N M Rothschild & Sons Limited

N M Rothschild & Sons Limited Annual Report 2012 On ROTHSCHILD EFTA01112925 EFTA01112926 Contents Directors 5 Chairman's statement 6 Business review 7 Report of the Directors 18 Committees 20 Statement of Directors' responsibilities 21 Independent auditor's report 22 Financial statements 23 Consolidated income statement 24 Consolidated statement of comprehensive income 25 Consolidated balance sheet 26 Consolidated statement of changes in equity 27 Company balance sheet 28 Company statement of changes in equity 29 Cash flow statements 30 Notes to the financial statements 31 Group directory 91 N M Rothschid & Sons Limited I Registered Number 925279 EFTA01112927 World presence The Rothschild banking group has 57 offices in 45 countries and employs over 2.800 people around the world.Through its network of subsidiaries and affiliates. the Group provides global financial advisory. banking and treasury. merchant banking. and wealth management services to governments. corporations and individuals worldwide. North America Calgary Mexico City Montreal New York Toronto Washington South America Santiago Sao Paulo Africa Harare Johannesburg Europe and The Middle East Abu Dhabi Doha Lisbon Prague Amsterdam Dubai London Rome Athens Frankfurt Lorembourg Sofia Barcelona Geneva Madrid Stockholm Bermingham Guernsey Manchester Tel Aviv Brussels Istanbul Milan Warsaw Bucharest Kiev Moscow Zurich Budapest Leeds Paris ht,....,.‘..... S Asia Pacific Auckland Mumbai Beijing New Delhi Hanoi Seoul Hong Kong Shanghai Jakarta Singapore Kuala Lumpur Sydney Manila Tokyo Melbourne Wellington Pagel I N M Rothschild & Sons Limited I Registered Number 925279 EFTA01112928 Directors Chairman David de Rothschild Deputy Chairman Executive Directors Andrew Didham Anthony Salz Non-Executive Directors Daniel Bouton Eric de Rothschild Peter Smith Mark Evans N M RothccPM & Sorts Limited I Registered Number 925279 I Page 5 EFTA01112929 Chairman's statement Last year I commented that it was very difficult to state with any degree of certainty that the economic crisis is behind us Unfortunately I was correctThe encouraging signs that were seen in the frst half of 2011 were soon replaced with further concerns aver the impact of the eurozone troubles on the global economy. These concerns have continued into 2012 and the economic outlook for the eurozone in particular. remains uncertain. While the economic climate has impacted the resifts of the Group we coat nue to perform well and have been less affected than many in oil sectcr.We continue to improve our market position. which with the continued maintenance of high levels of liquidity and capital strength stands us 'in good stead for the future. In early April 2012 I announced that Paris Orleans. the holding company of the Rothschild group. was reorganising and simplifying its structure.The reorganisation was approved by Paris Orleans shareholders in june.As a result Paris Orleans acquired all the shares 'in the Paris business of Rothschild & Cie Banque not currently owned and brought under its ownership substantially all the shares in Rothschilds Continuation Holdings AG (N M Rothschild & Sons Limited's ("NMR") Swiss parent company). At the same time. Paris Orleans converted 'into a French limited partnership which ensures the commitment and control of the Rothschild family over the long term both cornerstones of the Group's culture and competitive positioning, To achieve this significant change to our structure in the ctrrent climate highlights the degree of support that exists from both the Rothschild family and the non-family shareholdersThese changes provide a simplified organisational structure that will foster increased operational efficiency in the Group's businesses.They also provide a significantly enhanced group regulatory capital position in the face of stringent Basel Ill regulatory requirements. These changes provide a strong base for the Group to move forward.This includes the NMR group which. in 2011. continued to develop its fund management activities through the acquisition of Elgin Capital. an established CLO manager. bringing the amount of assets under the Group's management to some L2 billion.The Banking business continues to build the Five Arrows Leasing business which unfailingly delivers a robust performance with good margin income and continuing low levels of impairmentThe commercial loan business. primarily in commercial property and leveraged finance sectors. continues to contract as part of our planned and long term withdrawal from this part of the Banking business. Our Global Financial Advisory business has not been immune from the world's economic troubles but continues to prove that its model is the right one of providing impartial. expert advice to corporations. governments. institutions and individuals.We consistently deliver the highest quality advice with discretion. integrity and insight in the areas of M&A and strategic advisory along with financing advisory.This formula continues to win over clients - globally in 2011 we ranked sixth by number of completed deals (up from seventh in 2010) and achieved top ten positions in most of our key markets. The confidence we have always had in the long term future of our business was reflected in our decision in 2007 to develop our new London head office building.The new building at "New Court". which has become something of a landmark in the City of London. was occupied in mid 2011 on time and on budget It is providing much improved client meeting facilities and working conditions for our staff I have to report with great sadness that my cousin Leopold de Rothschild passed away in April this year. Leo was a wonderful. generous man who contributed to NMR and to other organisations 'in so many ways. induding sitting as a director of the Bank of England. His