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Rothschild & Co Continuation Finance PLC

Half-yearly Report for the six-month period ended 30 June 2020

Interim Management Report

Summary of Important Events

Rothschild & Co Continuation Finance PLC (the "Company") is a wholly-owned subsidiary of N M Rothschild & Sons Limited (NMR) and was incorporated on 30 August 2000 to operate as a finance vehicle for the benefit of NMR and its subsidiaries.

The principal activity of the Company is the raising of finance for the purpose of lending it to NMR and other companies in NMR's group (the "Group"). The Company raises finance by the issue of perpetual subordinated notes guaranteed by NMR.

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 the parent undertaking, NMR.

Since the start of January 2020, COVID-19 has created significant disruption to the global markets and economies. As part of the financial statements for the year ended 31 December 2019, management concluded that the impact of COVID-19 was a non-adjusting post balance sheet event. Management has continued to assess whether there are any material uncertainties arising due to the pandemic that could cast significant doubt on the ability of the Company to continue as a going concern and none have been identified.

The Company's principal risk is credit exposure to NMR, as the notes issued by the Company have been guaranteed by, and funds have been on-lent to NMR. The Company is therefore reliant on the ability of NMR to meet its obligations under these lending arrangements. NMR is exposed to the aforementioned market disruption but, nevertheless, has sufficient liquidity to continue to operate for the next 12 months even in the scenario where revenue is significantly reduced.

The Company's processes are undertaken by another group undertaking. As a result of recent events the activities of this group undertaking are now being conducted remotely with all employees supported by enhanced existing technology and IT infrastructure. The business has accordingly invoked the relevant sections of Business Continuity plans. These plans have now been operational for a period of time and all critical systems continue to operate effectively and they have encountered minimal disruption in activity. The Company continues to carefully monitor and mitigate the risk on an ongoing basis in order to minimise exposure.

This half-yearly financial report has not been audited or reviewed by the Company's auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

Responsibilities Statement

The Directors confirm that to the best of their knowledge:

The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting; and

The interim management report includes a fair review of (i) the important events that have occurred during the first six months of the financial year, and their impact on the condensed set of financial statements, and (ii) the principal risks and uncertainties for the remaining six months of the financial year.

By Order of the Board

Peter Barbour

Director

16 September 2020

Condensed Interim Statement of Comprehensive Income

For the six months ended 30 June 2020

		6 months to	6 months to
		30 June 2020	30 June 2019
	Note	£	£
Interest income		159,671	554,857
Interest expense		(153,090)	(551,247)
Operating profit		6,581	3,610
Revaluation of loans	4	(10,473,820)	(2,642,185)
Revaluation of debt securities	9	10,486,546	2,642,563
Foreign exchange translation gains/(losses)		1,502	505
Profit before tax		20,809	4,493
Taxation	3	(10,207)	(846)
Profit for the financial period		10,602	3,647
Other comprehensive income		-	-
Total comprehensive income for the financial period		10,602	3,647

Condensed Interim Statement of Changes in Equity

For the six months ended 30 June 2020

	Share Capital	Retained Earnings	Total
	£	£	£
At 1 January 2020	100,000	289,762	389,762
Total comprehensive income for the period	-	10,602	10,602
At 30 June 2020	100,000	300,364	300,364

At 1 January 2019	100,000	290,090	390,090
Total comprehensive income for the period	-	3,647	3,647
At 30 June 2019	100,000	293,737	393,737

Condensed Interim Balance Sheet

At 30 June 2020

		At 30 June		At 31 December
		2020	2020	2019	2019
	Note	£	£	£	£
Non-current assets
Loan to parent undertaking	4		94,146,514		104,620,334
Current assets
Cash and cash equivalents	6	238,318		230,368
Other financial assets	5	67,856		49,713
		306,174		280,081
Current liabilities
Current tax liability		(5,700)		(1,746)
Deferred tax liability	7	(38,851)		(32,598)
Other financial liabilities	8	(65,735)		(47,725)
Net current assets			195,888		198,012
Total assets less current liabilities			94,342,402		104,818,346
Non-current liabilities
Debt securities in issue	9		(93,942,038)		(104,428,584)
Net assets			400,364		389,762
Shareholders' equity
Share capital	11		100,000		100,000
Retained earnings			300,364		289,762
Total shareholders' equity			400,364		389,762

