Perpetual Limited ABN 86 000 431 827 shareholder calendar Final dividend payment 28 September 2010 Annual General Meeting 26 October 2010 Interim profit and dividend announcement 23 February 2011 Please note that dates are subject to change. Contents

Five year profile...... 02 Five year results at a glance ...... 03 Chairman and CEO Report...... 04 Message from the Chairman-elect...... 07 Business unit review...... 08 Board and management...... 14 Directors’ Report...... 19 − Corporate Responsibility Statement...... 25 − Remuneration Report...... 34 Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)...... 61 Financial Statements...... 88 Securities exchange and investor information...... 146 five year profile

Perpetual Limited and its controlled entities’ comparative performance for financial years 2006 to 2010 inclusive. 2006 2007 2008 2009 2010

Total revenue1 $m 402.8 466.2 495.7 375.1 422.3 Underlying EBITDA2 $m 206.6 238.0 227.1 135.7 152.0 Underlying profit before tax3 $m 178.0 206.9 193.6 98.2 107.7 Underlying profit after tax (UPAT)3 $m 122.4 145.3 133.5 65.7 72.8 Net profit after tax (NPAT)4 $m 135.3 182.1 128.8 37.7 90.5 Earnings per share – UPAT5 cents 300 353 321 156 169 Earnings per share – NPAT5 cents 332 442 309 89 211 Return on average shareholders’ equity – UPAT6 % 40.8 43.2 40.7 21.8 22.4 Return on average shareholders’ equity – NPAT7 % 45.1 54.2 39.3 12.5 27.9 Dividend per share – ordinary8 cents 326 360 330 100 210 Dividend per share – special8 cents 100 - - - - Total shareholders’ equity at 30 June $m 331.0 341.0 314.4 290.0 361.0 Capital expenditure $m 26.4 17.9 17.7 14.0 11.8 Market capitalisation $m 2,977 3,234 1,794 1,214 1,227 No. of shares on issue – weighted average9 m 40.8 41.2 41.6 42.2 43.0 No. of shares on issue at 30 June9 m 40.7 41.2 42.0 42.5 43.4 Share price at 30 June $ 73.15 78.51 42.77 28.55 28.26 Share price range for year $ low 57.6 0 67.8 0 40.95 21.60 25.36 $ high 74.00 84.20 83.27 52.44 41.15

1 Excludes income from structured investments. 2 EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items. 3 Excludes significant items and costs of major strategic initiatives. 4 Attributable to equity holders of Perpetual Limited. 5 Diluted earnings per share calculated using the weighted average number of ordinary shares and potential ordinary shares on issue. 6 Calculated using underlying profit after tax. 7 Calculated using net profit after tax. 8 Dividends declared with respect to the financial year. 9 Includes ordinary shares and potential ordinary shares. five year results at a glance

145.3 133.5 182.1 122.4 135.3 128.8 65.7 72.8 90.5

37.7 $ million $ million

2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Underlying profit after tax Net profit after tax for year ended 30 June for year ended 30 June

Earnings per share 54.2 442 Dividends 45.1 360 39.3 332 309 326 330 27.9 211 210 89 12.5 100 cents per share per cent

2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Return on equity – NPAT Earnings per share – NPAT v dividends for year ended 30 June for year ended 30 June

Perpetual Limited and its controlled entities | 3 chairman and ceo report

We are pleased to report that for the year to 30 June 2010, We have developed our Private Wealth business to offer premium Perpetual’s performance and financial position improved advice and services specifically for financially successful considerably over the previous year. Australians and their families. In addition to strategic financial planning and investment advice, we provide estate planning, Our net profit increased substantially, allowing us to more than philanthropic services, and fiduciary services, where we protect double our dividend payments to shareholders, and the double- clients’ interests and assets as trustee or custodian. digit growth of our underlying profit bodes well for the future. We further strengthened our already strong balance sheet and Our Corporate Trust business has also expanded its offering continued to reduce our risk profile. to financial services companies to include mortgage processing services. We also continued to invest in our operational capability, the quality of our client services, our adviser base, and our brand. At the same time, we have made changes to ensure all of our Improved operating environment businesses are clearly focused on meeting the requirements Over the past year, we experienced a much improved operating of their key client segments. environment compared to the prior year.

Having safely steered through the global financial crisis by Both equity and credit markets continued to improve through the controlling costs, reducing risk and improving our financial first three quarters of the year. In the fourth quarter, concerns strength, we have emerged in good shape to execute our vision: over government debt levels, particularly in Europe, caused ‘to be the leading provider of wealth management services to renewed market instability, although this subsided somewhat financially successful investors and their advisers, and to be the as the financial year closed. leading corporate trustee’. Retail investor confidence gradually improved during most of the Times of change are times of opportunity and we are confident year but remains fragile. While new inflows remained subdued, we have the experience, values and capability to once again there was some movement by investors from risk-averse cash benefit from the major changes underway in the sectors in which and fixed income funds towards managed funds with higher we operate. potential returns. These more actively managed funds also generate higher revenue for us. In the eighties and nineties, we transformed from a traditional trustee house into one of Australia’s leading fund managers The global financial crisis will not be forgotten by investors and played a formative role in the development of the country’s for some time. The concerns about sovereign debt that Source:securitisation Australian industry. Securities In Exchange the first decade of this century, we have caused global market instability in the final quarter reminded become a broad-based wealth manager, providing specialised investors that its after-effects will impact government economic products, services and advice for people who want to take active management, regulation and markets for years to come. responsibility for their financial wellbeing.

Robert Savage, AM (left) and David Deverall.

4 Perpetual’s performance and financial position improved considerably over the previous year.

In this environment, clients will prefer to deal with wealth of net profit after tax, in keeping with our policy of paying management institutions that are financially strong in their own dividends to shareholders of between 80 and 100 per cent right, with established reputations for managing their clients’ of net profit after tax on an annualised basis. money and protecting their interests. Perpetual’s track record through the global financial crisis, and over the past 124 years, Underlying profit after tax for the year, which excludes significant means we are well placed to benefit. items such as the EMCF recoveries, was $72.8 million, a solid 11 per cent increase on the previous year. Securitisation markets for residential mortgage backed securities, in which our corporate trustee business is the market leader, saw The largest influence on our revenue is the performance of a tentative rebound in activity, although it is still at much reduced the Australian sharemarket, which directly impacts our funds levels when compared to those prior to the global financial crisis. under management and funds under advice. As at 30 June 2010, we calculate that each 1 per cent movement in the Australian All Ordinaries Index affects our annualised revenue by Results overview $2 to $2.5 million. The Group’s net profit after tax* for the year ended 30 June 2010 was $90.5 million, a 140 per cent increase on Stronger markets in the first three quarters of the year saw average the previous year. This included a $20 million after tax recovery funds under management for the year increase 7 per cent over of past losses from the Exact Market Cash Fund (EMCF). the prior year. Due to market declines in the fourth quarter as well as net outflows, year-on-year to 30 June 2010, funds under Our return on equity for the year based on net profit after tax management only increased 3 per cent to $26.9 billion. was 27.9 per cent, up from 12.5 per cent in the prior year. As investors started to shift to asset classes with higher potential We have been able to increase dividend payments to returns, cash and fixed interest funds saw a $1.4 billion net shareholders to 210 cents per share for the year, compared outflow. Similarly, quantitative funds saw a general trend away to 100 cents the previous year. This represents 100 per cent from this type of investment approach.

Australian sharemarket July 2008 - June 2010 Spot close All Ords Avg All Ords 5,250 FY09 FY10 5,000 4,750

4,500 FY10 Avg All Ords 4,250 Index 4,000 FY09 Avg All Ords 3,750 3,500 3,250 Sep 2008 Dec 2008 Mar 2009 Jun 2009 Sep 2009 Dec 2009 Mar 2010 Jun 2010

S&P ASX All Ordinaries Price Index 1 July 2008 to 30 June 2010.

* Attributable to Perpetual Limited ordinary equity holders.

Perpetual Limited and its controlled entities | 5 This shift in asset preferences had a positive effect on our Our brand remains a great strength and was again the funds active share funds, which recorded $600 million in net inflows, management brand rated highest by advisers. We have a $1.2 billion turnaround from the $600 million of net outflows continued to invest in targeted advertising campaigns to increase these funds recorded last year. awareness of our credentials and offerings amongst prospective clients and their advisers. Our Private Wealth average funds under advice for the year increased 17 per cent. Year-on-year to 30 June 2010, they increased 22 per cent to $8.3 billion, including $900 million of Regulatory environment funds from the acquisition of the advice businesses, Grosvenor Following the extensive Government reviews into taxation, and Fordham. superannuation and financial advice, we are hopeful that the proposed reforms resolve some of the key issues that have Corporate Trust’s securitised funds under administration undermined the confidence of some retail investors in recent years. decreased by 13 per cent to $210 billion at 30 June 2010 as the run-off from the existing portfolio of residential mortgage backed We support the plans for stronger professional standards and securities (RMBS) was not compensated for by the volume from transparent remuneration for financial advisers, including the new issues. However, issuance increased over the prior year, phasing out of commissions by 2012. Likewise, plans to increase including the first new issues since the global financial crisis efficiencies across the industry through more standardised undertaken without Australian Government support. processes are welcomed.

Group expenses for the year increased over the previous year These initiatives are in line with the longstanding principles by $41.7 million or 15 per cent to $318.6 million. This increase at the core of Perpetual’s approach to financial advisory services. was predominantly the result of the acquisition of financial advice Our expertise in fiduciary duties would also confirm us as a businesses to better position Private Wealth, the expansion of our thought leader in an industry where such duties could find mortgage services capability, and higher performance-related wider application. staff remuneration linked to our improved results. The proposal to increase mandatory employer superannuation Over the course of the year, we further strengthened our balance contributions to 12 per cent of salary by 2020 and establish sheet by increasing our equity and cash resources. We also MySuper as a default fund would help ensure minimum continued to reduce our exposure to capital guaranteed and standards for everyone who contributes to superannuation, structured products. even if they are not actively engaged in how their retirement savings are managed.

Investing in future growth However, our expertise is primarily directed at people who wish During the year we continued to invest in improving the systems, to take a more active approach to providing for their retirement, processes and staffing that most impact the quality of our client for example through self managed super funds and actively services. In Private Wealth, our new client management system managed investments. improved our efficiency and ability to provide a more seamless service and a broader range of offerings. We believe Australia’s market for quality financial advice and active wealth management will continue to grow strongly in We also continued to execute on our strategy to acquire and coming years as more people choose to take control of their integrate adviser groups with proven capabilities and track own financial wellbeing. This is clearly illustrated by the dramatic records in servicing key segments of the high net worth market. growth in self managed super funds, now the largest sector Melbourne-based Fordham Group, which provides financial of superannuation by assets, and an area in which we offer advice and services to private business owners, expands our specialist expertise. specialist expertise and presence in Victoria. Sydney-based Grosvenor Financial Services is predominantly serving medical Leadership renewal and legal professionals. Both these groups are being integrated This is our final annual report as Chairman and CEO respectively, into our Private Wealth business. after lengthy tenures in these roles. We believe it is an appropriate In Perpetual Investments, we have brought together our time to renew both the Board and senior leadership team. Australian and international equities teams into a single business Perpetual is in a strong financial position, having successfully unit. This will improve business efficiencies and deepen the negotiated the market turmoil of recent years. At the same time, expertise and resources available to our fund managers. we have sharpened our operational capability and market focus, and with the impending changes to the industry ahead, it is an We further bolstered our investment team, which remains one of ideal time for a new Chairman and CEO to take charge. the most experienced and stable in the industry, and has a clear and disciplined investment process focused on quality, value and Following our Annual General Meeting on 26 October 2010, risk. This means clients can rely on us to manage their investments Mr Peter Scott will become the new Chairman of your Board. the way they expect, whatever the market conditions. Mr Scott has outstanding credentials for this role. He has an extensive background in financial services, and wealth In Corporate Trust, we have invested in staff and technology to meet management in particular. He was previously chief executive the increased demand for our mortgage processing business. officer of major wealth manager MLC, and held senior management roles at both National Australia Bank and Lend Lease.

6 He has been a director of your Board for over five years and is a member of Perpetual’s Investment Committee and People and Remuneration Committee. Mr Scott is also overseeing the selection process for the new chief executive officer. His longstanding involvement with our company and the industry maintains the quality and continuity of your Board.

This year, we welcomed two new members to your Board. Mr Paul Brasher, who joined on 1 November 2009, and Mr Philip Bullock who joined on 1 June 2010. Both have excellent credentials.

During his career with PricewaterhouseCoopers, Mr Brasher was chairman of both their global and Australian boards. He brings to your Board extensive experience in finance, accounting and corporate governance. Mr Brasher is a member of our Audit, Risk and Compliance Committee and People and Remuneration Committee.

During his career with IBM, Mr Bullock was Managing Director, Australia and New Zealand, and he has extensive experience Message from the Chairman-elect in Asia. He brings to your Board his broad knowledge of Dear Shareholders organisation management, technology and marketing. Mr Bullock is a member of our Investment Committee and It is a great privilege for me to succeed Mr Savage as Chairman People and Remuneration Committee. of your Board. Investing for generations Shareholders have been very well served by Mr Savage’s astute and diligent leadership and I believe the stability of your Board It has been a privilege to lead this great Australian company and the skills of my fellow directors continue to be a great asset through an eventful period in its distinguished history and we for the company. both leave very confident about its future. Your Board is committed to creating shareholder value by In a world of constant change, Perpetual will continue to do what ensuring a strong management team is in place, approving we have done for 124 years – help our clients grow and protect the strategic direction, carefully reviewing business plans, and their wealth by remaining committed to our investment principles providing good governance and accountability. and sound financial management. On your behalf I would like to thank both Mr Savage and Thank you to our shareholders for your support over the years Mr Deverall for their significant contributions to the company and to our staff for your commitment to the company and over a number of years. My first priority is to oversee the our values. selection process for the new chief executive officer and ensure We wish you and Perpetual all the best for the future. a smooth transition. Perpetual has continually demonstrated its capacity to grasp the opportunities of change, whilst maintaining the core values that mean so much to our stakeholders. We have a very talented team, a great brand, a proud heritage and an exciting future.

I look forward to the challenges ahead.

Robert Savage, AM David Deverall Chairman Chief Executive Officer and Managing Director

Peter Scott Chairman-elect

Perpetual Limited and its controlled entities | 7 business unit review

Perpetual operates through three Contribution to 2010 underlying profit before tax Corporate Perpetual business units, each of which focuses Trust Investments on a specific financial services sector: Perpetual Investments on funds 24% management, Private Wealth on 52% financial advice, and Corporate Trust 24% on trustee services. Private Wealth

Perpetual Investments Results for the year ended 30 June

Perpetual Investments is one of 2009 2010 change change Corporate $m Privat$me P$merpetual % Australia’s most highly regarded fund Trust Wealth Investments managers, offering a broad range Revenues 203.0 216.9 13.9 7% of investment, superannuation and Expenses (144.0) (144.8) (0.8) (1%) retirement income products. We have a Profit before tax 59.0 72.1 13.1 22% strong investment capability in all major asset classes, including Australian and staff who value our reputation as a fund manager with strong international equities, property securities, principles and proven track record. multi-sector and multi-manager funds, Average funds under management for the year increased mortgages, fixed income and cash. 7 per cent over the prior year due to stronger markets in the first three quarters. Due to market declines in the fourth quarter as We actively manage investment portfolios based on our intensive well as net outflows, year-on-year to 30 June 2010, funds under analysis of quality, value and risk. While prices can fluctuate management only increased 3 per cent to $26.9 billion. greatly with prevailing market sentiment, we believe that, over the long term, they should reflect fundamental value. In November Revenue for the year increased 6 per cent to $216.9 million, mainly 2009 Perpetual Investments signed the United Nations Principles due to increased revenue from actively managed equity funds. for Responsible Investment, which means we formally incorporate environmental, social and governance factors as part of our Perpetual Investments’ profit before tax for the year ended investment decision-making and ownership practices. 30 June 2010 was $72.1 million, a 22 per cent increase on the previous year. Quality investment management requires highly trained professionals, clear principles and processes, and effective As the global financial system stabilised and the worst fears of a teamwork. Over the past year, we have again retained all of our global economic recession subsided, the past year saw investors key investment managers and continued to attract talented new and their advisers gradually become more confident about

8 making investment decisions for the longer term. This improving For the mass affluent client segment, our major equity, cash confidence was somewhat dampened in the June quarter, when and fixed income funds are available through Perpetual, as well markets reacted negatively to concerns about the finances and as through a broad range of adviser groups and other financial credit-worthiness of some European countries. institutions. Similarly, our WealthFocus platform offers a broad range of investment choices from Perpetual and other leading The change in investor and adviser attitudes was clearly reflected fund managers. in our net flows for the year. While our quantitative equity funds recorded net outflows of $1 billion, our actively managed equity We enjoy strong relationships with many institutions and are able funds recorded net inflows of $600 million. to construct and manage customised portfolios to meet their specific risk and return objectives. For example, over the past Net outflows from cash and fixed interest funds were $1.4 billion, year we developed a sustainable investment fund specifically for as investors moved money from risk-averse cash investments to one of Australia’s largest super funds and won other substantial asset classes with potentially higher returns. Most of the cash mandates for concentrated equities and smaller companies. and similar funds generate lower fee margins than our more actively managed funds. During calendar 2010, the Australian and international equities teams were brought together into a single business unit so they While there has been a broad market trend over the past decade can share resources and expertise in both business management towards passive investment strategies, particularly index funds, and investment. we believe demand for actively managed funds will continue but investors will be more selective in choosing a proven, Over the past year, we invested considerable resources in our quality manager. systems and processes to improve efficiency and the service our clients receive – whether this is receiving tax statements as soon Our business focuses on four key client segments – institutions, as possible after year-end, reduced call centre waiting times or a high net worth and mass affluent clients and their respective more informative and easier-to-use website. advisers, and direct investors. In managing investments, there is one thing we never lose sight For high net worth clients and their advisers, we will continue of: the fact that it is not our money we are managing, it is our to develop specialised funds, able to meet particular investment clients’ money, entrusted to us to manage on their behalf. objectives, such as the Pure Value Share Fund, Global Resources Fund and Diversified Income Fund.

Perpetual Investments – funds’ outperformance

Annualised Industrial Australian Small Companies Fund Concentrated Equity International returns Share Fund Share Fund Fund Share Fund

1 year + 0.07% + 5.90% + 14.64% + 2.80% - 0.36%

3 years + 4.07% + 4.13% + 6.13% + 5.83% + 2.43%

5 years + 2.57% + 2.53% + 4.17% + 3.76% + 1.20%

7 years + 2.40% + 2.66% + 2.49% + 2.68% N/A

10 years + 4.46% + 4.21% + 8.28% + 5.06% N/A

Gross outperformance per annum against benchmarks to end June 2010.

Perpetual Limited and its controlled entities | 9 We have become a broad-based wealth manager for people who want to take active responsibility for their financial wellbeing.

Private Wealth Private Wealth is the Group’s specialist Results for the year ended 30 June financial services and advice business, 2009 2010 change change providing a broad range of services $m $m $m % to financially successful Australians Revenues 85.7 111.6 25.9 30% and their families. We take a holistic Expenses (56.6) (79.0) (22.4) (40%) approach to providing advice, which Profit before tax 29.1 32.6 3.5 12% covers strategic planning, investment strategy, superannuation and retirement With the growth in self managed super funds and the need for estate income, estate planning, tax, and planning as the population ages, the market for these fiduciary personal insurance. services is set to expand strongly in coming years and we believe there are exciting opportunities to market our services through Drawing on our experience as a trustee for generations of external adviser groups and other professional referral networks. Australians, we also provide a range of trustee and fiduciary services to help people protect and manage their assets and The past few years have been challenging for many of our clients income in their lifetime and beyond. We are able to establish and as their investments have been subject to the intense volatility manage an array of trusts including private trusts, testamentary of financial markets. However, our prudent, long-term approach trusts, philanthropic trusts, and special purpose trusts to manage to investing helped shield them from the worst of the downturn compensation settlements. and enabled them to benefit from the market recovery. We focus strongly on ensuring we understand our clients’ circumstances We are one of Australia’s largest managers of philanthropic and objectives, and in turn they clearly understand our advice trusts, with over $1.1 billion in funds under management on and the ongoing service they will receive. behalf of 450 trusts. Average funds under advice for the year increased 17 per cent. Our fiduciary services also include estate planning and Year-on-year to 30 June 2010, it increased 22 per cent to administration, enduring powers of attorney, and business $8.3 billion, including $900 million of funds from the acquisition succession planning. of advice businesses Grosvenor and Fordham.

10 Revenue increased by $25.9 million to $111.6 million, 30 per cent The acquisitions of Grosvenor and Fordham have not only up on the prior year. In addition to increased fees earned from strengthened our adviser resources in the key markets of Sydney funds under advice, revenue was bolstered by revenue from the and Melbourne, but have given us specialist expertise in serving acquired advice businesses, which contributed to a $10 million the financial needs of private business owners and medical and increase in fee revenue for accounting and tax services. legal professionals.

Private Wealth’s profit before tax for the year increased by 12 per We intend to acquire other advice businesses that meet our cent to $32.6 million. This reflected the improvement in investment acquisition criteria, professional standards and values, particularly markets, offset by investment in the business as well as the if they offer specialist expertise we can leverage for our broader acquisition and integration costs of the acquired businesses. client base and service offering.

Over the past year, we continued to invest in improving the We are well positioned to transition to the proposed new service we provide to clients across all areas of the business. regulations for adviser responsibilities and remuneration, as most of our revenue is already derived from professional fees We hired new client facing staff, including advisers, and added rather than commissions. Our fiduciary duty to our clients has substantial capacity and specialist expertise in accounting and always been paramount as a trustee and is demonstrated by taxation services, and strategic consulting. We also further the way we deliver impartial advice. We also ensure our advisers strengthened our investment research team with a number of have professional qualifications well above the minimum highly experienced professionals and enhanced our equities standards required. selection and model portfolio construction processes. As the financial advice sector enters a major period of change, Our new client relationship management system, introduced in we believe many good advisers and their clients are attracted to the prior year, was further integrated into our business operations Perpetual because of the quality of our brand and our reputation and enhanced during the past year. It puts our clients at the for integrity in managing and protecting our clients’ interests. centre of all our processes and helps us provide better service to our clients across the range of services we can provide. It also improves reporting, compliance and risk management.

Perpetual Private Wealth – funds under advice as at 30 June

2009 Net flows Acquired1 Market2 2010 $b $b $b $b $b Financial advisory Superannuation 2.4 - 0.7 0.2 3.3 Non-superannuation 1.8 - 0.2 0.2 2.2 4.2 - 0.9 0.4 5.5 Fiduciary services Philanthropic 1.0 - - 0.1 1.1 Trusts and estates 1.6 - - 0.1 1.7 2.6 - - 0.2 2.8 Total funds under advice 6.8 - 0.9 0.6 8.3

1 Includes FUA acquired through the purchase of Grosvenor Financial Services in September 2009 and Fordham Business Advisors in January 2010. 2 Includes reinvestments, distributions, income and asset growth.

Perpetual Limited and its controlled entities | 11 Corporate Trust Our Corporate Trust business is the Results for the year ended 30 June leading provider of specialist trustee 2009 2010 change change and related business services to other $m $m $m % financial institutions. This includes Revenues 80.3 87.5 7.2 9% acting as trustee for a broad range Expenses (44.2) (55.2) (11.0) (25%) of investment funds, securitisation of Profit before tax 36.1 32.3 (3.8) (11%) mortgage portfolios, and mortgage processing and administration. As a result, Corporate Trust’s securitised funds under administration decreased by 13 per cent for the year to While residential mortgage backed securities (RMBS) in Australia $210.5 billion. avoided the problems associated with securitised sub-prime loans in the US, Australia’s securitisation market was nevertheless greatly Revenue increased 9 per cent to $87.5 million, largely driven by impacted by the negative repercussions that affected all credit increased demand for our mortgage services. Perpetual Lenders and securitisation markets worldwide. During the global financial Mortgage Services (PLMS) more than doubled the amount of crisis, the Australian Government provided assistance to support mortgage transactions processed to almost 200,000, increasing securitisation issuance in order to maintain an efficient market. its revenue by 46 per cent over the prior year.

Over the past year, more stable credit markets generally and Corporate Trust recorded a profit before tax of $32.3 million for reduced credit spreads on RMBS have revived interest in this the year ended 30 June 2010, an 11 per cent decrease on the market, although at a much reduced level compared to the prior year, due to lower securitisation revenues and a 25 per cent period prior to the global financial crisis. increase in expenses over the prior year to $55.2 million. The increased expenses primarily related to a substantial investment In a positive sign for the future, new securitisation issues increased in the scale of PLMS in order to service the dramatic increase in over the prior year, including the first new issues since the global demand for its services. financial crisis undertaken without Australian Government support. Our extensive knowledge of financial markets, together with our However, while Corporate Trust increased its market share during trustee experience, means we continue to be entrusted by many the course of the year, new issuance did not make up for the run- of Australia’s major institutions to administer key aspects of their off of the existing portfolio as low interest rates allowed people to business and to protect the interests of investors. pay off existing mortgages more quickly. However, this trend has slowed as interest rates have risen.

Securitisation funds under administration as at 30 June Mortgage transactions for the year ended 30 June $241b Residential mortgage backed $211b securities – bank 199, 257 Residential mortgage backed securities – repos

Residential mortgage backed securities – non-bank 95, 687

Commercial mortgage and asset backed securities 2009 2010 2009 2010

12 Our values We are trustworthy We keep raising the bar We consistently deliver We succeed together board and management

Perpetual Board

Robert M Savage AM, Chairman and Independent Director Mr Brasher brings to the Board his local and global experience as FASCPAS, FAICD, FAIM (Age 68) a senior executive and director, particularly in the areas of strategy, Appointed as a Director in 2001 and as Chairman in October audit and risk management, and public company governance. 2005. Mr Savage will retire as Chairman and Director at the conclusion of the Annual General Meeting on 26 October 2010. Meredith J Brooks, Independent Director He is a member of Perpetual’s Nominations Committee and the BA, FIAA (Age 48) People and Remuneration Committee. Appointed as a Director in November 2004. She is a member of Perpetual’s Audit Risk and Compliance Committee and Mr Savage brings to the Perpetual Board his experience Investment Committee. as a senior executive in Australia and the Asian region, including experience in people management and organisation Ms Brooks brings to the Board over 20 years experience as a senior effectiveness and several years as a non-executive director and funds management executive, both in Australia and internationally. chairman across a range of Australian companies. Philip Bullock, Independent Director Paul V Brasher, Independent Director BA, MBA, Dip Ed, GAICD (Age 57) BEc (Hons), FCA (Age 60) Appointed as a Director in June 2010. He is a member of Perpetual’s Appointed as a Director in November 2009. He is a member of Investment Committee and People and Remuneration Committee. Perpetual’s Audit Risk and Compliance Committee and People Mr Bullock brings to the Board his broad management and Remuneration Committee. experience in Australia and Asia in technology, sales and

14 client management, product and brand management, industry Philip J Twyman, Independent Director solutions and equity joint ventures. BSc, MBA, FAICD (Age 66) Appointed as a Director in November 2004. He is Chairman of E Paul McClintock AO, Independent Director Perpetual’s Audit Risk and Compliance Committee and a member BA, LLB (Age 61) of the Investment Committee and Nominations Committee. Appointed as a Director in April 2004. He is Chairman of Perpetual’s Investment Committee and a member of the Nominations As an experienced international executive and director, Committee and People and Remuneration Committee. Mr Twyman brings to the Board his background in financial services, investment and wealth management, together with Mr McClintock brings to the Board over 30 years experience practical experience in audit and risk management issues. as a legal adviser, investment banker and senior policy adviser to Government and corporations. David M Deverall, Managing Director BE (Hons), MBA (Stanford) (Age 44) Elizabeth M Proust AO, Independent Director Appointed Managing Director in September 2003. Mr Deverall BA (Hons), LLB, FAICD (Age 59) gave notice of his resignation on 23 June 2010 and will stay Appointed as a Director in January 2006. She is Chairman of until the new CEO has been appointed or until 31 March 2011, Perpetual’s People and Remuneration Committee and a member whichever occurs first. of Perpetual’s Audit Risk and Compliance Committee and Nominations Committee. Mr Deverall brings to Perpetual a combination of strategic ability, commercial drive and skills in product innovation and Ms Proust brings to the Board her strengths in change management, management experience across a broad range of investment human resources, public affairs and strategy development, and products and services. He also possesses an extensive her strong knowledge of board processes and governance gained understanding of the wealth management and wider financial through her many senior executive and board roles. services industries.

Peter B Scott, Independent Director BE (Hons), MEngSc (Age 56) Alternate Directors Appointed as a Director in July 2005. Mr Scott was appointed as Roger Burrows – Chief Financial Officer Chairman-elect on 23 July 2010, to succeed Robert Savage AM, Ivan Holyman – Chief Risk Officer who will be retiring at the conclusion of the Annual General Meeting on 26 October 2010. He is Chairman of the Nominations Committee For more detailed information on the Board of Perpetual Limited, and a member of Perpetual’s Investment Committee and People please refer to page 20. and Remuneration Committee. Left to right: Philip Bullock, Paul McClintock AO, Mr Scott has more than 20 years experience as a senior Meredith Brooks, David Deverall, Robert Savage AM, Peter Scott, executive in publicly listed companies and extensive knowledge Elizabeth Proust AO, Paul Brasher, Philip Twyman. of the wealth management industry.

Perpetual Limited and its controlled entities | 15 Perpetual management

Richard Brandweiner, BEc, CFA and Change at Commonwealth Bank, and General Manager Group Executive, Income and Multi Sector Human Resources and Strategy at NRMA Member Services. Richard is responsible for Perpetual’s funds management business covering cash, fixed income and multi-strategy Since 2007 Cathy has been Chairman of Odyssey House, which portfolios. He chairs Perpetual’s Investment Review Committee, conducts rehabilitation programs for people with drug, alcohol Credit Committee and Multi-Manager Investment Committee. or gambling problems.

Richard joined Perpetual in 2001 and has previously held the Chris Green, BCom, MBA, LLB, MAICD roles of General Manager, Investments across all asset classes Group Executive, Corporate Trust and Portfolio Manager, Diversified Funds. Prior to joining Chris heads up Perpetual’s Corporate Trust securitisation and Perpetual, Richard worked in investment manager research mortgage services businesses. He joined Perpetual in July 2006 at ASSIRT and Advance Asset Management. and was appointed Group Executive in November 2008.

He is currently Vice President of the Chartered Financial Analysts Prior to joining Perpetual, Chris was at JP Morgan Chase Bank Society of Sydney and a member of the Financial Services for 10 years, most recently as Australasia Business Head – Council Investment Committee. Institutional Trust Services based in Sydney and previously as Vice President – Head of Account Management and Vice Roger Burrows, BCom, CPA, MAICD President – Head of Analytics based in London, covering the Chief Financial Officer European, Middle Eastern and African markets. Chris began Roger is responsible for Perpetual’s overall finance function, his career as a solicitor for Corrs Chambers Westgarth. including strategy, business planning, treasury, capital management and investor relations. He is also a Director of Ivan Holyman, BEc, LLB the Group’s regulated/licensed entities, including Chairman of Chief Risk Officer Perpetual Superannuation Limited. He is Alternate Director for Ivan is responsible for Perpetual’s Risk Management framework Robert Savage, Perpetual’s Chairman, and is a member of the and reporting. He is a Director of a number of the Group’s Perpetual Foundation Committee of Management. regulated/licensed entities, and Alternate Director for David Deverall, Perpetual’s Managing Director. He is a member of the Perpetual Roger joined Perpetual in April 2008 as Chief Financial Officer. Foundation Committee of Management, the Investment Review He has more than 25 years finance experience in a diverse range Committee and the Compliance Committees of Perpetual Investment of industries, including property, financial services, information Management Limited and Perpetual Trust Services Ltd. technology services, professional services and manufacturing. Ivan joined Perpetual in June 2004 as Chief Risk Officer. Prior Prior to joining Perpetual, Roger was Group Chief Financial to joining Perpetual he was involved in a number of private Officer at Lend Lease. During 20 years with Lend Lease he equity ventures. He previously spent 19 years with UBS AG held a number of senior finance roles in operating companies in (and predecessor organisations), during which time he held Australia and overseas, including heading group investor relations the positions of Chief Operating Officer, Asia Pacific, as well as and corporate affairs. Roger commenced his career with BHP Director Corporate Finance, Head of Risk and Chief Operating Steel International and KPMG Chartered Accountants. Officer for Australia/New Zealand. Prior to UBS Ivan worked with merchant bank Samuel Montagu & Co. in London, and at Blake He is Chairman of the UTS Bachelor of Accounting Steering Dawson Waldron, Solicitors in Melbourne. Committee, of which he has been a member for over 10 years. He is also a member of the Group of 100 National Executive. Geoff Lloyd – Barrister at Law, LLM Group Executive, Private Wealth Cathy Doyle Geoff is responsible for Perpetual’s Private Wealth business, BSocSc, GradDipPsych, GradDipVET, MBA, GAICD which provides financial advisory services and solutions. Geoff Group Executive, Equities joined Perpetual in August 2010 as Group Executive, Private Cathy is responsible for Perpetual’s funds management business Wealth. He is a member of the Perpetual Foundation Committee covering Australian and Global Equities. She is a Director of of Management. Perpetual Investment Management Limited and a member of Perpetual’s Investment Review Committee and the Perpetual Prior to joining Perpetual Geoff was General Manager, Advice Foundation Committee of Management. Prior to assuming her and Private Banking at BT Financial Group, following the merger current role in April 2010, Cathy held the positions of Group with St George’s wealth management business. Prior to this, Executive Perpetual Investments Business Services, Chief he was Group Executive of St George’s wealth management Operating Officer Australian Equities and Group Executive business, for which he held a number of roles, including CEO People and Culture. of Asgard Wealth Solutions and the financial planning, private banking and platform businesses of St George. Geoff previously Prior to joining Perpetual in 2006, Cathy held senior roles in human held many senior roles at BT Financial Group, including Chief resources, change management, strategy and sales in several Legal Counsel and Head of the Customer and Business Services companies and industries. This included roles as Group General Division. Early in his career Geoff worked at the Australian Manager People for Qantas, Executive General Manager, People Securities Commission.

16 Michael Miller, CA, BCom Janine Stewart Group Executive, Superannuation and Operations Group Executive, People and Culture Michael is responsible for Perpetual Investments operations, Janine is responsible for overall People and Culture policy and information technology and fund accounting, and the business practices including talent and succession planning, remuneration, comprising our investment platform, structured products and diversity, recruitment and occupational health and safety. smartsuper service for self managed super funds. He was She was appointed Group Executive, People and Culture in appointed a Group Executive in January 2010. September 2008.

Michael is a director of Perpetual Investment Management Janine joined Perpetual in 2007, initially responsible for Limited and Perpetual Superannuation Limited, and is a member remuneration, benefits and employee relations. She is chairman of the Superannuation Investment Committee. He joined of Perpetual’s Workplace Giving Committee. Perpetual in 2001 and previously held the positions of Chief Financial Officer for Perpetual Investments asset management Janine has over 20 years experience in customer service strategy businesses and Deputy Chief Financial Officer of Perpetual and design, employee relations, people and leadership, and Limited, as well as Head of External Reporting, Group Strategy cultural change, primarily in the aviation industry. Manager and Head of Internal Reporting. Centre: David Deverall, CEO and Managing Director. Group Prior to joining Perpetual, Michael worked with Deloitte in Executives, clockwise from top left: Richard Brandweiner, Brisbane, London and Sydney. Chris Green, Cathy Doyle, Michael Miller, Roger Burrows, Janine Stewart, Ivan Holyman, Geoff Lloyd.

Perpetual Limited and its controlled entities | 17 directors’ report for the year ended 30 June 2010

Contents of the Directors’ Report Page no. Directors ...... 20 Alternate directors...... 22 Company secretaries...... 22 Directors’ meetings...... 22 Principal activities...... 23 Review of operations...... 23 Dividends...... 23 State of affairs...... 24 Events subsequent to reporting date...... 24 Likely developments...... 24 Environmental regulation...... 24 Indemnification of directors and officers...... 24 Insurance...... 24 Corporate Responsibility Statement ...... 25 Remuneration Report...... 34 Glossary ...... 34 Remuneration outcomes for 2010...... 35 Changes to the executive remuneration framework to apply from 1 July 2010...... 35 The role of the People and Remuneration Committee...... 37 Overview of remuneration for 2010...... 38 – Managing Director and Group Executives...... 38 – Non-executive Directors...... 39 – Asset manager remuneration arrangements...... 40 Short-term incentives...... 40 – How STI is funded...... 40 – Allocation of the PPP...... 40 – Delivery of STI...... 40 Long-term incentives...... 40 – Executive share program and executive options program...... 40 – Employee share plans...... 42 Summary of company performance...... 44 – Profit participation pool payments for 2010...... 44 – Unvested LTI issued to key management personnel (KMP)...... 44 Key management personnel...... 45 Appendices...... 46 Chief Executive Officer’s and Chief Financial Officer’s Declaration...... 60 Non-audit services...... 60 Rounding off...... 60 Lead auditor’s independence declaration...... 60

Perpetual Limited and its controlled entities | 19 The directors present their report together with the consolidated financial report of Perpetual Limited, (‘Perpetual’ or the ‘Company’) and its controlled entities (the ‘consolidated entity’), for the year ended 30 June 2010 and the auditor’s report thereon. Directors The directors of the Company at any time during or since the end Meredith J Brooks, Independent Director of the financial year are: BA, FIAA (Age 48) Appointed as a Director in November 2004. She was formerly Robert M Savage AM, Chairman and Independent Director Managing Director, US Institutional Investment Services for Frank FASCPAS, FAICD, FAIM (Age 68) Russell Company based in New York. Prior to that she held the Appointed as a Director in 2001 and as Chairman in October position of Managing Director of Frank Russell Australasia for 2005. Mr Savage will retire as Chairman at the conclusion five years and was previously Director, European Funds based of the Annual General Meeting on 26 October 2010. He was in London. Ms Brooks is Chair of Synergy & TaikOz Limited and formerly Chairman and Managing Director of IBM Australia and has been appointed to the industry advisory board of Macquarie New Zealand. He is Chairman of David Jones Limited and a University Faculty of Business and Economics. She is a member director of Fairfax Media Limited. He is a member of Perpetual’s of Perpetual’s Audit Risk and Compliance Committee and Nominations Committee and a member of the People and Investment Committee. Remuneration Committee. Ms Brooks brings to the Board over 20 years of senior funds Mr Savage brings to the Perpetual Board his experience as a management experience, both in Australia and internationally. senior executive in Australia and the Asian region, including experience in people management and organisation effectiveness Philip Bullock, Independent Director issues and several years as a non-executive director and BA Maths, MBA, Dip Ed (Age 57) chairman across a wide range of Australian companies. Appointed as a Director in June 2010. Mr Bullock was formerly Vice President, Systems and Technology Group, IBM Asia Listed company directorships held during the past three Pacific, Shanghai, China. Prior to that he was CEO and Managing financial years: Director of IBM Australia and New Zealand in a career spanning almost 30 years in the Asia Pacific region. Mr Bullock is a director ▪▪ David Jones Limited from October 1999 (current) of CSG Limited and Healthscope Limited. He also provides ▪▪ Smorgon Steel Group Limited from April 2000 to August 2007 advice to the Federal Government through his role as Chair of Skills Australia, as a member of the Education Investment Fund ▪▪ Mincom Limited (Chairman) from May 2002 to May 2007 and as a member of the recently concluded National Resources Sector Employment Taskforce. He is a member ▪▪ Fairfax Media Limited from June 2007 (current). of Perpetual’s Investment Committee and People and Remuneration Committee. Paul V Brasher, Independent Director BEc (Hons), FCA (Age 60) Mr Bullock brings to the Board his broad management Appointed as a Director in November 2009. Mr Brasher experience in Australia and Asia in technology, sales and was formerly Chairman of the Global Board of client management, product and brand management, industry PricewaterhouseCoopers International. He previously chaired solutions and equity joint ventures. the Board of PricewaterhouseCoopers’ Australian firm and held a number of other senior management and client services roles Listed company directorships held during the past three during his career with the firm. Mr Brasher was Client Service financial years: Partner and/or Lead Engagement Partner for some of the firm’s most significant clients. He also spent significant periods working ▪▪ Healthscope Limited from September 2007 (current) with PricewaterhouseCoopers in the US and UK. ▪▪ CSG Limited from August 2009 (current). Mr Brasher is currently Chairman of the Reach Foundation, E Paul McClintock AO, Independent Director a Board member of the Victorian Arts Centre Trust and Honorary BA, LLB (Age 61) Treasurer of Vision Australia’s i-access project. He is a member Appointed as a Director in April 2004. He is Chairman of of Perpetual’s Audit Risk and Compliance Committee and People Thales Australia, Medibank Private Limited and the COAG and Remuneration Committee. Reform Council, and has served as Secretary to Cabinet and Mr Brasher brings to the Board his local and global experience Head of the Cabinet Policy Unit in the Australian Government. as a senior executive and director, particularly in the areas of He is Chairman of Perpetual’s Investment Committee and strategy, audit and risk management, and public company a member of the Nominations Committee and People and governance. Remuneration Committee.

Mr McClintock brings to the Board over 30 years experience as a legal adviser, investment banker and senior policy adviser to Government and corporations.

20 | Perpetual Limited and its controlled entities Listed company directorships held during the past three Philip J Twyman, Independent Director financial years: BSc, MBA, FAICD (Age 66) Appointed as a Director in November 2004. He was formerly ▪▪ Symbion Health Limited (Chairman) from June 2005 Group Executive Director of London-based Aviva plc, one to February 2008 of the world’s largest insurance groups, with extensive fund management and wealth management businesses. Mr Twyman ▪▪ Intoll Management Limited (formerly Macquarie Infrastructure was also formerly Chairman of Morley Fund Management, a Investment Management Limited) from May 2003 (current). director of the Quilter Group, a UK private client stockbroker, Elizabeth M Proust AO, Independent Director and a senior executive of AMP in Australia. He has also been BA (Hons), LLB, FAICD (Age 59) Chief Financial Officer of General Accident plc, Aviva plc and Appointed as a Director in January 2006. She was formerly the AMP Group. Since returning to Australia, Mr Twyman has Managing Director of Esanda, part of the ANZ Group. Prior joined the board of IAG Limited, Medibank Private Limited and to joining ANZ, she was Secretary (CEO) of the Victorian the local boards of the Swiss Re Group. He is also Chairman Department of the Premier and Cabinet and Chief Executive of ANZ Lenders Mortgage Insurance Pty Ltd and Overseas Officer of the City of Melbourne. She is currently Chairman Council Australia. He is Chairman of Perpetual’s Audit Risk of Nestlé Australia Ltd, a director of Spotless Group Limited, and Compliance Committee and a member of the Investment Insurance Manufacturers of Australia Pty Ltd and Sinclair Knight Committee and Nominations Committee. Merz Pty Ltd. She is Chairman of Perpetual’s People and As an experienced international executive and director, Remuneration Committee and a member of Perpetual’s Audit Mr Twyman brings to the Perpetual Board his background in Risk and Compliance Committee and Nominations Committee. financial services, investment and wealth management, together In addition to her skills from her leadership roles in significant with considerable practical experience in relation to the audit and change management programs, Ms Proust brings to the risk management issues faced by public companies in Australia Board her strengths in human resources, public affairs and and overseas. strategy development, and her strong knowledge of board Listed company directorships held during the past three processes and governance gained through her many senior financial years: executive and board roles. ▪▪ IAG Limited from July 2008 (current). Listed company directorships held during the past three financial years: David M Deverall, Managing Director BE (Hons), MBA (Stanford) (Age 44) ▪▪ Spotless Group Limited from June 2008 (current). Appointed Managing Director in September 2003. Mr Deverall Peter B Scott, Independent Director gave notice of his resignation on 23 June 2010 and will stay BE (Hons), MEngSc (Age 56) until the new CEO has been appointed or until 31 March 2011, Appointed as a Director in July 2005. Mr Scott was appointed as whichever occurs first. Prior to his appointment as Managing Chairman-elect on 23 July 2010, to succeed Robert Savage AM, Director and CEO of Perpetual, Mr Deverall held senior who will be retiring at the conclusion of the Annual General management positions at Macquarie Bank Limited for seven Meeting on 26 October 2010. He was formerly the Chief years, including Group Head of the Funds Management Group Executive Officer of MLC, an Executive General Manager of and Head of Strategy and Planning. He was previously a strategy National Australia Bank, and held a number of senior positions consultant with Bain and Company and The LEK Partnership. with Lend Lease. He is Chairman of Sinclair Knight Merz Pty Mr Deverall is Chair of the Financial Services Council and a Limited and a director of Stockland Corporation Limited. member of the Executive Council of the Faculty of Business at Mr Scott is an advisory board member of Pilotlight Australia the University of Technology Sydney. and an advisory panel member of Laing O’Rourke Australia. Mr Deverall brings to Perpetual a combination of strategic ability He is Chairman of the Nominations Committee and a member and commercial drive and skills in product innovation, and of Perpetual’s Investment Committee and People and experience in management across a broad range of investment Remuneration Committee. products and services. He also possesses an extensive overall Mr Scott has more than 20 years of senior business experience in understanding of the wealth management and wider financial publicly listed companies and extensive knowledge of the wealth services industry. management industry.

Listed company directorships held during the past three financial years:

▪▪ Stockland Corporation Limited from August 2005 (current).

Perpetual Limited and its controlled entities | 21 Alternate directors Company secretaries Roger L Burrows, Alternate Director Joanne Hawkins, Company Secretary BCom, CPA, MAICD (Age 46) BCom, LLB, Grad Dip CSP, FCIS Alternate Director for Mr Savage from December 2008. He joined Appointed Company Secretary in June 2003. Prior to this, Perpetual as Chief Financial Officer in March 2008. Mr Burrows Ms Hawkins was Assistant Company Secretary of Macquarie has over 25 years of experience as a senior finance executive in a Bank and Ord Minnett and was Company Secretary, National diverse range of industries, including property, financial services, Bank of the Solomon Islands. Ms Hawkins has also worked as IT services, professional services and manufacturing. Prior to a solicitor and legal adviser in New Zealand. Ms Hawkins is also working at Perpetual, Mr Burrows was with Lend Lease for head of Perpetual’s legal team. 20 years, including three years as Group Chief Financial Officer. Glenda Charles, Deputy Company Secretary Ivan D Holyman, Alternate Director Grad Dip Corp Gov ASX Listed Entities, CSA (Cert) BEc, LLB (Age 54) Joined Perpetual in August 1994. She was appointed Assistant Alternate Director for Mr Deverall from May 2006. He joined Company Secretary of Perpetual in 1999 and Deputy Company Perpetual in June 2004 as Chief Risk Officer. Prior to joining Secretary in 2009. Ms Charles has over 15 years experience in Perpetual he held the position of Chief Operating Officer Asia company secretarial practice and administration and has worked Pacific for UBS Warburg and spent 19 years with UBS AG (and in the financial services industry for over 25 years. its predecessor organisations) in various positions. Prior to UBS AG he spent two years with Samuel Montagu & Co Limited (a UK merchant bank) and four years with Blake Dawson Waldron, Solicitors in Melbourne. Directors’ meetings The number of directors’ meetings that directors were eligible to attend (including meetings of board committees) and the number of meetings attended by each director during the financial year to 30 June 2010 were:

Director Board Audit Risk and Compliance Investment Nominations Committee People & Remuneration Committee Committee Committee Eligible to Eligible to Eligible to Eligible to Eligible to Attended Attended Attended Attended Attended attend attend attend attend attend R M Savage¹ 11 11 3 2 - - 2 2 6 6

P Brasher² 6 6 4 4 - - - - 3 3

M J Brooks 11 11 7 7 7 7 - - - -

P Bullock³ 1 1 ------

E P McClintock 11 11 - - 7 7 2 2 6 6

E M Proust 11 11 7 7 - - 2 2 6 6

P B Scott4 11 10 - - 7 7 - - 6 6

P J Twyman 11 11 7 7 7 7 2 2 - -

D M Deverall5 11 11 ------

1 Robert Savage retired from the Audit Risk and Compliance Committee on 17 November 2009 and retired as Chairman of the Nominations Committee on 23 July 2010, but remains as a member of that Committee until his retirement from the Board on 26 October 2010. 2 Paul Brasher was appointed to the Board on 1 November 2009, the Audit Risk and Compliance Committee on 17 November 2009 and the People and Remuneration Committee on 16 February 2010. 3 Philip Bullock was appointed to the Board on 1 June 2010 and to the Investment Committee and People and Remuneration Committee on 9 August 2010. 4 Peter Scott became Chairman-elect and Chairman of the Nominations Committee on 23 July 2010. 5 Mr Deverall gave notice of his resignation on 23 June 2010 and will stay until the new CEO has been appointed or until 31 March 2011, whichever occurs first.

22 | Perpetual Limited and its controlled entities Principal activities Review of operations The principal activities of the consolidated entity during the A review of operations is included in the Management’s financial year were funds management, portfolio management, Discussion and Analysis of Financial Condition and Results financial planning, trustee, responsible entity and compliance of Operations (MD&A) section of the Annual Report. services, executor services, investment administration and custody services and mortgage processing services. For the financial year to 30 June 2010, Perpetual reported a profit after tax of $90.5 million compared to the profit after tax for the financial year to 30 June 2009 of $37.8 million.

The reconciliation of net profit after tax to underlying profit after tax for the 2010 financial year is as follows:

Reconciliation of underlying profit after tax 30 June 2010 30 June 2009 $’000 $’000

Net profit after tax attributable to equity holders of Perpetual Limited 90,506 37,749

Add/(less): Profit/(loss) after tax attributable to minority interests1 216 (58)

Net profit after tax 90,722 37,691

Add: Loss on sale of investments (after tax) 2,388 6,081

Add: Restructuring costs (after tax) - 8,115

(Less)/add: Exact Market Cash Fund (gains)/losses (after tax) (20,317) 13,810

Underlying profit after tax 72,793 65,697

1 Profit/(loss) after tax attributable to minority interests arising from the sale of underlying investments within a seed fund. Dividends Dividends paid or provided by the Company to members since the end of the previous financial year were:

Cents Total amount Date of Franked#/unfranked per share $’000 payment

Declared and paid during the financial year 2010

Final 2009 ordinary 60 25,506 Franked 30 Sep 2009

Interim 2010 ordinary 105 45,398 Franked 1 Apr 2010

Total 70,904

Declared after end of year

After balance sheet date, the directors declared the following dividend:

Final 2010 ordinary 105 45,588 Franked 28 Sep 2010

Total 45,588

# All franked dividends declared or paid during the year were franked at a tax rate of 30 per cent and paid out of retained earnings.

The financial effect of dividends declared after year end are not reflected in the 30 June 2010 financial statements and will be recognised in subsequent financial reports.

Perpetual Limited and its controlled entities | 23 State of affairs Indemnification of directors and Significant changes in the state of affairs of the consolidated officers entity during the financial year were as follows: The Company and its controlled entities have resolved to ▪▪ The consolidated entity’s net profit before tax increased by indemnify the current directors and officers of the companies $29.0 million as a result of its guarantee of the benchmark against all liabilities to another person (other than the company return to Exact Market Cash Fund 1 investors. or a related body corporate) that may arise from their position as directors of the consolidated entity, except where the liabilities ▪▪ The consolidated entity acquired Grosvenor Financial arise out of conduct involving a lack of good faith. The resolution Services Pty Ltd and Fordham Business Advisors Pty Ltd for stipulates that the Company and its controlled entities will consideration totalling $54.9 million. meet the full amount of any such liabilities, including costs and expenses. Events subsequent to reporting date The Directors are not aware of any event or circumstance since Insurance the end of the financial year not otherwise dealt with in this report In accordance with the provisions of the Corporations Act 2001 that has affected, or may significantly affect, the operations of the the Company has a directors and officers’ liability policy, which consolidated entity, the results of those operations or the state covers all directors and officers of the consolidated entity. The of affairs of the consolidated entity in subsequent financial years. terms of the policy specifically prohibit disclosure of details of the Events subsequent to balance sheet date are set out in Note 37 amount of the insurance cover and the premium paid. to the consolidated Financial Statements. Likely developments Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity. Environmental regulation The consolidated entity acts as trustee or custodian for a number of property trusts, which have significant developments throughout Australia. These fiduciary operations are subject to environmental regulations under both Commonwealth and State legislation in relation to property developments. Approvals for commercial property developments are required by state planning authorities and environmental protection agencies. The licence requirements relate to air, noise, water and waste disposal. The responsible entity or manager of each of these property trusts is responsible for compliance and reporting under the government legislation.

The consolidated entity is not aware of any material non-compliance in relation to these licence requirements during the financial year.

The consolidated entity has determined that it is not required to register to report under the National Greenhouse and Energy Reporting Act 2007, which is Commonwealth environmental legislation that imposes reporting obligations on entities that reach reporting thresholds during the financial year.