life spans an era of extraordinary change at NMR: he was one of very few people to have worked in three 'incarnations of New Court Leo was heavily involved in establishing our South American offices as well as bening together a number of continental firms with links to Rothschild. He was always very committed to the welfare of our staff. and his dedication to our pensioners over the years has been unfailing. This is his diamond jubilee year at NMR Finally. I should like to thank my fellow directors and all our staff for their hard work and professionalism over the last year in what are testing times. David de Rothschild 24 July 2012 Page 6 I N M Rothschild & Sons Limited I Registered Number 925279 EFTA01112930 Business review EFTA01112931 Business review Financial review N M Rothschild & Sons Limited has been a leading name in the London financial markets since 1798. providing a comprehensive range of advisory services to its clients alongside debt fund management and specialised lending.The Company is the largest entity within the Rothschild banking group. which has a presence in 45 countries around the world and continues to be controlled by the Rothschild family via Paris Orleans. the French listed holding company The principal subsidiaries consolidated by the N M Rothschild & Sons Limited Group are Rothschild Europe BV and Rothschild Australia Limited. which provide financial advisory services overseas. and Five Arrows Finance. a UK-based asset financing group. Results overview The latter part of 201 I was again an extremely turbulent time as markets focussed on the troubles in the eurozone. In the light of market ccoditions. the Group's profit after tax for the year of L24.6 million was satisfactory. Income Total fee and commission income earned from dients fell by 8% to C355.0 million as would be expected given the reduction in global deal activity. M&A fees were marginally up on the year at L259.8 million (2011:L254.1 million). However other financial advisory fees. which include fees from debt advisory and restructuring and equity advisory. declined to L75.4 million (201 1: L109 .7 million).The revenue mix of the Global Financial Advisory business continues to be well diversified by sector with no dependence on a small number of engagements or clients. Net interest income decreased marginally to L17.4 million. reflecting the continued reduction in legacy commercial lending. Other operating income. which includes operating lease income. rental income and dividend income. increased by 20% to LI9 .9 million. largely as a result of gains on the disposal of available-for- sale securities. Impairment losses of LI 2.8 million were up compared to the prior year. as would be expected given the market conditions in the latter part of the year Expenses Total operating expenses fell L23.6 million (7%) to C320.3 million. Staff costs account for C251.9 million (79%) of total operating expenses (201 1: C274.8 million or 80%) and include profit share payments which have fallen reflecting the performance of the Group's businessesThis continues to provide a significant degree of flexibility in the cost base. Administrative expenses were marginally down on the prior year which reflects the on-going focus on cost control. Tax The Group's tax charge fa the year was LI 0.3 million. compared with a charge of L15.6 million in the price year. Balance sheet 'total assets of the Group were L2.285.0 million at 31 March 2012.a reduction of L539.6 million (19%) compared to the prior year end.This is due to further reductions in the legacy commercial loan book, following the strategic decision to reduce commercial lending exposures. Alongside this. the Group has repaid E350 million of MTN's and part of the first Rothschild Reserve term retail deposit offering. Total shareholders' equity attributable to ordinary shareholders reduced by C68.5 million (16%). to L353.6 million. largely due to actuarial losses on defined benefit pension schemes through reserves of L49.9 million (after tax) and dividends paid of L18.0 million. In common with most defined benefit pension schemes, the increased deficit was driven by falling gilt yields. A reconciliation of movements in total shareholders' equity is provided in the consolidated accounts on page 27. Page 8 I N M Rothschild & Sons Limited I Registered Number 925279 EFTA01112932 Business review (continued) Asset quality, funding Regulatory capital and liquidity and liquidity Summarised balance sheet 2012 Cm Cm 2011 Assets Prime liquid assets 686 852 Other liquid assets 222 552 Total liquid assets 908 1.404 Customer loans 818 881 Other assets 559 540 Total assets 2.285 2.825 Liabilities Bank deposits 178 176 Customer deposits 1.086 1.235 Debt securities in issue 142 461 Other liabilities 382 388 Total liabilities 1.788 2.260 Equity 497 565 Total equity and liabilities 2,285 2.825 During the year total loans and advances to customers reduced by 7% to £818 million.The portfolio of loan assets. which is secured on a wide range of collateral types and well diversified by sector. includes commercial property finance. leveraged finance, natural resarces. niche asset finance and private client lending.The Banking team continues to perform a rigorous process of credit analysis for each individual exposure at inception and in subsequent monitoring. Impaired loans at 31 March 2012 represented 18% of loans and advances (2011: 11%) with provision coverage of 48% (201 I: 68%). The Group's exposure to credit risk is further analysed in note 22 to the financial statements. The Group continues to employ a conservative approach to liquidity management Around 40% of total assets are held in liquid form, with the majority of this held with the Bank of England or in UK Government Securities.The Group has no exposure to the weaker Eurozone governments. Raiding is