Rothschild & Co: 2020 - Annual results release

Press release - Full year 2020 results

Paris, 9 March 2021

Resilient results despite the challenging conditions

• • Business performance:

  • - Global Advisory: robust performance in a challenging year with full year revenue of €1,146 million, down 1% compared to last year (2019: €1,160 million)

  • - Wealth & Asset Management: strong Net New Assets in Wealth Management of €2.9

    billion, up 16%. Resilient financial performance in Europe with revenue up 3% at €470 million

    (2019: €458 million) and profit before tax up 9% at €74 million (2019: €68 million). Very conservative loan book, with no material issues in the current environment. Difficult year for Asset Management in the US

  • - Merchant Banking: full year revenue down 25% to €148 million (2019: €197 million) due to lower value accretion on investments than in 2019, although strong increase of 24% in recurring revenue as a result of strong AUM growth driven by recent successful fundraisings

• • Revenue decreased by 4% to €1,799 million (2019: €1,872 million)

• • Net income - Group share excluding exceptionals1 : €173 million (2019:€233 million). Net income - Group share including exceptionals: €161 million (2019:€243 million)

• • Earnings per share (EPS) excluding exceptionals1: €2.37 (2019:€3.24) and EPS including exceptionals: €2.20 (2019: €3.38)

• • Foreign exchange translation effects decreased revenue by €17 million and Net income - Group share by €1 million

• • 2020 dividend restricted to €0.70 per share (following the 2019 dividend of €0.85 being cancelled). As a consequence, we expect to make a special interim payment in Q4 2021 of €1.04 per share, subject to restrictions being lifted.

Alexandre de Rothschild, Executive Chairman, commented:

"2020 was a particularly challenging year for all our stakeholders. In these unprecedented circumstances, our focus has been on ensuring the welfare of all our colleagues who all reacted swiftly and remained focused on our clients' needs during the challenging conditions. Thanks to this strong commitment and collaboration on a global scale, the business continued to operate effectively and produced a robust set of results.

The M&A market was interrupted by the pandemic during the year but finished the year strongly. In addition, our broad offering in financing advisory helped ensure that our results overall in Global Advisory were very resilient. We remain the leading advisor in terms of number of M&A transactions in Europe and second globally.

The Wealth Management business successfully collected a high level of net new assets, reflecting the strength of our brand, our excellent client service and the quality of our advice in this complex financial landscape. In line with our strategy, we announced the acquisition of Banque Pâris Bertrand, consolidating our position in the Swiss market. Asset Management had a tougher year with net outflows in North America, but we have refocused and are more confident for 2021.

1 Exceptional items are presented in Appendix B

Merchant Banking's resilience was demonstrated by the increasing recurring revenue from the growth in assets under management enjoyed recently. Our stringent investment criteria, focussed on three sectors: healthcare, data & software, and technology-enabled business services, and the quality of assets, allowed us to finish the year with a portfolio that increased in value during 2020 despite the difficult environment.

2020 has shown us that the Group is resilient and agile, and able to face up to immense challenges. We have started 2021 in a strong position and our business model, built on three different pillars across several geographies has proved extremely solid. We are convinced that our strategy of focussing on long-term performance and value creation positions us well for the next stage of our development. Amongst all the hardship and economic disruption caused by the pandemic in 2020, Rothschild & Co is committed to contributing to a sustainable recovery and strongly believes that addressing identified ESG risks can represent value creation opportunities for the business and its stakeholders".

1. Summary Consolidated income statement

Rothschild & Co Supervisory Board met on 9 March 2021 and reviewed the consolidated financial statements2 for the year ending 31 December 2020.