24 | Perpetual Limited and its controlled entities Corporate Responsibility ASX Corporate Governance Council’s Corporate Governance Principles and Statement Recommendations Perpetual’s Board and management have a long-standing At Perpetual, good corporate governance includes a genuine commitment to good corporate governance. The success of commitment to the ASX Corporate Governance Council’s Perpetual’s core businesses – the management of other people’s Principles and Recommendations (ASX Principles). This includes money and the safekeeping of assets and securities – relies on recent amendments to the ASX Principles that will not come into a reputation of absolute trustworthiness. This statement sets out effect for Perpetual until the financial year ending 30 June 2012, our approach to corporate governance. Copies or summaries which we have approached with a view to implementing their of documents that are underlined like this in this Corporate substance as early as possible. Governance Statement are available on our website at www.perpetual.com.au The Board considers that it complies with all the ASX Principles, and has done so throughout the reporting period.

Principle/Recommendation Relevant Comply? section(s) Principle 1 – Lay solid foundations for management and oversight

1.1 Establish and disclose the functions reserved to the board and those delegated to management. 1 Yes

1.2 Disclose the process for evaluating the performance of senior executives. 1 Yes

1.3 Provide the information indicated in the guide to reporting on Principle 1. * Yes

Principle 2 – Structure the board to add value

2.1 A majority of the board should be independent directors. 3 Yes

2.2 The chair should be an independent director. 3 Yes

2.3 The roles of chair and managing director should not be exercised by the same individual. 2 Yes

2.4 The board should establish a nomination committee. 9 Yes

2.5 Disclose the process for evaluating the performance of the board, its committees and individual directors. 10 Yes

2.6 Provide the information indicated in the guide to reporting on Principle 2. * Yes

Principle 3 – Promote ethical and responsible decision-making

3.1 Establish and disclose a code of conduct outlining: 13 Yes ▪ the practices necessary to maintain confidence in the company’s integrity ▪▪ the practices necessary to take into account legal obligations and the reasonable expectations of stakeholders ▪▪ the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 3.2 Establish and disclose the policy concerning trading in company securities by directors, senior management 14 Yes and employees. 3.3 Provide the information indicated in the guide to reporting on Principle 3. * Yes

Principle 4 – Safeguard integrity in financial reporting

4.1 Establish an audit committee. 9 Yes

4.2 Structure the audit committee so that it: 9 Yes ▪▪ consists only of non-executive directors; ▪▪ consists of a majority of independent directors; ▪▪ is chaired by an independent chair, who is not the chair of the board; and ▪▪ has at least three members. 4.3 The audit committee should have a formal charter. 9 Yes

4.4 Provide the information indicated in the guide to reporting on Principle 4. * Yes

Principle 5 – Make timely and balanced disclosure

5.1 Establish and disclose written policies designed to ensure compliance with ASX Listing Rule disclosure 19 Yes requirements and to ensure accountability at a senior management level for that compliance. 5.2 Provide the information indicated in the guide to reporting on Principle 5. * Yes

Principle 6 – Respect the rights of shareholders

6.1 Design and disclose a communications strategy to promote effective communication with shareholders and 20 Yes encourage effective participation at general meetings. 6.2 Provide the information indicated in the guide to reporting on Principle 6. * Yes

Perpetual Limited and its controlled entities | 25 Principle/Recommendation Relevant Comply? section(s) Principle 7 – Recognise and manage risk

7.1 Establish and disclose policies for the oversight and management of material business risks. 15 Yes

7.2 Require management to design and implement the risk management and internal control system to manage the 15, 16 Yes company’s material business risks and report to the board on whether those risks are being managed effectively. The board should disclose whether management has reported to it on the management of those risks.

7.3 Disclose whether the board has received assurance from the managing director and the chief financial officer that 16 Yes the declaration provided under s295A of the Act is founded on a sound system of risk management and internal control that is operating effectively in all material respects in relation to financial reporting risks. 7.4 Provide the information indicated in the guide to reporting on Principle 7. * Yes

Principle 8 – Remunerate fairly and responsibly

8.1 The board should establish a remuneration committee. 9 Yes

8.2 Distinguish the structure of non-executive directors’ remuneration from that of executive directors and senior 211 Yes management. 8.3 Provide the information indicated in the guide to reporting on Principle 8. * Yes

* The whole of this Corporate Responsibility Statement covers off on the requirements to include information indicated in the ‘guide to reporting’ sections of the ASX Principles. 1 Full details of the remuneration policies and structures of Perpetual Limited and its controlled entities (Perpetual Group) are set out in the Remuneration Report section of the Directors’ Report on pages 34 to 59 of this Report.

1. Role of the Board The roles and responsibilities of Perpetual’s Board and management are established in accordance with ASX Principle 1. The Board has its own Board Charter, which sets out the functions and responsibilities reserved to the Board and Each year, the Board’s People and Remuneration Committee delegations made to management. The Board delegates day oversees the performance review process for the Managing to day responsibility for the management and operation of the Director and Group Executives. The Group Executives report company to the Managing Director but remains responsible for directly to the Managing Director. overseeing management’s performance. The Managing Director’s performance objectives are set by the The Board’s specific responsibilities include: Board at the beginning of each financial year.

▪▪ reviewing and approving Perpetual’s strategy At the end of the financial year, the Chairman of the Board reviews the Managing Director’s performance against his/her ▪▪ selecting the Managing Director and approving the goals with input from all Board members. appointment and removal of Group Executives The Managing Director sets performance objectives for ▪▪ setting the remuneration of the Managing Director each Group Executive at the beginning of each financial year. ▪▪ setting the non-executive director remuneration within The Board’s People and Remuneration Committee reviews shareholder approved limits the performance objectives set for the Group Executives. The Managing Director carries out the performance review ▪▪ setting Perpetual’s values and standards of each Group Executive against their objectives with input from appropriate stakeholders, including Board members. ▪▪ monitoring business performance and the Perpetual Group’s In 2010, performance reviews were conducted in accordance financial position with this process. ▪▪ overseeing the integrity of the Perpetual Group’s financial Group Executives who are new to Perpetual participate in accounts and reporting Perpetual’s orientation program and an additional induction ▪▪ monitoring the Perpetual Group’s investment activities and process tailored to their own responsibilities. Perpetual has an investment performance orientation program for all new employees covering Perpetual’s history, business strategy, values, risk and compliance obligations ▪▪ monitoring that significant business risks are identified and and performance management. managed effectively 2. Board structure ▪▪ ensuring that the performance of the Board, Managing Director The Board currently comprises nine directors: eight non- and senior management are regularly assessed. executive directors and the Managing Director. The roles of The Board Charter is reviewed annually to ensure the balance Chairman and Managing Director are separate. of responsibilities remains appropriate to Perpetual. The Chairman is responsible for leadership of the Board and ensuring the Board performs its role and functions.

26 | Perpetual Limited and its controlled entities He is also responsible for facilitating the effective contribution required to absent themselves from Board deliberations of directors by ensuring that each director fully participates in the by reason of conflicts of interest. Board’s activities. In the case of Paul McClintock, the Board considered that in his Details of the background, experience, professional skills and position as a director of Perpetual, he is sufficiently removed from period in office of each director are set out on pages 20 to 22 Perpetual’s operations so as to make the likelihood of any actual of the Directors’ Report. or perceived conflict of interest between his Perpetual and his outside role minimal. The structure of the Board accords with ASX Principle 2. During the year, Meredith Brooks provided advisory and 3. Director independence consulting services to Perpetual’s Global Equities business for The Board considers all non-executive directors to be a fixed period of six months. Ms Brooks took on the short-term independent directors, including the Chairman. role in order to provide strategic support to the Global Equities business during the critical period leading up to and following the In assessing the independence of each director, the Board departure of Emilio Gonzalez. Ms Brooks did not have a ‘hands considers, on a director-by-director basis, whether he or she has on’ management role and was at no time an ‘employee’ any relationships that would materially affect the director’s ability of Perpetual. to exercise unfettered and independent judgment in the interests of Perpetual’s shareholders. Consistent with the emphasis on The Board considered that the provision of the services did ‘substance over form’ advocated by the ASX Principles, Perpetual not affect Ms Brooks’ independent status. In arriving at this takes a qualitative approach to materiality rather than setting conclusion the Board had regard to the ‘one off’ transitional strict quantitative thresholds, and considers each director’s nature of the consultancy. In particular, the Board took account individual circumstances on its merits. of the fact that the role was established with a finite timeframe and for a specific non-recurring purpose. The independence of each director is formally reviewed each May and at any time when a change occurs that may affect a Paul Brasher receives superannuation benefits from his former director’s independence. Non-executive directors also formally employer, PricewaterhouseCoopers (PwC). From time to time, advise the Chairman of any relevant information, and update the PwC provides consulting services to Perpetual which are not Chairman if their circumstances change at any time. considered material in nature or quantity.

In determining the position of individual directors, the Board From time to time, funds managed by the Perpetual Group may has considered the relevant elements of the definition of take holdings, including substantial holdings in securities of listed independence adopted by the Board. These elements include entities. Perpetual directors may also serve as non-executive whether the director: directors on the boards of these entities. This factor alone is not considered to impact director independence as decisions as to ▪▪ has a substantial shareholding in Perpetual or is an officer stock selection are not made by the Board of Perpetual but by of a company that has a substantial shareholding in Perpetual Perpetual’s asset management team in accordance with client (or is otherwise associated with a substantial shareholder or fund investment mandates. of Perpetual) It is the Board’s view that no directors currently hold other ▪▪ has been employed by the Perpetual Group at any stage and positions that materially affect their ability to exercise independent in any capacity within the previous three years judgement in the interests of Perpetual shareholders.

▪▪ has been involved with the Perpetual Group in a material 4. Contracts with directors advising or consulting role at any time within the previous In the 2010 financial year, no director disclosed a material three years personal interest in any contract entered into by any member ▪▪ is (or is associated with) a material supplier or customer of the Perpetual Group other than the remuneration paid to the of the Perpetual Group directors as outlined in this Annual Report, Meredith Brooks’ consultancy contract and the deeds of indemnity described below. ▪▪ is in a material contractual relationship with the Perpetual Group (other than as a director). 5. Indemnity of directors and officers

Until March 2010, Paul McClintock was a director of Macquarie Perpetual has entered into deeds to indemnify directors and Infrastructure Investment Management Limited (now Intoll officers of the Perpetual Group, to the extent permissible by law, Management Limited), a company that operated in the financial from all liabilities incurred as directors or officers. Liabilities to the services sector and whose businesses may, in part, compete Perpetual Group, and liabilities that arise out of conduct that was with Perpetual. not in good faith are not covered in the indemnities. In addition, Perpetual has directors and officers’ insurance against claims In considering whether such circumstances materially affect Perpetual may be liable to pay under these indemnities. This the independence of individual directors, the Board considers policy insures directors and officers directly. the extent of competition relative to each organisation’s total business, and the frequency with which directors may be

Perpetual Limited and its controlled entities | 27 6. Board access to information and 8. Meetings of the Board independent advice In the 2010 financial year, the Board met 11 times, including Directors receive regular updates on changes in the regulatory a strategic planning session held over two days. The Board environment affecting Perpetual and the financial services receives performance, operations and risk reports from the industry. Directors are also encouraged to attend relevant Managing Director, the Chief Financial Officer, the Chief Risk conferences and seminars. Officer and the heads of each business division. The Board also receives reports and updates on strategic issues. Non-executive directors regularly confer without management present and the Chairman presides over these sessions. All In addition, directors spend time reading and analysing board directors have unrestricted access to company records and papers and reports submitted by management and they engage information. Perpetual has a formal policy allowing the Board or in regular informal discussions with management. The views of an individual director to seek independent professional advice the Chairman and the non-executive directors are canvassed at the Perpetual Group’s expense, provided that the director has regularly by the Managing Director and the Group Executives on obtained the prior approval of the Chairman, or if the relevant a range of strategic and operational issues. director is the Chairman, the prior approval of a majority of The Chief Financial Officer and Company Secretary attend Perpetual’s non-executive directors. In the 2010 financial year, all board meetings. Other Group Executives and senior no director sought professional advice under this policy. management attend board and committee meetings to report on particular issues and to engage in discussion on these issues. 7. Nomination, appointment, re-election and Senior executive attendance at board and committee meetings is retirement of directors subject to the overriding requirement that no senior executive will Consistent with ASX Principle 2, the Board has a Nominations be directly involved in deciding their own remuneration. Committee with its own Terms of Reference. Attendance of directors at board and committee meetings is set The Nominations Committee is responsible for reviewing the size out in the Directors’ Report on page 22. and structure of the Board. The aim is to ensure that the Board comprises an appropriate balance of skills, diversity, experience 9. Board committees and independence in order to enhance Board performance and A key component of the Board’s governance structure are its maximise value for shareholders. The Nominations Committee four board committees. Each committee has written Terms of is responsible for administering Perpetual’s Policy on the Reference. Appointment of Directors, which sets out the selection process and selection criteria for identifying candidates to fill board Unless more frequent meetings are required, all committees vacancies. Consistent with recent amendments to the ASX except the Nominations Committee generally meet at least Principles regarding disclosure of board selection processes, quarterly. The Nominations Committee meets at least twice a the Policy is disclosed in full on our website. If a board vacancy year. The Managing Director attends all committee meetings arises, the Nominations Committee will conduct a search in except where matters relating to his own remuneration and accordance with the Policy and the Board will appoint the most performance are discussed. suitable candidate, having regard to the recommendation of the Nominations Committee. External consultants may be engaged The qualifications and skills of the members of each committee to assist with the identification of appropriate candidates. are set out on pages 20 to 22 of the Directors’ Report. A director appointed to fill a casual vacancy must stand for election at the next Annual General Meeting. The membership and key responsibilities of each of the board committees (as at the date of this report) are set out below. Upon appointment, new directors receive a detailed letter of appointment and participate in a comprehensive induction Audit Risk and Compliance Committee program designed to familiarise them with Perpetual’s Members: Philip Twyman (Chairman), Meredith Brooks, business, strategy, operations, Group Executives and senior Elizabeth Proust and Paul Brasher management team. Changes to the committee since last Report: Directors who have been in office without re-election for Robert Savage retired November 2009 three years since their last appointment must retire and seek Paul Brasher appointed November 2009 re-election at the company’s Annual General Meeting. In order to revitalise the Board, directors agree not to seek re-election after The Committee’s role is to oversee the Perpetual Group’s three terms of three years unless the Board requests them to do accounting policies and practices, the integrity of financial so. The nine year principle does not displace shareholders’ rights statements and reports, the scope, quality and independence to vote on the appointment and removal of directors, as set out in of Perpetual’s external audit arrangements, the monitoring of the ASX Listing Rules and the Corporations Act 2001. the internal audit function, the effectiveness of risk management policies and the adequacy of insurance programs, and to report on these matters to the Board. This Committee is also responsible for monitoring overall legal and regulatory compliance.

28 | Perpetual Limited and its controlled entities All members of the Committee are independent non-executive At least annually, the Committee reviews the size and structure of directors and are required to be financially literate. At least one the Board to ensure that the Board comprises appropriately member must have accounting or finance related expertise. qualified and experienced people. This Committee is also Members are also required to have an understanding of the responsible for the formal evaluation of the Board’s performance financial services industry in which Perpetual operates. as a whole. All members of the Committee are independent non-executive directors. Investment Committee Members: Paul McClintock (Chairman), Meredith Brooks, 10. Board performance Philip Bullock, Peter Scott and Philip Twyman The Board undertakes ongoing self-assessment and review of the performance of the Board, its committees and individual Changes to the committee since last Report: directors annually. In 2010, the Board undertook a review of Philip Bullock appointed August 2010 board and committee performance with the assistance of an The Committee’s role is to monitor management to ensure external consultant. The Chairman also reviewed with each that it has in place, and carries out, appropriate investment director their individual performance and, after obtaining strategies and processes for the investment activities conducted feedback from the other directors, a nominated director reviewed both for third parties and on the Group’s own behalf. This the Chairman’s performance. The board review process aims to Committee does not select stocks for individual Perpetual ensure that individual directors continue to contribute effectively funds as stock selection is carried out by Perpetual’s asset to the Board’s performance and that the Board as a whole and its management team. All members of the Committee are committees continue to function effectively. independent non-executive directors. 11. Company secretaries People and Remuneration Committee The Board has access to the services and advice of Joanne Members: Elizabeth Proust (Chairman), Robert Savage, Hawkins, the Company Secretary and Glenda Charles, Deputy Peter Scott, Paul McClintock, Paul Brasher and Philip Bullock Company Secretary. The Company Secretary is accountable to the Board on governance matters. Details of the experience and Changes to the committee since last Report: qualifications of Joanne Hawkins and Glenda Charles are set out Paul Brasher appointed February 2010 in the Directors’ Report on page 22. Philip Bullock appointed August 2010

The Committee’s role is to monitor the Perpetual Group’s people 12. Perpetual’s subsidiary boards and culture policies and practices, including the diversity of The boards of Perpetual’s subsidiaries are generally made Perpetual’s workforce, and to assist the Managing Director to up of executive directors. The exceptions are Perpetual implement fair, effective and market competitive remuneration Superannuation Limited and Garnet Superannuation Pty Limited, and incentive programs designed to retain high calibre which carry out Perpetual’s superannuation activities, and PI employees and which demonstrate a clear relationship between Investment Management Limited, which operates Perpetual’s performance and remuneration. The Committee is authorised global equities business. The boards of these companies include to directly engage external remuneration advisers and after non-executive directors. These non-executive directors are not obtaining their advice as and when appropriate, the Committee directors of any other Perpetual Group companies. Perpetual’s recommends remuneration for non-executive directors, the corporate governance policies are applied to its subsidiaries Managing Director, the Group Executives and other senior but adapted to reflect the size and nature of each subsidiary’s managers, to the Board. The Committee also reviews succession operations and recognise that the boards of most subsidiaries do and career plans for key executives. not comprise non-executive directors. The subsidiary boards are a key component of Perpetual’s Risk Management Framework. All members of the Committee are independent non-executive directors. New committee composition requirements to promote 13. Ethical conduct greater independence are proposed for introduction into the Perpetual has a Code of Conduct which draws from and expands ASX Listing Rules. Perpetual’s Committee already complies with on Perpetual’s values. The Code of Conduct applies to all these requirements even though they have not yet formally come directors, executives and employees and is designed to assist into effect. them in making ethical business decisions. It is based on the Nominations Committee following principles: Members: Peter Scott (Chairman), Robert Savage, ▪▪ acting with integrity Paul McClintock, Elizabeth Proust and Philip Twyman ▪▪ managing conflicts of interests appropriately Changes to the committee since last Report: Peter Scott appointed July 2010 ▪▪ upholding the spirit as well as the letter of the law

The Committee’s role is to recommend to the Board nominees ▪▪ commitment to our clients and consistently delivering for appointment/election (including re-election of existing board shareholder value members) and to review board succession plans.

Perpetual Limited and its controlled entities | 29 ▪▪ respecting privacy and confidentiality A vendor of an entity, acquired by Perpetual during the financial year, has been permitted to continue a margin loan ▪▪ maintaining a fair and safe work environment over Perpetual securities. The loan was entered into prior to commencing employment with Perpetual. The Perpetual ▪▪ protecting those who report wrongdoing. securities were part of the consideration for the acquisition and Additional policies deal with a range of ethical issues such as the the vendor became an employee following the acquisition. obligation to maintain client confidentiality and protect company Employees who may have access to sensitive information in information, the need to make full and timely disclosure of any relation to Perpetual’s investment activities (such as the asset price sensitive information and to provide a safe workplace management team) are required to obtain prior approval for for employees, which is free from discrimination. The Code personal trading in any securities. of Conduct and associated policies are in keeping with ASX Principle 3. Perpetual’s Share Dealing Policy covers the suggested contents in ASX Principle 3.2 for a policy of its type. Perpetual’s Chief Risk Officer is Perpetual’s Code of Conduct ombudsman and is available to all staff for a confidential discussion in relation to Code of Conduct matters. All new 15. Risk management Perpetual employees are required to familiarise themselves The Board is committed to effective risk management and all with the Code of Conduct as part of their induction training Group Executives are accountable for managing risk within requirements. their area of responsibility. They are also required to manage risk as part of their business objectives, with risk management Perpetual has a Whistleblowing Policy to protect employees integrated across business processes. who make good faith reports of wrongdoing, prejudice or disadvantage. As part of Perpetual’s Whistleblowing Policy, a The Chief Risk Officer leads a group of risk management third party has been engaged to provide an independent and professionals, including lawyers, who provide the framework, confidential hotline for Perpetual employees who prefer to raise tools, advice and assistance to enable management to effectively their concern with an external organisation. identify, assess and manage risk.

14. Share dealings by directors and employees Consistent with ASX Principle 7, Perpetual’s Risk Management Framework is designed to manage Perpetual’s material business Perpetual’s overriding policy is that there should be no dealings risks. One component of the framework includes Perpetual’s in the company’s shares by any director or employee who is in policies that are designed to address key areas of risk including possession of price sensitive information or where the dealing strategic, financial and compliance risk. Perpetual’s group is for short-term or speculative gain. Provided they do not policies are outlined in Perpetual’s Risk Management Framework. have price sensitive information, directors and employees are permitted to deal in the company’s shares only in one month Through monitoring, the Board and its committees are provided periods commencing: with assurance of the effectiveness of Perpetual’s management of its material business risks. In addition, the Board reviews ▪▪ 24 hours after announcement of the half year and full year Perpetual’s key risks semi-annually as part of the Key Risk financial results Assessment process, further detailed in Perpetual’s Risk Management Framework. ▪▪ 24 hours after release of the Chairman’s May Letter to Shareholders Perpetual also has an internal audit function. The Head of Internal Audit reports to the Audit Risk and Compliance Committee as ▪▪ at the conclusion of the Annual General Meeting. well as to the Chief Risk Officer and is independent from the The Share Dealing Policy requires prior approval for any share external auditor. Internal audit provides independent assurance dealings from the Chairman in the case of directors, from over the effectiveness of Perpetual’s risk management, internal a nominated director in the case of the Chairman and from control, and governance processes. The Internal Audit team do the Managing Director in the case of senior executives. Prior not make management decisions or engage in other activities approval is also required from the Managing Director or Company that could be perceived as compromising their independence. Secretary in the case of certain employees who are more likely to Each of the Chief Risk Officer, Chief Financial Officer and have access to potentially price sensitive information through their the Head of Internal Audit have the right to and do meet with position in the company. the Audit Risk and Compliance Committee in the absence of Perpetual’s Share Dealing Policy prohibits employees from other management. entering into ‘hedging arrangements’ in relation to Perpetual Together with the Managing Director and Chief Financial Officer, securities. Perpetual employees cannot trade in financial Perpetual’s Chief Risk Officer reports to the Board on the products issued over Perpetual securities by third parties or effectiveness of Perpetual’s management of its material business trade in any associated products that limit the economic risk risks in accordance with ASX Principle 7. The Board received this of holding Perpetual securities. Perpetual employees and report in 2010 together with the statements outlined in section 16 directors are prohibited from margin lending in relation to on the following page. Perpetual securities.

30 | Perpetual Limited and its controlled entities 16. Financial reporting these meetings in the absence of management. The Committee chairman meets with the audit partner at least once every The Board has adopted policies designed to ensure that quarter, also in the absence of management. The auditor has a Perpetual’s financial reports: standing invitation to meet with the Committee, its chairman or ▪▪ are true and fair with the Board’s Chairman in the absence of management. The auditor attends the board meetings at which the annual and half ▪▪ meet high standards of disclosure and audit integrity yearly accounts are adopted.

▪▪ when read with the Perpetual’s other reports to shareholders, The current external auditor is KPMG. The lead audit partner provide all material information necessary to understand for 2010 was Andrew Yates and the engagement partner Perpetual’s financial performance and position. was Brendan Twining. This is the first year that Andrew Yates supervised Perpetual’s audit following the retirement To underpin the integrity of Perpetual’s financial reporting and of Dr Andries Terblanché after five years, in accordance with risk management framework, it is Perpetual’s practice for the Perpetual’s policy outlined below. Brendan Twining has acted Managing Director and Chief Financial Officer to report to the as engagement partner for three years. Board in writing that, in their respective opinions:

▪▪ the financial records of the Company have been properly 18. Auditor independence maintained in accordance with section 286 of the Corporations The Board has policies in place relating to the quality Act 2001, and and independence of Perpetual’s external auditor. These policies include: ▪▪ the financial statements and notes comply with the accounting standards and give a true and fair view of the financial position ▪▪ the audit must be tendered at least every seven years and after and performance of the Company and consolidated entity. the fifth year, the Board must make a positive decision each year on whether to retain existing arrangements It is also Perpetual’s practice for the Managing Director, Chief Financial Officer and Chief Risk Officer to state to the Board in ▪▪ the audit partners must be rotated at least every five years, writing that, in their respective opinions: with a two year gap before a partner may be reappointed

▪▪ the statements made regarding the integrity of the financial ▪▪ former audit partners and audit firm employees involved in statements are founded on a sound system of risk our audit cannot become directors or employees of Perpetual management and internal compliance and control systems, Group companies for at least two years which implement the policies adopted by the board of directors ▪▪ the external audit firm is prohibited from providing non-audit ▪▪ the risk management and internal compliance and control services that may materially conflict with its ability to exercise systems, to the extent they relate to financial reporting, are objective and impartial judgment on issues that may arise operating effectively and efficiently, in all material respects, within Perpetual’s audit, such as: based on the risk management framework adopted by the Company – services related to mergers and acquisitions – tax planning and strategy ▪▪ the Company’s material business risks (including non-financial risks) are being managed effectively. – senior management recruitment

The statements referred to above are supported by written – significant valuations and appraisals statements from senior management, detailed financial analysis – design and implementation of financial information systems. and Perpetual’s Risk Management Framework. As previously noted, the Chief Financial Officer is present when the Board In 2010, the greater part of fees paid to KPMG for work other considers financial matters, as s/he attends all board meetings. than audit of Perpetual Group accounts was for audit services in relation to investment funds of which Perpetual companies are The statements made by the Managing Director, Chief Financial the responsible entity, manager or trustee. It is the Board’s view Officer and Chief Risk Officer are consistent with ASX Principle that these services are appropriately provided by KPMG and are 7.3. In 2010 the Board received the statements referred to above. not services of a kind that might impair their impartial judgement in relation to the Perpetual Group’s audit. 17. Audit process The Perpetual Group’s financial accounts are subject to an 19. Market disclosure annual audit by an independent, professional auditor, who also Perpetual has a Market Disclosure Policy to ensure compliance reviews the Group’s half yearly financial statements. The Audit with its continuous disclosure obligations under ASX Listing Rule Risk and Compliance Committee oversees this process on behalf 3.1 and the Corporations Act 2001. The Managing Director, Chief of the Board, in accordance with its Terms of Reference. Financial Officer, Chief Risk Officer and Company Secretary are members of the Continuous Disclosure Committee responsible The external auditor attends each meeting of the Committee, and for deciding information that is required to be disclosed to the it is the Committee’s policy to meet with the auditor for part of

Perpetual Limited and its controlled entities | 31 ASX. Perpetual ensures that all senior management give regular positively to the community. We focus on activities where we can sign-offs as to whether there are matters that require disclosure add value while minimising our environmental impact. to the ASX. The Board considers its disclosure obligations at each scheduled board meeting. Perpetual’s Market Disclosure Our activities include: Policy contains the matters recommended by ASX Principle 5. ▪▪ having high standards of corporate governance and Perpetual’s website includes copies of announcements lodged business probity with the ASX by Perpetual. Consistent with recent amendments ▪▪ investing responsibly and encouraging sustainable business to the ASX Principles, advance notification of scheduled analyst practices briefings are provided to shareholders and the briefings are webcast. These can be found on the company’s website along ▪▪ contributing time and money to charities with media releases, briefings and annual reports for the last five years. ▪▪ reducing the environmental impact of our operations

20. Shareholders ▪▪ encouraging practices that recognise the importance of our people. The Board is committed to ensuring that shareholders are fully informed of material matters that affect Perpetual’s position Some examples of how we are achieving these goals include: and prospects. It seeks to accomplish this through a strategy that includes: Governance Perpetual has received a number of awards for corporate ▪▪ the half year results released in February each year governance over the years. One of the more recent was the ▪▪ the Chairman’s May Letter to Shareholders each year award of equal first and five stars in the 2009 WHK Horwarth Corporate Governance Report, an independent assessment of ▪▪ the full year results released in August each year corporate governance structures and policies of Australian’s top 250 companies. ▪▪ the Annual Report released in September each year Investment ▪▪ the Chairman’s and Managing Director’s addresses to the Annual General Meeting Long-term investment approach Perpetual’s asset managers focus on quality investments for ▪▪ the posting of market briefings and other significant information the long-term. Their initial investment criteria include: on Perpetual’s website as soon as it is disclosed to the market. ▪▪ the strength of the company’s balance sheet Perpetual holds its Annual General Meeting in October and a copy of the notice of Annual General Meeting is posted on the ▪▪ whether the company can demonstrate a recurring Perpetual website. The Board encourages shareholders to attend earnings stream the Annual General Meeting or to appoint a proxy to vote on their behalf if they are unable to attend. The formal addresses at the ▪▪ the quality of the business and Annual General Meeting are webcast for those shareholders who ▪▪ the soundness of management running the company. are unable to be present. In accordance with the Corporations Act 2001, a representative of the external auditor, KPMG, attends Perpetual believes this approach encourages behaviour in the the Annual General Meeting for the purpose of answering long-term interests of shareholders. shareholder questions about the audit report and audit process. Signatory to the United Nations Principles for Responsible 21. Remuneration Investment Perpetual has formed a People and Remuneration Committee In October 2009, Perpetual became a signatory to the United consistent with ASX Principle 8.1. Its role is set out on page 37 Nations Principles for Responsible Investment (PRI), representing of this report. Details of board and executive remuneration a commitment to take environmental, social and governance are set out in the remuneration report which commences on factors into account in our investment decision-making and page 34. In accordance with the ASX Principles, the structure of ownership practices. PRI encourages institutional investors to non-executive director remuneration is clearly distinguished from adopt sustainable business practices, a stance which is aligned that of executive directors and senior management. to Perpetual’s long-term investment approach.

22. Stakeholders Social At Perpetual we take advantage of opportunities to build our Philanthropy and the Perpetual Foundation social, environmental and financial performance in ways that Perpetual has been managing charitable money for over 120 enhance our core values and business sustainability. We draw on years. In 1998, we established the Perpetual Foundation, which our people’s experience, knowledge and expertise in investing, brings the generosity of individuals and organisations together governance, financial advice and trusteeship to contribute with our resources and expertise in managing charitable funds.

32 | Perpetual Limited and its controlled entities The Philanthropic team supports the not-for-profit sector via Flexible working arrangements provide employees with further annual grant seeker workshops, quarterly newsletters to charities opportunities to achieve work/life balance and increase employee and facilitating a number of knowledge sharing opportunities. engagement. Perpetual is currently developing a tailored flexible The Perpetual Foundation has also sponsored sector research working program to support managers and employees in including research at the Australian Centre for Philanthropy and managing requests for flexibility. Non-Profit Studies. Diversity Staff giving Perpetual has implemented a number of initiatives to support an Perpetual supports its own employees who wish to give back to inclusive culture for its diverse employees, including the creation the community through its staff giving program. of a Diversity Strategy. The Diversity Strategy is focusing on the following key areas: Through the program, Perpetual employees are able to make regular donations to a range of community organisations from ▪▪ representation of women in senior management roles their pre-tax pay. Perpetual matches employees’ donations through the Perpetual Foundation. ▪▪ meeting the needs of the generations – Baby boomer, Generation X and Generation Y Political donations ▪▪ flexibility for employees In 2010, Perpetual made no political donations. ▪▪ ethnicity and cultural diversity. Environmental To encourage greater representation of women at the most senior Carbon Disclosure Project levels of the organisation, high performing and senior women are Perpetual has responded to the last three Carbon Disclosure offered career development, mentoring and quarterly networking Project (CDP) surveys and has been included in the Climate forums to facilitate learning and knowledge sharing opportunities. Disclosure Leadership Index (Australia and New Zealand) on all There are further initiatives in development including refining three occasions. recruitment processes for leadership positions to increase female representation at the most senior levels of the organisation. Our people Perpetual is committed to attracting, developing and engaging In May 2010 all Perpetual employees were invited to participate in employees in a culture that is underpinned by Perpetual’s values. an anonymous Diversity Survey to gauge the needs of employees from different demographic groups including gender, age, religion Perpetual’s inclusive culture is based on team work and and culture. The results of this survey will be used to establish collaboration and allows high performing employees to excel and future diversity initiatives. be rewarded for their success. There is a focus on developing leaders from within Perpetual and on employee engagement. Perpetual’s Board and People and Remuneration Committee Employee engagement is assessed annually and results are used are considering appropriate diversity targets for Perpetual’s to develop future people initiatives. workforce and this will be publicly reported in future years.

The wellbeing of employees is supported by financial, insurance, Shareholders who wish to know more about Perpetual’s health, fitness and work/life balance employee benefits. Some of corporate policies are invited to review our website the policies that support employee work/life balance include: www.perpetual.com.au or contact us by email at [email protected]. Comments and suggestions from ▪▪ Contribution Leave policy, which provides an additional week of shareholders are welcome. ‘Contribution Leave’ to allow employees to make a difference to their community, family or personal well-being

▪▪ Purchased Leave policy, which enables employees to apply for up to three weeks of additional leave to spend more time with family, for holidays or greater work/life balance

▪▪ Sabbatical Leave and Leave Without Pay policies, which allow employees to take an extended period of unpaid leave where they may choose to take time out to be with their family, travel overseas or undertake further study

▪▪ Working From Home policy, which allows employees to work from home for greater work/life balance.

Perpetual aims to meet the needs of employees at different stages of their lives and parental leave benefits are available for both men and women.

Perpetual Limited and its controlled entities | 33 Remuneration Report

Dear Shareholder

Welcome to Perpetual’s Remuneration Report for 2010. We hope you find the report informative and that it provides a clear understanding of the remuneration strategy at Perpetual.

While the recommendations from the Productivity Commission have yet to be legislated, we support the recommendations that seek to simplify the remuneration report and better engage shareholders. In this regard, while the detail of the pending legislation is still unknown, we have aimed to present a report that complies with the spirit of the Productivity Commission’s recommendations while continuing to meet high standards of disclosure.

Last year, we advised that we had conducted a major review of our executive remuneration policy and arrangements. From this we confirmed that Perpetual strikes an appropriate risk/reward balance that treats our employees, shareholders and clients fairly. During the year ending 30 June 2010, we have continued to refine our executive remuneration strategy based on feedback from our shareholders, and as the outcomes from various Australian Government initiatives have been announced and market practice has developed. We are committed to further refinement of our remuneration strategy as new legislation is finalised and market practice continues to evolve.

The People and Remuneration Committee has also conducted an assessment of our practices against the APRA Prudential Standards. Although compliance with these standards is not mandatory for Perpetual, we believe they represent governance best practice and have voluntarily agreed to adopt them.

On 23 June 2010, Perpetual announced that Managing Director, David Deverall, had given notice of his resignation. As a result, the changes to the remuneration structure for Group Executives from 1 July 2010 as described in this report will not apply to Mr Deverall, however they will apply to the new Managing Director when appointed. As set out in the ASX announcement, Mr Deverall has a contractual entitlement to receive a short-term incentive for the year ended 30 June 2010, and a pro-rata short-term incentive for the year ending 30 June 2011. No long-term incentives will vest as a result of Mr Deverall’s resignation, and all unvested long-term incentives will be forfeited on ceasing employment.

Thank you for taking the time to read this report. As always, we welcome your feedback.

Elizabeth Proust, AO Chairman, People and Remuneration Committee

Glossary for remuneration report EPS Earnings per share – for the purposes of measuring the growth in ROE Return on equity – ROE is a measure of how well a company has used EPS to determine the vesting of long-term incentive awards made to shareholders’ funds and reinvested earnings to generate additional executives, EPS is defined as basic Earnings Per Share after tax and earnings. ROE is equal to Perpetual’s net profit after tax divided by any adjustments determined by the PARC. weighted average shareholders’ equity, expressed as a percentage. KMP Key management personnel – these are the individuals who have STI Short-term incentive – an incentive paid for meeting annual targets the authority and responsibility for planning, directing and controlling aimed at delivering our longer term strategic plan. Under the STI Plan the company’s activities directly or indirectly. This includes directors, employees may be paid a discretionary incentive (less applicable taxes whether executive or otherwise, of the Perpetual consolidated group. and superannuation) based on their individual performance as well as the performance of their team, their division and Perpetual as a whole. LTI Long-term incentive – LTI is a key feature of Perpetual’s remuneration More details about the STI Plan is included on page 40. strategy and seeks to align executive remuneration with sustainable shareholder wealth creation. LTI is granted in the form of shares and, TSR Total shareholder return – TSR is defined as share price growth in the case of the Managing Director, options. More details about LTI plus dividends paid over the measurement period. Dividends are is included on page 40. assumed to be reinvested on the ex-dividend date. Where applicable, adjustments may be made for any capital reconstructions or rights or NPAT Net profit after tax – NPAT, for the purposes of calculating PPP, is bonus issues. defined as net profit after tax with the post-tax amount of the PPP added back, and adjusted for any other items determined by the UPAT Underlying profit after tax – UPAT, for the purposes of calculating PPP Board’s Audit Risk and Compliance Committee and People and prior to 2010, is defined as underlying profit after tax with the post- Remuneration Committee (for example, capital items that do not tax amount of the PPP added back, and adjusted for any other items reflect management performance or day-to-day business operations determined by the Board’s Audit Risk and Compliance Committee and activities). and People and Remuneration Committee. Following feedback from shareholders, this measure was replaced with NPAT for the purposes PPP Profit Participation Pool – a pool created to fund STI payments for the of calculating the PPP for 2010. majority of employees based on the company’s net profit after tax. No pool is created unless the company’s Return on Equity (ROE) performance measure is met. This is explained in more detail on page 40.

34 | Perpetual Limited and its controlled entities Remuneration outcomes Changes to the executive for 2010 remuneration framework to This section provides a summary of remuneration outcomes apply from 1 July 2010 at Perpetual for the year ended 30 June 2010. Following the major review of our executive remuneration policy and arrangements in 2009, we have continued to refine the Fixed remuneration remuneration strategy in light of emerging market practice and There was no increase in fixed remuneration for the Managing the new regulatory environment. The following key changes Director or Group Executives in 2009/10. Fixed remuneration will apply to Group Executives from 1 July 2010 and to the new increases for employees were only granted on promotion or for Managing Director on appointment: significant increases in roles and responsibilities. ▪▪ individuals must satisfy certain risk and behaviour measures as Short-term incentive payments assessed by the Board to be eligible to receive a STI payment Following feedback from shareholders, we have replaced ▪▪ the threshold from which STI payments must be deferred into underlying profit after tax (UPAT) with net profit after tax (NPAT) shares has been lowered for the purposes of determining the Profit Participation Pool (PPP) used to fund short-term incentive (STI) payments. This ▪▪ the LTI vesting schedule for the EPS performance hurdle has more closely aligns the funding of the PPP for employees with been amended so that vesting commences when Perpetual’s shareholder outcomes. EPS growth is 5% per annum

The STI pool available to employees increased by 113%, reflecting ▪▪ re-testing of LTI performance measures has been removed the increase in NPAT for the year of 142%. ▪▪ accelerated vesting of LTI on termination under certain Long-term incentive vesting outcomes circumstances has been removed Long-term incentive (LTI) grants made to the Managing Director ▪▪ a minimum shareholding guideline has been introduced. in 2006 that were due to vest in 2010 have been forfeited as the stretch total shareholder return (TSR) and earnings per share We believe that these changes will strengthen the alignment of (EPS) growth targets were not met. No LTI grants made to the performance-based remuneration to Perpetual’s risk management Managing Director in 2007 have vested as a result of the initial framework and be more meaningful for participants. test of the performance targets on 30 June 2010 and will lapse on his resignation, along with other unvested LTI.

LTI grants made to Group Executives in 2006 will be re-tested on 1 October 2010 and appear unlikely to vest. Grants made to Group Executives in 2007 are also unlikely to vest. Non-executive director fees There were no increases in directors’ fees during 2009/10. A modest increase in fees of 3% for the Chairman and members of the Board, and the chairmen and members of board committees, will apply from 1 July 2010. This will be the first increase in director fees since 1 July 2007. See page 57 for further details.

Perpetual Limited and its controlled entities | 35 The table below provides more detail on these changes:

Feature Arrangements for 2009/10 Arrangements from 1 July 2010 Rationale for change

A risk and behaviours ▪▪ A Group return on equity (ROE) performance ▪▪ The existing ROE performance measure will ▪▪ Strengthens the gateway on STI has measure must be met before any STI pool is continue to apply. relationship between been introduced created. ▪▪ Individuals must also satisfy certain risk and risk management and ▪▪ Each individual has performance goals that behaviour measures as assessed by the Board remuneration. include risk and behaviour measures. However to be eligible to receive an STI payment. these are not explicitly used as a gateway to determine eligibility for a STI payment.

STI deferral ▪▪ Threshold: the threshold from which STI ▪▪ Threshold: the threshold from which STI ▪▪ Strengthens the payments must be paid in shares rather than payments must be paid in shares rather than relationship between cash is two times target STI. cash will be lowered to one times target STI. risk management and ▪▪ Deferral period: shares are subject to a ▪▪ Deferral period: shares may vest two years remuneration. three-year trading restriction. from the date they are granted, and may be ▪▪ Forfeiture: shares are only forfeited if the subsequently traded subject to the Perpetual executive is summarily dismissed during the share dealing policy. deferral period. ▪▪ Forfeiture: leaver provisions apply such that if, during the deferral period, the executive resigns from Perpetual, or his or her employment is terminated without notice or due to poor performance, the shares shall be forfeited. Some or all shares held in deferral may be forfeited if the Board subsequently determines that the STI was awarded on unrealised profits that did not eventuate, inaccurate information (for example, that requires the financial statements to be restated), or from unacceptable risk-taking.

EPS performance ▪▪ Full vesting occurs when Perpetual’s EPS ▪▪ For LTI grants made after 1 July 2010, the ▪▪ Reduces the measure growth is at least 10% pa. No vesting occurs if EPS vesting schedule will be changed so that ‘cliff-edge’ effect Perpetual’s EPS growth is less than 10% pa. vesting commences when Perpetual’s EPS of the vesting growth is 5% pa. Vesting will be scaled so that schedule, and 2% vests for every 0.1% of EPS growth over ▪▪ makes LTI more 5.0% pa and increasing to 100% vesting when meaningful to Perpetual’s EPS growth is 10% pa. executives.

Re-testing of LTI ▪▪ The EPS and TSR performance measures ▪▪ No re-testing will apply to LTI grants made after ▪▪ This change has been performance measures are tested at the end of the three-year 1 July 2010. made in response performance period, and any unvested LTI to feedback from after this test is re-tested at the end of the shareholders. fourth year.

Treatment of LTI ▪▪ LTI awards for Group Executives have the ▪▪ For grants made after 1 July 2010, leaver ▪▪ Strengthens the on termination potential to accelerate vesting on termination provisions will be amended so that in cases alignment between the in certain cases such as retrenchment, death where LTI is retained on termination (for interests of executives or permanent disablement, or termination example, in the case of retrenchment or and shareholders with notice. termination with notice), vesting will remain in the long-term subject to the original performance measures performance of and performance period. Any LTI unvested Perpetual, extending after 24 months from termination will lapse. beyond the executive’s tenure.

Introduction of ▪▪ No guidelines currently apply. ▪▪ Executives are expected to establish and hold ▪▪ Strengthens the minimum shareholding a minimum shareholding to the value of: alignment between the guidelines – Managing Director: 1.5 times fixed interests of executives remuneration and shareholders in the long-term – Group Executives: 0.5 times fixed performance of remuneration. Perpetual. ▪▪ Under these guidelines, the value of each vested share or option held in tax deferral by the executive is treated as being equal to 50% of that share or option. ▪▪ A five-year transition period, commencing on 1 July 2010 for current executives, will give executives a reasonable amount of time to meet their shareholding guideline.

36 | Perpetual Limited and its controlled entities 1. The role of the People and Remuneration The members of the Committee for 2010 were: Committee ▪▪ Elizabeth Proust (Chairman) The People and Remuneration Committee (PARC) is committed to assisting the Board in fulfilling its responsibilities to ▪▪ Paul Brasher shareholders through a strong focus on good governance, and in particular, the principles of accountability and transparency. ▪▪ Paul McClintock

PARC operates under delegated authority from the Board ▪▪ Robert Savage and its activities are governed by the Terms of Reference. ▪▪ Peter Scott. The Committee’s Terms of Reference are available on our website www.perpetual.com.au and are shown graphically below. The Committee met six times during the year and attendance at these meetings is set out on page 22 of the Directors’ Report. As can be seen, the PARC’s Terms of Reference are broad, with remuneration as well as executive development, talent At the invitation of the Committee, David Deverall (Managing management and succession planning being key areas of focus. Director) and Janine Stewart (Group Executive People and This enables the PARC to spend time on ensuring there is high Culture) attended meetings except where matters associated quality succession planning and executive development at all with their own performance evaluation, development and levels of Perpetual. remuneration were considered.

The PARC considers advice and views from those invited to attend meetings and draws on services from a range of external sources, including remuneration consultants. Hewitt Associates were engaged by the PARC as our principal remuneration adviser during the year.

Oversee HR management policy and practices, including overall remuneration policy Oversee Equal Review succession Employment and career planning Opportunity and for the Managing cultural diversity policies Director, Group at all levels Executives and other critical roles

Establish and maintain a process for executive Oversee employee performance planning engagement at all levels and review to encourage superior performance PARC In conjunction with the Nominations Committee, Oversee compliance with propose nominations occupational health and for appointment of the safety regulations Managing Director

Review and Ensure remuneration recommend Board disclosure remuneration as well requirements are met as Managing Director Review and and Group Executive recommend Managing remuneration Director’s performance, remuneration and contractual arrangements to Board

Perpetual Limited and its controlled entities | 37 2. Overview of remuneration for year ended 30 June 2010 This report sets out remuneration arrangements for all key management personnel (KMP). We have assessed the KMP to be the non-executive directors of Perpetual Limited, the Managing Director and Group Executives, as detailed in section 6 of this report. The information in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001.

2.1 Managing Director and Group Executives

Item Summary

Remuneration policy The PARC has approved a remuneration policy for employees based on the following five key principles: ▪▪ Variable pay should be a feature of all employees’ remuneration. For the Managing Director and Group Executives variable pay forms a significant part of overall remuneration. Fixed remuneration should be competitive with comparable jobs in appropriate comparator organisations. ▪▪ Variable pay is linked to shareholder wealth creation and individuals are clear on performance criteria. ▪▪ Short-term incentives (STI) payments are based on yearly performance and uncapped to allow for recognition of performance. ▪▪ STI payments should be made out of the net profit of the company. ▪▪ Equity participation within the company should be used to encourage a sense of ownership, be appropriately tied to stretch targets and encourage retention of key individuals. At 30 June 2010 there was 8.50% of share capital in the employee share plans, 7.63% of this was held in unvested shares and 0.87% in unvested options. Unvested shares and unvested options are subject to performance hurdles.

Remuneration structure The structure of our remuneration for the Managing Director and Group Executives comprises three components: ▪▪ A fixed remuneration component (Fixed) ▪▪ An STI component ▪▪ A component related to longer-term performance and retention (LTI). We seek to ensure that remuneration is fair, reasonable and aligned to performance. The target remuneration mix is determined in consideration of performance-based incentives, increasing with the level of responsibility and criticality of the executive’s role.

Alignment with sound The structure of our remuneration ensures that risk management is a key performance metric in determining at-risk elements of risk management remuneration, through specific performance goals and targets. Sound risk management practices include strict governance and deferred elements of remuneration to ensure a long-term focus and alignment to shareholders.

Fixed remuneration Fixed remuneration is typically set around the corresponding median of the market for each employee. By participating in relevant remuneration surveys and closely monitoring the market, we develop remuneration policies by comparing our company to other Australian-based financial institutions. In some circumstances, such as for specialist technical positions, we may compare the position to a more targeted group of comparable companies. We calculate fixed remuneration on a ‘total cost to company’ basis, including the cost of employee benefits such as motor vehicles, superannuation and car parking, together with fringe benefits tax (FBT) applicable to those benefits. There are no guaranteed increases to fixed remuneration in employee contracts.

Short-term incentive (STI) Short-term incentives are incentives paid for meeting annual targets aimed at delivering our longer term strategic plan. Four principles define our approach to short-term incentives: ▪▪ The majority of permanent employees are eligible to receive a STI payment. ▪▪ Incentive payments are a significant part of executives’ remuneration. ▪▪ Incentive payments for most employees are funded out of net profit after tax, linking STI to shareholder wealth creation. Incentive payments for a small number of other employees are based on achievement of specific performance targets. ▪▪ Individual incentive payments are uncapped to allow for recognition of performance that significantly exceeds expectations. For the majority of employees, STI is paid through the Profit Participation Pool. It is awarded based on employee performance and is available to employees immediately as cash, except where the STI payment exceeds two times the employee’s target STI. In these cases the excess above two times will be automatically awarded as shares. These shares vest immediately upon being granted to the employee, however they may not be traded until a period of three years has lapsed, even if this is beyond the employee’s termination date.

Long-term incentive (LTI) A key feature of Perpetual’s remuneration strategy is ensuring a level of equity participation that aligns remuneration with sustainable shareholder wealth creation. The key principles that underpin LTIs are that: ▪▪ we provide LTI as equity in the company so that executives feel a sense of ownership ▪▪ LTI grants represent an important proportion of executive remuneration ▪▪ we encourage sustained performance from our executives by setting challenging targets. LTI is granted in the form of shares and, in the case of the Managing Director, options. These typically vest over three years if Perpetual’s TSR exceeds the median of the S&P/ASX 100 (excluding listed property trusts), and Perpetual’s EPS exceeds a set target. The performance hurdles operate independently and carry an equal weighting. If the targets are met at the three-year testing point, then the LTI vests; if the targets have not been met they are retested at the four-year mark and, to the extent the targets have not been met, the LTI lapses and is forfeited.

38 | Perpetual Limited and its controlled entities 2.1 Managing Director and Group Executives (continued)

Item Summary

Link to performance A key tenet of our remuneration philosophy is that remuneration is closely aligned to Perpetual’s overall performance. Throughout this report, the various measures of company performance for the year ended 30 June 2010 illustrate how these have impacted on remuneration outcomes. This is set out in more detail in section 5 of this remuneration report.

Employment agreements Core remuneration entitlements and terms and conditions of employment, including termination arrangements, are set out in each executive’s employment agreement and summarised in this report.

Remuneration received This report details the remuneration of the Managing Director and Group Executives for the year ended 30 June 2010. in 2010 See tables on pages 47 to 59.

Hedging and share Perpetual’s share dealing policy prohibits employees and directors from entering into hedging arrangements in relation to trading policy Perpetual securities. Perpetual employees and directors cannot trade in financial products issued over Perpetual securities by third parties or trade in any associated products that limit the economic risk of holding Perpetual securities. Share dealing can only take place during agreed trading windows throughout the year and is subject to certain approvals (as set out on page 43 of this report).

2.2 Non-executive directors

Item Summary

Remuneration policy The company’s remuneration policy for non-executive directors aims to ensure Perpetual can attract and retain suitably skilled, experienced and committed individuals to serve on the Board. Total remuneration available to non-executive directors is approved by shareholders and is currently $2,250,000, as approved at the 2006 Annual General Meeting. Total fees paid to non-executive directors in 2010 were $1,780,644. Non-executive directors do not receive performance-related remuneration and are not entitled to receive performance shares or options over Perpetual shares.

Fee framework Non-executive directors receive a base fee. With the exception of the Chairman, they also receive fees for participating on board committees, either as chairman or as a member of the committee. In addition to the base fee, Perpetual pays superannuation contributions of up to 9% of non-executive director fees, capped at the maximum superannuation contributions base prescribed under Superannuation Guarantee legislation. Employer superannuation contributions may be received in one of Perpetual’s employee superannuation funds or a complying superannuation fund of their choice. Non-executive directors may also salary sacrifice additional superannuation contributions out of their base fee if they so choose.

Alignment with shareholder In accordance with the company’s constitution, non-executive directors are required to acquire a minimum of 500 Perpetual interests shares on appointment and at least 1,000 shares when they have held office for three years or more. The Non-executive Director Share Purchase Plan allows non-executive directors to sacrifice up to 50% of their directors’ fees to acquire shares in Perpetual. Shares acquired via fee sacrifice are not subject to performance targets as they are acquired in lieu of cash payment by the company. Following changes to taxation rules, this plan has been closed since 1 July 2009. Shares are held in the plan until the earlier of a period of ten years or until the director retires from the Board. Non-executive directors do not receive share options. Directors’ holdings held directly or indirectly (for example, through a superannuation fund) are shown in the table on page 59.

Fees received in 2010 This report includes details of each non-executive director’s remuneration for the year ended 30 June 2010. See page 58.

Retirement policy Directors who have held office for three years since their last appointment must retire and seek re-election at the company’s Annual General Meeting (AGM). In order to revitalise the Board, non-executive directors agree not to seek re-election after three terms of three years. However, the Board may invite a non-executive director to continue in office beyond nine years if it is advantageous to the company for reasons such as Board leadership or continuity.