focused on the highly successful Rothschild Reserve retail deposit programme. augmented by relationship deposits from corporate, institutional and other depositors to ensure sufficient diversity Customer deposits were [1.086 million at 31 March 2012. representing 48% of total equity and liabilities. The Group's loans to customers are entirely funded by customer deposits. Since the onset of the crisis in financial markets in 2007. the Group has continued to focus on conservatively managing its liquidity and capital The risk asset ratio was 20.3% at 31 March 2012 (3 I March 2011:20.7%) and the overall leverage ratio of assets (excluding liquid assets) to equity is only 3 times. The Company is in full compliance with the FSA's requirements. Funding and liquidity policies are based on the Basel 3 approach and reflect the Group's low appetite for liquidity riskThe Group remained significantly in surplus to regulatory and internal liquidity guidelines throughout the year. N M Ftottischad & Sons Limited I Registered Number 925279 I Page 9 EFTA01112933 Business review (continued) Operating Divisions Global Financial Advisory* Overview Our Global Financial Advisory business provides impartial. evert advice to corporations. governments. institutions and individuals. We deliver the highest quality advice with discretion. integrity and insight in the areas of M&A and strategic advisory and financing advisory. With approaching 1.000 advisers based in over 40 countries. our scale. reach. intellectual capital and local knowledge enable us to develop relationships and deliver effective solutions to support our clients. wherever their business takes them. During the year we have made a number of significant hires at Board level. senior adviser level and across the divisions. Despite the tout business environment and continuing economic uncertainty we have continued to remain resilient and advised on around 500 transactions globally in 2011. with a value totalling over US$400bn. Rothschild's objectivity, its global network, and its commitment to a relationship -driven approach, combine to create value for our clients; building value through stability, integrity, and creativity Capital structure. access to funding and liquidity remain high priorities for our clients in the current environment. We continue to strengthen our position across the financing advisory spectrum to support this need. We are uniquely positioned to leverage opportunities in the market with our global network. spread of businesses and reputation for giving robust impartial advice. Our values are at the root of our culture and define our client offering We distinguish ourselves from our competitors in the following respects: • Focused on clients - Nothing gets in the way of our impartial advice for each and every client.We sell nothing but the best advice and execution capabilities. • Expert - Senior bankers lead every assignment from start to finish. We advise on more deals than any other adviser. including many of the most complex and transformational assignments in the world. All Rothschild clients benefit from our collective intellectual capital. specialist sector and product expertise and wealth of experience. Informed - We combine global scale with deep local networks,With approaching 1.000 advisers on the ground around the world. we are well placed to help clients. wherever their business takes them. Long term - As a family controlled business. we are unconstrained by short-term thir*ing and quarterly reporting. We can take a long-term view to deliver each client's interests. • Trusted & independent - We know that long-lasting relationships depend on the quality of our advice: we care about our clients' success as much as they doThe scale of our business means that we are not dependent on the outcome of any one transaction.VVe are only as good as our last assignment: this has been true for more than 200 years. •Are Global FinanciafAdvisory business is managed on a global basis and hence the commentary refers to the global business. However, references to specific deals are only those that have been undertaken by the Company or its subsidiaries. Page 10 I N N Rothschild & Sons Limited I Registered Number 925279 EFTA01112934 Business review (continued) M&A and strategic advisory review of the year Rothschild provides the highest quality M&A advice and execution expertise. We are adviser of choke to both large and mid-cap corporates. governments. families and individuals worldwide. We are also one of the leading advisers to financial sponsors worldwide, forming long-term relationships to understand their needs. We have an unparalleled track record, advising on more deals than any other adviser in Europe for the past ten years. We have built this global success through: • Our unbiased, objective advice. free from conflicts and cross-selling • Our trusted partnerships with client, using our global perspective and depth of industry expertise to help achieve their long-term objectives • Our global presence, bringing in-depth insight to complex cross-border transactions across world market, and superior expertise in domestic markets • Our integrated global network of industry sector specialists. pooling knowledge from across local markets • Our extensive experience in bid defences, joint ventures and strategic affiances, de-mergers and spin-offs. and fairness opinions We also have specialists in areas including corporate governance, privatisation programmes, pension funds and board committee advice. Globally in 2011 we ranked sMth by number of completed deals. and achieved top ten positions in most of our key markets. We held top S positions for M&A advice in the consumer products, hotels & leisure, infrastructure, property. media. telecoms, transport and utilities sectors. Rothschild M&A 2011 league table rankings