(in € million)	Page	2020	2019	Var	Var %
Revenue	3 - 8	1,799	1,872	(73)	(4)%
Staff costs	9	(1,096)	(1,065)	(31)	3%
Administrative expenses	9	(255)	(289)	34	(12)%
Depreciation and amortisation	9	(67)	(66)	(1)	2%
Cost of risk	9	(7)	(6)	(1)	17%
Operating Income	374	446	(72)	(16)%
Other income / (expense) (net)	10	(5)	19	(24)	(126)%
Profit before tax	369	465	(96)	(21)%
Income tax	10	(60)	(68)	8	(12)%
Net income	309	397	(88)	(22)%
Non-controlling interests	10	(148)	(154)	6	(4)%
Net income - Group share	161	243	(82)	(34)%
Adjustments for exceptionals	13	12	(10)	22	(220)%
Net income - Group share excl.
173	233	(60)	(26)%
exceptionals
Earnings per share*	2.20 €	3.38 €	(1.18) €	(35)%
EPS excl. exceptionals	2.37 €	3.24 €	(0.87) €	(27)%
Return On Tangible Equity (ROTE)	8.2%	13.2%
ROTE excl. exceptionals	8.8%	12.6%
* Diluted EPS is €2.19 (2019:€3.35)

An analysis of exceptional items and a presentation of Alternative Performance Measures are shown respectively in Appendix B and Appendix G.

2 The figures included in this presentation are unaudited. Figures have been rounded. Rounding differences may exist, including for percentages.

2. Business activities

2.1

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.

Revenue for the three months to December 2020 was €355 million, up 35% compared to Q3 2020 (€262 million) and down 10% from the same period in the prior year (Q4 2019: €394 million), which was a record quarter.

Revenue for the full year 2020 was €1,146 million, only 1% below 2019 (€1,160 million), despite the challenging market environment. We ranked 8th globally by financial advisory revenue3 for the last twelve months to December 2020. As expected, we saw a decline in M&A revenue during 2020 compared to 2019, with this decline mitigated by increased Financing Advisory activity. Overall, revenue was flat year-on-year excluding currency effects. During the second quarter, we saw several M&A situations put on hold as a result of the pandemic, but we also supported a meaningful proportion of our clients' ingoing well-advanced or announced transactions through to completion. During the third and fourth quarters, we experienced new M&A dialogues and activity returning, which in turn supported strong revenue performance in the final quarter of 2020.

Operating income for 2020, excluding ongoing investment in the development of our North American M&A franchise, was €178 million (2019: €182 million) representing an operating margin of 15.6% (2019: 15.7%) and continues to be within our target range over the cycle. Including the effect of ongoing investment in senior hiring in North America, operating income was €169 million (2019: €166 million) with an operating margin of 14.7% (2019: 14.3%).

Total costs were down 2%, largely due to travel and certain other non-personnel costs being lower as a result of pandemic-related restrictions on activity, whilst total compensation costs were broadly flat year-on-year. The compensation ratio, which includes total compensation, benefits and social taxes on an awarded basis shown as a percentage of revenue, was 67.3% in 2020 (2019: 64.9%), after adjusting for the effects of senior hiring in North America and leaver costs.

Our M&A business has remained resilient despite an uncertain and volatile market environment during the year, ranking 2nd globally by number of completed transactions for the twelve months to December 20204. 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 years. M&A advisory revenue for Q4 2020 was €253 million, up from Q3 2020 (€128 million). Full year 2020 M&A revenue was €766 million, down 13% year-on-year (€875 million in 2019) in line with the decrease of 14% in value in the global M&A market.

Financing Advisory revenue for Q4 2020 was €102 million and full year 2020 revenue was €380 million, 33% above full year 2019 levels (€285 million), which represents a record performance. Revenue was driven by demand from existing and new clients for advice around liquidity, financing and balance sheet repair matters, as well as restructuring activity. We ranked 2nd in Europe in 2020 by numbers of completed restructuring transactions4 and maintained our position as adviser on more European equity assignments than any other independent financial adviser5.

We continue to add to and strengthen our senior team. During 2020, we promoted 20 new Managing Directors (MD) across the business, demonstrating our focus on growing talent from within. We continued our ongoing strategic investment in North America with a new Vice Chairman of North America and one new MD focusing on the automotive sector. We recruited two new MDs into our Swiss and Middle Eastern businesses. In addition, we have also recently established a dedicated secondaries team within our Equity Advisory business, in order to more directly address the rapidly evolving market for GP-led secondary transactions.

• 3 Source: Company filings

• 4 Source: Refinitiv

• 5 Source: Dealogic

This team will work closely with our M&A sector specialists and private equity coverage bankers to help broaden our capabilities and service offering for key sponsor clients.

Global Advisory advised the following clients on significant assignments completed during 2020:

• • Abu Dhabi Power Corporation on its combination with TAQA (US$55 billion, United Arab Emirates)

• • PG&E (adviser to Ad Hoc Group of Insurance Subrogation Claimholders) on its restructuring (US$52 billion, United States)

• • Consortium led by Advent, Cinven & RAG on its acquisition of Thyssenkrupp's Elevator Technology business (€17.2 billion, Germany)

• • Asahi Group Holdings on its acquisition of Carlton & United Breweries from Anheuser-Busch InBev

  (US$11.3 billion, Japan, Australia and Belgium)

• • Finance Agency of the Federal Republic of Germany on its stabilisation package for Deutsche Lufthansa (€9 billion, Germany)

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

• • Bankia on its merger with CaixaBank (€17 billion, Spain)

• • Coca Cola European Partners, on its recommended offer for Coca Cola Amatil from public shareholders and The Coca-Cola Company (US$8.4 billion, UK, Australia and United States)

• • Alstom on its acquisition of Bombardier Transportation and cornerstone investment from CDPQ (€7.5

  billion, France and Canada)

• • Walmart on its sale of Asda to Issa Brothers and TDR Capital (£6.8 billion, United States and United

  Kingdom)

• • Grupo Aeroméxico on its chapter 11 restructuring (US$3.3 billion, Mexico)

For further examples of Global Advisory assignments completed during 2020, please refer to Appendix F.

2.2

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 an Asset management business in North America.

2020 was a challenging year with COVID-19 leading to dramatic changes in working practices, volatile market conditions and a declining interest rate environment around the world. Despite this the business performed strongly with 2020 full year results marginally up compared to 2019. In December 2020, we announced the acquisition of Banque Pâris Bertrand, a renowned private bank headquartered in Switzerland, with c. CHF6.5 billion of AuM (€6 billion). The completion is expected in the summer of 2021, subject to regulatory approvals.

Net New Assets (NNA) for 2020 were reasonable at €0.7 billion. Excluding outflows of €1.8 billion from our

North American Asset management business (AM US), NNA for 2020 were €2.5 billion. This is due to an excellent performance in Wealth management, with net inflows of €2.9 billion, up 16% (2019: €2.5 billion), in all our main geographies, partially offset by net outflows in Asset management Europe of €0.4 billion. Despite the impact of COVID-19, levels of activity have been very high as we remain in constant dialogue with clients in these difficult conditions.

The definition of Assets under Management (AuM) was refined to align better the definitions within the Group resulting in a net increase in AuM of €1.7 billion. Including this definition change, AuM grew by 3% at 78.1

billion as at 31 December 2020 (2019: €76.0 billion). Excluding AM US, AuM grew by 6% from €65.8 billion in 2019 to €69.9 billion in 2020, despite a change of perimeter of €0.3 billion due to the sale of our European alternative platform to Alma Capital.

AM US recorded net outflows of €1.8 billion, primarily arising from the departure of the team covering multi- employer defined benefit business ("Taft-Hartley" plans) and where our value-oriented investment philosophy has proved difficult in the current environment. However, the business won an important mandate of sub-advisor with Transamerica AM, a new distribution partner, for approximately $2.1 billion, which became effective in December 2020.