Perpetual Limited and its controlled entities | 39 2.3 Asset manager remuneration arrangements ▪▪ If there is a year-on-year fall in NPAT, mechanisms are included The remuneration arrangements for asset managers are within the plan to limit the pool size in future years until the structured to ensure that we remunerate them appropriately previous NPAT ‘high water mark’ is passed. within a highly competitive market place, as well as ensuring NPAT is defined as net profit after tax with the post-tax reward for adding value to client portfolios. amount of the profit pool added back, and adjusted for items It is an arrangement that consists of fixed and variable determined by the Audit Risk and Compliance Committee and components primarily driven by investment performance People and Remuneration Committee (for example, capital outcomes over short and long-term investment horizons. In items such as realised gains on the sale of an investment many cases incentives are paid outside the PPP and linked to that do not reflect management performance or day-to-day outperforming benchmark indices which are aligned with client business operations and activities). objectives. Incentives are paid as a mixture of cash and shares ▪▪ Prior to 2010, underlying profit after tax (UPAT) was used and expensed as part of Perpetual’s net profit after tax. Where for the purposes of determining the PPP. From 2010, UPAT paid as shares, these shares vest progressively over many years. has been replaced by NPAT because it more closely aligns This provides for reward for sustainable long-term performance the funding of the PPP paid to employees with shareholder and supports retention objectives. outcomes.

3. Short-term incentives 3.2 Allocation of the PPP Short-term incentives are incentives paid in the form of cash and Each year performance targets and other performance goals are deferred shares for meeting annual targets aimed at delivering set for all employees, in line with division and company targets. our longer term strategic plan. These performance objectives are classified into six categories (being Financial, Strategic, Operational, People, Risk and Values). 3.1 How STI is funded The performance objectives are assessed throughout the year A Profit Participation Pool (PPP) is created each year to fund STI as part of the performance management process in which all for the majority of employees. The size of the PPP is determined employees participate. At year end, an annual assessment of by the company’s net profit after tax. each employee’s performance is made and the PPP is then allocated based on relative divisional and employee performance. Some asset managers, whose STI is linked explicitly to Allocations to the Managing Director and Group Executives are investment performance, are excluded from the PPP. In addition, subject to Board approval. participants in the Private Wealth and Corporate Trust Sales Incentive Plans also have a proportion of their STI funded outside 3.3 Delivery of STI of the PPP. STI payments are delivered in cash except where the STI The PPP is linked to profit performance, where increased profits outcome is more than two times the target STI, in which case create a larger pool and decreased profits result in a smaller pool. the excess amount must be taken as Perpetual shares subject to We use return on equity (ROE) and net profit after tax (NPAT) to a three-year trading restriction. Dividends on shares are paid to govern the operation of the PPP. employees during the restriction period.

The PPP operates as follows: Employees may elect to sacrifice up to $1,000 of their cash STI payment into shares under the Tax Exempt Share Plan. Shares ▪▪ The profit pool begins to accumulate only when Perpetual’s acquired via this sacrifice are not subject to performance targets ROE for the current year exceeds 65% of companies listed on as they are acquired in lieu of a cash payment by the company; the S&P/ASX100 (excluding listed property trusts) measured on however the plan’s trading restrictions continue to apply until the a rolling three-year basis. earlier of three years from the date of grant or on termination of employment, before the shares can be released. This measure was chosen to ensure that Perpetual’s capital utilisation does not fall to unacceptable levels as the company 4. Long-term incentives seeks to grow net profits. Long-term incentives within Perpetual are paid as shares and, in ▪▪ Once the ROE target is met, the profit pool accumulates based the case of the Managing Director, options. This section provides on a percentage of NPAT. Although the value of the pool is details of the plans in place and an overview of how they work. uncapped, the accumulation rate is ultimately capped at one third of incremental NPAT where year-on-year NPAT growth is 4.1 Executive share program and executive in excess of 40%. options program This section outlines the details of the LTI plans in which the This measure was chosen to encourage year-on-year growth in Managing Director and Group Executives participate. net profit and to ensure a high correlation exists between NPAT performance and incentive outcomes. Executive shares The Executive Share Plan (ESP) was approved by shareholders at the 1997 AGM and amended at the 1999 AGM.

40 | Perpetual Limited and its controlled entities The issue price of shares under this plan is the weighted average Shares are held in trust for a maximum of 10 years from the price of Perpetual’s shares traded on the ASX during the five grant date, while vested options may be exercised up to the sixth business days preceding the issue date or announcement date anniversary of grant date. for relevant individuals. TSR performance target Shares are either purchased on market or issued by the TSR is defined as share price growth plus dividends paid over company and are held in trust for a maximum of ten years. the performance period from the initial TSR measurement date. They are subject to forfeiture if performance targets and Dividends are assumed to be reinvested on the ex-dividend date. tenure conditions are not met. Where applicable, adjustments may be made for any capital The Managing Director and Group Executives receive dividends reconstructions or rights or bonus issues to ensure participants are and have voting rights while the shares are held in trust; the only neither advantaged nor disadvantaged by such capital events. exception to this, as approved by the PARC in 2009, is that future The TSR performance target requires Perpetual’s TSR over share grants with business targets will have dividends reinvested the performance period to be equal to or better than the TSR or held as cash, with the reinvested shares and cash being subject of half of the comparator group consisting of companies listed to the same performance targets as the underlying shares. No loan on the S&P/ASX100 (excluding listed property trusts). For TSR is made available or consideration payable by the executives to performance greater than median, a sliding scale applies to acquire shares under the ESP. Refer to the table showing unvested determine the vesting percentage: and vested share holdings for the Managing Director and Group Executives on pages 52 to 54 for further details. TSR vesting schedule

Perpetual’s TSR ranking relative to the Percentage of shares and options Executive options comparator group that will vest The Executive Option Plan was approved by shareholders at the Less than median 0% 1998 Annual General Meeting. Median 50% Options are granted over ordinary shares. The exercise price, determined in accordance with plan rules, is based on the Greater than median but less than 2% for every one percentile increase 75th percentile in Perpetual’s relative position weighted average price of Perpetual’s shares traded on the ASX during the five business days preceding the date of option grant. Greater than 75th percentile 100%

No consideration is payable to acquire the option and no voting EPS performance target or dividend rights are attached to the option or the unissued ordinary share underlying the option. The EPS performance target requires Perpetual’s EPS growth during the performance period to be equal to or greater than the When exercisable, each option is converted into one ordinary target set by the Board. This target, which is currently 10% per share of Perpetual Limited. Options vest over three or four annum, may be reviewed by the Board from time to time. years, depending upon when and if performance targets are If Perpetual’s EPS growth is at or above the target, 100% of met. All vested options may be exercised on or after the vesting shares and options vest; none vest if the target is not achieved. date. Options expire at the end of the exercise period six years after the grant date. Refer to the table ‘Option holdings of EPS vesting schedule Managing Director and Group Executives’ on page 51 for details Percentage of shares and options Perpetual’s growth in EPS of options granted. that will vest

Other than a grant in accordance with the Managing Director’s EPS growth less than target 0% contract, no options were granted in 2010. EPS growth at or above target 100%

Performance targets The achievement of this performance target links the individual’s LTI performance targets are directly linked to company remuneration to the company’s growth in earnings. performance.

Each share or option grant is divided into two equal tranches, Business performance targets with the following performance targets being applied to each Two executives (and two departed executives) have previously respective tranche: received LTI allocations that are linked to the achievement of stretch business targets. These targets include achievement ▪▪ The first tranche vests based on Perpetual’s total shareholder of specific business objectives related to profit growth, funds return (TSR), measured against companies listed on the S&P/ under management, and succession planning for their respective ASX100 (excluding listed property trusts) determined at the business units. date the LTI is granted. TSR is measured independently by Link Market Services and reported to the PARC. The shares may vest in accordance with a scale specific to each business target. ▪▪ The second tranche vests based on growth in Perpetual’s EPS.

Perpetual Limited and its controlled entities | 41 Dividends for unvested grants with business targets are Termination of employment reinvested into further Perpetual shares or are held as cash, If an executive leaves the company, any unvested shares and are also subject to the same performance targets as the and/or options will be forfeited at the termination date, except original grant. as noted below:

No LTI with business performance targets was granted to the ▪▪ If an executive dies or resigns due to total and permanent Managing Director or Group Executives during 2010. disability, all unvested shares and options vest to the employee at the date of death or on termination. Performance target testing and re-testing guidelines An initial three-year performance testing period applies to TSR ▪▪ If an executive is made redundant or retires, the executive and EPS targets. Three-year TSR and EPS performance is will be entitled to a pro-rata portion of the grant calculated on calculated and tested against the respective target on the third the basis of the length of their employment (inclusive of any anniversary of the grant date. If the target is not met, it is re- notice period actually given and any nominal notice period in tested on the fourth anniversary of the grant date, against respect of which any payment in lieu of notice is made). The four-year TSR and EPS targets. If the performance target is not pro-rata amount will be calculated based on the most recent met after this re-test, the portion of the LTI that has not vested performance targets to determine the number of shares and is forfeited. options that will vest.

For other employees who received LTI allocations after 30 June 4.2 Employee share plans 2006, there is no retesting of the EPS target if the target is not Following the changes to the legislation governing the taxation of achieved on the third anniversary of the grant date. employee share schemes, a review was conducted to assess the future viability of each plan.

A summary of the employee share plans at Perpetual follows.

The following are open plans:

Open plans Description

Executive Share Plan (ESP) This is the main plan used for LTI grants to eligible employees, including the Managing Director 237 members and Group Executives.

Deferred Share Plan (DSP) This plan is used for a small number of employees as part of their incentive arrangements. 7 members No KMP participate in this plan.

Tax Exempt Employee Share Purchase Plan (TESP) This plan allows all employees, including the Managing Director and Group Executives, 172 members to purchase shares using a salary-sacrifice arrangement.

Tax Deferred Share Purchase Plan (TDSP) This plan was previously used by employees, including the Managing Director and Group 84 members Executives, to purchase shares using a salary sacrifice arrangement. The plan was closed to any new salary sacrifice purchases during 2010. The plan continues to be used for awards made under Perpetual’s sales incentive plans.

Executive Option Plan (EOP) This plan is used for options granted as part of the LTI arrangements for the Managing Director 1 member and previously some Group Executives. Other than a grant in accordance with the Managing Director’s contract, no options were granted in 2010.

Global Employee Share Trust (GEST) This plan is used for a small number of employees in Perpetual’s Ireland and UK operation as 11 members part of their incentive arrangements. No KMP are eligible to participate in the plan.

The following plans are closed to new issues:

Plans closed to new issues Description

Employee Share Purchase Plan (ESPP) This plan was used for granting shares under a non-recourse loan arrangement. It has been 219 members closed to new issues since 2004.

Non-executive Director Share Purchase Plan (NEDSPP) This plan was used only by non-executive directors and was closed to new purchases on 5 members 1 July 2009.

42 | Perpetual Limited and its controlled entities LTI arrangements for asset management employees based Other employee share schemes in Australia The company has two further equity-based benefit programs The Deferred Share Plan (DSP) was established in 2005 to deliver generally available to all Perpetual employees – the Tax Exempt LTI and retention arrangements for a number of key employees Employee Share Plan (TESP) and the Tax Deferred Share Plan in the company’s asset management team. Shares held in the (TDSP). These plans superseded the Employee Share Purchase plan vest over the long term subject to achievement of investment Plan (ESPP), which made its final issue of shares to Perpetual performance and succession targets. employees in December 2004.

The plan ensures the interests of these key employees are In addition, eligible Private Wealth and Corporate Trust employees aligned with those of shareholders and clients over the longer have the potential to receive a share allocation under the TDSP as term and provides a strong retention element as employees who part of an annual sales-based incentive plan. cease employment with Perpetual during the vesting period forfeit any unvested shares. Following the introduction of the new tax rules, a review of these plans was conducted in 2010. It was decided to only offer the In addition to LTI, some asset management employees TESP to employees wishing to purchase shares through salary also receive STI in cash and shares based on investment sacrifice arrangements going forward. performance targets. The ESPP and another inactive plan, the Employee Reward Share LTI arrangements for asset management employees based Plan, are discussed in Note 26 to the Financial Statements. in the United Kingdom and Ireland Non-executive Director Share Purchase Plan The Global Employee Share Trust (GEST) was established in 2005 to deliver LTI and retention arrangements for key individuals A share purchase plan for non-executive directors was approved located in Perpetual’s offices in the United Kingdom and Ireland by shareholders at the Annual General Meeting in October 1998. who are pivotal to the long-term success of Perpetual’s global Under this plan, each non-executive director was able to sacrifice asset management performance. up to fifty percent of their directors’ fees to acquire shares in the company. These shares were purchased four times per year at Shares held in the plan vest over a number of years subject to market value and have a disposal restriction of ten years, or when achievement of agreed performance targets. the director ceases to be a director of the company. Shares are held in the plan until the earlier of a period of ten years or until the All shares are forfeited if the employee resigns or is terminated by director retires from the Board. Perpetual for poor performance or misconduct prior to vesting. Following changes to taxation rules, this plan has been closed LTI arrangements for other employees since 1 July 2009. Prior to 30 June 2006, LTI performance targets for a small number of other employees were the same as the Managing Dilution limits for share plans Director and Group Executives. Shares awarded under Perpetual’s employee share plans may be purchased on market or issued subject to Board discretion For these other employees who received LTI allocations after and the requirements of the Corporations Act 2001 and the ASX 30 June 2006, the performance target used is linked only to Listing Rules. EPS growth. The TSR target was not used as EPS growth represents a measure that better aligns performance with The Board will manage the issue of shares under employee their responsibilities. incentive plans to balance remuneration needs of employees with shareholder returns, subject to the relevant regulatory From October 2010, LTI grants made to senior employees requirements. (excluding the Managing Director and Group Executives, and asset managers with specific LTI performance hurdles) will be Share dealing approval divided into two equal tranches, with the following performance Any share dealings, whether these shares are held personally targets being applied to each respective tranche: or were acquired as part of remuneration, require prior approval. The table below shows the approval required: ▪▪ The first tranche shall vest subject to a three-year time-based hurdle and provided the employee continues to achieve a ‘Good’ or higher individual performance rating during the Person wishing to deal in shares Approval required from measurement period Managing Director Chairman

▪▪ The second tranche vests based on Perpetual’s EPS growth. Director Chairman

Chairman Nominated director This change has been made to assist in the retention of key employees below Group Executive level. Group Executive Managing Director

An employee likely to have There is no retesting of the EPS growth target if the target is not Managing Director/Company Secretary price-sensitive information achieved on the third anniversary of the grant date.

Perpetual Limited and its controlled entities | 43 5. Summary of company performance The following table shows the five-year company performance. This performance determines how much STI and LTI are paid to employees.

Five-year company performance Year ended 30 June 2006 30 June 2007 30 June 2008 30 June 2009 30 June 2010

Net profit after tax reported ($’000s) 135,320 182,108 128,813 37,749 90,506

Underlying profit after tax reported ($’000s) 122,436 145,336 133,464 65,755 72,793

Ordinary dividend per share declared with 3.26 3.60 3.30 1.00 2.10 respect to the year ($)

Special dividend per share declared with 1.00 - - - - respect to the year ($)

Total dividends 4.26 3.60 3.30 1.00 2.10

Basic earnings per share – UPAT ($) 3.21 3.76 3.42 1.67 1.83

Closing share price ($) 73.15 78.51 42.77 28.55 28.26

5.1 Profit Participation Pool payments for 2010 The performance hurdles for the 2005 allocation were initially Five-year company performance is shown in the table above. tested in 2008 and then the unvested shares and options were The relationship between STI and Perpetual’s performance is retested in 2009. From this allocation, the pie chart shows that further demonstrated in the graph below, where the relative 95% of shares remained unvested and consequently those movement in total STI granted to all employees is shown against unvested shares and options lapsed. NPAT movements. Similarly, the performance hurdles for the 2006 allocation were As described earlier in the report, one of the five key principles first tested in 2009 with unvested shares and options to be of our remuneration policy is that variable pay is linked to retested in 2010. From this allocation, the pie chart shows that shareholder wealth creation (ie growth in the share price and 10% of the shares and options granted in 2006 have vested. dividends payments). The chart below demonstrates the close The 2007 allocation was first tested in 2010 and the unvested alignment between the profit measure and the STI pool payable shares will be retested in 2011. All shares that do not then vest to employees. will be forfeited. Short-term incentives and NPAT are highly correlated 5% STI Index NPAT ($M) 2010 = 100 200 180 95% NPAT 182.1 250 160 STI 140 200 120 135.3 128.8 150 100 2005 grants 80 90.5 100 10% 60 40 50 37.7 20 90% 06 07 08 09 10

5.2 Unvested LTI issued to key management 2006 grants personnel (KMP) 0% The following charts show the percentage of all LTI issued to KMP from the 2005, 2006 and 2007 grants that actually vested. It can be seen that no LTI has vested in respect to grants made 100% in 2007, and only minimal vesting occurred for grants made in 2005 and 2006, illustrating the clear link between company Vested performance and remuneration at Perpetual. 2007 grants Unvested

44 | Perpetual Limited and its controlled entities 6. Key management personnel KMP who departed during the year

Key management personnel (KMP) are the individuals who Group Executives have the authority and responsibility for planning, directing Emilio Gonzalez Group Executive Global Equities9 and controlling the company’s activities directly or indirectly. This includes directors, whether executive or otherwise, of the John Nesbitt Group Executive Private Wealth10 consolidated entity. The following were KMP of Perpetual during Eric Wang Group Executive Superannuation and the financial year: Investment Solutions11

Name Position * The five highest paid officers of the Group and Company during the year ended 30 June 2010. Non-executive Directors 1 Appointed 1 November 2009. Robert Savage Chairman and Independent Director 2 Appointed 1 June 2010. 3 on 23 June 2010, Perpetual announced that Managing Director, 1 Paul Brasher Independent Director David Deverall, had given notice of his resignation. 4 Held the position of Chief Operating Officer Perpetual Investments up Meredith Brooks Independent Director to 18 January 2010, at which point he was appointed to the role of Group Philip Bullock Independent Director2 Executive Superannuation and Investment Solutions. On 26 July 2010, he was appointed to the role of Group Executive Superannuation Paul McClintock Independent Director and Operations. 5 Has given notice of his resignation effective 15 October 2010. Elizabeth Proust Independent Director 6 Held the position of Head of Global Equities up to 1 November 2009, at which point he was temporarily appointed to this role. Peter Scott Independent Director 7 Held the position of General Manager Business Acquisitions up to Philip Twyman Independent Director 1 December 2009, at which point he was temporarily appointed to this role. 8 Held the position of Chief Financial Officer Private Wealth up to Managing Director 1 December 2009, at which point he was temporarily appointed to this role. 9 Resigned 20 January 2010. 3 David Deverall Chief Executive Officer and Managing Director 10 Resigned 1 May 2010. Group Executives 11 Resigned 30 September 2009.

Richard Brandweiner* Group Executive Income and Multi Sector Related party disclosures

Roger Burrows* Chief Financial Officer For a fixed period of six months commencing on 2 November 2009 and ending on 2 May 2010, Meredith Cathy Doyle* Group Executive Equities Brooks was engaged to provide advisory and consulting Christopher Green* Group Executive Corporate Trust services to Perpetual Investment’s Global Equities business. In accordance with the consultancy agreement, Ms Brooks Ivan Holyman* Chief Risk Officer received $196,900 for providing those services. This cash Michael Miller Group Executive Superannuation and payment is in addition to the fees Ms Brooks received in her 4 Operations capacity as a non-executive director. Matt Pancino Group Executive Operations5 No other KMP have entered into material contracts with the Janine Stewart Group Executive People and Culture company or members of the consolidated entity since the end of the previous financial year and there were no material contracts Rory MacIntyre Acting Group Executive Global Equities6 involving KMP interests subsisting at the year end. Paul Ryan Co-acting Group Executive Private Wealth7

Shailendra Singh Co-acting Group Executive Private Wealth8

Perpetual Limited and its controlled entities | 45 7. Appendices Index to tables

Table Page number

Remunertion of Managing Director and Group Executives 47

Actual remuneration of Managing Director and Group Executives 49

Remuneration components as a proportion of total remuneration 50

Loans to Group Executives under the ESPP 51

Option holdings of the Managing Director and Group Executives 51

Value of unvested remuneration that may vest in future years 52

Vested shareholdings of the Managing Director and Group Executives 52

Unvested shareholdings of the Managing Director and Group Executives 53

Contract terms for the Managing Director 55

Termination provisions for Group Executives 56

Non-executive director fee schedule 57

Contract terms of engagement and non-executive director fees and responsibilities 58

Remuneration received by non-executive directors 58

Shares, options, dividends and units held by non-executive directors 59

Non-executive director holdings held directly or indirectly 59

46 | Perpetual Limited and its controlled entities Details of Managing Director and Group Executive remuneration for 2010 Remuneration of Managing Director and Group Executives The following table shows the remuneration amounts recorded in the financial statements in the year.

Name Total Fixed remuneration STI Fixed LTI remuneration Short-term Post Total fixed & STI Share-based6 Total LTI employment remuneration

Cash salary, Non-monetary Other3 Pension and Cash profit Shares5 Options5 fees and benefits2 super sharing short-term and other compensated bonuses4 absences1

$ $ $ $ $ $ $ $ $ $ $

Managing Director

D Deverall

2010 1,371,412 976,539 - 1,825 23,461 1,001,825 800,000 1,801,825 (189,956) (240,457) (430,413)

2009 195,925 956,043 - 3,106 43,958 1,003,107 331,000 1,334,107 (315,679) (822,503) (1,138,182)

Group Executives

R Brandweiner*

2010 680,534 310,539 - 2,149 14,461 327,149 290,000 617,149 63,385 - 63,385

2009 434,335 322,637 - 2,116 13,745 338,498 78,000 416,498 17,8 37 - 17,8 37

R Burrows*

2010 1,004,296 512,137 14,402 1,825 23,461 551,825 220,000 771,825 232,471 - 232,471

2009 825,018 489,173 13,344 1,825 47,745 552,087 98,000 650,087 174,931 - 174,931

C Doyle*

2010 1,129,727 441,950 44,596 1,825 14,461 502,833 300,000 802,833 326,894 - 326,894

2009 1,066,376 445,522 40,733 1,825 13,745 501,825 120,000 621,825 444,551 - 444,551

C Green*

2010 690,528 335,539 - 1,825 14,461 351,825 280,000 631,825 58,703 - 58,703

2009 652,800 319,682 - 3,200 13,745 336,627 225,000 561,627 91,173 - 91,173

I Holyman*

2010 866,781 362,500 - 1,825 46,710 411,035 240,000 651,035 215,746 - 215,746

2009 655,053 306,571 1,983 3,083 95,945 407,582 25,000 432,582 222,471 - 222,471

M Miller

2010 494,401 287,720 - 2,126 19,050 308,895 155,000 463,895 30,506 - 30,506

M Pancino

2010 416,644 305,054 30,485 1,825 14,461 351,825 - 351,825 64,819 - 64,819

2009 463,981 295,987 32,558 1,510 17,116 347,171 100,000 4 47,171 16,810 - 16,810

J Stewart

2010 475,568 285,539 - 1,825 14,461 301,825 135,000 436,825 38,743 - 38,743

2009 355,103 266,589 - 1,370 18,745 286,704 60,000 346,704 8,399 - 8,399

R MacIntyre

2010 419,819 277,539 - 2,447 38,461 318,447 90,000 408,447 11,372 - 11,372

Perpetual Limited and its controlled entities | 47 Remuneration of Managing Director and Group Executives (continued)

Name Total Fixed remuneration STI Fixed LTI remuneration Short-term Post Total fixed & STI Share-based6 Total LTI employment remuneration

Cash salary, Non-monetary Other3 Pension and Cash profit Shares5 Options5 fees and benefits2 super sharing short-term and other compensated bonuses4 absences1

$ $ $ $ $ $ $ $ $ $ $

Group Executives (continued)

P Ryan

2010 426,722 253,978 - 1,825 24,122 279,925 130,000 409,925 16,797 - 16,797

S Singh

2010 442,398 255,539 - 601 14,461 270,601 155,000 425,601 16,797 - 16,797

Departed Group Executives

E Gonzalez

2010 85,392 267,46 9 - 139,467 9,454 416,390 - 416,390 (222,111) (108,887) (330,998)

2009 1,160,712 486,255 - 3,638 13,745 503,638 100,000 603,638 448,187 108,887 557,074

J Nesbitt

2010 328,912 425,872 6,079 601 61,270 493,822 - 493,822 (151,547) (13,363) (164,910)

2009 1,067,025 488,247 12,977 1,825 98,776 601,825 125,000 726,825 326,837 13,363 340,200

E Wang

2010 110,472 93,600 2,785 604,552 3,615 704,552 - 704,552 (260,674) (333,406) (594,080)

2009 854,853 372,952 13,304 4,532 13,745 404,533 - 404,533 200,259 250,061 450,320

Total 2010 8,943,607 5,391,512 98,348 766,544 336,371 6,592,775 2,795,000 9,387,775 251,945 (696,113) (444,168)

Total 2009 7,731,181 4,749,658 114,899 28,030 391,010 5,283,597 1,262,000 6,545,597 1,635,776 (450,192) 1,185,584

Total 2009 8,556,971 5,121,121 146,149 614,931 397,8 82 6,280,083 1,262,000 7,542,0 8 3 1,465,080 (450,192) 1,014,888 for executives disclosed in 20097

* Five highest paid officers of the group and company during the year ended 30 June 2010. 1 Cash salary is the ordinary cash salary received in the year. 2 Non-monetary benefits relate to the salary sacrifice component of remuneration and represents benefits such as motor vehicles and car parking. 3 other short-term benefits relate to Salary Continuance and Death and Total and Permanent Disability insurance provided as part of the remuneration package, interest on loans arising from shares issued under the ESPP (refer to page 51 ‘Loans to Group Executives under the ESPP’) and final payments in respect of executives who departed during or since the end of the year (including any termination benefits of $138,268 paid to Gonzalez and $603,951 paid to Wang). 4 Cash profit sharing and other bonuses equate to the best estimate of the incentive performance bonus, based on available information at year end. 5 Share-based remuneration has been valued using the binomial method which takes into account the performance hurdles relevant to each issue of an equity instrument. The value of each equity instrument has been provided by PricewaterhouseCoopers. 6 Share-based remuneration is the amount expensed in the financial statements for the year and includes adjustments to reflect the most current expectation of vesting of LTI grants with non-market condition hurdles. For grants with non-market conditions, including Earnings Per Share hurdles, the number of shares expected to vest is estimated at the end of each reporting period and the amount to be expensed in the financial statements is adjusted accordingly. For grants with market conditions such as Total Shareholder Return hurdles, the number of grants expected to vest is not adjusted during the life of the grant and no adjustment is made to the amount expensed in the financial statements. The accounting treatment of non-market and market conditions is in accordance with Accounting Standards. 7 The totals shown relate to executives disclosed in the 2009 Annual Report and so do not equal the 2009 totals for executives disclosed in this table.

48 | Perpetual Limited and its controlled entities In addition to the above table, which shows the accounting treatment of share and option based remuneration components, the following table sets out the actual market value of shares on the date they vested and options on the date they were exercised during the year. This highlights the alignment between shareholder return and employee reward.

Actual remuneration of Managing Director and Group Executives The table below shows the remuneration amounts received in the year.

Name Total Fixed remuneration & STI LTI Share-based1 Total LTI Shares vested Options exercised $ $ $ $ $ Managing Director

D Deverall

2010 1,801,825 1,801,825 - - -

2009 1,334,107 1,334,107 - - - Group Executives

R Brandweiner

2010 617,149 617,149 - - -

2009 416,498 416,498 - - -

R Burrows

2010 771,825 771,825 - - -

2009 650,087 650,087 - - -

C Doyle

2010 802,833 802,833 - - -

2009 621,825 621,825 - - -

C Green

2010 704,435 631,825 72,610 - 72,610

2009 644,031 561,627 82,404 - 82,404

I Holyman

2010 651,035 651,035 - - -

2009 432,582 432,582 - - -

M Miller

2010 463,895 463,895 - - -

M Pancino

2010 351,825 351,825 - - -

2009 4 47,171 4 47,171 - - -

J Stewart

2010 436,825 436,825 - - -

2009 346,704 346,704 - - -

R MacIntyre

2010 408,447 408,447 - - -

P Ryan

2010 409,925 409,925 - - -

Perpetual Limited and its controlled entities | 49 Actual remuneration of Managing Director and Group Executives (continued)

Name Total Fixed remuneration & STI LTI Share-based1 Total LTI Shares vested Options exercised $ $ $ $ $ Group Executives (continued)

S Singh

2010 425,601 425,601 - - -

Departed Group Executives

E Gonzalez

2010 416,390 416,390 - - -

2009 2,095,002 603,638 - 1,491,3642 1,491,364

J Nesbitt

2010 493,822 493,822 - - -

2009 726,825 726,825 - - -

E Wang

2010 704,552 704,552 - - -

2009 404,533 404,533 - - -

Total 2010 9,460,385 9,387,775 72,610 - 72,610

Total 2009 8,119,365 6,545,597 82,404 1,491,364 1,573,768

1 Share based remuneration represents the fair value of shares vested and options exercised during the year. Shares and options have been valued based on their market value on the date the shares vested and options were exercised. 2 These options were granted in 2002.

Remuneration components as a proportion of total remuneration1

Performance linked benefits Name Fixed benefits % Total % STI % LTI % Managing Director D Deverall 56% 44% 0% 100%

Group Executives R Brandweiner 48% 43% 9% 100%

R Burrows 55% 22% 23% 100%

C Doyle 45% 27% 28% 100%

C Green 51% 41% 8% 100%

I Holyman 47% 28% 25% 100%

M Miller 62% 31% 7% 100%

M Pancino 84% 0% 16% 100%

J Stewart 63% 28% 9% 100%

R MacIntyre 76% 21% 3% 100%

P Ryan 66% 30% 4% 100%

S Singh 61% 35% 4% 100% Departed Group Executives E Gonzalez 100% 0% 0% 100%

J Nesbitt 100% 0% 0% 100%

E Wang 100% 0% 0% 100%

1 The remuneration components are determined based on the ‘Remuneration of Managing Director and Group Executives’ table on page 47.

50 | Perpetual Limited and its controlled entities Loans to Group Executives under the ESPP

Name Balance at the start Repayment of loan Interest paid and Balance at the end Interest not Highest balance in of the year payable for the year of the year charged 1 period

$ $ $ $ $ $

Group Executives

R Brandweiner 3,505 (3,505) - - 324 3,505

M Miller 3,202 (313) - 2,889 301 3,202

R MacIntyre 6,658 (726) - 5,932 622 6,658

Departed Group Executive

E Gonzalez 8,024 (8,024) - - 598 8,024

1 Interest not charged has been calculated at 9.8% on the weighted average loan balance as at 30 June 2010 and 30 June 2009, or for terminated specified executives, on the pro-rata loan balances for the period up to six months from the date of leaving employment. The terms of these loans are discussed in more detail in Note 26 of the Financial Statements. The loans were available to all executives except for the Managing Director. They were also not available to the non-executive directors. No other Group Executives have loans.

Option holdings of the Managing Director and Group Executives

Movement during the year

Name Grant date Exercise Exercise Held at Granted Forfeited Exercised Held at 30 Vested & Fair value Proceeds period price 1 July 2009 June 2010 exercisable per option at received on at 30 June grant date1 exercise 2010

$ No. of options No. of options No. of options No. of options $ $

Managing Director

D Deverall2 Options granted prior to 1 July 20083 295,508 - 28,144 - 267,36 4 978

1 Jul 11 - 1 Jul 08 42.73 57,39 0 - - - 57,39 0 - 8.97 - 1 Jul 14 1 Jul 12 - 29 Jun 09 28.34 47,585 - - - 47,585 - 9.58 - 29 Jun 15 1 Jul 12 - 3 Jul 09 28.34 - 5,911 - - 5,911 - 9.58 - 29 Jun 15

Aggregate Value $56,627 $1,599,986 - -

Departed Group Executives

30 Jun 13 - E Gonzalez 20 Jan 09 31.42 182,215 - 182,215 - - - 6.60 - 20 Jan 15

Aggregate Value - $5,725,195 - -

30 Jun 12 - J Nesbitt 9 Jun 09 28.34 58,939 - 58,939 - - - 9.06 - 30 Jun 14

Aggregate Value - $1,670,331 - -

31 Mar 11 - E Wang 31 Mar 08 52.71 75,301 - 75,301 - - - 9.96 - 31 Mar 13

Aggregate Value - $3,969,116 - -

Options granted to the Managing Director and Group Executives are granted from the Executive Option Plan. No other Group Executives hold options over Perpetual shares. 1 Equity instruments issued have been valued by PricewaterhouseCoopers (PwC) using a Binomial Option Pricing model at grant date. 2 Approval for the issue of options to D Deverall was obtained under ASX Listing Rule 10.14 at Perpetual’s AGMs held on 19 October 2004, 17 October 2006, 30 October 2007, 28 October 2008 and 22 October 2009. 3 These options were granted on 19 October 2004 (978), 1 July 2005 (28,144), 1 July 2006 (29,950) and 1 July 2007 (236,436). On 23 June 2010, the company announced that Managing Director, David Deverall, had given notice of his resignation. As a result, no long term incentives, including the options outstanding as at 30 June 2010, will vest as a result of Mr Deverall’s resignation and all unvested options will be forfeited on ceasing employment. The options outstanding as at 30 June 2010 have a carrying value of $Nil. 4 Percentage of total remuneration received as options for the Managing Director and Group Executives are: D Deverall (0%), E Gonzalez (0%), J Nesbitt (0%) and E Wang (0%).

Perpetual Limited and its controlled entities | 51 Value of unvested remuneration that may vest in future years

Name Estimates of the maximum and minimum cost in future years relating to equity based remuneration granted by the Company

30 June 2011 30 June 2012 30 June 2013

Minimum Maximum Minimum Maximum Minimum Maximum

Managing Director

D M Deverall1 ------

Group Executives

R Brandweiner - 105,435 - 113,402 - 28,232

R Burrows - 323,591 - 255,084 - 61,599

C Doyle - 413,736 - 305,694 - 35,932

C Green - 98,986 - 103,948 - 25,667

I Holyman - 212,046 - 191,306 - 46,198

R MacIntyre - 24,877 - 34,384 - 9,329

M Miller - 99,145 - 122,978 - 33,366

M Pancino2 ------

P Ryan - 44,392 - 58,039 - 15,747

S Singh - 44,392 - 58,039 - 15,747

J Stewart - 64,552 - 63,760 - 15,397

1 The maximum value of equity that may vest in future years for Mr Deverall has been calculated to be zero on the basis that he has given notice of his resignation. 2 The maximum value of equity that may vest in future years for Mr Pancino has been calculated to be zero on the basis that he has given notice of his resignation.

Vested shareholdings of the Managing Director and Group Executives

Name Balance at the start of the year LTI Shares vesting in the period Other changes during the year Balance at the end of the year1 No. of shares Managing Director D Deverall 35,540 - - 35,540

Group Executives

R Brandweiner 402 - - 402

R Burrows - - - -

C Doyle - - - -

C Green 2,056 2,740 - 4,796

I Holyman 2,736 - - 2,736

M Miller 234 - - 234

M Pancino - - - -

J Stewart - - - -

R MacIntyre 16,893 - - 16,893

P Ryan - - - -

S Singh - - - -

Departed Group Executives

E Gonzalez 88,279 - (69,632) 18,647

J Nesbitt 7,417 - - 7,417

E Wang 600 - - 600

1 Date of departure for Group Executives that departed in the year.

Other changes during the year represent shares acquired via bonus sacrifice, conversion of options into shares and disposal of shares. Disposals during the year include E Gonzalez (69,632).

52 | Perpetual Limited and its controlled entities Unvested shareholdings of the Managing Director and Group Executives

Movement during the year Name Grant date Issue price Vesting date Held at Granted Forfeited Vested Held at Fair value per Fair value 1 July 2009 30 June 2010 share TSR per share hurdle17 non-TSR hurdle17 No. of shares No. of shares No. of shares $ $ Managing Director D Deverall1 Shares granted prior to 1 July 20082 58,532 - 7,0 36 - 51,496 1 July 2008 42.73 1 July 2011 11,993 - - - 11,993 38.97 50.80 29 June 28.34 1 July 2012 18,083 - - - 18,083 21.30 28.01 2009 Aggregate Value - $399,997 - Group Executives R Brandweiner Shares granted prior to 1 July 20083 2,748 - 1,389 - 1,359 1 October 48.63 1 October 4,112 - - - 4,112 38.97 50.80 2008 2011 1 October 38.15 1 October - 7,20 8 - - 7,20 8 29.02 37.93 2009 2012 Aggregate Value $274,985 $96,582 - R Burrows Shares granted prior to 1 July 20084 11,383 - - - 11,383 1 October 48.63 1 October 12,338 - - - 12,338 38.97 50.80 2008 2011 1 October 38.15 1 October - 15,727 - - 15,727 29.02 37.93 2009 2012 Aggregate value $599,985 - - C Doyle Shares granted prior to 1 July 20085 25,531 - - - 25,531 1 October 48.63 1 October 7,197 - - - 7,197 38.97 50.80 2008 2011 1 October 38.15 1 October - 9,174 - - 9,174 29.02 37.93 2009 2012 Aggregate Value $349,988 - - C Green Shares granted prior to 1 July 20086 5,031 - - 2,740 2,291 1 October 48.63 1 October 4,112 - - - 4,112 38.97 50.80 2008 2011 1 October 38.15 1 October - 6,553 - - 6,553 29.02 37.93 2009 2012 Aggregate Value $249,997 - $ 199,938 I Holyman Shares granted prior to 1 July 20087 16,464 - 4,472 - 11,992 1 October 48.63 1 October 9,253 - - - 9,253 38.97 50.80 2008 2011 1 October 38.15 1 October - 11,795 - - 11,795 29.02 37.93 2009 2012 Aggregate Value $449,979 $300,026 - M Miller Shares granted prior to 1 July 20088 3,308 - 1,677 - 1,631 1 October 48.63 1 October 2,467 - - - 2,467 38.97 50.80 2008 2011 1 October 38.15 1 October - 8,519 - - 8,519 29.02 37.93 2009 2012 Aggregate Value $325,000 $121,348 - M Pancino Shares granted prior to 1 July 20089 4,159 - 1,865 - 2,294 1 October 48.63 1 October 5,140 - - - 5,140 38.97 50.80 2008 2011 1 October 38.15 1 October - 6,553 - - 6,553 29.02 37.93 2009 2012 Aggregate Value $249,997 $134,951 - J Stewart Shares granted prior to 1 July 200810 584 - - - 584 1 October 48.63 1 October 3,084 - - - 3,084 38.97 50.80 2008 2011 1 October 38.15 1 October - 3,931 - - 3,931 29.02 37.93 2009 2012 Aggregate Value $149,968 - -

Perpetual Limited and its controlled entities | 53 Unvested shareholdings of the Managing Director and Group Executives (continued) Movement during the year Name Grant date Issue price Vesting date Held at Granted Forfeited Vested Held at Fair value per Fair value 1 July 2009 30 June 2010 share TSR per share hurdle17 non-TSR hurdle17 No. of shares No. of shares No. of shares $ $ Group Executives (continued) P Ryan Shares granted prior to 1 July 200811 2,946 - 1,451 - 1,495 1 October 48.63 1 October 2,287 - - - 2,287 38.97 50.80 2008 2011 1 October 38.15 1 October - 3,538 - - 3,538 29.02 37.93 2009 2012 Aggregate Value $134,975 $104,994 - S Singh Shares granted prior to 1 July 200812 1,931 - 566 - 1,365 1 October 48.63 1 October 2,261 - - - 2,261 38.97 50.80 2008 2011 1 October 38.15 1 October - 3,538 - - 3,538 29.02 37.93 2009 2012 Aggregate Value $134,975 $40,956 - R MacIntyre Shares granted prior to 1 July 200813 9,498 - 2,257 - 7,241 1 October 48.63 1 October 1,028 - - - 1,028 38.97 50.80 2008 2011 1 October 38.15 1 October - 2,096 - - 2,096 29.02 37.93 2009 2012 Aggregate Value $79,962 $158,700 - Departed Executives E Gonzalez Shares granted prior to 1 July 200814 26,622 - 26,622 - - 1 October 48.63 1 October 16,450 - 16,450 - - 38.97 50.80 2008 2011 20 January 31.42 30 June 39,783 - 39,783 - - N/A 31.42 2009 2013 Aggregate Value - $ 3,949,872 - J Nesbitt Shares granted prior to 1 July 200815 23,004 - 23,004 - - 1 October 48.63 1 October 16,450 - 16,450 - - 38.97 50.80 2008 2011 9 June 2009 29.74 30 June 20,174 - 20,174 - - N/A 29.74 2012 1 October 38.15 1 October - 20,969 20,969 - - 29.02 37.93 2009 2012 Aggregate Value $799,967 $3,849,818 - - E Wang Shares granted prior to 1 July 200816 21,832 - 21,832 - - 1 October 48.63 1 October 6,169 - 6,169 - - 38.97 50.80 2008 2011 Aggregate Value - $1,595,883 - 1 Approval for the issue of shares to David Deverall was obtained under ASX Listing Rule 10.14 at Perpetual’s AGM held on 19 October 2004, 17 October 2006, 30 October 2007, 28 October 2008 and 22 October 2009. 2 These shares were granted on 1 July 2005 (7,036; 100% forfeited in the current year), 1 July 2006 (7,130) and 1 July 2007 (44,366). 3 These shares were granted on 30 September 2005 (745; 100% forfeited in the current year), 2 October 2006 (644; 100% forfeited in the current year) and 1 October 2007 (1,359). 4 These shares were granted on 31 March 2008 (11,383). 5 These shares were granted on 4 December 2006 (1,645), 1 October 2010 (4,759) and 20 February 2008 (19,127). 6 These shares were granted on 1 October 2007 (2,291) and 17 July 2006 (2,740; 100% vested in the current year). 7 These shares were granted on 30 September 2005 (4,472; 100% forfeited in the current year), 2 October 2006 (5,873) and 1 October 2007 (6,119). 8 These shares were granted on 30 September 2005 (641; 100% forfeited in the current year), 2 October 2006 (1,036; 100% forfeited in the current year) and 1 October 2007 (1,631). 9 These shares were granted on 14 August 2006 (255), 2 October 2006 (1,865; 100% forfeited in the current year) and 1 October 2007 (2,039). 10 These shares were granted on 10 September 2007 (584). 11 These shares were granted on 2 October 2006 (1,451; 100% forfeited in the current year) and 1 October 2007 (1,495). 12 These shares were granted on 3 July 2006 (139), 2 October 2006 (566; 100% forfeited in the current year) and 1 October 2007 (1,226). 13 These shares were granted on 30 September 2005 (876; 100% forfeited in the current year), 2 October 2006 (1,381; 100% forfeited in the current year), 1 October 2007 (1,359) and 3 December 2007 (5,882). 14 These shares were granted on 30 September 2005 (7,453; 100% forfeited in the current year), 2 October 2006 (8,291; 100% forfeited in the current year) and 1 October 2007 (10,878; 100% forfeited in the current year). 15 These shares were granted on 30 September 2005 (5,217; 100% forfeited in the current year), 2 October 2006 (6,909; 100% forfeited in the current year) and 1 October 2007 (10,878; 100% forfeited in the current year). 16 These shares were granted on 30 September 2005 (1,729; 100% forfeited in the current year), 2 October 2006 (1,796; 100% forfeited in the current year), 1 October 2007 (4,079; 100% forfeited in the current year) and 31 March 2008 (14,228; 100% forfeited in the current year). 17 Grants of performance shares after 30 June 2003 contain 50% of the shares with a performance hurdle linked to TSR and 50% of the shares granted with a performance hurdle linked to EPS. Where applicable, the fair value of shares with a TSR performance hurdle are disclosed. The fair value of TSR-linked shares is calculated by PwC using valuation techniques that take into account the probability of vesting as reflected in the fair value at grant.

54 | Perpetual Limited and its controlled entities Contract terms for the Managing Director

Contract details David Deverall, Chief Executive Officer and Managing Director

Term of contract Mr Deverall’s appointment as Chief Executive Officer and Managing Director continues from the date of the agreement (24 September 2007) until terminated in accordance with its terms.

Fixed remuneration $1,000,000 per annum, reviewable in accordance with Perpetual’s policies.

STI STI of up to the maximum STI for previous year multiplied by the change in the Profit Participation Pool. 20% of the STI will be subject to the Board’s assessment annually of additional performance criteria.

LTI-Group Eligible to receive LTI-Group grants equivalent to $1.025 million per annum (or such greater amounts as may be determined by the Board from year to year). 50% of the LTI-Group benefits is provided by way of performance shares and 50% by way of options. Grants are divided into two portions. The first portion is subject to a TSR target. If Perpetual’s growth in TSR relative to the comparator group is: ▪▪ less than the median, 0% vests ▪▪ at the median, 50% vests ▪▪ greater than the median but less that 75%, 50% plus 2% for every percentile increase vests ▪▪ 75% or above, 100% vests. The second portion is subject to an EPS target. If Perpetual’s growth in EPS is: ▪▪ less than 10% per annum, 0% vests ▪▪ at 10% or more, 100% vests. The TSR and EPS targets are first tested on the third anniversary of the grant date. If any portion remains unvested, it is retested on the fourth anniversary of the grant date. After this date, any unvested portion is forfeited.

LTI-Business – one-off grant Eligible to receive LTI-Business grants up to $6,000,000. 50% of the LTI-Business benefit is provided by way of shares and made on 1 July 2007 50% by way of options. LTI-Business benefit will vest on 30 June 2012 subject to compound annual growth in EPS targets and UPAT targets. A threshold compound annual growth in EPS of 11% over the five-year performance period is required before any shares or options can vest in 2012. Once the threshold is achieved, vesting operates as follows: ▪▪ vesting of 10% of the total shares and options occurs upon achievement of compound annual growth in EPS of 11% and required UPAT target ▪▪ 100% of the shares and options will vest if compound annual growth in EPS is 20% and required UPAT target is achieved ▪▪ a sliding scale of vesting operates if compound annual growth in EPS is greater than 11% and below 20% and required UPAT targets are achieved. There is an opportunity for accelerated vesting as at 30 June 2010 of up to 67% ($4,000,000) of the original benefit. A threshold compound annual growth in EPS of 15% is required before any shares or options can vest in 2010. Once the threshold is achieved, vesting operates as follows: ▪▪ vesting of shares and options valued at $2,000,000 occurs upon achievement of a compound annual growth in EPS of 15% and required UPAT target ▪▪ shares and options valued at a total of $4,000,000 will vest upon achievement of a compound annual growth in EPS of 25% and required UPAT target ▪▪ a sliding scale of vesting operates if compound annual growth in EPS is greater than 15% and below 25% and required UPAT targets are achieved. Mr Deverall is not permitted to transfer or exercise any shares or options that vest under these accelerated vesting provisions until after 30 June 2011. If accelerated vesting is achieved, the balance of the LTI-Business will vest on 30 June 2012 subject to the original targets. There is no provision for retesting if performance targets are not achieved as of 30 June 2012. Any shares and options that do not vest will be forfeited as at 30 June 2012.

Perpetual Limited and its controlled entities | 55 Contract terms for the Managing Director (continued)

Contract details David Deverall, Chief Executive Officer and Managing Director

Termination of employment Mr Deverall can resign by providing 12 months’ notice. Perpetual can terminate Mr Deverall’s employment at any time by providing 12 months’ notice; immediately for misconduct or other circumstances justifying summary dismissal; as a result of Mr Deverall’s illness by providing 12 months’ notice; and for poor performance by providing 6 months’ notice. When notice is required, the Company can make a payment in lieu of all or part of any notice period.

Immediate termination without notice in certain circumstances STI – no entitlement in respect of year in which termination occurs. LTI-Group – shares and options not vested at termination date are forfeited. LTI-Business – shares and options not vested at termination date are forfeited.

Termination by Perpetual on notice or due to illness – 12 months’ written notice (for payment in lieu) STI – pro-rated, based on prior year entitlements. LTI-Group – eligible to receive vesting of shares and options that have not vested at the termination date for a period of 24 months after the termination date, subject to the original performance hurdles and performance period. LTI-Business – entitled to the greater of a pro-rata proportion of shares and options (subject to performance targets measured at the date of termination) and 1/10th of the LTI-Business.

Termination by Perpetual due to poor performance – 6 months’ written notice (or payment in lieu) STI – no entitlement in respect of year in which termination occurs. LTI-Group – shares and options not vested at the termination date are forfeited. LTI-Business – entitled to the greater of a pro-rata proportion of shares and options (subject to performance targets measured at the date of termination) and 1/10th of the LTI-Business.

Voluntary termination – 12 months’ written notice (or payment in lieu) STI – pro-rated, based on previous year entitlements. LTI-Group – shares and options not vested at the termination date are forfeited. LTI-Business – shares and options not vested at the termination date are forfeited.

Death of Mr Deverall STI – pro-rata entitlement based on previous year’s STI. LTI-Group – eligible to receive vesting of shares and options that have not vested at the termination date, subject to the original performance hurdles and performance period. LTI-Business – eligible to receive allocated but unvested equity at the discretion of the Board.

As previously noted, on 23 June 2010 Perpetual announced that Managing Director, David Deverall, had given notice of his resignation. As set out in the ASX Announcement, Mr Deverall has a contractual entitlement to receive a STI for the year ended 30 June 2010, and a pro-rata STI for the year ending 30 June 2011. No LTI will vest as a result of Mr Deverall’s resignation, and all unvested LTI will be forfeited on ceasing employment.

Termination provisions for Group Executives The material terms for the Group Executives are summarised below:

Term Who Conditions

Duration of contract All Group Executives Ongoing until notice is given by either party

Notice to be provided by Group Executive John Nesbitt 6 months to terminate the employment agreement Janine Stewart 12 weeks

Paul Ryan 2 months

Shailendra Singh 2 months

All other Group Executives 3 months

Notice to be provided by Perpetual to John Nesbitt 12 months terminate the employment agreement for poor performance Roger Burrows 6 months

Janine Stewart 12 weeks

Paul Ryan 2 months

Shailendra Singh 2 months

All other Group Executives 3 months

56 | Perpetual Limited and its controlled entities Term Who Conditions

Notice to be provided by Perpetual to terminate John Nesbitt 12 months the employment agreement without cause Roger Burrows 6 months

Ivan Holyman 3 months’ notice plus 3 weeks per completed year of service (up to 52 weeks)

Janine Stewart 12 weeks

Paul Ryan 2 months

Shailendra Singh 2 months

All other Group Executives 3 months

Termination payments and/or benefits to be Payment in lieu of notice made on termination without cause All Group Executives Group Executives are entitled to payment in lieu of any unexpired part of the notice period.

STI

All Group Executives Subject to the terms and conditions of the STI Plan.

LTI

All Group Executives Subject to the terms of the Offer and LTI Plan.

Termination for cause Payment in lieu of notice

All Group Executives None – immediate termination for cause.

STI

All Group Executives Subject to the terms and conditions of the STI Plan.

LTI

All Group Executives Subject to the terms of the Offer and LTI Plan.

Post-employment restraints All Group Executives 6 month non-solicitation restraint.

Non-executive director fee schedule

2010 2011 $ $

Chairman 455,000 468,500

Directors 165,000 170,000

Audit Risk and Compliance Committee Chairman 38,500 40,000

Audit Risk and Compliance Committee Member 19,250 20,000

People and Remuneration Committee Chairman 27,50 0 28,500

People and Remuneration Committee Member 13,750 14,250

Investment Committee Chairman 27,50 0 28,500

Investment Committee Member 13,750 14,250

Nominations Committee Member 13,750 14,250

Note: In addition to the base fee, Perpetual pays superannuation contributions to non-executive directors of up to 9% of non-executive director fees, capped at the maximum superannuation contributions base prescribed under Superannuation Guarantee legislation. Employer superannuation contributions may be received in one of our employee superannuation funds or an eligible superannuation fund of their choice.

Perpetual Limited and its controlled entities | 57 Contract terms of engagement and non-executive director fees and responsibilities*

Robert M Paul Brasher2 Meredith J Philip Bullock3 E Paul Elizabeth M Peter B Scott4 Philip J Savage1 Brooks McClintock Proust Twyman

$ $ $ $ $ $ $ $ Board fees (per annum) Chairman 455,000 ------

Independent director - 165,000 165,000 165,000 165,000 165,000 165,000 165,000

Committee fees (per annum) Audit Risk and Compliance Committee Chairman ------38,500

Member - 19,250 19,250 - - 19,250 - -

People and Remuneration Committee Chairman - - - - - 27,50 0 - -

Member - 13,750 - - 13,750 - 13,750 -

Investment Committee Chairman - - - - 27,50 0 - - -

Member - - 13,750 - - - 13,750 13,750

Nomination Committee Member - - - - 13,750 13,750 - 13,750

Appointed August 2001 November November June 2010 April 2004 January July 2005 November as Director 2009 2004 2006 2004 and October 2005 as Chairman

* In addition to committee fees, directors are entitled to minimum superannuation guarantee contributions. 1 Robert Savage retired from the Audit, Risk and Compliance Committee on 17 November 2009 and retired as Chairman of the Nominations Committee on 23 July 2010 but remains as a Member of that Committee until his retirement from the Board on 26 October 2010. 2 Paul Brasher was appointed to the Board on 1 November 2009, as a member of the Audit Risk and Compliance Committee on 17 November 2009 and the People and Remuneration Committee on 16 February 2010. 3 Philip Bullock was appointed to the Board on 1 June 2010, and as a member of the Investment Committee and the People and Remuneration Committee on 9 August 2010. 4 Peter Scott became Chairman-elect and Chairman of the Nominations Committee on 23 July 2010.