by geography CountryfRegion Rank by number Rank by value Worldwide 1 1 Worldwide Cross Border 9 Europe 6 UK 4 France 2 Germany 2 6 Italy 20 Spain 10 13 Central & Eastern Europe 2 6 United States 14 12 Latin America 8 12 India 3 Asia (ex. Japan) 9 Australia II Middle East & Africa 16 Completed deals Source:Thomson Reuters N M Rothschild & Sons Limited I Registered Number 9252791 Page I I EFTA01112935 Business review (continued) During the financial year we advised on some of the largest and highest profile deals of the year including extrusci Iceland 0 VOLKSWAGEN EWES SA 0 (2 Rots-Royce El Domedc Walmad I \HI Cairn Energy (2011) • US$6.Obn disposal of a 40% stake ri Cairn Inda to Vedanta Resources Extract Resources (2012) • Advisor in relation toA$2.2bn takeover offer by CGNPC-URC and CADFund Iceland management and co-investors (2012) • LI .SSbn acquisition of Iceland Foods EDP (Current) • €2.7tri sale of a 21.35% stake by the Fbrtuguese State & Strategic Partnership with the acquirer. Chna Three Gorges Volkswagen (2011) • €3.7tri public tender offer for al shares outstanding of MAN SE Polkomtel (2011) • Disposal of the company to Spartan Capital Holdngs for E4.5bn Anadolu Efes (2012) • Adviser to Anadcdu Efes on the formation of a strategic aliance with SABMiller n Twice% Russia and Central Asia Rolls-Royce (2011) • €3.13tn public tender offer forTogrum effected via a IV between Rolls-Royce and Daimler EQT (2011) • E1.4tri acqusitton of Dcmetic Group from a consortium of lenders. board directors and employees Walmart (2011) • Acquisition of a controlling Merest in Massmart for an aggregate consideration of c.US$2.Sbn Queensland Government (2011) • Chair of the Lead Adviser Consortium on A$I6to nfrastructure assets sales programme AREA Property Partners & Delancey (2011) • Potential acquisition of Minerva PLC for L 1.1bn We also continued to receive industry recognition: • Prima ins PuThe Banker Investment Banking awards (2011) • Most innovative Investmem Bank for M&A Real Deals Private Equity awards (2012) • UK Deal of the Year and Grand Prix Deal of the Year: ISIS/Wiggle Private Equity News Europe (2011) • Financial Sponsors Coverage Team of the Year The Banker Investment Banking awards (2011) • Most innovative Investment Bank for Growth Companies Financial News Europe awards (2011) • European Independent Adviser of the Year FT & meigermarket European awards (2007-2011) • Mid-market Financial Adviser of the Year Page 12 I N M Rothschild & Sons Limited I Registered Number 925279 EFTA01112936 Business review (continued) Financing advisory review Debt advisory and restructuring . .L: the largest and most experienced independent debt advisory and restructuring teams, with breadth and depth of experience. the broadest client base. the widest range of pricing and leverage sources, and a proven track record of delivering deals. We have an unsurpassed deal flow and expertise in structuring deals for today's markets. Our debt advisory expertise encompasses all financing markets including banks, bonds, ratings, derivatives and hedging, Our restructuring experience includes lender negotiations, recapitalisations. capital raising exchange offers. distressed M&A, in-court and out-of-court transactions and creditor representation. We provide our clients with: • Objective, independent client-focused advice, free from the conflicts of interest faced by balance sheet banks • Capital structure advice that optimises both terms and sources of debt financings, refinancings and restructuring • Innovative advice to companies, creditors, governments and private equity houses on financing strategy raising debt and ratings, and hedging strategies • A creative and resourceful approach, bringing innovative solutions to maximise value and options for our clients We are in constant dialogue with banks. investors and rating agencies allowing us to understand the real picture. Rothschild has advised on US$850bn of debt advisory and restructuring assignments since January 2009. Rothschild's debt advisory business advised on over 140 transactions across the credit spectrum valued at c.US$95bn in 2011. Rothschild ranked No.1 in EMEA and Global restructuring league tables for 2011 and held top 5 positions in the US and Asia & Pacific. EMEA Restr actur rng US$bn No fl il! 2 Houlihan Lokey 35.5 13 3 Goldman Sachs 26.5 8 4 Blackstone 23.0 8 5 Gleacher & Co 13.8 3 6 Lazard 13.2 13 7 PwC 11.4 6 8 Alvarez 24 Marshal 9.0 2 9 Moelis & Co 7.8 3 10 Leonardo & Co 6.2 3 Announced deals by value (1 January to 31 December 2011) Source Thomson Reuters January 2012 2 Lazard 70.0 49 3 Houlihan Lokey 62.1 35 4 Blackstone 46.8 27 5 Moelis & Co 38.5 22 6 Goldman Sachs 31.2 13 7 Alvarez & Marshal 19.3 9 8 PwC 13.8 9 9 Ffl Consulting 9.8 5 10 KPMG 8.8 7 Annouiced deals by value (1 January to 31 December 2011) Source Thomson Reuters January 2012 N M Rothschild & Sons Limited I Regjstercd Number 9252791 Page 13 EFTA01112937 Business review (continued) Our ability to complete complex projects for both corporate clients and state/government organisations was reflected in the following landmark transactions and industry awards: Iceland 6 DE BEERS ASP Assanted ••M Farb regime AlYell Debate at, DSSmith Plc AnkCowp,-. 