

mandates for

institutional clients &

launch of a SRI-

Merchant

Banking

⚫	Integration of ESG
	criteria at every
	stage of the
	investment process
⚫	Responsible and
	Ethical approach to
	governance
⚫ Member of the IC20
	initiative

Offering of innovative sustainable investment products

• Create flagship sustainable products
• Create donation shares

Rothschild Martin

Maurel France

certified products range

in 2019

⚫ Member of the Climate

Action 100+ Initiative

⚫ Development of an

impact offering

Signatories among the Group

2011 : Asset Management Europe

2012 : Merchant Banking

2018 : Wealth Management UK

2020: All relevant business divisions to become UNPRI signatories

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Major FX rates

	Balance sheet (spot)						P&L (average)
	Rates		31/12/2019		31/12/2018	Var		Rates		2019		2018	Var
	€ / GBP		0.8522		0.8938	(5)%			€ / GBP		0.8749		0.8854	(1)%
	€ / CHF		1.0860		1.1288	(4)%			€ / CHF		1.1114		1.1507	(3)%
	€ / USD		1.1214		1.1439	(2)%			€ / USD		1.1191		1.1782	(5)%

Public	36

Summary Balance sheet

(in €bn)	31/12/2019	31/12/2018	Var
Cash and amounts due from central banks	4.4	4.7	(0.3)
Loans and advances to banks	2.0	2.0	0.0
Loans and advances to customers	3.3	2.9	0.4
of which Private client lending	2.8	2.5	0.3
Debt and equity securities	2.8	2.1	0.7
Other assets	1.7	1.5	0.2
Total assets	14.2	13.2	1.0
Due to customers	9.5	8.7	0.8
Other liabilities	2.1	2.0	0.1
Shareholders' equity - Group share	2.2	2.0	0.2
Non-controlling interests	0.4	0.5	(0.1)
Total capital and liabilities	14.2	13.2	1.0

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Non-controlling interests

P&L

(in €m)	2019	2018
Interest on perpetual	17.3	17.7
subordinated debt
Preferred shares 1	136.2	146.3
Other Non-controlling interests	0.3	3.5
TOTAL	153.8	167.5

Note

1 Mainly relates to the profit share distributed to French partners

Balance sheet

(in €m)	31/12/2019 31/12/2018

Perpetual subordinated debt	303	291
Preferred shares 1	138	159
Other Non-controlling interests	5	6
TOTAL	446	456

Public	38

Alternative performance measures (APM)

Definition

APM

Net income - Group share

excluding exceptionals

EPS excluding exceptionals

Adjusted compensation

ratio

Return on Tangible Equity

(ROTE) excluding

exceptional items

Business Operating margin

Return on Risk Adjusted

Capital (RORAC)

Definition

Net income attributable to equity holders excluding exceptional items

EPS excluding exceptional items

Ratio between adjusted staff costs divided by consolidated revenue of Rothschild & Co (as presented on slide 28). 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
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

1. from which the investment costs related to the recruitment of senior bankers in the United States must be deducted,
2. the amount of adjusted staff costs is restated by the exchange rate effect to offset the exchange rate fluctuations from one year to the next

• which gives the adjusted staff costs for compensation ratio.

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 2018 and 30 June 2019

Each business Operating margin is calculated by dividing Profit before tax relative to revenue, business by business.

It excludes exceptional items

Ratio of an adjusted profit before tax divided by an internal measure of risk adjusted capital 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, MB 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.

Reason for use

To measure Net result Group share of Rothschild & Co excluding exceptional items

To measure EPS excluding exceptional items

To measure the proportion of Net Banking Income 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 that used by other comparable listed companies.

To measure the overall profitability of Rothschild

• Co excluding exceptional items on the equity capital in the business

To measure business' profitability

To measure the performance of the Merchant Banking's business

Public	39

Alternative performance measures (APM)

Calculation

ROTE		RORAC
2019	2018

2019 2018

Net income - Group share excluding exceptionals

Shareholders' equity - Group share - opening

• Intangible fixed assets
• Goodwill

Tangible shareholders' equity - Group share - opening

233	303
2,039	1,912

1. (163)

1. (123)

1,755

1,626

PBT 2019

PBT 2018

PBT 2017

PBT 2016

Average PBT rolling 3 years

NAV 31/12/2019

NAV 31/12/2018

NAV 31/12/2017

NAV 31/12/2016

Average NAV rolling 3 years

111

102 102

120 120

82

111 101

617

515 515

526 526

470

553 504

Shareholders' equity - Group share - closing

• Intangible fixed assets
• Goodwill

2,240	2,039	Debt = 30% of average NAV

1. (172)

(140)

(124)

Notional interest of 2.5% on debt

166 151

1. (4)

Tangible shareholders' equity - Group share - closing

Average Tangible equity ROTE excluding exceptionals

1,942	1,742
1,849	1,684
12.6%	18.0%

Average PBT rolling 3 years adjusted by the cost of debt interest

Risk adjusted capital = 70% of Average NAV

RORAC

10798

387 353

28% 28%

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Rothschild & Co at a glance

As at 31 December 2019

Enlarged family concert

49.7% of share capital

(62.7% voting rights)

	Managing
Rothschild & Co Gestion
Partner

Global Advisory		Merchant Banking
		UK
c.45 countries

Five Arrows Managers LLP

France

Five Arrow Managers

Luxembourg

R&Co Investment Managers

SA

US

Five Arrows Managers LLC

Float

44.4% of share capital

(37.3% voting rights)

5.9%

Wealth Management	Asset Management
Switzerland	Europe
Rothschild & Co	Rothschild &Co Asset
Bank Zurich	Management

France	US
Rothschild Martin Maurel	Rothschild & Co

Asset Management

UK

Rothschild & Co

Wealth Management

Public	41

Disclaimer

This presentation has been prepared solely for information purposes and must not be construed as or considered as constituting or giving any investment advice. It does not take into account, in any way whatsoever, the investment objectives, financial situation or specific needs of its recipients.

This presentation and its contents may not be copied or disseminated, in part or as a whole, without prior written consent of Rothschild & Co.

This presentation may contain forward-looking information and statements pertaining to Rothschild & Co SCA ("Rothschild & Co"), its subsidiaries (together, the "Rothschild & Co Group") and its and their results. Forward- looking information is not historical. It reflects objectives that are based on management's current expectations or estimates and is subject to a number of factors and uncertainties, that could cause actual figures to differ materially from those described in the forward-looking statements including those discussed or identified in the documentation publicly released by Rothschild & Co, including its annual report.

Rothschild & Co does not undertake to update such forward-looking information and statements unless required by applicable laws and regulations. Subject to the foregoing, Rothschild & Co has no obligation to update or amend such information and statements, neither as a result of new information or statements, nor as a result of new events or for any other reason.

No representation or warranty whatsoever, express or implied, is made as to the accuracy, completeness, consistency or the reliability of the information contained in this document. It may not be considered by its recipients as a substitute to their judgment.

This presentation does not constitute an offer to sell or a solicitation to buy any securities.

This presentation is qualified in its entirety by the information contained in Rothschild & Co' financial statements, the notes thereto and the related annual financial report. In case of a conflict, such financial statements, notes and financial reports must prevail. Only the information contained therein is binding on Rothschild & Co and the Rothschild & Co Group. If the information contained herein is presented differently from the information contained in such financial statements, notes and reports, only the latter is binding on Rothschild & Co and the Rothschild & Co Group.

For more information on Rothschild & Co: www.rothschildandco.com