Perpetual Limited ABN 86 000 431 827

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Contents

Five year performance profile...... 02

Five year results at a glance...... 03

Chairman’s Report...... 04

Chief Executive Officer’s Report...... 06

Financial Results...... 08

Business Unit Review...... 10

Directors’ Report...... 12

− Corporate Responsibility Statement...... 19

− Remuneration Report...... 29

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)...... 58

Financial Statements...... 93

Securities exchange and investor information...... 150

Shareholder calendar

Final dividend payment 27 September 2011

Annual General Meeting 3 November 2011

Interim profit and dividend announcement 23 February 2012

Please note that dates are subject to change.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 1 Five year performance profile

Perpetual Limited and its controlled entities’ comparative performance for financial years 2007 to 2011 inclusive. June June June June June 2007 2008 2009 2010 2011

Total revenue1 $m 466.2 495.7 375.1 422.3 444.4 Underlying EBITDA2 $m 238.0 227.1 135.7 152.0 143.2 Underlying profit before tax3 $m 206.9 193.6 98.2 107.7 105.4 Underlying profit after tax (UPAT)3 $m 145.3 133.5 65.7 72.8 72.9 Net profit after tax (NPAT)4 $m 182.1 128.8 37.7 90.5 62.0 Earnings per share (UPAT)5 cents 353 321 156 169 165 Earnings per share (NPAT)5 cents 442 309 89 211 141 Return on average shareholders’ equity – UPAT6 % 43.2 40.7 21.8 22.4 20.1 Return on average shareholders’ equity – NPAT7 % 54.2 39.3 12.5 27.9 17.1 Dividend per share – ordinary8 cents 360 330 100 210 185 Total shareholders’ equity at 30 June $m 341.0 314.4 290.0 361.0 376.1 Capital expenditure $m 17.9 17.7 14.0 11.8 13.9 Market capitalisation $m 3,234 1,794 1,214 1,227 1,114 No. of shares on issue – weighted average9 m 41.2 41.6 42.2 43.0 44.0 No. of shares on issue at 30 June9 m 41.2 42.0 42.5 43.4 44.7 Share price at 30 June $ 78.51 42.77 28.55 28.26 24.93 Share price range for year $ low 67.8 0 40.95 21.60 25.36 24.39 $ high 84.20 83.27 52.44 41.15 39.39

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.

2 Five year results at a glance

Underlying profit after tax Net profit after tax for year ended 30 June for year ended 30 June

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’s Report

Dear Shareholders Chris has re-energised the company’s leadership team and appointed new group executives for the key functions of I am pleased to present our Annual Report for the year ended marketing and operations. Perpetual’s brand, amongst the 30 June 2011. strongest and most recognised in the Australian market, will benefit from the new focus the management team is bringing to I was honoured to be appointed Chairman of your Board the marketing function. We must continue to invest wisely in our following our Annual General Meeting on 26 October 2010. brand to ensure that it remains strong and uniquely associated This is an important period in Perpetual’s long history as the with our strengths. management and the Board re-shape the company to meet the challenges ahead. Over time, we intend to shift the company to a more flexible cost base, which can be actively managed in line with our business 28 September 2011 marks the 125th anniversary of Perpetual’s priorities and changing market conditions. We have made a founding in Sydney in 1886 as the Perpetual Trustee Company. start in reducing our fixed costs and are considering outsourcing Since then, we have helped millions of Australians manage, activities in which we have no cost advantage and which are not invest and protect their wealth, in many cases over successive core to our client offerings. generations. We also intend to take a more active approach to the management Through these 125 years, we have witnessed constant social, of shareholders’ capital. On 26 August 2011, we announced an technological and financial change, wars, economic booms, off-market share buy-back of up to approximately $70 million that recessions and political cycles. The way we operate and the will return excess capital to shareholders in an efficient manner. products and services we provide have had to adapt to the Details of the buy-back have been sent to all eligible Australian broader changes in society. shareholders. The past year has been no exception. While the global economy, By adjusting our net profit after tax (NPAT) before determining financial markets, governments and businesses were all still the dividend, we also effectively distributed a further $19.7 million struggling with the residual effects of the global financial crisis, of surplus capital, with 44 cents out of the 185 cents per share at Perpetual it has been a year of change and renewal. fully franked being paid in excess of the company’s normal dividend policy, which is to pay out 80-100 per cent of NPAT A year of change and renewal on an annualised basis. Following David Deverall’s announcement on 23 June 2010 of his intended resignation, we commenced an extensive global search Change and opportunity for a new chief executive. Before we were able to conclude the There is no doubt that, like all fund managers, wealth advisers search, on 18 October 2010, we received an approach from a or corporate trustees in Australia and around the world, we’ve private equity firm regarding a potential acquisition of Perpetual. experienced a very tough environment over the last few years. As the proposal was indicative, incomplete, conditional and non-binding, it was not a formal offer for the company that could As a broad-based financial services company, a large proportion be accepted by shareholders. Following extensive talks, both of our revenue and profitability is closely tied to the fortunes of parties agreed that mutually acceptable terms were unable to be financial markets, which are still dealing with the after-effects of developed, so we continued our CEO search. the global financial crisis. Given the length of time it is taking to resolve the significant issues around the world, it is not surprising On 14 February 2011, we welcomed our new Chief Executive that investors remain cautious. In Australia, the discussion of Officer, Chris Ryan. Chris brings 30 years of experience in wealth regulatory reform for superannuation and financial advice has management, including the last 15 years in Asia, where he held created further uncertainty for investors, advisers and providers. regional CEO roles for two global asset managers. He also brings a disciplined management style and a focus on ensuring all of our Legislation regarding the provision of financial advice in Australia products and services are designed to meet our clients’ needs. has started to take shape and full details of the Government’s Since he arrived, Chris has outlined the key principles by which proposed changes are expected in the coming year. We believe he intends to run the company. These include a more rigorous Perpetual is well placed to respond to these changes. While approach to managing our portfolio of businesses and the we cannot control financial markets, investor sentiment or the functions that support those businesses. regulatory environment, we can control how we manage our businesses and how we respond to the broader changes This means being very clear about which components of our taking place. portfolio we intend to grow. We remain committed to our three core businesses – funds management, financial advice and We operate in a country with an economy and government corporate trustee services – but we need to focus our resources finances that today are the envy of many in the developed world. and key people on the markets and functions where we know we Australia has a well-established and expanding superannuation can add value, for both clients and shareholders.

4 system, amongst the largest in the world, and this provides many opportunities for Perpetual. We have an ageing population that, on current forecasts, will peak in the next decade or so, leading to a rapid expansion in the need for high quality financial advice. Perpetual is well-placed to benefit from the considerable strengths in the Australian financial system and economy.

Our brand and heritage, our independence, and our proven specialist expertise as an investor, financial adviser and trustee, set us apart from most of our competitors. Over our 125-year history, we have consistently demonstrated our resilience and adaptability. The changes we are making will make us fitter, more efficient and more focussed on those things Perpetual excels in.

We look forward to the next year with enthusiasm, knowing that we are now better placed to withstand the challenges created by volatile financial markets, grow our business by taking advantage of what Perpetual does well and continue to provide excellent service to our clients and strong returns for our shareholders.

I thank our shareholders for their support, as well as the Board and our staff for their commitment to Perpetual and its values.

Peter Scott Chairman

Peter Scott (left) and Chris Ryan.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 5 Chief Executive Officer’s Report

Dear Shareholders been a very important contributor to our ability to produce good returns for our shareholders. We have a clear focus on lifting I am pleased to report on Perpetual’s performance for the productivity and competitiveness through new technology and financial year ended 30 June 2011. active cost management. The business is well placed to benefit from any increase in the securitised mortgage market over the I am proud to lead this iconic company, which has played a coming years. significant role in Australia’s financial services history over the past 125 years. We will continue to have an important role to play in Australia’s financial future as we move to the next phase A fresh approach of our own development. Following my arrival in February this year, my first priority was to review Perpetual’s portfolio of businesses, our strategy, and our Perpetual strengths capabilities. This review, the key outcomes of which I announced on 26 May 2011, confirmed to me that Perpetual has many We have a strong balance sheet, diverse earnings and good strengths. It also highlighted to me some areas in which we need competitive positions in many of the key markets in which to improve our performance. we operate. Portfolio management – By taking a more rigorous approach to Our reputation is based on 125 years experience of protecting managing our portfolio of businesses, we will sharpen our focus on clients’ interests as a trustee, advising on the management of the things we do best and where we can add the most value for personal wealth and investing for a stronger financial future. As clients and shareholders. The decisions announced on 15 August we celebrate our 125th anniversary this September, it is important 2011; to close our Dublin-based investment operation and sell to reflect on the considerable achievements of Perpetual’s past our smartsuper self-managed superannuation fund administration and the importance of maintaining and developing the business service, allow us to focus our resources and attention on those in the context of current challenges in the Australian financial areas of the business we can grow and develop. services market. Cost management – By more actively managing our costs, we We are widely acknowledged as one of Australia’s most are reducing the expenses across the company and freeing up accomplished asset managers, with a strong track record over money to invest in priority growth areas. We are in the process many decades. This performance track record has been built of moving to a much more flexible cost base so we can be more on clear investment principles, rigorous processes, a strong agile in responding to changing conditions and opportunities. We team ethic and depth of talent. Perpetual has endured many have also reallocated most centrally held costs to the businesses different market cycles and the investment team, while going to improve transparency and accountability for these costs. through transitions from time to time, has continued to produce market-leading returns for our clients. I am pleased to report Capital management – We need to be more active in managing that Perpetual has once again been recognised for outstanding our capital in the interests of our shareholders. If we are not able investment performance in the past year, winning four industry to invest excess capital with conviction in a business strategy that awards for our equities performance. adds value for shareholders in a timely manner, then we intend to return it to shareholders, as demonstrated by the off-market As a financial adviser, our Private Wealth business is based share buy-back of up to approximately $70 million announced on providing the best quality advice to financially successful on 26 August 2011. individuals, families, businesses and not-for-profit organisations. Our Private Wealth advisers achieve this by recommending the strategies, structures and products that are in our clients’ Strengthened management team best interests. In the past year, we invested in new business and focus capabilities and strong leadership for our Private Wealth division. Perpetual already has many talented executives, but the company We also strengthened our position in key geographic areas and will benefit from the new perspectives and different experience new market segments. We are well placed to adapt to the new that new talent brings to our organisation. In my first months regulatory environment and can continue to grow our business, at Perpetual, we identified two areas where we needed a fresh with a focus on business owners, professionals, and the perspective and different leadership. I have appointed new group established wealthy. executives for the key functions of marketing and operations. As a corporate trustee, we have consistently demonstrated our Richard Vahtrick joined us in June to lead our operations and expertise and integrity, and are the market leader in securitisation IT teams. He brings more than 30 years of international and services, primarily for mortgage backed assets. The past year Australian experience in operations, IT and finance and has has been challenging for our Corporate Trust business as already identified a number of significant opportunities for us mortgage volumes have weakened across the Australian market. to move to a more flexible and efficient cost structure in these Nevertheless, this business remains in a strong position and has important areas.

6 In marketing, we need to build on our brand strengths by better equities, I believe they will be increasingly selective in choosing communicating to each of our target audiences, emphasising a fund manager with strong values and track record, such how we can help our clients achieve their goals. We have recently as Perpetual. hired Brian Henderson, who brings more than 20 years of senior international marketing experience to Perpetual. Brian will lead Australia’s superannuation system is very sound and large our marketing and communications teams to achieve better by world standards, and as it matures it presents significant results from the resources we allocate to our branding and opportunities for Perpetual. The level of personal wealth held in product development. superannuation is greater than at any other time in Australia’s history, and this could be further bolstered by the proposed In asset management, we need to better identify emerging client increase in mandatory contributions over coming years. demand and develop solutions that leverage our strengths as an active value manager, build on our significant strengths in At the same time, the system is becoming highly segmented fixed income and draw on our partnerships such as that with between industry funds, retail funds, employer-sponsored funds Wellington Management Company LLP for our International and increasingly, self-managed superannuation funds. The types Share Fund. The investment teams, under the leadership of Cathy of advisers serving the different client groups and their providers Doyle and Richard Brandweiner, are working hard to develop are also becoming more segmented. While we provide products additional investment products and solutions that will help our and services to all these groups, we need to be very targeted clients achieve long-term financial security. in how we do so to ensure we leverage our core strengths. Therefore, having a clear focus on what we do well is essential In Private Wealth, led by Geoff Lloyd, we need to continue to for our success. focus on our key client groups in the high net worth sector. We remain committed to our inorganic growth strategy, targeting I also believe that, similar to the experience in the US, as our businesses already operating in our client segments. We have superannuation system continues to grow, the market for almost completely integrated our recent advice acquisitions, non-superannuation investments will grow in tandem as more Fordham and Grosvenor, which have broadened our capabilities high net worth clients reach their contribution limits and want and client offerings for business owners and professionals. While to diversify how their wealth is held. This will particularly benefit more acquisition opportunities are presenting themselves, we will our Private Wealth division, including our philanthropic trust continue to be disciplined in making such investments. business, which has an industry leading position and is well placed to benefit from the future growth in this segment of the In Corporate Trust, led by Chris Green, we intend to retain our Australian market. leadership in mortgage securitisation services and selectively broaden the offering to other asset classes. We will continue The Government’s reforms of superannuation and financial advice to invest in, and better market, the specialist services we can have created some uncertainty for providers and advisers. If the provide to third party funds. Through stronger technology reforms fulfil their intended purpose of increasing transparency, solutions and better productivity management, we will be aiming choice and professional standards in the interests of clients, then to improve the efficiency and profitability of our mortgage we are well positioned. Clients should be comforted that our lending services. financial advice business has the support of strong regulation.

We have a company with talented people, a great brand, and Market environment considerable strengths in the markets in which we choose to The continued fragility of investment markets in the aftermath compete. We are now exercising greater business portfolio of the global financial crisis has greatly undermined investor discipline and focusing on activities that add real value for clients confidence and therefore net inflows. The concerns over and shareholders, and we look forward to the next year with European and US government debt that hovered over markets confidence and enthusiasm. throughout the financial year and escalated through the final quarter have certainly not helped investor sentiment, nor have I look forward to updating you on our progress. they favoured the housing finance market.

Investors’ current caution is understandable but ultimately, in order to grow their wealth over the long term and generate adequate income in retirement, they will need to invest much more widely than in fixed income and cash products. We strongly believe in the relationship between risk and return and, whilst in Chris Ryan times like these that belief is challenged by some, the enduring Chief Executive Officer validity of this relationship will continue. When confidence returns and Managing Director to the market and investors are again seeking strong returns from

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 7 Financial Results

Financial highlights response costs, $14.7 million of non-cash impairment charges relating to smartsuper, and a restructuring charge of $6.4 million2. ▪▪ Underlying profit after tax $72.9 million UPAT, which excludes these significant one-off items, was ▪▪ Net profit after tax1 $62.0 million $72.9 million, up marginally from the previous year.

▪▪ Dividends 185 cents per share fully franked As at 30 June 2011, funds under management (FUM) within Perpetual Investments and funds under advice (FUA) within ▪▪ Return on equity based on UPAT 20.1 per cent Private Wealth were up one per cent and five per cent respectively on the previous year end. Both are mainly influenced ▪▪ Total equity $376.1 million by the level of the Australian equity market, as reflected by the S&P/ASX All Ordinaries Price Index, which increased by around Financial results 7.7 per cent during FY11. Group average FUM revenue margin Perpetual Limited recorded a full year underlying profit after increased from 0.76 per cent in FY10 to 0.78 per cent in FY11. tax (UPAT) of $72.9 million and a net profit after tax (NPAT) of $62.0 million for the 12 months to 30 June 2011 (FY11). The NPAT Final dividend result reflects the continued challenges subdued equity markets The Perpetual Board confirmed a final dividend of 90 cents have created for the financial services industry during the period, per share fully franked, bringing the total FY11 dividend to 185 as well as the financial impact of a number of initiatives and cents per share fully franked. In determining the final dividend, investments aimed at improving business portfolio composition, the Board took into account the company’s strong financial and cost and efficiency. Concurrently with its result, Perpetual position and the non-cash nature of the smartsuper impairment announced its intention to conduct an off-market share charge, and has excluded the impact on NPAT of the impairment buy-back of up to approximately $70 million. charge, as well as the private equity proposal response costs and restructuring expenses. NPAT includes the anticipated lower recoveries from the Exact Market Cash Fund (EMCF), at $9.8 million, $3.5 million from gains The adjustment to NPAT before determining the dividend on sale of investments, $3.1 million in private equity proposal effectively amounts to the distribution of $19.7 million of surplus

8 capital in addition to the off-market buy-back, with 44 cents out As we continue this process, we intend to improve the profitability of the 185 cents per share fully franked being paid in excess of of existing businesses and pursue emerging opportunities. We are the normal dividend policy, which is to pay out 80-100 per cent now in a better position to grow even if markets remain subdued. of NPAT on an annualised basis. In line with a more disciplined approach to managing our Off-market share buy-back business portfolio and greater focus on cost and efficiency, on Perpetual intends to return up to approximately $70 million of 15 August 2011, we announced the closure of the Dublin-based surplus capital to shareholders through an off-market buy-back International Share funds manufacturing capability and transfer tender process. The decision is in line with the company’s stated of the management of the funds to Wellington Management objective to take a more active approach to the management Company LLP, as well as the sale of the smartsuper SMSF of its capital and ensure it is used efficiently for the creation administration business. of shareholder value. The buy-back is not expected to affect Perpetual’s flexibility to deploy capital for other shareholder value 1 Attributable to Perpetual Limited ordinary equity holders. creating purposes. 2 All after tax.

Business review Below from left to right: Ivan Holyman Chief Risk Officer;Geoff Lloyd Group Investment sentiment remained subdued during the year and Executive Private Wealth; Richard Vahtrick Group Executive Operations; was not helped by the significant market volatility triggered by Janine Stewart Group Executive People and Culture; Chris Ryan Chief Executive Officer and Managing Director;Brian Henderson Group Executive credit concerns around the world. Inevitably, this put a damper Marketing and Communications; Cathy Doyle Group Executive Equities; on flows in the Australian funds and wealth management Richard Brandweiner Group Executive Income and Multi Sector; Chris Green industry, as well as restricting activity in segments targeted Group Executive Corporate Trust; Roger Burrows Chief Financial Officer. by our Corporate Trust business.

However, in the latter part of the year, we made significant progress with the implementation of a first series of initiatives arising from the business review conducted earlier in the year.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 9 Business Unit Review

Perpetual Investments Invest in experience We actively manage portfolios based on our intensive analysis of Results for the year ended 30 June quality, value and risk by applying clear principles and disciplined 2010 2011 change change processes that have proven themselves over many years. Our $m $m $m % investment team is one of the most experienced and stable in the industry. The combination of highly talented individuals, clear Revenues 227.7 225.0 (2.7) (1) principles and processes, and a collaborative approach means Expenses (158.9) (151.7) 7.2 5 that the team is much more than the sum of its parts.

Profit before tax 68.8 73.3 4.5 7 This is clearly demonstrated by our track record, with our flagship funds outperforming their respective benchmarks over most time Perpetual Investments is one of Australia’s most highly regarded periods. Our investment expertise was once again recognised by investment fund managers, offering a broad range of investment, our industry peers and fund research groups through a number superannuation and retirement income products. We offer clients of awards: strong investment capabilities across a range of asset classes, ▪▪ Perpetual Investments was named Best Fund Manager in the including Australian and international equities, property securities, Money magazine Best of the Best Awards 2011 multi-sector and multi-manager funds, mortgages, fixed income and cash. ▪▪ The Share-Plus Fund won the Australian Equities Long Short category at the Money Management/Lonsec Fund Manager Perpetual Investments profit before tax for the year ended of the Year Awards 30 June 2011 was $73.3 million, a seven per cent increase on the previous year. The average margin on funds revenue was up ▪▪ The Wholesale Ethical SRI Fund won Ethical Investor Fund of slightly to 0.78 per cent due to a higher proportion of outflows the Year at the 10th annual Australian Sustainability Awards being from lower margin products compared to the prior year. ▪▪ The Perpetual Smaller Companies Fund won the Small Caps Average funds under management through the year decreased Australian Share category at the AFR Smart Investor Awards. slightly to $27.8 billion. Overall net fund outflows were $1.8 billion compared to $1.9 billion for the prior year. These were primarily from the direct retail and advised channels, and split between Private Wealth equities and cash & fixed interest products. Results for the year ended 30 June Revenues were down slightly to $225.0 million, compared to $227.7 million in the prior year. In addition to the fees earned 2010 2011 change change $m $m $m % on equity, cash and fixed interest products, which totalled $207.5 million, the business generated other FUM related revenue Revenues 100.8 116.2 15.4 15 of $11.8 million, up four per cent on the prior year, predominantly Expenses (83.4) (102.9) (19.5) (23) due to higher revenue from our WealthFocus platform business, offset by lower administration fees from our PPI structured Profit before tax 17.4 13.3 (4.1) (24) products, which are in run-off. Private Wealth provides holistic advice and financial solutions Operating expenses for the year were $131.0 million, an increase for high net worth individuals. We aim to be the leading provider of $3.0 million or two per cent over the prior year. However, of wealth advice for financially successful individuals, families, including non-cash expenses such as amortisation, depreciation businesses and not-for-profit organisations. and equity remuneration expense, expenses were down $7.2 million, or five per cent.

Perpetual Investments – funds’ performance1

Annualised Industrial Australian Smaller Concentrated Global Diversified Share Ethical returns Share Share Companies Equity Resources Income Plus Share Fund Fund Fund Fund Fund Fund Fund Fund 1 year -0.41% +3.17% +14.72% +1.79% +23.39% +4.07% +5.36% +0.33% 3 years +2.60% +3.88% +9.71% +4.80% +6.72% +1.08% +4.07% +11.24% 5 years +2.59% +2.49% +7.4 4% +3.55% N/A -0.49% +3.42% +4.86% 7 years +1.85% +2.58% +4.15% +2.46% N/A N/A +2.59% +3.75% 10 years +3.59% +3.80% +6.87% +4.60% N/A N/A N/A N/A 1 Gross outperformance per annum against benchmarks to end June 2011.

10 Over the past year, Private Wealth continued to sharpen its focus Corporate Trust on the key priority segments of business owners, professionals and the established wealthy. Results for the year ended 30 June

Private Wealth’s profit before tax for the year ended 30 June 2011 2010 2011 change change $m $m $m % was $13.3 million, down $4.1 million on the previous year due to substantial investment in preparing the business for future growth. Revenues 87.5 97.2 9.7 11

Total revenues were $116.2 million, a 15 per cent increase on Expenses (62.4) (71.9) (9.5) (15) the prior year. Market related revenue increased eight per cent Profit before tax 25.1 25.3 0.2 1 to $79.1 million, while non-market related revenue increased 36 per cent to $37.1 million due to the full year impact of the advice businesses acquired in the prior year. Corporate Trust is a leading provider of corporate trustee, mortgage and transaction support services to the financial Funds under advice (FUA) increased five per cent over the year services industry. to $8.7 billion. Average FUA over the year was also $8.7 billion, seven per cent higher than the prior year. Products and services include trustee services for mortgage backed and other securitisation programs for major banks and Expenses were $102.9 million, 23 per cent higher than the non-bank organisations; regulatory compliance services for fund prior year, as we continued to invest in people, processes managers; custody, unit registry and accounting services for and technology to support profitable growth when investor property and mortgage funds; trusteeships for corporate debt confidence improves. issues, infrastructure projects and other structures; and loan mortgage processing services for financial institutions. In addition to new executive leadership, the advisory, investment research and product teams have all been strengthened to Corporate Trust’s profit before tax for the year was $25.3 million, ensure we have the talent and resources required to service a one per cent increase on the prior year. Total revenues were targeted clients. We also initiated a major project to modernise $97.2 million, an 11 per cent increase on the prior year, primarily our client administration platform. due to strong business volumes in mortgage services.

The advice and accounting services businesses acquired in the Expenses were $71.9 million, a 15 per cent increase over the previous year, Grosvenor and Fordham, were largely integrated prior year, largely due to volume growth in the mortgage services over the past year. This has increased our non-market linked business. We also invested in a number of initiatives aimed at revenues from accounting, tax and related services, and provides improving efficiency and creating a more flexible cost base for a solid foundation to offer such services more broadly to current this business. Additional investment was also made to support and prospective clients. the future growth of the fund services business, which we believe has good growth prospects. We expect there will be more opportunities to acquire other advice groups that meet our business criteria, professional During the past year the market for residential mortgage backed standards and values. However, we will continue to be careful securities continued to improve, primarily driven by issuance by and disciplined in pursuing such opportunities. the major banks. Despite the improved market for new issuance, Corporate Trust’s securitised funds under administration We are well placed for the Government’s Future of Financial decreased by two per cent over the past year to $205.8 billion, Advice reforms, expected to take effect from 1 July 2012, as although this was a lower rate of decrease than in the prior two almost all of our revenue is fee-based, we only employ highly years. The business is currently exploring new asset classes and qualified staff, and most of all, because we have upheld our product extensions to generate increased revenue. fiduciary duty to our clients for 125 years. During the year, we continued to protect the interests of investors Private Wealth manages one of the largest private charitable in a number of funds for which we were the trustee. With the foundations in Australia, with over $1.2 billion in funds under continuing instability on global financial markets in the aftermath management. We are trustee to nearly 500 charitable trusts of the global financial crisis, we have the experience and the supporting cultural, medical, social, environmental, religious expertise that businesses and investors are looking for to and educational causes. safeguard their interests.

We are also one of the few advisory groups to provide our own professional estate planning and management services, something that will be in increased demand as the wealthiest generation in Australia’s history retires over coming years.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 11 12 Directors’ Report

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 2011 and the auditor’s report thereon.

Contents of the Directors’ Report Page number Directors...... 14 Directors who resigned during the period...... 15 Alternate Directors...... 15 Company Secretaries...... 16 Directors’ meetings...... 16 Principal activities...... 17 Review of operations...... 17 Dividends...... 17 State of affairs...... 18 Events subsequent to reporting date...... 18 Likely developments...... 18 Environmental regulation...... 18 Indemnification of Directors and officers...... 18 Insurance...... 18 Corporate responsibility statement ...... 19 Remuneration Report...... 29 Remuneration snapshot...... 32 The role of the People and Remuneration Committee...... 34 Our remuneration philosophy and structure ...... 35 Short-term incentives ...... 38 Long-term incentives ...... 39 Summary of company performance...... 42 Details of remuneration...... 43 Contract terms of executives ...... 50 Remuneration of Non-executive Directors...... 54 Chief Executive Officer’s and Chief Financial Officer’s declaration...... 57 Non-audit services...... 57 Rounding off...... 57 Lead Auditor’s independence declaration...... 57

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 13 Critical Path Incorporated and has been appointed to the industry Directors advisory board of Macquarie University Faculty of Business The Directors of the Company at any time during or since the end and Economics. She is a member of Perpetual’s Audit Risk and of the financial year are: Compliance Committee and Investment Committee.

