Final Results

Rothschild & Co Continuation Finance CI Limited (formerly Rothschilds Continuation Finance (C.I) Limited)

Report of the Directors and Financial Statementsfor the year ended 31 December 2018

Report of the Directors

The Directors present their Directors' report and financial statements for the year ended 31 December 2018.

Principal Activities and Business Review

The principal activity of Rothschild & Co Continuation Finance CI Limited ("the Company") is the raising of finance for the purpose of lending it to other members of the Rothschild & Co Concordia SAS group.

In 2017, the Company changed its financial year end from 31 March to 31 December. This set of financial statements is the first full year since this change and consequently, the comparative figures for the Company's income statement, statement of comprehensive income, statement of changes in equity, cash flow statement and related notes are for the 9 months from 1 April 2017 to 31 December 2017.

As mentioned above, the Company operates as a finance vehicle which issues debt and lends it onto other Rothschild & Co Group companies on substantially the same terms. The only debt currently in issue is perpetual subordinated notes. Given the nature of this debt and the related loans to group companies, the Directors consider that accrual accounting, as per prior years, best reflects the purpose of the Company as a pass through financing vehicle and to match the £125m loan asset and debt securities in issue. On this basis, the loan asset and debt securities would be matched on the balance sheet at £125m which reflects the real asset and liability position of the Company.

However, the loans to the group undertakings do not pass the "solely payments of principal and interest" test under IFRS 9 (which came into force from 1 January 2018) due to technical terms in the loan documentation which, in accordance with IFRS 9, override the Directors' view of the business. The Company has therefore been required to report the loan asset at fair value on the balance sheet, which resulted in an opening reserves gain of £35.1m and a loss for the year of £5.9m (both before tax). Given this mandatory treatment, the Directors have elected to fair value the liabilities which result in offsetting losses of £35.0m on transition to IFRS 9 and a gain of £5.9m in the income statement for the year. The fair values of both loan asset and debt securities have been based on a review of available quotes and any third party transactions for the debt securities. The value of the loan asset is marginally higher given the 1/64 per cent higher margin than the debt securities.

Provision for deferred tax has been made on the fair value movements, albeit that under various tax regulations both the loans and debt securities will continue to be taxed on an amortised cost basis. This resulted in a net deferred tax liability of £21,250.

Overall, the impact of the IFRS 9 mandatory and elected changes, along with the normal interest margin, is that reserves have increased by £119,001 with a profit after tax for the year of £15,251.

Principal Risks and Uncertainties

The principal risks of the Company are credit risk, liquidity risk, market risk and operational risk. The Company follows the risk management policies of fellow subsidiary undertaking, NM Rothschild & Sons Limited ("NMR").

The Company's principal risk is credit exposure to other group companies, as the notes issued by the Company have been on lent to Rothschild & Co Continuation Limited ("RCL") and NMR. RCL has also guaranteed the notes issued. The Company's ability to meet its obligations in respect of notes issued by it is therefore reliant on NMR and RCL to make payments to the Company. Currently an uncertainty the Company is exposed to is the impact of Brexit on NMR. NMR does not expect any structural or regulatory issues. The changes in the UK and European economic environment could impact revenues and profitability, but does not affect the going concern assessment.

The changes to fair value accounting do not alter these risks and the Company remains reliant on NMR's guarantee for the £125m nominal amount and for interest payments from both RCL and NMR.

The Company's market risk exposure is limited to interest rate movements. Exposure to interest rate movements on the perpetual subordinated note issues has been passed to NMR and RCL, as the issue proceeds have been lent onwards at a fixed margin of 1/64 per cent above the rate being paid.

Liquidity risk has similarly been transferred to NMR and RCL as the funds on-lent have the same maturity dates as the notes issued. Operational risk arising from inadequate or failed internal processes, people and systems or from external events is managed by maintaining a strong framework of internal controls.

Directors

The Directors who held office during the year were as follows:

Peter Barbour

Anthony Coghlan

Mark Crump

David Oxburgh

Directors' Indemnity

The Company has provided qualifying third-party indemnities for the benefit of its Directors. These were provided during the year and remain in force at the date of this report.

Dividends

During the year, the Company did not pay any dividends (9 months to 31 December 2017: £150,000).

Auditor

Pursuant to the Companies (Guernsey) Law 2008, the auditor will be deemed to be reappointed and KPMG LLP will therefore continue in office.

