EFTA01112925.pdf

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 Europe and The Middle East Calgary Abu Dhabi Doha Lisbon Prague Mexico City Amsterdam Dubai London Rome Montreal Athens Frankfurt Lorembourg Sofia New York Barcelona Geneva Madrid Stockholm Toronto Bermingham Guernsey Manchester Tel Aviv Washington Brussels Istanbul Milan Warsaw Bucharest Kiev Moscow Zurich Budapest Leeds Paris ....,.‘..... S h t, South America Africa Asia Pacific Santiago Harare Auckland Mumbai Sao Paulo Johannesburg 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 coatnue 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 'n i 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 'ni 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 'n i to a French limited partnership which ensures the commitment and control of the our business was reflected in our decision in 2007 to develop Rothschild family over the long term both cornerstones of the our new London head office building.The new building at "New Group's culture and competitive positioning, Court". which has become something of a landmark in the City To achieve this significant change to our structure in the ctrrent of London. was occupied in mid 201 1 on time and on budget It climate highlights the degree of support that exists from both the is providing much improved client meeting facilities and working Rothschild family and the non-family shareholdersThese changes conditions for our staff provide a simplified organisational structure that will foster I have to report with great sadness that my cousin Leopold de increased operational efficiency in the Group's businesses.They Rothschild passed away in April this year. Leo was a wonderful. also provide a significantly enhanced group regulatory capital generous man who contributed to NMR and to other position in the face of stringent Basel Ill regulatory requirements. organisations 'n i so many ways. induding sitting as a director These changes provide a strong base for the Group to of the Bank of England. His life spans an era of extraordinary move forward.This includes the NMR group which. in 201 1. change at NMR: he was one of very few people to have worked continued to develop its fund management activities through in three 'ni carnations of New Court Leo was heavily involved the acquisition of Elgin Capital. an established CLO manager. in establishing our South American offices as well as bening bringing the amount of assets under the Group's management together a number of continental firms with links to Rothschild. to some L2 billion.The Banking business continues to build the He was always very committed to the welfare of our staff. and his Five Arrows Leasing business which unfailingly delivers a robust dedication to our pensioners over the years has been unfailing. performance with good margin income and continuing low This is his diamond jubilee year at NMR levels of impairmentThe commercial loan business. primarily in Finally.I should like to thank my fellow directors and all our staff commercial property and leveraged finance sectors. continues for their hard work and professionalism over the last year in to contract as part of our planned and long term withdrawal what are testing times. 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 David de Rothschild to corporations. governments. institutions and individuals.We 24 July 2012 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 201 1 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 Page 6 I N M Rothschild & Sons Limited I Registered Number 925279 EFTA01112930 Business review EFTA01112931 Business review Financial review Expenses N M Rothschild & Sons Limited has been a leading name in the Total operating expenses fell L23.6 million (7%) to C320.3 million. London financial markets since 1798. providing a comprehensive Staff costs account for C251.9 million (79%) of total operating range of advisory services to its clients alongside debt fund expenses (201 1: C274.8 million or 80%) and include profit share management and specialised lending.The Company is the payments which have fallen reflecting the performance of the largest entity within the Rothschild banking group. which has a Group's businessesThis continues to provide a significant degree presence in 45 countries around the world and continues to be of flexibility in the cost base. Administrative expenses were controlled by the Rothschild family via Paris Orleans. the French marginally down on the prior year which reflects the on-going listed holding company focus on cost control. 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 Tax financing group. 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. Results overview Balance sheet The latter part of 201 I was again an extremely turbulent time as markets focussed on the troubles in the eurozone. In the light 'total assets of the Group were L2.285.0 million at 31 March of market ccoditions. the Group's profit after tax for the year of 2012.a reduction of L539.6 million (19%) compared to the L24.6 million was satisfactory. 