Peter B Scott, Chairman and Independent Director Ms Brooks brings to the Board over 20 years of senior funds BE (Hons), M.Eng.Sc (Age 57) management experience both in Australia and internationally. Appointed as a Director in July 2005 and Chairman on 26 October 2010. He was formerly the Chief Executive Officer Philip Bullock, Independent Director of MLC, an Executive General Manager of National Australia BA, MBA, GAICD, Dip. Ed. (Age 58) Bank and held a number of senior positions with Lend Lease. Appointed Director in June 2010. Mr Bullock was formerly Vice He is Chairman of Sinclair Knight Merz Pty Limited and a Director President, Systems and Technology Group, IBM Asia Pacific, of Stockland Corporation Limited. Mr Scott is an advisory board Shanghai, China. Prior to that he was CEO and Managing member of Pilotlight Australia. He is Chairman of Perpetual’s Director of IBM Australia and New Zealand. His career with IBM Nominations Committee. spanned almost 30 years in the Asia Pacific region. Mr Bullock is a Director of CSG Limited. He also provides advice to the Federal Mr Scott has more than 20 years of senior business experience Government, through his role as Chair of Skills Australia, as a in publicly listed companies and extensive knowledge of the member of the Education Investment Fund and a member of wealth management industry. the recently concluded National Resources Sector Employment Taskforce. He is a member of Perpetual’s Investment Committee Listed company directorships held during the past three and People & Remuneration Committee. financial years: Mr Bullock brings to the Board broad management experience in ▪▪ Stockland Corporation Limited from August 2005 to the present. Australia and Asia in technology, sales and client management, product and brand management, industry solutions and equity Paul V Brasher, Independent Director joint ventures. BEc (Hons), FCA (Age 61) Appointed Director in November 2009. Mr Brasher was formerly Listed company directorships held during the past three Chairman of the Global Board of PricewaterhouseCoopers financial years: International. He previously chaired the Board of PricewaterhouseCoopers’ Australian firm and held a number ▪▪ Healthscope Limited from September 2007 to October 2010 of other senior management and client services roles during his career with the firm. Mr Brasher was Client Service Partner ▪▪ CSG Limited from August 2009 to the present. and/or Lead Engagement Partner for some of the firm’s most E Paul McClintock AO, Independent Director significant clients. He also spent significant periods working BA, LLB (Age 62) with PricewaterhouseCoopers in the US and UK. Mr Brasher Appointed as a Director in April 2004. He is Chairman of is currently a Director of Incitec Pivot Limited and a Board Thales Australia, Medibank Private Limited and the COAG member of the Victorian Arts Centre Trust. He is a member of Reform Council and has served as Secretary to Cabinet and Perpetual’s Audit Risk and Compliance Committee and People Head of the Cabinet Policy Unit in the Australian Government. and Remuneration Committee. He is Chairman of Perpetual’s Investment Committee and Mr Brasher brings to the Board his local and global experience a member of the Nominations Committee and People and as a senior executive and Director, particularly in the areas Remuneration Committee. of strategy, audit and risk management and public company Mr McClintock brings to the Board over 30 years experience as governance. a legal adviser, investment banker and senior policy adviser to Listed company directorships held during the past three Government and corporations. financial years: Listed company directorships held during the past three ▪▪ Incitec Pivot Limited from September 2010 to the present. financial years:

Meredith J Brooks, Independent Director ▪▪ Symbion Health Limited (Chairman) from June 2005 to BA, FIAA (Age 49) February 2008 Appointed as a Director in November 2004. She was formerly ▪▪ Intoll Management Limited (formerly Macquarie Managing Director, US Institutional Investment Services for Infrastructure Investment Management Limited) from Russell Investment Group based in New York. Prior to that she May 2003 to December 2010. held the position of Managing Director of Russell Australasia for five years and was previously Director, European Funds based in London. Ms Brooks is Chair of Synergy & TaikOz Limited,

14 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Elizabeth M Proust AO, Independent Director included over 30 years of financial services experience in the Asia BA (Hons), LLB, FAICD (Age 60) Pacific region. He led regional asset management businesses Appointed as a Director in January 2006. She was formerly of three of the industry’s major international players: HSBC, Managing Director of Esanda, part of the ANZ Group. Prior to ING Investment Management, and Fidelity International. While joining ANZ she was Secretary (CEO) of the Victorian Department CEO of ING Investment Management Asia Pacific, Mr Ryan was of Premier and Cabinet and Chief Executive Officer of the City responsible for the firm’s operations in 13 locations across of Melbourne. She is currently Chairman of Nestlé Australia Ltd Asia. This included ING Investment Management Australia, with and Bank of Melbourne Board, a Director of Spotless Group over US$30 billion in assets under management. Most recently, Limited, Insurance Manufacturers of Australia Pty Ltd and Sinclair Mr Ryan held an advisory role with Citibank’s global transaction Knight Merz Pty Ltd. She is Chairman of Perpetual’s People and services business. Remuneration Committee and a member of Perpetual’s Audit Risk and Compliance Committee and Nominations Committee. Mr Ryan brings to Perpetual extensive international and domestic experience in the financial services industry together with In addition to her skills from her leadership roles in significant demonstrated leadership skills as a Chief Executive Officer. change management programs, Ms Proust brings to the Board her strengths in human resources, public affairs and strategy Directors who resigned during development, and her strong knowledge of board processes and governance through her many senior executive and board roles. the period Robert M Savage AM, Chairman and Independent Director Listed company directorships held during the past three FASCPAS, FAICD, FAIM (Age 69) financial years: Appointed as a Director in 2001 and as Chairman in October 2005. At the conclusion of the Annual General Meeting on ▪▪ Spotless Group Limited from June 2008 to the present. 26 October 2010, Mr Savage retired as Chairman and Director Philip J Twyman, Independent Director of Perpetual Limited and as a member of the Nominations BSc, MBA, FAICD (Age 67) Committee and People and Remuneration Committee. Appointed as a Director in November 2004. He was formerly David M Deverall, Managing Director Group Executive Director of the London-based Aviva plc, one BE (Hons), MBA (Stanford) (Age 45) of the world’s largest insurance groups with extensive fund Appointed Managing Director and Chief Executive Officer in management and wealth management businesses. Mr Twyman September 2003. Mr Deverall gave notice of his resignation on was also formerly Chairman of Morley Fund Management, a 23 June 2010 and retired as a Director of the Perpetual Limited Director of the Quilter Group, a UK private client stockbroker, board on 23 February 2011. and a senior executive of AMP in Australia. He has also been Chief Financial Officer of General Accident plc, Aviva plc and the AMP Group. Since returning to Australia, Mr Twyman has Alternate Directors joined the Board of IAG Limited, Medibank Private Limited and Roger L Burrows, Alternate Director the local Boards of the Swiss Re Group. He is also Chairman BCom, CPA, MAICD (Age 47) of ANZ Lenders Mortgage Insurance Pty Ltd and Overseas Alternate Director for Mr Savage from December 2008 until Council Australia. He is Chairman of Perpetual’s Audit Risk Mr Savage’s retirement at the conclusion of the AGM on and Compliance Committee and a member of the Investment 26 October 2010 and appointed as Alternate Director for Committee and Nominations Committee. Peter Scott on 27 October 2010. He joined Perpetual as Chief Financial Officer in March 2008. Mr Burrows has over 25 years As an experienced international executive and Director, of experience as a senior finance executive in a diverse range Mr Twyman brings to the Perpetual Board his background in of industries, including property, financial services, IT services, financial services, investment and wealth management together professional services and manufacturing. Prior to working with considerable practical experience in relation to the audit and at Perpetual, Mr Burrows was with Lend Lease for 20 years, risk management issues faced by public companies in Australia including three years as Group Chief Financial Officer. and overseas. Ivan D Holyman, Alternate Director Listed company directorships held during the past three BEc, LLB (Age 55) financial years: Alternate Director for Mr Deverall from May 2006 until his resignation on 23 February 2011 and appointed as Alternate ▪▪ IAG Limited from July 2008 to the present. Director for Chris Ryan on 8 April 2011. He joined Perpetual in Chris Ryan, Managing Director June 2004 as Chief Risk Officer. Prior to joining Perpetual he B. Bus. (Age 51) held the position of Chief Operating Officer Asia Pacific for UBS Commenced employment with Perpetual Limited on 14 February Warburg and spent 19 years with UBS AG (and its predecessor 2011 as Chief Executive Officer and appointed as Managing organisations) in various positions. Prior to UBS AG he spent two Director on 23 February 2011. Prior to his appointment as years with Samuel Montagu & Co Limited (a UK merchant bank) Managing Director and CEO of Perpetual, Mr Ryan’s career and four years with Blake Dawson Waldron, solicitors.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 15 Company Secretaries Joanne Hawkins BCom, LLB, Grad Dip CSP FCIS Appointed Company Secretary in June 2003. Prior to this, Ms Hawkins was Assistant Company Secretary of Macquarie Bank and Ord Minnett and was Company Secretary, National Bank of the Solomon Islands. Ms Hawkins has also worked as a solicitor and legal adviser in New Zealand. Ms Hawkins is also head of Perpetual’s legal team.

Glenda Charles Grad. Dip. Corp. Gov. ASX Listed Entities, CSA (Cert) Joined Perpetual in August 1994. She was appointed Assistant Company Secretary of Perpetual in 1999 and Deputy Company Secretary in 2009. Ms Charles has over 15 years experience in company secretarial practice and administration and has worked in the financial services industry for over 25 years.

Directors’ meetings The number of Directors’ meetings which 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 2011 were:

Director Board Audit Risk and Compliance Investment Nominations Committee People and Remuneration Committee Committee Committee

Eligible to Attended Eligible to Attended Eligible to Attended Eligible to Attended Eligible to Attended attend attend attend attend attend

P B Scott 20 20 - - 2 2 3 3 2 2

P V Brasher 20 20 7 7 - - - - 8 8

M J Brooks 20 20 7 7 6 6 - - - -

P Bullock 20 20 - - 6 6 - - 8 8

E P McClintock 20 19 - - 6 6 3 3 8 8

E M Proust 20 20 7 7 - - 3 3 8 8

R M Savage 6 6 - - - - 2 2 2 1

P J Twyman 20 19 7 7 6 6 3 3 - -

C Ryan 4 4 ------

D M Deverall 16 15 ------

16 | 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 Management’s Discussion financial year were funds management, portfolio management, and Analysis of Financial Condition and Results of Operations financial planning, trustee, responsible entity and compliance (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 2011, Perpetual reported a net profit after tax of $62.0 million compared to the net profit after tax for the financial year to 30 June 2010 of $90.5 million.

The reconciliation of net profit after tax to underlying profit after tax for the 2011 financial year is as follows:

Reconciliation of underlying profit after tax 30 June 2011 30 June 2010 $’000 $’000

Net profit after tax attributable to equity holders of Perpetual Limited 62,031 90,506

Add: Profit after tax attributable to non-controlling interests1 337 216

Net profit after tax 62,368 90,722

Add: Impairment of assets (after tax) 14,694 -

Add: Private equity proposal response costs (after tax) 3,086 -

Add: Restructuring costs (after tax) 6,388 -

(Less)/Add: (Profit)/loss on sale of investments (after tax) (3,905) 2,388

Less: Exact Market Cash Fund gains (after tax) (9,752) (20,317)

Underlying profit after tax 72,879 72,793

1 Profit after tax attributable to non-controlling 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 Franked#/unfranked Date of per share $’000 payment

Declared and paid during the financial year 2011

Final 2010 ordinary 105 45,602 Franked 28 Sep 2010

Interim 2011 ordinary 95 42,216 Franked 30 Mar 2011

Total 87,818

Declared after end of year

After balance date, the Directors declared the following dividend:

Final 2011 ordinary 90 40,204 Franked 27 Sep 2011

Total 40,204

# 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 2011 financial statements and will be recognised in subsequent financial reports.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 17 The licence requirements relate to air, noise, water and waste State of affairs disposal. The responsible entity or manager of each of these There were no significant changes in the state of affairs of the property trusts is responsible for compliance and reporting under consolidated entity during the financial year. the government legislation. Events subsequent to reporting date The consolidated entity is not aware of any material non-compliance in relation to these licence requirements On 15 August 2011 the Company announced the events to during the financial year. the market: The consolidated entity has determined that it is not required to ▪▪ the closure of its Dublin-based in-house manufacturing register to report under the National Greenhouse and Energy capability for the international equity asset class, and Reporting Act 2007, which is Commonwealth environmental legislation that imposes reporting obligations on entities that ▪▪ the sale of the smartsuper business. reach reporting thresholds during the financial year. i. International Share funds Effective 15 August 2011, the Dublin-based in-house Indemnification of Directors and manufacturing capability of Perpetual’s International Share officers funds product was closed. The closure is expected to generate The Company and its controlled entities have resolved to indemnify around $7 million in after tax annualised savings based on the the current Directors and officers of the companies against all current level of funds under management. Net savings in 2012 liabilities to another person (other than the Company or a related are estimated to be $4 million after tax due to the timing of the body corporate) that may arise from their position as Directors closure of the Dublin office. The closure will result in a $10 million of the consolidated entity, except where the liabilities arise out of after tax restructuring charge in the current 2012 financial year. conduct involving a lack of good faith. The resolution stipulates that the Company and its controlled entities will meet the full ii. Sale of smartsuper amount of any such liabilities, including costs and expenses. On 12 August 2011 the smartsuper business was sold on terms in line with its revised carrying value. Proceeds from the sale were Insurance not material. In accordance with the provisions of the Corporations Act 2001 the Company has a Directors and officers’ liability policy which iii. Off-market Buy-Back covers all Directors and officers of the consolidated entity. The On 26 August 2011 the Company announced its intention to terms of the policy specifically prohibit disclosure of details of the return up to approximately $70 million of surplus capital to amount of the insurance cover and the premium paid. shareholders through an off-market Buy-Back tender process.

The Directors are not aware of any other event or circumstance since the end of the financial year not otherwise dealt with in this report that has or may significantly affect the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years. Events subsequent to balance sheet date are set out in Note 37 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.

18 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES ▪▪ monitoring business performance and the Perpetual Group’s Corporate Responsibility financial position Statement ▪▪ overseeing the integrity of the Perpetual Group’s financial accounts and reporting Perpetual’s Board and management have a long-standing commitment to good corporate governance. The success of ▪▪ monitoring the Perpetual Group’s investment activities and Perpetual’s core businesses – the management of other people’s investment performance money and the safekeeping of assets and securities – relies on a reputation of absolute trustworthiness. This statement sets out ▪▪ monitoring that significant business risks are identified and our approach to corporate governance. Copies of our summaries managed effectively of documents that are underlined like this in this Corporate Responsibility Statement are available on our website at ▪▪ ensuring that the performance of the Board, Managing Director www.perpetual.com.au and senior management are regularly assessed. The Board Charter is reviewed annually to ensure the balance ASX Corporate Governance Council’s of responsibilities remains appropriate to Perpetual. The roles Corporate Governance Principles and and responsibilities of Perpetual’s Board and management are Recommendations established in accordance with ASX Principle 1. At Perpetual, good corporate governance includes a genuine Each year, the Board’s People and Remuneration Committee commitment to the ASX Corporate Governance Council’s oversees the performance review process for the Managing Principles and Recommendations (ASX Principles). Perpetual Director and Group Executives. The Group Executives report acknowledges and is supportive of amendments to the ASX directly to the Managing Director. Principles that Perpetual must report on for the financial year The Managing Director’s performance objectives are set by the ending 30 June 2012. The ASX Corporate Governance Council Board at the beginning of each financial year. has encouraged the ‘early’ transitioning to these requirements and, accordingly, Perpetual has made voluntary disclosure in At the end of the financial year, the Chairman of the Board relation to diversity in section 14 of this Corporate Governance reviews the Managing Director’s performance against his/her Statement. Full reporting in relation to diversity in accordance goals with input from all Board members. with the ASX Principles will appear in the 2012 Annual Report. The Managing Director sets performance objectives for each Group The Board considers that it complies with all the ASX Principles, Executive at the beginning of each financial year. The Board’s and has done so throughout the reporting period. A table setting People and Remuneration Committee reviews the performance out each Principle and the location of Perpetual’s associated objectives set for the Group Executives. The Managing Director disclosure in this Corporate Responsibility Statement is located carries out the performance review of each Group Executive on pages 27 to 28. against their objectives with input from appropriate stakeholders including board members. In 2011, performance reviews were 1. Role of the Board conducted in accordance with this process. The Board has its own Board Charter which sets out the Group Executives and Directors who are new to Perpetual functions and responsibilities reserved to the Board and participate in Perpetual’s orientation program and an additional delegations made to management. The Board delegates induction process tailored to their own responsibilities. day-to-day responsibility for the management and operation Perpetual also has an orientation program for all new employees of the Company to the Managing Director but remains covering Perpetual’s history, business strategy, values, risk and responsible for overseeing management’s performance. compliance obligations and performance management. The Board’s specific responsibilities include: 2. Board structure ▪▪ reviewing and approving Perpetual’s strategy The Board currently comprises eight Directors: seven ▪▪ selecting the Managing Director and approving the Non-executive Directors and the Managing Director. The roles appointment and removal of Group Executives of Chairman and Managing Director are separate.

▪▪ setting the remuneration of the Managing Director The Chairman is responsible for leadership of the Board and ensuring it performs its role and functions. He is also responsible ▪▪ aligning remuneration outcomes to Perpetual’s financial for facilitating the effective contribution of Directors by ensuring soundness and risk management framework that each Director fully participates in the Board’s activities.

▪▪ setting the Non-executive Director remuneration within Details of the background, experience, professional skills and shareholder approved limits period in office of each Director are set out on pages 14 to 15 of the Directors’ Report. ▪▪ setting Perpetual’s values and standards The structure of the Board accords with ASX Principle 2.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 19 3. Director independence considered to impact Director independence as decisions as to stock selection are not made by the Board of Perpetual but by The Board considers all Non-executive Directors to be Perpetual’s asset management team in accordance with client or independent Directors, including the Chairman. fund investment mandates. In assessing the independence of each Director, the Board considers, on a Director-by-Director basis, whether the Director It is the Board’s view that no Directors currently hold other has any relationships that would materially affect his or her ability positions that materially affect their ability to exercise independent to exercise unfettered and independent judgement in the interests judgement in the interests of Perpetual shareholders. of Perpetual’s shareholders. Consistent with the emphasis on ‘substance over form’ advocated by the ASX Principles, Perpetual 4. Contracts with Directors takes a qualitative approach to materiality rather than setting In the 2011 financial year, no Director disclosed a material strict quantitative thresholds, and considers each Director’s personal interest in any contract entered into by any member individual circumstances on its merits. of the Perpetual Group other than the remuneration paid to the Directors as outlined in this Annual Report and the deeds of The independence of each Director is formally reviewed each indemnity described below. May and at any time when a change occurs that may affect a Director’s independence. Non-executive Directors also formally advise the Chairman of any relevant information, and update the 5. Indemnity of Directors and officers Chairman if their circumstances change at any time. Perpetual has entered into deeds to indemnify Directors and officers of the Perpetual Group, to the extent permissible by law, In determining the independence of individual Directors, the from all liabilities incurred as Directors or officers. Liabilities to Board has considered the relevant elements of the definition of the Perpetual Group, and liabilities that arise out of conduct independence adopted by the Board. These elements include that was not in good faith, are not covered in the indemnities. whether the Director: In addition, Perpetual has Directors and officers insurance against claims Perpetual may be liable to pay under these indemnities. ▪ has a substantial shareholding in Perpetual or is an officer of ▪ This policy insures Directors and officers directly. a company which has a substantial shareholding in Perpetual (or is otherwise associated with a substantial shareholder of 6. Board access to information and Perpetual) independent advice ▪▪ has been employed by the Perpetual Group at any stage and Directors receive regular updates on changes in the regulatory in any capacity within the previous three years environment affecting Perpetual and the financial services industry. Directors are also encouraged to attend relevant ▪▪ has been involved with the Perpetual Group in a material conferences and seminars. advising or consulting role at any time within the previous three years Non-executive Directors regularly confer without management present and the Chairman presides over these sessions. All ▪▪ is (or is associated with) a material supplier or customer of Directors have unrestricted access to company records and the Perpetual Group information. Perpetual has a formal policy allowing the Board or ▪▪ is in a material contractual relationship with the Perpetual an individual Director to seek independent professional advice Group (other than as a Director). at the Perpetual Group’s expense, provided that the Director has obtained the prior approval of the Chairman, or if the relevant In considering whether such circumstances materially affect Director is the Chairman, the prior approval of a majority of the independence of individual Directors, the Board considers Perpetual’s Non-executive Directors. In the 2011 financial year, the extent of competition relative to each organisation’s total no Director sought professional advice under this policy. business, and the frequency with which Directors may be required to absent themselves from board deliberations by 7. Nomination, appointment, re-election and reason of conflicts of interest. retirement of Directors

Paul Brasher receives post-termination benefits from his Consistent with ASX Principle 2, the Board has a Nominations former employer, PricewaterhouseCoopers (PwC). PwC has Committee with its own Terms of Reference. been appointed as Perpetual’s remuneration consultant and The Nominations Committee is responsible for reviewing the size occasionally provides consulting services to Perpetual, which are and structure of the Board. The aim is to ensure that the Board not considered material in nature or quantity. The Board does not comprises an appropriate balance of skills, diversity, experience believe that this appointment of PwC affects the independence and independence in order to enhance board performance and of Paul Brasher. maximise value for shareholders. The Nominations Committee From time to time, funds managed by the Perpetual Group may is responsible for administering Perpetual’s Policy on the take holdings, including substantial holdings in securities of listed Appointment of Directors, which sets out the selection process entities. Perpetual Directors may also serve as Non-executive and selection criteria for identifying candidates to fill board Directors on the boards of these entities. This factor alone is not vacancies. Consistent with recent amendments to the ASX

20 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Principles regarding disclosure of board selection processes, All committees except the Nominations Committee generally the Policy is disclosed in full on our website. If a board vacancy meet at least quarterly, and more frequently if required. The arises, the Nominations Committee will conduct a search in Nominations Committee meets at least twice a year. Aside from accordance with the Policy and the Board will appoint the most the Nominations Committee, the Managing Director attends all suitable candidate, having regard to the recommendation of the committee meetings except where matters relating to his own Nominations Committee. External consultants may be engaged remuneration and performance are discussed. to assist with the identification of appropriate candidates. A Director appointed to fill a casual vacancy must stand for election The qualifications and skills of the members of each committee at the next Annual General Meeting. are set out on pages 14 to 15 of the Directors’ Report.

Upon appointment, new Directors receive a detailed letter of The membership and key responsibilities of each of the board appointment and participate in a comprehensive induction program committees (as at the date of this report) are set out below. designed to familiarise them with Perpetual’s business, strategy, operations, Group Executives and senior management team. Audit, Risk and Compliance Committee Members: Philip Twyman (Chairman), Meredith Brooks, Directors who have been in office without re-election for Elizabeth Proust and Paul Brasher. three years since their last appointment must retire and seek re-election at the company’s Annual General Meeting. In order Changes to the committee since last report: Nil. to continue to refresh the composition of the Board, Directors agree not to seek re-election after three terms of three years The committee’s role is to oversee the Perpetual Group’s unless the Board requests them to do so. The nine year principle accounting policies and practices, the integrity of financial does not displace shareholders’ rights to vote on the appointment statements and reports, the scope, quality and independence of and removal of Directors, as set out in the ASX Listing Rules and Perpetual’s external audit arrangements, the monitoring of the the Corporations Act 2001 (Cth) (Corporations Act). internal audit function, the effectiveness of the risk management framework and the adequacy of insurance programs, and to report 8. Meetings of the Board on these matters to the Board. This committee is also responsible for monitoring overall legal and regulatory compliance. In the 2011 financial year, the Board met 20 times, including a strategic planning session. In addition to its usual business, the All members of the committee are independent Non-executive number of Board meetings during the year reflected the Board’s Directors and are required to be financially literate. At least one consideration of the response to the private equity proposal of member must have accounting or finance related expertise. Kohlberg Kravis Roberts & Co., as well as the appointment of Members are also required to have an understanding of the Chris Ryan, Chief Executive Officer and Managing Director. The financial services industry in which Perpetual operates. Board receives performance, operations and risk reports from the Managing Director, the Chief Financial Officer, the Chief Risk Investment Committee Officer and the heads of each business division. The Board also Members: Paul McClintock (Chairman), Meredith Brooks, receives reports and updates on strategic issues. Philip Bullock, and Philip Twyman.

In addition, Directors spend time reading and analysing board Changes to the committee since last report: Peter Scott ceased papers and reports submitted by management and they engage to be a member in October 2010. in regular informal discussions with management. The views of the Chairman and the Non-executive Directors are canvassed The committee’s role is to monitor management to ensure that it regularly by the Managing Director and the Group Executive on a has in place, and carries out, appropriate investment strategies range of strategic and operational issues. and processes for the investment activities conducted both for third parties and on the Group’s own behalf. This committee does The Chief Financial Officer and Company Secretary attend not select stocks for individual Perpetual funds as stock selection all board meetings. Other Group Executives and senior is carried out by Perpetual’s asset management team. All members management attend board and committee meetings to report on of the committee are independent Non-executive Directors. particular issues and to engage in discussion on these issues. Senior executive attendance at board and committee meetings is People and Remuneration Committee subject to the overriding requirement that no senior executive will Members: Elizabeth Proust (Chairman), Paul McClintock, be directly involved in deciding their own remuneration. Paul Brasher and Philip Bullock.

Attendance of Directors at board and committee meetings is set Changes to the committee since last report: Robert Savage out in the Directors’ Report on page 16. retired and Peter Scott ceased to be a member in October 2010.

9. Board committees The committee’s role is to monitor the Perpetual Group’s people A key component of the Board’s governance structure is its four and culture policies and practices, including the diversity of board committees. Each committee has a written charter known Perpetual’s workforce, and to assist the Managing Director to as its Terms of Reference which is accessible on the Company’s implement fair, effective and market competitive remuneration website under the ‘Corporate Responsibility’ heading. and incentive programs designed to retain high calibre

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 21 employees and which demonstrate a clear relationship between which, until recently, operated Perpetual’s global equities performance and remuneration. The committee is authorised business. The boards of these companies include Non-executive to directly engage external remuneration advisers and, after Directors. Perpetual’s corporate governance policies are applied obtaining their advice as and when appropriate, the committee to its subsidiaries but adapted to reflect the size and nature of recommends remuneration for Non-executive Directors, the each subsidiary’s operations and to recognise that the boards Managing Director, the Group Executive and other senior of most subsidiaries do not comprise Non-executive Directors. managers, to the Board. The committee also reviews succession The subsidiary boards are a key component of Perpetual’s Risk and career plans for key executives. Management Framework.

All members of the committee are independent Non-executive 13. Ethical conduct Directors. New committee composition requirements to promote Perpetual has a Code of Conduct which draws from and expands greater independence are proposed for introduction into the on Perpetual’s Values. The Code of Conduct applies to all ASX Listing Rules. Perpetual’s committee already complies with Directors, executives and employees and is designed to assist these requirements even though they have not yet formally come them in making ethical business decisions. It is based on the into effect. following principles:

Nominations Committee ▪▪ acting with integrity Members: Peter Scott (Chairman), Paul McClintock, Elizabeth Proust and Philip Twyman. ▪▪ managing conflicts of interests appropriately

Changes to the committee since last Report: Robert Savage ▪▪ upholding the spirit as well as the letter of the law retired in October 2010. ▪▪ commitment to our clients and consistently delivering The committee’s role is to recommend to the Board nominees shareholder value for appointment/election (including re-election of existing board members) and to review board succession plans. At least annually, ▪▪ respecting privacy and confidentiality the committee reviews the size and structure of the Board to ▪▪ maintaining a fair and safe work environment ensure that it comprises appropriately qualified and experienced people. This committee is also responsible for the formal ▪▪ protecting those who report wrongdoing. evaluation of the Board’s performance as a whole. All members of the committee are independent Non-executive Directors. Additional policies deal with a range of ethical issues such as the obligation to maintain client confidentiality and to protect 10. Board performance company information, the need to make full and timely disclosure of any price sensitive information and to provide a safe workplace The Board undertakes ongoing self-assessment as well as for employees, which is free from discrimination. The Code a formal annual review of the performance of the Board, of Conduct and associated policies are in keeping with ASX its committees and individual Directors. In 2011, the Board Principle 3. undertook a review of board and committee performance which is due to conclude shortly. The Chairman reviewed with Perpetual’s Chief Risk Officer is Perpetual’s Code of Conduct each Director their individual performance and, after obtaining ombudsman and is available to all staff for a confidential feedback from the other Directors, a nominated Director reviewed discussion in relation to Code of Conduct matters. All new the Chairman’s performance. The Board review process aims to Perpetual employees are required to familiarise themselves ensure that individual Directors continue to contribute effectively with the Code of Conduct as part of their induction training to the Board’s performance and that the Board as a whole and its requirements. committees continue to function effectively. Perpetual has a Whistleblowing Policy to protect employees 11. Company Secretaries who make reports in good faith of wrongdoing, prejudice or The Board has access to the services and advice of Joanne disadvantage. As part of Perpetual’s Whistleblowing Policy, a Hawkins, the Company Secretary, and Glenda Charles, Deputy third party has been engaged to provide an independent and Company Secretary. The Company Secretary is accountable to confidential hotline for Perpetual employees who prefer to raise the Board on governance matters. Details of the experience and their concern with an external organisation. qualifications of Joanne Hawkins and Glenda Charles are set out in the Directors’ Report on page 16. 14. Diversity Perpetual has a strong commitment to diversity and recognises 12. Perpetual’s subsidiary Boards the value of attracting and retaining employees with different The boards of Perpetual’s subsidiaries are generally made up of backgrounds, knowledge, experiences and abilities. executive Directors. The exceptions are Perpetual Superannuation Perpetual has implemented a number of initiatives to promote Limited, which carries out Perpetual’s superannuation activities, an inclusive culture and an environment that values individual Queensland Trustees Pty Limited, which acts as trustee for differences, including the creation of a Diversity Policy and Perpetual’s share plans, and PI Investment Management Limited

22 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Diversity Strategy. Our Diversity Strategy focuses on embedding the case of certain employees who are more likely to have access initiatives that align to the following four strategic priorities: to information that is potentially price sensitive due to their role with the Company. ▪▪ representation of women in senior management roles The policy also prohibits employees from entering into ‘hedging ▪▪ meeting the needs of the generations – Baby Boomer, arrangements’ in relation to Perpetual securities. Perpetual Generation X and Generation Y employees cannot trade in financial products issued over Perpetual securities by third parties or trade in any associated ▪▪ flexibility for employees products which limit the economic risk of holding Perpetual ▪▪ ethnicity and cultural diversity. securities. Perpetual employees and Directors are prohibited from margin lending in relation to Perpetual securities. Gender equality at all levels of the organisation is a key component of our Diversity Strategy. To encourage greater A vendor of an entity, acquired by Perpetual during the previous representation of women at senior levels of the organisation, financial year, has been permitted to continue a margin loan Perpetual has undertaken and continues to develop initiatives over Perpetual securities. The loan was entered into prior targeting an improvement in gender diversity, including the to commencing employment with Perpetual. The Perpetual refinement and improvement of its recruitment processes and securities were part of the consideration for the acquisition and expansion of career and leadership development, mentoring, the vendor became an employee following the acquisition. networking forums and knowledge sharing opportunities available to female employees. 16. Risk management The Board is committed to effective risk management and all Perpetual is supportive of the Australian Securities Exchange’s Group Executives are accountable for managing risk within their amendments to the Corporate Governance Principles and area of responsibility. They are also required to manage risk as Recommendations related to gender diversity. In response, part of their business objectives with risk management integrated Perpetual has established the measurable objective of achieving across business processes. 38 per cent representation of women in senior management by 2015. This measurable objective will be reviewed periodically to The Chief Risk Officer leads a group of risk management ensure it remains relevant to any future changes to the business. professionals, including lawyers, who provide the framework, tools, advice and assistance to enable management to effectively As a commitment to ensuring that diversity remains a strategic identify, assess and manage risk. priority for Perpetual on an on-going basis, in 2011 Perpetual is establishing a Diversity Council to be chaired by the Chief Consistent with ASX Principle 7, Perpetual’s Risk Management Executive Officer with representation by all Group Executives as Framework is designed to manage the Company’s material council members. business risks. One component of the Risk Management Framework includes policies which are designed to address 15. Trading in securities by Directors key areas of risk including strategic, financial and compliance and employees risk. Perpetual’s key group policies are outlined in the Risk Perpetual has a Trading Policy that complies with the Management Framework. requirements of ASX Listing Rule 12.12. This was lodged with the Through monitoring, the Board and its committees are provided ASX in 2010 and is available on the company’s website. with assurance of the effectiveness of Perpetual’s management Perpetual’s overriding policy in respect of personal trading is of its material business risks. In addition, the Board reviews the that there should be no dealings in the Company’s shares by Company’s key risks regularly through the Key Risk Assessment any Director or employee who is in possession of price sensitive process, further detailed in the Risk Management Framework. information or where the dealing is for short-term or speculative Perpetual also has an internal audit function. The General Manager gain. Provided they do not have price sensitive information, Internal Audit reports to the Audit Risk and Compliance Committee Directors and employees are permitted to deal in the Company’s as well as to the Chief Risk Officer and is independent from the shares only in specified one month trading windows commencing external auditor. Internal Audit provides independent assurance on the trading day after: over the effectiveness of Perpetual’s risk management, internal ▪▪ announcement of the half-year and full-year financial results control, and governance processes. The Internal Audit team do not make management decisions or engage in other activities ▪▪ release of the May ASX update to shareholders which could be perceived as compromising their independence.