Audit Information

The Directors who held office at the date of approval of this Report of the Directors confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware, and each Director has taken all the steps that he or she ought to have taken as a Director to make himself or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

Directors' Responsibilities Statement

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs 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 Company and of the profit or loss of the Company for that period.

In preparing these 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;

· assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

· use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Guernsey) Law 2008. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company 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.

Independent Auditor's Report to the Members of Rothschild & Co Continuation Finance CI Limited

1. Our opinion is unmodified

We have audited the financial statements of Rothschild & Co Continuation Finance CI Limited ("the Company") for the year ended 31 December 2018 which comprise the statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and the related notes, including the accounting policies in note 1.

In our opinion: 

· the financial statements give a true and fair view of the state of the Company's affairs as at 31 December 2018 and of the Company's profit for the year then ended;

· the Company financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);

· the financial statements have been prepared in accordance with the requirements of the Companies (Guernsey) Law 2008

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to those charged with governance.

We were appointed as auditor by the Directors on 31 March 1994. The period of total uninterrupted engagement is the 24 years ended 31 December 2018. We have fulfilled our ethical responsibilities under, and we remain independent of the Company in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by that standard were provided.

2. Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. We summarise below the key audit matters in arriving at our audit opinion above, together with our key audit procedures to address those matters, and, as required for public interest entities, our results from those procedures. These matters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.

3. Our application of materiality and an overview of the scope of our audit

Materiality for the Company as a whole was set at £1.64m (31 December 2017: £1.35m), determined with reference to a benchmark of total assets (of which it represents 1% (31 December 2017: 1%). %). The threshold for reporting misstatements to those charged with governance was £0.08m (31 December 2017: £0.07m).

4. We have nothing to report on going concern

The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Company or to cease its operations, and as they have concluded that the Company's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period").

Our responsibility is to conclude on the appropriateness of the Directors' conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Company will continue in operation.

In our evaluation of the Directors' conclusions, we considered the inherent risks to the Company's business model, including the impact of Brexit and analysed how those risks might affect the Company's financial resources or ability to continue operations over the going concern period. We evaluated those risks and concluded they were not significant enough to require us to perform additional audit procedures.

Based on this work, we are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the financial statements.

We have nothing to report in these respects, and we did not identify going concern as a key audit matter.

5. We have nothing to report the other information in the financial statements

The Directors are responsible for the other information presented in the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.

Directors' report

Based solely on our work on the other information:

6. We have nothing to report on the other matters on which we are required to report by exception

Under the Companies (Guernsey) Law 2008, we are required to report to you if, in our opinion:

We have nothing to report in these respects.

7. Respective responsibilities

Directors' responsibilities

As explained more fully in their statement set out on page 3, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC's website at: www.frc.org.uk/auditorsresponsibilities.

Irregularities - ability to detect

We identified areas of laws and regulations that could reasonably be expected to have a material effect on the annual accounts from our general commercial and sector experience, through discussion with the directors (as required by auditing standards), and from inspection of the Group's regulatory correspondence and discussed with the directors the policies and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. The potential effect of these laws and regulations on the financial statements varies considerably.

The Company is subject to laws and regulations that directly affect the financial statements including financial reporting legislation (including related companies legislation), distributable profits legislation, and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.

Whilst the Company is subject to many other laws and regulations, we did not identify any others where the consequences of non-compliance alone could have a material effect on amounts or disclosures in the financial statements.

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.

8. The purpose of our audit work and to whom we owe our responsibilities

This report is made solely to the Company's members, as a body, in accordance with section 262 of the Companies (Guernsey) Law 2008. Our audit work has been undertaken so that we might 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 or 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.

Pamela McIntyre (Senior Statutory Auditor)

for and on behalf of KPMG LLP, Statutory Auditor

Chartered Accountants

15 Canada Square

London E14 5GL

30 April 2019

Statement of Comprehensive Income

For the year ended 31 December 2018

All amounts are in respect of continuing activities.