Condensed Interim Cash Flow Statement

For the six months ended 30 June 2020

		6 months to	6 months to
		30 June 2020	30 June 2019
	Note	£	£
Cash flow from operating activities
Net profit for the financial period		10,602	3,647
Taxation		10,207	846
Operating profit before changes in working capital and provisions		20,809	4,493
Cash generated from operations		20,809	4,493
Net cash from operating activities		20,809	4,493
Net decrease in loans and interest receivable		10,455,677	3,003,397
Net decrease in debt securities in issue and interest payable		(10,468,536)	(3,003,779)
Net cash flow used in financing activities		(12,859)	(382)
Net increase in cash and cash equivalents		7,950	4,111
Cash and cash equivalents at beginning of period		230,368	223,533
Cash and cash equivalents at end of period	6	238,318	227,644

Interest receipts and payments during the period were as follows:

	6 months to	6 months to
	30 June 2020	30 June 2019
	£	£
Interest received from parent undertaking	141,528	665,130
Interest paid to note holders	135,080	661,524

The notes to the condensed interim financial statements form an integral part of the condensed interim financial statements

Notes to the Condensed Interim Financial Statements

(forming part of the Condensed Interim Financial Statements)

For the six months ended 30 June 2020

1. Basis of Preparation

The condensed interim financial statements are prepared and approved by the Directors in accordance with IAS 34 Interim Financial Reporting. The condensed interim financial statements are prepared under the historical cost accounting rules and should be read in conjunction with the annual financial statements for the year ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards.

The accounting policies and methods of valuation are identical to those applied in the financial statements for the year ended 31 December 2019.

Going Concern

Management has performed an assessment to determine whether there are any material uncertainties that could cast significant doubt on the ability of the Company to continue as a going concern, including the impact of COVID-19. No significant issues have been noted. In reaching this conclusion, management considered:

The financial impact of the uncertainty on the Company's balance sheet;

The Company's liquidity position based on current and projected cash resources. The liquidity position has been assessed taking into account the forecast liquidity of NMR and R&CoCL and their ability to continue to pay the interest on the intercompany loan provided by the Company. Considerations included a stressed scenario where both NMR's and R&CoCL's revenues could be reduced by more than 50% as compared to the prior year; and-

The operational resilience with respect to the impact of the pandemic on existing IT and infrastructure.

Based on the above assessment of the Company's financial position, the Directors have concluded that the Company has adequate resources to continue in operational existence for the foreseeable future (for a period of at least twelve months after the date that the financial statements are signed). Accordingly, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

2. Directors' Emoluments

None of the directors received any remuneration in respect of their services to the Company during the period (2019: £nil).

3. Taxation

	6 months to 30 June 2020	6 months to 30 June 2019
	£	£
Current tax	3,954	782
Deferred tax	6,253	64
Total tax	10,207	846

The tax charge can be explained as follows:

	6 months to	6 months to
	30 June 2020	30 June 2019
	£	£
Profit before tax	20,809	4,493
United Kingdom corporation tax at 19%	3,954	854
Fair value movements not subject to tax	-	(72)
Deferred tax income statement charge	2,418	64
Effect of change in deferred tax rate	3,835	-
Tax charged for the period	10,207	846

4. Non-Current Assets: Loan to Parent Undertaking

	At 30 June	At 31 December
	2020	2019
	£	£
At beginning of period	104,620,334	99,189,288
Fair value movements	(10,473,820)	5,431,046
At end of period	94,146,514	104,620,334
Due
In 5 years or more	94,146,514	104,620,334

IFRS 9 requires the €150,000,000 loan to be carried at fair value which as at 30 June 2020 was £94,146,514 (at 31 December 2019: £104,620,334). On an amortised cost basis, the value of the loan at 30 June 2020 would be £136,317,784 (at 31 December 2019: £127,833,646). The fair values are based on the market value of the external debt securities (level 2).

The interest rate charged on the €150 million loan is EUR-TEC10-CNO plus 36 basis points, capped at 9.01 per cent, fixed on 05 February, 05 May, 05 August and 05 November each year.
The effective interest rate on the above loan at 30 June 2020 was 0.32% (31 December 2019: 0.25%).