▪▪ the conclusion of the Annual General Meeting. Each of the Chief Risk Officer, Chief Financial Officer and the Head of Internal Audit has the right to, and do meet with, the The Trading Policy requires prior approval for any share dealings Audit Risk and Compliance Committee, or its Chairman, without from the Chairman in the case of Directors, from a nominated other management present. Director in the case of the Chairman and from the Managing Director in the case of senior executives. Prior approval is also Together with the Managing Director and Chief Financial Officer, required from the Managing Director or Company Secretary in Perpetual’s Chief Risk Officer reports to the Board on the

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 23 effectiveness of Perpetual’s management of its material business 18. Audit process risks in accordance with ASX Principle 7. The Board received The Perpetual Group’s financial reports are subject to an annual this report in 2011 together with the statements outlined in audit by an independent, professional auditor, who also reviews section 17 below. the Group’s half yearly financial statements. The Audit Risk and Compliance Committee oversees this process on behalf of the 17. Financial reporting Board, in accordance with its Terms of Reference. The Board has adopted policies designed to ensure that Perpetual’s financial reports: The external auditor attends each meeting of the committee, and it is the committee’s policy to meet with the auditor for part ▪▪ are true and fair of these meetings without management present. The committee chairman meets with the audit partner at least once every ▪▪ meet high standards of disclosure and audit integrity quarter, also in the absence of management. The auditor has a standing invitation to meet with the committee, its Chairman or ▪▪ when read with Perpetual’s other reports to shareholders, with the Board’s Chairman in the absence of management. The provide all material information necessary to understand auditor attends the Board meetings at which the annual and half Perpetual’s financial performance and position. yearly financial reports are adopted. In accordance with section 295A of the Corporations Act, The current external auditor is KPMG. The lead audit partner the Board requires that, in respect of each financial year, the for 2011 was Andrew Yates and the engagement partner was Managing Director and Chief Financial Officer provide a written Brendan Twining. This is the second year that Mr Yates has declaration that, in their respective opinions: been acting as lead audit partner, and Mr Twining has acted as ▪▪ the financial records of the Company have been properly engagement partner for four years. maintained in accordance with section 286 of the Corporations Act, and 19. Auditor independence The Board has policies in place relating to the quality and ▪▪ the financial statements and notes comply with the accounting independence of Perpetual’s external auditor. These policies have standards and give a true and fair view of the financial position been reviewed in 2011 and include: and performance of the Company and consolidated entity. ▪▪ a formal review of the appointed auditor every five years, To underpin the integrity of Perpetual’s financial reporting and to be timed during the middle of the lead partner’s tenure. Risk Management Framework, it is also Perpetual’s practice for The results of the review are reported to the Audit Risk and the Managing Director, Chief Financial Officer and Chief Risk Compliance Committee and the Board Officer to state to the Board in writing that, in their respective opinions: ▪▪ an annual review of the external audit firm’s fees and performance, the results of which are reported to the Audit ▪▪ the statements made regarding the integrity of the Risk and Compliance Committee and the Board financial statements are founded on a sound system of risk management and internal compliance and control ▪▪ the lead audit partner on each Perpetual audit must be rotated systems which implement the policies adopted by the at least every five years, with a two year gap before a partner Board of Directors may be reappointed

▪▪ the risk management and internal compliance and control ▪▪ former audit partners and audit firm employees involved in systems, to the extent they relate to financial reporting, are our audit cannot become Directors or employees of Perpetual operating effectively and efficiently, in all material respects, Group companies for at least two years based on the Risk Management Framework adopted by the Company ▪▪ the external audit firm is prohibited from providing non-audit services that may materially conflict with its ability to exercise ▪▪ the Company’s material business risks (including non-financial objective and impartial judgement on issues that may arise risks) are being managed effectively. within Perpetual’s audit, such as:

The statements referred to above are supported by written –– advisory services related to mergers and acquisitions statements from senior management, detailed financial analysis and Perpetual’s Risk Management Framework. –– tax planning and strategy As previously noted, the Chief Financial Officer is present when –– senior management recruitment the Board considers financial matters, as he or she attends all board meetings. –– significant valuations and appraisals –– design and implementation of financial information systems. The statements made by the Managing Director, Chief Financial Officer and Chief Risk Officer are consistent with ASX Principle In 2011, the greater part of fees paid to KPMG for work other 7.3. In 2011, the Board received the statements referred to above. than audit of Perpetual Group accounts was for audit services in relation to investment funds of which Perpetual companies are

24 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES the responsible entity, manager or trustee. It is the Board’s view 22. Remuneration that these services are consistent with KPMG’s appointment Perpetual has formed a People and Remuneration Committee as auditor and are not services of a kind that might impair their consistent with ASX Principle 8.1. Its role is set out on page 21 impartial judgement in relation to the Perpetual Group’s audit. of this report. Details of board and executive remuneration are set out in the remuneration report which commences on page 20. Market disclosure 29. In accordance with the ASX Principles, the structure of Perpetual has a Market Disclosure Policy to ensure compliance Non-executive Director remuneration is clearly distinguished with its continuous disclosure obligations under ASX Listing from that of executive Directors and senior management. Rule 3.1 and the Corporations Act. The Managing Director, Chief Financial Officer, Chief Risk Officer and Company Secretary are Non-executive Directors are not entitled to receive any retirement members of the Continuous Disclosure Committee responsible benefits, other than superannuation in accordance with for deciding information that is required to be disclosed to the Perpetual’s statutory superannuation obligations. ASX. Perpetual ensures that all senior management give regular sign-offs as to whether there are matters that require disclosure 23. Stakeholders to the ASX. The Board considers its disclosure obligations at At Perpetual, we take advantage of opportunities to build our each scheduled board meeting. Perpetual’s Market Disclosure social, environmental and financial performance in ways that Policy contains the matters recommended by ASX Principle 5. enhance our core values and business sustainability. We draw on our people’s experience, knowledge and expertise in investing, Perpetual’s website includes copies of announcements lodged governance, financial advice and trusteeship to contribute with the ASX by Perpetual. Consistent with recent amendments positively to the community. We focus on activities where we can to the ASX Principles, advance notification of scheduled analyst add the most value to society while minimising our environmental briefings are provided to shareholders and the briefings are impact – doing the greatest good while leaving the smallest webcast. These can be found on the Company’s website along footprint. We are committed to doing our part to enrich our with media releases, briefings and annual reports for the last community by: five years. ▪▪ having the highest standards of corporate governance, and 21. Shareholders business probity The Board is committed to ensuring that shareholders are ▪▪ investing responsibly and encouraging sustainable business fully informed of material matters that affect Perpetual’s position practices and prospects. It seeks to accomplish this through a strategy which includes: ▪▪ contributing time and money to charities which we know have a track record of delivering on their promises, and ▪▪ the Half Year Results released in February each year ▪▪ reducing the environmental impact of our operations. ▪▪ the May ASX update to shareholders each year Some examples of how we are achieving these goals include: ▪▪ the Full Year Results released in August each year

▪▪ the Annual Report released in September each year Investment Long-term investment approach ▪▪ the Chairman’s and Managing Director’s addresses to the Perpetual’s asset managers are ‘value’ managers who focus Annual General Meeting on quality. Their initial investment criteria include: ▪▪ market briefings and other significant information (which are ▪▪ the strength of the company’s balance sheet posted on Perpetual’s website as soon as it is disclosed to the market). ▪▪ whether the company can demonstrate a recurring earnings stream Perpetual will hold its Annual General Meeting in November and a copy of the notice of Annual General Meeting is posted ▪▪ the quality of the business, and on the Perpetual website as well as being provided directly to shareholders via their nominated means of communication. The ▪▪ the soundness of management running the company. Board encourages shareholders to attend the Annual General Meeting or to appoint a proxy to vote on their behalf if they are We believe this approach holds corporate Australia to high unable to attend. The formal addresses at the Annual General standards and encourages behaviour in the long-term interests Meeting are webcast for those shareholders who are unable of shareholders. to be present. In accordance with the Corporations Act, a representative of the external auditor, KPMG, attends the Annual Signatory to the United Nations Principles for General Meeting for the purpose of answering shareholder Responsible Investment questions about the audit report and audit process. In October 2009, Perpetual became a signatory to the United Nations Principles for Responsible Investment (PRI) representing a commitment to take environmental, social and governance

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 25 factors into account in our investment decision-making and Environmental ownership practices. PRI is about institutional investors Carbon Disclosure Project encouraging sustainable business practices, which is aligned Perpetual has responded to the Carbon Disclosure Project (CDP) to Perpetual’s long-term view. surveys on five occasions and has been included in the Climate Disclosure Leadership Index (Australia and New Zealand) on Member of the Responsible Investment Association three occasions. The Responsible Investment Association is the peak industry body for professionals working in responsible investment in Our People Australasia. The Responsible Investment Association’s purpose Perpetual is committed to attracting, developing and engaging is to provide training, professional development, events, research employees in a culture that is underpinned by Perpetual’s Values. and policy initiatives that will promote stable markets, maximise financial returns and create positive environmental, social and Perpetual’s inclusive culture is based on team work and governance outcomes. collaboration and allows high performing employees to excel and be rewarded for their success. There is a focus on developing Member of the Investor Group on Climate Change leaders from within Perpetual and on employee engagement. The Investor Group on Climate Change (IGCC) was established Employee engagement is assessed annually and results are used in 2005 and represents institutional investors, with funds under to develop future people initiatives. management of approximately $600 billion, and others in the investment community interested in the impact of climate The wellbeing of employees is supported by financial, insurance, change on investments. The IGCC aims to ensure that the health, fitness and work/life balance employee benefits. Some of risks and opportunities associated with climate change are the policies that support employee work/life balance include: incorporated into investment decisions for the ultimate benefit of individual investors. ▪▪ Contribution Leave policy which provides an additional week of ‘Contribution Leave’ to allow employees to make a difference Social to their community, family or personal well-being Philanthropy and the Perpetual Foundation ▪▪ Purchased Leave policy which enables employees to apply for Perpetual has been managing charitable money for over up to three weeks of additional leave to spend more time with 120 years with more than 450 individual trusts with a total of family, for holidays or greater work/life balance $1.2 billion in funds under management. In 1998, we established ▪▪ Sabbatical Leave and Leave Without Pay policies which allow the Perpetual Foundation, which brings the generosity of employees to take an extended period of unpaid leave where individuals and organisations together with our resources and they may choose to take time out to be with their family, travel expertise in managing charitable funds. overseas or undertake further study The Philanthropy team provides support to the non-profit sector ▪▪ Working From Home policy which allows employees to work via thought leadership forums, regular IMPACT philanthropy from home for greater work/life balance newsletters, and facilitating a number of knowledge sharing opportunities. The Perpetual Foundation has also sponsored ▪▪ Flexibility Policy which enables employees to achieve work/ sector research including research at the Australian Centre for life balance and meet parental or carer responsibilities. In 2010, Philanthropy and Non-Profit Studies. Perpetual launched a tailored flexible working program to support managers and employees in managing requests for flexibility Staff Giving which included training all managers in managing flexibility. Perpetual’s Staff Giving program encourages staff to donate to charities in a tax-effective way, with all donations being matched Perpetual aims to meet the needs of employees at different dollar-for-dollar by Perpetual. In addition to monetary donations, stages of their lives and parental leave benefits are available for Perpetual’s Staff Giving program also encourages employees to both men and women. This not only includes greater access to volunteer their time to charitable causes. flexible working options but also 12 weeks paid maternity leave and a return to work bonus payable to the Primary Care Giver. Pro Bono Legal Assistance A Proud Parents Program has also been introduced to support In late 2010, Perpetual’s legal team agreed to partner with the new parents as they transition back to work. All of the parental Cancer Council NSW to provide pro bono legal assistance to leave benefits have been added to a dedicated page on the people with cancer who are unable to afford legal assistance Perpetual intranet and employees are also provided with a themselves. This initiative aims to alleviate some of the Parental Leave pack which contains this information as well as difficulties faced by people through this difficult time, and it has comprehensive checklists to help assist with their planning. also fostered a great sense of achievement and pride within Shareholders who wish to know more about Perpetual’s Perpetual’s legal team. corporate policies are invited to review our website www.perpetual.com.au or to contact us by email at Political Donations [email protected]. Comments and suggestions from Perpetual does not make political donations. shareholders are welcome.

26 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES 24. ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations

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 senior executives. 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. 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 Chief Executive Officer 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 10 Yes individual Directors.

2.6 Provide the information indicated in the guide to reporting on Principle 2. 2-7, 9, 10 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 a policy concerning diversity and disclose the policy or a summary of that policy. The policy should 14 Yes include requirements for the Board to establish measurable objectives for achieving gender diversity and for the Board to assess annually both the objectives and progress in achieving them.

3.3 Disclose in each Annual Report the measurable objectives for achieving gender diversity set by the Board in 14 ‡ accordance with the diversity policy and progress toward achieving them.

3.4 Disclose in each Annual Report the proportion of women in the whole organisation, women in senior executive - ‡ positions and women on the Board.

3.5 Provide the information indicated in the guide to reporting on Principle 3. 13, 14 ‡

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. 9 Yes

Principle 5 – Make timely and balanced disclosure

5.1 Establish and disclose written policies designed to ensure compliance with ASX Listing Rule disclosure 20 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. 20 Yes

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 27 Principle/Recommendation Relevant Comply section(s)

Principle 6 – Respect the rights of shareholders

6.1 Design and disclose a communications policy for promoting effective communication with shareholders and 21 Yes encouraging their effective participation at general meetings and disclose the policy or a summary of the policy.

6.2 Provide the information indicated in the guide to reporting on Principle 6. 21 Yes

Principle 7 – Recognise and manage risk

7.1 Establish and disclose policies for the oversight and management of material business risks. 16 Yes

7.2 Require management to design and implement the risk management and internal control system to manage the 16, 17 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 as to the effectiveness of the Company’s management of its material business risks.

7.3 Disclose whether the Board has received assurance from the Managing Director and the Chief Financial Officer that 17 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. 16, 17 Yes

Principle 8 – Remunerate fairly and responsibly

8.1 The Board should establish a remuneration committee. 9 Yes

8.2 The remuneration committee should be structured so that it consists of a majority of independent Directors, 9 Yes is chaired by an independent chair and has at least three members.

8.3 Clearly distinguish the structure of Non-executive Directors’ remuneration from that of executive Directors and 22* Yes senior management.

8.4 Provide the information indicated in the guide to reporting on Principle 8. 21, 22 Yes

‡ Perpetual acknowledges and is supportive of amendments to the ASX Principles that Perpetual must report on for the financial year ending 30 June 2012. The ASX Corporate Governance Council has encouraged the ‘early’ transitioning to these requirements and accordingly, Perpetual has made voluntary disclosure in relation to diversity in section 14 of this Corporate Governance Statement. Full reporting in relation to diversity in accordance with the ASX Principles will appear in the 2012 Annual Report. * 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 29 to 57 of this Report.

28 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Remuneration Report

Dear Shareholder

We are pleased to present our Remuneration Report for 2011.

2010/11 saw a renewal of the leadership of Perpetual, including the appointments of a new Chairman and Chief Executive Officer. During this time your Board has continued to assess our remuneration practices to ensure they drive achievement of the business strategy, incorporate high standards of governance and remain market competitive.

As announced in our Remuneration Report last year, we introduced a number of changes to our executive remuneration framework during the year, which are designed to strengthen the alignment of performance-based remuneration to shareholder outcomes and to our Risk Management Framework. These changes are summarised in section 1.1 and explained in more detail throughout this Remuneration Report.

During the year, we also completed a review of our governance framework, resulting in:

▪▪ the refinement of our remuneration guiding principles as described in section 3.1 of this Remuneration Report

▪▪ the amendment of the People and Remuneration Committee’s Terms of Reference to better reflect the remuneration principles of the APRA remuneration prudential standards, and

▪▪ the appointment of PricewaterhouseCoopers as the principal remuneration adviser to the Board.

We believe our remuneration practices are sound and demonstrate a clear link between executive and shareholder outcomes. Nevertheless, we have continued to refine our remuneration practices in light of new legislation and market practice. In the next year, we plan to make some changes to our short-term incentive arrangements (STI) to further improve the link between the successful execution of our business strategy and staff rewards. In doing so, the new STI plan will ensure the contribution of our staff to the Company’s performance closely aligns with the interests of our shareholders.

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

Elizabeth M Proust AO Chairman, People and Remuneration Committee

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 29 Contents We have structured the report into nine sections: 1. Remuneration snapshot...... 32 2. The role of the People and Remuneration Committee...... 34 3. Our remuneration philosophy and structure...... 35 4. Short-term incentives...... 38 5. Long-term incentives...... 39 6. Summary of company performance...... 42 7. Details of remuneration...... 43 8. Contract terms of executives...... 50 9. Remuneration of Non-executive Directors...... 54 Key terms used in this report

EPS Earnings per share. When measuring the growth in EPS to determine the vesting of long-term incentive awards, Perpetual defines EPS as basic earnings per share after tax and any adjustments determined by the People and Remuneration Committee (for example, capital items that do not reflect management performance or day-to-day business operations and activities).

KMP Key management personnel. Those people who have the authority and responsibility for planning, directing and controlling the company’s activities, either directly or indirectly. This includes Directors, whether executive or otherwise, of the Perpetual consolidated group.

LTI Long-term incentive. LTI is a key feature of Perpetual’s remuneration strategy and seeks to align executive remuneration with sustainable shareholder wealth creation. For the Managing Director, LTI may be granted in the form of shares and/ or options in such proportions as determined by the Board. For all other eligible employees, LTI is granted in the form of shares. More details are on page 39.

NPAT Net profit after tax. When calculating PPP (see below), Perpetual defines NPAT as net profit after tax with the post-tax amount of the PPP added back, and adjusted for any other items determined by the Board’s Audit Risk and Compliance Committee and People and Remuneration Committee (for example, capital items that do not reflect management performance or day-to-day business operations and activities).

PPP Profit Participation Pool. A funding pool created to fund STI payments for the 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 38.

ROE Return on equity. ROE is a measure of how well a company has used shareholders’ funds and reinvested earnings to generate additional earnings. ROE is equal to Perpetual’s NPAT (as defined above) divided by weighted average shareholders’ equity, expressed as a percentage.

STI Short-term incentive. An incentive paid for meeting annual targets aimed at delivering our longer-term strategic plan. Under the STI Plan employees may be paid a discretionary incentive (less applicable taxes and superannuation) based on their individual performance as well as on the performance of their team, their division and Perpetual as a whole. More details about the STI Plan are on page 38.

TSR Total shareholder return. TSR is defined as share price growth plus dividends paid over the measurement period. Dividends are assumed to be reinvested on the ex-dividend date. Where applicable, adjustments may be made for any capital reconstructions or rights or bonus issues at the Board’s discretion.

30 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES About this report This report sets out the remuneration arrangements for all key management personnel (KMP). KMP are those people who have the authority and responsibility for planning, directing and controlling the company’s activities, either directly or indirectly. This includes Directors, whether executive or otherwise, of the consolidated entity. At Perpetual, we have assessed the KMP to be the former and current Managing Directors, the Group Executives, and the Non-executive Directors of Perpetual Limited. The information in this Remuneration Report has been audited as required by section 308(3C) of the Corporations Act 2001. Key Management Personnel Below are Perpetual’s KMP this year:

Name Position Term

Non-executive Directors

Robert Savage Former Chairman (until 26 October 2010) Retired 26 October 2010

Peter Scott Chairman (from 26 October 2010) Full year

Paul Brasher Independent Director Full year

Meredith Brooks Independent Director Full year

Philip Bullock Independent Director Full year

Paul McClintock Independent Director Full year

Elizabeth Proust Independent Director Full year

Philip Twyman Independent Director Full year

Managing Director

Chris Ryan Chief Executive Officer (from 14 February 2011) From 14 February 2011 and Managing Director (from 23 February 2011)

Former Managing Director

David Deverall Chief Executive Officer (until 14 February 2011) Until 23 June 2011 and Managing Director (until 23 February 2011)

Current Group Executives

Richard Brandweiner* Group Executive Income and Multi Sector Full year

Roger Burrows* Chief Financial Officer Full year

Cathy Doyle* Group Executive Equities Full year

Christopher Green Group Executive Corporate Trust Full year

Brian Henderson Group Executive Marketing and Communications From 27 June 2011

Ivan Holyman* Chief Risk Officer Full year

Geoff Lloyd* Group Executive Private Wealth From 10 August 2010

Janine Stewart Group Executive People and Culture Full year

Richard Vahtrick Group Executive Operations From 16 June 2011

Current Executives who were in Acting Group Executive roles during the year

Paul Ryan Co-acting Group Executive Private Wealth Until 10 August 2010

Shailendra Singh Co-acting Group Executive Private Wealth Until 10 August 2010

Group Executives who departed during the year

Michael Miller Group Executive Superannuation and Operations Until 28 April 2011

Matt Pancino Group Executive Operations Until 15 October 2010

Rory MacIntyre Acting Group Executive Global Equities Until 30 September 2010

* The five highest paid officers of the group or company during the year ended 30 June 2011.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 31 starting on a lower fixed pay than their predecessor with a view to 1 Remuneration snapshot transitioning to market levels as they developed in their new role. 1.1 Key changes made to the executive These increases followed 2009/10 where there were no increases remuneration framework in 2010/11 in fixed remuneration for the Group Executives, except in the case Following a review of our executive Remuneration Policy and of promotion or significant increases in roles and responsibilities. arrangements, changes were made to the executive remuneration framework for 2010/11. Actual remuneration received by our Other employees executives during the year is provided on page 33. For the first time in three years, a budget was available for broad-based fixed remuneration increases. It ranged between ▪▪ To be eligible to receive an STI payment, individuals must three per cent and five per cent depending on the division. satisfy certain Risk and Behaviour measures as assessed Increases were typically higher for employees whose fixed by the Board. remuneration was below market, and more modest for those ▪▪ The threshold at which STI payments must be deferred into already pitched near or above the market median. shares was lowered from 2 x Target STI to 1 x Target STI. Short-term incentive payments ▪▪ The vesting schedule for the EPS performance hurdle was Although NPAT for 2010/11 was lower than last year, the STI pool amended for all new LTI grants so that vesting begins (from available to employees was broadly the same as last year. This zero per cent) when Perpetual’s EPS growth is five per cent was due to the following factors: p.a. Previously, a cliff-edge approach to vesting applied whereby no vesting applied until EPS growth was at least ▪▪ Adjustment of NPAT for the following items: 10 per cent p.a. at which point the award vested in full. –– the net gains on disposal (both realised and unrealised) ▪▪ Re-testing of LTI performance measures was removed for all and impairment of investments were deducted; these were new LTI grants. of a capital nature and did not reflect management and employee performance and day-to-day business operations ▪▪ Accelerated vesting of LTIs on termination under certain and activities circumstances was removed for all new LTI grants. –– costs incurred in responding to the indicative, conditional ▪▪ A minimum shareholding guideline for executives has been and non-binding proposal from KKR to acquire all of introduced. Perpetual’s shares were added back, and

These changes are described in more detail throughout this –– the impairment of intangible assets was added back, as this report. We believe that the changes strengthen the alignment of was of a capital nature. performance-based remuneration to shareholders’ interests and ▪▪ Decision by the Board to make a discretionary allocation to to Perpetual’s Risk Management Framework. the PPP, primarily to supplement the STI of high performing lower level employees who would otherwise be receiving 1.2 Remuneration outcomes in 2010/11 STI awards significantly below their target levels for the third A summary of the remuneration outcomes at Perpetual for consecutive year. 2010/11 is set out below. Long-term incentive vesting outcomes Fixed remuneration All unvested long-term incentives held by the former Managing Director and CEO, David Deverall, were forfeited on his Managing Director and CEO resignation. Additionally, vested but unexercised options held The fixed remuneration for the former Managing Director and by Mr Deverall lapsed without value on resignation. CEO, David Deverall, remained unchanged from 1 July 2007 to his resignation on 23 June 2011. All LTI grants made to Group Executives in 2006 were forfeited during the year as the stretch TSR and EPS growth targets were The fixed remuneration for the new Managing Director and CEO, not met when re-tested on 1 October 2010. No LTI grants made Chris Ryan (effective 14 February 2011), was determined by the to Group Executives in 2007 vested as a result of the initial test Board using market data provided by an external independent of the performance targets on 1 October 2010. These will be adviser, which was benchmarked against CEOs of leading listed re-tested in October 2011 but are very unlikely to vest. companies in the diversified financial services industry (excluding CEOs of the major banks and other financial services companies A business-based LTI grant made to Cathy Doyle, Group in the S&P/ASX 20). Executive Equities and Distribution, in February 2008 was tested during the year. 50 per cent of the grant was subject to Group Executives succession planning performance targets and 50 per cent to a For 2010/11, increases of 8.3 per cent on average were granted profit target. 83 per cent of the succession-based portion vested, to Group Executives. This reflected the increase in experience with the balance of the succession-based portion forfeited. and expertise of those executives who last year were still No part of the grant subject to a profit target was met and this relatively new to their positions and had been promoted internally, component will be re-tested on 31 December 2011.