9rain9er Iceland Foods (2012) • Debt advice on raisng [8.135m of senior facilities backing management's buyout of Iceland Foods Alibaba Group Holding Limited (2012) • US$3.0bn debt finanong for the privausation of Akbaba.com from the Hong Kong Stock Exchange and corporate purposes Nakheel (2011) • Restructuring of US$' Sbn external liabilities and US$7.3bn new money contribution Miter for Finance of the Republic of Ireland (2011) • E30bn restructunng of State-owned Anzio Irish Bank • Financial Adviser De Beers (2011) • Debt advice on the signing of a new US$2bn muhicurrency Credit Facility Associated British Ports (2011) • Debt and derivatp.es advice on comprehensive refinancing of the grow through a 624bn secured coporate programme Pamplona Capital Management (2011) • Advice to Sponsor on US$2. Ibn finanoal restrucuring of KCA Deutag Yell Group plc • Debt advice on covenant reset and other amendments to its existing 63.11:n bank facilities Dubai World • US$31.8bn financing to Dubai World on Itabilfty management DS Smith Plc (2012) • Debt advice on new E700m acquisition finance facility to support proposed acquisition of SCA Packaging APA Group (2011) • Arrangement of the A$310m non-recourse bank debt as pan of the 80% equity sell down n Allgas Grainger (2011) • Debt advice on a L840rn Forward Start Facility due 2014-2020 Private Equity News Europe (2011) • Turnaround and Restructuring Adviser of the Year IFR (2011) • EMEA Restructuring of theYear: Truvo The Banker (2012) • Middle East Restructuring of theYear: Nakheel Equity advisory Rothschild offers independent advice to clients on a wide range of equity capital raising transactionsWith teams on the ground in key markets around the world. we have an unparalleled global footprint and deeper resources than any other adviser in this area. Our expertise includes IPOs. secondary offerings. block trades. spin-offs and convertible instruments. We have advised on over 100 transactions in 21 countries with a combined deal value of US$270bn since January 2009. more than any of Our competitors. Rothschild is the leading adviser in equity transactions worldwide with equity advisory specialists in London. Paris. Frankfurt. Milan. Moscow. Hong Kong. Sydney and New York Our Mitt volume of assignment enables us to gain a detailed underStaning of investor behaviour: optimal deal structu'e. performance of key market participants and the latest market trends. As a result. Our teams can provide dients with unique insights into the execution of recent offerings and the track record of bookrumers. and equip dients with the latest deal technology. Our pure advisory business model enables us to focus solely on achieving the best possible result for our clients and minimising their execution risk. providing • Honest. strategic views of what is achievable in prevailing markets • Rigorous analysis support for issuers in negotiations. and tactical judgements • Coordination of bookrunners to maximise value for our clients bringing discipline and precision to the execution of equity offerings Page 14 I N M Rothschild & Sons Limited I Registered Number 925279 EFTA01112938 Business review (continued) We have advised on some of the world's largest equity capital markets transactions during the past year.These include: MOINEIMMEI samsente 0 latIllIGIR ItIGIII Banking The Rothschild Barking business is focused on the growth activities of Debt Fuld Management. Private Client Lending and Asset Finance. As planned, there has been a further reduction in the commercial loan books during the year and whilst impairment levels have increased compared to last year, this reflects a cautious approach in the fight of the current uncertain economic outlook The commercial loan books are primarily in the Commercial Property and Leveraged Finance sectors.The Commercial Property loan portfolio is focused on mid market property companies secured on commercial properties throughout the UK.The Leveraged Finance loan portfolio is senior and mezzanine debt in the larger European leveraged buy-outs. RothscNId's banking activities include the FiveArrows Leasing businesses, which provide a range of specialist asset finance facilities to UK companies. Specific niches include print finance, broadcast asset based lending and vehicles to local authorities. The understanding of these sectors has resulted in the businesses delivering a robust performance throughout the year. based upon good margin income and continuing low levels of impairment Rothschild continues to develop its Debt Fund Management activities. In addition to managing c.E300 million of existing senior debt and mezzanine funds. during the year the business completed the acquisition of Elgin Capital, an established CLO Porsche SE (2011) • E5.0b1 tights issue • Financial adviser to PorscheAurornotil Haldrig SE Royal Bank of Scotland (2011) • USSI 25bn IPO of Samsonite on the Hong Kong Stock Exchange • Adviser to Shareholder NORMA Group (2011) • EIBfirn IPO of NORMA Group • Adviser to Company and its shareholders BC Partners & CInven (201 I) • ES70rn Accelerated Bock Build • Adviser to BC Partners & Onven Lenzing (2011) • E620m re-IPO on Austrian Stock Exchange • Adviser to the Company and its Shareholders Bilfinger Berger (2011) • 12 I 2m IPO of Bilfinger Berger Global Infrastructure Find manager:with over E I.3 billion of senior debt arrently under management_This acquisition has provided both critical mass and additional expertise to our existing business, creating a platform from which we can latch future debt based funds. In 2009 we launched Rothschild Reserve. a deposit-taking business, which compkincriu the wealth management activities of the Rothschild Group.There have been five highly successful Rothschild Reserve deposit offers to date and further products are planned. Risk Management The Chief Risk Officer co-ordinates risk policy and promotes the development and maintenance of effective procedures throughout the Group. Our internal audit team reviews our internal control framework and reports its findings to the Audit Committee. The responsibilities and membership of the Board Committees invoked in the oversight of risk management are set out on page 20. Credit Risk Credit risk arises from lending and trading activities.The Credit Committee sets limits, reviews concentrations, monitors exceptions and makes recommendations on credit decisions to the Group Assets and Liabilities Committee. Credit risk arising