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 Income Reserve term retail deposit offering. Total fee and commission income earned from dients fell by Total shareholders' equity attributable to ordinary shareholders 8% to C355.0 million as would be expected given the reduction reduced by C68.5 million (16%). to L353.6 million. largely due in global deal activity. M&A fees were marginally up on the to actuarial losses on defined benefit pension schemes through year at L259.8 million (2011:L254.1 million). However other reserves of L49.9 million (after tax) and dividends paid of financial advisory fees. which include fees from debt advisory L18.0 million. In common with most defined benefit pension and restructuring and equity advisory. declined to L75.4 million schemes, the increased deficit was driven by falling gilt yields. (201 1: L109.7 million).The revenue mix of the Global Financial A reconciliation of movements in total shareholders' equity is Advisory business continues to be well diversified by sector with provided in the consolidated accounts on page 27. 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 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 Since the onset of the crisis in financial markets in 2007. the Summarised balance sheet Group has continued to focus on conservatively managing its 2012 2011 liquidity and capital The risk asset ratio was 20.3% at 31 March Cm Cm 2012 (3 I March 2011:20.7%) and the overall leverage ratio of Assets assets (excluding liquid assets) to equity is only 3 times. Prime liquid assets 686 852 The Company is in full compliance with the FSA's requirements. Funding and liquidity policies are based on the Basel 3 approach Other liquid assets 222 552 and reflect the Group's low appetite for liquidity riskThe Group Total liquid assets 908 1.404 remained significantly in surplus to regulatory and internal Customer loans 818 881 liquidity guidelines throughout the year. 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: 1 1%) 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. N M Ftottischad & Sons Limited I Registered Number 925279 I Page 9 EFTA01112933 Business review (continued) Our values are at the root of our culture and define our client Operating Divisions offering We distinguish ourselves from our competitors in the following respects: • Focused on clients - Nothing gets in the way of our Global Financial Advisory* impartial advice for each and every client.We sell nothing but the best advice and execution capabilities. Overview • Expert - Senior bankers lead every assignment from start Our Global Financial Advisory business provides impartial. to finish. We advise on more deals than any other adviser. evert advice to corporations. governments. institutions including many of the most complex and transformational and individuals. assignments in the world. All Rothschild clients benefit from our collective intellectual capital. specialist sector and We deliver the highest quality advice with discretion. integrity product expertise and wealth of experience. and insight in the areas of M&A and strategic advisory and financing advisory. Informed - We combine global scale with deep local networks,With approaching 1.000 advisers on the ground With approaching 1.000 advisers based in over 40 countries. around the world. we are well placed to help clients. our scale. reach. intellectual capital and local knowledge enable wherever their business takes them. us to develop relationships and deliver effective solutions to support our clients. wherever their business takes them. During Long term - As a family controlled business. we are the year we have made a number of significant hires at Board unconstrained by short-term thir*ing and quarterly level. senior adviser level and across the divisions. reporting.We can take a long-term view to deliver each client's interests. Despite the tout business environment and continuing economic uncertainty we have continued to remain resilient • Trusted & independent - We know that long-lasting and advised on around 500 transactions globally in 201 1. with a relationships depend on the quality of our advice: we care value totalling over US$400bn. 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 Rothschild's objectivity, its global assignment: this has been true for more than 200 years. 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. •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 Rothschild M&A 201 1 league table review of the year rankings by geography Rothschild provides the highest quality M&A advice and Rank by Rank by execution expertise. CountryfRegion number value We are adviser of choke to both large and mid-cap corporates. Worldwide 11 governments. families and individuals worldwide.We are also Worldwide Cross Border 9 one of the leading advisers to financial sponsors worldwide, forming long-term relationships to understand their needs. Europe 6 We have an unparalleled track record, advising on more deals UK 4 than any other adviser in Europe for the past ten years. France 2 We have built this global success through: Germany 2 6 • Our unbiased, objective advice. free from conflicts and Italy 20 cross-selling Spain 10 13 • Our trusted partnerships with client, using our global Central & Eastern Europe 2 6 perspective and depth of industry expertise to help achieve their long-term objectives United States 14 12 • Our global presence, bringing in-depth insight to complex Latin America 8 12 cross-border transactions across world market, and India 3 superior expertise in domestic markets Asia (ex. Japan) 9 • Our integrated global network of industry sector specialists. pooling knowledge from across local markets Australia II • Our extensive experience in bid defences, joint ventures Middle East & Africa 16 and strategic affiances, de-mergers and spin-offs. and Completed deals fairness opinions Source:Thomson Reuters 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. 