32 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Sign-on payments Non-executive Director fees In recognition of the remuneration foregone by Chris Ryan An increase in fees of approximately three per cent for the Board as a consequence of joining Perpetual, a sign-on payment and Committees applied for 2010/11. This was the first increase of $500,000 (less tax) was paid three months after his in Non-executive Director fees since 1 July 2007. There will be commencement date. no increase to Non-executive Director fees in 2011/12. Further, from 2011/12 there will be no fees paid to members for serving on In addition, subject to shareholder approval, Mr Ryan will be the Nominations Committee. More details on the remuneration granted a one-off incentive to the value of $600,000 in the form structure for Non-executive Directors and the amounts received of performance shares with effect from 1 April 2011. Vesting of in 2010/11 are provided on page 54. these shares is subject to performance hurdles (50 per cent TSR and 50 per cent EPS growth) measured over two years.

Sign-on payments of $700,000 cash and $400,000 in shares were made to Geoff Lloyd, Group Executive Private Wealth, to compensate him for remuneration foregone as a consequence of joining Perpetual. The sign-on shares granted to Mr Lloyd vested on 10 August 2011.

1.3 Actual remuneration received The following table summarises the actual remuneration executives at Perpetual received, including cash paid and the value of equity that vested.

Name Total Total fixed STI Equity vested during Sign-on and Termination benefits3 remuneration year1 relocation benefits2 $ $ $ $ $ $ Managing Director C Ryan 1,247,244 460,844 150,000 - 636,400 - Former Managing Director D Deverall 1,853,807 982,641 - - - 871,166 Current Group Executives R Brandweiner 567,0 42 362,242 204,800 - - - R Burrows 875,692 568,492 3 07,20 0 - - - C Doyle 1,070,215 548,807 281,600 239,808 - - C Green 575,215 370,415 204,800 - - - B Henderson 79,508 - - - 79,508 - I Holyman 589,040 413,940 175,100 - - - G Lloyd 1,613,363 605,663 3 07,70 0 - 700,000 - J Stewart 4 37,558 335,158 102,400 - - - R Vahtrick 16,946 16,946 - - - - Current executives who were in Acting Group Executive roles during the year4 P Ryan 49,526 31,444 18,082 - - - S Singh 50,614 30,888 19,726 - - - Group Executives who departed during the year M Miller 290,563 288,036 - - - 2,527 M Pancino 107,148 102,483 - - - 4,665 R MacIntyre 650,827 76,636 - 144,079 - 430,112

1 Equity vested during the year has been valued at the market value on the date the equity vested. 2 Cash sign-on benefits and relocation benefits in respect of executives who relocated to join Perpetual. Cash sign-on benefits include $500,000 to C Ryan and $700,000 to G Lloyd. Relocation benefits include reasonable cost of flights, accommodation, removal and freight of personal belongings, and financial advice (includes $136,400 of relocation benefits to C Ryan and $79,508 of relocation benefits to B Henderson). 3 Consists of payments for unused accrued leave (for D Deverall, M Miller, M Pancino and R MacIntyre), contractual entitlements (D Deverall), and severance entitlements (R MacIntyre). In all cases, the entitlements paid on termination were less than the relevant caps required by legislation and as a result shareholder approval for these payments was not sought. 4 Represents amounts received while in Acting Group Executive roles (ie 1 July 2010 to 10 August 2010).

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 33 1.4 Key changes to the executive remuneration 2 The role of the People and framework for 2011/12 From 1 July 2011, changes will be made to the Group-wide STI Remuneration Committee plan. This is being done to better align STI outcomes with the The People and Remuneration Committee (PARC)’s role is to business strategy. help the Board fulfil its responsibilities to shareholders through a strong focus on good governance, and in particular, the In this respect, for the purpose of determining the STI pool, principles of accountability and transparency. company performance will be measured against a balanced scorecard consisting of short-term financial metrics and longer- The PARC operates under delegated authority from the Board. term value creation metrics. Company performance will also be During the year, the PARC increased its oversight of remuneration, measured against stretch targets, allowing it to be assessed in with the result that the Board approved a Remuneration Policy the context of the economic environment. NPAT will remain a key to ensure that Perpetual’s remuneration approach is aligned to performance measure to ensure STI outcomes under the new its guiding principles and to the APRA Prudential Standards for STI plan are closely correlated to those under the previous plan, executive remuneration. The PARC’s Terms of Reference are and that remuneration for employees continues to be aligned to available on our website www.perpetual.com.au and are shown shareholder interests. graphically below.

The changes are also designed to give employees greater clarity over how their individual performance and that of the business contributes to their STI outcome. Individual STI awards will be capped at 2 x Target and the STI deferral arrangements introduced to the Managing Director and Group Executives in 2010/11 will extend to all senior leaders.

The changes will be phased in from 1 July 2011, with full implementation expected for the 2012/13 financial 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 Oversee employee a process for executive engagement at all levels performance planning and review to encourage PARC superior performance

Ensure remuneration Oversee compliance with disclosure occupational health and requirements are met safety regulations

Review and Review and recommend Managing recommend Board Director’s performance, remuneration as well remuneration as Managing Director and contractual and Group Executive arrangements to Board remuneration

34 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES The terms of reference are broad, encompassing remuneration as well as executive development, talent management and 3 Our remuneration philosophy succession planning. This enables the PARC to focus on and structure ensuring a high quality of succession planning and executive Perpetual’s remuneration philosophy is that the remuneration development at all levels of Perpetual. strategy should align with and support the achievement of our The PARC members for 2010/11 were: business strategy, while ensuring remuneration outcomes are aligned with shareholder interests and are market competitive. ▪▪ Elizabeth Proust (Chairman) To that end we have created six guiding principles that direct our remuneration approach. ▪▪ Paul Brasher 3.1 Remuneration principles ▪▪ Philip Bullock (from 9 August 2010) Our Remuneration Policy is designed around the following six ▪▪ Paul McClintock guiding principles:

▪▪ Robert Savage (until 26 October 2010) 1. The remuneration structure should attract, motivate and retain the desired talent within Perpetual. ▪▪ Peter Scott (until 26 October 2010). 2. The remuneration structure should align value creation for The PARC met eight times during the year. Attendance at these shareholders, clients and employees. meetings is set out on page 16 of the Directors’ Report. 3. The remuneration structure should embed sound risk At the PARC’s invitation, the Managing Director and Group management. Executive People and Culture attended meetings except where matters associated with their own performance evaluation, 4. Incentive arrangements should motivate performance. development and remuneration were to be considered. 5. Remuneration should be delivered efficiently and effectively The PARC considers advice and views from those invited to considering the level of administration required. attend meetings and draws on services from a range of external sources, including remuneration consultants. 6. The remuneration structure should be supported by a governance framework that avoids conflict of interest and In March 2011, the PARC appointed PwC as its principal ensures proper controls are in place. remuneration consultant to provide specialist advice on executive remuneration and other Group-wide remuneration matters. This The PARC has also adopted a number of practices that advice is commissioned by the PARC and is independent of collectively contribute to each remuneration principle. management. 3.2 Alignment with sound risk management Share dealing approval When determining the variable (or ‘at risk’) elements of Any share dealings, whether these shares are held personally or remuneration, we ensure that risk management is a key were acquired as part of remuneration, require prior approval. performance metric using specific performance goals and The table below shows the approval required: targets. Sound risk management practices include:

Person wishing to deal in shares Approval required from ▪▪ incorporating in employee incentive plans goals that are specifically related to risk management performance measures. Managing Director Chairman These goals are approved annually by the Board and cascade Director Chairman down to all employees

Chairman Nominated Director ▪▪ performing scenario testing on potential outcomes under any new incentive plans Group Executive Managing Director

An employee likely to have ▪▪ regularly reviewing the alignment between remuneration Managing Director/Company Secretary price-sensitive information outcomes and performance achievement for existing incentive plans

▪▪ deeming employees to be ineligible for the payment of STI in the event they exhibit poor risk behaviours

▪▪ deferring STI above a certain threshold into Perpetual shares to align remuneration outcomes with longer-term company performance

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 35 ▪▪ including provisions in incentive plans for the Board or the As at 30 June 2011, progress towards the minimum guideline for PARC to adjust incentive payments downwards, if required, each executive was as follows: to protect Perpetual’s financial soundness, or to respond to significant unexpected or unintended consequences Value of eligible Value of minimum shareholdings as at shareholding guideline ▪▪ continuous monitoring of remuneration outcomes by the 30 June 2011 ($) ($) Board, the PARC and management, to ensure that results are promoting behaviours that support Perpetual’s long-term Managing Director financial soundness and the desired culture. Chris Ryan - 1,8 37,50 0 3.3 Alignment with shareholders Group Executives Link to business strategy Richard Brandweiner 23,334 183,750 A key tenet of our remuneration philosophy is that the Roger Burrows - 285,000 remuneration strategy should support the achievement of Cathy Doyle 10,284 275,000 our business strategy and desired culture while ensuring that remuneration outcomes are aligned with shareholder outcomes. Chris Green 59,782 200,000 The link between our remuneration strategy and our business Brian Henderson - 187,50 0 strategy is shown below: Ivan Holyman 34,104 220,000 Remuneration component Link to business strategy Geoff Lloyd - 337,50 0 Fixed remuneration Targeted at market median in order to attract Janine Stewart - 170,000 and retain talented employees and to not encourage excessive risk-taking. Richard Vahtrick - 200,000 Short-term incentives Rewards short-term financial performance and capital management. Awards are based on performance against stretch targets using Hedging and Share Trading Policy key performance indicators linked to financial metrics and longer-term value metrics. Perpetual’s Share Trading Policy prohibits employees and Directors from entering into hedging arrangements in relation to Long-term incentives Awards are in fully paid ordinary Perpetual Perpetual securities. Perpetual employees and Directors cannot shares and are subject to service conditions and performance hurdles over a three-year trade in financial products issued over Perpetual securities by period. Executives only receive value from third parties or trade in any associated products which limit the this component if performance hurdles are economic risk of holding Perpetual securities. Share dealing can met. Performance hurdles are aligned to our business strategy and shareholder interests only take place during agreed trading windows throughout the through TSR and EPS growth targets. year and is subject to certain approvals (as set out on page 35 of this report). Minimum shareholding guideline A minimum shareholding guideline was introduced in 2010 to strengthen the alignment between executives’ and shareholders’ interests in the long-term performance of Perpetual. Under this guideline, executives are expected to establish and hold a minimum shareholding to the value of:

▪▪ Managing Director: 1.5 times fixed remuneration

▪▪ Group Executives: 0.5 times fixed remuneration

The value of each vested option or share held in tax deferral by the executive is treated as being equal to 50 per cent of that share or option. Unvested shares or options do not count towards the target holding.

A five-year transition period, from the later of 1 July 2010 or the start of employment, gives executives reasonable time to meet their shareholding guideline. Where the guideline is not met after the required time period, executives may be restricted from trading vested shares held in the trust.

36 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES 3.4 Executive remuneration structure The executive remuneration structure for 2010/11 was as follows:

Fixed Fixed Typically set around the market median for each employee. By participating Paid as cash remuneration in remuneration surveys and closely monitoring the market, we can compare 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 companies.

Calculated on a ‘total cost to company’ basis, consisting of base salary, superannuation, packaged employee benefits and associated fringe benefits tax (FBT).

Variable ‘at risk’ STI Paid for meeting annual targets aimed at delivering our longer-term strategic plan. Awards depend on individual, division and company performance and are funded through the Profit Participation Pool.

Deferred STI STI awarded in excess of target STI are deferred into Perpetual shares for Awarded as two years subject to service conditions. deferred equity

LTI Granted in the form of fully paid ordinary Perpetual shares (and in the case of the former Managing Director, options). Vesting is typically subject to service conditions and TSR and EPS growth performance hurdles measured over a three-year performance period.

3.5 Remuneration mix All executives have a significant portion of their remuneration linked to performance. The table below shows the target remuneration for the new Managing Director and the average target remuneration mix for Group Executives.

Target remuneration mix

Managing Director Fixed 34% STI 33% LTI 33%

Group Executives Fixed 38% STI 31% LTI 31%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

3.6 Asset managers horizons. In many cases incentives are paid outside the Profit Participation Pool and are linked to outperforming benchmark The remuneration arrangements for asset managers are indices which are aligned with client objectives. Incentives structured to ensure that we remunerate them appropriately are paid as a mixture of cash and shares and expensed as within a highly competitive market, as well as ensuring reward for part of Perpetual’s net profit after tax. Where paid as shares, adding value to client portfolios. these shares vest progressively over many years. This ensures Their remuneration therefore consists of both fixed and variable reward for sustainable long-term performance and supports our components, with the variable components primarily driven by employee retention objectives. investment performance outcomes over short- and long-term

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 37 ▪▪ Underlying profit after tax (UPAT) was replaced by NPAT in 4 Short-term incentives 2009/10 because it more closely aligns PPP funding with Short-term incentives are incentives paid in the form of cash and shareholder returns. Previously, UPAT was used to determine deferred shares for meeting annual targets aimed at delivering the PPP. our longer-term strategic plan. 4.2 How the PPP is allocated From 1 July 2011, changes will be made to the Group-wide STI plan as summarised in Section 1.4 of this Remuneration Report. Each year performance targets and goals are set for all Sections 4.1 to 4.3 below describe the STI arrangements that employees, in line with division and company targets. These applied for 2010/11. performance objectives are classified into the following six categories, including example metrics:

4.1 How STI is funded ▪▪ Financial: Profit before tax, funds under management growth. A Profit Participation Pool (PPP) is created each year to fund STI for the majority of employees (including KMP). The size of the ▪▪ Strategic: project milestones and execution objectives. PPP is determined by the Company’s net profit after tax. ▪▪ Operational: operational efficiency, product ratings, process Some asset managers, whose STI is linked explicitly to improvements. investment performance, are excluded from the PPP. In addition, ▪▪ People: engagement survey scores, succession planning, participants in the Private Wealth and Corporate Trust Sales team development. Incentive Plans also have a proportion of their STI funded outside the PPP. The STI for the new Managing Director, Chris Ryan, ▪▪ Risk: demonstration of risk competencies. was also funded from outside the PPP this year. Mr Ryan will participate in the Group-wide STI plan from 2011/12 and beyond. ▪▪ Values: demonstration of Perpetual’s core values.

The PPP is linked to profit performance, where increased profits Performance objectives are assessed throughout the year as part create a larger pool and decreased profits result in a smaller pool. of the performance management process. At year end, an annual We use return on equity (ROE) and net profit after tax (NPAT) as assessment of each executive and employee’s performance is measures to govern the operation of the PPP. made and the PPP is then allocated based on relative divisional and individual performance. The PPP operates as follows: Allocations to the Managing Director and Group Executives are ▪▪ The profit pool begins to accumulate only when Perpetual’s subject to Board approval. The Managing Director and Group ROE for the current year exceeds 65 per cent of companies Executives must meet certain risk and behaviour standards to be listed on the S&P/ASX100 (excluding listed property trusts), eligible to receive an STI payment, as assessed by the Board. measured on a rolling three-year basis.

This measure was chosen to ensure that Perpetual’s capital 4.3 How STI is delivered utilisation does not fall to unacceptable levels as the Company STI payments are delivered in cash except where the STI seeks to increase net profits. outcome is more than 1 x Target STI, in which case the excess amount must be taken as Perpetual shares. Before this year, ▪▪ Once the ROE target is met, the profit pool accumulates the threshold was 2 x Target STI. based on a percentage of NPAT. Although the value of the pool is uncapped, the accumulation rate is ultimately capped Deferred STI shares are subject to a two-year vesting period. at one-third of incremental NPAT where year-on-year NPAT Dividends on shares are paid during the restriction period. Some growth is over 40 per cent. or all shares held in deferral may also be forfeited if the Board subsequently determines that the STI was awarded on unrealised This measure was chosen to encourage year-on-year growth in profits that did not eventuate, on inaccurate information (for net profit and to ensure a high correlation exists between NPAT example, that requires the Financial Statements to be restated), performance and incentive outcomes. or from unacceptable risk-taking.

▪▪ If there is a year-on-year fall in NPAT, mechanisms are included Leaver provisions apply for deferred STI shares. This mean that within the plan to limit the pool size in future years until the if an executive resigns from Perpetual during the deferral period, previous NPAT ‘high water mark’ is passed. or their employment is terminated without notice or due to poor performance, the shares are forfeited. NPAT is defined as net profit after tax with the post-tax amount of the profit pool added back, and adjusted for items determined by the Audit Risk and Compliance Committee and People and Remuneration Committee (for example, capital items such as realised gains on the sale of an investment that do not reflect management performance or day-to-day business operations and activities).

38 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES of half of the comparator group, which consists of companies 5 Long-term incentives listed on the S&P/ASX100 (excluding listed property trusts). This Long-term incentives are paid as shares and, in the case of the comparator group was chosen in the absence of a suitable peer former Managing Director David Deverall, options. This section group of direct competitors, and as it best represents Perpetual’s explains the plans in place and how they work. performance which is influenced by equity market movements (given that Perpetual’s revenue is significantly dependent on 5.1 Executive share program and executive Funds Under Management and Funds Under Advice). For TSR options program performance greater than median, a sliding scale applies to determine the vesting percentage. These programs are the LTI plans in which the Managing Director and Group Executives participate. TSR vesting schedule

New long-term incentive plan Perpetual’s TSR ranking relative to the Percentage of shares and options that comparator group will vest In February 2011, the Board approved the introduction of a new plan, the Perpetual Limited Long-term Incentive Plan. This plan Less than median 0% has replaced the Executive Share Plan for the purpose of making Median 50% future long-term incentive grants to executives, including the Greater than median but less than 2% for every one percentile sign-on grant of shares to the new Managing Director if approved 75th percentile increase in Perpetual’s relative by shareholders. position Greater than 75th percentile 100% The new plan was introduced to modernise terms and conditions in light of significant changes to market practice and regulation of employee equity plans over the past decade. A single set of rules EPS performance target has been developed to enable grants of performance shares The EPS performance target requires Perpetual’s EPS growth or options. Having these included under a single plan ensures during the performance period to be equal to or greater than the consistency and provides additional flexibility. target set by the Board. This target, which is currently 10 per cent This year, long-term incentives awarded to KMP were made p.a., may be reviewed by the Board from time to time. under the old plans: the Perpetual Limited Executive Share The achievement of this performance target links the individual’s Plan (ESP) and in the case of the former Managing Director, the remuneration to the company’s growth in earnings. Perpetual Limited Executive Option Plan (EOP).

Performance targets EPS vesting schedule Vesting of LTI grants is subject to service conditions and the For LTI awarded to Group Executives in 2010/11: achievement of performance targets. LTI performance targets are Perpetual’s growth in EPS Percentage of shares and options that directly linked to company performance. will vest Each share or option grant is divided into two equal tranches, EPS growth less than or equal 0% to 5% p.a. with the following performance targets being applied to each tranche: EPS growth between 5% p.a. 2% for every 0.1% of EPS growth and 10% p.a. above 5% p.a. ▪▪ The first tranche vests based on Perpetual’s total shareholder EPS growth at or above 10% p.a. 100% return (TSR) measured against companies listed on the S&P/ASX100 (excluding listed property trusts) determined at For LTI awarded to the former Managing Director and to Group the date the LTI is granted. TSR is measured independently Executives prior to 2010/11: by Link Market Services and reported to the PARC. Perpetual’s growth in EPS Percentage of shares and options that ▪▪ The second tranche vests based on growth in Perpetual’s will vest earnings per share (EPS). EPS growth less than 10% p.a. 0% EPS growth at or above 10% p.a. 100% Shares are held in trust for a maximum of seven years from the grant date (10 years for grants made before 1 July 2009), while This change was made to reduce the ‘cliff-edge’ effect of the vested options may be exercised up to the sixth anniversary of vesting schedule and make the LTI award more meaningful to the grant date. executives.

TSR performance target Business performance targets TSR is defined as share price growth plus dividends paid over No LTI with business performance targets was granted to the the performance period from the initial TSR measurement date. Managing Director or Group Executives this year. Dividends are assumed to be reinvested on the ex-dividend date. Where applicable, adjustments may be made for any capital One Group Executive (Cathy Doyle) and the former Managing reconstructions or rights or bonus issues to ensure participants are Director (David Deverall) have previously received LTI allocations neither advantaged nor disadvantaged by such capital events. which are linked to the achievement of stretch business targets. These targets include the achievement of specific objectives The TSR performance target requires Perpetual’s TSR over related to profit growth, funds under management and the performance period to be equal to or better than the TSR

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 39 succession planning. The shares may vest in accordance with Options are granted over ordinary shares. The exercise price a scale of target, threshold and stretch performance specific to is based on the weighted average price of Perpetual’s shares each business target. Shares with business performance targets traded on the ASX during the five business days preceding the held by Cathy Doyle are due to be re-tested at 31 December date of option grant. 2011. After this date, no KMP will have LTI with business performance targets. Executives may not buy these options, and no voting or dividend rights are attached to the option or its underlying un-issued Dividends for unvested grants subject to business targets are ordinary share. reinvested into further Perpetual shares or are held as cash, and are also subject to the same performance targets as the When exercisable, each option is converted into one ordinary original grant. share of Perpetual Limited. Options vest over three or four years, depending on when performance targets are met. All vested Performance target testing and re-testing guidelines options may be exercised on or after the vesting date. Options expire at the end of the exercise period, which is six years after A three-year performance testing period applies to TSR and the grant date. Page 47 shows details of options granted to the EPS targets. TSR and EPS performance is calculated and former Managing Director. tested against the respective target on the third anniversary of the grant date. Other than a grant in accordance with the former Managing Director’s contract, no options were granted this year. For grants made before 1 July 2010, if the target is not met after the initial three-year period, it is re-tested on the fourth Termination of employment anniversary of the grant date, against four-year TSR and EPS targets. If the performance target is not met after this re-test, the If an executive leaves the Company, any unvested shares portion of the LTI that has not vested is forfeited. and/or options will be forfeited at the termination date, except as noted below. Following feedback from shareholders, no re-testing applies to grants made after 2009/10, with the exception of the 2010/11 For LTI grants made in 2010/11: LTI grant made to the former Managing Director David Deverall, ▪▪ If an executive dies, all unvested shares and options are which was made in accordance with his contract and lapsed on retained by their estate, with vesting subject to the same his resignation. performance conditions as if they had remained employed by Perpetual. Executive Share Plan (ESP) ▪▪ If an executive is made redundant or retires, or retires due Grants of shares to KMP were made under this plan during to total and permanent disablement, unvested shares or 2010/11. This plan has since been replaced by the Perpetual options granted within the past 12 months lapse immediately. Limited Long-term Incentive Plan meaning that no new grants Remaining shares or options are retained by the executive, with will be made in this plan after February 2011. vesting subject to the same performance conditions as if they The ESP was first approved by shareholders at the 1997 annual had remained employed by Perpetual. general meeting. This approach strengthens the alignment between executives’ The issue price of shares under this plan is the weighted average and shareholders’ interest in the long-term performance of price of Perpetual’s shares traded on the ASX during the five Perpetual, extending beyond the executives’ tenure. business days preceding the grant date. For LTI grants made before 2009/10: Shares are either purchased on-market or issued by the Company, ▪▪ If an executive dies or resigns due to total and permanent and are held in trust for a maximum of 10 years (seven years for disability, all unvested shares and options vest to the executive grants made after 1 July 2009). They are subject to forfeiture if at the date of death or on termination. performance targets and service conditions are not met. ▪▪ If an executive is made redundant or retires, the executive The Managing Director and Group Executives receive dividends will be entitled to a pro rata portion of the grant based on the and have voting rights while the shares are held in trust. length of their employment (including any notice period actually Executives may not buy, or obtain loans to buy, shares under the given and any nominal notice period in respect of which any ESP. Pages 48 to 49 show details of the unvested share holdings payment in lieu of notice is made). The pro rata amount will be for the Managing Director and Group Executives. based on the most recent performance targets to determine the number of shares and options that will vest. Executive Option Plan (EOP) Grants of options were made to the former Managing Director Treatment of LTI on change in control under this plan during 2010/11. Following the resignation of the If Perpetual were to be taken over or there were a partial or full former Managing Director, no participants remained in this plan change in control, LTIs may vest in part or in full at the discretion and it has subsequently been terminated. of the Board. Guiding principles have been developed to help the Board determine vesting outcomes that are consistent, fair and The EOP was approved by shareholders at the 1998 Annual reasonable, and balance multiple stakeholder interests. General Meeting.

40 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES 5.2 Employee Share Plans Perpetual offers all employees (including KMP) the opportunity to participate in share plans. These are described below.

Open plans Description

Perpetual Limited Long-term Incentive Plan ▪▪ From February 2011, this is the main plan to be used for LTI grants to eligible employees, 2 members including the Managing Director and Group Executives.

Deferred Share Plan (DSP) ▪▪ This plan is used for a small number of employees within the asset management team based 8 members in Australia, as part of their incentive arrangements. No KMP participate in this plan. ▪▪ Shares held in the plan vest over the long-term subject to achievement of investment performance and succession targets. ▪▪ The plan ensures the interests of these key employees are aligned with those of shareholders and clients over the longer-term and provides a strong retention element as employees who cease employment with Perpetual during the vesting period forfeit any unvested shares.

Tax Exempt Employee Share Purchase Plan ▪▪ This plan allows all employees, including the Managing Director and Group Executives, to (TESP) purchase shares using a salary-sacrifice arrangement. 170 members ▪▪ Following the introduction of the new tax rules that apply to employee share schemes from July 2009, it was decided to only offer the TESP to employees wishing to purchase shares through salary-sacrifice arrangements going forward. ▪▪ Employees may elect to sacrifice up to $1,000 of their cash STI payment into shares under the TESP. Shares acquired via this sacrifice are not subject to performance targets as they are acquired in lieu of a cash payment by the company; however the plan’s trading restrictions continue to apply until the earlier of three years from the date of grant or on termination of employment, before the shares can be released.

Tax Deferred Share Purchase Plan (TDSP) ▪▪ This plan is used for awards made under the annual sales incentive plans for eligible 72 members employees within the Private Wealth and Corporate Trust teams. ▪▪ The plan was previously used by employees, including the Managing Director and Group Executives, to buy shares using a salary-sacrifice arrangement. The Plan was closed to any new salary-sacrifice purchases during 2009/10.

Plans closed to new issue Description

Executive Share Plan (ESP) ▪▪ Until February 2011, this was the main plan used for LTI grants to eligible employees, 237 members including the Managing Director and Group Executives.

Global Employee Share Trust (GEST) ▪▪ This plan was used for a small number of employees within the asset management team 10 members based in Ireland and United Kingdom (mainly those who were pivotal to the long-term success of Perpetual’s global asset management performance) as part of their incentive arrangements. No KMP participated in this plan. ▪▪ Shares held in the plan vest over a number of years subject to achievement of agreed performance targets. ▪▪ All shares are forfeited if the employee resigns or is terminated by Perpetual for poor performance or misconduct prior to vesting. ▪▪ This plan was closed to new issues on 15 August 2011.

Employee Share Purchase Plan (ESPP) ▪▪ This plan was used for granting shares under a non-recourse loan arrangement. It has been 183 members closed to new issues since 2003/2004. ▪▪ The ESPP and another inactive plan, the Employee Reward Share Plan, are discussed in Note 26 to the Financial Statements.

Executive Option Plan (EOP) ▪▪ This plan is used for options granted as part of the LTI arrangements for the former 0 members Managing Director (and previously some Group Executives). ▪▪ Following the resignation of the former Managing Director, David Deverall, no options remain in this plan. ▪▪ This plan was terminated on 15 August 2011.

Non-executive Director Share Purchase Plan ▪▪ This plan was used only by Non-executive Directors and was closed to new purchases on (NEDSPP) 1 July 2009, following changes to taxation rules. 4 members

Dilution limits for share plans Shares awarded under Perpetual’s employee share plans may be purchased on market or issued subject to Board discretion and the requirements of the Corporations Act 2001 and the ASX Listing Rules.

The Board will manage the issue of shares under employee incentive plans to balance remuneration needs of employees with shareholder returns, subject to the relevant regulatory requirements. Refer to page 35 for detail on the share dealing approval process.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 41 6 Summary of company performance The company’s five-year performance determines how much STI and LTI is paid to employees.