Remuneration received by non-executive directors

Name Total Short-term Post employment Share-based

Cash salary, fees and short-term Pension and superannuation Equity settled1,3 compensated absences1

2010 2009 2010 2009 2010 2009 2010 2009 $ $ $ $ $ $ $ $

R M Savage 469,461 468,745 4 47,421 335,378 22,040 72,700 - 60,667

P Brasher 133,969 - 83,969 - 50,000 - -

M J Brooks 212,461 211,745 198,000 198,000 14,461 13,745 - -

P Bullock 14,955 - 13,750 - 1,205 - -

E P McClintock 234,461 232,636 220,000 174,891 14,461 13,745 - 44,000

E M Proust 262,915 225,495 248,454 200,750 14,461 13,745 - 11,000

P B Scott 206,961 207,797 192,500 166,552 14,461 13,745 - 27,50 0

P J Twyman 245,461 244,745 231,000 176,000 14,461 13,745 - 55,000

TOTAL 1,780,644 1,591,162 1,635,094 1,251,572 145,550 141,424 - 198,167

1 Cash salary is the ordinary cash salary. Under a share purchase plan for non-executive directors approved by shareholders on 20 October 1998, non-executive directors may sacrifice up to 50% of their fees to acquire shares in the company. 2 Non-executive directors do not receive any non-cash benefits as part of their remuneration. 3 Shares issued as remuneration have been valued and recorded as remuneration as at the date of issue.

58 | Perpetual Limited and its controlled entities Shares, options, dividends and units held by non-executive directors

Name Ordinary shares Dividends received Options Registered scheme interests1 2010 2009 2010 2009 2010 2009 2010 2009 No. No. $ $ No. No. $ $

R M Savage 9,609 9,380 15,560 13,417 - - 2,015,797 4,484,416

P V Brasher² 1,000 - 1,050 - - - 497,825 -

M J Brooks 5,753 5,500 9,165 8,345 - - 1,568,458 1,545,392

P Bullock³ 1,000 ------

E P McClintock 8,768 8,485 14,102 12,596 - - 188,674 170,528

E M Proust 3,245 3,147 5,227 5,005 - - - -

P B Scott 2,140 2,047 3,410 1,979 - - 73,888 56,744

P J Twyman 8,107 8,772 13,544 11,013 - - 2,045,167 2,526,899

1 Amounts invested in Perpetual’s products. 2 Paul Brasher was appointed as a director on 1 November 2009. 3 Philip Bullock was appointed as a director on 1 June 2010.

Non-executive director holdings held directly or indirectly

Name Balance at the start of the year, Shares acquired via fee sacrifice Other changes during the year Balance at the end of the year or, or for directors appointed in the during the year for directors who retired in the year, the date of appointment year, the date of retirement No. of shares

R M Savage 9,380 - 229 9,609

P Brasher - - 1,000 1,000

M J Brooks 5,500 - 253 5,753

P Bullock - - 1,000 1,000

E P McClintock 8,485 - 283 8,768

E Proust 3,147 - 98 3,245

P B Scott 2,047 - 93 2,140

P J Twyman 8,772 - (665) 8,107

Perpetual Limited and its controlled entities | 59 Directors’ Report for the year ended 30 June 2010 (continued)

Chief Executive Officer’s and Chief Financial Lead Auditor’s Independence Officer’s Declaration Declaration Under Section 307C of the The Chief Executive Officer and Chief Financial Officer declared Corporations Act 2001 in writing to the Board, in accordance with section 295A of To: The Directors of Perpetual Limited the Corporations Act 2001 that the financial records of the Company for the financial year have been properly maintained, I declare that, to the best of my knowledge and belief, in relation the Company’s financial reports for the year ended 30 June 2010 to the audit for the financial year ended 30 June 2010 there comply with accounting standards and present a true and fair have been: view of the Company’s financial condition and operational results. This statement is required annually. (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the Non-audit services audit; and During the year KPMG, the Company’s auditor, did not perform (ii) no contraventions of any applicable code of professional other non-audit services in addition to their statutory duties conduct in relation to the audit. (2009: Nil).

The Board has a review process in relation to any non-audit services provided by the external auditor. The Board will consider any non-audit services provided by the auditor and, in accordance with written advice provided by resolution of the KPMG Audit Risk and Compliance Committee, ensure it is satisfied that the provision of these non-audit services by the auditor is compatible with, and does not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:

▪▪ all non-audit services are subject to the corporate governance procedures adopted by the Company and are reviewed by the Audit Risk and Compliance Committee to ensure they do not impact the integrity and objectivity of the auditor Andrew J Yates Partner ▪▪ the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES Sydney 24 August 2010 110 Code of Ethics for Professional Accountants, as they do not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.

The Lead Auditor’s independence declaration for the 30 June 2010 financial year is included at the end of this report.

Rounding off The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Order, amounts in the financial report and the directors’ report have been rounded off to the nearest thousand dollars, unless otherwise stated.

This report is made in accordance with a resolution of the directors:

Robert Savage, AM David Deverall Chairman Chief Executive Officer and Managing Director

Sydney 24 August 2010

60 | Perpetual Limited and its controlled entities management’s discussion and analysis of financial condition and results of operations (MD&A) for the 12 months ended 30 June 2010

Overview...... 62 Segment results summary...... 62 Operating environment ...... 64 Regulatory environment...... 66 Shareholder returns...... 67 Dividends...... 67 Review of businesses...... 68 Perpetual Investments...... 68 Private Wealth...... 72 Corporate Trust...... 74 Group and Support Services...... 76 Total Group expenses...... 76 Significant items...... 77 Capital management...... 78 Interest rate risk...... 79 Credit risk...... 79 Equity risk...... 79 Market risk...... 79 Operational risk...... 79 Financial strength...... 80 Cash flow...... 80 Summary Consolidated Balance Sheet...... 81 Appendix A: Segment results...... 82 Appendix B: Average FUM...... 85 Glossary...... 86

Perpetual is a diversified financial services company The following information should be read in conjunction with operating in three main markets: funds management, financial the Group’s audited consolidated financial statements and advisory and trustee services. The Group operates primarily associated notes for the financial year ended 30 June 2010. in Australia. Market factors influencing the performance of these sectors include global economic performance, stability All amounts shown are stated in Australian dollars unless of financial markets and government policy. otherwise noted, and subject to rounding.

The following is a discussion and analysis of our results of Additional information is available on the Group’s website operations for the 12 months ended 30 June 2010 (FY10). www.perpetual.com.au It also includes a discussion of our financial condition as at A glossary of frequently used terms and abbreviations can be 30 June 2010. found at the end of the discussion.

Perpetual Limited and its controlled entities | 61 Overview The macro-economic conditions in the 2010 financial year ▪▪ the recovery of prior period losses in relation to the Exact improved significantly over the previous year, which underpinned Market Cash Fund (EMCF) stronger equity and credit markets. Perpetual was able to improve ▪▪ the absence of any material restructuring expenses. its operating leverage to the markets by preserving the benefits of the cost savings initiatives undertaken in the 2009 financial A final FY10 fully franked dividend of 105 cents per share was year. This ensured the more positive market environment had a declared, payable on 28 September 2010 and bringing total fully beneficial impact on the Group’s financial results. However, investor franked dividends in respect of FY10 to 210 cents per share, up sentiment remained cautious throughout the year, particularly in 110 cents per share or 110% on FY09. the final quarter of the financial year, when markets were volatile. FY10 underlying profit after tax (UPAT) was $72.8m, an 11% Net profit after tax (NPAT) attributable to Perpetual Limited improvement on FY09. This progress was the result of the Group ordinary equity holders was $90.5m for the year ended 30 June maintaining much of the fixed cost saving initiatives implemented 2010 (FY10), up 140% compared to $37.7m for the year ended in FY09 and increased operating revenues. 30 June 2009 (FY09). The improvement in NPAT was mainly The Group’s financial strength improved in FY10, with net tangible attributable to: assets per share increasing by 13% to $3.95, compared to $3.51 ▪▪ the increase in operating revenue in line with improved equity at the end of FY09. At the end of FY10, the Group increased its and credit markets holdings of cash, cash equivalents and liquid investments by 30% to $237.4m, compared to $182.8m at the end of FY09. ▪▪ cost management, offset by targeted investment in business initiatives

Segment results summary

For the period ended Profit before/ Operating revenue EBITDA1 after tax FY09 FY10 FY09 FY10 FY09 FY10 $m $m $m $m $m $m Perpetual Investments 203.0 216.9 84.9 102.4 59.0 72.1 Private Wealth 85.7 111.6 33.5 37.7 29.1 32.6 Corporate Trust 80.3 87.5 39.6 35.6 36.1 32.3 Group & Support Services 6.1 10.3 (22.3) (23.7) (26.0) (29.3) Totals before tax and significant items 375.1 426.3 135.7 152.0 98.2 107.7 Income tax expense (32.5) (34.9) Underlying profit after tax (UPAT)2 before significant items 65.7 72.8 Significant items after tax: ▪▪ EMCF gains/(losses) (13.8) 20.3 ▪▪ Gain/(loss) on sale/impairment of investments (6.1) (2.6) ▪▪ Restructuring costs (8.1) - Net profit after tax (NPAT) attributable to Perpetual Limited ordinary 37.7 90.5 equity holders 1 EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items. 2 UPAT excludes certain items that are either significant by virtue of their size and impact on net profit after tax, or are ‘one-off’ in nature. UPAT has been calculated in accordance with the guidelines issued by the AICD and Finsia. It reflects management’s assessment of the result for the ongoing business activities of the company.

The following table presents the change in underlying profit before tax by business unit for the six months ended 30 June 2010 (2H10) compared to the six months ended 30 June 2009 (2H09), and the six months ended 31 December 2009 (1H10); and FY10 compared to FY09.

Change in Underlying Profit 2H10 v 2H09 2H10 v 2H09 2H10 v 1H10 2H10 v 1H10 FY10 v FY09 FY10 v FY09 Before Tax $m % change $m % change $m % change Perpetual Investments 11.9 +51% (1.7) -5% 13.1 +22% Private Wealth 6.4 +55% 3.6 +25% 3.5 +12% Corporate Trust (1.6) -10% (3.3) -19% (3.8) -11% Group & Support Services 0.9 +6% 1.1 +7% (3.3) -13% Total 17.6 +49% (0.3) -1% 9.5 +10%

From the above table, the Group’s operating leverage to Australian equity market performance is apparent. The 49% improvement in the Group’s 2H10 underlying profit before tax compared to 2H09 was mainly driven by improved equity market performance. Underlying performance in FY10 improved by around 10% compared to FY09, whilst performance between 1H10 and 2H10 was broadly unchanged.

62 | Perpetual Limited and its controlled entities The profitability of each business unit is heavily influenced In FY10 there was $1.9b of net outflows in Perpetual Investments, by its key revenue drivers: composed as follows:

▪▪ funds under management (FUM) for Perpetual Investments ▪▪ The equities asset class experienced an aggregate $0.4b of net outflow – a net $0.3b improvement on FY09. While ▪▪ funds under advice (FUA) for Private Wealth aggregate flow in equities was negative, our actively managed equity strategies enjoyed net inflows of $0.6b in FY10 ▪▪ funds under administration (FUA) for Corporate Trust. compared to $0.6b of net outflows in FY09. Quantitative The Group earns the majority of its revenue based on a investment strategies, which typically earn a lower fee, had percentage of total assets under management, advice or net outflow of around $1.0b in FY10 compared to $0.1b of net administration. Around 27% of the Group’s revenues are charged outflow in FY09. on a per transaction or time basis, however, this is expected ▪▪ The cash and fixed interest asset class experienced net to change over time as the Group expands its fee for service outflows of around $1.4b, versus $100m of net inflow in FY09, activities in Private Wealth and Corporate Trust. as investors sought exposure to other investment strategies.

The table below, and on the next page, summarises the ▪▪ A $0.1b reduction in investment assets backing Perpetual movements in each business unit’s key revenue driver across Protected Investments (PPI) in response to loan repayments the year. More detailed analysis is contained within the ‘Review by investors. of Businesses’ section. Private Wealth FUA increased by 22% over FY10, driven by Movements in key revenue drivers and operating a combination of improved equity and credit markets and environment two acquisitions: Grosvenor Financial Services and Fordham The largest drivers of total revenue are the value of FUM within Business Advisors. Perpetual Investments and FUA within Private Wealth, which are Corporate Trust FUA decreased by 13% over FY10 in response to mainly influenced by the level of the Australian equity market. the lower levels of RMBS issuance by the industry during the year At the end of FY10, Perpetual Investments’ FUM and Private when compared to levels prior to the Global Financial Crisis (GFC) Wealth’s FUA was around 75% and 55% exposed to domestic and increased run-off rates, in excess of historical levels. The and international equity markets, respectively. Group continued to grow its mortgage services business in FY10 The key asset classes managed by the Group are equities and with volumes doubling compared to FY09. cash and fixed interest. Average Group FUM increased by 7% in The following table details the movement in each business unit’s FY10 due to improving equity markets in the first three quarters key revenue drivers: of the year. However, the year-on-year increase in Group FUM for FY10 was limited to 3% as a result of the sharp decline in markets in the last quarter of the year.

At end of FY08 FY09 Net Other FY10 FY10 FY10 flows v FY08 v FY09 $b $b $b $b $b % variance % variance Perpetual Investments FUM (including Direct) 30.3 26.2 (1.9) 2.6 26.9 -11% +3% Private Wealth FUA 7.7 6.8 - 1.5 8.3 +8% +22% Corporate Trust FUA 222.9 241.4 (30.9) - 210.5 -6% -13%

The following chart shows the Group’s average FUM and revenue margin over the last three years:

40.0 0.80 bps

35.0 0.70 bps

30.0 0.60 bps

25.0 0.50 bps

20.0 0.40 bps

Avg FUM $b Avg 15.0 0.30 bps Revenue margin (bps) 10.0 0.20 bps

5.0 0.10 bps

1H08 2H08 1H09 2H09 1H10 2H10 Australian Equities Global Equities Quantative Investments Cash and fixed interest Other Margin excluding performance fees

Perpetual Limited and its controlled entities | 63 The following table details the movements in average Group funds under management and revenue margins:

Average Group FUM 1H08 2H08 1H09 2H09 1H10 2H10 FY09 FY10 $b $b $b $b $b $b $b $b Perpetual Investments 36.9 31.3 26.8 23.2 26.8 26.8 25.0 26.8 Private Wealth 1.9 1.9 1.6 1.4 1.6 1.6 1.5 1.6 Total average FUM 38.8 33.2 28.4 24.6 28.4 28.4 26.5 28.4

Average FUM revenue margin 82 bps 82 bps 74 bps 77 bps 75 bps 78 bps 75 bps 76 bps Average FUM revenue margin excluding 80 bps 76 bps 74 bps 69 bps 75 bps 76 bps 72 bps 76 bps performance fees

The Group reports the majority of the above FUM-related revenue During FY10 the functioning of global financial markets improved, in the Perpetual Investments business segment. In addition, allowing a gradual winding back of the extraordinary support revenue attributable to the Group’s retail customers who invest from many governments and central banks around the world. directly in Perpetual Investments’ range of products is reported as part of Private Wealth’s revenue. In line with this, sentiment in global financial markets improved considerably in FY10. This general improvement came despite The Group’s main source of revenue is from its funds under periodic setbacks leading to periods of heightened risk aversion. management. Average FUM revenue margin for FY10 was The most recent incident in this regard occurred in the June broadly in line with FY09 at 76 and 75 bps respectively. Excluding 2010 quarter, when investors became concerned about the the impact of performance fees, the Group’s average FUM fiscal position and creditworthiness of some European countries, revenue margin increased by 4 bps to 76 bps in FY10 from particularly Greece. This credit threat appeared to pose a new 72 bps in FY09. challenge for the global economy at the precise point where its recovery is transitioning between the fading impact of rebound Management calculates the expected impact on revenue, factors such as fiscal stimuli and a more mature phase during across all of its businesses, for each 1% movement in the All which GDP gains will increasingly depend on a recovery in Ords. Based on the level of the All Ords at the end of FY10, a private investment and consumption. Global equity markets 1% movement in the market changes annualised revenue by fell significantly in the June 2010 quarter in response to these approximately $2.0m to $2.5m. It is worth noting this movement mounting concerns. is not linear to the overall value of the market. This means that as the market reaches higher or lower levels, a 1% movement may In Australia, economic conditions were better than anticipated in have a larger or smaller effect on revenue as FUM and FUA are the previous year. After contracting in the December quarter of comprised of both equity market and non-equity market-sensitive 2008, the economy expanded at a reasonable pace throughout asset classes. calendar 2009, with activity supported by the stimulatory settings of monetary and fiscal policy, Australia’s strong trade links with a Operating environment rapidly recovering Asia, a relatively high rate of population growth FY10 has been characterised by a recovery in the global and a sound financial system. Unemployment peaked at around economy and the financial markets since the equity market low 5.8% at the beginning of FY10, and was at 5.1% by the end of point of March 2009. the period.

After a sharp contraction in demand during the latter part of As the risk of a serious economic contraction in Australia 2008 and early 2009, the global economy started to stabilise and subsided, the Reserve Bank of Australia (RBA) in October 2009 resume growth in response to the substantial economic stimulus decided to reduce the level of monetary stimulus by increasing provided by governments around the world. Growth has been the overnight cash rate from 3.0%, initially to 3.25%. Since then, led by the emerging world, particularly China, impacting other the overnight cash rate has been raised by 0.25% five more economies in the region and commodity markets. Economic times, most recently in May 2010, taking it to 4.5%. expansion in major established economies has been more modest due to a more prolonged impact of the GFC. The S&P ASX All Ordinaries Price Index (All Ords) increased in value during FY10 by around 10%, closing at 4,324.8 at the end of the period, compared to 3,947.8 at the end of FY09.

64 | Perpetual Limited and its controlled entities The following chart shows the movement in both the All Ords and average index for FY09 and FY10:

Spot close All Ords Avg All Ords 1st half avg All Ords 2nd half avg All Ords

5,250

FY09 FY10 5,000

4,750

FY10 Avg All Ords 4,550

4,250 Index

4,000 FY09 Avg All Ords

3,750

3,500

3,250

Jul 08 Jul 09 Jan 10 Feb 10 Apr 10 Jun 10 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Mar 10 May 10

S&P ASX All Ordinaries Price Index 1 July 2008 - 30 June 2010

The Australian funds management industry has been experiencing a return of net inflows as investors continued to transition assets out of low yielding risk-averse bank deposit and cash management style products into a greater variety of investment strategies. Based on the most recent market data, the industry returned to a net inflow of around $6.2b in the 12 months to March 2010, compared to a net outflow of around $29.0b in the previous year. Consistent with experience in other countries, there was an increase in fund flow to index managers, away from active managers such as Perpetual.

Total market quarterly net flows since June 2006

40.0

30.0

20.0

10.0 $b

0

(20.0)

(20.0)

Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10

Source: Plan for Life March 2010

The above chart demonstrates the recovery of inflows into the Australian funds management industry. However, investor confidence remains fragile with net inflows still well below pre-GFC levels.

The improvement in credit market conditions in FY10 flowed into the residential mortgage backed securities market (RMBS), where spreads continued to narrow, increasing the confidence of both issuers and investors.

Perpetual Limited and its controlled entities | 65 RMBS issuance quarterly

30 250

Non AOFM AOFM 200 Spread margin

20 150 $b 100 10

50 Average revaluation margin bps – 2 year senior margin revaluation Average

0 0 00 01 02 03 04 05 06 07 08 09 10 Year ended 30 June

Source: www.AOFM.gov.au; S&P, Macquarie Bank and Perpetual

During FY10, both issuance and pricing improved, with increased ▪▪ The Australian Financial Services Forum (Johnson Review) participation from real money investors amid reduced reliance on proposes changes aimed at positioning Australia as a the Federal Government’s AOFM support program. These trends financial services hub, including enhancing the international are apparent from the above chart. competitiveness of Australia’s funds management sector.

Regulatory environment These areas of proposed reform are at differing levels The past financial year has been characterised by significant of development and have not been finalised. Significant regulatory review. In particular, four areas of possible regulatory implementation detail remains to be worked through. Therefore, the reform have the potential to influence the operating environment final impact of proposed changes will not be clarified until regulatory of Perpetual: details and the exact form of legislative change is known.

▪▪ The Government’s response to the Henry Review (a review Perpetual is well positioned to capitalise on the opportunities and of Australia’s taxation system, including structural settings for respond to the challenges presented by regulatory change. superannuation) had a strong focus on measures to underpin Its track record as a provider of fee-for-service financial advice, the adequacy of Australia’s superannuation savings. Most products and services to high net worth individuals, and its significantly, it expressed the intention to gradually increase continued ability to generate above benchmark returns for its compulsory superannuation contributions (the SGC) from the active management equity funds allow Perpetual to offer a current 9% to 12% by 2020. sound value proposition to its target customer segments in ▪▪ The Government’s Future of Financial Advice policy (which any environment. represents its response to the recommendations of the Ripoll Perpetual believes that regulatory change is most likely to create Parliamentary Inquiry) is likely to impact directly on financial challenges for wealth management models that focus on providing advisers and indirectly on payment structures for many basic and standardised commission-based advice for mass participants in wealth management, including asset managers market investors, a segment in which Perpetual does not operate. and providers of administration platforms and services.

▪▪ The Super System Review (Cooper Review) envisions substantial changes in the delivery of superannuation to members.

66 | Perpetual Limited and its controlled entities Shareholder returns

For the period ended1,2 1H09 2H09 1H10 2H10 FY09 FY10 Diluted earnings per share (EPS) on UPAT cents 99.0 56.8 85.1 84.1 155.6 169.3 Diluted EPS on NPAT cents 33.8 55.5 115.0 95.6 89.4 210.5

Annualised return on average equity (ROE) on UPAT % 29.1 17.6 22.9 20.6 21.8 22.4 Annualised ROE on NPAT % 9.9 17.2 30.9 23.4 12.5 27.9

1 EPS is calculated using the weighted average number of ordinary shares and potential ordinary shares on issue. 2 The returns on equity quoted in the above table are an annualised rate of return based on actual results for each period. ROE is calculated using the NPAT attributable to ordinary equity holders for the period, divided by average equity attributable to the Group’s ordinary equity holders, multiplied by the number of such periods in a calendar year in order to arrive at an annualised return on equity.

In FY10, EPS and ROE based on UPAT both increased: ▪▪ the acquisition of Grosvenor Financial Services within our Private Wealth business, which was partly financed by an issue ▪▪ Diluted EPS of 169.3 cents per share represented an 8.8% of ordinary shares increase on FY09, in line with the improvement in underlying profitability, and ▪▪ participation in the Group’s dividend reinvestment plan (DRP) that accompanied the FY09 final dividend paid 30 September ▪▪ ROE increased by 60 bps to 22.4% from 21.8% in FY09. 2009 and the FY10 interim dividend paid 1 April 2010.

Both EPS and ROE on NPAT were substantially higher in FY10 Average shareholders’ equity for FY10 increased by 7.5% compared to FY09, predominantly due to the recovery of prior compared to FY09 due to: period losses on the EMCF, compared to losses incurred in FY09 and the absence of any restructuring expenditure in FY10. ▪▪ the final dividend for FY09 (paid 30 September 2009) and the interim dividend for FY10 (paid 1 April 2010) being lower than During FY10, the number of shares on issue increased by 2% FY10 NPAT, which increased retained earnings (+0.9m shares) to 43.4m shares due to: ▪▪ the issue of ordinary shares in relation to the acquisition ▪▪ employee share plan related ordinary share issues of Grosvenor Financial Services, which increased contributed equity

▪▪ participation in the DRP, which increased contributed equity.

Dividends

For the period ended 1H09 2H09 1H10 2H10 FY09 FY10 Fully franked dividend per ordinary share cents 40.0 60.0 105.0 105.0 100.0 210.0 Dividend payout ratio1 % 118.3 108.1 91.3 109.8 111.9 99.8 Proportion of NPAT paid/payable as dividend2 % 119.6 108.5 92.3 110.4 2 112.7 100.52

1 Dividend payout ratio is calculated using dividend(s) declared for the relevant period, divided by the diluted earnings per share. 2 Based on ordinary fully paid capital at end of FY10.

The Group’s dividend policy is to pay dividends within a range ▪▪ significant items of $17.7m after tax which equates to 41 cents of 80-100% of NPAT on an annualised basis, with a goal per share – significant items, which include EMCF recoveries, to maximise fully franked dividends to shareholders. The are not considered to be maintainable earnings. dividend policy is designed to be sustainable over the long term while providing the Group with an appropriate degree The DRP will be operational for the FY10 final dividend and will be of financial flexibility. met by issuing new shares to DRP participants. The issue price per share for the FY10 final dividend DRP will be the average An FY10 final fully franked dividend of 105 cents per share will be market price, as defined in the DRP terms1, less a 2.5% discount. payable on 28 September 2010 (ex-dividend date of 1 September 2010 and record date 7 September 2010). The pricing period for the FY10 final dividend DRP will be the 10 trading days commencing 8 September 2010 and ending This brings total fully franked dividends for FY10 to 210 cents per 21 September 2010. share, compared to total fully franked dividends of 100 cents per share in FY09. The Group’s franking credit balance as at the end of FY10 was $62.5m, which will enable it to fully frank $145.8m of cash The FY10 total dividend is derived from two components of profit: dividends. After payment of the final dividend for FY10, the franking balance is capable of fully franking a further $100.2m ▪▪ UPAT of $72.8m which equates to 169 cents per share of dividends.

1 The Group’s DRP Rules can be found at http://shareholders.perpetual.com.au/Shareholder services/Dividend Reinvestment Plan.

Perpetual Limited and its controlled entities | 67 Review of businesses Perpetual Investments Perpetual Investments is one of Australia’s most highly regarded investment fund managers, offering a broad range of products for personal investment, superannuation and retirement.

We offer investors strong investment capabilities across a range of asset classes, including Australian and international equities, property securities, multi-sector and multi-manager funds, mortgages, fixed interest and cash.

Perpetual Investments’ financial summary 1H09 2H09 1H10 2H10 FY09 FY10 For the period ended $m $m $m $m $m $m Revenues 105.4 97.6 105.9 111.0 203.0 216.9 Operating expenses (56.3) (61.8) (54.4) (60.1) (118.1) (114.5) EBITDA 49.1 35.8 51.5 50.9 84.9 102.4 Depreciation and amortisation (2.3) (3.1) (2.9) (2.4) (5.4) (5.3) Equity remuneration expense (11.1) (9.4) (11.7) (13.3) (20.5) (25.0) Profit before tax 35.7 23.3 36.9 35.2 59.0 72.1 Average FUM revenue margin (normalised FUM based 70 bps 74 bps 71 bps 74 bps 72 bps 73 bps revenues/average FUM) Average FUM revenue margin excluding performance fees 70 bps 66 bps 71 bps 73 bps 68 bps 72 bps

Average FUM (excludes Direct & AERF1) $26.8b $23.2b $26.8b $26.8b $25.0b $26.8b

1 Direct refers to the Group’s retail customers who invest directly in Perpetual Investments range of products. This FUM and associated revenue is not included in this calculation of average FUM or Average Margin in the above table.

FY10 profit before tax of $72.1m represented a 22% increase on managed superannuation fund (SMSF) administration FY09. 2H10 profit before tax of $35.2m represented a decrease and a platform business administering funds managed by of 5% on 1H10 but a 51% increase on 2H09. Perpetual and other fund managers. Perpetual Investments’ asset classes are categorised across a number of functional Average FUM in FY10 increased 7% on FY09. 2H10 average units in the table below. FUM was flat on 1H10 due to the downward movement in equity markets experienced during the June 2010 quarter. 2H10 average Revenue from equities is earned across each functional unit FUM was up 15% on 2H09 as a result of a strong recovery in of Perpetual Investments, including multi-sector funds within equity markets in 1H10, offset by a sharp decline in these same Income and Multi Sector, and from Perpetual funds offered via markets in 2H10. These overall movements in FUM correlate with the WealthFocus platform within Superannuation and Investment the movements in the equity markets over these periods but have Solutions. also been impacted by net outflows across all asset classes. Other FUM related revenue includes revenue earned on external The average FUM revenue margin in FY10 was 73 bps, slightly funds hosted on the Group’s platforms, smartsuper revenue higher than in FY09. Margins in FY09 have been normalised for and revenue generated from structured products funds under the $5.1m of negative revenue adjustments that related to prior management. years. Revenues used to calculate the average FUM margin exclude non-FUM related revenue such as net interest earned on Other non-FUM related revenue includes net interest margin on PPI loans and smartsuper revenue. the structured products’ loan book and interest revenue earned on operational bank accounts across all the functional units. The margin in 2H10 improved on 1H10 as a result of the recognition of some performance fees, which aligns with the time Revenue generally increases or decreases as FUM increases or period when performance fees are determined. Excluding the decreases. Increases in FUM result from market appreciation, impact of performance fees, the average FUM revenue margin positive investment performance for customers or asset inflows increased by 4 bps to 72 bps in FY10 from 68 bps in FY09. from new and existing customers. Investment into our funds is generally through either institutional investors, from whom we Perpetual Investments manages investments across a number of generally receive lower margins, and from intermediary/retail asset classes, including equities, fixed interest and cash. It also investors, who typically invest small amounts but from whom we manages a number of administrative businesses such as self receive a higher margin.

Functional units

Asset class Income and Superannuation and Investment Equities Multi-Sector Solutions Equities ✓ ✓ ✓ Cash and fixed interest ✗ ✓ ✓ Other FUM related ✗ ✓ ✓ Other non-FUM related ✓ ✓ ✓

68 | Perpetual Limited and its controlled entities We offer our investors an array of funds in which to invest. Some of these funds are tailored for both institutional and intermediary/retail investors, whilst some funds are available to intermediary/retail investors only. Funds that are offered exclusively for our intermediary/retail investors typically incur a higher fee. Decreases in FUM can result from market depreciation, negative investment performance or asset outflows due to redemptions by our customers. Performance fees will fluctuate from period to period and may not correlate with general market changes, since these fees are driven by relative performance to the respective benchmark rather than absolute performance.

The following table provides an analysis of revenue by asset class:

1H09 2H09 1H10 2H10 FY09 FY10 Revenue for the period ended $m $m $m $m $m $m By asset class: ▪▪ Equities 81.2 74.3 83.6 87.6 155.5 171.2 ▪▪ Cash and fixed interest 10.9 11.1 13.3 13.4 22.0 26.7 ▪▪ Other FUM related 6.5 5.6 5.4 5.9 12.1 11.3 ▪▪ Other non-FUM related 6.8 6.6 3.6 4.1 13.4 7.7 Perpetual Investments total revenue 105.4 97.6 105.9 111.0 203.0 216.9

Equities – FY10 revenue from equities, comprising Australian rebalancing the customer’s portfolio of investments during the and global equities, increased by $15.7m or 10% on FY09 to term of the product between equity style investments and less $171.2m, driven by favourable market movements. 2H10 revenue volatile assets. Due to the sharp declines in equity markets in increased 5% or $4.0m on 1H10 as a result of favourable FY09, all of the investors in Series 1 and 2 and some of the market movements and net inflows into our higher revenue investors in Series 3 were entirely invested in less volatile assets margin strategies. Partially offsetting this were net outflows from and no longer had any exposure to equity markets, up or down. lower revenue margin strategies – in particular our quantitative In FY10, the Group presented ‘cash locked’ investors in Series investment strategy. In addition, 2H10 revenues benefited from 1, 2 and 3 with an offer that would enable their underlying performance fees, albeit at a lower level than in 2H09. investment to regain exposure to equity markets. These offers were taken up by many investors, which required them to invest Cash and fixed interest – FY10 revenue increased by $4.7m, or additional funds. 21% on FY09 to $26.7m, primarily due to operational errors that adversely affected FY09 revenue by $3.8m. 2H10 revenues were In FY10, the outstanding loan book declined by $130.8m from relatively flat on 1H10, with higher fees received from EMCF2 $319.6m at the end of FY09 to $188.8m, broadly in line with the offset by reduced revenue due to net outflows from mortgages, Group’s expectations, given that around $108m of repayments cash and credit funds. in 1H10 were already advised in June 2009. At the end of FY10, the Group received loan repayment and product redemption Other FUM related – includes management fees for external notifications from clients to the value of around $23m. funds on our WealthFocus platform and structuring fees on the PPI structured products. Revenue declined by $0.8m in FY10 to Loans in arrears are actively managed and the total of $11.3m compared to FY09, mainly due to lower PPI fees from the the doubtful debts reserve at the end of FY10 was $2.6m combination of continued run-off and the absence of new issues (FY09: $1.0m). in the last 12 months. The Group’s credit exposure is limited to a loss of 6% of the loan Other non-FUM related – revenue decreased by $5.7m to $7.7m book for Series 1 and 2 and 7% for the Series 3 loan book, given in FY10, primarily due to: the limited recourse terms of the borrowings used to fund these portfolios. The Group’s total loss exposure to the PPI portfolios at ▪▪ reduced PPI loan interest income as the book continues to the end of FY10 was $11.4m, versus $16.1m at the end of FY09. run off FY10 operating expenses of $114.5m were 3% lower than FY09 ▪▪ in FY10, responsibility for AERF and IDPS products was expenses of $118.1m, reflecting: transferred to Private Wealth (ie no impact at Group level) to provide operational efficiency and alignment with advisers, ▪▪ the maintenance of cost saving initiatives implemented in FY09 reducing non-FUM revenue by $5.1m. relating to reductions of staff and discretionary expenditure

Perpetual Investments manages the structured products loan ▪▪ a stronger AUD/EUR exchange rate (the average AUD/EUR rate book, where investors have borrowed funds to invest in a capital was 17% stronger than in the prior year) as well as a reduction protected range of investments offered within the Perpetual in costs, resulting in lower expenses incurred in the Group’s Protected Investments (PPI) product range. In FY09, additional overseas operation structured product lending was suspended as the Group determined that it will no longer use its balance sheet to finance ▪▪ the transfer of the IDPS and AERF products to Private Wealth this type of activity. (ie no impact at Group level)

The capital protection provided to investors is based on constant ▪▪ FY09 included the negative impact from $3.3m of unit proportion portfolio insurance (CPPI) technology, which involves pricing errors.

Perpetual Limited and its controlled entities | 69 This was partially offset by: FY10, underpinned by our long-term record of delivering market outperformance for our investors. This represented a $1.2b ▪▪ an increase in PPI loan doubtful debt provisions and a full year improvement on FY09, when we recorded $0.6b of net outflows. of smartsuper costs against nine months of expense in FY09, as the business was acquired in September 2008 In FY10, we experienced net outflows of around $1.0b from our institutional quantitative investments strategies, compared to a ▪▪ increase in registry fees from our custodian in FY10 net outflow of $0.1b in FY09 as investors redeployed funds into other strategies. ▪▪ FY10 including a higher level of variable compensation payments for staff in line with improved performance of the This total net outflow of $0.4b of FUM from the equities asset Group, as well as an increased likelihood of equity-based class in FY10 did not translate into an absolute fall in revenue as remuneration vesting. the Group earns higher fees from its active funds management activities in comparison to the revenue earned from institutional Funds under management (FUM) quantitative strategies, which earn lower base fees. The table below details the closing FUM for the last three fiscal years. In FY10, total FUM grew by around 3% to $26.9b. Equities The below table shows the movement in closing FUM over the FUM grew by around 9% in FY10 to $18.9b. However, growth in last 12 months. The move away from cash was reflected in FY10 average FY10 equities FUM was 15% over average FY09 equities net outflows of $1.4b in the Group’s cash and fixed interest asset FUM (detailed in Appendix B), in line with the average All Ords, class, which includes the Group’s mortgage funds1. which was 15% higher in FY10. Perpetual’s active management investment style has generated For most of FY10, there were marked improvements in both strong relative performance against its respective benchmarks equity and credit markets globally and this resulted in investors (known as alpha) in virtually all of our funds over the long term. increasing their appetite for risk assets. The resulting movement Positive alpha benefits the Group in three primary ways: away from cash triggered inflows into a variety of investment ▪ it demonstrates our expertise in actively managing our strategies. ▪ customers’ funds and we expect that this will be a positive In FY10, the equities asset class experienced $0.4b of net factor in retaining funds and attracting future inflows outflows, comprising $0.6b of net inflows into our actively ▪ it keeps FUM higher managed equity funds, offset by $1.0b of net outflows from our ▪ quantitative investments strategies. ▪▪ a number of institutional client mandates include performance fee incentives based on the level of alpha generated. Whilst investors appear to have chosen to increase their domestic equity market allocations to index and multi-manager funds in preference to active single fund managers, we enjoyed net inflows of $0.6b into our actively managed equity funds in

FY08 FY09 Net flows Other2 FY10 FUM at end of $b $b $b $b $b Institutional 8.3 8.5 (1.2) 0.8 8.1 Intermediary (master fund and wrap) 14.8 11.9 (0.3) 1.3 12.9 Retail (including Direct) 7.2 5.8 (0.4) 0.5 5.9 All channels 30.3 26.2 (1.9) 2.6 26.9 Australian equities 19.7 16.0 (0.4) 1.9 17.5 Global equities 1.5 1.4 - - 1.4 Equities 21.2 17.4 (0.4) 1.9 18.9 Cash and fixed interest 7.5 7.5 (1.4) 0.6 6.7 Other 1.6 1.3 (0.1) 0.1 1.3 All asset classes 30.3 26.2 (1.9) 2.6 26.9

2 Includes reinvestments, distributions, income and asset growth.

1 In October 2008, the Group moved to a quarterly redemption process in response to the introduction of guarantees on bank deposits which prompted a sharp increase in redemptions from mortgage funds across the industry. Whilst some other fund managers have either frozen redemptions or are in the process of winding up their mortgage funds, the Group continues to offer investors access to their funds via a quarterly redemption process.

70 | Perpetual Limited and its controlled entities The table below highlights the consistent outperformance against benchmark (alpha) of our main funds over short and long-term periods.

Excess investment performance pa – gross as at end June 2010 Annualised returns Industrial Share Fund Australian Share Fund Small Companies Fund Concentrated Equity Fund International Share Fund (ex 3 months) 3 months +2.29% +2.39% +5.03% +1.80% -0.07% 1 year +0.07% +5.90% +14.64% +2.80% -0.36% 3 years +4.07% +4.13% +6.13% +5.83% +2.43% 5 years +2.57% +2.53% +4.17% +3.76% +1.20% 7 years +2.40% +2.66% +2.49% +2.68% N/A 10 years +4.46% +4.21% +8.28% +5.06% N/A

Net flows of funds by distribution channel and asset class for the last 24 months are detailed in the following table:

1H09 2H09 1H10 2H10 FY09 FY10 For the period ended Net flows Net flows Net flows Net flows Net flows Net flows $b $b $b $b $b $b Institutional 0.5 0.5 (0.9) (0.3) 1.0 (1.2) Intermediary (master fund and wrap) (0.9) (0.2) 0.1 (0.4) (1.1) (0.3) Retail (including Direct) (0.4) (0.2) (0.3) (0.1) (0.6) (0.4) All distribution channels (0.8) 0.1 (1.1) (0.8) (0.7) (1.9) Australian equities (0.4) (0.3) - (0.4) (0.7) (0.4) Global equities (0.1) 0.1 - - - - Equities (0.5) (0.2) - (0.4) (0.7) (0.4) Cash and fixed interest (0.2) 0.3 (1.0) (0.4) 0.1 (1.4) Other (0.1) - (0.1) - (0.1) (0.1) All asset classes (0.8) 0.1 (1.1) (0.8) (0.7) (1.9)

The Group sources FUM through three primary distribution Retail – this channel sources FUM from advisers and clients who channels: invest with Perpetual directly and investors who come through our own WealthFocus platform, where some FUM flows into Institutional – industry funds and clients who invest large sums. third party products. This FUM earns the highest gross margin. We earn our lowest revenue margin from this channel. However, However, it requires a significant support infrastructure, which institutional FUM does not require complex technology and makes the cost to service this channel the highest. service structures, such as call centres and dedicated sales and distribution support, so the servicing cost is lower. In FY10, our retail flows improved by $0.2b on FY09. This channel experienced net outflows of $0.4b in FY10, spread across both In FY10, the institutional channel experienced $1.2b of net equities and cash asset classes. outflows, principally from our cash investment products, with net outflows from equities of $0.1b on the back of strong inflows of Relative share of FUM and underlying revenue by each of the $0.9b into our active style funds, offset by outflows of $1.0b from above channels has remained relatively stable over the last our quantitative investment strategies. 18 months. The institutional channel also benefits from the potential to earn performance fees. Intermediary – this channel includes FUM from financial advisers who invest with Perpetual via external platform providers. This is The above table also compares net flows by asset class our largest source of FUM. across the last 24 months. As noted previously, there has been a period-to-period improvement in net flows in equities, with net FY10 intermediary net flows improved $0.8b on FY09, with net outflows reducing from $0.5b in 1H09 to neutral in 1H10. Whilst outflows of $0.3b in FY10. In FY10, we experienced net inflows 2H10 shows $0.4b in net outflow in equities, this is not reflective across our range of equities funds, with some of the Group’s of the Group’s strong performance in actively managed equities. newer funds, which appeal to high net worth investors, finding As discussed previously, these funds recorded net inflows of good support from this channel. Outflows experienced were $0.3b in both 1H10 and 2H10, offset by net outflows of $0.3b mainly concentrated through our Industrial Share Fund and and $0.7b in quantitative style managed funds over 1H10 and our diversified investment funds and mortgage products. 2H10 respectively. This compares with FY09, where investors moved into more defensive assets, consistent with the broader industry. Net flows in cash and fixed interest generally reflect the sentiment of investors as they move to and from cash style products depending on prevailing conditions in equity markets.

Perpetual Limited and its controlled entities | 71 Private Wealth ▪▪ Fiduciary – improved quality and consistency of services Private Wealth is the Group’s specialist financial services ▪▪ Philanthropy – increased transparency and simplified business, which provides holistic financial solutions for high net processes to make applications to the 450 philanthropic trusts worth individuals. It aims to be the leading provider of wealth we manage management services to financially successful Australians and their families. ▪▪ Customer service offerings – an increase in the number of client facing staff, including senior financial consultants and Private Wealth also services the Group’s retail customers who continued improvements to the client management system, invest directly in Perpetual Investments’ range of products. which now delivers more efficient processes and an increased Financial solutions range from strategic advice, ongoing focus on quality and risk management. investment advice and management, DIY superannuation The Group also continued to implement its inorganic growth services, custodial solutions, estate planning, estate strategy with the acquisition of two complementary businesses administration, executorial services and trustee services, that specialise in the high net worth segment of the advice including charitable trusts. Following the acquisition of Grosvenor market: Financial Services and Fordham Business Advisors in FY10, the Group has further increased its capabilities in specialist ▪▪ In September 2009, the Group acquired a 100% interest in accounting and taxation advice. Grosvenor Financial Services, a Sydney-based advisory firm specialising in medical, dental and legal professions. Grosvenor Each client receives highly individualised attention, customised provides clients with strategic financial and taxation advice to his or her needs and based on a long-term plan focused on and investment management. Consideration was $20.1m and wealth creation and protection. comprised a combination of cash and shares subject to earn- Private Wealth manages financial assets for over 6,800 private outs. Acquired FUA was around $0.4b. clients, estates, trusts and charitable trusts, with funds under ▪▪ In January 2010, the Group acquired 100% of Fordham advice of $8.3b at the end of FY10, up 22% from $6.8b at the Business Advisors, a Melbourne-based advisory firm end of FY09. specialising in private business owners and their families. The Group is one of the largest managers of private charitable Fordham provides clients with accounting, taxation and foundations in Australia, with over $1.1b in funds under strategic financial advice and investment management. management as at the end of FY10. Perpetual is trustee to more Consideration was $34.8m, comprising cash and deferred than 450 charitable trusts, supporting cultural, medical, social, consideration subject to earn-outs. Acquired FUA was around environmental, religious and educational causes. $0.5b. In FY09, wealth management fees comprised 25% of Fordham’s revenue. In FY10, the Group continued to execute on its growth strategy through a combination of organic and inorganic initiatives. Financial summary Private Wealth’s FY10 profit before tax increased by 12% Organic initiatives undertaken during the year have increased our to $32.6m compared to $29.1m in FY09. This reflects the competency and capability in the following core activities: improvement in investment markets, partially offset by increased ▪▪ Investment and strategic advice – investment teams have been investment in the core business activities. strengthened and a new direct equities investment process FY10 profit before tax included acquisition and integration costs has been deployed plus amortisation of identifiable intangibles associated with recent acquisitions of $3.3m before tax, versus $0.4m in FY09.

Private Wealth financial summary 1H09 2H09 1H10 2H10 FY09 FY10 For the period ended $m $m $m $m $m $m Revenues 45.0 40.7 47.4 64.2 85.7 111.6 Operating expenses (25.3) (26.9) (30.6) (43.3) (52.2) (73.9) EBITDA 19.7 13.8 16.8 20.9 33.5 37.7 Depreciation and amortisation (1.1) (1.3) (1.4) (2.5) (2.4) (3.9) Equity remuneration expense (1.2) (0.8) (0.9) (0.3) (2.0) (1.2) Profit before tax 17.4 11.7 14.5 18.1 29.1 32.6

Closing funds under advice (FUA) $6.5b $6.8b $8.1b $8.3b $6.8b $8.3b

Average funds under advice (FUA) $7.1b $6.6b $7.8 b $8.5b $6.9b $8.1b

72 | Perpetual Limited and its controlled entities The main source of Private Wealth revenue is FUA, which Operating expenses increased in FY10 by $21.7m or 42%, accounted for 78% of FY10 revenue, versus 81% in FY09. to $73.9m. This increase was attributable to the following:

FY10 revenues increased by $25.9m or 30%, to $111.6m, ▪▪ $12.9m from recently acquired businesses, predominantly compared to $85.7m in FY09. This increase in revenue was personnel costs, of which around $1.1m was incurred in 1H10 primarily attributable to the following: and $11.8m was incurred in 2H10

▪▪ $12.4m from increased FUA, of which $5.6m related to ▪▪ $2.0m of integration and acquisition costs for the recently acquired businesses acquired businesses, of which around $0.9m and $1.1m were incurred in 1H10 and 2H10 respectively ▪▪ $10.0m increase in fee revenue for accounting and tax services and other advisory services, mainly from the acquired ▪▪ $6.8m relating mainly to increased personnel costs as the businesses business continued to invest in organic growth initiatives. This included increasing the number of client facing staff and ▪▪ $5.1m from AERF and IDPS business, which was transferred strengthening our advisory teams. In addition, the improved from Perpetual Investments (ie nil impact at Group level), offset financial performance of the Group in FY10 compared to FY09 by a led to higher variable compensation.

▪▪ $1.6m reduction in interest income from operational cash flows. Depreciation and amortisation expense of $3.9m was incurred in FY10, compared to $2.4m in FY09. This increase of $1.5m was In FY10, revenue of $15.4m was earned from the following primarily due to $1.3m of amortisation of identifiable intangibles recently acquired businesses: due to the Group’s recent acquisitions. ▪▪ Grosvenor Financial Services, acquired in September 2009 Equity remuneration expense of $1.2m was incurred in FY10 (nine months revenue of $4.6m in FY10 versus nil in FY09) compared to $2.0m in FY09. The key driver for this decrease ▪▪ Fordham Business Advisors, acquired in January 2010 was the resignation of personnel whose unvested entitlements (six months revenue of $10.8m in FY10 versus nil in FY09). to shares and options under long-term incentive plans were forfeited, giving rise to a write-back of expense recognised in Around $13.7m or 90% of the revenue from the acquired prior periods. businesses was earned in 2H10, versus $1.7m or 10% in 1H10, reflecting both the timing and size of each of the acquisitions. In FY10, the Grosvenor and Fordham acquisitions both made a Around $9.8m or 65% of the FY10 acquired revenue was small positive contribution to the Group’s financial performance non-FUA related. The main source for this non-FUA revenue after taking into account acquisition, integration, amortisation and was the Fordham Business Advisors acquisition which depreciation charges. accounted for around 95%, predominantly accounting and tax services revenue.

Funds under advice (FUA) FY08 FY09 Net flows Acquired 1 Other 2 FY10 FUA at end of $b $b $b $b $b $b Financial advisory: ▪▪ superannuation 2.7 2.4 - 0.7 0.2 3.3 ▪▪ non-superannuation 2.0 1.8 - 0.2 0.2 2.2 4.7 4.2 - 0.9 0.4 5.5 Fiduciary services: ▪▪ philanthropic 1.1 1.0 - - 0.1 1.1 ▪▪ trusts and estates 1.9 1.6 - - 0.1 1.7 3.0 2.6 - - 0.2 2.8

Total funds under advice 7.7 6.8 - 0.9 0.6 8.3

1 Includes FUA acquired through the purchase of Grosvenor Financial Services in September 2009 and Fordham Business Advisors in January 2010. 2 Includes reinvestments, distributions, income and asset growth.

Perpetual Limited and its controlled entities | 73 Private Wealth’s FUA increased by 22% in FY10, driven by a paramount, evidenced by the delivery of impartial advice. In combination of improved investment markets, FUA acquired from addition, our revenues are based on a fee for service model and businesses purchased during the year and an improvement in net not on trail commissions. flows. At the end of FY10, around 55% of Private Wealth’s FUA was linked to equity market movements. We believe the organic investment in the business during FY10, together with our recent acquisitions, has improved the Group’s Net flows improved in FY10, with neutral net flows compared capabilities and has enhanced the future prospects of the to net outflows of around $0.2b in FY09. In FY10, there was business. an increase in gross inflows and a reduction in gross outflows compared to FY09. This improvement was driven by a Corporate Trust combination of improved investor confidence and higher inflows Corporate Trust is a leading provider of corporate trustee, from referrals from existing clients and leads generated through mortgage and transaction support services to the financial an enhanced alliance partner network. services industry. Products and services include trustee services for mortgage-backed and other securitisation programs for Private Wealth has continued to focus on executing initiatives major banks and non-bank organisations; regulatory compliance to deliver on our vision of being the leading provider of wealth services for fund managers; custody, unit registry and accounting management services to financially successful Australians and services for property and mortgage funds; trusteeships for their families. Inorganic initiatives are designed to deliver both corporate debt issues, infrastructure projects and other scale and capability to Private Wealth. The businesses that we structures; and mortgage processing services for financial have acquired have allowed us to increase our capacity and institutions. ability to provide holistic service offerings to the high net worth client market. Financial summary The Sydney-based Grosvenor acquisition in 1H10 enhanced As detailed in the following table, Corporate Trust’s profit before the Group’s knowledge, capability and understanding of the tax decreased 11% to $32.3m for FY10 compared to FY09. The financial needs of the medical, dental and legal professions. The $3.8m decrease in profit has been caused by: acquisition of Melbourne-based Fordham has added significant ▪▪ the $2.8m reduction of revenue within Trust and Fund Services, scale to our presence in Victoria and enhanced our national primarily as a result of a decline in RMBS FUA capability in the private business owner market, as well as our tax and accounting services. ▪▪ the investment to support the rapid growth of our Mortgage Services business– primarily incurred in 2H10. Our organic initiatives aim to improve the quality of our service to clients and allow continued development of our Our Mortgage Services business, which operates at a lower processes and systems to increase efficiency levels and margin than the Trust and Fund Services business unit, has scalability. Our investment in client facing staff has resulted grown significantly during FY10. In order to support this revenue in increased personnel costs, with limited growth in revenues growth, Corporate Trust incurred significant one-off costs in FY10. However, as new client facing staff become familiar associated with establishing and rolling out initiatives to meet the with the Group’s diverse product and service offerings as well substantial increase in demand for its service proposition. as introduce new clients to the Group, we expect to see increased revenue. In 2H10, profit before tax decreased by 19% against 1H10 due to the aforementioned investment and client on-boarding costs In FY10, there were a number of regulatory reviews related to associated with the Mortgage Services business unit to service the financial services industry. We believe our Private Wealth the significant increase in volume. This increased investment in business remains especially well positioned given our holistic Mortgage Services, along with the decline in revenue of Trust and advisory offering, together with our focus on high net worth Fund Services, unfavourably impacted 2H10 earnings. clients. Our fiduciary duties to our clients have always been

Corporate Trust financial summary

1H09 2H09 1H10 2H10 FY09 FY10 For the period ended $m $m $m $m $m $m Revenues 41.0 39.3 41.6 45.9 80.3 87.5 Operating expenses (19.3) (21.4) (22.2) (29.7) (40.7) (51.9) EBITDA 21.7 17.9 19.4 6.2 9.6 5.6 Depreciation and amortisation (1.6) (1.7) (1.5) (1.6) (3.3) (3.1) Equity remuneration expense (0.1) (0.1) (0.1) (0.1) (0.2) (0.2)

Profit before tax 20.0 16.1 17.8 14.5 36.1 32.3

74 | Perpetual Limited and its controlled entities FY10 revenues increased 9% on FY09, to $87.5m, with 2H10 revenues up 17% on 2H09. Trust and Fund Services revenue declined due to the continued run-off of securitisation FUA. This was partially mitigated by new business growth within the Fund Services business and increased revenue in our Mortgage Services business as volumes increased through the year. The following table details the revenue split between Trust and Fund Services, and Mortgage Services:

1H09 2H09 1H10 2H10 FY09 FY10 Revenue for the period ended $m $m $m $m $m $m Trust and Fund Services 29.9 28.5 27.9 27.7 58.4 55.6 Mortgage Services 11.1 10.8 13.7 18.2 21.9 31.9 Revenues 41.0 39.3 41.6 45.9 80.3 87.5

FY10 operating expenses increased 28% to $51.9m from FY09 and were up 34% from 1H10 to 2H10, largely due to expansion within the Mortgage Services business to support new business volumes. Expenses also included approximately $2m in non-recurring costs as a result of taking on a number of new clients. The improved financial performance of the Group in FY10 compared to FY09 led to higher variable compensation expense. Cost savings achieved within prior years have been largely maintained through strong expense discipline.