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 We also continued to receive industry recognition: highest profile deals of the year including Cairn Energy (2011) The Banker Investment Banking awards (2011) • US$6.Obn disposal of a 40% stake ri • Most innovative Investmem Bank for M&A • Cairn Inda to Vedanta Resources Real Deals Private Equity awards (2012) Extract Resources (2012) • UK Deal of the Year and Grand Prix Deal of extrusci • Advisor in relation toA$2.2bn takeover offer the Year: by CGNPC-URC and CADFund ISIS/Wiggle Iceland Iceland management and co-investors (2012) Private Equity News Europe (2011) • LI .SSbn acquisition of Iceland Foods • Financial Sponsors Coverage Team of the Year EDP (Current) The Banker Investment Banking awards (2011) 0 • €2.7tri sale of a 21.35% stake by the Fbrtuguese State & Strategic Partnership • Most innovative Investment Bank for with the acquirer. Chna Three Gorges Growth Companies VOLKSWAGEN Prima ins Financial News Europe awards (2011) Volkswagen (2011) • €3.7tri public tender offer for al shares • European Independent Adviser of the Year outstanding of MAN SE FT & meigermarket European awards (2007-2011) EWES SA Polkomtel (2011) • Mid-market Financial Adviser of the Year Pu • Disposal of the company to Spartan Capital Holdngs for E4.5bn Anadolu Efes (2012) 0 • Adviser to Anadcdu Efes on the formation of a strategic aliance with SABMiller n Twice% Russia and Central Asia (2 Rots-Royce Rolls-Royce (2011) • €3.13tn public tender offer forTogrum effected via a IV between Rolls-Royce and Daimler El Domedc EQT (2011) • E1.4tri acqusitton of Dcmetic Group from a consortium of lenders. board directors and employees Walmad Walmart (2011) • Acquisition of a controlling Merest in Massmart for an aggregate consideration of c.US$2.Sbn Queensland Government (2011) I • Chair of the Lead Adviser Consortium on A$I6to nfrastructure assets sales programme \HI AREA Property Partners & Delancey (2011) • Potential acquisition of Minerva PLC for L 1.1bn Page 12 I N M Rothschild & Sons Limited I Registered Number 925279 EFTA01112936 Business review (continued) Financing advisory review EMEA Restr actur rng US$bn No Debt advisory and restructuring fl il! . .L: the largest and most experienced independent 2 Houlihan Lokey 35.5 13 debt advisory and restructuring teams, with breadth and depth 3 Goldman Sachs 26.5 8 of experience. the broadest client base. the widest range of 4 Blackstone 23.0 8 pricing and leverage sources, and a proven track record of delivering deals. 5 Gleacher & Co 13.8 3 We have an unsurpassed deal flow and expertise in structuring 6 Lazard 13.2 13 deals for today's markets. 7 PwC 1 1.4 6 Our debt advisory expertise encompasses all financing markets 8 Alvarez 24 Marshal 9.0 2 including banks, bonds, ratings, derivatives and hedging, 9 Moelis & Co 7.8 3 Our restructuring experience includes lender negotiations, recapitalisations. capital raising exchange offers. distressed 10 Leonardo & Co 6.2 3 M&A, in-court and out-of-court transactions and creditor Announced deals by value (1 January to 31 December 201 1) representation. Source Thomson Reuters January 2012 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 2 Lazard 70.0 49 sources of debt financings, refinancings and restructuring 3 Houlihan Lokey 62.1 35 • Innovative advice to companies, creditors, governments and private equity houses on financing strategy raising debt and 4 Blackstone 46.8 27 ratings, and hedging strategies 5 Moelis & Co 38.5 22 • A creative and resourceful approach, bringing innovative 6 Goldman Sachs 31.2 13 solutions to maximise value and options for our clients 7 Alvarez & Marshal 19.3 9 We are in constant dialogue with banks. investors and rating agencies allowing us to understand the real picture. 8 PwC 13.8 9 Rothschild has advised on US$850bn of debt advisory and 9 Ffl Consulting 9.8 5 restructuring assignments since January 2009. 10 KPMG 8.8 7 Rothschild's debt advisory business advised on over 140 Annouiced deals by value (1 January to 31 December 201 1) transactions across the credit spectrum valued at c.US$95bn Source Thomson Reuters January 2012 in 201 1. Rothschild ranked No.1 in EMEA and Global restructuring league tables for 201 1 and held top 5 positions in the US and Asia & Pacific. N M Rothschild & Sons Limited I Regjstercd Number 9252791 Page 13 EFTA01112937 Business review (continued) Our ability to complete complex projects for both corporate Private Equity News Europe (2011) clients and state/government organisations was reflected in the • Turnaround and Restructuring Adviser of following landmark transactions and industry awards: the Year IFR (2011) Iceland Iceland Foods (2012) • Debt advice on raisng [8.135m of senior • EMEA Restructuring of theYear: facilities backing management's buyout of Truvo Iceland Foods The Banker (2012) Alibaba Group Holding Limited (2012) • Middle East Restructuring of theYear: • US$3.0bn debt finanong for the privausation Nakheel of Akbaba.com from the Hong Kong Stock Exchange and corporate purposes Equity advisory Nakheel (2011) Rothschild offers independent advice to clients on a wide range 6 • Restructuring of US$' Sbn external liabilities and US$7.3bn new money contribution 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 Miter for Finance of the Republic of Ireland (2011) area. Our expertise includes IPOs. secondary offerings. block • E30bn restructunng of State-owned Anzio trades. spin-offs and convertible instruments.We have advised Irish Bank on over 100 transactions in 21 countries with a combined • Financial Adviser deal value of US$270bn since January 2009. more than any of Our competitors. DE BEERS De Beers (2011) • Debt advice on the signing of a new US$2bn Rothschild is the leading adviser