from treasury dealing activities is measured on a real-tine basis whereby all exposures relating to a particular counterparty are aggregated and monitored against lit Credit risk on derivative transactions is measured by summing the current exposure with an allowance for potential future exposure. Details of credit exposures, including risk concenaations, are set out in note 22 Market Risk Market risk arises as a result of activities in arrency, interest rate, debt and equity markets-During the year, evasive to market risk has continued to be small in relation to capital, as trading activities have been focused on managing the Group's exposure to interest rate and [Latency risk Limits on market risk exposure are set by the Group Assets and Liabilities Committee. Details of market risk exposures are disclosed in note 2.3. N M Rothschild & Sons Limited I Registered Number 925279 I Page 15 EFTA01112939 Business review (continued) Liquidity Risk Liquidity risk arises from the funding of our lending and trading activities.The Group Assets and Liabilities Committee recommends policies and procedures for the management of liquidity risk. Liquidity is measured in accordance with regulatory guidelines on a behaviourally adjusted basis and on a stressed basis.The results are monitored against limits which have been approved try tie Group Assets and Liabilities Committee. Operational Risk Operational risk, which is inherent in all business activities, is the risk of loss resulting from inadequate or failed internal processes. people and systems or from external events. Key to management of operational risk is the maintenance of a strong framework of internal controls.These are subject to regular independent review by the internal audit department, whose findings are reported to the Group Audit Committee which monitors the implementation of any recommendations. Operational risk encompasses reputational risk, which is particularly relevant to the business. Reputational risk is managed through formal approval processes for new clients and new products. In addition, operational procedures for the conduct of business are subject to continual monitoring.The Group maintains insurance policies to mitigate loss in the event of certain operational risk events. Other Material Risks Other risks which are, or may be, material arise in the normal conduct of business. Such risks, which include concentration risk pension fund risk and residual risk are identified and managed as part of the overall risk controls and are taken into account in the Board's periodic assessment of capital adequacy. Loss of key personnel is a material risk to the business.The Group mitigates this risk through its training, career development and remuneration policies. Page 16 IN M Rothschild & Sons Limited I Registered Number 925279 EFTA01112940 Report of the Directors Committees Statement of Directors' responsibilities Independent auditor's report EFTA01112941 Report of the Directors The Directors present their Directors' report and financial statements for the year ended 31 March 2012. Principal Activities and Business Review N M Rothschild & Sons Limited (the Company') and its subsidiary undertakings (together with the Company:the Group'). provide a range of banking and financial services. The Company's principal place of business is at New Court, St. Swithin's Lane. London. EC4N 8AL A review of the activities of the Group for the year, including an indication of likely future developments, is contained in the Chairman's statement on page 6 and the Business review on pages 7 to 16. Results and Dividends The profit for the financial year attributable to shareholders after tax and non-controlling interests was £8,732,000 (20 1 1:t17,156,000).The profit attributable to shareholders has been dealt with as follows: 2012 2011 C000 C000 Oninary dividends paid 18.000 25.000 Transfer (from) reserves (9.268) (7241) 8,732 17.156 Corporate and Social Responsibility The Group is committed to supporting the principle of equal opportunities and opposes all forms of unlawful or unfair discrimination on the grounds of colour, race, nationality, ethnic origin, gender, marital status disability, religion, age or sexual orientation.The Group's aim is to recruit, train and promote the best person for the job and to create a working environment free from unlawful discrimination, victimisation and harassment and in which all employees are treated with dignity and respect. The Group is committed to supporting charities both in the areas in which it operates and in the wider community.The Charities Committee was established in 1975 to consider the hundreds of requests received every year from charities seeking financial support.The sum of £544.000 (20 I I: £546,000) was charged against the profits of the Group during the year in respect of gifts for charitable purposes. No political contributions were made during the year. Typical beneficiaries continue to indude organisations concerned with elderly people. healthcare, social welfare and education. Requests for support from staff in respect of charitable causes with which they are associated, or have an involvement are actively encouraged. Rothschild in the Community Through the Rothschild in the Community programme we encourage our people to volunteer their time for community initiatives that make a real difference to people's lives. In 201 1/12 40% of NMR's London staff took part in our volunteering programme. Education Vsk work in partnership with three schools in economically deprived areas dose to our offices Bow School of Maths and Computhg, Old Palace Primary School and South Camden Community Schod. Ow volunteers partiopate in literacy support programmes, careers mentoring. employability events, work experience and support for children in transition from primary to secondary