Funds under administration (FUA) As detailed in the following table, Corporate Trust’s FUA at the end of FY10 decreased 13% to $210.5 billion compared to the end of FY09, with declines across all asset classes. The largest decline was seen in the CMBS and ABS markets, which still remain largely closed to new issuance.

1H09 FY09 1H10 FY10 At end of $b $b $b $b CMBS and ABS 52.2 42.3 31.8 30.4 RMBS – non-bank 71.0 62.8 57.7 55.2 RMBS – repos 29.2 76.8 81.2 74.6 RMBS – bank 70.5 59.5 51.7 50.3 Total funds under administration 222.9 241.4 222.4 210.5

During FY10, Australian RMBS market conditions continued to improve, although they still remained subdued relative to the issuance levels experienced pre-GFC. The Australian Government’s decision in November 2009 to extend its AOFM cornerstone investment programme with an additional $8.0b has had a positive influence on the market. Since the extension of the cornerstone investment programme, the AOFM’s level of support via investment in new issuance has reduced in line with increased participation by other end investors.

The other factor influencing the revival in the securitisation market in FY10 has been the contraction in credit spreads, particularly for RMBS, which is making RMBS a more affordable source of term funding for non-bank and regional bank lenders. This was evident by the upsizing of a number of deals, and the fact that in some cases AOFM support was not required.

Run-off rates across existing RMBS still remained relatively high during FY10 as historically low interest rates have allowed borrowers to pay down more principal on their mortgages. However, with the RBA increasing the overnight cash rate from 3.0% in October 2009 to 4.5% in May 2010, there was a slowdown in run-off rates in 2H10.

Mortgage Services Our Mortgage Services business consists of two primary service offerings: Perpetual Lenders Mortgage Services (PLMS) and loan servicing. Revenue from Mortgage Services has increased from $10.8m and $13.7m in 2H09 and 1H10 respectively to $18.2m in 2H10, driven by the growth in business volumes within PLMS. This strong growth is evidenced by 2H10 volumes exceeding FY09 volumes, as shown in the table below.

Number of matters 1H09 2H09 1H10 2H10 FY09 FY10

PLMS volumes 45,176 50,511 81,329 117,928 95,687 199,257

PLMS has continued to focus its growth strategy on the banking sector. Rapid operational expansion in PLMS has been necessary to deliver this strategy nationally, with FY10 incurring a number of expenses to allow for the expansion.

PLMS revenue split by customer 1H09 2H09 1H10 2H10 FY09 FY10 % % % % % % Bank 54 65 72 82 59 77 Non-bank 46 35 28 18 41 23

PLMS’ primary strategy is to continue to attract new clients, and deliver cost efficiencies and increased EBITDA margins through economies of scale. Delivering on this strategy has seen the revenue mix attributable to bank clients continue to grow as a proportion of total PLMS revenue, driven by new business. Regional and foreign banks as well as the non-bank sector remain important client bases for the PLMS business.

Perpetual Limited and its controlled entities | 75 Group and Support Services Group and Support Services includes the CEO and Board and covers functions that provide support to the broader Group, including Group Finance, Strategy, Operations, Risk, People and Culture, Group Marketing, Media and Investor Relations, and Company Secretariat.

Group and Support Services financial summary

1H09 2H09 1H10 2H10 FY09 FY10 For the period ended $m $m $m $m $m $m Revenues 3.2 2.9 5.2 5.1 6.1 10.3 Operating expenses (12.7) (15.7) (17.4) (16.6) (28.4) (34.0) EBITDA (9.5) (12.8) (12.2) (11.5) (22.3) (23.7) Depreciation and amortisation (1.1) (1.0) (1.2) (1.2) (2.1) (2.4) Equity remuneration expense 1.2 (0.3) (0.6) 0.2 0.9 (0.4) Interest expense (1.6) (0.9) (1.2) (1.6) (2.5) (2.8) Profit/(loss) before tax (11.0) (15.0) (15.2) (14.1) (26.0) (29.3)

Revenue from the Group’s cash and principal investments increased in FY10 compared to FY09, predominantly due to the tightening of credit spreads within the Group’s cash enhanced credit investments and additional interest revenue associated with rising short-term rates and increased cash balances.

Expenses increased in FY10 against FY09, primarily due to the current period accruing a higher level of variable compensation payments for staff in response to the improved financial performance in FY10. The FY10 expense base also includes an increase in costs to support business development in Private Wealth and Corporate Trust and the cost associated with the brand marketing campaign undertaken in FY10. Total Group expenses Total Group expenses increased by 15% to $318.6m in FY10 compared to FY09.

The increase was led by investment in new business initiatives and acquisitions. The Group has made several acquisitions in FY09 and FY10, namely smartsuper, Financial Pursuit, Grosvenor Financial Services and Fordham Business Associates. These have increased the FY10 cost base as well as operating revenues. Business development within Corporate Trust, via its PLMS business, increased in response to higher demand for its mortgage services. Private Wealth also increased the number of client facing staff and investment specialists in addition to its acquisitions.

Movement in Group expenses

1H09 2H09 1H10 2H10 FY09 FY10 For the period ended $m $m $m $m $m $m Employment (87.3) (95.5) (100.0) (122.2) (182.8) (222.2) Occupancy (8.5) (8.5) (8.2) (10.5) (17.0) (18.7) Administration & general (36.0) (39.5) (36.7) (37.7) (75.5) (74.4) Other intangibles (0.7) (0.9) (1.2) (2.1) (1.6) (3.3) Total expenses (132.5) (144.4) (146.1) (172.5) (276.9) (318.6)

The key drivers of this increase in Group expenses in FY10 are set out in the following table.

$m FY09 expenses 276.9 Private Wealth acquisitions – including $2.0m of acquisition and integration costs 14.8 Increased costs associated with uplift in Mortgage Services – including around $2m of one-off costs 11.1 Increase in variable remuneration as a result of improved Group financial performance and increase in base remuneration 9.8 Increase in organic Private Wealth initiatives 4.7 Brand marketing 1.9 Increase in registry fees 1.8 Increase in amortisation of other identifiable intangibles 1.7 Increase in various other expenses 1.4 Net reduction in operational errors (5.5)

FY10 expenses 318.6

Increased employment costs in FY10 reflect the growth in employees resulting from acquisitions and business initiatives, as well as an increase in variable compensation. Increases to base remuneration were limited to approximately 1% in FY10.

76 | Perpetual Limited and its controlled entities Increased occupancy costs in FY10 reflect the impact of acquisitions and additional premises required to support new business initiatives.

Administration and general expenses were broadly unchanged in FY10. FY09 expenses were adversely impacted by net unit pricing errors totalling $6.5m, compared to a net $1.0m in FY10.

Amortisation expense related to other intangibles increased in FY10 as a result of recently completed acquisitions. This gave rise to an increase in identifiable intangible assets carried on the Group’s balance sheet that are subject to amortisation.

Tax expense Perpetual’s average tax rate in FY10 was 32.4% (FY09: 33.1%), calculated from UPBT. The average tax rate is higher than the Australian corporate tax rate of 30%, mainly due to the non-deductibility of the amortisation expense of acquired intangible assets in the Australian operations and the impact of losses from overseas operations not being recognised as deferred tax assets.

Significant Items The Group separately discloses items that were material to the financial performance of the Group, but are considered to be either non-recurring or not part of the operating result as a significant item. Significant items are excluded from UPAT.

Profit/(Loss) Before Tax For the period ended 1H09 2H09 1H10 2H10 FY09 FY10 $m $m $m $m $m $m Significant items: 1. EMCF gains/(losses) (21.3) 1.6 15.8 13.2 (19.7) 29.0 2. Gain/(loss) on sale/impairment of investments (5.9) (1.8) 2.5 (6.0) (7.7) (3.5) 3. Restructuring costs (12.0) 0.4 - - (11.6) - Total significant items (39.2) 0.2 18.3 7.2 (39.0) 25.5

Profit/(Loss) After Tax For the period ended 1H09 2H09 1H10 2H10 FY09 FY10 $m $m $m $m $m $m Significant items: 1. EMCF gains/(losses) (14.9) 1.1 11.1 9.2 (13.8) 20.3 2. Gain/(loss) on sale/impairment of investments (4.1) (2.0) 1.7 (4.3) (6.1) (2.6) 3. Restructuring costs (8.4) 0.3 - - (8.1) - Total significant items (27.4) (0.6) 12.8 4.9 (28.0) 17.7

1. Perpetual Exact Market Cash Funds (EMCF) The EMCF products are investment funds managed by the Group that invest in a diversified portfolio of cash and credit securities, offering investors a guaranteed return linked to the UBS Bank Bill Index. The Group delivers the guaranteed return to investors via a swap agreement.

1H09 2H09 1H10 2H10 FY09 FY10 For the 6 months ended $m $m $m $m $m $m EMCF1 impact on financial performance1: ▪▪ realised losses (3.0) (1.0) - - (4.0) - ▪▪ hedging gains/(losses) 0.1 3.9 - - 4.0 - ▪▪ mark-to-market losses versus benchmark (18.4) (9.0) - - (27.4) - ▪▪ hold to maturity gains versus benchmark - 7.7 15.8 13.2 7.7 29.0 Profit/(loss) before tax (21.3) 1.6 15.8 13.2 (19.7) 29.0 Tax benefit/(expense) 6.4 (0.5) (4.7) (4.0) 5.9 (8.7) Profit/(loss) after tax (14.9) 1.1 11.1 9.2 (13.8) 20.3

1 Under the swap agreement, over and underperformance against the index is cash settled on a monthly basis between the Group and the EMCF.

In March 2009, the Group announced a change to the swap agreement valuation methodology between EMCF1 and Perpetual. The underlying investments are now valued on a hold-to-maturity basis for unit pricing purposes, which is consistent with the way in which Perpetual now manages the portfolio. The underlying assets for EMCF1 were valued at their fair value at the date of change, which for many assets was at a discount to their maturity value. The discount to maturity value will be amortised over the remaining term of the assets. This change in valuation methodology has no impact on the investment returns to investors in EMCF1.

As investments mature in EMCF1, proceeds are currently being reinvested in bank bills or cash, in line with the Group’s decision to reduce risk on its balance sheet. As assets in the portfolio mature, the unrealised mark-to-market losses recorded in prior years are being recovered. The reduction in assets in EMCF1 has been partially offset by the increase in assets in EMCF2.

Perpetual Limited and its controlled entities | 77 The majority of the unrealised mark-to-market losses from prior periods in the EMCF1 portfolio are expected to be recovered as the portfolio matures, particularly in the remainder of calendar 2010 and 2011, as the average maturity of the portfolio is around 1.7 years. The recovery rate is expected to decline over time based on the maturity profile.

1H09 FY09 1H10 FY10 EMCF liabilities at end of $m $m $m $m EMCF1 1,753.9 1,089.3 808.4 695.1 EMCF2 338.0 409.0 472.8 495.2 Total EMCF liabilities 2,091.9 1,498.3 1,281.2 1,190.3

Total funds invested in the EMCF products have reduced over the last 12 months by around 26% and by 43% over the last 18 months. Since the end of 1H09, the EMCF1 has reduced by over 60%, whilst the EMCF2 has experienced growth of around 47%.

At the end of FY10, the carrying value of EMCF1 assets was $693.2m (compared to $1,086.0m at the end of FY09) and was a deficit to the fair value of its liabilities by $1.9m, compared to a deficit of $3.3m at the end of FY09.

EMCF2 was established in July 2008. It has a similar structure to EMCF1 but, in addition, there are specific rules that govern the withdrawal of funds. EMCF2 assets are held on a hold-to-maturity basis for unit pricing purposes. There has been no change since its inception. At the end of FY10, the carrying value of EMCF2 assets was $497.8m (compared to $409.8m at the end of FY09), which exceeded their liabilities by $2.6m, compared to an excess of $0.8m at the end of FY09. The financial performance of EMCF2 is reported in the cash and fixed interest asset class in Perpetual Investments.

2. Gain/(loss) on sale/impairment of investments 1H09 2H09 1H10 2H10 FY09 FY10 For the period ended $m $m $m $m $m $m Profit/(loss) on sale of part of investment portfolio/seed funds (5.2) (1.4) 2.8 0.8 (6.6) 3.6 Impairment of available for sale securities (0.7) (0.4) (0.3) (6.8) (1.1) (7.1) Total profit/(loss) before tax on sale/impairment of investments (5.9) (1.8) 2.5 (6.0) (7.7) (3.5) Income tax benefit/(expense) 1.8 (0.2) (0.8) 1.7 1.6 0.9 Total profit/(loss) after tax on sale/impairment of investments (4.1) (2.0) 1.7 (4.3) (6.1) (2.6)

Loss on sale/impairment of investments in FY10 was $2.6m ▪▪ have sufficient capital resources to take advantage of inorganic after tax, comparing favourably to a $6.1m loss in FY09. In FY10, growth opportunities as they arise. certain assets classified as available for sale became impaired. This resulted in a cumulative loss of $7.1m before tax, previously The Group uses a risk-based capital model based on the Basel II recognised in the available for sale reserve to be transferred to framework to assess its capital requirements. The model requires the profit and loss statement, offset by a credit to the available for capital to be set aside for operational, credit and market risk sale reserve. These losses primarily related to seed investments and any known capital commitments. The amount of economic from discontinued businesses. Some of these assets have been capital assessed by the model exceeds the Group’s $62.6m subsequently disposed of post 30 June 2010 at a price equal to of regulatory capital needs by more than two times. At the the FY10 mark-to-market valuation. end of FY10, total economic capital requirements were $141m, compared to $212m of available liquid funds. 3. Restructuring costs The Group maintains a conservative balance sheet, which No restructuring costs were incurred in FY10. has continued to be de-risked following the difficult trading In FY09, the Group responded to falling revenues and declining environment experienced in prior periods. During FY10, the profitability by reducing its largely fixed cost base. In FY09, Group has continued to execute a number of strategies to costs totalling $8.1m after tax to implement the restructure were strengthen its balance sheet, including: disclosed as a significant item outside UPAT. ▪▪ Finalisation of the transition to a policy of paying dividends within a range of 80-100% of NPAT on an annualised basis, Capital management with a goal to maximise fully franked dividends. This policy The Group manages its capital and liquidity to sustain a strong ensures that dividends do not exceed current year earnings. and flexible balance sheet. We have adopted this conservative The FY10 dividend payout ratio was 99.8%. and prudent policy to ensure we: ▪▪ Initiation of a new DRP, commencing with the payment of ▪▪ can efficiently support all of our businesses the final dividend of FY09 in 1H10, and satisfying of the DRP ▪▪ can hold capital to provide for uncertainty and operational risk demand of around 13% of the total dividend through the issue that resides within our businesses of new shares.

▪▪ can maintain adequate liquidity to ensure financial flexibility, ▪▪ Satisfying of the DRP demand for the FY10 interim dividend by such as not being reliant and restricted by capital supplied by issuing new shares to participants. debt financiers

78 | Perpetual Limited and its controlled entities ▪▪ Increase of the committed debt facility from our long-term Equity risk banking partner from $45.0m to $70.0m in July 2009. The Equity risk is the risk of change in value of an issued equity additional $25.0m remains undrawn as at 24 August 2010. security to which the Group has an exposure.

▪▪ Continued improvement of the overall credit quality and The Group is subject to equity risk from its investments in liquidity of the Group’s risk assets and continued reduction managed funds. These investments ‘seed’ new investment funds of exposure to structured products on the balance sheet. for the Group to develop a track record and examine the viability of the fund to the investment community. If the investment fund is ▪▪ Focus on ensuring strong discretionary expense discipline successful, the fund is opened to third party investors. across each business unit and support group. Market risk Interest rate risk The Group’s revenue is significantly dependent on FUM and FUA, Perpetual’s balance sheet is subject to interest rate risk. which are influenced by equity market movements. Management calculates the expected impact on revenue, across all of its The Group generates positive cash flows from operations from businesses, for each 1% movement in the All Ords. Based on the a relatively light capital structure. Cash balances are held in high level of the All Ords at the end of FY10, a 1% movement in the quality credit and highly liquid investment funds managed by the market changes annualised revenue by approximately $2.0m to Group. These investments generally invest in short-term assets $2.5m. It is worth noting this movement is not linear to the overall and earn a variable interest rate. value of the market. This means that as the market reaches Perpetual has both corporate and operational debt facilities. higher or lower levels, a 1% movement may have a larger or The corporate facility has a variable interest rate. As at 24 August smaller effect on revenue as FUM and FUA are comprised of both 2010, there are no interest rate hedges against the drawn portion equity market and non-equity market-sensitive asset classes. ($45.0m) of this facility. Operational risk Operational debt facilities are used to finance customers into Operational risk is the risk arising from the daily functioning of the capital protected investment products. The facilities are a Group’s businesses. Operational risk is mitigated through internal combination of fixed and variable rate borrowings used to finance controls, active management overview and regular reviews by our a combination of fixed and variable structured product loans. independent Risk Group function. To minimise interest rate risk between these fixed rate assets and Each business and support head is responsible for identifying variable rate liabilities, management uses interest rate swaps to risks within their businesses and ensuring they are appropriately broadly match fixed rate assets to floating rate liabilities. managed. The Risk Group assists the business by providing the framework, tools, advice and assistance to enable the business Credit risk to effectively identify, assess and manage risk. Credit risk is the risk of default and change in the credit quality of issuers of securities, counterparties and intermediaries to whom The Board of Directors oversees the risk management within the Group has exposure. the business, ensuring it is within an accepted risk tolerance range, and that all organic and inorganic business initiatives are The Group is subject to credit risk in the following areas of its consistent with the Group’s strategy and conducted ethically, business: responsibly and with the highest degree of integrity. The Board’s oversight of risk management is assisted by the Audit Risk and ▪▪ All cash and cash equivalent balances are subject to credit risk Compliance Committee (ARCC). as they represent deposits made by the Group with external banks and other institutions. We primarily invest our corporate ARCC’s main responsibilities are to oversee Group accounting cash balances in cash funds managed by the Group. policies and practices; the integrity of financial statements and reports; the scope, quality and independence of external audit ▪▪ The Group is exposed to the performance of assets held in the arrangements; the monitoring of the internal audit function; the EMCF products through a swap agreement, where the Group effectiveness of risk management policies; and the adequacy pays a return based on the UBS Bank Bill Index and receives of insurance. the return on the underlying portfolio, which contains credit and market risks. During FY09, the Group identified a number of operational errors. The Group has strengthened its Operations functions to enhance ▪▪ The Group is exposed to credit risk on its loan assets to its fund accounting team and created a policies and procedures PPI customers. This risk is generally limited to 6% of the team whose function is to review all existing operational outstanding loan book for Series 1 and 2, and 7% of the processes, implement control and procedural changes as outstanding loan book for Series 3 as the borrowings used to required and ensure robust controls are established for new fund these loans are limited recourse in nature. products. In FY10, the Group continued its review of all existing operational processes and controls and it identified some further The Group limits the number of counterparties upon which we operational errors to the value of approximately $5.5m. However, are willing to take credit risk. This can lead to concentrations this was offset by a $4.5m reduction in the FY09 errors, leaving of credit risk. We do not expect any counterparties to fail to net operational errors in FY10 of $1.0m. In addition, the review meet their obligations beyond what has been provided for in the process discovered some additional revenue items of $0.8m, carrying value of those assets. which further reduced the profit before tax impact to a net $0.2m. This compared to $12.8m of total errors reported in FY09.

Perpetual Limited and its controlled entities | 79 Financial strength

At end of 1H09 2H09 1H10 2H10 FY09 FY10 Total equity $m 261.0 290.0 347.5 361.0 290.0 361.0 Cash $m 107.7 146.1 179.0 187.5 146.1 187.5 Corporate debt $m (45.0) (45.0) (45.0) (45.0) (45.0) (45.0) Net cash $m 62.7 101.1 134.0 142.5 101.1 142.5

Corporate debt to capital ratio % 14.7 13.4 11.5 11.1 13.4 11.1 (corporate debt/(corporate debt + equity))1 Interest coverage calculation (EBITDA/interest times 51x 61x 63x 48x 54x 54x expense)2 for the period ended Net tangible assets per share $ 3.15 3.51 4.52 3.95 3.51 3.95

1 Excludes structured product funding, which is operational debt used to fund PPI loans. 2 EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items.

At the end of FY10, Perpetual’s gross corporate debt was The Group actively manages liquidity risk by preparing cash $45.0m. The Group’s corporate debt to capital ratio remains low flow forecasts for future periods, reviewing them regularly with at 11.1% and is well within its stated risk appetite limit of 30%. senior management, maintaining a committed credit facility and FY10 interest coverage at 54 times, unchanged from FY09, engaging regularly with its debt providers. was also well in excess of financial covenant requirements. Financial covenants under the debt facilities include minimum The Group increased its existing committed bank corporate shareholders’ funds, leverage and interest coverage ratios debt facility during July 2009 to $70.0m from $45.0m to further and caps on operational debt. At the end of FY10, we were in strengthen its liquidity position. At 24 August 2010, $25.0m compliance with all of our debt covenants. remains undrawn.

Corporate debt of $45.0m is currently sourced solely from Net tangible assets per share increased from $3.51 at the end domestic banks and is presently limited to one provider, a of FY09 to $3.95 at the end of FY10. long-term banking relationship.

Cash flow 1H09 2H09 1H10 2H10 FY09 FY10 For the period ended $m $m $m $m $m $m Net cash from operating activities 9.4 53.3 65.6 87.0 62.7 152.6 Net cash provided by/(used in) investing activities (26.3) 2.1 (9.5) (38.8) (24.2) (48.3) Net cash used in financing activities (58.5) (17.0) (23.3) (39.6) (75.5) (62.9) Net increase/(decrease) in cash and cash equivalents (75.4) 38.4 32.8 8.6 (37.0) 41.4

FY10 operating cash flows of $152.6m, versus $62.7m in FY09, Cash used in financing activities principally relates to the payment represent the underlying cash flows from the operating businesses, of the Group’s dividends and share transactions involving cash. including significant items. Operating cash flows increased in Cash flow analysis captures the dividend in the reporting period FY10 in line with the overall improvement in the Group’s financial in which it is paid, not the period in which the profit was earned, performance, reflecting both the improved operating environment ie the FY08 final dividend of $59.2m was paid in 1H09, the FY09 and the recovery of prior year losses of the EMCF. interim dividend of $17.0m was paid in 2H09, the FY09 final net cash dividend1 of $22.2m was paid in 1H10, and the FY10 net Cash flows used in investing activities include seed fund cash interim dividend2 of $39.4m was paid in 2H10. Cash used in investments, capital expenditure within the Group, mainly financing activities declined by $12.6m to $62.9m in comparison on software, and the acquisition of new businesses such as to FY09. This reduction was principally driven by a reduction in smartsuper in 1H09, Financial Pursuit in 2H09, Grosvenor cash dividends paid during the year in response to the transition Financial Services in 1H10 and Fordham Business Advisors in to the revised dividend policy and the Group issuing new shares 2H10. Net cash used in investing activities increased by $24.1m to satisfy demand from DRP participants. in FY10, primarily reflecting the additional cash resources used to fund business acquisitions in Private Wealth.

1 Total dividend paid was $25.5m; however, $3.3m was paid in the form of new shares issued to shareholders who elected to participate in the Company’s Dividend Reinvestment Plan. 2 Total dividend paid was $45.4m; however $6.0m was paid in the form of new shares issued to shareholders who elected to participate in the Company’s Dividend Reinvestment Plan.

80 | Perpetual Limited and its controlled entities Summary Consolidated Balance Sheet 1H091 FY091 1H101 FY101 At end of $m $m $m $m Assets Cash and cash equivalents 107.7 146.1 179.0 187.5 Liquid investments 60.5 36.7 47.6 49.9 Structured products – PPI loans to customers 340.6 319.7 199.4 188.8 Goodwill and other intangibles 81.3 86.2 104.4 134.9 Software intangibles 23.2 26.5 27.4 28.6 Other assets 153.2 159.4 145.1 160.8 Total assets 766.5 774.6 702.9 750.5 Liabilities Corporate loan facility 45.0 45.0 45.0 45.0 Structured products – PPI finance facilities 330.7 318.7 202.7 189.6 Other liabilities 129.8 120.9 107.7 154.9 Total liabilities 505.5 484.6 355.4 389.5

Net assets 261.0 290.0 347.5 361.0 Shareholder funds Contributed equity 168.8 174.2 199.0 206.0 Reserves 24.6 43.3 49.6 56.9 Retained earnings 64.6 72.4 97.8 96.5 Total shareholder funds 258.0 289.9 346.4 359.4 Minority interest 3.0 0.1 1.1 1.6 Total equity 261.0 290.0 347.5 361.0

1 Note: excludes the offsetting asset and liability for the EMCF structured product, which was $2,091.9m in 1H09. At 2H09, the EMCF asset was $1,495.8m, with the liability being $1,498.3m. At 1H10, the EMCF asset was $1,285.3m, with the liability being $1,281.2m. At 2H10, the EMCF asset was $1,191.1m, with the liability being $1,190.3m. The net liability of $2.5m at FY09 has been included above within other liabilities and $4.1m at 1H10 and $0.7m at FY10 with other assets.

Cash and cash equivalents continued to increase during FY10, The expected amortisation for FY11 and the next three financial with increased cash flows from operations and EMCF profits years of existing identifiable intangible assets that have arisen in offset by the acquisitions of Grosvenor Financial Services and recent acquisitions is as follows: Fordham Business Advisors. FY11 FY12 FY13 FY14 Liquid investments increased due to the combination of $m $m $m $m the rise in equity markets and the seeding of new managed Amortisation of identifiable 3.7 3.1 2.4 2.4 fund investments. intangibles1

Structured product loans to customers declined in FY10 due to 1 Based on $21.3m net book value at end FY10. loan repayments from customers. Most repayments occurred in August 2009. This, in turn, has reduced the PPI finance facility liability by a similar amount. As the Group continues to acquire businesses in line with its strategic goals, the level of identifiable intangible assets carried Goodwill and other intangibles have increased during FY10 with on the balance sheet is likely to increase, which in turn will the acquisition of Grosvenor Financial Services and Fordham increase the amortisation of identifiable intangible assets. Business Advisors. Other intangibles are amortised over their useful life. Contributed equity increased during FY10 due to shares being issued under the DRP on the FY09 final dividend and the FY10 Net tangible assets increased from $149.1m at the end of FY09 interim dividend, the acquisition of Grosvenor Financial Services to $171.5m at the end of FY10, reflecting an increase in issued and the issue of shares as employee share plans have vested. capital, total comprehensive income in excess of dividends paid and favourable movements in reserves less increases in net The minority interest comprises third party interests in intangible assets that occurred through the year. consolidated funds managed by the Group.

Management conducted an impairment review of all non-financial assets at the end of FY10 and determined that no impairment charges were required.

Perpetual Limited and its controlled entities | 81 Appendix A: Segment results

For the period ended Operating revenue EBITDA1 Profit before/after tax

1H09 2H09 1H10 2H10 FY09 FY10 1H09 2H09 1H10 2H10 FY09 FY10 1H09 2H09 1H10 2H10 FY09 FY10 $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Perpetual Investments 105.4 97.6 105.9 111.0 203.0 216.9 49.1 35.8 51.5 50.9 84.9 102.4 35.7 23.3 36.9 35.2 59.0 72.1 Private Wealth 45.0 40.7 47.4 64.2 85.7 111.6 19.7 13.8 16.8 20.9 33.5 37.7 17.4 11.7 14.5 18.1 29.1 32.6 Corporate Trust 41.0 39.3 41.6 45.9 80.3 87.5 21.7 17.9 19.4 16.2 39.6 35.6 20.0 16.1 17.8 14.5 36.1 32.3 Group and Support Services 3.2 2.9 5.2 5.1 6.1 10.3 (9.5) (12.8) (12.2) (11.5) (22.3) (23.7) (11.0) (15.0) (15.2) (14.1) (26.0) (29.3)

Underlying profit before tax and significant items 194.6 180.5 200.1 226.2 375.1 426.3 81.0 54.7 75.5 76.5 135.7 152.0 62.1 36.1 54.0 53.7 98.2 107.7 Income tax expense (20.5) (12.0) (17.6) (17.3) (32.5) (34.9)

Underlying profit after tax (UPAT)2 before significant items 41.6 24.1 36.4 36.4 65.7 72.8

Significant items: ▪▪ EMCF gains/(losses) (14.9) 1.1 11.1 9.2 (13.8) 20.3 ▪▪ Gain/(loss) on sale/impairment of investments (4.1) (2.0) 1.7 (4.3) (6.1) (2.6) ▪▪ Restructuring costs (8.4) 0.3 - - (8.1) -

Net profit after tax (NPAT) attributable to Perpetual Limited ordinary 14.2 23.5 49.2 41.3 37.7 90.5 equity holders

1 EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items. 2 Underlying profit after tax (UPAT) excludes certain items that are either significant by virtue of their size and impact on net profit after tax, or are ‘one-off’ in nature. UPAT has been calculated in accordance with the guidelines issued by the AICD and Finsia.

82 | Perpetual Limited and its controlled entities Appendix A: Segment results

For the period ended Operating revenue EBITDA1 Profit before/after tax

1H09 2H09 1H10 2H10 FY09 FY10 1H09 2H09 1H10 2H10 FY09 FY10 1H09 2H09 1H10 2H10 FY09 FY10 $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Perpetual Investments 105.4 97.6 105.9 111.0 203.0 216.9 49.1 35.8 51.5 50.9 84.9 102.4 35.7 23.3 36.9 35.2 59.0 72.1 Private Wealth 45.0 40.7 47.4 64.2 85.7 111.6 19.7 13.8 16.8 20.9 33.5 37.7 17.4 11.7 14.5 18.1 29.1 32.6 Corporate Trust 41.0 39.3 41.6 45.9 80.3 87.5 21.7 17.9 19.4 16.2 39.6 35.6 20.0 16.1 17.8 14.5 36.1 32.3 Group and Support Services 3.2 2.9 5.2 5.1 6.1 10.3 (9.5) (12.8) (12.2) (11.5) (22.3) (23.7) (11.0) (15.0) (15.2) (14.1) (26.0) (29.3)

Underlying profit before tax and significant items 194.6 180.5 200.1 226.2 375.1 426.3 81.0 54.7 75.5 76.5 135.7 152.0 62.1 36.1 54.0 53.7 98.2 107.7 Income tax expense (20.5) (12.0) (17.6) (17.3) (32.5) (34.9)

Underlying profit after tax (UPAT)2 before significant items 41.6 24.1 36.4 36.4 65.7 72.8

Significant items: ▪▪ EMCF gains/(losses) (14.9) 1.1 11.1 9.2 (13.8) 20.3 ▪▪ Gain/(loss) on sale/impairment of investments (4.1) (2.0) 1.7 (4.3) (6.1) (2.6) ▪▪ Restructuring costs (8.4) 0.3 - - (8.1) -

Net profit after tax (NPAT) attributable to Perpetual Limited ordinary 14.2 23.5 49.2 41.3 37.7 90.5 equity holders

1 EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items. 2 Underlying profit after tax (UPAT) excludes certain items that are either significant by virtue of their size and impact on net profit after tax, or are ‘one-off’ in nature. UPAT has been calculated in accordance with the guidelines issued by the AICD and Finsia.

Perpetual Limited and its controlled entities | 83 Analysis of segment results 1H10 2H10 FY10 PI PW CT Group Total PI PW CT Group Total PI PW CT Group Total & SS & SS & SS

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m Operating revenue 105.9 47.4 41.6 5.2 200.1 111.0 64.2 45.9 5.1 226.2 216.9 111.6 87.5 10.3 426.3 Operating expenses (54.4) (30.6) (22.2) (17.4) (124.6) (60.1) (43.3) (29.7) (16.6) (149.7) (114.5) (73.9) (51.9) (34.0) (274.3)

EBITDA 51.5 16.8 19.4 (12.2) 75.5 50.9 20.9 16.2 (11.5) 76.5 102.4 37.7 35.6 (23.7) 152.0 Depreciation & amortisation (2.9) (1.4) (1.5) (1.2) (7.0) (2.4) (2.5) (1.6) (1.2) (7.7) (5.3) (3.9) (3.1) (2.4) (14.7) Equity remuneration (11.7) (0.9) (0.1) (0.6) (13.3) (13.3) (0.3) (0.1) 0.2 (13.5) (25.0) (1.2) (0.2) (0.4) (26.8)

EBIT 36.9 14.5 17.8 (14.0) 55.2 35.2 18.1 14.5 (12.5) 55.3 72.1 32.6 32.3 (26.5) 110.5 Interest expense - - - (1.2) (1.2) - - - (1.6) (1.6) - - - (2.8) (2.8)

UPBT 36.9 14.5 17.8 (15.2) 54.0 35.2 18.1 14.5 (14.1) 53.7 72.1 32.6 32.3 (29.3) 107.7

1H09 2H09 FY09 PI PW CT Group Total PI PW CT Group Total PI PW CT Group Total & SS & SS & SS

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m Operating revenue 105.4 45.0 41.0 3.2 194.6 97.6 40.7 39.3 2.9 180.5 203.0 85.7 80.3 6.1 375.1 Operating expenses (56.3) (25.3) (19.3) (12.7) (113.6) (61.8) (26.9) (21.4) (15.7) (125.8) (118.1) (52.2) (40.7) (28.4) (239.4)

EBITDA 49.1 19.7 21.7 (9.5) 81.0 35.8 13.8 17.9 (12.8) 54.7 84.9 33.5 39.6 (22.3) 135.7 Depreciation & amortisation (2.3) (1.1) (1.6) (1.1) (6.1) (3.1) (1.3) (1.7) (1.0) (7.1) (5.4) (2.4) (3.3) (2.1) (13.2) Equity remuneration (11.1) (1.2) (0.1) 1.2 (11.2) (9.4) (0.8) (0.1) (0.3) (10.6) (20.5) (2.0) (0.2) 0.9 (21.8)

EBIT 35.7 17.4 20.0 (9.4) 63.7 23.3 11.7 16.1 (14.1) 37.0 59.0 29.1 36.1 (23.5) 100.7 Interest expense - - - (1.6) (1.6) - - - (0.9) (0.9) - - - (2.5) (2.5)

UPBT 35.7 17.4 20.0 (11.0) 62.1 23.3 11.7 16.1 (15.0) 36.1 59.0 29.1 36.1 (26.0) 98.2

PI = Perpetual Investments PW = Private Wealth CT = Corporate Trust Group & SS = Group & Support Services

84 | Perpetual Limited and its controlled entities Analysis of segment results 1H10 2H10 FY10 PI PW CT Group Total PI PW CT Group Total PI PW CT Group Total & SS & SS & SS

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m Operating revenue 105.9 47.4 41.6 5.2 200.1 111.0 64.2 45.9 5.1 226.2 216.9 111.6 87.5 10.3 426.3 Operating expenses (54.4) (30.6) (22.2) (17.4) (124.6) (60.1) (43.3) (29.7) (16.6) (149.7) (114.5) (73.9) (51.9) (34.0) (274.3)

EBITDA 51.5 16.8 19.4 (12.2) 75.5 50.9 20.9 16.2 (11.5) 76.5 102.4 37.7 35.6 (23.7) 152.0 Depreciation & amortisation (2.9) (1.4) (1.5) (1.2) (7.0) (2.4) (2.5) (1.6) (1.2) (7.7) (5.3) (3.9) (3.1) (2.4) (14.7) Equity remuneration (11.7) (0.9) (0.1) (0.6) (13.3) (13.3) (0.3) (0.1) 0.2 (13.5) (25.0) (1.2) (0.2) (0.4) (26.8)

EBIT 36.9 14.5 17.8 (14.0) 55.2 35.2 18.1 14.5 (12.5) 55.3 72.1 32.6 32.3 (26.5) 110.5 Interest expense - - - (1.2) (1.2) - - - (1.6) (1.6) - - - (2.8) (2.8)

UPBT 36.9 14.5 17.8 (15.2) 54.0 35.2 18.1 14.5 (14.1) 53.7 72.1 32.6 32.3 (29.3) 107.7

1H09 2H09 FY09 PI PW CT Group Total PI PW CT Group Total PI PW CT Group Total & SS & SS & SS

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m Operating revenue 105.4 45.0 41.0 3.2 194.6 97.6 40.7 39.3 2.9 180.5 203.0 85.7 80.3 6.1 375.1 Operating expenses (56.3) (25.3) (19.3) (12.7) (113.6) (61.8) (26.9) (21.4) (15.7) (125.8) (118.1) (52.2) (40.7) (28.4) (239.4)

EBITDA 49.1 19.7 21.7 (9.5) 81.0 35.8 13.8 17.9 (12.8) 54.7 84.9 33.5 39.6 (22.3) 135.7 Depreciation & amortisation (2.3) (1.1) (1.6) (1.1) (6.1) (3.1) (1.3) (1.7) (1.0) (7.1) (5.4) (2.4) (3.3) (2.1) (13.2) Equity remuneration (11.1) (1.2) (0.1) 1.2 (11.2) (9.4) (0.8) (0.1) (0.3) (10.6) (20.5) (2.0) (0.2) 0.9 (21.8)

EBIT 35.7 17.4 20.0 (9.4) 63.7 23.3 11.7 16.1 (14.1) 37.0 59.0 29.1 36.1 (23.5) 100.7 Interest expense - - - (1.6) (1.6) - - - (0.9) (0.9) - - - (2.5) (2.5)

UPBT 35.7 17.4 20.0 (11.0) 62.1 23.3 11.7 16.1 (15.0) 36.1 59.0 29.1 36.1 (26.0) 98.2

PI = Perpetual Investments PW = Private Wealth CT = Corporate Trust Group & SS = Group & Support Services

Appendix B: Average FUM

1H08 2H08 1H09 2H09 1H10 2H10 FY09 FY10 % Average FUM $b $b $b $b $b $b $b $b change

Australian equities 25.4 21.0 16.9 13.8 17.8 18.7 15.3 18.3 20% Global equities 1.7 1.4 1.2 1.1 1.3 1.3 1.2 1.3 8% Quantitative investments 1.4 1.4 1.2 1.0 0.9 0.4 1.1 0.6 -45%

Equities 28.5 23.8 19.3 15.9 20.0 20.4 17.6 20.2 15%

Cash and fixed interest 9.3 8.2 7.9 7.6 7.3 6.8 7.7 7.0 -9% Other 1.0 1.2 1.2 1.1 1.1 1.2 1.2 1.2 0%

Total 38.8 33.2 28.4 24.6 28.4 28.4 26.5 28.4 7%

Perpetual Limited and its controlled entities | 85 Glossary for Management’s Discussion and Analysis

1H08 Six months ended 31 December 2007 EUR Euro currency unit

1H09 Six months ended 31 December 2008 Finsia Financial Services Institute of Australasia

1H10 Six months ended 31 December 2009 FTE Full time equivalent

2H08 Six months ended 30 June 2008 FUA Funds under advice or funds under administration

2H09 Six months ended 30 June 2009 FUM Funds under management

2H10 Six months ended 30 June 2010 FY08 12 months ended 30 June 2008

ABS Asset backed securities FY09 12 months ended 30 June 2009

ADI Approved deposit-taking institution FY10 12 months ended 30 June 2010

AERF Australian Eligible Rollover Fund, which is a FY11 12 months ended 30 June 2011 superannuation fund that accepts member benefits from other superannuation funds for people who may have been lost by that fund or are no longer eligible for membership of that fund

AICD Australian Institute of Company Directors GFC Global Financial Crisis

All Ords S&P ASX All Ordinaries Price Index Group Perpetual Limited and its controlled entities (the consolidated entity) and the consolidated entity’s interests in associates

Alpha outperformance relative to benchmark IDPS Investor Direct Portfolio Services

AOFM Australian Office of Financial Management LTI Long-term incentive

APRA Australian Prudential Regulation Authority m Million

ARCC Audit Risk and Compliance Committee MTM Mark-to-market

ASX Australian Securities Exchange NPAT Net profit after tax

AUD Australian dollar PLMS Perpetual Lenders Mortgage Services

b Billion PPI Perpetual Protected Investments

bps Basis point (0.01 of 1%) RBA Reserve Bank of Australia

CMBS Commercial mortgage backed securities RMBS Residential mortgage backed securities

CPPI Constant proportion portfolio insurance ROE Return on equity

DPS Dividend(s) per share SAF Small APRA fund

DRP Dividend Reinvestment Plan SMSF Self managed superannuation fund

EBITDA Earnings before tax, depreciation and amortisation of TSR Total shareholder return intangible assets, equity remuneration expense and significant items

EMCF Perpetual Exact Market Cash Fund UPAT Underlying profit after tax

EPS Earnings per share

86 | Perpetual Limited and its controlled entities Perpetual Limited and its controlled entities | 87 financial statements Financial statements of Perpetual Limited and its controlled entities for the year ended 30 June 2010

Table of contents Page no. Statement of Comprehensive Income...... 89 Balance Sheet...... 91 Statement of Changes in Equity...... 92 Cash Flow Statement...... 94 Notes to the financial statements Note 1. Reporting entity...... 95 Note 2. Summary of significant accounting policies ...... 95 Note 3. Revenue...... 105 Note 4. Net profit before tax ...... 105 Note 5. Individually significant items included in profit for the year...... 105 Note 6. Segment information...... 106 Note 7. Auditor’s remuneration...... 107 Note 8. Income tax expense...... 108 Note 9. Deferred tax assets/(liabilities)...... 109 Note 10. Dividends...... 111 Note 11. Earnings per share...... 112 Note 12. Cash and cash equivalents...... 112 Note 13. Receivables...... 113 Note 14. other financial assets...... 113 Note 15. Interest in associates using the equity method...... 114 Note 16. Derivative financial instruments ...... 114 Note 17. Property, plant and equipment...... 115 Note 18. Intangibles...... 115 Note 19. Prepayments...... 116 Note 20. Payables ...... 117 Note 21. Structured products - income received in advance ...... 117 Note 22. Non-current interest-bearing liabilities...... 117 Note 23. Provisions...... 117 Note 24. Contributed equity...... 118 Note 25. Reserves ...... 119 Note 26. Employee benefits ...... 119 Note 27. Financial arrangements ...... 122 Note 28. Financial risk management...... 122 Note 29. Structured products assets and liabilities...... 128 Note 30. Commitments ...... 130 Note 31. Contingencies...... 130 Note 32. Related parties ...... 130 Note 33. Controlled entities ...... 131 Note 34. Parent entity disclosures...... 133 Note 35. Notes to the Cash Flow Statement...... 134 Note 36. Business combinations...... 134 Note 37. Subsequent events...... 136 Note 38. Remuneration details provided as part of the financial report...... 138 Directors’ Declaration...... 144 Independent auditor’s report to the members of Perpetual Limited...... 145 Securities exchange and investor information ...... 146

88 | Perpetual Limited and its controlled entities Statement of Comprehensive Income for the year ended 30 June 2010

Consolidated

Note 2010 2009

$’000 $’000

Revenue from the provision of services 407,923 365,528

Income from structured products 83,595 107,4 40

Investment income 14,422 9,570

3 505,940 482,538

Staff related expenses excluding equity remuneration expense 4 (195,441) (168,584)

Occupancy expenses (18,734) (17,019)

Administrative and general expenses (60,076) (61,423)

Distributions and expenses relating to structured products

(50,606) (127,16 9)

Earnings before interest, tax, depreciation, amortisation, equity remuneration expense, profit/(loss) on disposal of investments, impairment of available-for-sale securities and share of profit/ (loss) of equity accounted investees 181,083 108,343

Financing costs (2,772) (2,507)

Equity remuneration expense 4 (26,755) (25,930)

Depreciation and amortisation expense 4 (14,857) (13,163)

(44,384) (41,600)

Proceeds from sale of investments 36,977 60,328

Cost of investments disposed (33,064) (67,0 01)

Profit/(loss) on disposal of investments 5 3,913 (6,673)

Impairment of available-for-sale securities 5 ( 7,0 85) (1,065)

Share of profit/(loss) of equity accounted investees, net of income tax (16) 111

Net profit before tax 133,511 59,116

Income tax expense (43,573) (23,082)

Income tax benefit on disposal of investments 784 1,657

Income tax expense 8 (42,789) (21,425)

Net profit after tax 90,722 37,6 91

(Profit)/loss after tax attributable to non-controlling interests (216) 58

Net profit after tax attributable to equity holders of Perpetual Limited 90,506 37,749

The Statement of Comprehensive Income is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 95 to 143.

Perpetual Limited and its controlled entities | 89 Statement of Comprehensive Income for the year ended 30 June 2010 (continued)

Consolidated Note 2010 2009 $’000 $’000 Net profit after tax 90,722 37,691

Other comprehensive income/(expense), net of tax

Available-for-sale reserve Reclassification of available-for-sale financial assets upon impairment 5,259 1,065 Reclassification of previously impaired available-for-sale financial (423) (2,279) assets upon disposal Net change in fair value of available-for-sale financial assets 2,051 ( 7,70 9)

Cash flow hedge reserve Effective portion of changes in fair value of cash flow hedges 301 (3,599)

Foreign currency reserve Foreign exchange translation differences (2,856) 197

Other comprehensive income/(expense), net of income tax 4,332 (12,325)

Total comprehensive income 95,054 25,366

Total comprehensive income is attributable to: Non-controlling interests 216 (58) Equity holders of Perpetual Limited 94,838 25,424 Total comprehensive income 95,054 25,366

Basic earnings per share attributable to ordinary equity holders 11 227.1 96.0 – cents per share

Diluted earnings per share attributable to ordinary equity holders 11 210.5 89.4 – cents per share

The Statement of Comprehensive Income is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 95 to 143.

90 | Perpetual Limited and its controlled entities Balance Sheet as at 30 June 2010

Consolidated Note 2010 2009 $’000 $’000 Current assets Cash and cash equivalents 12 187,539 146,138 Receivables 13 86,843 78,148 Other financial assets 14 100 100 Structured products – EMCF assets 29 1,191,066 1,495,790 Structured products – receivable from investors 29 26,157 108,935 Derivative financial instruments 16 11 145 Prepayments 19 7,4 47 11,820 Total current assets 1,499,163 1,841,076 Non-current assets Receivables 13 3,648 4,200 Interest in associates using the equity method 15 - 6,924 Shares in other companies, investments in 14 49,949 36,709 unlisted unit trusts and other financial assets Structured products – loans receivable 29 162,675 210,716 Property, plant and equipment 17 27,79 6 27,73 0 Intangibles 18 163,508 112,660 Deferred tax assets 9 33,219 30,381 Prepayments 19 858 - Total non-current assets 441,653 429,320 Total assets 1,940,816 2,270,396 Current liabilities Payables 20 40,661 35,442 Structured products – EMCF liabilities 29 1,190,342 1,498,254 Structured products – interest-bearing liabilities 29 24,818 107,6 8 3 Structured products – income received in advance 21 13,918 13,563 Derivative financial instruments 16 662 821 Current tax liabilities 16,736 150 Employee benefits 26 35,880 29,296 Provisions 23 7,670 6,796 Total current liabilities 1,330,687 1,692,005 Non-current liabilities Payables 20 6,206 1,819 Interest-bearing liabilities 22 45,000 45,000 Structured products – interest-bearing liabilities 29 164,807 211,065 Deferred tax liabilities 9 7,19 8 2,137 Employee benefits 26 2,894 2,371 Provisions 23 23,000 25,958 Total non-current liabilities 249,105 288,350 Total liabilities 1,579,792 1,980,355 Net assets 361,024 290,041 Equity Contributed equity 24 206,017 174,222 Reserves 25 56,861 43,298 Retained earnings 96,494 72,413 Total equity attributable to holders of Perpetual Limited 359,372 289,933 Non-controlling interest 1,652 108 Total equity 361,024 290,041

The Balance Sheet is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 95 to 143.

Perpetual Limited and its controlled entities | 91 Statement of Changes in Equity for the year ended 30 June 2010

Consolidated Gross contributed Treasury share Total contributed Available-for-sale General reserve Foreign currency Equity Cash flow hedge Total reserves Retained earnings Total Non-controlling Total equity reserve equity reserve translation compensation reserve interest reserve reserve $’000

Balance at 1 July 2009 347,350 (173,128) 174,222 (4,016) 103 (491) 48,457 (755) 43,298 72,413 289,933 108 290,041

Total comprehensive income/(expense) - - - 6,887 - (2,856) - 301 4,332 90,506 94,838 216 95,054

Issue of ordinary shares 19,864 - 19,864 ------19,864 - 19,864

Employee Share Purchase Plan loan repayments during the year - 157 157 ------157 - 157

Treasury shares issued during the year 17,58 4 (17,58 4) ------

Treasury shares purchased on market - (1,271) (1,271) ------(1,271) - (1,271)

Treasury shares vested during the year - 13,110 13,110 - - - (13,110) - (13,110) - - - -

Fair value adjustment on recycled and vested TSR shares (5,406) 5,406 ------

Dividends on treasury shares used to purchase equity - (65) (65) - - - 65 - 65 - - - -

Dividends paid to shareholders ------(70,904) (70,904) - (70,904)

Dividends paid on treasury shares ------(4,479) - (4,479) 4,479 - - -

Equity remuneration expense ------26,755 - 26,755 - 26,755 - 26,755

Non-controlling interest ------1,328 1,328

Balance at 30 June 2010 379,392 (173,375) 206,017 2,871 103 (3,347) 57,688 (454) 56,861 96,494 359,372 1,652 361,024

Balance at 1 July 2008 324,703 (160,892) 163,811 4,907 103 (688) 37,114 2,844 44,280 105,574 313,665 745 314,410

Total comprehensive income/(expense) - - - (8,923) - 197 - (3,599) (12,325) 37,749 25,424 (58) 25,366

Options exercised 2,347 - 2,347 - - - (1,250) - (1,250) - 1,097 - 1,097

Employee Share Purchase Plan loan repayments during the year - 394 394 ------394 - 394

Treasury shares issued during the year 26,153 (26,153) ------

Treasury shares purchased on market - (410) (410) ------(410) - (410)

Treasury shares vested during the year - 8,534 8,534 - - - (8,534) - (8,534) - - - -

Fair value adjustment on recycled and vested TSR shares (5,853) 6,003 150 - - - (150) - (150) - - - -

Dividends on treasury shares used to purchase equity - (604) (604) - - - 604 - 604 - - - -

Dividends paid to shareholders ------(76,167) (76,167) - (76,167)

Dividends paid on treasury shares ------(5,257) - (5,257) 5,257 - - -

Equity remuneration expense ------25,930 - 25,930 - 25,930 - 25,930

Non-controlling interest ------(579) (579)

Balance at 30 June 2009 347,350 (173,128) 174,222 (4,016) 103 (491) 48,457 (755) 43,298 72,413 289,933 108 290,041

The Statement of Changes in Equity is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 95 to 143.

92 | Perpetual Limited and its controlled entities Statement of Changes in Equity for the year ended 30 June 2010

Consolidated Gross contributed Treasury share Total contributed Available-for-sale General reserve Foreign currency Equity Cash flow hedge Total reserves Retained earnings Total Non-controlling Total equity reserve equity reserve translation compensation reserve interest reserve reserve $’000

Balance at 1 July 2009 347,350 (173,128) 174,222 (4,016) 103 (491) 48,457 (755) 43,298 72,413 289,933 108 290,041

Total comprehensive income/(expense) - - - 6,887 - (2,856) - 301 4,332 90,506 94,838 216 95,054

Issue of ordinary shares 19,864 - 19,864 ------19,864 - 19,864

Employee Share Purchase Plan loan repayments during the year - 157 157 ------157 - 157

Treasury shares issued during the year 17,58 4 (17,58 4) ------

Treasury shares purchased on market - (1,271) (1,271) ------(1,271) - (1,271)

Treasury shares vested during the year - 13,110 13,110 - - - (13,110) - (13,110) - - - -

Fair value adjustment on recycled and vested TSR shares (5,406) 5,406 ------

Dividends on treasury shares used to purchase equity - (65) (65) - - - 65 - 65 - - - -

Dividends paid to shareholders ------(70,904) (70,904) - (70,904)

Dividends paid on treasury shares ------(4,479) - (4,479) 4,479 - - -

Equity remuneration expense ------26,755 - 26,755 - 26,755 - 26,755

Non-controlling interest ------1,328 1,328

Balance at 30 June 2010 379,392 (173,375) 206,017 2,871 103 (3,347) 57,688 (454) 56,861 96,494 359,372 1,652 361,024

Balance at 1 July 2008 324,703 (160,892) 163,811 4,907 103 (688) 37,114 2,844 44,280 105,574 313,665 745 314,410

Total comprehensive income/(expense) - - - (8,923) - 197 - (3,599) (12,325) 37,749 25,424 (58) 25,366

Options exercised 2,347 - 2,347 - - - (1,250) - (1,250) - 1,097 - 1,097

Employee Share Purchase Plan loan repayments during the year - 394 394 ------394 - 394

Treasury shares issued during the year 26,153 (26,153) ------

Treasury shares purchased on market - (410) (410) ------(410) - (410)

Treasury shares vested during the year - 8,534 8,534 - - - (8,534) - (8,534) - - - -

Fair value adjustment on recycled and vested TSR shares (5,853) 6,003 150 - - - (150) - (150) - - - -

Dividends on treasury shares used to purchase equity - (604) (604) - - - 604 - 604 - - - -

Dividends paid to shareholders ------(76,167) (76,167) - (76,167)

Dividends paid on treasury shares ------(5,257) - (5,257) 5,257 - - -

Equity remuneration expense ------25,930 - 25,930 - 25,930 - 25,930

Non-controlling interest ------(579) (579)

Balance at 30 June 2009 347,350 (173,128) 174,222 (4,016) 103 (491) 48,457 (755) 43,298 72,413 289,933 108 290,041

The Statement of Changes in Equity is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 95 to 143.

