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Rothschild & Co | Annual Report 2017
47
1. Overview
4. Financial statements
3.
Management report
2. Business review
1.2 Analysis of the main items of the
consolidated financial results
1.2.1 Revenue
For 2017, revenue was €1,910 million (€1,713 million as at
31 December 2016), representing an increase of €197 million or +12%.
The uplift was largely due to Private Wealth and Asset Management where
revenue was up €146 million, of which €105 million was due to the merger
with Compagnie Financière Martin Maurel, and Merchant Banking where
revenue increased by €52 million. The translation impact of exchange rate
fluctuations impacted revenue negatively by €46 million.
1.2.2 Operating expenses
1.2.2.1 STAFF COSTS
For 2017, staff costs were €1,087 million (€1,013 million as at
31 December 2016), representing an increase of €74 million, of which
€54 million is related to the first consolidation in respect of the merger with
Compagnie Financière Martin Maurel. The translation impact of exchange
rate fluctuations resulted in a decrease in staff costs of €35 million.
The Group’s compensation ratio, as defined in Section 1.3 below, was
63.4% as at 31 December 2017 (65.3% as 31 December 2016). When
adjusting for the effects of senior hiring in the US for the advisory business,
and exchange rates, the ratio decreased from 64.0% to 62.4%.
Overall Group headcount increased from 2,946 to 3,502 as at
31 December 2017, largely due to the merger of Compagnie Financière
Martin Maurel (+463), new junior staff recruitment and hires in the US.
1.2.2.2 ADMINISTRATIVE EXPENSES
For 2017, administrative expenses were €320 million (€268 million as
at 31 December 2016), a net increase of €52 million. Of this increase,
€40 million relates to the merger with Compagnie Financière Martin Maurel,
of which €21 million is integration costs (€27 million as at 31 December
2017 versus €6 million as at 31 December 2016) and €19 million for
the first year of consolidation. The translation impact of exchange rate
fluctuations resulted in a decrease in administrative expenses of €6 million.
1.2.2.3 DEPRECIATION AND AMORTISATION
For 2017, depreciation and amortisation was €34 million (€32 million as
at 31 December 2016), representing an increase of €2 million, of which
€4 million is related to the first consolidation in respect of the merger with
Compagnie Financière Martin Maurel. The translation impact of exchange
rate fluctuations resulted in a decrease in depreciation and amortisation
of €1 million.
1.2.2.4 IMPAIRMENT CHARGES AND LOAN PROVISIONS
For 2017, impairment charges and loan provisions were €13 million,
€1 million below 2016, which comprises €5 million related to the legacy
banking book, €5 million to Global Advisory receivables and the remainder
relates to other businesses.
1.2.3 Other income/(expenses)
For 2017, other income and expenses, which includes results from equity
accounted companies, was a net income of €21 million (€7 million as at
31 December 2016). The increase mainly comprises the capital gain of
€11 million following the sale of one investment in Merchant Banking
that is accounted for by the equity method.
1.2.4 Income tax
For 2017, the income tax charge was €65 million (€62 million as at
31 December 2016) comprising a current tax charge of €68 million and
a deferred tax credit of €3 million, giving an effective tax rate of 13.7%
(15.8% as at 31 December 2016).
In France, the Supreme Court judged the 3% tax paid by French companies
on dividend distributions to be contrary to the French Constitution. This
decision gives rise to a rebate of €7 million included as a credit in the tax
charge and which should be received in 2018.
1.2.5 Non-controlling interests
For 2017, the charge for Non-controlling interests was €176 million
(€152 million as at 31 December 2016). This mainly comprises interest
on perpetual subordinated debt and preferred dividends payable to French
partners that increased over the period in line with the strong performance
of the French Global Advisory business.
Moreover, the review of the Group’s activities by businesses during the
2017 financial year is presented on pages 24 onwards of this report.