in equity transactions muhicurrency Credit Facility worldwide with equity advisory specialists in London. Paris. Associated British Ports (2011) Frankfurt. Milan. Moscow. Hong Kong. Sydney and New York ASP Assanted ••M Farb • Debt and derivatp.es advice on comprehensive Our Mitt volume of assignment enables us to gain a detailed refinancing of the grow through a 624bn underStaning of investor behaviour: optimal deal structu'e. secured coporate programme performance of key market participants and the latest market regime Pamplona Capital Management (2011) trends. As a result. Our teams can provide dients with unique • Advice to Sponsor on US$2. Ibn finanoal insights into the execution of recent offerings and the track record restrucuring of KCA Deutag of bookrumers. and equip dients with the latest deal technology. AlYell Yell Group plc Our pure advisory business model enables us to focus solely on • Debt advice on covenant reset and achieving the best possible result for our clients and minimising other amendments to its existing 63.11:n their execution risk. providing bank facilities • Honest. strategic views of what is achievable in prevailing Dubai World markets Debate at, • US$31.8bn financing to Dubai World on • Rigorous analysis support for issuers in negotiations. and Itabilfty management tactical judgements DSSmith Plc DS Smith Plc (2012) • Coordination of bookrunners to maximise value for our • Debt advice on new E700m acquisition finance facility to support proposed acquisition clients bringing discipline and precision to the execution of of SCA Packaging equity offerings AnkCowp,-. APA Group (2011) • Arrangement of the A$310m non-recourse bank debt as pan of the 80% equity sell down n Allgas Grainger (2011) 9rain9er • Debt advice on a L840rn Forward Start Facility due 2014-2020 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 manager:with over E I.3 billion of senior debt arrently under markets transactions during the past year.These include: management_This acquisition has provided both critical mass and additional expertise to our existing business, creating a MOINEIMMEI Porsche SE (2011) platform from which we can latch future debt based funds. • E5.0b1tights issue In 2009 we launched Rothschild Reserve. a deposit-taking • Financial adviser to PorscheAurornotil Haldrig SE business, which compkincriu the wealth management activities samsente Royal Bank of Scotland (2011) of the Rothschild Group.There have been five highly successful • USSI 25bn IPO of Samsonite on the Rothschild Reserve deposit offers to date and further products Hong Kong Stock Exchange are planned. • Adviser to Shareholder NORMA Group (2011) • EIBfirn IPO of NORMA Group Risk Management • Adviser to Company and its shareholders The Chief Risk Officer co-ordinates risk policy and promotes BC Partners & CInven (201I) the development and maintenance of effective procedures • ES70rn Accelerated Bock Build throughout the Group. Our internal audit team reviews our • Adviser to BC Partners & Onven internal control framework and reports its findings to the Audit Committee. Lenzing (2011) The responsibilities and membership of the Board Committees • E620m re-IPO on Austrian Stock Exchange invoked in the oversight of risk management are set out on • Adviser to the Company and its Shareholders page 20. 0 Bilfinger Berger (2011) latIllIGIR ItIGIII • 12I 2m IPO of Bilfinger Berger Global Credit Risk Infrastructure Find Credit risk arises from lending and trading activities.The Credit Committee sets limits, reviews concentrations, monitors exceptions and makes recommendations on credit decisions to Banking the Group Assets and Liabilities Committee. The Rothschild Barking business is focused on the growth Credit risk arising from treasury dealing activities is measured on activities of Debt Fuld Management. Private Client Lending and a real-tine basis whereby all exposures relating to a particular Asset Finance. As planned, there has been a further reduction counterparty are aggregated and monitored against lit Credit in the commercial loan books during the year and whilst risk on derivative transactions is measured by summing the impairment levels have increased compared to last year, this current exposure with an allowance for potential future exposure. reflects a cautious approach in the fight of the current uncertain Details of credit exposures, including risk concenaations, are set economic outlook out in note 22 The commercial loan books are primarily in the Commercial Property and Leveraged Finance sectors.The Commercial Market Risk Property loan portfolio is focused on mid market property Market risk arises as a result of activities in arrency, interest rate, companies secured on commercial properties throughout debt and equity markets-During the year, evasive to market risk the UK.The Leveraged Finance loan portfolio is senior and has continued to be small in relation to capital, as trading activities mezzanine debt in the larger European leveraged buy-outs. have been focused on managing the Group's exposure to interest RothscNId's banking activities include the FiveArrows Leasing rate and [Latency risk Limits on market risk exposure are set by businesses, which provide a range of specialist asset finance the Group Assets and Liabilities Committee. facilities to UK companies. Specific niches include print finance, broadcast asset based lending and vehicles to local authorities. Details of market risk exposures are disclosed in note 2.3. 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 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 conduc