Perpetual Limited and its controlled entities | 93 Cash Flow Statement for the year ended 30 June 2010

Consolidated Note 2010 2009 $’000 $’000 Cash flows from operating activities

Cash receipts in the course of operations 484,067 406,814

Cash payments in the course of operations (310,896) (312,969)

Dividends received 838 1,196

Interest received 12,386 5,898

Interest paid (2,772) (2,507)

Income taxes paid (31,070) (35,707)

Net cash from operating activities 35 152,553 62,725

Cash flows from investing activities

Payments for property, plant, equipment and software (11,816) (14,035)

Payments for investments (38,141) (42,933)

Repayments of advances made under the Employee Share 157 394 Purchase Plan

Acquisition of businesses, net of cash acquired (35,449) (19,173)

Proceeds from the sale of investments 36,977 60,328

Tax paid on sale of investments - (8,799)

Net cash used in investing activities (48,272) (24,218)

Cash flows from financing activities

Proceeds from issue of shares 9,295 1,097

Payments for on market share purchase (1,271) (410)

Dividends paid (70,904) (76,167)

Net cash used in financing activities (62,880) (75,480)

Net increase/(decrease) in cash and cash equivalents 41,401 (36,973)

Cash and cash equivalents at 1 July 146,138 183,111

Cash and cash equivalents at 30 June 12 187,539 146,138

The Cash Flow Statement is to be read in conjunction with ‘Notes to the Financial Statements’ set out on pages 95 to 143.

94 | Perpetual Limited and its controlled entities Notes to and forming part of the financial statements for the year ended 30 June 2010 Note 1. Reporting entity ▪▪ Note 18. Intangibles

Perpetual Limited (the Company) is domiciled in Australia. ▪▪ Note 23. Provisions The consolidated financial report of the Company as at and for the year ended 30 June 2010 comprises the Company and its ▪▪ Note 26. Employee benefits controlled entities (together referred to as the consolidated entity) ▪▪ Note 29. Structured products assets and liabilities and the consolidated entity’s interests in associates.

The financial report was authorised for issue by the directors ▪▪ Note 31. Contingencies on 24th August 2010. ▪▪ Note 36. Business combinations. The consolidated annual report for the consolidated entity as of and for the year ended 30 June 2010 is available at Starting as of 1 July 2009, the consolidated entity has changed www.perpetual.com.au its accounting policies in the following areas:

Note 2. Summary of significant accounting ▪▪ Accounting for business combinations policies ▪▪ Determination and presentation of operating segments a. Statement of compliance ▪▪ Presentation of financial statements. The financial report is a general purpose financial report prepared in accordance with Australian Accounting Standards (including The accounting policies set out below have been applied Australian Interpretations) adopted by the Australian Accounting consistently to all periods presented in the consolidated Standards Board (AASB) and the Corporations Act 2001. financial statements, and have been applied consistently by the consolidated entity, except as explained in accounting The financial report of the consolidated entity also complies policy notes 2c(i), 2e(i), 2g and 2z(a), which address changes in with International Financial Reporting Standards and accounting policies. interpretations (IFRS) adopted by the International Accounting Standards Board (IASB). Certain comparative amounts have been reclassified to conform with the current year’s presentation. b. Basis of preparation The consolidated financial statements have been prepared on a c. Basis of consolidation historical cost basis, except for available-for-sale financial assets (i) Business combinations and derivative financial instruments which are measured at fair value. Non-current assets are stated at the lower of carrying Change in accounting policy amount or fair value less selling costs. The consolidated entity has adopted revised AASB 3 Business Combinations (2008) and amended AASB 127 Consolidated and The consolidated financial statements are presented in Australian Separate Financial Statements (2008) for business combinations dollars, which is the functional currency of the majority of the occurring in the financial year starting 1 July 2009. All business consolidated entity. Functional currency is the currency of the combinations occurring on or after 1 July 2009 are accounted for primary economic environment in which the company operates. by applying the acquisition method. The change in accounting policy is applied prospectively and had no material impact on The Company is of a kind referred to in ASIC Class Order 98/100 earnings per share. dated 10 July 1998 and in accordance with that Class Order, all financial information presented in Australian dollars has been The consolidated entity has applied the acquisition method for rounded to the nearest thousand unless otherwise stated. the business combination disclosed in note 36.

The preparation of the financial report requires management to For every business combination, the consolidated entity identifies make judgements, estimates and assumptions that affect the the acquirer, which is the combining entity that obtains control of application of accounting policies and the reported amounts of the other combining entities or businesses. Control is the power assets, liabilities, income and expenses. Actual results may differ to govern the financial and operating policies of an entity so as from these estimates. Estimates and underlying assumptions are to obtain benefits from its activities. In assessing control, the reviewed on an ongoing basis. Revisions to accounting estimates consolidated entity takes into consideration potential voting rights are recognised in the period in which the estimate is revised and that currently are exercisable. The acquisition date is the date on in any future periods affected. which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether In particular, information about significant areas of estimation control is transferred from one party to another. uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial report is disclosed in:

▪▪ Note 9. Deferred tax assets/(liabilities)

▪▪ Note 16. Derivative financial instruments

Perpetual Limited and its controlled entities | 95 Measuring goodwill is consolidated if, based on an evaluation of the substance of The consolidated entity measures goodwill as the fair value of the its relationships within the consolidated entity and the SPE’s consideration transferred including the recognised amount of any risks and rewards, the consolidated entity concludes that it non-controlling interest in the acquiree, less the net recognised controls the SPE. SPEs controlled by the consolidated entity amount (generally fair value) of the identifiable assets acquired were established under terms that impose strict limitations on and liabilities assumed, all measured as of the acquisition date. the decision making powers of the SPE’s management and that result in the consolidated entity receiving the majority of the Consideration transferred includes the fair values of the assets benefits related to the SPE operations and net assets, being transferred, liabilities incurred by the consolidated entity to the exposed to risks incidental to the SPE’s activities and retaining previous owners of the acquiree, and equity interests issued by the majority of the residual or ownership risks related to the SPE the consolidated entity. Consideration transferred also includes or their assets. the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in (iv) Associates the business combination (see below). If a business combination Associates are those entities in which the consolidated entity results in the termination of pre-existing relationships between has significant influence, but not control, over the financial the consolidated entity and the acquiree, then the lower of the and operating policies. Significant influence is presumed to termination amount, as contained in the agreement, and the value exist when the consolidated entity holds between 20 and 50 of the off-market element is deducted from the consideration per cent of the voting power of another entity. Associates are transferred and recognised in other expenses. accounted for using the equity method. The consolidated financial statements include the consolidated entity’s share of the Share-based payment awards income and expenses of associates, after adjustments to align When share-based payment awards exchanged (replacement the accounting policies with those of the consolidated entity, awards) for awards held by the acquiree’s employees (acquiree’s from the date significant influence commences until the date awards) relate to past services, then a part of the market-based significant influence ceases. When the consolidated entity’s share measure of the awards replaced is included in the consideration of losses exceeds its interest in an associate, the carrying amount transferred. If the replacement awards require future services, is reduced to nil and recognition of further losses is discontinued then the difference between the amount included in consideration except to the extent that the consolidated entity has incurred transferred and the market based measure of the replacement legal or constructive obligations to make payments on behalf awards is treated as post-combination compensation cost. of an associate.

Contingent liabilities (v) Transactions eliminated on consolidation A contingent liability of the acquiree is recognised in a Intra-group balances and any unrealised income and expenses business combination only if such a liability represents arising from intra-group transactions, are eliminated in preparing a present obligation and arises from a past event, and its consolidated financial statements. Unrealised gains arising fair value can be measured reliably. from transactions with associates are eliminated against the investment to the extent of the consolidated entity’s interest in the Non-controlling interest associate. Unrealised losses are eliminated in the same way as The consolidated entity measures any non-controlling interest unrealised gains, but only to the extent that there is no evidence at its proportionate interest in the identifiable net assets of of impairment. Gains and losses are recognised when the the acquiree. contributed assets are consumed or sold by the associates or, if not consumed or sold, when the consolidated entity’s interest Transaction costs in such entities is disposed of. Transaction costs that the consolidated entity incurs in connection with a business combination, such as finder’s d. Foreign currency translation fees, legal fees, due diligence fees, and other professional and (i) Foreign currency transactions and balances consulting fees, are expensed as incurred. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the (ii) Subsidiaries transactions. Foreign exchange gains and losses resulting from the Subsidiaries are entities controlled by the consolidated entity. settlement of such transactions and from the translation at year Control exists when the consolidated entity has the power end exchange rates of monetary assets and liabilities denominated to govern the financial and operating policies of an entity so in foreign currencies are recognised in the profit or loss. as to obtain benefits from its activities. In assessing control, potential voting rights presently exercisable are taken into Translation differences on financial assets and liabilities carried account. Financial statements of subsidiaries are included in at fair value are reported as part of their fair value gain or loss. the consolidated financial statements from the date control Translation differences on non-monetary financial assets and commences until the date control ceases. liabilities such as equities held at fair value through profit and loss are recognised in profit and loss as part of the fair value gain or (iii) Share plan entities loss. Translation differences on non-monetary financial assets The consolidated entity has established a number of share plan such as equities classified as available-for-sale financial assets entities (SPE) in relation to the administration of employee share are included in the available for sale reserve in equity. plans rather than for trading and investment purposes. A SPE

96 | Perpetual Limited and its controlled entities (ii) Foreign operations study and where the consolidated entity has an intention and The results and financial position of subsidiaries that have a ability to use the asset. Costs incurred on software maintenance functional currency different from the presentation currency are are expensed as incurred. translated into Australian dollars as follows: (iii) Other intangible assets ▪▪ Assets and liabilities for each Balance Sheet presented are Other intangible assets acquired by the consolidated entity, translated at the closing rate at the date of that balance sheet which have finite useful lives, are stated at cost less accumulated amortisation (refer to accounting policy e (v)) and impairment ▪▪ Income and expenses for each Statement of Comprehensive losses (see accounting policy u). Income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the (iv) Subsequent expenditure rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions). Subsequent expenditure is capitalised only when it increases future economic benefits embodied in the specific asset to which Foreign currency differences are recognised in other it relates. All other expenditure is expensed as incurred. comprehensive income. Since 1 July 2004, the consolidated entity’s date of transition to AASBs, such differences have been (v) Amortisation recognised in the foreign currency translation reserve (FCTR). Amortisation is calculated over the cost of the asset, or another When a foreign operation is disposed of, in part or in full, the amount substituted for cost, less its residual value. relevant amount in the FCTR is transferred to profit or loss or to non-controlling interest as part of the profit or loss on disposal. Amortisation is recognised in profit and loss on a straight-line basis over the period the benefits from the assets arise, unless e. Intangible assets these assets are indefinite life assets. Goodwill and other intangible assets with an indefinite useful life are systematically (i) Goodwill tested for impairment at each balance sheet date or more Change in accounting policy frequently if events or changes in circumstances indicate that As from 1 July 2009, the consolidated entity has adopted they might be impaired. Other intangible assets are amortised the revised AASB 3 Business Combinations (2008) and the from the date they are available for use. amended AASB 127 Consolidated and Separate Financial Statements (2008). Revised AASB 3 and amended AASB 127 The estimated useful lives in the current and comparative periods have been applied prospectively to business combinations are as follows: with an acquisition date on or after 1 July 2009. The change in ▪▪ capitalised software costs: 2.5 - 7 years accounting policy had no material impact on earnings per share. ▪▪ funds under management acquired: 5 years Measurement Goodwill represents the excess of acquisition cost over the fair ▪▪ customer contracts and relationships acquired: 5 - 10 years. value of the consolidated entity’s share of the net identifiable The useful life of Talisman, our core unit registry system, was assets of the acquired subsidiary or associate at the date of amended to 7 years from 1 January 2010 (2009: 4 years). acquisition. Goodwill on acquisition of subsidiaries is presented This resulted in a reduction in amortisation of $566,000 in the with intangible assets and on acquisition of associates is included financial year. in investment in associates. Goodwill is allocated to cash- generating units and is not amortised, but tested for impairment Amortisation methods, useful lives and residual values are annually or more frequently if events or changes in circumstances reviewed at each financial year-end and adjusted if appropriate. indicate that it might be impaired. When impaired, goodwill is carried at cost less accumulated impairment losses (see f. Revenue and income recognition accounting policy u). Revenue is recognised at fair value of consideration received For details on the initial recognition and measurement of goodwill or receivable net of goods and services tax payable to the related to business combinations that occurred during the taxation authority. financial year ended 30 June 2010, see note 36. (i) Revenue from the provision of services Gains and losses on the disposal of an entity include the carrying Revenue is earned from provision of services to customers amount of goodwill relating to the entity sold. outside the consolidated entity. Revenue is recognised when services are provided. Negative goodwill arising on an acquisition is recognised directly in profit or loss on the Statement of Comprehensive Income. (ii) Income from structured products Refer to accounting policy (l) for details on income from (ii) Software structured products. Certain internal and external costs directly incurred in acquiring and developing software have been capitalised and are (iii) Investment income amortised over their useful life. Development costs include only Interest income is recognised as it accrues taking into account those costs directly attributable to the development phase and the effective yield of the financial asset. are only recognised following completion of a technical feasibility

Perpetual Limited and its controlled entities | 97 Dividend income is recognised in profit or loss on the date the i. Income tax entity’s right to receive payment is established which, in the case Income tax expense comprises current and deferred tax. Income of quoted securities, is the ex-dividend date. tax expense is recognised in the net profit or loss except to the extent that it relates to items recognised directly in equity, in Unit trust distributions are recognised in profit or loss as they are which case it is recognised in other comprehensive income. received. Current tax is expected tax payable on the taxable income for (iv) Proceeds from sale of investments the year, using tax rates enacted or substantially enacted at Net gains or losses on disposal of non-current assets are reporting date and any adjustment to tax payable in respect of included in profit or loss. The gain or loss arising from disposal previous years. of an item of property, plant and equipment is determined as the difference between net disposal proceeds, being the cash price Deferred tax is recognised in respect of temporary differences equivalent where payment is deferred, and the carrying amount between carrying amounts of assets and liabilities for financial of the item. reporting purposes and amounts used for taxation purposes.

Profit or loss on disposal of assets is brought to account at the Deferred tax is not recognised for the following temporary date an unconditional contract of sale is signed. differences:

▪▪ the initial recognition of goodwill g. Segment reporting As of 1 July 2009, the consolidated entity determines and ▪▪ the initial recognition of assets or liabilities that affect neither presents operating segments based on the information that accounting nor taxable profit internally is provided to the Chief Executive Officer (CEO), who is the consolidated entity’s chief operating decision maker. ▪▪ differences relating to investments in subsidiaries to the extent The change in accounting policy is due to the adoption of that they probably will not reverse in the foreseeable future. AASB 8 Operating Segments. Previously operating segments were determined and presented in accordance with AASB 114 Deferred tax is measured at the tax rates that are expected to be Segment Reporting. The new accounting policy in respect of applied to the temporary differences when they reverse, based operating segment disclosures is presented as follows. on the laws that have been enacted or substantively enacted by the reporting date. Comparative segment information has been re-presented in conformity with the transitional requirements of AASB 8. Since A deferred tax asset is recognised to the extent that it is the change in accounting policy only impacts presentation and probable that future taxable profits will be available against which disclosure aspects, there is no impact on earnings per share. temporary differences can be utilised. Deferred tax assets are reviewed at each balance sheet date and are reduced to the An operating segment is a component of the consolidated extent that it is no longer probable that the related tax benefit will entity that engages in business activities from which it may earn be realised. revenues and incur expenses, including revenues and expenses that relate to transactions with any of the consolidated entity’s Deferred tax assets and liabilities are offset when there is a other components. All operating segments’ operating results legally enforceable right to offset current tax assets and liabilities are regularly reviewed by the consolidated entity’s CEO to and when the deferred tax balances relate to the same taxation make decisions about resources to be allocated to the segment authority. Current tax assets and tax liabilities are offset where and assess its performance, and for which discrete financial the entity has a legally enforceable right to offset and intends information is available. either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be Additional income taxes that arise from the distribution of allocated on a reasonable basis. Unallocated items comprise dividends are recognised at the same time as the liability to pay mainly corporate assets, head office expenses, and income tax the related dividend is recognised. expenses, assets and liabilities. (i) Tax consolidation h. Interest-bearing borrowings The Company and its wholly owned Australian resident entities Interest-bearing borrowings are initially recognised at fair formed a tax-consolidated group with effect from 1 July 2003 and value net of transaction costs incurred. Subsequent to initial are therefore taxed as a single entity from that date. The head recognition, interest-bearing borrowings are stated at amortised entity within the tax consolidated group is Perpetual Limited. cost with any difference between initial carrying amount and Current tax expense, deferred tax liabilities and deferred tax redemption value being recognised in the profit or loss over the assets arising from temporary differences of the members of period of the borrowings using the effective interest method. the tax consolidated group are recognised in the separate Interest-bearing borrowings are removed from the Balance Sheet financial statements of the members of the tax consolidated when the obligation specified in the contract is discharged, group using the ‘group allocation’ approach by reference to the cancelled or expired. carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation.

98 | Perpetual Limited and its controlled entities Current tax liabilities or assets and deferred tax assets arising k. Investments from unused tax losses and tax credits of subsidiaries are (i) Held-to-maturity investments assumed by the Company in the tax-consolidated group and Investments are classified as held-to-maturity if the consolidated are recognised as amounts payable to or receivable from other entity has the positive intent and ability to hold to maturity. Held- entities in the tax-consolidated group in conjunction with any to-maturity investments are measured at amortised cost using tax funding arrangement amounts (refer accounting policy i (ii)). the effective interest method, less any impairment losses. Any difference between these amounts is recognised by the Company as an equity contribution or distribution. (ii) Available-for-sale financial assets The Company recognises deferred tax assets arising from The consolidated entity’s investments in equity securities and unused tax losses of the tax-consolidated group to the unlisted unit trusts are classified as available-for-sale financial extent that it is probable that future taxable profits of the tax- assets. Subsequent to initial recognition, they are measured at consolidated group will be available against which the asset can fair value and changes therein, other than impairment losses be utilised. (see accounting policy u), are recognised in other comprehensive income. When an investment is derecognised, the cumulative Any subsequent period adjustments to deferred tax assets gain or loss in equity is transferred to profit or loss. arising from unused tax losses as a result of revised assessments of the probability of recoverability are recognised by the head The fair value of financial instruments classified as available-for- entity only. sale is their quoted bid price at the reporting date.

(ii) Nature of tax funding arrangements and tax sharing (iii) Investments at fair value through profit or loss arrangements Investments are classified at fair value through profit or loss if they The head entity, in conjunction with other members of the tax are held for trading or designated as such upon initial recognition. consolidated group, has entered into a tax funding arrangement The consolidated entity’s derivative instruments within asset which sets out funding obligations of members of the tax- management incubation funds are classified as held for trading consolidated group in respect of tax amounts. financial assets. On initial recognition, attributable transaction costs are recognised in profit or loss when incurred. The tax funding arrangements require payments to or from the head entity equal to the current tax liability or asset assumed by Financial instruments designated at fair value through profit or the head entity and any tax loss deferred tax asset assumed by loss are measured at fair value and changes recognised in profit the head entity, resulting in the head entity recognising an inter- or loss. company receivable or payable equal to the tax liability or asset assumed. The inter-company receivable or payable is at call. l. Structured products Structured products comprise products sold to investors Contributions to fund the current tax liabilities are payable as where there is residual risk taken by the Company. Currently, per the tax funding arrangement and reflect the timing of the structured products comprise products such as the Exact head entity’s obligation to make payments for tax liabilities to the Market Cash Funds (the EMCF product) and Perpetual Protected relevant tax authorities. Investments (PPI). The head entity, in conjunction with other members of the (i) Exact Market Cash Funds tax consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the The EMCF product consisting of two Funds (EMCF1 and EMCF2) determination of the allocation of income tax liabilities between is consolidated as the consolidated entity is deemed to control the entities should the head entity default on its tax payment the EMCF Funds since it retains the residual risks and benefits obligations. No amounts have been recognised in the financial through the swap agreements. The swap agreements result in statements in respect of this agreement as payment of any the benchmark rate of return being paid to the unit holders in amounts under the tax sharing agreement is considered remote. the Fund. The swap agreements are inter-company transactions between a subsidiary of the Company and the Funds and are j. Goods and services tax eliminated on consolidation. Revenues, expenses and assets are recognised net of goods and Assets and liabilities of the EMCF product are disclosed services tax (GST), except where GST incurred is not recoverable separately on the face of the Balance Sheet as structured from the Australian Taxation Office (ATO). In these circumstances product assets and structured product liabilities. The benchmark the GST is recognised as part of the cost of acquisition of the return generated by the EMCF product and distributions asset or as part of the expense. to unit holders are shown separately on the Statement of Comprehensive Income as distributions and expenses related Receivables and payables are stated with GST included. The to structured products. net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Balance Sheet. The financial assets represented by the structured products assets balance are accounted for in accordance with the Cash flows are included in the Cash Flow Statements on a gross underlying accounting policies of the consolidated entity. basis. GST components of cash flows arising from investing and These consist of investments accounted for at fair value as financing activities which are recoverable from, or payable to, the available-for-sale financial assets. ATO are classified as operating cash flows.

Perpetual Limited and its controlled entities | 99 (ii) Perpetual Protected Investments that future economic benefits embodied within the item will Loans to investors which are held as non-current assets at flow to the consolidated entity and the cost of the item can be amortised cost on the Balance Sheet (refer to structured measured reliably. The carrying amount of the replaced part is products - loan receivables) are non-derivative financial assets derecognised. All other costs are recognised in profit or loss as with fixed or determinable payments that are not quoted in an an expense when incurred. active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent (iii) Depreciation to initial recognition loans and receivables are measured at Depreciation is recognised in the Statement of Comprehensive amortised cost using the effective interest method, less any Income on a straight-line basis over the estimated useful lives impairment losses. of each part of an item of property, plant and equipment. The estimated useful lives for the current and comparative periods are Loans to investors are subject to recurring review and as follows: assessment for possible impairment. Provisions for loan losses are based on an incurred loss model, which recognises a ▪▪ plant and equipment: 4 - 10 years provision where there is objective evidence of impairment at each balance sheet date, and are calculated based on the discounted ▪▪ leasehold improvements: 3 - 15 years. values of expected future cash flows. The residual value, useful life and depreciation method applied to The incurred loss model makes specific provision where specific an asset are reassessed at least annually. loan impairment is identified. For individual loans not impaired, assets with similar risk profiles are pooled and collectively n. Loans and receivables assessed for losses that may have been incurred but not yet Loans and receivables are financial assets with fixed or identified. Bad debts are written off in the period in which they determinable payments that are not quoted in an active market. are identified. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Management makes judgements whether there is any observable data indicating that there is a significant decrease Subsequent to initial recognition loans and receivables are in the estimated future cash flows from a portfolio of loans. This measured at amortised cost using the effective interest method evidence may include observable data indicating that there has less impairment losses (see accounting policy u). been an adverse change in the payment status of the borrowers Loans and receivables comprise trade and other receivables. in a group, or national or local economic conditions that correlate Refer to accounting policy l (ii) for structured-products loan with defaults on assets in that group. receivables. m. Property, plant and equipment o. Expenses (i) Recognition and measurement (i) Operating leases Property, plant and equipment are measured at cost or deemed Operating lease payments are recognised as an expense in cost less accumulated depreciation and impairment losses profit or loss on a straight-line basis over the term of the lease. (see accounting policy u). Incentives received by the consolidated entity on entering a lease Cost includes expenditures that are directly attributable to the agreement are recognised on a straight-line basis over the term acquisition of the asset. Cost of self-constructed assets includes of the lease. cost of materials, direct labour, an appropriate proportion of The difference between the cash amount paid and the amount overheads and where relevant, the initial estimate of the costs recognised as an expense is recognised as a lease provision in of dismantling and removing the items and restoring the site the Balance Sheet (see accounting policy q). The provision is on which they are located. Purchased software that is integral expected to be realised over the term of the underlying leases. to the functionality of the related equipment is capitalised as part of that equipment. (ii) Financing costs Where parts of an item of property, plant and equipment have Financing costs comprise interest payments on borrowings and different useful lives, they are accounted for as separate items of derivative financial instruments calculated using the effective property, plant and equipment. interest method, and unwinding of discounts on provisions.

Gains and losses on disposal of an item of property, plant p. Payables and equipment are determined by comparing the proceeds Payables are non-interest bearing and are stated at amortised from disposal with the carrying amount of property, plant and cost, with the exception of contingent consideration which is equipment. When revalued assets are sold, the amounts included recorded at fair value at the acquisition date. in the revaluation reserve are transferred to retained earnings. Contingent consideration is classified as a financial liability and is (ii) Subsequent costs subsequently remeasured to fair value with changes in fair value The consolidated entity recognises the cost of replacing part recognised in profit or loss. of an item of property, plant and equipment in the carrying amount of that item when the cost is incurred, it is probable

100 | Perpetual Limited and its controlled entities q. Provisions r. Financial guarantee contracts A provision is recognised in the Balance Sheet when the Financial guarantee contracts are recognised as a financial consolidated entity has a present legal or constructive obligation liability at the time the guarantee is issued. The liability is initially as a result of a past event that can be measured reliably and it is measured at fair value and subsequently at the higher of the probable that an outflow of economic benefits will be required to amount determined in accordance with AASB 137 Provisions, settle the obligation. Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where Management exercise judgement in estimating provision appropriate. amounts. It may be possible, based on existing knowledge, that outcomes in the next annual reporting period differ from amounts Where guarantees in relation to loans or other payables of provided and may require adjustment to the carrying amount of subsidiaries are provided for no compensation, the fair values are the liability affected. accounted for as contributions and recognised as part of the cost of the investment. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market s. Share capital assessments of the time value of money and, where appropriate, (i) Ordinary shares the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised (i) Onerous leases and make good as a deduction from equity, net of any tax effects. A provision for onerous leases is recognised when the expected (ii) Repurchase of share capital (treasury shares) benefits to be derived by the consolidated entity from a lease contract are lower than the unavoidable cost of meeting its When share capital recognised as equity is repurchased or held obligations under the contract. The provision is measured at the by employee share plans and subject to vesting conditions, the present value of the lower of the expected cost of terminating amount of the consideration paid, including directly attributable the contract and the expected net cost of continuing with the costs, is recognised as a deduction from equity. When treasury contract. Before a provision is established, the consolidated shares are sold or reissued subsequently, the amount received entity recognises any impairment loss on the assets associated is recognised as an increase in equity. with that contract. A provision for make good is recognised when the consolidated entity is responsible for the make good of (iii) Dividends leased premises on termination of operating leases. Dividends are recognised as a liability in the period in which they are declared. ii) Operational process review A provision for operational process reviews is recognised when t. Cash and cash equivalents operational errors in relation to unit pricing are identified and Cash and cash equivalents comprise bank balances, deposits represents the cost that the consolidated entity expects to incur at call and short-term deposits. in rectification and restitution costs. u. Impairment (iii) Self-insurance (i) Financial assets (including receivables) Provision for self-insurance recognises incurred but not reported A financial asset is assessed at each reporting date to determine claims. These provisions are measured at the cost that the whether there is any objective evidence of impairment. A financial consolidated entity expects to incur in settling the claim, asset is considered to be impaired if objective evidence indicates discounted using a government bond rate with a maturity date that one or more events have had a negative effect on the approximating the term of the obligation. estimated future cash flows of that asset.

(iv) Legal provision Objective evidence that financial assets (including equity A provision for litigation is recognised when reported litigation securities) are impaired can include default or delinquency by claims arise and are measured at the cost that the consolidated a debtor, restructuring of an amount due to the consolidated entity expects to incur in settling the claim. entity on terms that the consolidated entity would not consider otherwise, indications that a debtor or issuer will enter bankruptcy (v) Lease expense and the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or A provision for lease expense represents the difference between prolonged decline in fair value below its cost is objective evidence the cash amount paid and the amount recognised as an of impairment. expense. The provision is expected to be realised over the term of the underlying lease. The consolidated entity considers evidence of impairment for receivables and held-to-maturity investment securities at both (vi) Employee benefits a specific asset and collective level. All individually significant Refer to accounting policy (x) for details on employee benefits receivables and held-to-maturity investment securities are provisions. assessed for specific impairment. All individually significant receivables and held-to-maturity investment securities found

Perpetual Limited and its controlled entities | 101 not to be specifically impaired are then collectively assessed for cash inflows from continuing use that are largely independent of any impairment that has been incurred but not yet identified. the cash inflows of other assets or groups of assets (the ‘cash- Receivables and held-to-maturity investment securities that generating unit’ or CGU). Subject to an operating segment ceiling are not individually significant are collectively assessed for test, for the purposes of goodwill impairment testing, CGUs to impairment by grouping together receivables and held-to- which goodwill has been allocated are aggregated so that the maturity investment securities with similar risk characteristics. level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. In assessing collective impairment the consolidated entity uses historical trends of the probability of default, timing of recoveries The consolidated entity’s corporate assets do not generate and the amount of loss incurred, adjusted for management’s separate cash inflows. If there is an indication that a corporate judgement as to whether current economic and credit conditions asset may be impaired, then the recoverable amount is are such that the actual losses are likely to be greater or less than determined for the CGU to which the corporate asset belongs. suggested by historical trends. An impairment loss is recognised if the carrying amount of An impairment loss in respect of a financial asset measured an asset or its cash-generating unit exceeds its recoverable at amortised cost is calculated as the difference between its amount. Impairment losses are recognised in the Statement carrying amount and the present value of the estimated future of Comprehensive Income. Impairment losses recognised in cash flows discounted at the asset’s original effective interest respect of cash-generating units are allocated first to reduce the rate. Losses are recognised in profit and loss and reflected in an carrying amount of any goodwill allocated to the units and then, allowance account against receivables. Interest on the impaired to reduce the carrying amount of the other assets in the unit on a asset continues to be recognised through the unwinding of pro rata basis. the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is An impairment loss in respect of goodwill is not reversed. reversed through profit or loss. In respect of other assets, impairment losses recognised in prior periods are assessed at each balance sheet date for any Impairment losses on available-for-sale investment securities indications that the loss has decreased or no longer exists. are recognised by transferring the cumulative loss that has been An impairment loss is reversed if there has been a change in recognised in other comprehensive income, and presented the estimates used to determine the recoverable amount. An in the available-for-sale reserve in equity, to profit or loss. The impairment loss is reversed only to the extent that the asset’s cumulative loss that is removed from other comprehensive carrying amount does not exceed the carrying amount that income and recognised in profit or loss is the difference would have been determined, net of depreciation or amortisation, between the acquisition cost, net of any principal repayment and if no impairment loss had been recognised. amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. v. Derecognition of financial assets and liabilities The consolidated entity initially recognises loans and receivables If, in a subsequent period, the fair value of an impaired available- and deposits on the date that they are originated. All other for-sale debt security increases and the increase can be related financial assets (including assets designated at fair value through objectively to an event occurring after the impairment loss profit or loss) are recognised initially on the trade date at which was recognised in profit or loss, then the impairment loss is the consolidated entity becomes a party to the contractual reversed, with the amount of the reversal recognised in profit or provisions of the instrument. loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other The consolidated entity derecognises a financial asset when the comprehensive income. contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the (ii) Non-financial assets financial asset in a transaction in which substantially all the risks The carrying amounts of the consolidated entity’s non-financial and rewards of ownership of the financial asset are transferred. assets, other than deferred tax assets (see accounting policy Any interest in transferred financial assets that is created or i), are reviewed at each reporting date to determine whether retained by the consolidated entity is recognised as a separate there is any indication of impairment. If any such indication asset or liability. exists, the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not Financial liabilities (including liabilities designated at fair value yet available for use, recoverable amount is estimated at each through profit or loss) are recognised initially on the trade balance sheet date. date at which the consolidated entity becomes a party to the contractual provisions of the instrument. The consolidated entity The recoverable amount of an asset or cash-generating unit is derecognises a financial liability when its contractual obligations the greater of its value in use and its fair value less costs to sell. are discharged or cancelled or expire. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate Financial assets and liabilities are offset and the net amount that reflects current market assessments of the time value of presented in the balance sheet when, and only when, the money and the risks specific to the asset. For the purpose of consolidated entity has a legal right to offset the amounts and impairment testing, assets that cannot be tested individually are intends either to settle on a net basis or to realise the asset and grouped together into the smallest group of assets that generates settle the liability simultaneously.

102 | Perpetual Limited and its controlled entities w. Derivative financial instruments (ii) Long service leave The consolidated entity holds derivative financial instruments The liability for long service leave is recognised in the provision within structured products and incubation funds to hedge its for employee benefits and measured as the present value of interest rate, foreign exchange and market risk exposures. expected future payments to be made in respect of services provided by employees up to the reporting date using the On initial designation of the hedge, the consolidated entity projected unit credit method. Consideration is given to expected formally documents the relationship between the hedging future wage and salary levels, experience of employee departures instrument and the hedged item, including the risk management and periods of service. Expected future payments are discounted objectives and strategy in undertaking the hedge transaction, using market yields at the reporting date on national government together with the methods that will be used to assess the bonds with terms to maturity and currency that match, as closely effectiveness of the hedging relationship. The consolidated as possible, the estimated future cash outflows. entity makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging (iii) Wages, salaries, annual leave, sick leave and instruments are expected to be ‘highly effective’ in offsetting the non-monetary benefits changes in the fair value or cash flows of the respective hedged Liabilities for employee benefits for wages, salaries and annual items during the period for which the hedge is designated, and leave expected to be settled within 12 months of the reporting whether the actual results of each hedge are within a range of date represent present obligations resulting from employees’ 80-125 per cent. For a cash flow hedge of a forecast transaction, services provided to reporting date. These liabilities are the transaction should be highly probable to occur and should calculated at undiscounted amounts based on wage and salary present an exposure to variations in cash flows that could rates that the consolidated entity expects to pay as at reporting ultimately affect reported net income. date including related on-costs, such as workers compensation Derivatives are recognised initially at fair value. Attributable insurance and payroll tax. transaction costs are recognised in profit or loss when incurred. Non-accumulating benefits, such as sick leave, are not provided Subsequent to initial recognition, derivatives are measured for but are expensed as the benefits are taken by the employees. at fair value, and changes therein are accounted for as described below. Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised goods and services are (i) Cash flow hedges expensed based on the net marginal cost to the consolidated To the extent that the hedge is effective, changes in the fair entity as the benefits are taken by the employees. value of a derivative hedging instrument designated as a cash flow hedge are recognised in the cash flow hedge reserve. To A provision is recognised for the amount expected to be paid the extent that the hedge is ineffective, changes in fair value are under short-term bonus or profit-sharing plans if the consolidated recognised in the net profit and loss. entity has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then y. Share-based payment transactions hedge accounting is discontinued prospectively. The cumulative (i) Employee share purchase and option plans gain or loss previously recognised in equity remains there until Share option and share incentive programs allow employees to the forecast transaction occurs. When the hedged item is a non- acquire shares in the Company. The fair value of shares and/ financial asset, the amount recognised in equity is transferred to or options granted under these programs is recognised as an the carrying amount of the asset when it is recognised. In other employee expense with a corresponding increase in equity. Fair cases the amount recognised in equity is transferred to the net value is measured at grant date and amortised over the period profit or loss in the same period that the hedged item affects during which employees become unconditionally entitled to the profit and loss. shares and/or options.

(ii) Other derivatives The fair value of the options granted is measured using a binomial When a derivative financial instrument is not designated in a model, taking into account the terms and conditions upon which qualifying hedge relationship, any changes in fair value are the options were granted. The amount recognised as an expense recorded in profit and loss. is adjusted to reflect the actual number of share options that vest except where forfeiture is due to share prices not achieving their x. Employee benefits threshold for vesting. (i) Defined contribution superannuation funds (ii) Deferred staff incentives A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate The Company grants certain employees shares under long-term entity and will have no legal or constructive obligation to pay incentive and retention plans. Under these plans, shares vest to further amounts. Obligations for contributions to defined employees over relevant vesting periods. To satisfy the long-term contribution pension plans are recognised as an expense in the incentives granted, the Company purchases or issues shares periods during which services are rendered by employees. under the Executive Share Plan, Deferred Share Plan or the Global Employees Share Trust.

Perpetual Limited and its controlled entities | 103 The fair value of the shares granted is measured by the share ▪▪ AASB 124 Related Party Disclosures (revised December 2009) price adjusted for the terms and conditions upon which the simplifies and clarifies the intended meaning of the definition shares were granted. This fair value is amortised on a straight-line of a related party and provides a partial exemption from the basis over the applicable vesting period. disclosure requirements for government – related entities. The amendments, which will become mandatory for the The consolidated entity make estimates on the number of shares consolidated entity’s 30 June 2012 financial statements, are that are expected to vest. Where appropriate, revised estimates not expected to have any impact on the financial statements. are reflected in profit or loss with the corresponding adjustment to the equity compensation reserve. Where shares containing a ▪▪ AASB 2009-5 Further amendments to Australian Accounting market linked hurdle do not vest, due to total shareholder return Standards arising from the Annual Improvements Process not achieving the threshold for vesting, an adjustment is made to that affect various AASBs resulting in minor changes for contributed equity and equity compensation reserve. presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the z. Earnings per share consolidated entity’s 30 June 2011 financial statements, are The consolidated entity presents basic and diluted earnings not expected to have a significant impact on the consolidated per share (EPS) data for its ordinary shares. Basic EPS is entity’s financial statements. calculated by dividing the net profit or loss attributable to ordinary shareholders of the Company by the weighted average number ▪▪ AASB 2009-8 Amendments to Australian Accounting of ordinary shares outstanding during the period, adjusted for Standards - Group Cash-Settled Share-based Payment shares held by the Company’s employee share plan trust. Diluted Transactions resolves diversity in practice regarding the EPS is determined by dividing the net profit or loss attributable attribution of cash-settled share-based payments between to ordinary shareholders by the weighted average number different entities within a group. As a result of the amendments of ordinary shares outstanding, adjusted for shares held by AI 8 Scope of AASB 2 and AI 11 AASB 2 – Group and Treasury Company’s sponsored employee share plan trust and for the Share Transactions will be withdrawn from the application effects of all dilutive potential ordinary shares, which comprise date. The amendments, which become mandatory for the shares and options granted to employees under long-term consolidated entity’s 30 June 2011 financial statements, are incentive and retention plans. not expected to have a significant impact on the consolidated entity’s financial statements. z(a). Presentation of financial statements The consolidated entity applies revised AASB 101 Presentation of Financial Statements (2007), which became effective as of 1 July 2009. As a result, the consolidated entity presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income.

Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share. z(b). New standards and interpretations not yet adopted The following standards, amendments to standards and interpretations have been identified as those which may impact the consolidated entity in the period of initial application. They are available for early adoption at 30 June 2010, but have not been applied in preparing this financial report:

▪▪ AASB 9 Financial Instruments includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the project to replace AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 will become mandatory for the consolidated entity’s 30 June 2014 financial statements. Retrospective application is generally required, although there are exceptions, particularly if the consolidated entity adopts the standard for the year ended 30 June 2012 or earlier. The consolidated entity has not yet determined the potential effect of the standard.

104 | Perpetual Limited and its controlled entities Note 3. Revenue

Consolidated 2010 2009 $’000 $’000 Revenue from the provision of services Gross revenue from fees and commissions 407,923 365,528 Total revenue from the provision of services 407,923 365,528 Other income Income from structured products 83,595 107,4 40 Total other income 83,595 107,4 40 Investment income Dividends 901 1,075 Interest 13,213 5,741 Unit trust distributions 308 2,754 Total investment income 14,422 9,570 505,940 482,538

Note 4. Net profit before tax Net profit before tax has been arrived at after charging/(crediting) the following items: Depreciation of property, plant and equipment: – Leasehold improvements 2,750 2,500 – Plant and equipment 2,996 2,345 5,746 4,845 Amortisation of intangible assets: – Capitalised software 5,783 6,718 – Other intangible assets 3,328 1,600 9,111 8,318 Depreciation and amortisation expense 14,857 13,163

Rental charges – operating leases 14,729 13,558 Net loss on sale of property, plant and equipment 78 470 Net movements in provision for: – Employee benefits 7,107 ( 7,58 0) – Bad and doubtful debts 251 182 – Credit losses on structured products 1,644 991 Net foreign exchange gain 2,421 1,731

Total staff related expenses:

– Staff related expenses 195,441 168,584

– Equity remuneration expense 26,755 25,930

222,196 194,514

Note 5. Individually significant items included in profit for the year

Loss on disposal and impairment of investments: – Profit/(loss) on sale of part of investment portfolio 3,913 (6,673) – Impairment of available-for-sale securities ( 7,0 85) (1,065) Total loss on disposal of investments (3,172) ( 7,738) Income tax benefit applicable 784 1,657 Total loss on disposal and impairment of investments after tax (2,388) (6,081)

Exact Market Cash Fund profit/(loss) 29,024 (19,729) Income tax (expense)/benefit applicable (8,707) 5,919 20,317 (13,810)

Restructuring costs - (11,593) Income tax benefit applicable - 3,478 - (8,115)

Perpetual Limited and its controlled entities | 105 Note 6. Segment information

Perpetual Investments1 Private Wealth Corporate Trust Total $’000 $’000 $’000 $’000 30 June 2010 External revenues 284,603 122,807 85,628 493,038 Inter-segment revenue/(expense) 11,240 (11,240) - - Interest revenue 759 6 1,840 2,605 Total revenue for reportable segment 296,602 111,573 87,46 8 495,643 Depreciation and amortisation (5,471) (3,944) (3,064) (12,479) Reportable segment net profit before tax 101,027 32,581 32,349 165,957 Reportable segment assets 1,472,485 128,990 48,989 1,650,464 Reportable segment liabilities (1,422,994) (25,134) (5,380) (1,453,508) Capital expenditure 1,006 3,702 766 5,474

30 June 2009 External revenues 299,605 95,808 79,911 475,324 Inter-segment revenue/(expense) 10,062 (10,062) - - Interest revenue 758 - 354 1,112 Total revenue for reportable segment 310,425 85,746 80,265 476,436 Depreciation and amortisation (5,340) (2,376) (3,262) (10,978) Reportable segment net profit before tax 39,314 29,136 36,084 104,534 Reportable segment assets 1,915,684 63,079 43,553 2,022,316 Reportable segment liabilities (1,867,083) (14,093) (7,643) (1,888,819) Capital expenditure 7,3 01 4,651 588 12,540

1 Segment information for Perpetual Investments includes the Exact Market Cash Funds.

Consolidated 2010 2009 $’000 $’000 Reconciliations of reportable segment revenues, net profit before tax, total assets and liabilities

Revenues Total revenue for reportable segments 495,643 476,436 Group and Support Services revenue 10,297 6,102 Total group revenue 505,940 482,538

Net profit before tax Total net profit before tax for reportable segments 165,957 104,534 Financing costs (2,772) (2,507) Profit/(loss) on disposal of investments 3,913 (6,673) Impairment of available-for-sale securities ( 7,0 85) (1,065) Share of (loss)/profit of equity accounted investees (16) 111 Group and Support Services expenses (26,486) (35,284) Net profit before tax 133,511 59,116

Total assets Total assets for reportable segments 1,650,464 2,022,316 Group and Support Services assets 290,352 241,156 Investments in equity accounted investees - 6,924 Total assets 1,940,816 2,270,396

Total liabilities Total liabilities for reportable segments 1,453,508 1,888,819 Group and Support Services liabilities 126,284 91,536 Total liabilities 1,579,792 1,980,355

106 | Perpetual Limited and its controlled entities Note 6. Segment information (continued)

The consolidated entity has identified three operating segments based on the internal reports that are reviewed and used by the consolidated entity’s CEO in assessing performance and in determining the allocation of resources. For each of the reportable segments, the consolidated entity’s CEO reviews internal management reports on a monthly basis. The following summary describes the operations in each of the reportable segments: a. Services provided The consolidated entity operates in the financial services industry in Australia and provides wealth management and corporate trust services. The major services from which the reportable segments derive revenue are:

Perpetual Investments Manufacturer of financial products, management and investment of monies on behalf of private, corporate, superannuation and institutional clients.

Private Wealth Private Wealth provides a wide range of investment and non-investment products and services. These include a comprehensive advisory service, portfolio management, philanthropic, executorial and trustee services to high net worth and emerging high net worth Australians. Private Wealth also provides many of these services to charities, not for profit and other philanthropic organisations.

Corporate Trust The Corporate Trust division provides fiduciary services incorporating safe-keeping and recording of assets and transactions as custodian, trustee, registrar or agent for corporate and financial services clients and mortgage processing services.

Comparative segment information has been prepared in conformity with the requirement of AASB 8 Operating Segments. b. Geographical segments The consolidated entity operates predominantly in Australia. More than 90 per cent of revenue and non-current assets relate to operations in Australia. c. Major customers The consolidated entity does not rely on any major customer.

Note 7. Auditor’s remuneration

Consolidated 2010 2009 $ $ Audit Services

Auditors of the Company

KPMG Australia:

Audit and review of the consolidated and subsidiary financial statements 595,568 549,500

Audit and review of managed funds and superannuation funds for which the consolidated entity acts as responsible entity1 2,777,303 2,3 07,136

Audit services in accordance with regulatory requirements 298,680 241,000

Other assurance services 20,000 20,000

Overseas KPMG firms:

Audit and review of financial statements 63,800 50,000

Other assurance services 2,400 2,000

3,757,751 3,169,636

1 These fees were paid for the audit of 145 managed funds (2009: 138 managed funds) and 1,171 (2009: 1,114) DIY superannuation funds and which contained assets totalling $26.9 billion (2009: $26.2 billion).

Other assurance services paid to KPMG are in accordance with the Company’s auditor independence policy as outlined in Perpetual’s Corporate Responsibility Statement.

Perpetual Limited and its controlled entities | 107 Note 8. Income tax expense a. Income tax expense Consolidated 2010 2009 $’000 $’000 Current tax expense 48,022 20,058 Deferred tax expense (4,798) 2,018 Over provided in prior years (435) (651) Total 42,789 21,425

Deferred tax included in income tax expense comprises: Increase/(decrease) in deferred tax assets 5,316 (651) Increase in deferred tax liabilities (518) (1,367) Total 4,798 (2,018)

The above movements in deferred tax assets and deferred tax liabilities are net of movements in these balances recognised directly in other comprehensive income. b. Reconciliation of income tax expense to prima facie income tax payable Consolidated 2010 2009 $’000 $’000 Prima facie income tax expense calculated at 30% (2009: 30%) on profit for the year 40,053 17,735 Increase in income tax expense due to: – Taxable profit on disposal of investments 1,117 - – Accounting write down on available-for-sale assets 2,125 - – Accounting loss on credit funds - 723 – Accounting loss on disposal of investments - 2,321 – Imputation gross-up on dividends received 60 138 – Foreign source loss – effect of lower tax rate 1,338 2,007 – Foreign source loss not recognised as a deferred tax asset 956 1,433 – Other expenditure 1,702 787 7,29 8 7,40 9 Decrease in income tax expense due to: – Franking credits on dividends received (199) (461) – Accounting profit on disposal of investments (1,174) - – Realised net capital losses - (1,734) – Unrealised net capital losses on available-for-sale assets (1,895) (645) – Write back deferred tax liability arising from business combinations (361) - – Sundry items (498) (228) (4,127) (3,068) Income tax expense attributable to profit for the year before tax 43,224 22,076 Less: Income tax over provided in prior years (435) (651) Income tax expense attributable to profit for the year 42,789 21,425

The realisation of the deferred tax assets relating to the realised and unrealised capital losses is dependent on future capital gains being in excess of the losses shown in note 9 on the following page. c. Current tax liabilities The current tax liability for the consolidated entity represents income taxes payable in respect of the current and prior financial year. In accordance with tax consolidation legislation, the Company, as head entity of the Australian tax-consolidated group, has assumed the current tax liability recognised by members in the tax consolidated group. d. Income tax recognised in other comprehensive income Consolidated 2010 2009 $’000 $’000 Cash flow hedges (227) - Available-for-sale financial assets 2,705 (3,311) 2,478 (3,311)

108 | Perpetual Limited and its controlled entities Note 9. Deferred tax assets / (liabilities)

Consolidated 2010 2009 $’000 $’000 The balance comprises temporary differences attributable to: Property, plant and equipment 1,819 4,181 Intangible assets - (3,685) Employee benefits 10,970 8,102 Provisions and accruals 11,589 10,288 Structured products-interest received in advance 4,175 4,281 Realised net capital losses 1,433 1,734 Unrealised net capital losses 2,636 5,157 Other items 597 323 Total deferred tax assets 33,219 30,381

Intangible assets (6,845) - Structured products-interest paid in advance - (1,575) Other items (353) (562) Total deferred tax liabilities (7,198) (2,137)

Net deferred tax assets 26,021 28,244

At 30 June 2010, the consolidated entity had carried forward The consolidated entity had unrealised net capital gains realised net capital losses of $4,778,000 (30 June 2009: recognised in profit or loss for the year ended 30 June 2010 of $5,781,000) which had a tax benefit of $1,433,000 (30 June $144,000 (2009: loss of $8,876,000) which had a tax expense of 2009: $1,734,000); the tax benefit of these capital losses has $43,000 (2009: tax benefit of $2,663,000). The tax expense has been recognised in deferred tax assets. reduced the tax benefit attributable to the unrealised net capital losses in deferred tax assets. As at 30 June 2010, the consolidated entity had carried forward unrealised net capital losses of $8,787,000 (30 June 2009: At 30 June 2010, the consolidated entity has carried forward $17,190,000) which had a tax benefit of $2,636,000 (30 June foreign tax losses of $58,311,000 (30 June 2009: $50,666,000) 2009: $5,157,000). Of this amount $8,732,000 (30 June 2009: which had a tax benefit of $7,289,000 (30 June 2009: $8,876,000) which had a tax benefit of $2,620,000 (30 June $6,333,000) at 12.5 per cent that was not recognised in the 2009: $2,663,000) has been recognised in profit and loss in Balance Sheet. the current and prior periods, and $55,000 (30 June 2009: $8,314,000) which had a tax benefit of $16,000 (30 June 2009: $2,494,000) has been recognised in other comprehensive income in the current and prior periods. The tax benefit of these capital losses has been recognised in deferred tax assets.

Perpetual Limited and its controlled entities | 109 Note 9. Deferred tax assets/(liabilities) (continued)

Balance Recognised in profit Recognised in other Acquired in business Balance 1 July 2009 or loss comprehensive income combinations 30 June 2010 $’000 $’000 $’000 $’000 $’000 Movement in temporary differences during the year Consolidated Deferred tax assets Property, plant and equipment 4,181 (2,362) - - 1,819 Intangible assets (3,685) 3,685 - - - Employee benefits 8,102 2,868 - - 10,970 Provisions and accruals 10,288 1,301 - - 11,589 Structured products-interest received 4,281 (106) - - 4,175 in advance Realised net capital losses 1,734 (301) - - 1,433 Unrealised net capital losses 5,157 (43) (2,478) - 2,636 Other items 323 274 - - 597 30,381 5,316 (2,478) - 33,219 Deferred tax liabilities Intangible assets - (2,302) - (4,543) (6,845) Structured products-interest paid (1,575) 1,575 - - - in advance Other items (562) 209 - - (353) (2,137) (518) - (4,543) ( 7,19 8)

28,244 4,798 (2,478) (4,543) 26,021

Balance Recognised in profit Recognised in other Acquired in business Balance 1 July 2008 or loss comprehensive income combinations 30 June 2009 $’000 $’000 $’000 $’000 $’000 Movement in temporary differences during the year Consolidated Deferred tax assets Property, plant and equipment 1,737 2,444 - - 4,181 Intangible assets (1,696) (1,989) - - (3,685) Employee benefits 11,682 (3,580) - - 8,102 Provisions and accruals 9,519 769 - - 10,288 Structured products-interest received 6,354 (2,073) - - 4,281 in advance Realised net capital losses - 1,734 - - 1,734 Unrealised net capital losses - 2,663 2,494 - 5,157 Other items 942 (619) - - 323 28,538 (651) 2,494 - 30,381

Deferred tax liabilities Structured products-interest paid - (1,575) - - (1,575) in advance Shares in other companies, (817) - 817 - - investments in unlisted unit trusts and other financial assets Other items (770) 208 - - (562) (1,587) (1,367) 817 - (2,137)

26,951 (2,018) 3,311 - 28,244

110 | Perpetual Limited and its controlled entities Note 10. Dividends a. Dividends paid Dividends paid or provided for in the current and comparative year are as follows:

Cents per share Total amount Franked1 / Unfranked Date of payment $’000 2010 Final 2009 ordinary 60 25,506 Franked 30 Sep 2009 Interim 2010 ordinary 105 45,398 Franked 1 Apr 2010 Total amount 165 70,904

2009 Final 2008 ordinary 141 59,181 Franked 12 Sep 2008 Interim 2009 ordinary 40 16,986 Franked 13 Mar 2009 Total amount 181 76,167

1 All franked dividends declared or paid during the year were franked at a tax rate of 30 per cent and paid out of retained earnings.