Balance Sheet

At 31 December 2018

Approved by the Board of Directors and signed on its behalf on 30 April 2019 by:

Statement of Changes in Equity

For the Year ended 31 December 2018

Cash Flow Statement

For the year ended 31 December 2018

Interest paid and received during the period were as follows :

Notes to the Financial Statements

(forming part of the Financial Statements)

For the year ended 31 December 2018

1. Accounting Policies

Rothschild & Co Continuation Finance CI Limited ("the Company") is a private limited company incorporated in Guernsey. The principal accounting policies which have been consistently adopted in the presentation of the financial statements are as follows:

a. Basis of preparation

The financial statements are prepared and approved by the Directors in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations, endorsed by the European Union ("EU") and with those requirements of the Companies (Guernsey) Law 2008 applicable to companies reporting under IFRS. The financial statements are presented in sterling, unless otherwise stated.

The maturities of the Company's liabilities are matched with the maturities of its assets. There is, therefore a strong expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and accordingly, the financial statements have been prepared on a going concern basis.

The financial statements are presented in sterling, unless otherwise stated.

Standards affecting the financial statements

IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers were implemented with effect from 1 January 2018. IFRS 15 has not had a significant effect on these financial statements.

IFRS 9, which replaces IAS 39 Financial Instruments: Recognition and Measurement, includes revised guidance in respect of the classification and measurement of financial assets and liabilities and introduces additional requirements for liabilities and hedge accounting as well as a new expected credit loss model for calculating impairment on financial assets.

Previously financial assets were classified as either fair value through profit or loss, loans and advances, held-to-maturity investments or available-for-sale. IFRS 9 eliminates the loans and advances categories, and requires financial assets to be measured at amortised cost, fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVOCI").

IFRS 9 resulted in the requirement to fair value the loans to the parent undertaking, and as a result the Company has elected to fair value the debt securities in issue. The full impact of this transition to IFRS 9 can be seen in note 15.

Future accounting policies

A number of new standards, amendments to standards and interpretations are effective for accounting periods ending after 31 December 2018 and therefore have not been applied in preparing these financial statements. The Company has reviewed these new standards to determine their effects on the Company's financial reporting, and none are expected to have a material impact on the Company's financial statements.

b. Interest receivable and payable

Interest income and expense represents interest arising out of lending and borrowing activities. Interest income and expense is recognised in the income statement using the effective interest rate method.

c. Taxation

Tax payable on profits is recognised in the statement of comprehensive income.

Deferred tax is provided in full, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred tax is determined using tax rates and laws that are expected to apply when a deferred tax asset is realised, or when a deferred tax liability is settled.

d. Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with other group companies that are readily convertible to cash and are subject to an insignificant risk of changes in value.

e. Capital management

The Company is not subject to any externally imposed capital requirements. It is dependent on Rothschild & Co Continuation Limited (the parent undertaking) to provide capital resources which are therefore managed on a group basis.

f. Financial assets and liabilities

Financial assets and liabilities are recognised on trade date and derecognised on either trade date, if applicable, or on maturity or repayment.

i. Loans and advances

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

From 1 January 2018, loans and advances are initially recorded at fair value and any subsequent movement in fair value is recognised in the income statement.

Prior to 1 January 2018, loans and advances are initially recorded at fair value, including any transaction costs and are subsequently measured at amortised cost using the effective interest rate method. Gains and losses arising on derecognition of loans and advances are recognised in other operating income.

ii. Financial liabilities

From 1 January 2018, debt securities in issue are recorded at fair value with any changes in fair value recognised in the income statement. All other financial liabilities are recognised at amortised cost.

Prior to 1 January 2018, all financial liabilities are carried at amortised cost using the effective interest rate method.

g. Accounting judgements and estimates

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the accounting policies.

Valuation of financial assets and liabilities

Fair value is the price that would be received on selling an asset or paid to transfer a liability in an orderly transaction between market participants. For financial instruments carried at fair value, market prices or rates are used to determine fair value where an active market exists (such as a recognised exchange), as this is the best evidence of the fair value of a financial instrument. Where no active market price or rate is available, fair values are estimated using inputs based on market conditions at the balance sheet date.

Deferred tax

The recoverability of deferred tax assets is based on management's assessment of the availability of future taxable profits against which the deferred tax assets will be utilised.

2. Financial Risk Management 

The Company follows the financial risk management policies of the parent undertaking, Rothschild & Co Continuation Limited. The key risks arising from the Company's activities involving financial instruments, which are monitored at the group level, are as follows:

- Credit risk - the risk of loss arising from client or counterparty default is not considered a significant risk to the Company as all asset balances are with other group companies as detailed in note 13 Related Party Transactions.

