Annual Report 2017

Rothschild & Co | Annual Report 2017

Results for the 2017 financial year

1.3 Alternative performance measures (“APM”) – Article 223-1 of the AMF’s

General Regulation

To enhance the presentation of its operating performance, Rothschild & Co uses the following alternative performance measures to communicate the

Group’s financial results. A commentary on some of these alternative performance measures can be found on pages 24 to 43 in the business review

Section of the annual report.

Alternative

Performance

Measures

Definition

Reason for use

Reference to the

data in this report

Net income – Group

share excluding

exceptionals

Net income attributable to equity holders excluding exceptional items.

To measure Net result – Group share of

Rothschild & Co excluding exceptional

items of a significant amount.

Please refer to

Section 1.1 above

and page 6

Message from

Management Board

EPS excluding

exceptionals

EPS excluding exceptional items.

To measure Earnings per share excluding

exceptional items of a significant amount.

Please refer to

Section 1.1 above

Adjusted

compensation

ratio

Ratio between adjusted staff costs divided by consolidated Net Banking

Income of Rothschild & Co. 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;

4. from which the investment costs related to the recruitment of senior bankers

in the United States must be deducted;

5. 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.

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 the one used by

other comparable listed companies.

Please refer to

the comments

to 1.2.2.1 above

and page 6

Message from

Management Board

Return on

Tangible Equity

(“ROTE”) excluding

exceptional items

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 and goodwill.

Average tangible equity over the period equal to the average between

tangible equity as at 31 December 2017 and 31 December 2016.

To measure the overall profitability of

Rothschild & Co excluding exceptional

items on the equity capital in the business.

Please refer

to Section 1.1

above and page 6

Message from

Management Board

Business

Operating

Margin

Each business Operating Margin is calculated by dividing Profit before

tax relative to revenue, business by business.

It excludes exceptional items.

To measure businesses’ profitability.

Please refer to the

comments pages

25, 31 and 38

Return on

Risk Adjusted

Capital

(“RORAC”)

for Merchant

Banking

Ratio of an adjusted profit before tax divided by an internal measure of risk

adjusted capital deployed in the Merchant Banking business on a rolling three

years’ 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, Rothschild Merchant Banking (RMB) 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 three-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.

To measure the performance of the

Rothschild Merchant Banking business.

Please refer to the

comments page 38