The Company introduced a Dividend Reinvestment Plan (DRP) in May 2009. The DRP is optional and offers ordinary shareholders in Australia and New Zealand the opportunity to acquire fully paid ordinary shares, without transaction costs. The shares may also be issued at a discount to the market price, which the directors may determine from time to time. The discount applied to the DRP for the interim and proposed final 2010 dividend is 2.5%. A shareholder can elect to participate in or terminate their involvement in the DRP at any time. b. Subsequent events Since the end of the financial year, the directors declared the following dividend. The dividends have not been provided for and there are no tax consequences. Cents per Total amount2 Date of Franked1 / Unfranked share $’000 payment Final 2010 ordinary 105 45,588 Franked 28 Sep 2010 1 All franked dividends declared or paid during the year were franked at a tax rate of 30 per cent and paid out of retained earnings. 2 Calculation based on the ordinary shares on issue as at 30 June 2010.

The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2010 and will be recognised in subsequent financial reports. c. Dividend franking account

2010 2009 $’000 $’000 30% franking credits available to shareholders for subsequent financial years 62,474 44,876

The above available amounts are based on the balance of the dividend franking account at 30 June 2010 adjusted for franking credits that will arise from the payment of the current tax liabilities, and franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the year-end.

The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of dividends proposed after the balance sheet date, but not recognised as a liability, is to reduce it to $42,936,000 (2009: $33,945,000).

Perpetual Limited and its controlled entities | 111 Note 11. Earnings per share

Consolidated 2010 2009 Cents per share Basic earnings per share 227.1 96.0 Diluted earnings per share 210.5 89.4

The following reflects the income and share information used in calculating the basic and diluted earnings per share: $’000 $’000

Net profit after tax attributable to equity holders of Perpetual Limited 90,506 37,749

Number of shares Weighted average number of ordinary shares used in the calculation of basic earnings per share 39,855,523 39,312,579 Effect of dilutive securities: Share options 27,8 93 7,20 6 Weighted average number of treasury shares on issue 3,115,243 2,912,403 Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share 42,998,659 42,232,188

Subsequent to the reporting date, no options were exercised by employees who have left the Company (2009: nil).

Note 12. Cash and cash equivalents Consolidated 2010 2009 $’000 $’000 Bank balances 54,345 67,270 Deposits at call 79,462 29,415 Short-term deposits 53,732 49,453 187,539 146,138

Bank balances include cash held by employee share trusts of $664,000 (2009: $230,000) which are not available for general operating use and are offset by a liability to employees in current payables.

Deposits at call are invested in a cash management trust operated by the consolidated entity. Short-term deposits represent investments in the Perpetual Credit Income Fund and Perpetual Credit Enhanced Cash Fund. These funds have a Standard & Poor’s fund credit quality rating of ‘Af’ and invest in high grade credit products with the intention of generating a return in excess of the UBS Bank Bill Index and are generally available at seven days’ notice.

112 | Perpetual Limited and its controlled entities Note 13. Receivables

Consolidated 2010 2009 $’000 $’000 Current Trade debtors 70,699 65,312 Less: Provision for doubtful debts (522) (271) 70,177 65,041

Other debtors 16,666 13,107 86,843 78,148 Non-current Other debtors 3,648 4,200 3,648 4,200

Movements in the provision for bad and doubtful debts are as follows :

Balance as at 1 July 2009 271 89 Provision for impairment recognised during the year 770 375 Receivables written off during the year as uncollectible (214) (94) Unused amount reversed (305) (99) Balance as at 30 June 2010 522 271

The creation and release of the provision for bad and doubtful debts has been included in administrative and general expenses in the Statement of Comprehensive Income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

This note should be read in conjunction with Note 28(a) (iii).

Note 14. Other financial assets

Consolidated 2010 2009 $’000 $’000 Current Government, municipal and other public securities 100 100 held to maturity Non-current Listed equity securities available-for-sale – at fair value 36,030 22,060 Unlisted unit trusts available-for-sale – at fair value 13,538 14,295 Government, municipal and other public securities held-to-maturity 122 122 Secured loans 259 232 49,949 36,709

Perpetual Limited and its controlled entities | 113 Note 15. Interest in associates using the equity method

Consolidated 2010 2009 $’000 $’000 Investment in associate - 6,924

Country of Name of Entity Incorporation Reporting Date Ownership Interest 2010 2009 Perpetual Wholesale Geared International Share Fund (PIWGIF) Australia 30 June 92% 46% Perpetual Pure Value Share Fund (PIBIAS) Australia 30 June - 11%

PIWGIF was previously accounted for in the consolidated financial statements using the equity method of accounting until redemption of units by external unit holders increased the consolidated entity’s interests above 50%. It is now consolidated in the financial statements.

PIBIAS was accounted for in the consolidated financial statements using the equity method of accounting and was fully disposed in August 2009.

Note 16. Derivative financial instruments

Consolidated 2010 2009 $’000 $’000 Assets Current Forward foreign exchange contracts 11 21 Interest rate swap contracts - 124 11 145 Liabilities Current Interest rate swap contracts 662 821

This note should be read in conjunction with Note 29 (b).

Instruments used by incubation funds These contracts are fair valued by comparing the contracted rate As part of the consolidated entity’s asset management incubation to the current market rate for a contract with the same remaining fund strategy and to diversify its investment portfolio, seed capital period to maturity. Any changes in fair values are recorded in was invested in various incubation funds. These funds may be profit or loss. party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign Interest rate swap contracts exchange rates, interest rates, equity indices and to trade from Interest rate swap contracts held for hedging purposes their movements in accordance with the funds’ financial risk associated with the PPI structured product are disclosed in management policy. Note 29 (b).

Forward foreign exchange contracts The consolidated entity has entered into forward exchange contracts which are economic hedges but do not satisfy the requirements for hedge accounting. These contracts are subject to the same risk management policies as other derivative contracts outlined. Accordingly, they are accounted for as held for trading financial instruments.

114 | Perpetual Limited and its controlled entities Note 17. Property, plant and equipment

Consolidated 2010 2009 $’000 $’000 Plant and equipment – at cost 19,276 17,678 Accumulated depreciation (12,653) (10,464) 6,623 7,214 Leasehold improvements – at cost 30,820 27,9 55 Accumulated depreciation (10,186) (7,439) 20,634 20,516

Project work in progress – at cost 539 - 27,796 27,730

Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below: Leasehold Project Plant and equipment Total improvements work in progress $’000 $’000 $’000 $’000 Consolidated Balance as at 1 July 2009 7,214 20,516 - 27,73 0 Acquisitions through business combinations 289 2,271 - 2,560 Additions 2,223 214 1,211 3,648 Transfers from work in progress 289 383 (672) - Depreciation and amortisation (2,996) (2,750) - (5,746) Disposals (396) - - (396) Balance as at 30 June 2010 6,623 20,634 539 27,79 6

Consolidated Balance as at 1 July 2008 7,8 61 22,289 504 30,654 Additions 772 29 1,268 2,069 Transfers from work in progress 936 836 (1,772) - Depreciation and amortisation (2,345) (2,500) - (4,845) Disposals (10) (138) - (148) Balance as at 30 June 2009 7,214 20,516 - 27,73 0

Note 18. Intangibles

Consolidated 2010 2009 $’000 $’000 Goodwill – at cost 113,539 76,639 113,539 76,639

Other intangibles – at cost 27,618 12,478 Accumulated amortisation (6,276) (2,949) 21,342 9,529

Capitalised software – at cost 76,749 68,683 Accumulated amortisation (53,704) (47,918) 23,045 20,765

Project work in progress – at cost 5,582 5,727 163,508 112,660

Perpetual Limited and its controlled entities | 115 Note 18. Intangibles (continued) Reconciliations of the carrying amounts for each class of intangibles are set out below:

Project Goodwill Other intangibles Capitalised software Total work in progress $’000 $’000 $’000 $’000 $’000 Consolidated Balance as at 1 July 2009 76,639 9,529 20,765 5,727 112,660 Acquisitions through business combinations 36,900 15,141 70 - 52,111 Additions - - 518 7,6 50 8,168 Transfers from work in progress - - 7,58 6 ( 7,58 6) - Amortisation for the year - (3,328) (5,783) - (9,111) Disposals - - (111) (209) (320) Balance as at 30 June 2010 113,539 21,342 23,045 5,582 163,508

Balance as at 1 July 2008 62,124 4,266 12,137 9,429 87,9 56 Acquisitions through business combinations 14,515 6,863 - - 21,378 Additions - - 1,979 9,987 11,966 Transfers from work in progress - - 13,689 (13,689) - Amortisation for the year - (1,600) (6,718) - (8,318) Disposals - - (322) - (322) Balance as at 30 June 2009 76,639 9,529 20,765 5,727 112,660

Consolidated 2010 2009 $’000 $’000 Amortisation Amortisation is recognised in the following line items in the Statement of comprehensive income: Amortisation expense 9,111 8,318 Impairment tests for cash generating units containing goodwill The following cash generating units have significant carrying amounts of goodwill: Private Wealth 77,159 40,260 Securitisation1 16,653 16,653 Perpetual Lenders Mortgage Services1 5,648 5,648 smartsuper 10,583 10,583 Australian Equities 3,496 3,495 113,539 76,639 1 In 2009, combined as Corporate Trust division CGU.

Impairment testing of these goodwill balances is based on each cash generating unit’s value in use, calculated as the present value of forecast future cash flows from those cash generating units using discount rates of between 12.5% and 15% (2009: discount rates of between 12% and 17%). The forecast future cash flows used in the impairment testing are based on assumptions as to the level of profitability for each business over a forecast period. Forecast future cash flows have been projected for 5 years based on the 2011-2013 Annual Operating Plan and the 5 year Strategic Plan which have been approved by the board and then projected for an indefinite period by including a terminal value with a growth rate in perpetuity of 2.5%.

Note 19. Prepayments

Consolidated 2010 2009 $’000 $’000 Current Prepayments 7,447 11,820

Non-current Prepayments 858 -

116 | Perpetual Limited and its controlled entities Note 20. Payables Consolidated 2010 2009 Current $’000 $’000 Trade creditors 29,024 31,202 Other creditors and accruals 11,637 4,240 40,661 35,442 Non-current Other creditors and accruals 6,206 1,819

This note should be read in conjunction with Note 28 (b).

Note 21. Structured products – income received in advance Current Interest income 13,918 13,563

Income received in advance consists of deferred interest income received associated with the PPI structured product. The PPI structured product is disclosed in Note 29 (b).

Note 22. Non-current interest-bearing liabilities

Consolidated 2010 2009 $’000 $’000 Floating rate bill facility 45,000 45,000

See Notes 27 and 28(c)(ii) for additional information. Bank facility associated with the PPI structured product is disclosed in Note 29(b).

Note 23. Provisions

Consolidated 2010 2009 $’000 $’000 Current Internal insurance and legal provision1 5,404 880 Onerous leases and make good 75 172 Operational process review provision 1,667 5,469 Lease expense provision 524 275 7,670 6,796 Non-current Internal insurance and legal provision1 800 5,089 Lease expense provision 22,200 20,869 23,000 25,958

1 The internal insurance and legal provision includes the provision for self insurance and the provision for litigation. The provision for self-insurance recognises incurred but not reported claims. The provision for litigation claims includes provisions for legal cost and settlement amounts. These provisions are measured at the cost that the entity expects to incur in defending and/or settling the claim.

Perpetual Limited and its controlled entities | 117 Note 23. Provisions (continued) Consolidated 2010 2009 $’000 $’000 Reconciliations of the carrying amounts of each class of provision are set out below: Internal insurance and legal provision Carrying amount at beginning of year 5,969 6,165 Additional provision made during the year 1,180 5,005 Payments made during the year (895) (4,065) Unused amounts reversed during the year (50) (1,136) Carrying amount at end of year 6,204 5,969

Onerous leases and make good Carrying amount at beginning of year 172 400 Additional provision made during the year 25 113 Payments made during the year (122) (341) Carrying amount at end of year 75 172

Operational process review provision Carrying amount at beginning of year 5,469 - Amount transferred from other debtors 1,406 - Additional provision made during the year 5,520 5,469 Unused amounts reversed during the year (3,207) - Payments made during the year (6,259) - Amounts paid, recognised as receivable (1,262) - Carrying amount at end of year 1,667 5,469

Lease expense provision Carrying amount at beginning of year 21,144 18,410 Additional provision made during the year 12,475 13,831 Payments made during the year (11,310) (11,097) Unused amounts reversed during the year (133) - Unwinding of provisions 548 - Carrying amount at end of year 22,724 21,144

Note 24. Contributed equity

Share capital 43,417,478 (2009: 42,509,430) ordinary shares, fully paid 206,017 174,222

2010 2009 Number Number $’000 $’000 of shares of shares Movements in share capital Balance at beginning of year 39,358,781 174,222 39,197,876 163,811 Shares issued: Issued in business combination 283,950 10,569 - - Dividend reinvestment 255,682 9,295 - - Exercise of staff options - - 33,779 2,347 Executive share plans (vested during the year) 225,580 13,110 146,629 8,684 Employee equity allocation purchased on market (29,465) (1,336) (19,503) (1,014) Employee share plans (vested during the year) - 157 - 394 Balance at end of year 40,094,528 206,017 39,358,781 174,222

Ordinary shares fully paid (excluding unvested 40,094,528 206,017 39,358,781 174,222 shares from share plans) Unvested shares from share plans 3,322,950 173,375 3,150,649 173,128 Ordinary shares fully paid 43,417,478 379,392 42,509,430 347,350

Note 26 provides details of shares issued on exercise of options. Terms and conditions The Company does not have authorised capital or par value in Holders of ordinary shares are entitled to receive dividends as respect of its issued shares. declared from time to time and entitled to one vote per share at shareholders’ meetings. Shares issued under the executive and employee share plans were issued at market value. In the event of winding up of the company, ordinary shareholders rank after creditors and are fully entitled to any surplus capital.

118 | Perpetual Limited and its controlled entities Note 25. Reserves

Consolidated 2010 2009 $'000 $'000 General 103 103 Available-for-sale-reserve1 2,871 (4,016) Equity compensation reserve2 57,6 8 8 48,457 Cash flow hedge reserve3 (454) (755) Foreign currency translation reserve4 (3,347) (491) 56,861 43,298

1 The Available-for-sale-reserve represents adjustments to changes in the carrying value of shares and unit trusts to fair values. When these assets are sold or considered impaired, the cumulative gain / loss that had been recognised directly in equity is recycled to profit and loss. 2 The Equity compensation reserve represents the value of the Company’s own shares held by an equity compensation plan that the consolidated entity is required to include in the consolidated financial statements. This reserve will be reversed against share capital when the underlying shares vest to the employee. No gain or loss is recognised in profit and loss on the purchase, sale, issue or cancellation of the consolidated entity’s own equity instruments. 3 The Cash flow hedge reserve is used to record gains or losses on hedging instruments designated as cash flow hedges as described in accounting policy Note 2(w)(i). Amounts are recognised in the Statement of comprehensive income when the associated hedged transaction affects profit and loss. 4 The Foreign currency translation reserve records the foreign currency differences arising from the translation of self-sustaining foreign operations, the translation of transactions that hedge the company’s net investment in a foreign operation or the translation of foreign currency monetary items forming part of the net investment in a self-sustaining operation. Refer to accounting policy Note 2(d).

Note 26. Employee benefits a. Aggregate liability for employee benefits, including on-costs

Consolidated

2010 2009 $'000 $'000 Current Liability for annual leave 6,705 5,916 Liability for long service leave 3,283 2,887 Other employee benefits 25,852 19,689 Restructuring provision 40 804 35,880 29,296

Non-current Liability for long service leave 2,894 2,371

The non-current portion of the long service leave provision has been discounted using a rate of 5.3 per cent (2009: 5.5 per cent).

The number of full time equivalent employees at 30 June 2010 was 1,550 (2009: 1,139). b. Equity based plans (i) Option plans The Company has an executive option plan which was approved at the 1998 Annual General Meeting. Each option is convertible to one ordinary share. The exercise price of the options, determined in accordance with the rules of the plan, is based on the weighted average price of the company’s shares traded during the five business days preceding the date of granting the option.

All options are to be settled by physical delivery of shares.

Options generally expire on the earlier of the expiry date or termination of the employee’s employment. There are no voting or dividend rights attached to the option nor the unissued ordinary share underlying the option.

Perpetual Limited and its controlled entities | 119 Note 26. Employee benefits (continued) b. Equity based plans (continued) (i) Option plans (continued) A summary of options over unissued ordinary shares is set out below: Weighted Movement in number of options on issue Number average Outstanding at of options Grant date Exercise date Expiry date exercise price 1 July 2009 Issued Forfeited Exercised1 30 June 2010 exercisable Jul 2004 Jun 20074 Jul 2010 $ 47.0 8 978 - - - 978 978 Jul 2005 Jun 2008 Jul 2011 $56.85 28,144 - (28,144) - - - Jul 2006 Jun 20094 Jul 2012 $71.88 29,950 - - - 29,950 - Jul 2007 Jun 20104 Jul 2013 $79.17 236,436 - - - 236,436 - Mar 2008 Mar 2011 Mar 2013 $52.71 75,301 - (75,301) - - - Jul 2008 Jun 20114 Jul 2014 $42.73 57,39 0 - - - 57,39 0 - Jan 2009 Jun 2013 Jan 2015 $31.42 182,215 - (182,215) - - - Jun 2009 Jun 2012 Jun 2014 $29.74 58,939 - (58,939) - - - Jun 2009 Jun 20124 Jun 2015 $28.34 47,585 - - - 47,585 - Jul 2009 Jul 20124 Jun 2015 $28.34 - 5,911 - - 5,911 - 716,938 5,911 (344,599) - 378,250 978

Weighted Movement in number of options on issue Number average Outstanding at of options Grant date Exercise date Expiry date exercise price 1 July 2008 Issued Forfeited Exercised1 30 June 2009 exercisable Oct 2002 Oct 20052 Oct 2008 $32.46 34,625 - (846) (33,779) - - Jul 2004 Jun 20074 Jul 2010 $ 47.0 8 7,818 - (6,840) - 978 978 Jul 2005 Jun 20084 Jul 2011 $56.85 28,144 - - - 28,144 - Jul 2006 Jun 20094 Jul 2012 $71.88 29,950 - - - 29,950 - Jul 2007 Jun 20104 Jul 2013 $79.17 236,436 - - - 236,436 - Mar 2008 Mar 20114 Mar 2013 $52.71 75,301 - - - 75,301 - Jul 2008 Jun 20114 Jul 2014 $42.73 - 57,39 0 - - 57,39 0 - Jan 2009 Jun 20133 Jan 2015 $31.42 - 182,215 - - 182,215 - Jun 2009 Jun 20124 Jun 2014 $29.74 - 58,939 - - 58,939 - Jun 2009 Jun 20124 Jun 2015 $28.34 - 47,585 - - 47,585 - 412,274 346,129 (7,686) (33,779) 716,938 978 1 In certain circumstances, at the discretion of the People and Remuneration Committee, options can be exercised prior to their earliest exercise date. 2 one third of this class of option can be exercised on this date with a further third, one year from this date and the last third, two years from this date. 3 This option class will vest on the fourth anniversary of the date of grant subject to the achievement of performance hurdles. 4 This option class will vest on the third anniversary of the date of grant subject to the achievement of performance hurdles. On 23 June 2010, the company announced that Managing Director, David Deverall, had given notice of his resignation. As a result, no long term incentives, including the options outstanding as at 30 June 2010, will vest as a result of Mr Deverall’s resignation and all unvested options will be forfeited on ceasing employment. The options outstanding as at 30 June 2010 have a carrying value of $Nil.

The options outstanding at 30 June 2010 have an exercise price (ii) Executive Share Plan (ESP) in the range of $28.34 to $79.17 (2009: $28.34 to $79.17) and a The ESP was approved by shareholders at the company’s Annual weighted average contractual life of 3 (2009: 3.3) years. General Meeting in 1997 and was amended at the 1999 AGM.

The weighted average share price at the date of exercise for The ESP forms part of the structure for short and long term share options exercised during the year ended 30 June 2010 was variable remuneration components paid to employees. Grants nil (2009: $38.96). under the plan for short-term performance are made on achievement of specific performance goals. Long-term grants The fair value of services received in return for share options vest after periods of between three to five years, and may include granted is based on the fair value of share options granted, the achievement of specific performance hurdles. measured using a binomial lattice model, with the following inputs (weighted average): The issue price of grants of shares is the weighted average of the 2010 2009 prices at which shares were traded on the ASX for the five days up to the date of issue. Shares are either purchased on market Fair value at grant date ($) 8.25 8.12 or issued by the Company to satisfy the grants made to eligible Share price ($) 28.54 32.15 employees. Exercise price ($) 28.34 32.59 Expected volatility (%) 45 35 While shares are held by the ESP, employees receive dividends and have voting rights. Option life (years) 5 5 Expected dividends (%) 5.6 5.57 Risk free interest rate (%) 5.18 4.38

120 | Perpetual Limited and its controlled entities (iii) Employee Share Purchase Plan (ESPP) purchased on market or issued by the company to satisfy grants This plan was discontinued on 10 December 2004 and no further made to eligible employees. issues have been made under this plan. Dividends paid on shares held by the GEST are retained in the The ESPP provided eligible employees with a non-recourse GEST for the benefit of the employee until performance hurdles interest free loan, for a period not exceeding 10 years, to are tested, at which time the dividend accumulated may be purchase shares under the plan. The invitation was open to distributed to the employee. Voting rights attached to unvested employees who commenced permanent employment with shares that are held in the GEST are exercisable by the trustee of Perpetual prior to 1 June 2004 with an offer to purchase a the GEST. minimum number of shares equivalent in value to $1,000 and a Grants under the plan vest subject to the achievement of specific maximum number of shares equivalent in value to $4,000. The performance hurdles. issue price under the plan was the weighted average of the prices at which shares were traded on the ASX for the five days up to the date of issue. (viii) Details of the movement in employee shares Of share grants under the ESP, DSP and GEST in the 2010 The shares vest when the loan is fully repaid. financial year, 368,416 shares were issued at market price and 264,449 shares were re-issued from the forfeited share pool (iv) Tax Exempt Share Plan (TESP) at market price. Certain share plans stipulate that dividends Under the TESP, eligible employees will be able to salary received on unvested long-term incentive shares (39,572 shares sacrifice up to $1,000 of short term incentive to acquire an at last dividend payment) are to be reinvested into Perpetual equivalent value of Perpetual shares. These shares cannot be shares. During the period 1,943 shares were purchased on sold or transferred until the earlier of three years after the date of market at an average price of $34.92 to satisfy this requirement. allocation or the time the participant ceases to be an employee As a result of changes in the employee share scheme rules of Perpetual. Shares will be acquired in ordinary trading on the enacted in 2009, dividends that were being reinvested in Australian Securities Exchange or issued by Perpetual. Executive Perpetual shares on long term incentive schemes are either now directors and executives are not able to participate in this plan. being received directly by the employees or held in the share plan bank account depending on the likelihood of the shares vesting. (v) The Tax Deferred Share Plan (TDSP) The amounts recognised in the financial statements of the Under the TDSP, eligible employees are able to salary sacrifice all consolidated entity in relation to the share plans referred to above or part of their short term incentive to acquire an equivalent value during the year were amortisation of performance shares totalling of Perpetual shares. Shares are acquired in the ordinary course $26,755,000 (2009: $25,930,000) recognised as an expense with of trading on the Australian Securities Exchange. Executive the corresponding entry directly in equity. directors and executives have the opportunity to participate in this plan. Shares acquired under this plan by executive directors (ix) Non-executive Director Share Purchase Plan and executives are not subject to performance hurdles because A share purchase plan for non-executive directors was approved they are acquired on a salary or bonus sacrifice basis. by shareholders at the annual general meeting in October 1998, under which each non-executive director can sacrifice up to 50 (vi) Deferred Share Plan (DSP) per cent of their director’s fees to acquire shares in the Company. The DSP forms part of the structure for short-term and long-term The shares are purchased four times throughout the year at variable remuneration components paid to eligible employees of market value and have a disposal restriction of 10 years, or when the Australian business. Grants under the plan vest subject to the the director ceases to be a director of the Company. achievement of specific performance hurdles and service. During this financial year there were no directors that purchased The issue price of grants is the weighted average of the prices at shares on market in the Non-executive directors share which shares traded on the Australian Securities Exchange for purchase plan. the five days up to the date of issue. Shares are either purchased on market or issued by the company to satisfy grants made to During the prior financial year the following directors participated eligible employees. in this plan:

While shares are held by the DSP, eligible employees have voting Shares purchased on market rights and receive dividends directly or reinvest dividends into Directors Number $ Perpetual shares. E P McClintock 1,675 49,486 E M Proust 419 12,378 (vii) Global Employee Share Trust (GEST) R M Savage 2,134 60,659 The GEST forms part of the structure for long-term variable P B Scott 1,047 30,935 remuneration components paid to eligible employees of the P J Twyman 2,095 61,891 Perpetual Investments Global Equities business. 7,370 215,349 The issue price of grants is the weighted average of the prices at which shares traded on the Australian Securities Exchange for the five days prior to the date of grant of shares. Shares are either

Perpetual Limited and its controlled entities | 121 Note 27. Financial arrangements Note 28. Financial risk management Consolidated Perpetual recognises that risk is part of doing business and that

2010 2009 the ongoing management of risk is critical to its success. The approach to managing risk is articulated in the Risk Management $'000 $'000 Framework. The Risk Management Framework is supported by the The consolidated entity has access to the following line of credit: Risk Group, who are responsible for the design and maintenance of the framework, establishing and maintaining group wide risk Facilities utilised management policies, and providing regular risk reporting to the Floating rate bank facility 45,000 45,000 Board, the Audit Risk and Compliance Committee (ARCC) and the Group Executive Committee. This framework is approved by Facilities not utilised the Perpetual Board of Directors (the Board) and is reviewed for Floating rate bank facility 25,000 - adequacy and appropriateness on an annual basis.

Bill facilities The Board regularly monitors the overall risk profile of the group The floating rate bank bill facility is unsecured and has a floating and sets the risk appetite for the group, usually in conjunction interest rate of 5.07 per cent at 30 June 2010 (30 June 2009: 3.58 with the annual planning process. The Board is responsible per cent). Repayment of the existing facility is due on 31 July 2011. for ensuring that management have appropriate processes in place for managing all types of risk, ranging from financial risk to The consolidated entity has agreed to various debt covenants operational risk. To assist in providing ongoing assurance and including shareholders’ funds as a specified percentage of total comfort to the board, responsibility for risk management oversight assets, a minimum amount of shareholders’ funds, a maximum has been delegated to the ARCC. The main functions of this ratio of total debt, a minimum interest cover, a maximum amount committee are to oversee the consolidated entity’s accounting of structured product liabilities and a maximum provision for PPI policies and practices, the integrity of financial statements and credit losses as a specified percentage of PPI investor loans. reports, the scope, quality and independence of our external audit The consolidated entity is in compliance with the covenants at arrangements, the monitoring of the internal audit function, the 30 June 2010. Should the consolidated entity not satisfy any effectiveness of risk management policies and the adequacy of of these covenants, the outstanding balance of the loans may our insurance programs. This committee is also responsible for become due and payable. monitoring overall legal and regulatory compliance.

Bank facilities associated with the PPI structured product are The activities of the consolidated entity expose it to the following disclosed in Note 29 (b). financial risks: credit risk, liquidity risk and market risk. These are distinct from the financial risks borne by customers which arise This note should be read in conjunction with Note 28 (c) (ii). from financial assets managed by the consolidated entity in its role as fund manager, trustee and responsible entity.

The risk management approach to and exposures arising from the Exact Market Cash Fund (EMCF) are disclosed in Note 29.

The following discussion relates to financial risks exposure to the consolidated entity in its own right.

a) Credit risk Credit risk is the risk of financial loss from a counterparty failing to meet their contractual commitments. The consolidated entity is predominantly exposed to credit risk on its Perpetual Protected Investments (PPI) loans which are issued only in Australia to retail customers, derivative financial instruments and deposits with banks and financial institutions, outstanding receivables and committed transactions.

The maximum exposure of the consolidated entity to credit risk on financial assets which have been recognised on the balance sheet is the carrying amount, net of any provision for doubtful debts. The table on the following page outlines the consolidated entity’s maximum exposure to credit risk as at reporting date.

122 | Perpetual Limited and its controlled entities Consolidated For amounts greater than $1 million, approval from both the CRO 2010 2009 and the Chief Financial Officer (CFO) is required. $'000 $'000 There were no PPI loans that were past due but not impaired as Cash and cash equivalents 187,539 146,138 at the reporting date. Further information on the risk management Trade debtors 70,177 65,041 approach to and exposures arising from the PPI structured Structured products - loans receivable (PPI) 188,832 319,651 product offerings is disclosed below in this note and in Note 29. Other loan receivables 20,573 17,539 Available-for-sale listed equity securities and unlisted unit trusts 49,568 36,355 (ii) Investments held by incubation funds Held-to-maturity securities 222 222 Perpetual incubates new investment strategies through the Derivative financial instruments used for establishment of seed funds for the purpose of building hedging: assets 11 145 investment track records and developing asset management skills before releasing products to Perpetual’s investors. Exposure Credit risk is managed on a functional basis across the various to credit risk arises on the consolidated entity’s financial assets business segments. As a result of the swap agreements between held by the incubation funds mainly being deposits with financial the EMCF and the consolidated entity, the consolidated entity is institutions and derivative financial instruments. also exposed to credit risk on its exposure to the $1,199 million The exposure to credit risk is monitored on an ongoing basis by (2009: $1,513 million) of underlying investments held by the the funds’ investment manager and managed in accordance with EMCF. This maximum exposure would only be realised in the the investment mandate of the funds. unlikely event that the recoverable value of all of the underlying investments held by the EMCF decline to $nil. Further details of Credit risk is not considered to be significant to the incubation funds the credit risk relating to the EMCF are disclosed in Note 29. as investments held by the funds are predominantly equity securities.

(i) Structured products – Perpetual Protected Investment loans (iii) Other financial assets In order to manage the credit risk arising from lending to investors The consolidated entity’s exposure to trade debtors is influenced in PPI structured product offerings, the consolidated entity has mainly by the individual characteristic of each customer. in place a dedicated Credit Office who report to the General Manager, Structured Products. The Credit Office is governed by Trade debtors are managed by the accounts receivable the Credit Risk Policy which stipulates the criteria that investors are department. Outstanding fees and receivables are monitored required to meet prior to being granted a loan, and hence ensures on a daily basis and an aged debtors report is prepared and that all investors under this arrangement possess the desired monitored by Group Finance. Management assesses the level of credit worthiness. The Credit Risk Policy is reviewed credit quality of customers by taking into account their financial periodically by the Chief Risk Officer (CRO) to ensure its continued position, past experience and other factors. compliance with the Group’s Risk Management Framework. All loans are secured by the investor’s investment in the structured Credit risk further arises in relation to financial guarantees given product and the consolidated entity has recourse to the investor to wholly owned subsidiaries. Such guarantees are only provided and the investment in the event of default. A charge over additional in exceptional circumstances and are subject to specific Board collateral may be required for loans greater than $2 million. As at approval and are monitored on a quarterly basis as part of the 30 June 2010, loans for which Perpetual holds additional collateral consolidated entity’s regulatory reporting. amounted to $3.5 million (30 June 2009: $3.5 million). Credit risk arising from cash investments is mitigated by ensuring The Credit Office monitors the loan portfolio on a daily basis and they have a Standard & Poor’s rating of ‘A’ or higher, and provides reports on a monthly basis to Group Finance and the transactions involving derivatives are limited to high credit quality Risk Group for review. Arrears above 30 days are reviewed on a financial institutions. monthly basis by the Credit Committee, and are followed up and The credit quality of financial assets that are neither past due nor managed by the Credit Officer and recovery initiatives can include impaired is assessed by reference to external credit ratings, if litigation if required. available, or to historical information on counterparty default rates. The consolidated entity minimises concentrations of credit risk by The table below provides an aged analysis of the financial assets imposing a limit on the exposure it can have with each investor. which were past due but not impaired as at the reporting date. The maximum standard exposure per borrower is set at $1 million.

30 June 2010 30 June 2009 Less than 30 to 60 to More than Total Less than 30 to 60 to More than Total 30 days 60 days 90 days 90 days 30 days 60 days 90 days 90 days $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Consolidated

Trade debtors 1,696 803 607 664 3,770 1,252 401 140 516 2,309

Other receivables 697 10 - 95 802 554 - - 64 618

2,393 813 607 759 4,572 1,806 401 140 580 2,927

Perpetual Limited and its controlled entities | 123 Note 28. Financial risk management (continued) Management Review (refer to capital management disclosed below in Note 28 (d) for further details). a) Credit risk (continued) The consolidated entity manages liquidity risk by continually (iii) Other financial assets (continued) monitoring forecast and actual cash flows, and by matching the The trade debtors in the above table relate to a number of maturity profiles of financial assets and liabilities. Surplus funds independent customers and investors for whom there is no recent are generally only invested in instruments that are tradeable in history of default. highly liquid markets. In addition, a three year forecast of liquid A loan of $7.2 million (2009: $6.6 million) is included in Other assets, cash flows and balance sheet is reviewed by the Board debtors – Current as at 30 June 2010. The loan, which was on a semi-annual basis as part of the Capital Management originally due for repayment on 2 June 2010, was extended to Review to ensure there is sufficient liquidity within the Group. 2 August 2010. The loan was repaid in full on 31 July 2010. The repayment of the existing facility of $45 million (refer to The nominal values of financial assets which were impaired are as Note 27) is due on 31 July 2011. follows: The $25 million unutilised bank facility may be drawn at any time

Consolidated at the discretion of the consolidated entity. The consolidated entity’s bank facilities are subject to annual review and 2010 2009 management intends to refinance the existing facility for a further $'000 $'000 period after the due date. Trade debtors 522 271 Maturities of financial liabilities Structured products – loans receivable 2,635 991 The tables below show the maturity profiles of the financial

3,157 1,262 liabilities and gross settled derivative financial instruments for the consolidated entity. These have been calculated using the contractual undiscounted cash flows. The impaired financial assets relate mainly to independent customers and investors who are in unexpectedly difficult c) Market risk economic situations, where the consolidated entity is of the view The consolidated entity is subject to the following market risks: that the receivable cannot be recovered. The consolidated entity does not hold any collateral against the trade debtors. Collateral (i) Currency risk held in respect of PPI loans is discussed in Note 28 (a)(i) above. For details of the provisions for impairment refer to Notes 13 and 29. The exposure to currency risk, as defined in AASB 7 Financial Instruments: Disclosures, arises when financial instruments are b) Liquidity risk denominated in a currency that is not the functional currency of the entity and are of a monetary nature. Hence the gains/(losses) Liquidity risk is the risk that the financial obligations of the arising from the translation of the controlled entities’ financial consolidated entity cannot be met as and when they fall due statements into Australian dollars are not considered in this note. without incurring significant costs. The consolidated entity’s approach to managing liquidity is to maintain a level of cash A significant proportion of the monetary financial instruments held or liquid investments sufficient to meet its ongoing financial by the consolidated entity, being liquid assets, receivables, loans obligations. The consolidated entity has a robust liquidity risk receivable, interest-bearing liabilities and payables, interest rate framework in place which is principally driven by the Capital swaps, are denominated in Australian dollars. Hence fluctuations

30 June 2010 30 June 2009 Less than 1 to 5 More than Less than 1 to 5 More than Total Total 1 year years 5 years 1 year years 5 years $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Consolidated Liabilities Trade and other payables 40,661 6,206 - 46,867 35,442 1,819 - 37,261 Interest bearing liabilities - 45,000 - 45,000 - 45,000 - 45,000 Structured products – interest 24,818 164,807 - 189,625 107,6 8 3 84,590 126,475 318,748 bearing liabilities 65,479 216,013 - 281,492 143,125 131,409 126,475 401,009

Derivatives Net settled – interest rate swaps 227 812 - 1,039 337 1,347 259 1,943 Gross settled – other derivatives – outflow 663 - - 663 2,469 - - 2,469 – (inflow) (663) - - (663) (2,469) - - (2,469) 227 812 - 1,039 337 1,347 259 1,943

124 | Perpetual Limited and its controlled entities in exchange rates do not materially impact the profit/(loss) for the The consolidated entity has entered into fixed and variable rate year or shareholders’ equity. banking facilities in order to finance loans provided to investors as a result of exposure to interest rate risk arising from: Investments held in listed securities and unlisted unit trusts including incubation funds are of a non-monetary nature and (a) fixed rate assets being financed with floating rate therefore are not exposed to currency risk as defined in AASB 7 liabilities Financial Instruments: Disclosures. The currency risk relating to (b) maturity or duration mismatches. non-monetary assets and liabilities is a component of price risk and arises as the value of the securities denominated in other In order to manage the interest rate risk relating to PPI structured currencies fluctuates with changes in exchange rates. products, it is the consolidated entity’s policy to hedge at least 95 per cent of its loan exposure by entering into floating-to-fixed (ii) Interest rate risk interest rate swaps where the banking facilities have a variable Interest rate risk is the risk that the fair value or future cash interest rate. The hedging of interest rate exposure is managed by flows of a financial instrument will fluctuate because of changes Group Finance and is reported to the Audit Risk and Compliance in market interest rates. The consolidated entity’s exposure to Committee on a half-yearly basis. interest rate risk arises predominantly on investor loans granted The consolidated entity’s exposure to interest rate risk for the under the PPI structured product offering. financial assets and liabilities is set out as follows: PPI structured product loans bear interest rates which are either fixed for the term of the product (7 years), fixed annually or variable.

Floating Fixed interest rate maturing in Non-interest Total interest rate bearing 6 months or less 6-12 months 4-7 years Note $’000 $’000 $’000 $’000 $’000 $’000 At 30 June 2010 Financial assets Cash assets 12 187,239 250 50 - - 187,539 Receivables 13 7,16 5 - - - 83,326 90,491 Other financial assets 14 60 162 - - 49,827 50,049 Structured products – loans receivable 29 26,157 - - - - 26,157 – current Structured products – loans receivable 29 20,489 - 65,457 76,729 - 162,675 – non-current 241,110 412 65,507 76,729 133,153 516,911

Financial liabilities Payables 20 - - - - 46,867 46,867 Interest-bearing liabilities 22 45,000 - - - - 45,000 Structured products – interest-bearing 29 24,818 - - - - 24,818 liabilities – current Structured products – interest-bearing 29 80,729 - 17,150 66,928 - 164,807 liabilities – non-current Effect of interest rate swaps (50,815) - 43,600 7,215 - - 99,732 - 60,750 74,143 46,867 281,492

At 30 June 2009 Financial assets Cash assets 12 146,138 - - - - 146,138 Receivables 13 6,575 - - - 75,773 82,348 Other financial assets 14 60 40 - - 36,709 36,809 Structured products – loans receivable 29 108,935 - - - - 108,935 – current Structured products – loans receivable 29 13,400 - 101,417 95,899 - 210,716 – non-current 275,108 40 101,417 95,899 112,482 584,946

Financial liabilities Payables 20 - - - - 37,261 37,261 Interest-bearing liabilities 22 45,000 - - - - 45,000 Structured products – payable to 29 107,6 8 3 - - - - 107,6 8 3 investors Structured products – interest-bearing 29 107,6 91 - 29,650 73,724 - 211,065 liabilities Effect of interest rate swaps (61,915) - 54,500 7,415 - - 198,459 - 84,150 81,139 37,261 401,009

Perpetual Limited and its controlled entities | 125 Note 28. Financial risk management (continued) These funds may be party to derivative financial instruments in the normal course of business in order to hedge exposure to c) Market risk (continued) fluctuations in foreign exchange rates, interest rates and equity (ii) Interest rate risk (continued) indices in accordance with the funds’ investment guidelines. The table below demonstrates the impact of a 1 per cent change The impact on the consolidated profit after tax of a potential in interest rates, with all other variables held constant, on the change in the returns of the funds in which the consolidated profit after tax and equity of the consolidated entity. entity invested at year end is not material. The potential change 30 June 2010 30 June 2009 has been determined using historical analysis and management’s Impact on Impact on Impact on Impact on assessment of an appropriate rate of return. The analysis is profit after equity profit after equity based on the assumption that the returns on asset classes have tax tax moved, with all other variables held constant and that the relevant $’000 $’000 $’000 $’000 change occurred as at the reporting date. However, actual Consolidated movements in the risk may be greater or less than anticipated Change in variable due to a number of factors, including unusually large market + 1 per cent 1,016 1,758 784 1,689 shocks resulting from changes in the performance of economies, - 1 per cent (1,016) (1,768) (784) (1,698) markets and securities in which the funds invest. As a result, historic variations in risk variables are not a definitive indicator of The impact on profit after tax for the year would be mainly as future variations in the risk variables. a result of an increase/(decrease) in interest revenue earned on cash and cash equivalents. The impact on equity would The incubation funds may be exposed to currency risk and be mainly the result of an increase/(decrease) in the fair value interest rate risk. Their investment managers may enter into of the cash flow hedges associated with variable interest rate derivative contracts (such as forwards, swaps, options and borrowings. futures) through approved counterparties to minimise risk. However, the use of these contracts must be consistent with the (iii) Market risks arising from Funds Under Management and investment strategy and restrictions of each incubation fund, and Funds Under Advice agreed acceptable level of risk. These funds are also exposed The consolidated entity’s revenue is significantly dependent on to interest rate risk on cash holdings. Interest income from cash Funds Under Management and Funds Under Advice which are holdings is earned at variable interest rates and investments in influenced by equity market movements. Management calculates cash holdings are at call. the expected impact on revenue for each 1 per cent movement in the All Ords. Based on the level of the All Ords at the end of (v) Market risks arising from the Exact Market Cash Funds 30 June 2010 (4,325), a 1 per cent movement in the market The consolidated entity is further subject to market risks through changes annualised revenue by approximately $2.0m to $2.5m. the establishment of the Exact Market Cash Fund (EMCF). The It is worth noting this movement is not linear to the overall value fund was established with the purpose of providing an exact of the market. This means that as the market reaches higher or return utilising the UBS Bank Bill Index (the benchmark index) to lower levels, a 1 per cent movement may have a larger or smaller investors. The impact of the EMCF on the consolidated entity’s effect on revenue as FUM and FUA are comprised of both equity financial results is dependent on the performance of the fund market and non-equity market-sensitive asset classes. relative to the benchmark.

(iv) Market risks arising from incubation funds The risk management approach to and exposures arising from The consolidated entity is exposed to equity price risk on the EMCF are disclosed in Note 29. investments held by its incubation funds. The funds may also be d) Capital management exposed, to a small extent, to the other risks which influence the value of those shares or units (including foreign exchange rates A Capital Management Review is carried out on a semi-annual and interest rates). basis and is submitted to the Board for review and approval. The capital management policy ensures that the level of financial Market risk in the incubation funds is limited by a predetermined conservatism is appropriate for the Company’s businesses seed capital funding pool which has been allocated based on the including acting as custodian and manager of clients’ assets and consolidated entity’s balance sheet. The Investment Committee operation as a trustee company. This policy also aims to provide is responsible for determining the size of the pool and approving business stability and accommodate the growth needs of the new incubation fund strategies. They also ensure management consolidated entity. This policy comprises three parts: has appropriate processes and systems in place for managing investment risk for each fund. The funds’ specialist asset (i) Dividend Policy managers aim to manage the impact of price risks through the use Dividends paid to shareholders are to be in the range of of consistent and carefully considered investment guidelines. Risk 80-100 per cent of the consolidated entity’s net profit after management techniques are used in the selection of investments, tax attributable to members of the Company, which is in line including derivatives, which are only acquired if they meet specified with the historical dividend range paid to shareholders. investment criteria. Daily monitoring of trade restrictions and derivative exposure against limits is undertaken with any breach of these restrictions reported to the Chief Risk Officer.

126 | Perpetual Limited and its controlled entities (ii) Review of capital and distribution of excess capital 2010 Deferred A review of the consolidated entity’s capital base is performed acquisition consideration at least semi-annually and excess capital that is surplus to the Group’s current requirements is potentially returned to $'000 shareholders in the absence of a strategically aligned, value Consolidated accretive investment opportunity. Opening balance 2,440

Acquisitions through business combinations 8,583 (iii) Gearing Policy Accrual of interest 796 The consolidated entity seeks to maintain a conservative financial management profile. Its gearing policy includes a maximum debt Closing balance 11,819 /debt and total equity ratio of 30 per cent and EBITDA interest cover of more than 10 times. Corporate debt (excluding product The fair value of financial instruments traded in active markets debt) has been maintained at $45 million throughout the year (such as publicly traded derivatives, and trading and available-for- (2009: $45 million), and the consolidated entity is within its stated sale securities) is based on quoted market prices at the reporting gearing policy at year end. date. The quoted market price used for financial assets held by the consolidated entity is the current bid price. Marketable shares The gearing ratio for the consolidated entity as at 30 June 2010 included in Other financial assets are traded in an organised is 11 per cent (2009: 13 per cent) and an EBITDA interest cover financial market and their fair value is the current quoted market ratio of 54 times (2009: 54 times) was achieved. bid price for an asset. The carrying amounts of bank term deposits and receivables approximate fair value. The fair value e) Fair value of investments in unlisted shares in other corporations is As of 1 July 2009, Perpetual has adopted the amendment determined by reference to the underlying net assets and an to AASB 7 Financial Instruments: Disclosures which requires assessment of future maintainable earnings and cash flows disclosure of fair value measurements by level of the following fair of the respective corporations. value measurement hierarchy: Derivative contracts classified as held for trading are fair valued (i) quoted prices (unadjusted) in active markets for identical by comparing the contracted rate to the current market rate for assets or liabilities (level 1) a contract with the same remaining period to maturity.

(ii) inputs other than quoted prices included within level 1 that The fair value of financial instruments that are not traded in are observable for the asset or liability, either directly (as an active market (for example, over-the-counter derivatives) is prices) or indirectly (derived from prices) (level 2) determined using valuation techniques. The fair value of interest rate swaps is calculated as the present value of the estimated (iii) inputs for the asset or liability that are not based on future cash flows. The fair value of forward exchange contracts is observable market data (unobservable inputs) (level 3). determined using forward exchange market rates at the reporting date. The estimates of fair value where valuation techniques are The following tables present the consolidated entity’s assets and applied are subjective and involve the exercise of judgement. liabilities measured and recognised at fair value at 30 June 2010. Changing one or more of the assumptions applied in valuation Comparative information has not been provided as permitted by techniques to reasonably possible alternative assumptions may the transitional provisions of the new standard. impact on the amounts disclosed.

Consolidated The consolidated entity’s financial assets and liabilities included Level 1 Level 2 Level 3 Total in current assets and liabilities in the balance sheet are carried $’000 $’000 $’000 $’000 at amounts in accordance with Notes 12, 13, 14, 20 and 29. The At 30 June 2010 carrying amount of financial assets and financial liabilities, less Financial assets any impairment, approximates their fair value, except for those Available-for-sale listed outlined in the table below. equity securities 36,030 - - 36,030 Available-for-sale 2010 2009 unlisted unit trusts - 13,538 - 13,538 Carrying Fair Carrying Fair Derivative financial amount value amount value instruments - 11 - 11 $’000 $’000 $’000 $’000 Structured products - EMCF assets1 - 1,154,517 - 1,154,517 Structured products – loans receivable 36,030 1,168,066 - 1,204,096 (non-current) 162,675 159,318 210,716 200,452 Financial liabilities Structured products – Derivative financial interest bearing liabilities instruments - 662 - 662 (non-current) 164,807 154,309 211,065 202,473 Deferred acquisition consideration - - 11,819 11,819 - 662 11,819 12,481 1 The EMCF liability is not included as it is accounted for at amortised cost.

Perpetual Limited and its controlled entities | 127 Note 29. Structured products assets guarantee to the value of $6 million (2009: $5 million) to be called and liabilities upon in the event that Perpetual does not meet its obligations to the fund under the swap agreement a. Exact Market Cash Funds

Consolidated The EMCF1 product has been assigned a ‘AAf’ fund credit quality rating by Standard & Poor’s and invests predominantly in 2010 2009 Perpetual’s Credit Enhanced Cash Fund (AA) and Cash Alpha $'000 $'000 Pool Fund of the consolidated entity. These funds cannot invest Current assets in securities which have a Standard & Poor’s credit rating below Exact Market Cash Fund 1 693,243 1,086,011 ‘BBB-’. They can invest in assets directly or indirectly by investing Exact Market Cash Fund 2 497,823 409,779 in other managed funds that have similar investment objectives 1,191,066 1,495,790 and authorised investments. The underlying funds may invest in Current liabilities a variety of cash and debt securities, predominantly floating rate securities, cash deposits and fixed rate securities. Exact Market Cash Fund 1 695,129 1,089,263 Exact Market Cash Fund 2 495,213 408,991 The EMCF2 product invests directly into a variety of cash and 1,190,342 1,498,254 debt securities, predominantly floating rate securities, cash deposits and fixed rate securities with a minimum credit rating The Exact Market Cash Funds current asset balances reflect the band of ‘BBB-’ by Standard & Poor’s or equivalent rating agency fair value of the net assets held by the funds. The current liabilities at the time of purchase. balances represent the consolidated entity’s obligation to the EMCF1 and EMCF2 (EMCF) use professional investment funds investors under the swap agreements and reflect the net managers to manage the impact of these risks by using prudent assets of the funds for unit pricing purposes. investment guidelines and investment processes. The investment The Exact Market Cash Fund 1 (EMCF1) was established during manager explicitly targets low volatility and aims to achieve this the financial year ended 30 June 2005 with the purpose of through a quality-screening process that is designed to assess providing an exact return that matched the UBS Bank Bill rate the likelihood of default and difficult trading patterns during (the benchmark index), or a variant thereon, to investors. The periods of rapid systematic risk reduction. There is a clearly fund’s ability to pay the benchmark return to the investors is defined mandate for the inclusion of sectors and issuances. guaranteed by the consolidated entity. The National Australia In periods of risk reduction, diversification may be narrowly Bank has provided the EMCF1 product with a guarantee to the focused on cash and highly liquid investment-grade assets. value of $20 million in 2010 (2009: $22.5 million) to be called upon At times of higher risk tolerance, appropriate diversification in the event that the consolidated entity is unable to meet its should be expected. obligations. Due to the guaranteed benchmark return to investors, Interest rate exposure is limited to +/- 90 days versus the the consolidated entity is exposed to the risk that the return of benchmark. The portfolio is constructed with the goal of having the EMCF1 differs from that of the benchmark. The return of the a diversified portfolio of securities, while largely retaining the EMCF1 is affected by risks to the underlying investments in the low-risk characteristics of a cash investment. EMCF1 portfolio, which are market, liquidity, and credit risks. Liquidity risk of EMCF is managed by maintaining a level of cash In March 2009, the consolidated entity changed the swap or liquid investments in the portfolio which are sufficient to meet agreement valuation methodology between the fund and the a reasonable expectation of investor redemptions, distributions or consolidated entity. The underlying investments are now valued other of the fund’s financial obligations. This is complemented by on a hold to maturity basis for unit pricing purposes, which is a dynamic portfolio management process that ensures liquidity consistent with the way in which Perpetual now manages the is increased when there is an expectation of a deterioration in portfolio. The underlying assets were valued at their fair value market conditions. Cash flow forecasts are prepared for the at the date of change, which for many assets was at a discount funds, including the consideration of the maturity profile of the to their maturity value. The discount to maturity value will be securities, interest and other income earned by the funds, and amortised over the remaining term of the assets. The change in projected investor flows based on historical trends and future valuation methodology will not affect the investment returns to expectations. investors in the EMCF1. Furthermore, the credit quality of financial assets is managed The Exact Market Cash Fund 2 (EMCF2) was established in by the EMCF using Standard & Poor’s rating categories, in July 2008 and aims to provide an exact return that matches the accordance with the investment mandate of the EMCF. The benchmark index to investors in the fund. It has a similar structure EMCF’s exposure in each credit rating category is monitored on to EMCF1, but in addition, there are specific rules that govern a daily basis. This review process allows assessment of potential the withdrawal of funds. EMCF2 invests in debt securities issued losses as a result of risks and the undertaking of corrective by parties or securities with a minimum credit rating of ‘BBB-’ actions. The investment managers have undertaken to restrict the by Standard & Poor’s or equivalent rating agency at the time of asset portfolio of the underlying funds to securities, deposits or purchase. The investments held by EMCF2 are recorded at fair obligations that meet Standard & Poor’s ‘AAf’ fund credit quality value within the fund, and in the consolidated entity’s financial rating criteria. statements. National Australia Bank has provided the fund with a

128 | Perpetual Limited and its controlled entities The investment managers of the underlying funds invested by Structured products – loans receivable at reporting date consists the EMCF enter into a variety of derivative financial instruments of the following: such as credit default swaps and foreign exchange forwards in the normal course of business in order to mitigate credit risk Consolidated exposure, and to hedge fluctuations in foreign exchange rates. 2010 2009 $'000 $'000 Details of the assets held by the underlying funds are set Current out below: Structured products – receivable from investors 26,157 108,935 AAA to A+ to BBB+ to Total 26,157 108,935 AA- A- BBB- Non-current $’000 $’000 $’000 $’000 Structured products – loans receivable 165,690 212,247 30 June 2010 Less: loan establishment fees (380) (540) Corporate bonds 234,236 167,492 61,990 463,718 165,310 211,707 Mortgage and 537,385 5,011 9,831 552,227 asset backed securities Less: provision for credit losses (2,635) (991) Cash 183,375 - - 183,375 162,675 210,716 954,996 172,503 71,821 1,199,320 Movements in the provision for credit losses are as follows: 30 June 2009 Balance as at 1 July 991 - Corporate bonds 225,389 143,858 50,666 419,913 Provision for credit losses recognised during 2,376 991 Mortgage and asset 595,969 9,217 15,562 620,748 the year backed securities Unused amounts reversed (732) - Cash 472,545 - - 472,545 1,293,903 153,075 66,228 1,513,206 Balance as at 30 June 2,635 991

The impact of the EMCF on the consolidated profit after tax is In June 2010, a number of investors in the PPI product advised dependent on the calculation of the swap agreement between the Group that they intended to repay all or some of their loans. the fund and the consolidated entity and the performance of This gave rise to the reclassification to current assets and the fund relative to the benchmark. If the fund’s performance liabilities in relation to the PPI and corresponding bank funding is below the benchmark return, then the consolidated entity facilities. Repayments received from investors will be applied to will be obliged to make payments to the fund under the swap reduce the bank funding facilities used to finance these loans. agreement. Conversely, if the fund’s performance is higher than the benchmark, then the fund will make payments to the Investment and interest loans made to investors are funded consolidated entity. by fixed and variable interest rate banking facilities. Total bank facilities available and utilised under these financial arrangements The table below demonstrates the impact of a 1 per cent as at 30 June 2010 were $189.6 million (2009: $318.7 million). deviation of the fund from the benchmark return on the consolidated profit before tax. It is the consolidated entity’s policy to hedge variable rate facilities from exposure to fluctuating interest rates in accordance with its 2010 2009 financial risk management policies. Accordingly, the consolidated $'000 $'000 entity has entered into interest rate swap contracts in order to hedge EMCF performance 1 per cent higher than exposure to fluctuations in interest rates under which it is obliged 11,993 15,132 benchmark to receive interest at variable rates and to pay interest at fixed rates. EMCF performance 1 per cent lower than Details of the consolidated entity’s exposure to risks arising from (11,993) (15,132) benchmark Perpetual Protected Investments are set out in Note 28.

The contracts are settled on a net basis. For the 1 year interest b. Perpetual Protected Investments rate swap, the fixed rate payment is paid either annually in The Perpetual Protected Investments structured product (the advance or monthly in arrears, and the floating rate payment is PPI product) was established in the financial year ended 30 June received monthly in arrears; for the 7 years interest rate swap, the 2007 for the purpose of providing investors the ability to select fixed rate leg is paid annually in advance, and the floating rate leg investments from a menu of managed funds while providing is received quarterly in arrears. capital protection at maturity via a constant proportion portfolio insurance structure. The seven-year investment allows investors Interest rate swap contracts entered into cover approximately to borrow up to 100 per cent of their original invested amount 97 per cent (2009: 94 per cent) of the variable interest rate (and their first year’s interest if the interest is pre-paid), subject to banking facilities and are timed to expire as each loan falls due. a minimum loan of $50,000. The fixed interest rates of these swaps range from 4.74 per cent to 7.37 per cent (2009: 3.12 per cent to 7.37 per cent) and the banking facilities’ variable interest rates range from 5.89 per cent to 6.1 per cent (2009: 4.42 per cent to 4.5 per cent).

Perpetual Limited and its controlled entities | 129 The interest rates under the fixed interest banking facilities range Note 31. Contingencies from 5.24 per cent to 7.77 per cent (2009: 3.53 per cent to The directors are of the opinion that the recognition of liabilities 7.77 per cent). There were $84.1 million fixed interest banking is not required in respect of these matters, as it is not probable facilities at 30 June 2010. that future sacrifice of economic benefits will be required and the Interest rate swaps have been both terminated and entered into in amount is not capable of reliable measurement. accordance with the Group’s product interest rate risk policy. Consolidated The fair value of interest rate swap contracts outstanding as at 2010 2009 reporting date and period of expiry are as follows: $'000 $'000

Contingent liabilities 2010 2009 A controlled entity has bank guarantees to 20 20 Fair value Notional Fair value Notional the favour of the Australian Securities and amount amount Investments Commission in respect of dealer's $’000 $’000 $’000 $’000 licence arrangements. Less than 1 year (11) 43,600 124 54,500 Bank guarantees of a controlled entity in favour 1,000 1,000 of the ASX Settlement and Transfer Corporation 4-7 years (651) 7,215 (821) 7,415 Pty Limited with respect to normal trading (662) 50,815 (697) 61,915 activities.

The gain or loss from re-measuring interest rate swap contracts Bank guarantees of a controlled entity in 340 124 at fair value is deferred in other comprehensive income in the favour of various lessors for rental bonds on leased premises. cash flow hedge reserve, to the extent that the hedge is effective, and re-classified into net profit and loss when the hedged interest expense is recognised. The ineffective portion is recognised in In the ordinary course of business, contingent liabilities exist net profit and loss immediately. in respect of claims and potential claims against entities in the consolidated entity. The consolidated entity does not consider As at 30 June 2010, an unrealised loss of $0.4 million that the outcomes of any such claims known to exist at the date (2009: loss of $0.7 million) was deferred in equity in the cash of this report, either individually or in aggregate, are likely to have flow hedge reserve. a material effect on its operations or financial position.

Note 30. Commitments Note 32. Related parties

Consolidated Controlled entities and associates 2010 2009 The consolidated entity has a related party relationship with its $'000 $'000 Key Management Personnel (see Note 38).

Capital expenditure commitments Business transactions with related parties are on normal Contracted but not provided for and payable commercial terms and conditions no more favourable than those within one year 1,207 940 available to other parties unless otherwise stated.

Capital expenditure contracted but not provided for and payable For a fixed term from 2 November 2009 to 2 May 2010, within one year relates primarily to costs associated with the Meredith Brooks provided advisory and consulting services fit out of Angel Place, Sydney and the costs associated with to Perpetual Investment’s Global Equities business. In software development. accordance with the consultancy agreement, Ms Brooks received $197,000 for providing those services. This cash Consolidated payment is in addition to the fees Ms Brooks received in her

2010 2009 capacity as a non-executive director.

$'000 $'000

Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable:

Not later than 1 year 15,761 13,405

Later than 1 year and not later than 5 years 62,100 63,935

Later than 5 years 73,581 67,481

151,442 144,821

130 | Perpetual Limited and its controlled entities Note 33. Controlled entities Beneficial interest Country 2010 2009 of Name of company % % incorporation

Perpetual Limited

Controlled Entities1 Australian Trustees Limited 100 100 Australia Commonwealth Trustees Pty Limited2 100 100 Australia Financial Pursuit Pty Limited 100 100 Australia Fordham Business Advisors Pty Limited 100 - Australia Grosvener Financial Services Pty Limited 100 - Australia Investor Marketplace Limited 100 100 Australia Perpetual Assets Pty Limited2 100 100 Australia Perpetual Australia Pty Limited 100 100 Australia Perpetual Investment Management Limited 100 100 Australia Perpetual Loan Company Limited 100 100 Australia Perpetual Loan Company No. 2 Limited 100 100 Australia Perpetual Mortgage Services Pty Limited 100 100 Australia Perpetual Nominees Limited 100 100 Australia Perpetual Services Pty Limited2 100 100 Australia Perpetual Trust Services Limited 100 100 Australia Perpetual Trustee Company (Canberra) Limited 100 100 Australia Perpetual Trustee Company Limited 100 100 Australia Perpetual Trustees Consolidated Limited 100 100 Australia Perpetual Trustees Queensland Limited 100 100 Australia Perpetual Trustees SA Limited 100 100 Australia Perpetual Trustees Victoria Limited 100 100 Australia Perpetual Trustees WA Limited 100 100 Australia PI Investment Management Limited 100 100 Ireland Queensland Trustees Pty Limited 100 100 Australia smartsuper Pty Limited 100 100 Australia Perpetual Legal Services Pty Limited 100 100 Australia

Perpetual Concentrated International Share Fund 100 100 Australia Perpetual Resource Fund 92 99 Australia Perpetual Wholesale Geared International Share Fund 92 46 Australia Perpetual Asia Pool Fund 100 100 Australia Perpetual Equity Imputation Portfolio 100 100 Australia Perpetual Capital Accumulation Portfolio 100 100 Australia Global equities UCITS Fund 100 - Australia Perpetual Pure Value 2 Fund 100 - Australia Exact Market Cash Fund 1 100 100 Australia Exact Market Cash Fund 2 100 100 Australia

Entities under the control of Australian Trustees Limited Wilson Dilworth Partnership Pty Limited2 100 100 Australia

Entities under the control of Fordham Business Advisors Pty Limited Fordham Investment Management Pty Limited 100 - Australia Garnet Investment Management Pty Limited 100 - Australia Garnet Superannuation Pty Limited 100 - Australia Transcript Pty Limited2 100 - Australia

Entities under the control of Grosvenor Financial Services Pty Limited Grosvenor Tax and Accounting Pty Limited 100 - Australia

Entities under the control of Perpetual Assets Pty Limited Perpetual Asset Management Limited 100 100 Australia

Perpetual Limited and its controlled entities | 131 Note 33. Controlled entities (continued)

Beneficial interest Country 2010 2009 of Name of company % % incorporation Entities under the control of Perpetual Asset Management Limited1 Perpetual Superannuation Limited 100 100 Australia

Entities under the control of Perpetual Trustee Company Limited Perpetual Corporate Trust Limited 100 100 Australia Perpetual Custodians Limited 100 100 Australia Perpetual Service Network Pty Limited2 100 100 Australia PT Limited 100 100 Australia

Entities under the control of Perpetual Trustees Consolidated Limited Perpetual Nominees (Canberra) Limited 100 100 Australia Perpetual Custodian Nominees Pty Limited2 100 100 Australia

Entities under the control of Perpetual Trustees Victoria Limited Perpetual Executors Nominees Limited 100 100 Australia AXA GESP Exempt (Aust) Pty Limited3 - 51 Australia AXA GESP Deferred (Aust) Pty Limited3 - 51 Australia

Entities under the control of Perpetual Trustees WA Limited Terrace Guardians Limited 100 100 Australia

Entities under the control of PT Limited1 Perpetrust Nominees Pty Limited2 100 100 Australia

Entities under the control of Wilson Dilworth Partnership Pty Limited1 Wilson Dilworth Limited 100 100 Australia

1 Entities in bold are directly owned by Perpetual Limited with the exception of Perpetual Asset Management Limited, P.T. Limited and Wilson Dilworth Partnership Pty Limited which are owned by Perpetual subsidiaries. 2 A small proprietary company as defined by the Corporations Act 2001 and is not required to be audited for statutory purposes. 3 AXA GESP Exempt (Aust) Pty Limited and AXA GESP Deferred (Aust) Pty Limited were sold by Perpetual Trustees Victoria Limited on 26 March 2010.

132 | Perpetual Limited and its controlled entities Note 34. Parent entity disclosures Company 2010 2009 $'000 $'000 As at, and throughout, the financial year ending 30 June 2010 the parent entity of the Group was Perpetual Limited. Result of the parent entity Profit for the period 56,296 80,748 Other comprehensive income/(expense) 4,478 (8,279) Total comprehensive income for the period 60,774 72,469

Financial position of the parent entity at year end Current assets1 154,815 132,193 Total assets 576,524 481,877

Current liabilities1 155,157 103,376 Total liabilities 190,121 128,610

Total equity of the parent entity comprising Share capital 236,724 204,520 Reserves 50,509 39,447 Retained earnings 99,170 109,300 Total equity 386,403 353,267

1 Current liabilities exceed current assets by $342,000 as at 30 June 2010 which is primarily due to a net intercompany payable to controlled entities of $29,605,000. This will not affect the parent entity’s ability to pay its debts as and when they become due and payable. Total assets of the parent entity exceed total liabilities by $386,403,000. Company 2010 2009 $'000 $'000 Parent entity contingencies The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

Uncalled capital of the controlled entities 9,893 10,903

In the ordinary course of business, contingent liabilities exist in respect of claims and potential claims against the parent entity. The parent entity does not consider that the outcome of any such claims known to exist at the date of this report, either individually or in aggregate, are likely to have a material effect on its operations or financial position.

Capital expenditure commitments Contracted but not provided for and payable within one year 1,207 940

Capital expenditure contracted but not provided for and payable within one year relates primarily to costs associated with the fit out of Angel Place, Sydney and the costs associated with software development.

Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable:

Not later than 1 year 10,817 10,324 Later than 1 year and not later than 5 years 55,340 55,075 Later than 5 years 53,946 66,897 120,103 132,296 Operating leases are predominantly related to premises.

Parent entity guarantees The Company’s policy is to provide financial guarantees only to wholly-owned subsidiaries and has provided financial guarantees in respect of: ▪▪ Guarantee to secure a $70,000,000 bank facility ($45,000,000 is utilised) of a controlled entity amounting to $70,000,000 (2009: $45,000,000). ▪▪ Guarantees to secure lending associated with structured products amounting to $11,371,000 (2009: $16,122,000). ▪▪ No liability was recognised by the Company in relation to these guarantees as the fair value of these guarantees is considered to be immaterial. The Company does not expect the financial guarantees to be called upon.

Perpetual Limited and its controlled entities | 133 Note 35. Notes to the Cash Flow Statement

Consolidated 2010 2009 $'000 $'000 Cash flows from operating activities

Profit for the year 90,506 37,749

Add/(less) items classified as investing/financing activities: (Profit)/loss on sale of investments (3,913) 6,673 Reinvestment of dividends and unit distributions (512) (1,962) Working capital acquired from business combinations 5,724 1,000 Leave liabilities acquired from business combinations (903) (80) Deferred acquisition consideration (8,583) (2,439) Deferred tax recognised on intangibles acquired (4,543) - Share of loss/(profit) of equity accounted investees, net of income tax 16 (111) Tax paid on the sale of investments (784) (1,657) Add/(less) non-cash items: Loss on sale of property, plant and equipment 78 470 Transfer from cash flow hedge reserve to profit and loss - (14) Depreciation and amortisation expense 14,857 13,163 Equity remuneration expense 26,755 25,930 Transfer to foreign currency translation reserve (2,856) 197 Transfer to available-for-sale reserve (1,125) (1,725) Profit after tax attributable to non-controlling interests 216 58 Impairment of available-for-sale securities 7,0 85 1,065 Net cash provided by operating activities before change in assets and liabilities 122,018 78,317 Change in assets and liabilities during the financial year: (Increase)/decrease in receivables (8,143) 6,155 Decrease/(increase) in net structured products assets 2,051 (812) Decrease in derivative assets 134 15,358 (Decrease)/increase in derivative liabilities (159) 586 Increase/(decrease) in payables 9,606 (12,255) Decrease/(increase) in prepayments 3,515 (4,039) Increase/(decrease) in employee benefits 7,107 ( 7,58 0) (Decrease)/increase in provisions (2,084) 7,354 Increase/(decrease) in current tax liabilities 16,586 (25,258) Increase in deferred tax assets (2,838) (1,517) Increase in deferred tax liabilities 5,061 2,817 (Decrease)/increase in cash flow hedge reserve (301) 3,599 Net cash provided by operating activities 152,553 62,725

Note 36. Business combinations (i) Grosvenor Financial Services Pty Ltd On 24 September 2009 the Company acquired 100 per cent of The following summarises the major classes of consideration the issued share capital of Grosvenor Financial Services Pty Ltd, transferred, and the recognised amounts of assets acquired and which specialises in providing financial advice and services to liabilities assumed at the acquisition date: medical, dental and legal professionals. The acquired entity is based in the Sydney CBD. Consideration transferred $'000 The acquisition of Grosvenor is part of the consolidated entity’s Cash consideration 8,875 strategy to expand its private wealth business by acquiring complementary businesses specialising in the high net worth Equity consideration 10,569 segment of the market. Contingent consideration 682 Total consideration 20,126 The acquired business contributed revenue of $4.6 million and net loss after tax of $0.8 million to the consolidated entity for the period from 24 September 2009 to 30 June 2010. If this The fair value of the ordinary shares issued (283,950) was based acquisition had occurred on 1 July 2009, the revenue and net on the listed share price of the Company at 24 September 2009 loss would have been $5.8 million and $1.0 million respectively. of $37.22 per share.

134 | Perpetual Limited and its controlled entities Contingent consideration The acquisition of Fordham is part of the consolidated entity’s The Company has agreed to pay the selling stakeholder strategy to expand its private wealth business by acquiring additional cash consideration if the acquiree exceeds certain complementary businesses specialising in the high net worth pre-determined revenue hurdles. The Company has included segment of the market. $0.7 million as contingent consideration related to the additional The acquired business contributed revenue of $10.8 million and consideration, which represents its fair value at the acquisition net profit after tax of $0.2 million to the consolidated entity for the date. The fair value of the contingent consideration was period from 5 January 2010 to 30 June 2010. If this acquisition calculated by applying the income approach using the expected had occurred on 1 July 2009, the revenue and net profit would contingent consideration and a discount rate of 15 per cent. have been $21.6 million and $2.0 million respectively. Subsequent to the date of acquisition, the balance of contingent consideration has increased by $0.1 million, representing the The following summarises the major classes of consideration unwinding of the discount in the period since acquisition. transferred, and the recognised amounts of assets acquired and liabilities assumed at the acquisition date: Identifiable assets acquired and liabilities assumed $'000 Consideration transferred Intangible assets 6,041 $'000 Receivables 1,117 Cash consideration 16,900

Cash and cash equivalents 48 Cash consideration held in escrow 10,022

Current tax assets 172 Contingent consideration 7,9 01

Other current assets 418 Total consideration 34,823 Trade and other payables (103)

Financial liabilities (100) Contingent consideration Current tax liabilities (497) The Company has agreed to pay the selling stakeholder Deferred tax liabilities (1,813) additional cash consideration if the acquiree exceeds certain Provisions (336) pre-determined gross profit and synergy hurdles. The Company has included $7.9 million as contingent consideration related to Total identifiable net assets 4,947 the additional consideration, which represents its fair value at the acquisition date. The fair value of the contingent consideration All trade receivables are expected to be collectible at the was calculated by applying the income approach using the acquisition date. expected contingent consideration and a discount rate of 7.2 per cent. Subsequent to the date of acquisition, the balance Goodwill of contingent consideration has increased by $0.2 million, $'000 representing the unwinding of the discount in the period since Goodwill was recognised as a result of the acquisition. acquisition as follows: Total consideration transferred 20,126 Identifiable assets acquired and liabilities assumed Less value of identifiable net assets (4,947) $'000

Goodwill 15,179 Intangible assets 9,100 Receivables 4,688

The goodwill is attributable mainly to the skills and technical Cash and cash equivalents 300 talent of the acquiree’s work force, and the synergies expected to Other current assets 290 be achieved from integrating the company into the consolidated Property, plant & equipment 2,630 entity. None of the goodwill recognised is expected to be deductible for income tax purposes. Trade and other payables (424) Deferred tax liabilities (2,730)

Transactions separate from the acquisition Provisions (752) The consolidated entity incurred acquisition-related costs of Total identifiable net assets 13,102 $0.3 million relating to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in All trade receivables are expected to be collectible at the administrative and general expenses in the consolidated entity’s acquisition date. Statement of comprehensive income.

(ii) Fordham Business Advisors Pty Ltd Goodwill $'000 On 5 January 2010 the Company acquired 100 per cent of the issued share capital of Fordham Business Advisors Pty Ltd, Goodwill was recognised as a result of the acquisition as follows: which specialises in providing financial, investment and related Total consideration transferred 34,823 tax and accounting services for private business owners. The acquired entity is based in the Melbourne CBD. Less value of identifiable net assets (13,102) Goodwill 21,721

Perpetual Limited and its controlled entities | 135 The goodwill is attributable mainly to the skills and technical Note 38. Remuneration details provided as part talent of the acquiree’s work force, and the synergies expected to of the financial report be achieved from integrating the company into the consolidated entity. None of the goodwill recognised is expected to be The following disclosures required under AASB 124 are required deductible for income tax purposes. to be included in the Financial Report: ▪▪ Para 16 ‘Total Compensation of Key Management Personnel’ Transactions separate from the acquisition ▪▪ Para 25.7.3 ‘Options and Rights holdings’ The consolidated entity incurred acquisition-related costs of $0.6 million relating to external legal fees and due diligence costs. ▪▪ Para 25.7.4 ‘Equity Holdings and Transactions’ The legal fees and due diligence costs have been included in administrative and general expenses in the consolidated entity’s ▪▪ Para 25.9 ‘Disclosure of Other Transactions’. Statement of comprehensive income. Total compensation of key management personnel Note 37. Subsequent events Consolidated The directors are not aware of any other event or circumstance 2010 2009 since the end of the financial period not otherwise dealt with in this report that has or may significantly affect the operations $'000 $'000 of the consolidated entity, the results of those operations or Short-Term 8,309,185 6,559,201 the state of affairs of the consolidated entity in subsequent Post-Employment 336,371 397,8 82 financial years. Termination benefits 742,219 585,000

Share-Based (444,168) 1,014,888

Total 8,943,607 8,556,971

Negative balances are a result of adjustments made in the year to reflect the most current expectations of vesting of LTI grants with non-market conditions hurdles.

Related party disclosures Executives have not entered into material contracts with the Company or a member of the consolidated entity since the end of the previous financial year and there were no material contracts involving KMP’s interests existing at year end.

136 | Perpetual Limited and its controlled entities Option holdings of Executive Director and group executives Movement during the year Vested and Fair value Proceeds Name Grant date Exercise Exercise Held at Held at 30 exercisable per option at received on period price 1 July 2009 June 2010 at 30 June Granted Forfeited Exercised grant date1 exercise 2010 $ No. of options No. of options No. of options No. of options $ $ Managing Director D Deverall2 Options granted prior to 1 July 20083 295,508 - 28,144 - 267,36 4 978 - - 1 Jul 11 - 1 Jul 08 42.73 57,39 0 - - - 57,39 0 - 8.97 - 1 Jul 14 1 Jul 12 - 29 Jun 09 28.34 47,585 - - - 47,585 - 9.58 - 29 Jun 15 1 Jul 12 - 3 Jul 09 28.34 - 5,911 - - 5,911 - 9.58 - 29 Jun 15 Aggregate value $56,627 $1,599,986 - - Departed Group Executives 30 Jun 13 - E Gonzalez 20 Jan 09 31.42 182,215 - 182,215 - - - 6.60 - 20 Jan 15 Aggregate value - $5,725,195 - - 30 Jun 12 - J Nesbitt 9 Jun 09 28.34 58,939 - 58,939 - - - 9.06 - 30 Jun 14 Aggregate value - $1,670,331 - - 31 Mar 11 - E Wang 31 Mar 08 52.71 75,301 - 75,301 - - - 9.96 - 31 Mar 13 Aggregate value - $3,969,116 - - Options granted to the Managing Director and group executives are granted from the Executive Option Plan. R Brandweiner, R Burrows, C Doyle, C Green, I Holyman, R MacIntyre, M Miller, M Pancino, P Ryan, S Singh and J Stewart do not hold options over Perpetual shares. 1 Equity instruments issued have been valued by PricewaterhouseCoopers (PwC) using a Binomial Option Pricing model at grant date. 2 Approval for the issue of options to D Deverall was obtained under ASX Listing Rule 10.14 at Perpetual’s AGMs held on 19 October 2004, 17 October 2006, 30 October 2007, 28 October 2008 and 22 October 2009. 3 These options were granted on 19 October 2004 (978), 1 July 2005 (28,144), 1 July 2006 (29,950) and 1 July 2007 (236,436). On 23 June 2010, the company announced that Managing Director, David Deverall, had given notice of his resignation. As a result, no long term incentives, including the options outstanding as at 30 June 2010, will vest as a result of Mr Deverall’s resignation and all unvested options will be forfeited on ceasing employment. The options outstanding as at 30 June 2010 have a carrying value of $Nil. 4 Percentage of total remuneration received as options for the Managing Director and Group Executives are: D Deverall (0%), E Gonzalez (0%), J Nesbitt (0%) and E Wang (0%). Movement during the year Vested and Fair value Proceeds Name Grant date Exercise Exercise Held at Held at 30 exercisable per option at received on period price 1 July 2008 June 2009 at 30 June Granted Forfeited Exercised grant date1 exercise 2009 $ No. of options No. of options No. of options No. of options $ $ Managing Director D Deverall2 Options granted prior to 1 July 20073 65,912 - 6,840 - 59,072 978 - - 30 Jun 10 - 1 Jul 07 79.17 134,625 - - - 134,625 - 11.92 - 1 Jul 13 30 Jun 12 - 1 Jul 07 79.17 67,313 - - - 67,313 - 11.92 - 1 Jul 13 1 Jul 10 - 1 Jul 07 79.17 34,498 - - - 34,498 - 11.92 - 1 Jul 17 1 Jul 11 - 1 Jul 08 42.73 - 57,39 0 - - 57,39 0 - 8.97 - 1 Jul 14 1 Jul 12 - 29 Jun 09 28.34 - 47,585 - - 47,585 - 9.58 - 29 Jun 19 Aggregate value $970,653 $322,027 - - Group Executives E Gonzalez Options granted prior to 1 July 20074 33,334 - - 33,334 - - - - 30 Jun 13 - 20 Jan 09 31.42 - 182,215 - - 182,215 - 6.60 - 20 Jan 15 Aggregate value $1,202,619 - $409,342 $1,082,022 30 Jun 12 - J Nesbitt 9 Jun 09 28.34 - 58,939 - - 58,939 - 9.06 - 9 Jun 19 Aggregate value $533,987 - - - 31 Mar 11 - E Wang 31 Mar 08 52.71 75,301 - - - 75,301 - 9.96 - 31 Mar 13 Aggregate value - - - - Options granted to the Managing Director and group executives are granted from the Executive Option Plan. R Brandweiner, C Doyle, C Green, I Holyman, M Pancino, and J Stewart do not hold options over Perpetual shares. 1 Equity instruments issued have been valued by PricewaterhouseCoopers using a Binomial Option Pricing model at grant date. 2 Approval for the issue of options to D Deverall was obtained under ASX Listing Rule 10.14 at Perpetual’s AGMs held on 19 October 2004, 17 October 2006, 30 October 2007 and 28 October 2008. 3 These options were granted on 1 July 2004 (6,840; 100% forfeited in the current year), 19 October 2004 (978), 1 July 2005 (28,144) and 1 July 2006 (29,950). 4 These options were granted on 28 October 2002 (33,334).

Perpetual Limited and its controlled entities | 137 Note 38. Remuneration details provided as part of the financial report (continued)

Unvested share holdings of Executive Director, group and other executives Movement during the year Fair value per Fair value per Held at Held at Name Grant date Issue price Vesting date share ($) TSR share ($) non- 1 July 2009 30 June 2010 Granted Forfeited Vested hurdle TSR hurdle

No. of shares No. of shares No. of shares Executive Director D Deverall1 Shares granted prior to 1 July 20082 58,532 - 7,036 - 51,496

1 July 2008 42.73 1 July 2011 11,993 - - - 11,993 38.97 50.80

29 June 2009 28.34 29 June 2012 18,083 - - - 18,083 21.30 28.01

Aggregate value - $399,997 -

Group Executives R Brandweiner Shares granted prior to 1 July 20083 2748 - 1,389 - 1,359

1 October 2008 48.63 1 October 2011 4,112 - - - 4,112 38.97 50.80

1 October 2009 38.15 1 October 2012 - 7,208 - - 7,208 29.02 37.93

Aggregate value $274,985 $96,582 -

R Burrows Shares granted prior to 1 July 20084 11,383 - - - 11,383

1 October 2008 48.63 1 October 2011 12,338 - - - 12,338 38.97 50.80

1 October 2009 38.15 1 October 2012 - 15,727 - - 15,727 29.02 37.93

Aggregate value $599,985 - -

C Doyle Shares granted prior to 1 July 20085 25,531 - - - 25,531

1 October 2008 48.63 1 October 2011 7,197 - - - 7,197 38.97 50.80

1 October 2009 38.15 1 October 2012 - 9,174 - - 9,174 29.02 37.93

Aggregate value $349,988 - -

C Green Shares granted prior to 1 July 20086 5,031 - - 2,740 2,291

1 October 2008 48.63 1 October 2011 4,112 - - - 4,112 38.97 50.80

1 October 2009 38.15 1 October 2012 - 6,553 - - 6,553 29.02 37.93

Aggregate value $249,997 - $199,938

I Holyman Shares granted prior to 1 July 20087 16,464 - 4,472 - 11,992

1 October 2008 48.63 1 October 2011 9,253 - - - 9,253 38.97 50.80 1 October 2009 38.15 1 October 2012 - 11,795 - - 11,795 29.02 37.93 Aggregate value $449,979 $300,026 - M Miller Shares granted prior to 1 July 20088 3,308 - 1,677 - 1,631

1 October 2008 48.63 1 October 2011 2,467 - - - 2,467 38.97 50.80

1 October 2009 38.15 1 October 2012 - 8,519 - - 8,519 29.02 37.93

Aggregate value $325,000 $121,348 -

M Pancino Shares granted prior to 1 July 20089 4,159 - 1,865 - 2,294

1 October 2008 48.63 1 October 2011 5,140 - - - 5,140 38.97 50.80

1 October 2009 38.15 1 October 2012 - 6,553 - - 6,553 29.02 37.93

Aggregate value $249,997 $134,951 -

J Stewart Shares granted prior to 1 July 200810 584 - - - 584

1 October 2008 48.63 1 October 2011 3,084 - - - 3,084 38.97 50.80 1 October 2009 38.15 1 October 2012 - 3,931 - - 3,931 29.02 37.93 Aggregate value $149,968 - - P Ryan Shares granted prior to 1 July 200811 2,946 - 1,451 - 1,495

1 October 2008 48.63 1 October 2011 2,287 - - - 2,287 38.97 50.80 1 October 2009 38.15 1 October 2012 - 3,538 - - 3,538 29.02 37.93 Aggregate value $134,975 $104,994 -

138 | Perpetual Limited and its controlled entities Unvested share holdings of Executive Director, group and other executives (continued)

Movement during the year Fair value per Fair value per Held at Held at Name Grant date Issue price Vesting date share ($) TSR share ($) non- 1 July 2009 30 June 2010 Granted Forfeited Vested hurdle TSR hurdle

No. of shares No. of shares No. of shares S Singh Shares granted prior to 1 July 200812 1,931 - 566 - 1,365

1 October 2008 48.63 1 October 2011 2,261 - - - 2,261 38.97 50.80 1 October 2009 38.15 1 October 2012 - 3,538 - - 3,538 29.02 37.93 Aggregate value $134,975 $40,956 - R MacIntyre Shares granted prior to 1 July 200813 9,498 - 2.257 - 7,241

1 October 2008 48.63 1 October 2011 1,028 - - - 1,028 38.97 50.80 1 October 2009 38.15 1 October 2012 - 2,096 - - 2,096 29.02 37.93 Aggregate value $79,962 $158,700 - Departed Executives E Gonzalez Shares granted prior to 1 July 200814 26,622 - 26,622 - -

1 October 2008 48.63 1 October 2011 16,450 - 16,450 - - 38.97 50.80

20 January 2009 31.42 30 June 2013 39,783 - 39,783 - - N/A 31.42

Aggregate value - $3,949,872 -

J Nesbitt Shares granted prior to 1 July 200815 23,004 - 23,004 - -

1 October 2008 48.63 1 October 2011 16,450 - 16,450 - - 38.97 50.80

9 June 2009 29.74 30 June 2012 20,174 - 20,174 - - N/A 29.74

1 October 2009 38.15 1 October 2012 - 20,696 20,696 - - 29.02 37.93

Aggregate value $799,967 $3,849,818 -

E Wang Shares granted prior to 1 July 200816 21,832 - 21,832 - -

1 October 2008 48.63 1 October 2011 6,169 - 6,169 - - 38.97 50.80

Aggregate value - $1,595,883 -

1 Approval for the issue of shares to David Deverall was obtained under ASX Listing Rule 10.14 at Perpetual’s AGM held on 19 October 2004, 17 October 2006, 30 October 2007, 28 October 2008 and 22 October 2009. 2 These shares were granted on 1 July 2005 (7,036; 100% forfeited in the current year), 1 July 2006 (7,130) and 1 July 2007 (44,366). 3 These shares were granted on 30 September 2005 (745; 100% forfeited in the current year), 2 October 2006 (644; 100% forfeited in the current year) and 1 October 2007 (1,359). 4 These shares were granted on 31 March 2008 (11,383). 5 These shares were granted on 4 December 2006 (1,645), 1 October 2010 (4,759) and 20 February 2008 (19,127). 6 These shares were granted on 1 October 2007 (2,291) and 17 July 2006 (2,740; 100% vested in the current year). 7 These shares were granted on 30 September 2005 (4,472; 100% forfeited in the current year), 2 October 2006 (5,873) and 1 October 2007 (6,119). 8 These shares were granted on 30 September 2005 (641; 100% forfeited in the current year), 2 October 2006 (1,036; 100% forfeited in the current year) and 1 October 2007 (1,631). 9 These shares were granted on 14 August 2006 (255), 2 October 2006 (1,865; 100% forfeited in the current year) and 1 October 2007 (2,039). 10 These shares were granted on 10 September 2007 (584). 11 These shares were granted on 2 October 2006 (1,451; 100% forfeited in the current year) and 1 October 2007 (1,495). 12 These shares were granted on 3 July 2006 (139), 2 October 2006 (566; 100% forfeited in the current year) and 1 October 2007 (1,226). 13 These shares were granted on 30 September 2005 (876: 100% forfeited in the current year), 2 October 2006 (1,381; 100% forfeited in the current year), 1 October 2007 (1,359) and 3 December 2007 (5,882). 14 These shares were granted on 30 September 2005 (7,453; 100% forfeited in the current year), 2 October 2006 (8,291; 100% forfeited in the current year) and 1 October 2007 (10,878; 100% forfeited in the current year). 15 These shares were granted on 30 September 2005 (5,217; 100% forfeited in the current year), 2 October 2006 (6,909; 100% forfeited in the current year) and 1 October 2007 (10,878; 100% forfeited in the current year). 16 These shares were granted on 30 September 2005 (1,729; 100% forfeited in the current year), 2 October 2006 (1,796; 100% forfeited in the current year), 1 October 2007 (4,079; 100% forfeited in the current year) and 31 March 2008 (14,228; 100% forfeited in the current year). Grants of performance shares after 30 June 2003 contain 50% of the shares with a performance hurdle linked to TSR and 50% of the shares granted with a performance hurdle linked to EPS. Where applicable, the fair value of shares with a TSR performance hurdle are disclosed. The fair value of TSR-linked shares is calculated by PwC using valuation techniques which take into account the probability of vesting as reflected in the fair value at grant.

Perpetual Limited and its controlled entities | 139 Note 38. Remuneration details provided as part of the financial report (continued)

Unvested share holdings of Managing Director, group and other executives (continued)

Movement during the year Fair value per Fair value Held at Held at Name Grant date Issue price Vesting date share ($) TSR per share ($) 1 July 2008 30 June 2009 Granted Forfeited Vested hurdle non-TSR hurdle

No. of shares No. of shares No. of shares

Managing Director

D Deverall1 Shares granted prior to 1 July 20072 16,121 - 1,955 - 14,166

1 July 2007 79.17 1 July 2010 31,735 - - - 31,735 57.22 80.08

1 July 2007 79.17 30 June 2012 12,631 - - - 12,631 N/A 73.76

1 July 2008 42.73 1 July 2011 - 11,993 - - 11,993 38.97 50.80

29 June 2009 28.34 1 July 2012 - 18,083 - - 18,083 21.30 28.01

Aggregate value $1,024,933 $92,041 -

Group Executives

R Brandweiner Shares granted prior to 1 July 20073 1,500 - 111 - 1,389

1 October 2007 73.54 1 October 2010 1,359 - - - 1,359 57.22 80.08

1 October 2008 48.63 1 October 2011 - 4,112 - - 4,112 38.97 50.80

Aggregate value $199,967 $5,513 -

R Burrows 31 March 2008 52.71 31 March 2011 11,383 - - - 11,383 57.22 52.71

1 October 2008 48.63 1 October 2011 - 12,338 - - 12,338 38.97 50.80

Aggregate value $599,997 - -

C Doyle 4 December 2006 72.92 4 December 2009 1,645 - - - 1,645 52.13 72.92

1 October 2007 73.54 1 October 2010 4,759 - - - 4,759 57.22 80.08

20 February 2008 52.28 1 January 2011 19,127 - - - 19,127 N/A 52.28

1 October 2008 48.63 1 October 2011 - 7,197 - - 7,197 38.97 50.80

Aggregate value $349,990 - -

E Gonzalez Shares granted prior to 1 July 20074 15,744 - - - 15,744

1 October 2007 73.54 1 October 2010 10,878 - - - 10,878 57.22 80.08

1 October 2008 48.63 1 October 2011 - 16,450 - - 16,450 38.97 50.80

20 January 2009 31.42 30 June 2013 - 39,783 - - 39,783 N/A 31.42

Aggregate value $2,049,945 - -

C Green Shares granted prior to 1 July 20075 4,796 - - 2,056 2,740

1 October 2007 73.54 1 October 2010 2,291 - - - 2,291 57.22 80.08

1 October 2008 48.63 1 October 2011 - 4,112 - - 4,112 38.97 50.80

Aggregate value $199,967 - $150,026

I Holyman Shares granted prior to 1 July 20076 11,162 - 817 - 10,345

1 October 2007 73.54 1 October 2010 6,119 - - - 6,119 57.22 80.08

1 October 2008 48.63 1 October 2011 - 9,253 - - 9,253 38.97 50.80

Aggregate value $449,973 $40,580 -

140 | Perpetual Limited and its controlled entities Unvested share holdings of Managing Director, group and other executives (continued)

Movement during the year Fair value per Fair value Held at Held at Name Grant date Issue price Vesting date share ($) TSR per share ($) 1 July 2008 30 June 2009 Granted Forfeited Vested hurdle non-TSR hurdle

No. of shares No. of shares No. of shares

J Nesbitt Shares granted prior to 1 July 20077 12,943 - 817 - 12,126

1 October 2007 73.54 1 October 2010 10,878 - - - 10,878 57.22 80.08

1 October 2008 48.63 1 October 2011 - 16,450 - - 16,450 38.97 50.80

9 June 2009 29.74 30 June 2012 - 20,174 - - 20,174 N/A 29.74

Aggregate value $1,399,938 $40,580 -

M Pancino Shares granted prior to 1 July 20078 2,120 - - - 2,120

1 October 2007 73.54 1 October 2010 2,039 - - - 2,039 57.22 80.08

1 October 2008 48.63 1 October 2011 - 5,140 - - 5,140 38.97 50.80

Aggregate value $249,958 - -

J Stewart 10 September 75.24 10 September 584 - - - 584 N/A 75.24 2007 2010

1 October 2008 48.63 1 October 2011 - 3,084 - - 3,084 38.97 50.80

Aggregate value $149,975 - -

E Wang Shares granted prior to 1 July 20079 4,006 - 481 - 3,525

1 October 2007 73.54 1 October 2010 4,079 - - - 4,079 57.22 80.08

31 March 2008 52.71 31 March 2011 14,228 - - - 14,228 N/A 52.71

1 October 2008 48.63 1 October 2011 - 6,169 - - 6,169 38.97 50.80

Aggregate value $299,998 $23,891 -

Departed Group Executive

P Vernon Shares granted prior to 1 July 200710 8,557 - 8,557 - -

1 October 2007 73.54 1 October 2010 5,439 - 5,439 - - 57.22 80.08

Aggregate value - $992,953 -

1 Approval for the issue of shares to D Deverall was obtained under ASX Listing Rule 10.14 at Perpetual’s AGM held on 19 October 2004, 17 October 2006, 30 October 2007 and 28 October 2008. 2 These shares were granted on 1 July 2004 (1,710; 100% forfeited in the current year), 19 October 2004 (245; 100% forfeited in the current year), 1 July 2005 (7,036) and 1 July 2006 (7,130). 3 These shares were granted on 1 October 2004 (111; 100% forfeited in the current year), 30 September 2005 (745) and 2 October 2006 (644). 4 These shares were granted on 30 September 2005 (7,453) and 2 October 2006 (8,291). 5 These shares were granted on 17 July 2006 (4,796; 43% vested in the current year). 6 These shares were granted on 1 October 2004 (817; 100% forfeited in the current year), 30 September 2005 (4,472) and 2 October 2006 (5,873). 7 These shares were granted on 1 October 2004 (817; 100% forfeited in the current year), 30 September 2005 (5,217) and 2 October 2006 (6,909). 8 These shares were granted on 14 August 2006 (255) and 2 October 2006 (1,865). 9 These shares were granted on 1 October 2004 (481; 100% forfeited in the current year), 30 September 2005 (1,729) and 2 October 2006 (1,796). 10 These shares were granted on 1 October 2004 (463; 100% forfeited in the current year), 30 September 2005 (2,981; 100% forfeited in the current year). and 2 October 2006 (5,113; 100% forfeited in the current year).

Shares granted to the Managing Director and Group Executives are granted from the Executive Share Plan. Grants of performance shares after 30 June 2003 contain 50% of the shares with a performance hurdle linked to TSR and 50% of the shares granted with a performance hurdle linked to EPS. Where applicable, the fair value of shares with a TSR performance hurdle are disclosed. The fair value of TSR-linked shares is calculated by PwC using valuation techniques which take into account the probability of vesting as reflected in the fair value at grant.

Perpetual Limited and its controlled entities | 141 Note 38. Remuneration details provided as part of the financial report (continued)

Vested shareholdings of Managing Director, group and other executives

Balance at 1 July 2009 LTI Shares vesting in the period Other changes during the year Balance at 30 June 2010* Name No. of shares

Managing Director

D Deverall 35,540 - - 35,540

Group Executives

R Brandweiner 402 - - 402

R Burrows - - - -

C Doyle - - - -

C Green 2,056 2,740 - 4,796

I Holyman 2,736 - - 2,736

M Miller 234 - - 234

M Pancino - - - -

J Stewart - - - -

R MacIntyre 16,893 - - 16,893

P Ryan - - - -

S Singh - - - -

Departed Group Executives

E Gonzalez 88,279 - (69,632) 18,647

J Nesbitt 7,417 - - 7,417

E Wang 600 - - 600

*or date of departure for Group Executives who departed in the year. Other changes during the year represent shares acquired via bonus sacrifice, conversion of options into shares and disposal of shares. Disposals during the year include E Gonzalez (69,632).

Balance at 1 July 2008 LTI Shares vesting in the period Other changes during the year Balance at 30 June 2009* Name No. of shares

Managing Director

D Deverall 35,540 - - 35,540

Group Executives

R Brandweiner 402 - - 402

E Gonzalez 69,134 - 19,145 88,279

C Green - 2,056 - 2,056

I Holyman 2,736 - - 2,736

J Nesbitt 7,527 - (110) 7,417

E Wang 600 - - 600

Departed Group Executive

P Vernon 1,580 - - 1,580

*or date of departure for Group Executives who departed in the year. Other changes during the year represent shares acquired via bonus sacrifice, conversion of options into shares and disposal of shares. Disposals during the year include E Gonzalez (14,189) and J Nesbitt (110).

142 | Perpetual Limited and its controlled entities Remuneration of Non-executive Directors Directors’ individual shareholdings

Balance at the start of the year, Balance at the end of the year or for directors Shares acquired via fee sacrifice Name Other changes during the year or, for directors who retired in the appointed in the year, the date during the year year, the date of retirement of appointment

Directors

R M Savage 9,380 - 229 9,609

P V Brasher1 - - 1,000 1,000

M J Brooks 5,500 - 253 5,753

P Bullock2 - - 1,000 1,000

E P McClintock 8,485 - 283 8,768

E Proust 3,147 - 98 3,245

P B Scott 2,047 - 93 2,140

P J Twyman 8,772 - (655) 8,107

1 Paul Brasher was appointed as a director on 1 November 2009. 2 Philip Bullock was appointed as a director on 1 June 2010.

Prior year directors’ individual shareholdings

Balance at the start of the year, Balance at the end of the year or for directors Shares acquired via fee sacrifice Name Other changes during the year or, for directors who retired in the appointed in the year, the date during the year1 year, the date of retirement of appointment

Directors

R M Savage 7,246 2,134 - 9,380

M J Brooks 4,500 - 1,000 5,500

E P McClintock 6,810 1,675 - 8,485

E Proust 2,728 419 - 3,147

P B Scott 1,000 1,047 - 2,047

A Stevens2 1,500 - - 1,500

P J Twyman 5,677 2,095 1,000 8,772

1 Shares acquired or issued four times throughout the year. 2 Mr A Stevens joined Perpetual on 24 June 2008 and resigned on 3 February 2009.

Perpetual Limited and its controlled entities | 143 Directors’ Declaration 1 In the opinion of the directors of Perpetual Limited (the ‘Company’):

a. the consolidated financial statements and notes, and the Remuneration report in the Directors’ report, set out on pages 34 to 59, are in accordance with the Corporations Regulations 2001, including:

(i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2010 and of its performance, for the financial year ended on that date; and

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001;

b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(a);

c. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

2 The directors have been given the declarations required by Section 295A of the Corporations Regulations 2001 from the Chief Executive Officer and the Chief Financial Officer for the financial year ended 30 June 2010.

Signed in accordance with a resolution of the directors:

Dated at Sydney this 24th day of August 2010.

Robert Savage, AM David Deverall Director Director

144 | Perpetual Limited and its controlled entities Independent auditor’s report to the members of Perpetual Limited Report on the financial report Independence We have audited the accompanying financial report of the Group In conducting our audit, we have complied with the comprising Perpetual Limited (the Company) and the entities independence requirements of the Corporations Act 2001. it controlled at the year’s end or from time to time during the financial year, which comprises the balance sheet as at 30 June Auditor’s opinion 2010, and statement of comprehensive income, statement of In our opinion: changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies and (a) the financial report of the Group is in accordance with the other explanatory notes 1 to 38 and the directors’ declaration. Corporations Act 2001, including:

(i) giving a true and fair view of the Group’s financial position Directors’ responsibility for the financial report as at 30 June 2010 and of its performance for the year The directors of the Company are responsible for the preparation ended on that date; and and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian (ii) complying with Australian Accounting Standards Accounting Interpretations) and the Corporations Act 2001. This (including the Australian Accounting Interpretations) and responsibility includes establishing and maintaining internal the Corporations Regulations 2001. control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether (b) the financial report also complies with International Financial due to fraud or error; selecting and applying appropriate Reporting Standards as disclosed in note 2. accounting policies; and making accounting estimates that are reasonable in the circumstances. In note 2, the directors also Report on the remuneration report state, in accordance with Australian Accounting Standard AASB We have audited the Remuneration Report included in pages 34 101 Presentation of Financial Statements, that the financial report, to 59 of the directors’ report for the year ended 30 June 2010. comprising the financial statements and notes, complies with The directors of the company are responsible for the preparation International Financial Reporting Standards. and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is Auditor’s responsibility to express an opinion on the remuneration report, based on our Our responsibility is to express an opinion on the financial report audit conducted in accordance with auditing standards. based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require Auditor’s opinion that we comply with relevant ethical requirements relating to In our opinion, the remuneration report of Perpetual Limited for audit engagements and plan and perform the audit to obtain the year ended 30 June 2010, complies with Section 300A of the reasonable assurance whether the financial report is free from Corporations Act 2001. material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making KPMG those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall Andrew Yates presentation of the financial report. Partner

We performed the procedures to assess whether in all material Sydney respects the financial report presents fairly, in accordance with 24th August 2010 the Corporations Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent with our understanding of the Group’s financial position and of its performance.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Perpetual Limited and its controlled entities | 145 securities exchange and investor information

2010 Annual General Meeting Substantial shareholders The 2010 Annual General Meeting of the Company will be Queensland Trustees Pty Limited is a substantial shareholder of held in the Heritage Ballroom, Level 6, The Westin Sydney, Perpetual Limited as at 31 July 2010. 1 Martin Place, Sydney on Tuesday 26 October 2010 commencing at 10:00 am. Distribution schedule Number Number of holdings of holders of shares Securities exchange listing as at 31 July 2010 The ordinary shares of Perpetual Limited are listed on the 1 - 1,000 shares 23,115 8,483,188 Australian Securities Exchange under the ASX code PPT, with Sydney being the home exchange. Details of trading activity are 1,001 - 5,000 shares 4,771 9,974,422 published in most daily newspapers. 5,001 - 10,000 shares 451 3,236,002

10,001 - 100,000 shares 287 6,004,866

100,001 and over shares 32 15,719,000

Total 28,656 43,417,478

Number of shareholders with less than a marketable parcel: 472 4,270

20 largest shareholders as at 31 July 2010 Number of Percentage of Name ordinary shares issued capital Queensland Trustees Pty Limited¹ 2,814,201 6.48% HSBC Custody Nominees (Australia) Limited¹ 2,211,749 5.09% J P Morgan Nominees Australia Limited¹ 1,583,903 3.65% National Nominees Limited¹ 1,268,387 2.92% Australian Foundation Investment Company Limited 843,726 1.94% Citicorp Nominees Pty Limited¹ 763,166 1.76% Perpetual Trustee Company Limited¹ 658,184 1.52% Milton Corporation Limited 646,588 1.49% RBC CEES Trustee Limited¹ 632,977 1.46% Washington H Soul Pattinson & Co Ltd 529,598 1.22% UBS Wealth Management Australia Nominees Pty Ltd¹ 450,160 1.04% Bond Street Custodians Limited¹ 355,428 0.82% Argo Investments Limited 350,880 0.81% Cogent Nominees Pty Limited1 328,519 0.76% ANZ Nominees Limited¹ 311,806 0.72% Enbeear Pty Ltd 310,678 0.72% RBC Dexia Investor Services Australia Nominees Pty Ltd¹ 284,366 0.65% T Eustace 283,950 0.65% Invia Custodian Pty Limited¹ 264,660 0.61% Australian United Investment Co. Limited 250,000 0.58% Total 15,142,926 34.89%

1 Held in capacity as executor, trustee or agent.

146 | Perpetual Limited and its controlled entities Other information Enquiries Perpetual Limited, incorporated and domiciled in Australia, If you have any questions about your shareholding or matters is a publicly listed company limited by shares. such as dividend payments, tax file numbers or change of address you are invited to contact the Company’s share registry Voting rights office below, or visit their website at www.linkmarketservices. Under the Company’s Constitution, each member present com.au or email [email protected] at a general meeting (whether in person, by proxy, attorney or corporate representative) is entitled: Link Market Services Limited Level 12 ▪▪ on a show of hands to one vote; and 680 George Street Sydney NSW 2000 ▪▪ on a poll to one vote for each share held. Australia

If a member is present in person, any proxy of that member Locked Bag A14 is not entitled to vote. Sydney South NSW 1235 Australia Voting by proxy Voting by proxy allows shareholders to express their views on Perpetual Shareholder Information Line the direction and management of the economic entity without 1300 732 806 or + 61 2 8280 7620 attending a meeting in person. Fax + 61 2 9287 0303

Shareholders who are unable to attend the 2010 Annual General Any other enquiries which you may have about the Company, Meeting are encouraged to complete and return the proxy form can be directed to the Company’s registered office or visit the that accompanies the notice of meeting enclosed with this report. Company’s website.

On-market buy back Principal registered office There is no current on-market buy back. Level 12 123 Pitt Street Final dividend Sydney NSW 2000 The final dividend of 105 cents per share will be paid on Australia 28 September 2010 to shareholders entitled to receive dividends Phone +61 2 9229 9000 and registered on 7 September 2010 being the record date. Fax +61 2 8256 1461

Company Secretary Joanne Hawkins

www.perpetual.com.au

Perpetual Limited and its controlled entities | 147 contact Addresses of Share Registry and Registered Office

Shareholder enquiries If you have any questions about your shareholding or matters such as dividend payments, tax file numbers or change of address please contact the Company’s share registry office or visit their website www.linkmarketservices.com.au or email [email protected]

Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Australia

Locked Bag A14 Sydney South NSW 1235 Australia

Perpetual Shareholder Information Line Phone 1300 732 806 or +61 2 8280 7620 Fax +61 2 9287 0303

For any other enquiries about the Company please contact the Company’s registered office or visit our website. Principal registered office Level 12 123 Pitt Street Sydney NSW 2000 Australia

Phone +61 2 9229 9000 Fax +61 2 8256 1461 www.perpetual.com.au

ABN 86 000 431 827

Perpetual’s 2010 Annual Report is printed on Splendorgel (cover and review) and Precision (financials) supplied by Spicers Paper. Splendorgel is an FSC Mixed Sources Certified paper, which ensures that all pulp is derived from well-managed forests and controlled sources. It is elemental chlorine free and is manufactured by an ISO 14001 certified mill. Precision is PEFC Certified and made from elemental chlorine free bleached pulp sourced from sustainably managed forests and non-controversial sources. It is manufactured by an ISO 14001 certified mill using renewable energy sources.

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