school.Through all of this we aim to develop students' confidence, broaden their horizons and help them on the path towards achieving social mobility.We also believe there is a role for us to play in supporting the schods' leadership teams as they work to drive up standards, and we are represented on the governing bodies of all three schools. We are delighted that our Business in the Commisiity 'Sign& first awarded in 2010 in recognition of our work with schools, has been reaccredited in 2012, indicating that our partnerships have developed and continue to make a positive impact Community development We support community organisations working to combat the effects of deprivation in the areas in which our partner schools are based.Volunteers have this year supported the Bromley by Bow Centre, City Gateway, Providence Row and the London VVildlife Trust, amongst others, volunteering on behalf of isolated elderly people, young people in vocational training, London's homeless and our environment Page 181 N M Rothschild & Sons Limited I Registered Number 925279 EFTA01112942 Report of the Directors Rothschild and the Environment We understand that the Group's day to day operations have an impact on the environment and we are committed to reducing that impact, promoting environmental awareness among our people, and to achieving continuous improvement in our environmental performance. Environmental stewardship is the responsibility of the Environment Committee. Energy use Our greatest environmental priority is to keep reducing our use of energy, particularly electricity and in recent years we have achieved considerable success in this. Having moved into our new building we are now in the process of establishing a new baseline energy footprint and beginning to map the opportunities for future improvements. Business travel Air travel and the ability to meet our clients face to face is an important part of our business, and a significant contributor to our overall COI emissions. We monitor our air travel and measure the associated carbon emissions by cabin class.We operate a 'Green Flights' scheme to make staff aware of the greater level of emissions associated with flying Business Class and offer them the opportunity to choose a lower cabin class in return for a donation to the charity of their choice. Responsible use of resources We promote a policy of reducing waste, reusing what we or others can, and recycling as much as possible. In London the unused food from our kitchens is composted and converted into fertiliser, and any other waste which is not recycled is sent for incineration with energy captrre, thus diverting it from landfill. We purchase recycled paper and our printers are set to print double-sided as defauttWe use mugs instead of disposable coffee cups where possible. and filtered tap water in place of bottled water in meeting rooms. We have been awarded Gold fort years running in the Clean City Awards. Staff During the year the Group continued with its long-established policy of providing employees with information on matters of concern to them and on developments within the Group by a series of notices to staff The Group encourages staff to put forward their views through a staff consultative committee.The interest of all staff in the performance of the Group is realised through the Group's profit sharing scheme in Which staff at all levels participate. The recruitment, training, career development and promotion of disabled persons is fully and fairly considered having regard to the aptitudes and abilities of each individual. Efforts are made to enable employees who become disabled during employment to continue their career with the Group and. if necessary appropriate training is provided. Supplier Payment Policy The Grog) does not currently follow any code or standard on payment practice. It is the Group's policy to confirm the terms of payment with suppliers when agreeing the terms of each transaction to ensure that those suppliers are made aware of the terms of payment and to abide by the terms of payment Included within liabilities is the amount due to trade creditors which. at 31 March 20 1 2. represented 34 days purchases cutstandog. Directors The names of the present Directors of the Company are shown on page 5- k is with much regret that the Directors record the death, on 19 April 2012, of Mr Leopold de Rothschild. Financial Risk Management The financial risk management objectives and policies of the Company and the Group in respect of the use of financial instrument.. together with analyses of evosures to credit risk market risk and liquidity risk, are set out in note 2 to the financial statements. Auditor KPMG Audit Plc have indicated their willingness to continue in office and a resolution to re-appoint them and to authorise the Directors to determine their remuneration will be proposed at the Annual General Meeting, in accordance with Section 485 of the Companies Act 2006. Audit Information The Directors who held office at the date of approval of this report confirm that so far as they are each aware. there is no relevant audit information of which the Company's auditors are unaware, and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. By Order of the Board Anne-Marie Seer New Court, St Swithin's Lane. London EC4N 8AL 24 July 2012 N M Rothschild & Sons Limited I Regjstercd Number 925279 I Page 19 EFTA01112943 Committees To facilitate the efficient administration of the Company's and the Group's affairs. certain functions and responsibilities have been delegated by the Board to the following committees, the terms of reference and membership of which are regularly reviewed. Group Management Committee The Group Management Committee reports to the Board of Rothschilds Continuation Holdings AG. an intermediate parent company. Its purpose is to