Five-year company performance

Year ended

Perpetual’s five-year performance 30 June 2007 30 June 2008 30 June 2009 30 June 2010 30 June 2011

Net profit after tax reported ($’000’s) 182,108 128,813 37,749 90,505 62,031

UPAT reported ($’000’s) 145,336 133,464 65,697 72,793 72,879

Ordinary dividend per share declared with 3.60 3.30 1.00 2.10 1.85 respect to the year ($)

Basic earnings per share – UPAT ($) 3.76 3.42 1.67 1.83 1.79

Closing share price ($) 78.51 42.77 28.55 28.26 24.93

6.1 Profit Participation Pool payments for 6.2 LTI issued to KMP 2010/11 The following charts show the vesting outcomes of all LTI issued As described earlier in the report, one of the six guiding principles to KMP in 2006, 2007 and 2008. Only minimal vesting for grants of our Remuneration Policy is that incentives should be aligned made in 2006, 2007 and 2008 has applied, illustrating the clear link with shareholder value creation (that is, with growth in the share between company performance and remuneration at Perpetual. price and dividends payments). The chart below demonstrates this alignment. 10%

Short-term incentives and NPAT are highly correlated 90% NPAT ($) STI Index (%) 200 180 250 182.1 NPAT 160 STI 2006 grants 200 140 5% 120 128.8 150 100 STI Index 2011 = 100 80 90.5 95% 100 60 62.0 40 50 37.7 20 2007 grants

07 08 09 10 11 9%

91%

LTI that has vested

2008 grants LTI that remains unvested or has forfeited

The performance hurdles for the 2007 allocation were initially tested in October 2010, with no shares vesting due to performance targets not being met. These shares will be re-tested in October 2011. Based on current performance against targets, it is unlikely that any shares will vest as a result of the re-test.

42 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES 7 Details of remuneration

Index to tables Table Page number Remuneration of Managing Director and Group Executives...... 44 Remuneration components as a proportion of total remuneration...... 46 Loans to Group Executives under the ESPP...... 46 Option holdings of the former Managing Director...... 47 Value of unvested remuneration that may vest in future years...... 47 Unvested shareholdings of Managing Director and Group Executives...... 48

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 43 Remuneration of the Managing Director and Group Executives (accounting treatment)

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

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

$ $ $ $ $ $ $ $ $ $ $

Managing Director

C Ryan7

2011 1,3 07,24 4 407,732 4,828 6 37,0 8 4 47,6 0 0 1,0 97,24 4 150,000 1,247,244 60,000 - 60,000

Former Managing Director

D Deverall

2011 1,846,547 958,352 - 871,755 23,699 1,853,806 - 1,853,806 - ( 7,259) ( 7,259)

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

Current Group Executives

R Brandweiner*

2011 701,873 345,218 - 1,825 15,199 362,242 204,800 567,0 42 134,831 - 134,831

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

R Burrows*

2011 1,247,282 528,566 14,402 1,825 23,699 568,492 3 07,20 0 875,692 371,590 - 371,590

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

C Doyle*

2011 1,044,417 486,248 45,535 1,825 15,199 548,807 281,600 830,407 214,010 - 214,010

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

C Green

2011 700,197 353,391 - 1,825 15,199 370,415 204,800 575,215 124,982 - 124,982

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

B Henderson

2011 79,508 - - 79,508 - 79,508 - 79,508 - - -

I Holyman*

2011 8 37,0 85 363,377 - 1,825 48,738 413,940 175,100 589,040 248,045 - 248,045

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

G Lloyd*

2011 2,034,017 528,857 59,982 701,625 15,199 1,305,663 3 07,70 0 1,613,363 420,654 - 420,654

J Stewart

2011 523,468 318,134 - 1,825 15,199 335,158 102,400 4 37,558 85,910 - 85,910

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

R Vahtrick

2011 16,946 14,206 - 23 2,717 16,946 - 16,946 - - -

44 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Name Total Fixed remuneration STI Fixed LTI remuneration Short-term Post Total fixed and STI Share based6 Total LTI employment remuneration

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

$ $ $ $ $ $ $ $ $ $ $

Current Executives who were in Acting Group Executive roles during the year8

P Ryan

2011 55,258 28,723 - 200 2,521 31,444 18,082 49,526 5,732 - 5,732

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

S Singh

2011 56,346 29,156 - 66 1,666 30,888 19,726 50,614 5,732 - 5,732

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

Group Executives who departed during the year

M Miller

2011 244,804 266,417 - 3,298 20,848 290,563 - 290,563 (45,759) - (45,759)

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

M Pancino

2011 13,525 87,26 4 10,226 4,840 4,818 107,148 - 107,148 (93,623) - (93,623)

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

R MacIntyre

2011 534,604 66,426 - 430,522 9,800 506,748 - 506,748 27,856 - 27,856

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

Total 2011 11,243,121 4,782,067 134,973 2,739,872 262,101 7,919,012 1,771,408 9,690,420 1,559,960 (7,259) 1,552,701

Total 2010 8,418,830 4,604,571 89,484 21,923 262,032 4,978,010 2,795,000 7,773,010 886,277 (240,457) 645,820

Total 2010 for Managing Director and Group Executives disclosed in 20108 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)

* Five highest paid officers of the Group and Company during the year ended 30 June 2011. 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 & Total Permanent Disability insurance provided as part of the remuneration package – interest on loans arising from shares issued under the ESPP (refer to page 46 ‘Loans to Group Executives under the ESPP’) – final payments in respect of executives who departed during or since the end of the year (including payout of accrued leave and termination benefits of $871,166 paid to D Deverall, $2,527 paid to M Miller, $4,665 paid to M Pancino and $430,112 paid to R MacIntyre) – sign-on payments in respect of executives who joined during the year (including cash sign-on payments of $500,000 to C Ryan and $700,000 to G Lloyd), and – payments in respect of relocation expenses to C Ryan ($136,400) and B Henderson ($79,508). 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 equity instruments. 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 (except if service conditions are not met). The accounting treatment of non-market and market conditions are in accordance with Accounting Standards. 7 Share-based remuneration amount for C Ryan represents the accounting value of his sign-on grant of shares (or cash if shareholder approval is not obtained) to be expensed in the financial statements for the reporting period to 30 June 2011. 8 Represents accounting value of remuneration while in Acting Group Executive roles (ie 1 July 2010 to 10 August 2010). 9 The totals shown relate to executives disclosed in the 2010 Annual Report and so do not equal the 2010 totals for executives disclosed in this table.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 45 Remuneration components as a proportion of total remuneration1

Name Fixed benefits Performance linked benefits Total 2011 STI

% STI % LTI % % (as % of Target)

Managing Director

C Ryan 84% 11% 5% 100% 33%

Former Managing Director

D Deverall 100% 0% 0% 100% 0%

Current Group Executives

R Brandweiner 52% 29% 19% 100% 51%

R Burrows 45% 25% 30% 100% 51%

C Doyle 53% 27% 20% 100% 51%

C Green 53% 29% 18% 100% 51%

B Henderson 100% 0% 0% 0% N/A

I Holyman 49% 21% 30% 100% 51%

G Lloyd 64% 15% 21% 100% 51%

J Stewart 64% 20% 16% 100% 51%

R Vahtrick 100% 0% 0% 100% N/A

Current Executives who were in Acting Group Executive roles during the year

P Ryan 57% 33% 10% 100% 51%

S Singh 55% 35% 10% 100% 65%

Group Executives who departed during the year

M Miller 100% 0% 0% 100% 0%

M Pancino 100% 0% 0% 100% 0%

R MacIntyre 95% 0% 5% 100% 0%

1 The remuneration components are determined based on the ‘Remuneration of Managing Director and Group Executives (accounting treatment)’ table on page 44.

Loans to Group Executives under the ESPP

Name Balance at the start Repayment of loan Interest paid and Balance at the end of Interest not charged1 Highest balance in of the year payable for the year the year period

$ $ $ $ $ $

Departed Group Executives

M Miller 2,889 (2,889) - - 164 2,889

R MacIntyre 5,932 (5,932) - - 260 5,932

1 Interest not charged has been calculated at 10% on the weighted average loan balance as at 30 June 2011 and 30 June 2010, 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 to the Financial Statements. The loans were available to all executives except for the current Managing Director and former Managing Director. They were also not available to the Non-executive Directors. No other Group Executives have loans.

There are now no KMP with loans under the ESPP.

46 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Option holdings of the former Managing Director

Movement during the year Name Grant date Exercise Exercise price Held at Granted Forfeited Exercised Held at Vested & Fair value Proceeds period 1 July 2010 30 June 2011 exercisable at per option at received on 30 June 2011 grant date1 exercise

$ No. of options No. of options No. of options No. of options $ $ Former Managing Director D Deverall2 Options granted prior to 1 July 20083 267,36 4 - 267,36 4 - - - 1 Jul 08 1 Jul 11 - 42.73 57,39 0 - 57,39 0 - - - 8.97 - 1 Jul 14 29 Jun 09 1 Jul 12 - 28.34 47,585 - 47,585 - - - 9.58 - 29 Jun 19 3 Jul 09 1 Jul 12 - 28.34 5,911 - 5,911 - - - 9.58 - 29 Jun 15 1 Jul 10 1 Jul 13 - 28.74 - 76,606 76,606 - - - 5.47 - 29 Jun 16 Aggregate Value4 $419,035 $27,087,496

Options granted to the former Managing Director were 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; 100% forfeited in the current year), 1 July 2006 (29,950; 100% forfeited in the current year), 1 July 2007 (236,436; 100% forfeited in the current year). 4 The aggregate value is calculated as the number of options at the exercise price. 5 Percentage of total remuneration received as options for the former Managing Director (D Deverall) was 0%.

Value of unvested remuneration that may vest in future years

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

30 June 2012 30 June 2013 30 June 2014 Minimum Maximum Minimum Maximum Minimum Maximum Managing Director C Ryan ------Former Managing Director D Deverall ------Group Executives R Brandweiner - 167,294 - 107,232 - 21,434 R Burrows - 343,081 - 190,596 - 34,999 C Doyle - 251,455 - 186,424 - 40,831 C Green - 151,606 - 95,529 - 18,955 B Henderson ------I Holyman - 257,3 0 4 - 142,946 - 26,249 G Lloyd 132,325 145,115 39,372 J Stewart - 102,917 - 72,797 - 15,574 R Vahtrick - - - Current Executives who were in Acting Group Executive roles during the year P Ryan - 80,039 - 47,9 9 6 - 8,750 S Singh - 80,039 - 47,9 9 6 - 8,750 Group Executives who departed during the year M Miller ------M Pancino ------R MacIntyre ------

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 47 Unvested shareholdings of the Managing Director and Group Executives

Name Grant date Issue price Vesting date Held at Movement during the year Held at Fair value per Fair value 1 July 2010 30 June 2011 share ($) TSR per share ($) Hurdle non-TSR Granted Forfeited Vested hurdle

No. of shares No. of shares No. of shares

Managing Director

C Ryan ------

Aggregate Value $0 $0 $0

Former Managing Director

D Deverall1 Shares granted prior to 1 July 20082 51,496 - 51,496 - -

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

1 July 2010 28.74 1 July 2013 - 17,8 32 17,8 32 - - 18.97 27.65

Aggregate Value $512,492 $5,562,385 $0 -

Group Executives

R Brandweiner Shares granted prior to 1 July 20083 1,359 - 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 7,20 8 - - - 7,20 8 29.02 37.93

1 October 2010 30.80 1 October 2013 - 11,931 - - 11,931 20.59 30.80

Aggregate Value $ 367,475 $99,941 $0

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

1 October 2010 30.80 1 October 2013 - 19,480 - - 19,480 20.59 30.80

Aggregate Value $599,984 $0 $0

C Doyle Shares granted prior to 1 July 20085 25,531 - 8,030 7,938 9,563

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

1 October 2010 30.80 1 October 2013 - 22,727 - - 22,727 20.59 30.80

Aggregate Value $699,992 $554,938 $415,005

C Green Shares granted prior to 1 July 20086 2,291 - 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

1 October 2010 30.80 1 October 2013 - 10,551 - - 10,551 20.59 30.80

Aggregate Value $324,971 $168,480 $0

B Henderson ------

Aggregate Value $0 $0 $0

I Holyman Shares granted prior to 1 July 20087 11,992 - 5,873 - 6,119

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

1 October 2010 30.80 1 October 2013 - 14,610 - - 14,610 20.59 30.80

Aggregate Value $449,988 $424,970 $0

G Lloyd 10 August 2010 31.33 10 August 2011 - 12,767 - - 12,767 N/A 27.65

1 October 2010 30.80 1 October 2013 - 21,915 - - 21,915 20.59 30.80

Aggregate Value $1,074,972 $0 $0

48 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Name Grant date Issue price Vesting date Held at Movement during the year Held at Fair value per Fair value 1 July 2010 30 June 2011 share ($) TSR per share ($) Hurdle non-TSR Granted Forfeited Vested hurdle

No. of shares No. of shares No. of shares

J Stewart Shares granted prior to 1 July 20088 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

1 October 2010 30.80 1 October 2013 - 8,668 - - 8,668 20.59 30.80

Aggregate Value $266,974 $43,940 $0

R Vahtrick ------

Aggregate Value $0 $0 $0

Current Executives who were in Acting Group Executive roles during the year

P Ryan Shares granted prior to 1 July 20089 1,495 - 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

1 October 2010 30.80 1 October 2013 - 4,870 - - 4,870 20.59 30.80

Aggregate Value $149,996 $109,942 $0

S Singh Shares granted prior to 1 July 200810 1,365 - 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

1 October 2010 30.80 1 October 2013 - 4,870 - - 4,870 20.59 30.80

Aggregate Value $149,996 $100,232 $0

Departed Executives

M Miller Shares granted prior to 1 July 200811 1,631 - 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

1 October 2010 30.80 1 October 2013 - 10,551 10,551 - - 20.59 30.80

Aggregate Value $324,971 $889,885 $0

M Pancino Shares granted prior to 1 July 200812 2,294 - 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 $0 $667,656 $0

R MacIntyre Shares granted prior to 1 July 200813 7,241 - 2,283 4,958 -

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 $0 $292,718 $337,094

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, 28 October 2008 and 22 October 2009. 2 These shares were granted on 1 July 2006 (7,130; 100% forfeited in the current year) and 1 July 2007 (44,366; 100% forfeited in the current year). 3 These shares were granted on 1 October 2007 (1,359; 100% forfeited in the current year). 4 These shares were granted on 31 March 2008 (11,383). 5 These shares were granted on 4 December 2006 (1,645; 100% forfeited in the current year), 1 October 2007 (4,759; 100% forfeited in the current year) and 20 February 2008 (19,127; 9% forfeited in the current year and 41% vested in the current year). 6 These shares were granted on 1 October 2007 (2,291; 100% forfeited in the current year). 7 These shares were granted on 2 October 2006 (5,873; 100% forfeited in the current year) and 1 October 2007 (6,119). 8 These shares were granted on 10 September 2007 (584; 100% forfeited in the current year). 9 These shares were granted on 1 October 2007 (1,495; 100% forfeited in the current year). 10 These shares were granted on 3 July 2006 (139; 100% forfeited in the current year) and 1 October 2007 (1,226; 100% forfeited in the current year). 11 These shares were granted on 1 October 2007 (1,631; 100% forfeited in the current year). 12 These shares were granted on 14 August 2006 (255; 100% forfeited in the current year) and 1 October 2007 (2,039; 100% forfeited in the current year). 13 These shares were granted on 1 October 2007 (1,359; 100% forfeited in the current year), 3 December 2007 (2,941: 4% forfeited in the current year and 96% vested in the current year), 3 December 2007 (2,941: 28% forfeited in the current year and 72% vested in the current year). 14 The aggregate value is calculated as the number of shares at the issue price.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 49 8 Contract terms of executives Contract terms for the current Managing Director

Contract details Chris Ryan, Managing Director and Chief Executive Officer from 14 February 2011

Term of contract Open-ended

Fixed Remuneration $1,225,000 per annum, reviewable in accordance with Perpetual’s policies.

STI ▪▪ Target STI of 100% of fixed remuneration. ▪▪ Subject to the Board’s assessment of criteria, including threshold risk measures and behaviour objectives which must be met by the Executive for any STI to be awarded. ▪▪ Subject to the Board’s direction, the Executive may be required to apply the proportion of his actual STI payment in excess of 100% fixed remuneration to acquire Deferred Shares.

LTI Eligible to receive LTI grants of 100% of fixed remuneration (or such greater amounts as may be determined by the Board from year to year) provided by way of either or both performance shares and options in such proportions determined by the Board, annually in its discretion. Grants are divided into two equal tranches, with the following performance targets being applied to each tranche:

1. TSR performance target If Perpetual’s TSR ranking relative to the comparator group is: ▪▪ less than the median, 0% vests; ▪▪ at the median, 50% vests; ▪▪ greater than the median but less than 75%, 50% plus 2% for every percentile increase vests; and ▪▪ 75% or above, 100% vests.

2. EPS performance target If Perpetual’s growth in EPS is: ▪▪ less than or equal to the threshold EPS growth target, 0% vests; ▪▪ greater than the threshold EPS growth target but less than the maximum EPS growth target, 2% for every 0.1% of EPS growth in excess of threshold EPS growth target; ▪▪ at or above the maximum EPS growth target, 100% vests. The TSR and EPS targets are tested on the third anniversary of the grant date. After this date, any unvested portion is forfeited.

Sign-on entitlements In recognition of the remuneration foregone by Mr Ryan as a consequence of joining Perpetual, a sign-on entitlement was agreed: ▪▪ $500,000 gross (less applicable taxation) to be paid in cash three months after the commencement date; and ▪▪ $600,000 in the form of performance shares (subject to shareholder approval) subject to vesting conditions (50% subject to a relative TSR hurdle and 50% subject to an EPS hurdle, as described above) measured over a two-year performance period (1 April 2011 to 1 April 2013). If shareholder approval is not obtained, Mr Ryan will receive a cash equivalent to the performance shares which would have become exercisable, subject to the satisfaction of the performance hurdles.

Relocation benefits Reasonable costs associated with Mr Ryan’s relocation from Hong Kong to Sydney will be met by the Company in accordance with Perpetual’s Relocation Policy.

50 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Contract terms for the current Managing Director (continued)

Contract details Chris Ryan, Managing Director and Chief Executive Officer from 14 February 2011

Termination of employment The agreement contains provisions for the termination of Mr Ryan’s employment as follows: (a) Termination by Mr Ryan on 12 months’ notice in writing to the Board (or such shorter period as may be agreed). In the event the Board agrees to a notice period of less than 12 months, the agreement will be subject to no entitlement to receive a payment of fixed remuneration (or any other remuneration or amount) in respect of any period after termination date. There is no entitlement for STI for that financial year; and unvested STI held as shares, all unvested LTI and unvested share-based sign-on is forfeited. (b) Termination by the Company on 12 months’ notice in writing (or such shorter period as may be agreed). The Executive is entitled a pro-rata STI for that financial year; and unvested STI held as shares, unvested LTI and unvested share-based sign-on due to vest within two years of the termination date, will remain eligible for vesting, subject to satisfaction of performance conditions in due course. Unvested LTI due to be tested after two years of the termination date is forfeited. (c) If the Executive becomes incapacitated by illness or injury for an accumulated period of three months in any 12 month period, the Company may terminate this agreement by giving 12 months’ notice in writing (or such shorter period as may be agreed). The Executive is entitled to a pro-rata STI for that financial year; and unvested STI held as shares, unvested LTI and unvested share-based sign-on due to vest within two years of the termination date, will remain eligible for vesting, subject to satisfaction of performance conditions in due course. Unvested LTI due to be tested after two years of the termination date is forfeited. (d) Termination without notice following an Agreed Material Diminution Event. Upon such termination, the Company must, within seven days, pay the Executive fixed remuneration in lieu of 12 months notice and a pro-rata STI for that financial year. Unvested STI held as shares, unvested LTI and unvested share-based sign-on due to vest within two years of the termination date, will remain eligible for vesting, subject to satisfaction of performance conditions in due course. Unvested LTI due to be tested after two years of the termination date is forfeited. (e) Termination by the Company for poor performance on six months’ notice in writing (or such shorter period as may be agreed) or termination by the Company without notice. There is no entitlement for STI for that financial year; and unvested STI held as shares, all unvested LTI and unvested share-based sign-on is forfeited. (f) Termination in the event of Mr Ryan’s death – his estate is entitled to pro-rata STI for that financial year; and unvested STI held as shares, unvested LTI and unvested share-based sign-on remain eligible for vesting subject to satisfaction of performance conditions in due course. The agreement also provides that the Company may elect to make a payment in lieu of notice.

Contract terms for the former Managing Director

Contract details David Deverall, former Managing Director and Chief Executive Officer to 23 June 2011

Overview ▪▪ Term of contract: From the date of the agreement (24 September 2007) until terminated in accordance with its terms. ▪▪ Mr Deverall resigned with effect on 23 June 2011. In accordance with the terms of his contract, Mr Deverall received a termination payment based on a pro-rata of his previous year’s STI. All unvested shares and options lapsed upon cessation of employment.

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 equal tranches, with the following performance targets being applied to each tranche:

1. TSR performance target If Perpetual’s TSR ranking relative to the comparator group is: ▪▪ less than the median, 0% vests; ▪▪ at the median, 50% vests; ▪▪ greater than the median but less than 75%, 50% plus 2% for every percentile increase vests; and ▪▪ 75% or above, 100% vests.

2. EPS performance target If Perpetual’s growth in EPS is: ▪▪ less than 10% per annum, 0% vests; and ▪▪ 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.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 51 Contract terms for the former Managing Director (continued)

Contract details David Deverall, former Managing Director and Chief Executive Officer to 23 June 2011

LTI – Business Eligible to receive LTI - Business grants up to $6,000,000. 50% of the LTI – Business benefit is provided by way of shares and One-off grant made on 50% by way of options. LTI Business benefit will vest on 30 June 2012 subject to compound annual growth in EPS targets 1 July 2007 and UPAT targets. A threshold compound annual growth in EPS of 11% measured over five years 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.

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 six 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 (or 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 1/10 of the LTI – Business.

Termination by Perpetual due to poor performance – six 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 1/10 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.

52 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Termination provisions for Group Executives

Term Who Conditions

Duration of Contract Brian Henderson Four years from the commencement date (unless terminated earlier in accordance with the termination provisions)

All other Group Executives Ongoing until notice is given by either party

Notice to be provided by Group Executive to Geoff Lloyd Four months, where notice is given within 24 months of the terminate the employment agreement commencement date Six months, where notice is given on or after 24 months of the commencement date

Janine Stewart 12 weeks

Paul Ryan Two months

Shailendra Singh Two months

All other Group Executives Three months

Notice to be provided by Perpetual to terminate Geoff Lloyd 12 months, where notice is given within 24 months of the the employment agreement for poor performance commencement date Six months, where notice is given on or after 24 months of the commencement date

Roger Burrows Six months

Janine Stewart 12 weeks

Paul Ryan Two months

Shailendra Singh Two months

All other Group Executives Three months

Notice to be provided by Perpetual to terminate Geoff Lloyd 12 months, where notice is given within 24 months of the the employment agreement without cause commencement date Six months, where notice is given on or after 24 months of the commencement date

Roger Burrows Six months

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

Janine Stewart 12 weeks

Paul Ryan Two months

Shailendra Singh Two months

All other Group Executives Three 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 Geoff Lloyd Four months non-solicitation restraint, where notice is given within 24 months of the commencement date Six months non-solicitation restraint, where notice is given on or after 24 months of the commencement date

All other Group Executives Six month non-solicitation restraint

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 53 9 Remuneration of Non-executive Alignment with shareholder interests The constitution requires Non-executive Directors to acquire a Directors minimum of 500 Perpetual shares on appointment and at least Remuneration Policy 1,000 shares when they have held office for three years. The Company’s Remuneration Policy for Non-executive Directors The Non-executive Directors’ Share Purchase Plan (now closed) aims to ensure we can attract and retain suitably skilled, allowed Non-executive Directors to sacrifice up to 50 per cent experienced and committed individuals to serve on the Board. of their directors’ fees to acquire shares in Perpetual. Shares acquired in this way are not subject to performance targets, as Non-executive Directors do not receive performance-related they are acquired in place of cash payments. Following changes remuneration and are not entitled to receive performance shares to tax rules, this plan was closed on 1 July 2009. or options over Perpetual shares. Shares are held in the plan until the earlier of 10 years or Fee framework retirement from the Board. Non-executive Directors receive a base fee. Except for the Non-executive Directors do not receive share options. Directors’ Chairman, they also receive fees for participating in Board holdings held directly or indirectly (for example, through a Committees (other than the Nominations Committee), either as superannuation fund) are shown on page 56. Chairman or as a member of a Committee. Retirement Policy Non-executive Directors’ fees 2010/11 2011/12 Non-executive Directors who have held office for three years $ $ since their last appointment must retire and seek re-election at Chairman 468,500 468,500 the Annual General Meeting.

Directors 170,000 170,000 In order to revitalise the Board, Perpetual’s Non-executive

Audit Risk and Compliance 40,000 40,000 Directors agree not to seek re-election after three terms of three Committee Chairman years. However, the Board may invite a Non-executive Director to continue in office beyond nine years if it is advantageous to the Audit Risk and Compliance 20,000 20,000 Committee Member Company for reasons such as leadership or continuity.

People and Remuneration 28,500 28,500 Committee Chairman

People and Remuneration 14,250 14,250 Committee Member

Investment Committee Chairman 28,500 28,500

Investment Committee Member 14,250 14,250

Nominations Committee Member 14,250 Nil

In addition to their base fee, they receive superannuation contributions of up to nine per cent of Non-executive Director fees, capped at the maximum prescribed under Superannuation Guarantee legislation. They may receive employer superannuation contributions in one of Perpetual’s employee superannuation funds or in a complying fund of their choice. Non-executive Directors may also salary-sacrifice superannuation contributions out of their base fee if they wish.

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 2011 were $1,951,994. More details are provided on page 56.

54 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Contract terms and Non-executive Director fees and responsibilities*

Robert M Peter B Scott2 Meredith J Paul V Brasher Philip Bullock3 E Paul Elizabeth M Philip J Twyman

Savage1 Brooks McClintock Proust

$ $ $ $ $ $ $ $

Board fees (per annum)

Chairman 468,500 468,500 ------

Independent Director - - 170,000 170,000 170,000 170,000 170,000 170,000

Committee fees (per annum)

Audit Risk and Compliance Committee

Chairman ------40,000

Member - - 20,000 20,000 - - 20,000 -

People and Remuneration Committee

Chairman ------28,500 -

Member - - - 14,250 14,250 14,250 - -

Investment Committee

Chairman - - - - - 28,500 - -

Member - - 14,250 - 14,250 - - 14,250

Nomination Committee

Member4 - - - - - 14,250 14,250 14,250

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

* In addition to committee fees, Directors are entitled to minimum superannuation guarantee contributions. 1 Robert Savage retired as Chairman of the Nominations Committee on 23 July 2010 but remained as a Member of that Committee until his retirement from the Board on 26 October 2010. 2 Peter Scott became Chairman of the Board on 26 October 2010 and retired from the People and Remuneration Committee on 26 October 2010. 3 Philip Bullock was appointed as a member of the Investment Committee and the People and Remuneration Committee on 9 August 2010. 4 From 1 July 2011, there will be no fees paid to members for serving on the Nominations Committee.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 55 Remuneration of the Non-executive Directors (accounting treatment)

Name Total Short-term Post employment Share-based

Cash salary, fees and short-term Pension and Superannuation Equity settled compensated absences 1,2

2011 2010 2011 2010 2011 2010 2011 2010

$ $ $ $ $ $ $ $

R M Savage 156,235 469,461 147,376 4 47,421 8,859 22,040 - -

P B Scott 402,303 206,961 387,10 4 192,500 15,199 14,461 - -

P V Brasher 219,449 133,969 169,449 83,969 50,000 50,000 - -

M J Brooks 219,449 212,461 204,250 198,000 15,199 14,461 - -

P Bullock 210,711 14,955 195,512 13,750 15,199 1,205 - -

E P McClintock 242,199 234,461 227,000 220,000 15,199 14,461 - -

E M Proust 247,949 262,915 232,750 248,454 15,199 14,461 - -

P J Twyman 253,699 245,461 238,500 231,000 15,199 14,461 - -

TOTAL 1,951,994 1,780,644 1,801,941 1,635,094 150,053 145,550 - -

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 per cent 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.

