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Rothschild & Co | Annual Report 2017
Message from the Management Board
Dear Shareholders,
Rothschild & Co produced another set of strong results in
2017 with good growth in revenue and profit. Overall
revenue increased 12% to €1,910 million and net income
– Group share excluding exceptionals
(1)
rose 35% to €247
million. Our strategy is on track with all three business lines
performing well.
The uplift in revenue was largely due to Private Wealth and
Asset Management, up €146 million, of which €105 million
was due to the merger with Martin Maurel, and Merchant
Banking where revenue increased by €52 million.
All our financial targets set by the Group have been
achieved in 2017. In particular, our compensation ratio,
targeted at low to mid 60s through the cycle, decreased
from 64% to 62.4% thanks to our growth in revenue.
This in turn drove our Return on Tangible Equity, excluding
exceptional items
(1)
, which is targeted at 10-15% through
the cycle, to 17.2% up from 14.4% for the prior 12 months.
For the first time we have disclosed the profitability for
Private Wealth & Asset Management and for Merchant
Banking so as to provide transparency on the performance
of these two businesses.
For 2017,
Rothschild Global Advisory
delivered another
record annual revenue performance with a healthy balance
between M&A and Financing Advisory despite lower global
M&A activity levels. Revenue reached €1,183 million and
the business ranked sixth globally by financial advisory
revenue for the year to December 2017, maintaining its
position from the previous quarter
(2)
.
Operating income for the year was €211 million,
representing an operating income margin of 17.8%.
This excludes ongoing investment in the development
of our North American M&A franchise, and including this
investment, the margin would have been 15.7%.
In M&A advisory, we continue to outperform compared
to the overall M&A market. We ranked 1
st
globally and in
Europe by numbers of both completed and announced
transactions in 2017, the same position as in the previous
year
(3)
. M&A advisory revenue for the year was €804 million,
down 9% year-on-year from a record performance in 2016,
in the context of an 11% decline in global completed M&A
activity by value.
Financing Advisory revenue increased by 34% to
€379 million, with particularly strong activity levels in our
European Debt Advisory and Equity Advisory businesses
as well as in our US restructuring franchise.
We continue to add to and strengthen our senior team.
During 2017, fourteen new Managing Directors were hired
into our offices in the US, the UK, Japan and Switzerland. In
the US, we recruited eight Managing Directors into our M&A
advisory team. We also made investments elsewhere during
the year by opening two new offices: a new wholly-owned
subsidiary in Tokyo, as well as the establishment of a new
office in Switzerland.
Rothschild Private Wealth & Asset Management
revenue
for the year increased significantly to €514 million, up 40%
when compared to the previous year, mainly due to good
organic growth and the consolidation of Martin Maurel
(representing €105 million of revenue).
In a highly evolving market that has been challenging on
several fronts including regulatory change (MIFID II) and
fee pressure from clients, we have undertaken a number
of initiatives to build revenue, cut costs and refocus the
business on its core activities. This resulted in growth in
profitability with operating income, excluding Martin Maurel
integration costs of €27 million, rising to €82 million for
2017. This represents a 16% operating margin, significantly
better than previous years and on track to reach our target
of 20% by 2020.
(1) Exceptional items include Martin Maurel integration costs and a one-off tax credit.
(2) Source: Company filings.
(3) Source: Thomson Reuters, completed and announced transactions. Excludes accountancy firms.