5. Current Assets: Other Financial Assets

	At 30 June	At 31 December
	2020	2019
	£	£
Interest receivable	67,856	49,713

6. Cash and Cash Equivalents

At 30 June 2020 the Company held cash of £238,318 (31 December 2019: £230,368) at the parent undertaking. Of this balance, £213,288 (31 December 2019: overdraft of £213,288) was held in a sterling account. The equivalent of £25,030 (31 December 2019: £17,080) was held in a euro account.

7. Deferred Income Taxes

	At 30 June	At 31 December
	2020	2019
	£	£
At beginning of period	(32,598)	(34,190)
Recognised in income: Income statement charge	(2,418)	1,592
Effect of change in deferred tax rate	(3,835)	-
At end of period	(38,851)	(32,598)

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

	At 30 June 2020	At 31 December 2019
	£	£
Fair value of intra group loans	8,012,541	3,946,263
Fair value of debt securities in issue	(8,051,392)	(3,978,861)
	(38,851)	(32,598)

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.

In the 11 March 2020 Budget, it was announced that the UK tax rate will remain at the current 19% and not reduce to 17% from 1 April 2020. This had a consequential effect on the Company's future tax charge. This change has been reflected in the period to 30 June 2020, increasing the deferred tax liability by £3,835.

8. Current Liabilities: Other Financial Liabilities

	At 30 June	At 31 December
	2020	2019
	£	£
Interest payable	65,735	47,725

9. Non-Current Liabilities: Debt Securities in Issue

	At 30 June	At 31 December
	2020	2019
	£	£
At beginning of period	104,428,584	98,988,175
Fair value movements	(10,486,546)	5,440,409
At end of period	93,942,038	104,428,584
Due
In 5 years or more	93,942,038	104,428,584

Given the IFRS 9 requirement to fair value the related loans, the Company has elected to fair value the debt securities in issue, which as at 30 June 2020 was £93,942,038 (at 31 December 2019: £104,428,584). On an amortised cost basis, the value of the debt securities in issue at 30 June 2020 would be £136,317,784 (at 31 December 2019: £127,833,646). The fair value was derived from the quoted market price at the balance sheet date (level 1).

The interest rate payable on the €150 million Perpetual Subordinated Notes is EUR-TEC10-CNO plus 35 basis points, capped at 9 per cent, fixed on 05 February, 05 May, 05 August and 05 November each year. From and including the interest payment date falling in August 2016 and every interest payment date thereafter, the Company may redeem all (but not some only) of the Perpetual Subordinated Notes at their principal amount.

The effective interest rate on the above notes at 30 June 2020 was 0.31% (31 December 2019: 0.24%).

10. Maturity of Financial Liabilities

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

At 30 June 2020

		3 months
		or less	1 year	5 years
		but not	or less	or less
		payable on	but over	but over
	Demand	demand	3 months	1 year	Perpetual	Total
	£	£	£	£	£	£
Perpetual subordinated notes	-	105,646	422,585	2,112,926	136,317,784	138,430,710

At 31 December 2019

		3 months
		or less	1 year	5 years
		but not	or less	or less
		payable on	but over	but over
	Demand	demand	3 months	1 year	Perpetual	Total
	£	£	£	£	£	£
Perpetual subordinated notes	-	76,700	230,101	1,227,203	127,833,646	129,367,650

11. Share Capital

	At 30 June	At 31 December
	2020	2019
	£	£
Authorised, allotted, called up and fully paid
100,000 Ordinary shares of £1 each	100,000	100,000

12. Related Party Transactions

Parties are considered to be 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 period end were as follows:

	At 30 June	At 31 December
	2020	2019
	£	£
Cash and cash equivalents at parent undertaking	238,318	230,368
Accrued interest receivable from parent undertaking	67,856	49,713
Loans to parent undertaking	94,146,514	104,620,334

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

	6 months to	6 months to
	30 June 2020	30 June 2019
	£	£
Interest income from parent undertaking	159,671	554,857

There were no loans made to Directors during the period (6 months to 30 June 2019: none) and no balances outstanding at the period end (at 31 December 2019: £nil). There were no employees of the Company during the period (6 months to 30 June 2019: none).

13. Parent Undertaking and Ultimate Holding Company and Registered Office

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 the Rothschild & Co website at www.rothschildandco.com.

The Company's immediate parent company is N M Rothschild and Sons Limited, incorporated in England and Wales and whose registered office is at New Court, St Swithins Lane, London EC7N 8AL.

The Company's registered office is located at New Court, St Swithin's Lane, London EC4N 8AL.