Shares, options, dividends and units held by Non-executive Directors

Name Ordinary shares Dividends received Options Registered scheme interests1

2011 2010 2011 2010 2011 2010 2011 2010

No. No. $ $ No. No. $ $ R M Savage 9,787 9,609 10,863 15,560 - - 2,943,086 2,015,797

P B Scott 2,291 2,140 4,353 3,410 - - 93,065 73,888

P V Brasher 1,000 1,000 2,000 1,050 - - 6 37,0 45 497,825

M J Brooks 6,156 5,753 11,700 9,165 - - 1,598,841 1,568,458

P Bullock 1,000 1,000 2,000 - - - - -

E P McClintock 9,203 8,768 17,747 14,102 - - 202,821 188,674

E M Proust 4,401 3,245 8,564 5,227 - - - -

P J Twyman 8,107 8,107 15,214 13,543 - - 1,412,253 2,045,167

1 Amounts invested in Perpetual’s products.

Non-executive Director holdings held directly or indirectly

Name Balance at the start of the year, Shares acquired via salary Other changes during the year Balance at the end of the year, or for Directors appointed in the sacrifice during the year or for Directors who retired in year, the date of appointment the year, the date of retirement

No. of shares

R M Savage 9,609 - 178 9,787

P B Scott 2,140 - 151 2,291

P V Brasher 1,000 - - 1,000

M J Brooks 5,753 - 403 6,156

P Bullock 1,000 - - 1,000

E P McClintock 8,768 - 435 9,203

E M Proust 3,245 - 1,156 4,401

P J Twyman 8,107 - - 8,107

56 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Chief Executive Officer’s and Chief Lead Auditor’s Independence Financial 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 2011 to the audit for the financial year ended 30 June 2011 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 audit; Non-audit services and During the year KPMG, the Company’s auditor, performed other (ii) no contraventions of any applicable code of professional non-audit services in addition to their statutory duties amounting conduct in relation to the audit. to $288,000 (2010: Nil).

The Board has a review process in relation to any non-audit services provided by the external auditor. The Board considered the non-audit services provided by the auditor and, in accordance with written advice provided by resolution of the Audit Risk and Compliance Committee, is satisfied that the provision of these KPMG 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;

▪▪ non-audit services provided do not undermine the general Andrew J Yates principles relating to auditor independence as set out in APES Partner 110 Code of Ethics for Professional Accountants, as they Sydney 26 August 2011 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 2011 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:

Peter B Scott Chris Ryan Chairman Chief Executive Officer and Managing Director

Sydney 26 August 2011

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 57 Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for the 12 months ended 30 June 2011

Overview...... 59 Segment results summary...... 60 Operating environment...... 62 Regulatory environment...... 65 Shareholder returns...... 65 Dividends...... 66 Review of Businesses...... 66 Perpetual Investments...... 66 Private Wealth...... 70 Corporate Trust...... 72 Group Support Services...... 74 Total Group Expenses...... 75 Significant Items...... 76 Capital Management...... 78 Interest rate risk...... 78 Credit risk...... 78 Equity risk...... 79 Market risk...... 79 Operational risk...... 79 Financial strength...... 79 Cash flow...... 80 Summary Consolidated Balance Sheet...... 81 Events subsequent to balance date...... 82 Appendix A: Segment results...... 84 Analysis of segment results...... 86 Appendix B: Business segment reclassification table...... 88 Appendix C: Average FUM...... 90 Appendix D: Recent ASX announcements...... 90 Glossary...... 92

Note in this report: ▪▪ 1H10 refers to the financial reporting period for the six months ended 31 December 2009 ▪▪ 2H10 refers to the financial reporting period for the six months ended 30 June 2010 ▪▪ FY10 refers to the financial reporting period for the 12 months ended 30 June 2010 ▪▪ 1H11 refers to the financial reporting period for the six months ended 31 December 2010 ▪▪ 2H11 refers to the financial reporting period for the six months ended 30 June 2011 ▪▪ FY11 refers to the financial reporting period for the 12 months ended 30 June 2011

58 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Perpetual is a diversified financial services company sentiment and investment returns. This sense of caution was operating in three main markets: funds management, reflected in the domestic funds management industry, which financial advisory and trustee services. The Group operates recorded annual net outflows1 compared to inflows in the primarily in Australia. Market factors influencing the previous corresponding period coupled with unusually weak performance of these sectors include, amongst others, demand for housing finance in 2H11. The S&P/ASX All Ordinaries global and Australian economic performance, global and Price Index (All Ords) increased by around 7.7 per cent during Australian financial markets and government policy. FY11, closing at 4,659.8 on 30 June 2011. However, the average All Ords in FY11 only increased by around 2.7 per cent. The following is a discussion and analysis of Perpetual’s results of operations for the 12 months ended 30 June 2011 (FY11). It also FY11 underlying profit after tax (UPAT) was $72.9 million in line includes a discussion of its financial condition as at 30 June 2011. with $72.8 million in FY10. The result reflected:

The following information should be read in conjunction with ▪▪ the impact of subdued investment market performance on the the Group’s audited consolidated financial statements and Group’s core market linked revenues associated notes for FY11. ▪▪ a full year’s contribution from the Grosvenor and Fordham All amounts shown are stated in Australian dollars unless businesses acquired by Private Wealth in FY10, which was otherwise noted, and are subject to rounding. more than offset by the continued investment in improving the Private Wealth offering A list of relevant ASX announcements since the start of FY11 can be found at Appendix D. Additional information is available on the ▪▪ a reduction in equity-based remuneration expense, and Group’s website www.perpetual.com.au ▪▪ a lower effective tax rate. A glossary of frequently used terms and abbreviations can be found at the end of the discussion. FY11 net profit after tax (NPAT) attributable to Perpetual Limited ordinary equity holders was $62.0 million, down 31 per cent from In FY11, to facilitate a more targeted client approach, the Group $90.5 million in FY10. The decline in NPAT was attributable to: refined its sales and service vision. In line with this new client segmentation, the Group transferred the direct distribution ▪▪ a $10.5 million after tax decrease in the recovery of prior period capability from Private Wealth to the Perpetual Investments losses in relation to the Exact Market Cash Fund (EMCF), business. This transfer aligns with the Group’s management reflecting the continued maturing of securities in the portfolio at and reporting structure. In FY11, the Group has increased the their face value (FY11: $9.8 million versus FY10: $20.3 million), allocation of Group shared services costs to the operating in line with guidance businesses to increase transparency and drive efficiency across ▪▪ a $3.1 million after tax expense relating to the response to the the Group. private equity proposal, which did not proceed (FY10: nil) FY10 financial disclosure for Perpetual Investments, Private ▪▪ a $14.7 million after tax non-cash impairment charge relating to Wealth, Corporate Trust and Group Support Services has been the smartsuper business (FY10: nil) restated in this discussion to provide comparability with the segment reporting adopted for FY11. ▪▪ a $6.4 million after tax restructuring expense to deliver greater flexibility in the Group’s future cost base (FY10: nil), offset by Refer to Appendix B for a table that details the above reclassifications. None of these changes impacts the Group’s ▪▪ a $6.1 million after tax increase in gains on disposal and previously reported consolidated net profit after tax, earnings impairment of investments (FY11: $3.5 million gain versus per share or return on equity. FY10: $2.6 million loss). Overview A FY11 final fully franked dividend of 90 cents per share was declared by the Board, bringing total fully franked dividends Investors remained cautious throughout most of FY11 in respect of FY11 to 185 cents per share, down 25 cents per and continued to be impacted by concerns over the fiscal share or 12 per cent on FY10. The FY11 final dividend is payable sustainability of a number of European economies, especially on 27 September 2011. Greece, as well as the United States. Growth in the major advanced economies continued to remain subdued, particularly The Group’s financial strength improved in FY11, with net as households continued to unwind the debt excesses tangible assets per share increasing by 14 per cent to $4.50 collectively accumulated over the past few decades. Despite from $3.95 at the end of FY10. At the end of FY11, the Group Australia enjoying one of the highest terms of trade in its history, had increased its holdings of cash, cash equivalents and liquid domestic households and companies experienced a decline investments by 15 per cent to $274.0 million, from $237.4 million in confidence, particularly in 2H11, when the country also at the end of FY10. experienced a number of natural disasters. This decreased domestic economic growth, which negatively impacted market

1 Based on most recent available Plan for Life data – March 2011.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 59 Segment results summary

For the 12 month period Operating revenue EBITDA1 Profit before/ after tax

FY10 FY11 FY10 FY11 FY10 FY11 $m $m $m $m $m $m

Perpetual Investments 227.7 225.0 99.7 94.0 68.8 73.3 Private Wealth 100.8 116.2 23.4 21.8 17.4 13.3 Corporate Trust 87.5 97.2 29.0 29.1 25.1 25.3 Group Support Services 10.3 10.3 (0.1) (1.7) (3.6) (6.5)

Totals before tax and significant items 426.3 448.7 152.0 143.2 107.7 105.4 Income tax expense (34.9) (32.5)

Underlying profit after tax (UPAT)2 before significant items 72.8 72.9

Significant items after tax: ▪▪ EMCF gains/(losses) 20.3 9.8 ▪▪ Gain/(loss) on sale/impairment of investments (2.6) 3.5 ▪▪ Private equity proposal response costs - (3.1) ▪▪ Impairment of assets - (14.7) ▪▪ Restructuring costs - (6.4)

Net profit after tax (NPAT) attributable to Perpetual Limited ordinary equity holders 90.5 62.0

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 2H11 compared to 2H10 and 1H11, and FY11 compared to FY10.

Change in underlying profit 2H11 v 2H10 2H11 v 2H10 2H11 v 1H11 2H11 v 1H11 FY11 v FY10 FY11 v FY10 before tax $m change % change $m change % change $m change % change

Perpetual Investments 0.9 +3% (2.9) -8% 4.5 +7% Private Wealth (5.4) -49% (2.1) -27% (4.1) -24% Corporate Trust (1.3) -12% (5.3) -35% 0.2 +1% Group Support Services (1.6) -55% (2.5) -125% (2.9) -81%

Total (7.4) -14% (12.8) -22% (2.3) -2%

Underlying performance in FY11 was 2 per cent lower than in FY10, reflecting the subdued improvement in the performance of domestic equity markets over the year, combined with the impact of net outflows of funds under management, as well as the continued investment in the Private Wealth business and the costs associated with the transition of senior management.

The profitability of each business unit is heavily influenced by its key revenue drivers:

▪▪ funds under management (FUM) for Perpetual Investments

▪▪ funds under advice (FUA) for Private Wealth, and

▪▪ funds under administration (FUA) for Corporate Trust.

The Group earns the majority of its revenue based on a percentage of total assets under management, advice or administration. Around 23 per cent of the Group’s revenues are charged on a per transaction or time basis.

60 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES The following table summarises the movements in each business unit’s key revenue driver across the year. More detailed analysis is contained within the ‘Review of Businesses’ section. Movement in key revenue drivers and operating environment

At end of FY09 FY10 Net Other1 FY11 FY11 FY11 flows v FY09 v FY10 $b $b $b $b $b % variance % variance

Perpetual Investments FUM (including Direct) 26.2 26.9 (1.8) 2.1 27.2 +4% +1% Private Wealth FUA 6.8 8.3 (0.1) 0.5 8.7 +28% +5% Corporate Trust FUA 241.4 210.5 (4.7) - 205.8 (15%) (2%)

Corporate Trust Number of mortgage matters 95,687 199,257 40,370 - 239,627 +150% +20%

1 Includes reinvestments, distributions, income and asset growth.

The key driver of the Group’s revenue is the average value of the Australian equity market over the period. The average value of the Australian equity market in FY11 as measured by the All Ords was 2.7 per cent higher than in FY10.

The largest drivers of total revenue are the value of FUM within Perpetual Investments and FUA within Private Wealth, which are mainly influenced by the level of the Australian equity market. At the end of FY11, Perpetual Investments’ FUM and Private Wealth’s FUA were around 77 per cent and 56 per cent exposed respectively to domestic and international equity markets.

The following chart and table detail the movement in average FUM and revenue margin over the last three years.

30.0 90bps

80bps 25.0 70bps 20.0 60bps

15.0 50bps

10.0 40bps

30bps Avgerage FUM $ Billion 5.0

20bps Average Revenue Margin % - 1H09 2H09 1H10 2H10 1H11 2H11 10bps

-5.0 0bps Australian Equities Global Equities Quantitative Investments Cash and Fixed Interest Other Average revenue margin (RHS)

For the period 1H09 2H09 1H10 2H10 1H11 2H11 FY10 FY11 $b $b $b $b $b $b $b $b

Total average FUM 28.4 24.6 28.4 28.4 27.5 28.0 28.4 27.8

Average FUM revenue margin 74 bps 77 bps 75 bps 78 bps 79 bps 77 bps 76 bps 78 bps

Average FUM revenue margin 74 bps 69 bps 75 bps 76 bps 79 bps 77 bps 76 bps 78 bps excluding performance fees

The Group’s main source of revenue is from its funds under management. Average FUM revenue margin for FY11 improved by two basis points to 78 bps (FY10: 76 bps) due to the net outflows from lower margin products such as institutional cash. Following consultation with clients whose equity investments were subject to performance fees, effective from the beginning of FY11, the Group waived performance fees in exchange for a higher base fee structure.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 61 The key asset classes managed by the Group are equities and Operating environment cash & fixed interest. Average FUM decreased by two per cent The Australian share market traded within a narrow range in in FY11 to $27.8 billion as net outflows exceeded the growth FY11, with the All Ords oscillating between 4,500 and 5,000 for attributable to market movement. most of the year. From its low point in July 2010, the market In FY11, there were $1.8 billion of net outflows from Perpetual experienced a 10 month uptrend and prices peaked in April 2011. Investments (FY10: $1.9 billion of net outflows), composed After this peak, the share market gave back some of its earlier as follows: gains as concerns about the global economic outlook intensified. Despite this headwind, the Australian All Ords index closed out ▪▪ an aggregate $0.8 billion of net outflows from the equities the year at 4,659.8, constituting an increase of 7.7 per cent, asset class, compared to $0.4 billion of net outflows in FY10. which was slightly above the post-1900 average of 7.1 per cent, In FY11 there were $0.6 billion of net outflows from Australian even though this return was significantly less than in most equities (FY10: $0.4 billion of net outflows) and $0.2 billion from of Australia’s global peers. international equities (FY10: nil) In line with the experience of the past five years, domestic ▪▪ net outflows of around $0.9 billion from the cash and fixed share market sentiment was dominated by developments in interest asset class, versus $1.4 billion of net outflows in FY10, international economies, particularly in Asia and Europe, as and well as the US. After a very sharp rebound in global economic growth in FY10, optimism faded towards the end of the year, ▪▪ $0.1 billion in net outflows of other FUM due to a reduction in as investor concerns about European and US government investment assets backing Perpetual Protected Investments debt intensified. These fears were sparked by developments in (PPI) in response to loan repayments by investors (FY10: $0.1b). peripheral European economies (including Greece, Ireland and Portugal), where governments needed to be bailed out by the Management calculates the expected impact on revenue, European Central Bank and the International Monetary Fund. The across all of its businesses, for each one per cent movement in associated rise in default possibility in the June 2011 quarter, in the All Ords. Based on the level of the All Ords at the end of FY11, turn, saw market fears spread to the larger economies, including a one per cent movement in the market changes annualised Spain and Italy and, subsequently, the US. revenue by approximately $2.0 million to $2.5 million. It is worth noting this movement is not linear to the overall value of the As the US fiscal deficit remained quite high, the impact of these market. This means that as the market reaches higher or lower developments on market sentiment outweighed the impact of levels, a one per cent movement may have a larger or smaller significant economic stimulus, with the US Federal Reserve not effect on revenue as FUM and FUA are comprised of both equity only maintaining official interest rates at between zero per cent market and non-equity asset classes. and 0.25 per cent, but also initiating a US$600 billion program of quantitative easing to support US economic growth. Despite the Note that the above revenue sensitivity is a guide only and may stimulus, growth weakened as the year progressed (down to 1.4 vary due to a number of factors, including but not limited to: per cent in June 2011) as a consumer spending rebound waned due to households paying down their debt further. Despite this ▪▪ equity funds under the Group’s management and advice anaemic growth and only a marginal decline in unemployment performing broadly in line with the All Ords (from 9.5 per cent in June 2010 to 9.2 per cent in June 2011), US corporate earnings continued to grow at a very solid rate, ▪▪ the impact of FUM and FUA flows, both inflows and outflows, underpinned by good revenue growth primarily from global and their timing, and sources and a strong focus on cost controls.

▪▪ changes in channel, product mix and pricing policy possibly The bright spot in relation to the global economic picture affecting the level of revenue earned from the Perpetual continued to be Asia, with growth outperforming market Investments and Private Wealth businesses. expectations despite both the withdrawal of economic stimulus (as interest rates rose) and the impact of the Japanese Private Wealth FUA increased by five per cent to $8.7 billion earthquake in March 2011. Even though Japan’s economy over FY11, primarily as a result of growth attributable to has grown only marginally over the past 20 years, relative to a market movement. surging China, it still remains one of the world’s most important Corporate Trust FUA decreased by two per cent to $205.8 billion component manufacturers for the US and Asia. The March 2011 over FY11, compared to a 13 per cent decrease in FY10. In FY11, earthquake, which sparked the world’s worst nuclear crisis in market conditions for residential mortgage backed securities 25 years, and the associated power shortages, had a profound (RMBS) continued to improve, with higher levels of issuance than effect on regional industrial production, which declined from in any of the three previous fiscal years. elevated levels back to historic averages, but Asia ex-Japan growth overall still remained quite resilient. Mortgage services volumes increased by 20 per cent in FY11 The resilience of Asian economic growth was most evident in compared to FY10, benefiting from a full period contribution from China, where growth remained around 10 per cent despite four a major bank client secured in 1H10, as well as increased activity rises in domestic interest rates and nine rises in the Chinese from the existing client base, particularly in 1H11. The growth in banks’ reserves requirements. However, even this positive light 1H11 was however reversed in 2H11, primarily due to a sharp began to fade towards the end of the year, as rising regional decline in housing finance activity. inflation heightened concerns about future interest rate decisions.

62 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Despite its continued strong rhetoric about inflation and the in the Australian economy experienced a contraction for one expectation of strong domestic growth, the Reserve Bank of of the few times in the past 20 years. These events and their Australia (RBA) only raised official interest rates once over FY11, associated impact on growth are viewed as temporary and by 0.25 per cent, with the target cash rate finishing the period at growth is expected to recover in FY12 as the reconstruction 4.75 per cent. Despite this, the RBA continued to state that the of the Queensland capital stock begins and the early stages balance of risks in interest rate settings was to the upside in the of Australia’s largest mining investment boom in 150 years wake of Australia’s record terms of trade, low unemployment, commences. limited spare capacity and rising inflation. All of these remained evident at the end of FY11, but growth softened in the wake The following chart shows the movement in the daily All Ords as of the natural disasters in early 2011. These events meant that well as the average levels for 1H10, 2H10, FY10, 1H11, 2H11 and coal exports from Queensland declined notably and growth F Y11. All Ords

5,100

4,900

4,700

4,500

A ll O r d s 4,300

4,100

3,900 Spot close (at end of each day) All Ords 1st half avg All Ords FY avg All Ords 2nd half avg All Ords 3,700

9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 l t r r l t r r u v c b a y u v c b a y J ug ep c o e an p a un J ug ep c o e an p a un A S O N D J Fe M A M J A S O N D J Fe M A M J

The All Ords increased in value during FY11 by 7.7 per cent, closing at 4,659.8 at the end of the period, compared to 4,324.8 at the end of FY10. The average All Ords for FY11 was around 2.7 per cent higher than in FY10. Based on the most recently available data, the Australian funds management industry has experienced a return to net outflows. In the 12 months to March 2011 there were net outflows of $2.6 billion, compared to net inflows of $9.4 billion in the previous corresponding period.

Total market net flows

40.0

30.0

20.0

10.0 $ Billion

0

(10.0)

(20.0)

Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11

Source: Plan for Life March 2011. The above chart demonstrates the reversal in the post-GFC recovery of net flows into the Australian funds management industry. Cyclical factors adversely affecting the funds management industry include the continued deleveraging by consumers and risk aversion which favours investment in retail term deposits because of the high interest rates on offer from banks.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 63 The improvement in credit market conditions in FY11 flowed into the residential mortgage backed securities market (RMBS), where spreads continued to narrow, increasing the confidence of both issuers and investors.

70 250

60 200

50

150 40 $ Billion 30 100

20

50 10 Average revaluation margin bps – two year senior margin revaluation Average

0 0

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

Non AOFM AOFM Spread Margin

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

During FY11, both issuance and pricing improved, with increased participation from real money investors and reduced reliance on the Federal Government’s AOFM support program. These trends are apparent from the above chart.

Australian RMBS outstanding by currency

A$ Billions 180 AUD EUR GBP USD 160

140

120

100

80

60

40

20

0

Dec-94Jun-95 Dec-95 Jun-96 Dec-96 Jun-97 Dec-97 Jun-98 Dec-98 Jun-99 Dec-99 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11

Source: Macquarie Debt Markets Research.

The above chart shows that in FY11, for the first time since the GFC, the aggregate level of outstanding Australian RMBS has increased, as a result of higher issuance of Australian dollar denominated RMBS, coupled with lower repayments by borrowers due to increases in mortgage interest rates.

64 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Regulatory environment Shareholder returns The regulatory environment has continued to evolve over the past In FY11, EPS and ROE based on UPAT both declined. Whilst financial year. FY11 UPAT was broadly unchanged (FY11: $72.9 million versus FY10: $72.8 million) diluted FY11 EPS of 165.5 cents per share The areas of regulatory change of most significance to the represented a 2.2 per cent decrease on FY10, due to the Group’s businesses continue to be: increase in the weighted average number of ordinary shares on issue during FY11. ROE decreased by 230 bps to 20.1 per ▪▪ Implementation of legislative change associated with the cent from 22.4 per cent in FY10, primarily due to the increase in Government’s Future of Financial Advice policy average equity in FY11 compared to average equity in FY10. ▪▪ Implementation of legislative change associated with the Both EPS and ROE on NPAT were substantially lower in FY11 Government’s Stronger Super policy, and compared to FY10, mainly due to the impact of: ▪▪ The associated government stated intention to increase the ▪▪ the foreshadowed $10.5 million after tax decline in recovery of Superannuation Guarantee from nine per cent to 12 per cent prior period losses from the EMCF in FY11 compared to FY10 over the medium term. ▪▪ an impairment charge of $14.7 million after tax in relation to the Consultation processes on the Future of Financial Advice and smartsuper business Stronger Super initiatives are nearing completion, however draft legislation that will confirm the specifics of how legislative change ▪▪ a $3.1 million after tax expense incurred in responding to the is likely to work was not available at the date of this report. The private equity proposal, and Government states that draft legislation will be available shortly. At this stage, it is uncertain when the legislation will be passed by ▪▪ restructuring costs of $6.4 million after tax to deliver greater the Parliament of Australia. flexibility to the Group’s cost base.

The Group continues to believe that its businesses will be well During FY11, the number of shares on issue increased by around placed to respond to the opportunities and challenges that three per cent (or 1.3 million shares) to 44.7 million shares due to: result from the proposed regulatory change. Perpetual’s advice business (Private Wealth) already adheres to high standards of ▪▪ employee share plan related ordinary share issues, and advice quality and has a strong ‘client first’ culture and a long ▪▪ the issue of new shares to satisfy participants in the Group’s history of acting as a fiduciary. dividend reinvestment plan (DRP) that accompanied both the The broader financial planning community, beyond the Group’s FY10 final dividend and the FY11 interim dividend. own employed financial planners, are important business Average shareholders’ equity for FY11 increased by around one partners for the Perpetual Investments business. The past year per cent compared to opening equity for FY11, due to: has been a difficult one for financial planners due to continued subdued investor confidence. Uncertainty associated with ▪▪ a $39.1 million increase in contributed equity, primarily due to ongoing discussion of changes in payment structures in the vesting of staff shares ($24.8 million) and the issuing of shares wealth management industry is likely to also be a contributor to satisfy the DRP ($14.0 million) to a lack of investment confidence amongst investors and their financial advisers. ▪▪ a decrease in reserves by $12.7 million, primarily due to a $12.0 million decline in the equity compensation reserve, and

▪▪ a $19.8 million decrease in retained earnings, primarily due to $87.8 million of dividends being paid during FY11 (including $5.7 million of dividends in relation to Treasury shares), which exceeded FY11 NPAT of $62.0 million.

Shareholder returns

For the period ended1,2 1H10 2H10 1H11 2H11 FY10 FY11

Diluted earnings per share (EPS) on UPAT cents 85.1 84.1 93.9 71.8 169.3 165.5 Diluted EPS on NPAT cents 115.0 95.6 80.1 60.8 210.5 140.8

Annualised return on average equity (ROE) on UPAT % 22.9 20.6 22.6 17.4 22.4 20.1 Annualised return on average equity (ROE) on NPAT % 30.9 23.4 19.3 14.7 27.9 17.1

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 and UPAT 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.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 65 Dividends

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11

Fully franked dividend per ordinary share cents 105.0 105.0 95.0 90.0 210.0 185.0 Dividend payout ratio1 % 91.3 109.8 118.6 148.0 99.8 131.4 Proportion of NPAT paid/payable as dividend % 92.3 110.4 120.6 148.9 100.6 132.92

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 FY11.

The Group’s dividend policy is to pay dividends within a range of The Group’s franking credit balance as at the end of FY11, prior to 80-100 per cent of NPAT on an annualised basis, with a goal to the payment of the FY11 final dividend, was $60.9 million, which maximise fully franked dividends to shareholders. The dividend will enable it to fully frank $142.1 million of cash dividends. After policy is designed to be sustainable over the long term while payment of the final dividend for FY11, the franking balance is providing the Group with an appropriate degree of financial flexibility. capable of fully franking a further $101.9 million of cash dividends.

FY11 NPAT was reduced by a $14.7 million asset impairment charge that was non-cash in nature and does not materially affect Review of Businesses the Group’s liquidity, cash flows, or current or future operations. Perpetual Investments FY11 NPAT was further adversely impacted by a one-off Perpetual Investments is one of Australia’s most highly regarded $3.1 million after tax cost in relation to responding to the private investment fund managers, offering a broad range of products for equity proposal and a $6.4 million after tax restructuring expense. personal investment, superannuation and retirement. Having taken these matters into consideration and the fact that the Group’s financial profile remains strong, the Board has on The business offers clients strong investment capabilities across this occasion excluded the impact of these charges on NPAT in a range of asset classes, including Australian and international determining FY11 dividends. equities, property securities, multi-sector and multi-manager funds, mortgages and cash & fixed interest. A FY11 final fully franked dividend of 90 cents per share will be payable on 27 September 2011 (Ex-Dividend date of 31 August In addition to its various asset class investment management 2011 and Record Date 6 September 2011). activities, Perpetual Investments also offers clients self managed 3 This brings total fully franked dividends for FY11 to 185 cents per superannuation fund (SMSF) administration services and the share, compared to total dividends of 210 cents per share fully WealthFocus platform, which provides clients with a range of franked in FY10. This equates to a FY11 dividend payout ratio of funds managed by both Perpetual and other fund managers around 96 per cent when the aforementioned items are excluded. under one account.

The DRP will be operational for the FY11 final dividend. Shares Perpetual Investments services a diverse group of clients, from to satisfy the DRP will be acquired on or off-market (or by a large institutional investors which typically invest larger amounts combination thereof) and transferred to DRP participants. DRP on which the business receives lower fees, through to retail shares will be allocated to participants at the Average Market clients who typically invest smaller amounts but from whom Price as defined in the DRP terms2. There will be no discount generally higher fees are received. applicable to the Average Market Price. Retail investors may access Perpetual Investments products via The Pricing Period for the FY11 final dividend DRP will be the third party external platform providers (intermediated clients), or 10 Trading Days commencing 7 September 2011 and ending they can access products directly. 20 September 2011.

Financial summary

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m Revenues 111.5 116.2 112.8 112.2 227.7 225.0 Operating expenses (62.1) (65.9) (65.2) (65.8) (128.0) (131.0) EBITDA 49.4 50.3 47.6 46.4 99.7 94.0 Depreciation and amortisation (3.1) (2.8) (2.7) (2.7) (5.9) (5.4) Equity remuneration expense (11.8) (13.2) (6.8) (8.5) (25.0) (15.3) Profit before tax 34.5 34.3 38.1 35.2 68.8 73.3

Average FUM revenue margin 75 bps 78 bps 79 bps 77 bps 76 bps 78 bps (revenues/average FUM) Average FUM $28.4b $28.4b $27.5b $28.0b $28.4b $27.8 b

2 The Group’s DRP Rules can be found at http://shareholders.perpetual.com.au/Shareholder services/Dividend Reinvestment Plan. 3 The smartsuper SMSF administration business was sold in August 2011.