- Market risk - exposure to changes in market variables such as interest rates, currency exchange rates, equity and debt prices is not considered significant as the terms of financial assets substantially match those of financial liabilities.

- Liquidity risk - the risk that the Company is unable to meet its obligations as they fall due or that it is unable to fund its commitments is not considered significant as material cash inflows and outflows from financial assets and liabilities are substantially matched.

3. Directors' Emoluments 

None of the Directors received any remuneration in respect of their services to the Company during the year (9 months to 31 December 2017: £nil).

4. Audit Fee

The amount receivable by the auditors and their associates in respect of the audit of these financial statements is £5,000 (9 months to 31 December 2017: £5,000). The audit fee is paid on a group basis by N M Rothschild & Sons Limited.

5. Taxation

The tax charge can be explained as follows:

6. Non-Current Assets: Loans to Group Undertakings

IFRS 9 requires the £125,000,000 loans to be carried at fair value which as at 31 December 2018 was £154,187,500 (at 31 December 2017: £160,125,000). On an amortised cost basis, the value of the loan at 31 December 2018 would be £125,000,000 (at 31 December 2017: £125,000,000). The fair values are based on the market value of the external debt securities (level 2).

The interest rate charged on the subordinated perpetual loans to group undertakings is 9 1/64 per cent.

7. Other Financial Assets

8. Cash and Cash Equivalents

At the year end the Company held cash of £3,481,151 (at 31 December 2017: £3,465,064) at a fellow subsidiary undertaking.

9. Deferred Income Taxes

Deferred tax assets less liabilities are attributable to the following items:

Both the intra-group loans and debt securities in issue are taxed on an amortised cost basis of accounting and accordingly taxable/deductible temporary differences arise following the adoption of IFRS 9.

10. Other Financial Liabilities

Interest payable on the subordinated guaranteed notes is fixed at 9 per cent.

11. Subordinated Guaranteed Notes

Given the IFRS 9 requirement to fair value the related loans, the Company has elected to fair value the subordinated guaranteed notes, which as at 31 December 2018 was £154,062,500 (at 31 December 2017: £160,000,000). On an amortised cost basis, the value of the subordinated guaranteed notes at 31 December 2018 would be £125,000,000 (at 31 December 2017: £125,000,000). The fair value was derived from the quoted market price at the balance sheet date (level 1).

The following table shows contractual cash flows payable by the Company on the subordinated guaranteed notes, analysed by remaining contractual maturity at the balance sheet date. Interest cash flows on the loan are shown up to five years only, with the prinicipal balance being shown in the > 5yr column.

12. Share Capital

13. Related Party Transactions

Parties are considered related if one party controls, is controlled by or has the ability to exercise significant influence over the other party. This includes key management personnel, the parent Company, subsidiaries and fellow subsidiaries.

Amounts receivable from related parties at the year-end were as follows:

Amounts recognised in the statement of comprehensive income in respect of related party transactions were as follows:

Amounts recognised directly in equity in respect of related party transactions were as follows:

There were no loans made to Directors during the year (9 months to 31 December 2017: none) and no balances outstanding at the year end (at 31 December 2017: £nil). There were no employees of the Company during the year (9 months to 31 December 2017: none).

14. Parent Undertaking and Ultimate Holding Company

The largest group in which the results of the Company are consolidated is that headed by Rothschild & Co Concordia SAS, incorporated in France, and whose registered office is at 23bis, Avenue de Messine, 75008 Paris. The smallest group in which they are consolidated is that headed by Rothschild & Co SCA, a French public limited partnership whose registered office is also at 23bis, Avenue de Messine, 75008 Paris. The accounts are available on Rothschild & Co website at www.rothschildandco.com.

The Company's immediate parent company is Rothschild & Co Continuation Limited, incorporated in England and Wales and whose registered office is at New Court, St Swithins Lane, London EC4N 8AL.

The Company's registered office is located at St Julian's Court, St Peter Port, Guernsey,GY1 3BP.

15. Transition to IFRS 9 on 1 January 2018 

a) Classification of financial assets and liabilities.

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of financial assets and liabilities as at 1 January 2018:

b) Impact of transition to IFRS 9

The following table shows the effect on the Company's balance sheet of the transition from IAS 39 to IFRS 9: