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Rothschild & Co

Annual Report 2018

Annual Report 2018

Rothschild & Co | Annual Report 2018 1

Contents

Message from the Chairman of the Supervisory Board 2

Message from the Executive Chairman

3

Message from the Management Board

4

1. Overview

Highlights of the year

8

Overview of businesses

10

World presence

12

Corporate governance

14

Organisation chart

17

Corporate Social Responsibility

18

Rothschild & Co and its shareholders

20

2. Business review

Global Advisory

26

Wealth and Asset Management

32

Merchant Banking

40

3. Management report

Internal control, risk management and accounting procedures 70

Corporate governance

77

Corporate Social Responsibility

108

4. Financial statements

2 Rothschild & Co | Annual Report 2018

Dear Shareholders,

Firstly, I would like to thank the Board members for accepting my nomination as Chairman of the Supervisory Board, after my appointment as a member, at the Annual General Meeting in May 2018. I would like to take this opportunity to thank Eric de Rothschild, whom I succeed, for his immense hard work as Chairman over the past 14 years. Eric has always been available to offer candid and from his enthusiasm and wisdom in his new position as Deputy Chairman of the Supervisory Board, alongside

Adam Keswick.

The members of the Management Board, represented by my son, Alexandre de Rothschild, Executive Chairman, and the three Managing Partners, Marc-Olivier Laurent, Robert Leitão and François Pérol, have already delivered excellent results and together they remain committed to building long-term value for shareholders through a clear, focused strategy. As Chairman of the Supervisory Board, it is my responsibility to ensure that corporate governance standards and recommendations are respected. The Supervisory Board exercises permanent oversight of the Company's system and internal control mechanisms. At the Annual General Meeting held on 17 May 2018, the shareholders approved the re-election of Lucie Maurel- Aubert, Sylvain Héfès, Anthony de Rothschild, Sipko Schat of our Board have agreed to remain with us and that we Message from the Chairman of the Supervisory Board Mr. André Lévy-Lang, who had been a member of the Supervisory Board for 14 years (including his directorships within the Company before it was converted into a limited partnership in 2012), decided to step down in September

2018. During this time, he was also a member of the

Audit Committee and a member of the Remuneration and

Nomination Committee. Since December 2018, he has

been working in the Group as a member of the Supervisory Board of Rothschild Martin Maurel. I would like to express my gratitude for his valuable advice, and we are delighted of his views and his deep knowledge of the banking sector in his new role. In this annual report, as well as on the Company's website, Supervisory Board and its specialised committees, as well as the other directorships held by the Board members. In our Annual General Meeting document to be published by law about the members due to be re-elected at this year's Annual General Meeting. At this meeting, shareholders will also be asked to approve a dividend of €0.79 per share. Last, but not least, I would like to thank you as always for your continuing support of Rothschild & Co.

David de Rothschild

Chairman of the Supervisory Board of Rothschild & Co

The new Executive team remain committed

to building long-term value for shareholders through a clear and focused strategy."

Rothschild & Co | Annual Report 2018 3

Dear Shareholders,

2018 was an important year in the history of the Group.

After 40 years of steadfast and perspicacious leadership, recreating the family business from scratch after nationalisation in 1981 and building it to become one of the my father David de Rothschild was appointed as Chairman of the Supervisory Board of Rothschild & Co. I would like to thank him for handing over to me such a healthy business well positioned for growth. He has always been a role model and an inspiration for me and I am delighted that he is remaining with the Group. I am honoured to have taken the position of Executive Chairman of Rothschild & Co Gestion in his place and look forward to working with the Managing

Partners on the next stage of our development.

The Management Board is now made up of the three

Managing Partners, Robert Leitão and François Pérol, who co-chair the Group Executive Committee, and Marc-Olivier Laurent. The four of us are responsible for the overall management and strategic direction of Rothschild & Co. In 2018, we reached an important agreement with the Edmond de Rothschild group on the use of our respective brands, which also led to the unwinding of our cross shareholdings. As a result, the brand name, Rothschild & Co, was rolled out across the Group to harmonise our external Our success as a company can be measured not only by the high number of trusted client relationships we have have announced this year, but also by the impact we have on the world around us. We are increasingly convinced that in a rapidly changing world, our values of being principled, thoughtful and creative are an important differentiator in today"s competitive market. In addition to the business relationships we build, we are passionate about forming close relationships with our local communities making

Message from the Executive Chairman

a meaningful difference to young people from deprived backgrounds. We also recognise that our actions have an impact on the environment and that it is our responsibility, as part of our overall business strategy, to try and limit that Since taking on my new role, I have had the opportunity to meet many of our talented colleagues and I am impressed by their enthusiasm, dedication and long-term commitment to their clients. One of our priorities over the next few years will be to ensure that we offer all our to reconcile their personal and professional aspirations.

The Managing Partners and I are working hard with

management across the Group to encourage more diversity in which we operate but also because we believe a diverse team is key to our future success. At the end of this strong year, it just remains for me to thank our shareholders and clients for their support, and all those who work at Rothschild & Co, for their loyalty, dedication and utmost professionalism.

Alexandre de Rothschild

Executive Chairman of Rothschild & Co Gestion,

Managing Partner of Rothschild & Co

“ With the Managing Partners, we look

forward to working on the next stage of the Group"s development."

4 Rothschild & Co | Annual Report 2018

Message from the Management Board

2018 was a very strong year with excellent

performance from across the Group."

Dear Shareholders,

In 2018, Rothschild & Co enjoyed a very strong year with excellent performance from across the Group. Overall revenue grew by 3% to €1,976 million and net income - Group share excluding exceptionals rose 23% to €303 million. All three divisions performed well: Global Advisory enjoyed the best year ever with a record performance in M&A; Wealth and Asset Management saw an increase of Net New Assets despite challenging markets; and Merchant Banking had an impressive 34% increase in Assets under Management.

For 2018,

Global Advisory

delivered another record annual revenue performance of €1,271 million, an increase of 7%. maintaining the position we held last year (1) Operating income for 2018, excluding ongoing investment in the development of our North American M&A franchise, of 20%. This operating income margin continues to be at the top end of our target range over the cycle.

In M&A advisory, we maintained our market leading

position. For 2018, we ranked 1st globally by number of completed transactions and 1st in Europe by number of both completed and announced transactions (2) . During the year, we advised clients on approaching 400 completed M&A transactions with a total value of c.US$380 billion (3) As a result, M&A advisory revenue for the year reached €941 million, a new annual record, up 17% year-on-year compared to 2017.Financing Advisory revenue decreased by 13% to €330 million, following a record year in 2017, due to more activity in the US. Despite this, we continued to be highly active in large and complex debt advisory and restructuring situations, providing advice to clients on approaching 200 transactions with a total value of c.US$210 billion (3) . For restructuring assignments completed during the year, we ranked 3rd by number of transactions globally and 1st by number of transactions in Europe (4) advisory services during the year on transactions with a independent adviser We continue to strengthen our senior team. During 2018, in the US, the UK and China. In the US, we recruited six Managing Directors in M&A focusing on clients in the Technology, Chemicals, Financial Institutions, General Industrials and Telecoms & Media sectors. We recently also formally launched a dedicated Investor Advisory practice which will combine with Global Advisory's leading independent strategic advisory business, in order to respond to the increasing demand for improving engagement between listed corporates and their investor base.

Rothschild & Co | Annual Report 2018 5

In Wealth & Asset Management, as announced in October

2018, we completed the sale of our worldwide wealth

planning and trust services business, in February 2019. The sale is in line with our strategic decision to focus on our core wealth management and private banking business. Excluding, therefore, the Trust business, revenue for 2018 was €480 million, up 2% and operating margin was 18%. in management fees thanks to positive net new assets in Wealth Management; offset by a decrease in performance fees from Asset Management. million for 2018. The operational integration of Martin net new assets in Wealth management increased by (€4.6 billion).

Merchant Banking

continued to perform strongly during to the average for the last three years, revenue is up 20%. Revenue comprises recurring revenue of €70 million and years to represent 40% of total revenue in 2018 (versus

22% in 2014).

Operating income was €102 million in 2018 representing is mainly related to lower realised gains. Aside from this, investment performance related revenue on core strategies remained strong in 2018, after a peak year in 2017, as the continued to deliver successful exits. Merchant Banking"s assets under management were €11.1 billion as at 31 December 2018 compared to €8.3 billion

12 months previously.

billion in 2019 and Five Arrows Capital Partners (FACP) also expanded its private debt and credit management franchises during 2018.

Outlook

In Global Advisory, whilst we believe the general

environment continues to be supportive for this business, the cycle. At the moment, our visible pipeline of business remains healthy. Looking ahead, our focus remains on growing our North American M&A franchise, whose revenue has increased over time as a result of ongoing investment and where we foresee strong potential for future growth.

Wealth and Asset Management has a solid base from

which to grow. However, the macro economic factors are uncertain, resulting in increased market volatility. Nevertheless, thanks to continued investment in our people and processes, we expect net new assets in Wealth Management to increase across all main geographies. Merchant Banking expects to continue growing its Assets to the Group"s results. The division will be focused on the deployment of the recently launched funds. It also expects to raise successor funds and grow its direct lending and credit management businesses. Our portfolios" performance remains strong and we continue to apply our investment philosophy that is centred around cautious and disciplined capital deployment decisions, focusing on attractive risk-reward opportunities with appropriate downside protection features. Whilst 2018 was a very strong year, we anticipate 2019 to be more challenging due to the increased uncertainty our strategy of growing our three businesses and improving the synergies between them, while, in the event of a decline in market conditions, remaining ever vigilant to control our cost base. We are very proud of these excellent results, achieved clients. This is a key differentiator in our offering and singles us out among our peers. Our strong culture ensures that as of our people is of utmost importance and we work hard to recruit, develop and retain this talent producing positive results for our shareholders.

Alexandre de Rothschild

Executive Chairman of Rothschild & Co Gestion

Marc-Olivier Laurent

Robert Leitão

François Pérol

Managing Partners of Rothschild & Co Gestion

6 Rothschild & Co | Annual Report 2018

Rothschild & Co | Annual Report 2018 7

1

Overview

Highlights of the year

8

Overview of businesses

10

World presence

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