66 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES FY11 profit before tax was $73.3 million. This represents an predominantly due to higher revenue derived from the increase of around seven per cent on the previous financial year. WealthFocus platform business, offset by lower administration The result reflects relatively flat revenues, offset predominantly by fees from the PPI structured products, which are in run-off. a lower equity remuneration expense. Other non-FUM related revenue includes the net interest 2H11 profit before tax of $35.2 million represented a decrease of margin earned on the structured products loan book and around eight per cent on 1H11, and an increase of three per cent interest earned on operational bank accounts across the on 2H10. business. These revenues represent less than three per cent of total revenues of the business. FY11 revenue of $5.7 million Revenues was down $2.0 million on FY10, predominantly due to lower fees FY11 revenues were $225.0 million, down one per cent on the earned on the PPI structured products following the decision to prior year. This decrease reflected a two per cent decrease in close these products in FY09 as the Group determined that it will average FUM, which was down to $27.8 billion from $28.4 billion no longer use its balance sheet to finance this type of activity. over the previous year, in line with the subdued performance of domestic equity markets over the year and the impact of net Expenses outflows of FUM. FY11 operating expenses were $131.0 million, an increase of $3.0 million or two per cent over FY10. However, when non-cash The average FUM revenue margin in FY11 was 78 bps. This expenses (amortisation and depreciation and equity remuneration was higher than the previous year’s average margin of 76 bps expense) are included, FY11 expenses were down by $7.2 million due to net outflows from lower margin funds, such as cash or five per cent on FY10. funds, as well as the closure of the lower margin quantitative investments business during FY11, which resulted in $0.1 billion The annual decrease in total expenses is mainly due to: of net outflows and consequently, an increase in the proportion of higher margin equities as a percentage of total FUM. ▪▪ a $3.0 million decrease in employment expenses, predominantly due to lower staff incentive payments and The average FUM margin4 in 2H11 was 77 bps, a decrease contractor costs of 2 bps on 1H11. The decrease was predominantly due to net outflows from more mature funds within the retail and ▪▪ a $0.5 million decrease in general and administration expenses retail-intermediated channels, offset by inflows into the from various cost savings initiatives, and institutional channel. ▪▪ a $9.7 million decrease in equity remuneration expense, Equities revenues represent the fees earned on Australian and primarily due to the need to recognise the increased likelihood Global Equities products. FY11 revenue of $180.2 million was of various LTI schemes vesting in FY10. broadly unchanged from FY10. This was offset by: Cash and Fixed Interest revenues are derived from the fees ▪▪ an increase of $3.2 million in investment accounting and earned on cash, fixed income and mortgage products. FY11 registry fees paid to the Group’s custodian revenue of $27.3 million was down $1.4 million or five per cent from FY10, mainly reflecting the decrease in FUM in more mature ▪▪ an increase of $3.7 million relating to additional technology mortgage products. and operational support and share of the increase in costs associated with the brand awareness marketing campaign, and Other FUM related revenue includes management fees for external funds on the WealthFocus platform, administration ▪▪ the inclusion in FY11 of one-off costs of around $1.1 million fees on the PPI structured products (which are in run-off) and pertaining to the closure of the quantitative investment 5 SMSF administration fees . FY11 Other FUM related revenue funds, coupled with the restructuring of the Equities and was $11.8 million, up $0.5 million or four per cent on FY10, Distribution teams.

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

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

By asset class: ▪▪ Equities 88.2 91.8 89.6 90.6 180.0 180.2 ▪▪ Cash and fixed interest 14.3 14.4 14.0 13.3 28.7 27.3 ▪▪ Other FUM related 5.4 5.9 6.1 5.7 11.3 11.8 ▪▪ Other non-FUM related 3.6 4.1 3.1 2.6 7.7 5.7

Revenues 111.5 116.2 112.8 112.2 227.7 225.0

4 Revenue used to calculate average FUM revenue margin excludes non-FUM related revenue. 5 The smartsuper SMSF administration business was sold in August 2011.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 67 2H11 operating expenses of $65.8 million were slightly higher The higher expenses were offset by: compared to 1H11 expenses of $65.2 million, mainly due to: ▪▪ Lower staff costs of $2.5 million due to a decrease in the ▪▪ an increase of $0.4 million in investment accounting and number of staff as a result of the closure of the quantitative registry fees due to the timing of payments to the custodian investment funds and staff departures and lower accrual of incentive payments, and ▪▪ a $0.8 million increase in professional fees, due to seasonality as more audit work of funds is undertaken in the second half of ▪▪ the inclusion in 1H11 of one-off costs of around $1.1 million the financial year pertaining to the closure of the quantitative investment funds, coupled with the restructuring of the Equities and Distribution ▪▪ a $1.4 million increase in interdivisional charges, due to the teams. transfer of SMSF administration fees to Private Wealth in 2H11 (i.e. no impact at a Group level), and

▪▪ around $0.7 million for additional technology and operational support.

Funds under management As at the end of FY11, FUM of $27.2 billion represented an increase of one per cent for the year. However, average FY11 FUM was $27.8 billion or two per cent lower than in FY10.

The table below details the closing FUM for the last three fiscal years:

At end of FY09 FY10 Net flows Other1 FY11 $b $b $b $b $b

Institutional 8.5 8.1 (0.1) 0.7 8.7 Intermediary (master fund and wrap) 11.9 12.9 (1.2) 0.9 12.6 Retail 5.8 5.9 (0.5) 0.5 5.9

All channels 26.2 26.9 (1.8) 2.1 27.2

Australian equities 16.0 17.5 (0.6) 1.8 18.7 Global equities 1.4 1.4 (0.2) (0.2)2 1.0

Equities 17.4 18.9 (0.8) 1.6 19.7 Cash and fixed interest 7.5 6.7 (0.9) 0.2 6.0 Other 1.3 1.3 (0.1) 0.32 1.5

All asset classes 26.2 26.9 (1.8) 2.1 27.2

1 Includes reinvestments, distributions, income and asset growth. 2 $0.2 billion of FUM previously classified as Global Equities was transferred to Other.

In line with subdued markets and ongoing risk aversion from investors, the business in FY11 experienced net outflows of $1.8 billion, mainly from the intermediated and retail channels (together totalling $1.7 billion), compared to net outflows of $1.9 billion in FY10.

68 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Net flows Net flows for products by distribution channel and asset class for the last four reporting periods are detailed in the following table.

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $b $b $b $b $b $b

Institutional (0.9) (0.3) (0.5) 0.4 (1.2) (0.1) Intermediary (master fund and wrap) 0.1 (0.4) (0.6) (0.6) (0.3) (1.2) Retail (0.3) (0.1) (0.2) (0.3) (0.4) (0.5)

All distribution channels (1.1) (0.8) (1.3) (0.5) (1.9) (1.8)

Australian equities - (0.4) (0.1) (0.5) (0.4) (0.6) Global equities - - (0.1) (0.1) - (0.2)

Equities - (0.4) (0.2) (0.6) (0.4) (0.8) Cash and fixed interest (1.0) (0.4) (1.0) 0.1 (1.4) (0.9) Other (0.1) - (0.1) - (0.1) (0.1)

All asset classes (1.1) (0.8) (1.3) (0.5) (1.9) (1.8)

Institutional – industry superannuation funds and clients who Retail – this channel sources FUM from advisers who invest with invest large sums. The business earns its lowest revenue margin Perpetual directly and investors who come through Perpetual’s from this channel. However, institutional FUM does not require WealthFocus platform, where some FUM flows into third party complex technology and service structures, such as call centres products. This FUM earns the highest gross margin, however it and dedicated sales and distribution support, so the servicing requires significant support infrastructure, which makes the cost cost is lower. to service this channel the highest.

In FY11, this channel experienced net outflows of $0.1 billion, In FY11, net outflows from this channel were $0.5 billion, compared to net outflows of $1.2 billion in FY10, principally compared to net outflows of $0.4 billion in FY10, generally from cash and credit products, offset by inflows into our active following the same trend as in the intermediated channel, with equity strategies. net outflows largely from more mature funds such as the Industrial Share Fund, mortgage funds and multi-sector funds. Intermediary – this channel includes FUM from financial advisers who invest with Perpetual via external platform providers. This is Investment performance the business’ largest source of FUM. Investors in Perpetual Investments’ funds have experienced The intermediated channel experienced net outflows of $1.2 returns above that of the overall market in nearly all funds billion in FY11, compared to net outflows of $0.3 billion in FY10, over the medium to longer term. It is this positive ‘alpha’ that due to ongoing subdued investor sentiment post-GFC. The demonstrates the expertise of Perpetual’s investment managers outflows were largely from more mature funds such as the and helps generate new business going forward. Industrial Share Fund, mortgage funds and multi-sector funds.

The table below outlines the consistent outperformance against the relevant benchmark for the main funds across nearly all of the periods:

Excess/(under) performance p.a. – gross as at end June 2011

Period Industrial Australian Smaller Concentrated Global Diversified Share Ethical Share Share Companies Equity Resources Income Plus Share Fund Fund Fund Fund Fund Fund Fund Fund

1 year -0.41% +3.17% +14.72% +1.79% +23.39% +4.07% +5.36% +0.33% 3 years +2.60% +3.88% +9.71% +4.80% +6.72% +1.08% +4.07% +11.24% 5 years +2.59% +2.49% +7.44% +3.55% N/A -0.49% +3.42% +4.86% 7 years +1.85% +2.58% +4.15% +2.46% N/A N/A +2.59% +3.75% 10 years +3.59% +3.80% +6.87% +4.60% N/A N/A N/A N/A

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 69 Perpetual Investments’ funds continue to be recognised across increase market share in its priority segments of business the industry and by various research groups. Of particular note owners, professionals and established wealthy this year: ▪▪ continued investment in broadening capabilities, strengthening ▪▪ The Share-Plus fund won the Australian Equities Long Short advisory business leadership, and modernisation of the service category at the Money Management/Lonsec Fund Manager of offering the Year Awards ▪▪ near completion of the integration of Fordham and Grosvenor ▪▪ The Wholesale Ethical SRI Fund won Ethical Investor Fund of Financial Services (Grosvenor) (the acquired businesses). the Year at the 10th annual Australian Sustainability Awards These businesses will be treated as business-as-usual going forward. Combined FY11 EBITDA for the acquired businesses, ▪▪ The Perpetual Smaller Companies Fund won the Small Caps excluding integration costs, was $7.6 million. The acquired Australian Share category at the AFR Smart Investor Awards, businesses made a full period contribution in FY11. In FY10, and Grosvenor was present for nine months and Fordham for six ▪▪ Perpetual Investments was named Best Fund Manager in the months Money magazine Best of the Best Awards 2011. ▪▪ initiation of a project focused on modernising the administration platform for private clients, enhancing DIY product offerings Private Wealth and variabilising the fixed cost base, and Private Wealth provides holistic financial solutions for high net worth individuals. It aims to be the leading provider of wealth ▪▪ continued pursuit of the inorganic growth strategy. A number of advice for financially successful individuals, families, businesses potential investment opportunities were identified during FY11, and not-for-profit organisations. but none were concluded during the period. Private Wealth is at different stages of discussions with a number of potential Private Wealth manages financial assets for around 6,600 private acquisition targets. clients, estates, trusts and charitable trusts, with funds under advice (FUA) of $8.7 billion at the end of FY11, up five per cent Financial summary from the $8.3 billion at the end of FY10. The average client FY11 profit before tax of $13.3 million constituted a decrease account balance is $1.3 million. of around 24 per cent from the $17.4 million in FY10, reflecting continued investment in the business. Private Wealth manages one of the largest private charitable foundations in Australia, with around $1.2 billion in FUA. Areas of investment included strengthening the advisory teams, Private Wealth is trustee to nearly 450 charitable trusts, the enhancement of capability in the investment research and supporting cultural, medical, social, environmental, religious product teams, and appointments to key leadership roles, and educational causes. including a new Group Executive and state managers for Victoria and WA. In addition, costs of $1.9 million were incurred in relation In FY11, Private Wealth continued to execute on its strategy to a project to modernise the Private Wealth platform. through a combination of organic and inorganic initiatives. Key achievements included: These cost increases have been partially offset by an increase in revenue from improved investment markets and a full ▪▪ refinement of the Private Wealth strategy focused on increasing year’s contribution from the acquired businesses, which client advocacy, staff engagement and profitability of the generate a large proportion of the non-market related revenue, business. As part of the strategy, Private Wealth seeks to predominantly tax and accounting revenue.

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Market related revenue 33.5 40.0 39.4 39.7 73.5 79.1 Non-market related revenue 8.3 19.0 17.5 19.6 27.3 37.1

Total revenues 41.8 59.0 56.9 59.3 100.8 116.2 Operating expenses (32.7) (44.7) (45.1) (49.3) (77.4) (94.4)

EBITDA 9.1 14.3 11.8 10.0 23.4 21.8 Depreciation and amortisation (1.7) (2.9) (3.0) (3.3) (4.6) (6.3) Equity remuneration expense (1.0) (0.4) (1.1) (1.1) (1.4) (2.2)

Profit before tax 6.4 11.0 7.7 5.6 17.4 13.3

Closing funds under advice (FUA) $8.1b $8.3b $8.8b $8.7b $8.3b $8.7b

Average funds under advice (FUA) $7.8 b $8.5b $8.5b $8.8b $8.1b $8.7b

Market related revenue margin 86 bps 94 bps 93 bps 90 bps 91 bps 91 bps

70 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES The main revenue driver for Private Wealth is FUA, with market Depreciation and amortisation expense increased by $1.7 million related revenue contributing approximately 68 per cent of total to $6.3 million in FY11, primarily due to the full period impact of FY11 revenue, compared to 73 per cent in FY10. The increased amortisation of identifiable intangibles associated with the acquired level of contribution from tax and accounting revenue followed businesses, which were completed in FY10, and an increase in Private Wealth’s acquisition of Fordham in early 2H10. By way of amortisation associated with the client management system. comparison, in 1H10, 80 per cent of revenues were market related. FY11 equity remuneration expense was $2.2 million, an increase FY11 revenues were $15.4 million or around 15 per cent higher of $0.8 million on FY10. Equity remuneration in FY10 was lower than in FY10. The increase in market related revenue was due to due to the write-back of LTIs associated with the departure of higher average FUA and the impact of the full year’s contribution a senior executive and the increase in FY11 was due to senior of revenue from the acquired businesses. The FY11 market management appointments, including the new Group Executive related revenue margin of 91 bps was unchanged from FY10. for the business.

The increase in non-market related revenue was due to increased Operating expenses during 2H11 were up $4.6 million or activity in estate administration, tax and accounting, a broader 10 per cent on 2H10, largely due to costs associated with the product offering and the benefit of a full year of revenue from the platform modernisation project, investment in organic initiatives acquired businesses. The increase in 2H11 non-market revenue (strengthening the advisory team, and enhancing capability in was greater than in 1H11 due to seasonality factors in relation the investment research and product teams), and continued to tax and accounting revenue as well as an increase in revenue investment in the client management system. These were partially associated with direct property investment offered to clients. offset by lower costs relating to the acquired businesses due to lower acquisition and integration costs and extraction of synergies. 2H11 revenues were largely in line with 2H10 revenues as both periods included a full six months of revenue from the 2H11 operating expenses of $49.3 million were $4.2 million or acquired businesses. nine per cent higher than 1H11 expenses. There were a number of contributors to this increase, including $1.9 million incurred as Operating expenses in FY11 were $94.4 million, $17.0 million part of the initial assessment of the platform offering, selection of or 22 per cent higher than in FY10. There are a number of service providers and preparation of a business case, an increase contributors to this increase, including a full year of expenditure in variable remuneration expenses, an increase in staff costs (net of synergies) relating to the acquired businesses, increases in associated with enhancing the capabilities of the team and an core business activities including strengthening the advisory team increase in professional fees. These increases were offset by a and enhancing the capabilities of the investment research and $1.4 million decrease in interdivisional charges due to the transfer product teams, continued investment in the client management of SMSF administration fees from Perpetual Investments in 2H11 system, additional technology and operational support, and share (i.e. no impact at a Group level). of the costs associated with the brand awareness marketing campaign. In addition, the business incurred costs of $1.9 million Funds under advice in 2H11 as part of the initial assessment of the platform offering, As at the end of FY11, FUA of $8.7 billion represented an increase selection of service providers and preparation of a business case. of five per cent for the year. However, average FY11 FUA was $8.7 billion or seven per cent higher than in FY10, reflecting the full period contribution of the FUA from the acquired businesses.

The table below details the closing FUA for the last three fiscal years.

At end of FY09 FY10 Net flows Other1 FY11 $b $b $b $b $b

Financial advisory: ▪▪ superannuation 2.4 3.3 (0.1) 0.3 3.5 ▪▪ non-superannuation 1.8 2.2 - - 2.2

4.2 5.5 (0.1) 0.3 5.7

Fiduciary services: ▪▪ philanthropic 1.0 1.1 - 0.1 1.2 ▪▪ trusts and estates 1.6 1.7 - 0.1 1.8

2.6 2.8 - 0.2 3.0

Total funds under advice (FUA) 6.8 8.3 (0.1) 0.5 8.7

1 Includes reinvestments, distributions, income and asset growth.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 71 Private Wealth’s increase in FY11 FUA was driven principally by compared to FY10 as a result of the full year contribution from improved investment markets. At the end of FY11, around 56 per a major bank client and increased activity from the existing cent of Private Wealth’s FUA was invested in equities. client base (particularly in 1H11), partially offset by the sharp contraction in housing market activity in 2H11, which negatively Private Wealth is well placed to accelerate its growth as market impacted earnings as the variability of the cost base was not volatility reduces and turnaround in investor sentiment occurs. able to match the decline in matter volumes, offset by

Corporate Trust ▪▪ a $2.8 million decline in revenue within Trust and Fund Corporate Trust is a leading provider of corporate trustee, Services, primarily as a result of a decline in securitisation FUA mortgage and transaction support services to the financial and a reduction in margin due to changes in client and asset services industry. Products and services include trustee services class mix, and for mortgage-backed and other securitisation programs for major ▪▪ an increase in expenses including the share of the costs banks and non-bank organisations; regulatory compliance services associated with the brand awareness marketing campaign. for fund managers; custody, unit registry and accounting services for property and mortgage funds; trusteeships for corporate debt In 2H11, profit before tax decreased 35 per cent or $5.3 million issues, infrastructure projects and other structures; and mortgage compared to 1H11, largely due to: loan processing services for financial institutions. ▪▪ the absence of significant one-off mortgage services fees Financial summary compared to the $2 million received in 1H11 Corporate Trust’s FY11 profit before tax of $25.3 million ▪▪ the sharp contraction in housing market activity, coupled with represents an increase of one per cent on FY10. Whilst the FY11 the seasonal nature of the mortgage industry (which generally profit before tax was in line with that earned in FY10, the following experiences lower activity in the second half of the financial matters impacted the composition of the FY11 result: year) adversely impacting Mortgage Services earnings as the ▪▪ an increase in Trust and Fund Services fees of $1.7 million for variability in the cost base was not able to match the decline in additional services provided to trusts that were experiencing matter volumes, and financial distress in 2H11. These fees tend to be unpredictable ▪▪ the continued decline in securitisation FUA, albeit at a lower in nature rate than in previous periods, coupled with a change in ▪▪ one-off fees of around $2 million received by Mortgage business and client mix that yielded lower margins, partially Services in 1H11 to accommodate variations in service offset by contracts recorded, coupled with strong growth in Perpetual ▪▪ an increase in Trust and Fund Services fees associated with Lenders Mortgage Services (PLMS) business volumes financially distressed trusts.

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Trust and Fund Services 27.9 27.7 26.9 27.6 55.6 54.5 Mortgage Services 13.7 18.2 25.4 17.3 31.9 42.7

Total revenues 41.6 45.9 52.3 44.9 87.5 97.2 Operating expenses (25.8) (32.7) (35.4) (32.7) (58.5) (68.1)

EBITDA 15.8 13.2 16.9 12.2 29.0 29.1 Depreciation and amortisation (1.8) (1.8) (1.3) (1.9) (3.6) (3.2) Equity remuneration amortisation (0.2) (0.1) (0.3) (0.3) (0.3) (0.6)

Profit before tax 13.8 11.3 15.3 10.0 25.1 25.3

72 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES FY11 revenues of $97.2 million constituted an increase of 11 FY11 operating expenses increased 16 per cent over FY10, per cent on FY10. The increase in FY11 revenues included around to $68.1 million. This increase in full year expenses relative to $3.7 million of fees that are irregular in nature. Adjusting for these FY10 was largely driven by the growth in the Mortgage Services items, full year revenue grew by $6.0 million or seven per cent, business, which is a labour intensive operation. In addition, largely supported by the full year impact from the take-on of a investment continued in the Mortgage Services business through major bank client within Mortgage Services, as well as increased a number of initiatives aimed at enhancing financial performance, matter activity from its installed client base particularly during 1H11. such as variabilising the fixed cost base. Additional costs to support the future growth of the Fund Services business were 2H11 revenues were down 14 per cent on 1H11, largely due also incurred. FY11 expenses also include a $0.8 million increase to a decline in Mortgage Services revenues of $8.1 million. This in expenses, which includes the share of the costs associated decline was primarily driven by the aforementioned $2 million in with the brand awareness marketing campaign. one-off fees in 1H11, and the significant contraction in housing market activity as housing finance data hit a 10-year low6, which 2H11 operating expenses were down 8 per cent compared to combined with the seasonal nature of the mortgage industry, led 1H11, largely in response to the fall in demand for mortgage to a fall of 18 per cent in business volumes in 2H11. In addition, services volumes during the period. The Mortgage Services the change in client mix, shift in mortgage matter type and the business also invested to improve labour productivity and level of service provided, led to a reduction in the average price per support growth. In addition, 2H11 expenses included $0.5 million matter by around 10 per cent. These were offset by an increase in for the share of the costs associated with the brand awareness Trust and Fund Services revenue of $0.7 million, which included marketing campaign. $1.7 million of fees that are unpredictable in nature.

Funds under administration (FUA)1

At end of 1H10 2H10 1H11 2H11 $b $b $b $b

CMBS and ABS 31.8 30.4 28.5 26.2 RMBS – non-bank2 57.7 55.2 48.9 48.3 RMBS – repos 81.2 74.6 77.7 76.1 RMBS – bank2 51.7 50.3 54.3 55.2

Total funds under administration 222.4 210.5 209.4 205.8

1 Includes warehouse and liquidity finance facilities. 2 During 1H11 there was a transfer of $4 billion from RMBS non-bank to RMBS bank due to a client reclassification.

Corporate Trust’s FUA at the end of FY11 decreased by two per cent compared to the end of FY10, to $205.8 billion. The largest decline, excluding the client reclassification from non-bank RMBS to bank RMBS, was seen in the CMBS and ABS market, which has remained largely closed to new issuance in FY11.

In FY11, RMBS market conditions continued to improve, with RMBS issuance of approximately $12 billion in 2H11 (2H10: $7 billion and 1H11: $13 billion), primarily driven by issuance by the major banks. Further positive signs have been the ability to raise issuance with reduced participation by the AOFM ($0.8 billion in 2H11), the lowest since inception of the program, with a number of issuers upsizing their term deals due to increased investor appetite.

Run-off rates across existing RMBS continued to decrease during 2H11 compared to 1H11, though still remain above historical levels. The decline in run-off was further influenced by the 25 bps increase in the overnight cash rate to 4.75 per cent by the RBA in November 2010, reducing borrowers’ ability to pay down additional principal on their mortgage.

The Mortgage Services business consists of two offerings: Loan Servicing and PLMS. Mortgage Services volumes in FY11 increased 20 per cent on FY10, but volumes in 2H11 declined 18 per cent on 1H11. The decline in 2H11 volumes was driven primarily by a drop in new loan volumes, as housing finance activity contracted sharply, combined with the seasonal nature of the mortgage market, which is traditionally very slow during the first two months of the calendar year.

Number of matters 1H10 2H10 1H11 2H11 FY10 FY11 ‘000s ‘000s ‘000s ‘000s ‘000s ‘000s

PLMS volumes 81 118 131 109 199 240

6 Based on data from the Australian Bureau of Statistics seasonally adjusted.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 73 A restructuring expense was incurred in late FY11 in response to capacity adjustments in the Mortgage Services business in line with its operational environment, including the impact of a major bank client’s decision to reduce the scope of their outsourced services and consolidate the remaining outsourced services with another provider. This transition is expected to occur over the first half of calendar 2012.

This restructuring expense was treated as a significant item. Refer to commentary on significant items later in the discussion.

PLMS’ strategy is to continue to attract new clients, and deliver cost efficiencies and increased EBITDA margins. The revenue mix attributable to bank clients continued to grow as a proportion of total PLMS revenue, driven in part by the business undertaking with a major bank. Regional and foreign banks as well as the non-bank sector remain important client bases for the PLMS business.

PLMS revenue split by client type 1H10 2H10 1H11 2H11 FY10 FY11 % % % % % %

Bank 72 82 85 86 77 86 Non-bank 28 18 15 14 23 14

Group Support Services Costs that have been retained in Group Support Services (GSS) reflect costs that management deems to be associated with corporate versus business unit activity. These include costs associated with the Board of Directors and 50 per cent of the costs associated with the Group Executives of each of the GSS Business Units (CEO, Group Finance, Risk, and People and Culture) as it is deemed that approximately 50 per cent of their time is spent on Group reporting and setting corporate policies. Costs and revenues associated with the capital structure of the Group, including interest income, financing costs and ASX listing fees are also retained within GSS.

Financial summary

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Revenues 5.2 5.1 5.1 5.2 10.3 10.3 Operating expenses (4.0) (6.4) (4.9) (7.1) (10.4) (12.0)

EBITDA 1.2 (1.3) 0.2 (1.9) (0.1) (1.7) Depreciation and amortisation (0.4) (0.2) (0.4) (0.4) (0.6) (0.8) Equity remuneration expense (0.3) 0.2 (0.2) (0.2) (0.1) (0.4) Interest expense (1.2) (1.6) (1.6) (2.0) (2.8) (3.6)

Profit/(loss) before tax (0.7) (2.9) (2.0) (4.5) (3.6) (6.5)

FY11 revenue of $10.3 million from the Group’s cash and principal investments was unchanged from FY10.

FY11 operating expenses of $12.0 million were $1.6 million higher than FY10, primarily due to costs associated with the transition of the CEO.

FY11 equity remuneration was $0.3 million higher than in FY10, which benefited from the write-back of LTIs for the outgoing CEO, who had resigned on 23 June 2010.

FY11 interest expense was around $0.8 million higher than FY10, due to $0.4 million of increased interest expense on the Group’s $45 million of corporate debt and $0.4 million for the acceleration of the fair value discount unwind in relation to the payment of deferred acquisition consideration for one of the recent Private Wealth acquisitions.

74 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Total Group Expenses Total Group expenses including depreciation and amortisation and equity remuneration expense (excluding significant items) increased by around eight per cent to $343.3 million in FY11 compared to FY10.

Movement in Group expenses

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Employment (100.0) (122.2) (117.3) (117.7) (222.2) (235.0) Occupancy (8.2) (10.5) (10.4) (10.5) (18.7) (20.9) Administration and general (35.5) (36.1) (36.7) (43.3) (71.6) (80.0) Other intangibles (1.2) (2.1) (2.0) (1.8) (3.3) (3.8) Financing costs (1.2) (1.6) (1.6) (2.0) (2.8) (3.6)

Total expenses (146.1) (172.5) (168.0) (175.3) (318.6) (343.3)

The key drivers of the increase in Group expenses in FY11 are set out in the following table:

$m

FY10 expenses 318.6 Annualisation of Private Wealth acquisitions (including integration costs) 8.1 Reduction in equity remuneration expense (8.0) Increased costs associated with uplift in Mortgage Services volumes 8.4 Increase in registry fees 3.2 CEO transition costs 2.1 Project relating to the modernisation of the Private Wealth platform 1.9 Brand marketing 1.4 Software maintenance 1.0 Interest expense (including amortisation of deferred consideration) 0.8 Other – including staff salary increases, the annualised impact of new staff starting in FY10 and general CPI related increases 5.8

FY11 expenses 343.3

Increased employment costs in FY11 reflect the full year impact of Increased financing costs in FY11 were mainly attributable to the Private Wealth acquisitions completed during FY10, the increase discount unwind of deferred consideration in relation to recent in mortgage matters, which is a labour intensive process, and Private Wealth acquisitions and increased interest expense on the CEO transition costs, less the reduction in equity remuneration Group’s corporate debt facility. expense, primarily in Perpetual Investments. Tax expense Increased occupancy costs in FY11 reflect the full year impact of Perpetual’s average tax rate in FY11 was 30.8 per cent (FY10: Private Wealth acquisitions and additional premises required to 32.4 per cent), calculated from underlying profit before tax (UPBT). support new business initiatives, principally in mortgage services. The FY11 tax rate benefited from the reversal of an over-provision Administration and general expenses in FY11 increased by for income tax in the prior year. Normalising for this over-provision, around $8.4 million, primarily due to the increase of $3.2 million the average tax rate based on FY11 UPBT would have been in registry fees, $1.4 million in marketing expenses, $1.0 million around 33 per cent. of software maintenance and $2.5 million of consultancy fees (of The average tax rate is higher than the Australian corporate which $1.9 million related to the project to modernise the Private tax rate of 30 per cent, mainly due to the non-deductibility of Wealth platform). the amortisation expense of acquired intangible assets in the Amortisation expense related to other intangibles increased in Australian operations and the impact of losses from overseas FY11, reflecting the full year impact of Private Wealth acquisitions operations not being recognised as deferred tax assets. made during FY10. This gave rise to an increase in identifiable intangible assets carried on the Group’s balance sheet that are subject to amortisation.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 75 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.