formulate strategy for the Rothschild Group's businesses. to assess the delivery of that strategy, to ensure the proper and effective functioning of Group governance structures, operating policies and procedures, to define the Group's risk appetite and to be responsible for the management of risk Membership: Nigel Higgins (Chairman), Alexandre de Rothschild. Paul Barry, Mark CrumpAndrew Didham, Marc-Olivier Laurent, Robert Leitio.Veit de Maddalena, Richard Martin, Olivier PecouxionathanWestcott Group Assets and Liabilities Committee This committee reports to the Group Management Committee. It is responsible for ensuring that the Group has prudent funding and liquidity strategies, for the efficient management and deployment of capital resources within regulatory constraints, and for the oversight of the management of the Group's other financial strategies and policies set by the Group Management Committee. Membership:Anthony Alt (Chairman), Peter Barbaro. Christopher Coleman Paul Copsey, Mark Crump, Andrew Didham, Denis FallecAdam Greenbury, Richard Martin, Matthias Montani,AlexanderTroschelionathan Westcott Philip Yeates. Credit Committee This committee authorises and reviews all credit exposure to new and existing counterparties. Exposures exceeding certain limits are subject to ratification by the Group Assets and Liabilities Committee. Membership:Andrew Didham (Chairman), Christopher Coleman Michael Clancy, Paul Copsey Adam Greenbry, Peter Griggs, Debra Lewis, Paul Thompson, Philip Yeates. New Client Acceptance Committee This committee approves, from a reputational, money laundering and due diligence perspective, all new dients to be accepted by the Global Financial Advisory business. Membership: Crispin Wright (Chairman). Sarah Blornfield.Adam Greenbury Dominic Hollamby Nicholas Ivey Axel Stafflage. Albrecht Stewen Maurice Topiol, Stuart Vincent William Wells, Jonathan Westcott Adam Young. Group Audit Committee This committee of the Board of Rothschilds Continuation Holdings AG supervises and reviews the Group's internal audit arrangements, liaises with the Group's external auditors and monitors the overall system and standards of internal control. Membership: Peter Smith (Chairman), Sytvain Hefes. Bernard Myers, Judith Sprieser. Group Remuneration and Nominations Committee This committee sets remmeration policies for the Group, oversees the annual remuneration review and approves proposals for promotion. Membership: Sylvain Hefes (Chairman), David de Rothschild, Eric de Rothschild, Mark Evans. Peter Smith. Page 20 IN M Rothschild & Sons Limited I Registered Number 925279 EFTA01112944 Statement of Directors' responsibilities in relation to the report of the Directors and the financial statements The Directors are responsible for preparing the Report of the Directors and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law the Directors have elected to prepare both the Group and the Parent Company financial statements in accordance with IFRS as adopted by the EU and applicable law. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group and Parent Company for that period. In preparing each of the Group and the Parent Company financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent • state whether they have been prepared in accordance with IFRS as adopted by the EU: and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that the financial statements comply with the Companies Act 2006.They have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. N M Rothschild & Sons Limited I Registered Number 925279 1 Page 21 EFTA01112945 Independent auditor's report to the members of N M Rothschild & Sons Limited We have audited the Group and Parent Company financial statements (the"financial statements") of N M Rothschild & Sons Limited for the year ended 31 March 2012 set out on pages 23 to 90.The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ("IFRS") as adopted by the EU and. as regards the Parent Company financial statements. as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company's members. as a body. in accordance with Chapter 3 of Pan 16 of the Companies Act 2006. Our audit work has been undertaken so that we mitt state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose.To the fullest extent permitted by law. we do not accept of assume responsibility to anyone other than the Company and the Company's members. as a body for our audit work for this report.. or for the opinions we have formed. Respective Responsibilities of Directors and Auditor As explained more fully in the Statement of Directors' responsibilities on page 21. the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsbility is to audit and express an opinion on. the financial statements in accordance with applicable law and International Standards on Auditing (UK and keland).Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors. Scope of the Audit of the Financial Statements A description of the scope of an audit of financial statements is provided on the APB's web-site at www.frc.crg.uktapb/scopetprivate.cfm. Opinion on Financial Statements In our opinion: • the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 March 2012 and of the Group's profit for the year then ended: • the Group financial statements have been properly prepared in accordance with IFRS as adopted by the EU: • the Parent Company financial statements have been properly prepared in accordance with IFRS as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006: and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on Other Matters Prescribed by the Companies Act 2006 In our opinion the information given in the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on Which we are Required to Report by Exception We have nothing to report in respect of the following matters where the Companies Act 2006 r