For the period ended Profit/(Loss) Before Tax

1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Significant items: 1. EMCF gains 15.8 13.2 8.5 5.4 29.0 13.9 2. Gain/(loss) on sale/impairment of investments 2.5 (6.0) 2.2 2.0 (3.5) 4.2 3. Private equity proposal response costs - - (4.3) (0.1) - (4.4) 4. Impairment of assets - - (10.6) (4.1) - (14.7) 5. Restructuring costs - - - (9.1) - (9.1)

Total significant items 18.3 7.2 (4.2) (5.9) 25.5 (10.1)

For the period ended Profit/(Loss) After Tax

1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Significant items: 1. EMCF gains 11.1 9.2 6.0 3.8 20.3 9.8 2. Gain/(loss) on sale/impairment of investments 1.7 (4.3) 1.6 1.9 (2.6) 3.5 3. Private equity proposal response costs - - (3.0) (0.1) - (3.1) 4. Impairment of assets - - (10.6) (4.1) - (14.7) 5. Restructuring costs - - - (6.4) - (6.4)

Total significant items 12.8 4.9 (6.0) (4.9) 17.7 (10.9)

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.

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Hold to maturity gains versus benchmark1 15.8 13.2 8.5 5.4 29.0 13.9 Tax expense (4.7) (4.0) (2.5) (1.6) (8.7) (4.1)

Profit after tax 11.1 9.2 6.0 3.8 20.3 9.8

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 used to meet redemptions or are 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 majority of the unrealised mark-to-market losses from prior periods in the EMCF1 portfolio have now been recovered and the remainder are expected to be recovered as the portfolio matures. The average maturity of the portfolio at the end of FY11 was around 2.1 years. The recovery rate of unrealised losses is expected to decline over time as securities in the portfolio continue to mature at their face value.

76 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES EMCF liabilities at end of 1H10 FY10 1H11 FY11 $m $m $m $m

EMCF1 808.4 695.1 514.9 383.6 EMCF2 472.8 495.2 504.0 512.8

Total EMCF liabilities 1,281.2 1,190.3 1,018.9 896.4

Total funds invested in the EMCF products have reduced over the last 12 months by around 25 per cent and by 30 per cent over the last 18 months. Since the end of 1H09, the EMCF1 has reduced by around 80 per cent, whilst the EMCF2 has experienced growth of around 50 per cent.

At the end of FY11, the carrying value of EMCF1 assets was $382.9 million (compared to $693.2 million at the end of FY10) and was at a deficit to the fair value of its liabilities by $0.7 million, compared to a deficit of $1.9 million at the end of FY10.

As the EMCF1 portfolio continues to run off and the majority of its unrealised losses have been recouped, its financial performance going forward is no longer expected to be material in the context of the Group’s results. Accordingly, from the commencement of 1H12, the financial performance of EMCF1 will be reported as UPAT in the cash and fixed interest asset class in Perpetual Investments.

EMCF2 was established in July 2008. It has a similar structure to EMCF1 but has specific rules that govern the withdrawal of funds. EMCF2 assets are held on a hold-to-maturity basis for unit pricing purposes. At the end of FY11, the carrying value of EMCF2 assets was $516.2 million (compared to $497.8 million at the end of FY10), which exceeded their liabilities by $3.4 million, compared to an excess of $2.6 million at the end of FY10. The financial performance of EMCF2 is reported as UPAT in the cash and fixed interest asset class in Perpetual Investments.

2. Gain/(loss) on sale/impairment of investments

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Profit on sale of part of investment portfolio/seed funds 2.8 0.8 2.8 2.8 3.6 5.6 Impairment of available for sale securities (0.3) (6.8) (0.6) (0.8) (7.1) (1.4)

Total profit/(loss) before tax on sale/impairment of 2.5 (6.0) 2.2 2.0 (3.5) 4.2 investments Income tax benefit/(expense) (0.8) 1.7 (0.6) (0.1) 0.9 (0.7)

Total profit/(loss) after tax on sale/impairment of investments 1.7 (4.3) 1.6 1.9 (2.6) 3.5

Profit on sale/impairment of investments in FY11 was $3.5 million The Company incurred response costs totalling $4.4 million after tax, a $6.1 million improvement on FY10. FY10 incurred a before tax ($3.1 million after tax) in relation to the Proposal. These $7.1 million impairment charge compared to $1.4 million in FY11. costs are disclosed as a significant item outside UPAT as they were one-off and unrelated to the ongoing business of the Group. 3. Private equity proposal response costs On 18 October 2010, the Company advised that it had received 4. Impairment of assets a takeover approach in the form of an indicative, incomplete, Management conducted a review of the carrying value of assets conditional and non-binding proposal (Proposal) from the private at the end of 1H11 and 2H11. equity firm Kohlberg, Kravis Roberts & Co. (KKR) to acquire all of the Company’s shares via a scheme of arrangement at a price Following a review of the smartsuper business in 1H11, the Group between $38.00 and $40.00 per share. assessed the recoverable amount of the cash generating unit that comprises that business. As a result of this assessment, an On 25 October 2010, the Company responded that after initial impairment charge of $10.6 million after tax was recognised. The consideration of the Proposal, it had determined that the impairment loss was allocated to goodwill, reducing the goodwill proposed price did not reflect the Company’s value but that included in the smartsuper business to zero. shareholders’ interests would be best served by conducting exploratory discussions and providing limited financial information In 2H11, as part of its ongoing portfolio review, the Group formed to KKR in order to establish if an offer that would deliver the view that the inclusion of smartsuper in its business portfolio acceptable value was likely to be formulated. was no longer warranted and initiated an active program to locate a buyer for the business. Accordingly, in 2H11 the business On 21 December 2010, the Company announced that ceased to be carried as a non-current asset and was reclassified discussions with KKR had ended after mutually acceptable terms as a current asset held for sale. The impact of this decision to exit were unable to be developed in relation to the Proposal and as a the smartsuper business gave rise to an additional impairment result, KKR’s Proposal would not be proceeding. charge of $4.1 million.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 77 Of the total $14.7 million of impairment charges incurred in FY11, environment experienced in prior periods. During FY11, the Group $13.6 million relates to the impairment of intangible assets. has continued to execute a number of strategies to strengthen its balance sheet, including: In August 2011, the smartsuper business was sold on terms in line with its revised carrying value. Proceeds from the sale were ▪▪ implementing a more disciplined approach to funding not material. incubation strategies. This has released around $7 million of capital Management determined that no other impairment charges were required. ▪▪ satisfying the DRP demand for the FY10 final dividend and FY11 interim dividend by issuing new shares to participants 5. Restructuring costs ▪▪ maintaining a committed debt facility from its long-term In 2H11, the Group commenced a business review with the banking partner for $70.0 million, drawn to $45.0 million. objective of improving both revenue and profitability. $25.0 million remains undrawn as at 26 August 2011 In FY11, restructuring costs totalling $9.1 million before tax ▪▪ continuing to improve the overall credit quality and liquidity of ($6.4 million after tax) were incurred to implement these initiatives the Group’s risk assets and continuing to reduce exposure to and were disclosed as a significant item outside UPAT. This structured products on the balance sheet, and restructuring expense was greater than the $4.7 million after tax restructuring expense foreshadowed by the Group in its ▪▪ focusing on ensuring strong discretionary expense discipline 26 May 2011 announcement. across each business unit and support group. This increase of $1.7 million after tax in restructuring costs was in response to the decision to sell the smartsuper business and Interest rate risk capacity adjustments in the Mortgage Services business in line Perpetual’s balance sheet is subject to interest rate risk. with its operational environment, including the impact of a major bank client’s decision to reduce the scope of their outsourced The Group generates positive cash flows from operations from services and consolidate the remaining outsourced services with a relatively light capital structure. Cash balances are held in high another provider. quality credit and highly liquid investment funds managed by the Group. These investments generally invest in short-term assets The annualised net benefit before tax from the restructuring is and earn a variable interest rate. expected to be around $9 million. Perpetual has both corporate and operational debt facilities. The No restructuring costs were incurred in FY10. corporate facility has a variable interest rate. As at 26 August 2011, there are no interest rate hedges against the drawn portion Capital Management ($45.0 million) of this facility. The Group manages its capital and liquidity to sustain a strong Operational debt facilities are used to finance clients into capital and flexible balance sheet. It has adopted a conservative and protected investment products. The facilities are a combination of prudent policy to ensure the Group: fixed and variable rate borrowings used to finance a combination of fixed and variable structured product loans. To minimise ▪▪ can efficiently support all of its businesses interest rate risk between these fixed rate assets and variable rate ▪▪ retains sufficient surplus capital to provide for uncertainty and liabilities, management uses interest rate swaps to broadly match operational risk that resides within the businesses fixed rate assets to floating rate liabilities.

▪▪ can maintain adequate liquidity to ensure financial flexibility, Credit risk and Credit risk is the risk of default and change in the credit quality of issuers of securities, counterparties and intermediaries to whom ▪▪ has capital resources to take advantage of inorganic growth the Group has exposure. opportunities as they arise. The Group is subject to credit risk in the following areas: The Group uses a risk-based capital model based on the Basel II framework to assess its capital requirements. The model, revised ▪▪ all cash and cash equivalent balances are subject to credit risk during the year, requires capital to be set aside for operational, as they represent deposits made by the Group with external credit and market risk and any known capital commitments. At banks and other institutions. The Group primarily invests its the end of FY11 the total amount of economic capital assessed corporate cash balances in cash funds managed by the Group by the model exceeds the Group’s $62.6 million of regulatory capital needs by around 2.1 times. At the end of FY11, total ▪▪ the Group is exposed to the performance of assets held in the economic capital requirements were $133 million, compared to EMCF products through a swap agreement, where the Group $242 million of available liquid funds. pays a return based on the UBS Bank Bill Index and receives the return on the underlying portfolio, which contains credit The Group maintains a conservative balance sheet, which and market risks, and has continued to be de-risked following the difficult trading

78 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES ▪▪ the Group is exposed to credit risk on its loan assets to PPI ▪▪ equity funds under the Group’s management and advice customers. This risk is generally limited to six per cent of the performing broadly in line with the All Ords outstanding loan book for Series 1 and 2, and seven per cent of the outstanding loan book for Series 3 as the borrowings ▪▪ the impact of FUM and FUA flows, both inflows and outflows, used to fund these loans are limited recourse in nature. and their timing, and

The Group limits the number of counterparties upon which it is ▪▪ changes in channel, product mix and pricing policy possibly willing to take credit risk. This can lead to concentrations of credit affecting the level of revenue earned from the Perpetual risk. The Group does not expect any counterparties to fail to Investments and Private Wealth businesses. meet their obligations beyond what has been provided for in the carrying value of those assets. Operational risk Operational risk is the risk arising from the daily functioning of the Equity risk Group’s businesses. Operational risk is mitigated through internal Equity risk is the risk of change in value of an issued equity controls, active management overview and regular reviews by security to which the Group has an exposure. Perpetual’s independent Risk Group function.

The Group is subject to equity risk from its investments in Each business and support head is responsible for identifying managed funds. These investments ‘seed’ new investment funds risks within their businesses and ensuring they are appropriately for the Group to develop a track record and examine the viability managed. The Risk Group assists the business by providing the of the fund to the investment community. If the investment fund is framework, tools, advice and assistance to enable the business successful, the fund is opened to third party investors. to effectively identify, assess and manage risk.

The Board of Directors oversees the risk management within Market risk the business, ensuring it is within an accepted risk tolerance The Group’s revenue is significantly dependent on FUM and FUA, range, and that all organic and inorganic business initiatives are which are influenced by equity market movements. Management consistent with the Group’s strategy and conducted ethically, calculates the expected impact on revenue, across all of its responsibly and with the highest degree of integrity. The Board’s businesses, for each one per cent movement in the All Ords. oversight of risk management is assisted by the Audit Risk and Based on the level of the All Ords at the end of FY11, a one per Compliance Committee (ARCC). cent movement in the market changes annualised revenue by approximately $2.0 million to $2.5 million. It is worth noting that The ARCC’s main responsibilities are to oversee Group this movement is not linear to the overall movement in the market. accounting policies and practices; the integrity of financial This means that as the market reaches higher or lower levels, a statements and reports; the scope, quality and independence of one per cent movement may have a larger or smaller effect on external audit arrangements; the monitoring of the internal audit revenue as FUM and FUA are comprised of both equity market function; the effectiveness of risk management policies; and the and non-equity market-sensitive asset classes. Note that the adequacy of insurance. above revenue sensitivity is a guide only and may vary due to a number of factors, including but not limited to:

Financial strength

At end of 1H10 2H10 1H11 2H11 FY10 FY11

Total equity $m 347.5 361.0 371.8 376.1 361.0 376.1 Cash $m 179.0 187.5 175.3 220.3 187.5 220.3 Corporate debt $m (45.0) (45.0) (45.0) (45.0) (45.0) (45.0)

Net cash $m 134.0 142.5 130.3 175.3 142.5 175.3

Corporate debt to capital ratio % 11.5 11.1 10.8 10.7 11.1 10.7 (corporate debt/(corporate debt + equity))1 Interest coverage calculation (EBITDA/interest expense)2 times 63x 48x 48x 33x 54x 40x for the period ended Net tangible assets per share $ 3.803 3.95 4.56 4.50 3.95 4.50

1 Excludes structured product debt, 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. 3 Net tangible assets per share of $3.80 at end of 1H10 includes an adjustment to reflect the purchase of Fordham, which was completed in 2H10.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 79 At the end of FY11, Perpetual’s gross corporate debt was $45.0 million. The Group’s gearing ratio (corporate debt to capital ratio) remains low at 10.7 per cent and is well within its stated risk appetite limit of 30 per cent. FY11 interest coverage at 40 times was well in excess of financial covenant requirements. FY11 interest expense included a fair value discount unwind of $1.2 million in relation to deferred acquisition consideration (FY10: $0.8 million). Financial covenants under the debt facilities include minimum shareholders’ funds, leverage and interest coverage ratios and caps on operational debt. At the end of FY11, the Group was in compliance with all of its debt covenants.

At the end of FY11, the Group has a committed bank corporate debt facility of $70.0 million. At 26 August 2011, $45.0 million was drawn under this facility.

Corporate debt is currently sourced solely from one long-term banking relationship with a domestic bank. The facility has greater than 12 months to expiry.

The Group actively manages liquidity risk by preparing cash flow forecasts for future periods, reviewing them regularly with senior management, maintaining a committed credit facility and engaging regularly with its debt providers.

Net tangible assets per share increased from $3.95 at the end of FY10 to $4.50 at the end of FY11.

Cash flow

For the period ended 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m

Net cash from operating activities 65.6 87.0 25.1 89.4 152.6 114.5 Net cash provided by/(used in) investing activities (9.5) (38.8) 0.9 (16.9) (48.3) (16.0) Net cash used in financing activities (23.3) (39.6) (38.2) (27.5) (62.9) (65.7)

Net increase/(decrease) in cash and cash equivalents 32.8 8.6 (12.2) 45.0 41.4 32.8

FY11 operating cash flows of $114.5 million, versus $152.6 million in FY10, represent the underlying cash flows from the operating businesses, including significant items. Operating cash flows decreased in FY11 by around $38 million compared to FY10 primarily due to:

▪▪ a $15 million decrease in revenue from the recovery of EMCF losses and

▪▪ $13 million in restructuring, private equity proposal response costs, increase in registry fees and CEO transition costs.

Cash flows used in investing activities include seed fund investments, capital expenditure within the Group, mainly on software, and the acquisition of new businesses such as Grosvenor in 1H10 and Fordham in 2H10. In FY11 $9.7 million was paid to the selling stakeholders of two Private Wealth acquisitions as certain predetermined targets were achieved. No additional businesses were acquired in FY11, resulting in a decrease of $32.3 million in net cash used in investing activities compared to FY10.

Cash used in financing activities principally relates to the payment of the Group’s dividends and share transactions involving cash. Cash flow analysis captures the dividend in the reporting period in which it is paid, not the period in which the profit was earned. Cash used in financing activities increased by $2.8 million to $65.7 million in FY11 in comparison to FY10. This was principally driven by an increase of $12.2 million in cash dividends paid during FY11 compared to FY10 in response to the improved financial performance of the Group in FY10 versus FY09, offset by a $8.1 million inflow from the sale of seed funds to other investors.

80 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Summary Consolidated Balance Sheet

At end of 1H101 FY101 1H111 FY111 $m $m $m $m

Assets Cash and cash equivalents 179.0 187.5 175.3 220.3 Liquid investments 47.6 49.9 56.8 53.7 Assets held for sale - - - 0.8 Structured products – PPI loans to customers 199.4 188.8 160.1 151.1 Goodwill and other intangibles 104.4 134.9 122.3 117.6 Software intangibles 27.4 28.6 30.2 30.7 Other assets 145.1 160.8 152.5 143.5

Total assets 702.9 750.5 697.2 717.7

Liabilities Corporate loan facility 45.0 45.0 45.0 45.0 Liabilities held for sale - - - 0.9 Structured products – PPI finance facilities 202.7 189.6 162.8 151.5 Other liabilities 107.7 154.9 117.6 144.2

Total liabilities 355.4 389.5 325.4 341.6

Net assets 347.5 361.0 371.8 376.1

Shareholder funds Contributed equity 199.0 206.0 224.3 245.1 Reserves 49.6 56.9 53.5 44.2 Retained earnings 97.8 96.5 88.7 76.7

Total shareholder funds 346.4 359.4 366.5 366.0 Non-controlling interest 1.1 1.6 5.3 10.1

Total equity 347.5 361.0 371.8 376.1

1 Note: excludes the offsetting asset and liability for the EMCF structured product. At 1H10 the EMCF asset was $1,285.3 million, with the liability being $1,281.2 million. At FY10, the EMCF asset was $1,191.1 million, with the liability being $1,190.3 million. At 1H11 the EMCF asset was $1,020.0 million, with the liability being $1,018.9 million. At FY11 the EMCF asset was $899.1 million, with the liability being $896.4 million. The net asset of $4.1 million at 1H10, $0.8 million at FY10, $1.1 million at 1H11 and $2.7 million at FY11 has been included with Other assets.

Cash and cash equivalents increased during FY11 due to operating cash flows exceeding cash used in investing and financing activities. No new acquisitions were completed in FY11.

Liquid investments increased due to the combination of the rise in equity markets and an increase in investment by minority interests in funds controlled by the Group.

Structured product loans to customers declined in FY11 due to loan repayments from customers. This, in turn, has reduced the PPI finance facility liability by a similar amount.

Goodwill and other intangibles have decreased during FY11, primarily due to the impairment charge of $10.6 million and the reclassification of $3.0 million of other intangibles to assets held for sale in relation to smartsuper (which in turn was written down to its realisable value). Other intangibles are amortised over their useful life.

The expected amortisation for the next four financial years of existing identifiable intangible assets that have arisen in recent acquisitions is as follows:

FY12 FY13 FY14 FY15 $m $m $m $m

Amortisation of identifiable intangibles1 2.4 1.8 1.8 1.7

1 Based on $14.7 million net book value at end of FY11.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 81 As the Group continues to acquire businesses in line with its The closure will result in a $10 million after tax restructuring strategic goals, the level of identifiable intangible assets carried charge in the FY12 financial year. on the balance sheet is likely to increase, which in turn will increase the amortisation of identifiable intangible assets. Perpetual believes that this decision should deliver benefits to investors in its International Share funds, both current and Contributed equity increased during FY11 due to shares being potential, and that it constitutes a positive outcome for its issued under the DRP on the FY10 final dividend and the FY11 shareholders. interim dividend and the vesting of shares under employee share plans. ii. Sale of smartsuper In August 2011, the smartsuper business was sold on terms in The non-controlling interest comprises third party interests in line with its revised carrying value. Proceeds from the sale were consolidated funds managed by the Group. not material.

Events subsequent to balance date iii. Off-market Buy-Back On 15 August 2011, the Company announced the following: On 26 August 2011 the Company announced its intention to return up to approximately $70 million of surplus capital to ▪▪ the closure of its Dublin-based in-house manufacturing shareholders through an off-market Buy-Back tender process. capability for the international equity asset class, and

▪▪ the sale of the smartsuper business. i. International Share funds In line with its stated intention to redefine its approach to the international equity asset class, Perpetual reviewed its Dublin- based international investment capabilities, taking into account market demand, profitability and alignment to strategy.

Perpetual remains strongly committed to the asset class and to delivering international investment management capabilities to the Australian market. However, it determined that its current manufacturing capability for this asset class would not meet its business expectations.

The outcome of this review has been the decision to close, effective 15 August 2011, the Dublin-based in-house manufacturing capability of Perpetual’s International Share funds product and to transfer the funds management to Boston-based investment manager Wellington Management Company, LLP (Wellington Management). Perpetual Investment Management Limited, a wholly owned subsidiary of Perpetual, will remain as the responsible entity for the product.

The strategy employed by Wellington Management shares a similar investment philosophy with Perpetual, has delivered consistent active returns for its investors over a number of years and enjoys strong investment ratings from asset consultants and research houses.

The transfer of funds management to Wellington Management is expected to generate around $7 million in after tax annualised savings, based on the current level of funds under management. FY12 net savings are estimated to be $4 million after tax due to the timing of the closure of the Dublin office.

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PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 83 Appendix A: Segment results

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

1H10 2H10 1H11 2H11 FY10 FY11 1H10 2H10 1H11 2H11 FY10 FY11 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Perpetual Investments 111.5 116.2 112.8 112.2 227.7 225.0 49.4 50.3 47.6 46.4 99.7 94.0 34.5 34.3 38.1 35.2 68.8 73.3 Private Wealth 41.8 59.0 56.9 59.3 100.8 116.2 9.1 14.3 11.8 10.0 23.4 21.8 6.4 11.0 7.7 5.6 17.4 13.3 Corporate Trust 41.6 45.9 52.3 44.9 87.5 97.2 15.8 13.2 16.9 12.2 29.0 29.1 13.8 11.3 15.3 10.0 25.1 25.3 Group Support Services 5.2 5.1 5.1 5.2 10.3 10.3 1.2 (1.3) 0.2 (1.9) (0.1) (1.7) (0.7) (2.9) (2.0) (4.5) (3.6) (6.5)

Underlying profit before tax and significant items 200.1 226.2 227.1 221.6 426.3 448.7 75.5 76.5 76.5 66.7 152.0 143.2 54.0 53.7 59.1 46.3 107.7 105.4 Income tax expense (17.6) (17.3) (18.1) (14.4) (34.9) (32.5)

Underlying profit after tax (UPAT)2 before significant items 36.4 36.4 41.0 31.9 72.8 72.9

Significant items: ▪▪ EMCF gains 11.1 9.2 6.0 3.8 20.3 9.8 ▪▪ Gain/(loss) on sale/impairment of investments 1.7 (4.3) 1.6 1.9 (2.6) 3.5 ▪▪ Private equity proposal response costs - - (3.0) (0.1) - (3.1) ▪▪ Impairment of intangible assets - - (10.6) (4.1) - (14.7) ▪▪ Restructuring expenses - - - (6.4) - (6.4)

Net profit after tax (NPAT) attributable to Perpetual Limited ordinary equity holders 49.2 41.3 35.0 27.0 90.5 62.0

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.

84 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Appendix A: Segment results

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

1H10 2H10 1H11 2H11 FY10 FY11 1H10 2H10 1H11 2H11 FY10 FY11 1H10 2H10 1H11 2H11 FY10 FY11 $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Perpetual Investments 111.5 116.2 112.8 112.2 227.7 225.0 49.4 50.3 47.6 46.4 99.7 94.0 34.5 34.3 38.1 35.2 68.8 73.3 Private Wealth 41.8 59.0 56.9 59.3 100.8 116.2 9.1 14.3 11.8 10.0 23.4 21.8 6.4 11.0 7.7 5.6 17.4 13.3 Corporate Trust 41.6 45.9 52.3 44.9 87.5 97.2 15.8 13.2 16.9 12.2 29.0 29.1 13.8 11.3 15.3 10.0 25.1 25.3 Group Support Services 5.2 5.1 5.1 5.2 10.3 10.3 1.2 (1.3) 0.2 (1.9) (0.1) (1.7) (0.7) (2.9) (2.0) (4.5) (3.6) (6.5)

Underlying profit before tax and significant items 200.1 226.2 227.1 221.6 426.3 448.7 75.5 76.5 76.5 66.7 152.0 143.2 54.0 53.7 59.1 46.3 107.7 105.4 Income tax expense (17.6) (17.3) (18.1) (14.4) (34.9) (32.5)

Underlying profit after tax (UPAT)2 before significant items 36.4 36.4 41.0 31.9 72.8 72.9

Significant items: ▪▪ EMCF gains 11.1 9.2 6.0 3.8 20.3 9.8 ▪▪ Gain/(loss) on sale/impairment of investments 1.7 (4.3) 1.6 1.9 (2.6) 3.5 ▪▪ Private equity proposal response costs - - (3.0) (0.1) - (3.1) ▪▪ Impairment of intangible assets - - (10.6) (4.1) - (14.7) ▪▪ Restructuring expenses - - - (6.4) - (6.4)

Net profit after tax (NPAT) attributable to Perpetual Limited ordinary equity holders 49.2 41.3 35.0 27.0 90.5 62.0

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 | 85 Analysis of segment results

1H11 2H11 FY11

Perpetual Private Corporate Group Total Perpetual Private Corporate Group Total Perpetual Private Corporate Group Total Investments Wealth Trust Support Investments Wealth Trust Support Investments Wealth Trust Support Services Services Services $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Operating revenue 112.8 56.9 52.3 5.1 227.1 112.2 59.3 44.9 5.2 221.6 225.0 116.2 97.2 10.3 448.7 Operating expenses (65.2) (45.1) (35.4) (4.9) (150.6) (65.8) (49.3) (32.7) (7.1) (154.9) (131.0) (94.4) (68.1) (12.0) (305.5)

EBITDA 47.6 11.8 16.9 0.2 76.5 46.4 10.0 12.2 (1.9) 66.7 94.0 21.8 29.1 (1.7) 143.2 Depreciation and amortisation (2.7) (3.0) (1.3) (0.4) (7.4) (2.7) (3.3) (1.9) (0.4) (8.3) (5.4) (6.3) (3.2) (0.8) (15.7) Equity remuneration (6.8) (1.1) (0.3) (0.2) (8.4) (8.5) (1.1) (0.3) (0.2) (10.1) (15.3) (2.2) (0.6) (0.4) (18.5)

EBIT 38.1 7.7 15.3 (0.4) 60.7 35.2 5.6 10.0 (2.5) 48.3 73.3 13.3 25.3 (2.9) 109.0 Interest expense - - - (1.6) (1.6) - - - (2.0) (2.0) - - - (3.6) (3.6)

UPBT 38.1 7.7 15.3 (2.0) 59.1 35.2 5.6 10.0 (4.5) 46.3 73.3 13.3 25.3 (6.5) 105.4

1H10 2H10 FY10

Perpetual Private Corporate Group Total Perpetual Private Corporate Group Total Perpetual Private Corporate Group Total Investments Wealth Trust Support Investments Wealth Trust Support Investments Wealth Trust Support Services Services Services $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Operating revenue 111.5 41.8 41.6 5.2 200.1 116.2 59.0 45.9 5.1 226.2 227.7 100.8 87.5 10.3 426.3 Operating expenses (62.1) (32.7) (25.8) (4.0) (124.6) (65.9) (44.7) (32.7) (6.4) (149.7) (128.0) (77.4) (58.5) (10.4) (274.3)

EBITDA 49.4 9.1 15.8 1.2 75.5 50.3 14.3 13.2 (1.3) 76.5 99.7 23.4 29.0 (0.1) 152.0 Depreciation and amortisation (3.1) (1.7) (1.8) (0.4) (7.0) (2.8) (2.9) (1.8) (0.2) (7.7) (5.9) (4.6) (3.6) (0.6) (14.7) Equity remuneration (11.8) (1.0) (0.2) (0.3) (13.3) (13.2) (0.4) (0.1) 0.2 (13.5) (25.0) (1.4) (0.3) (0.1) (26.8)

EBIT 34.5 6.4 13.8 0.5 55.2 34.3 11.0 11.3 (1.3) 55.3 68.8 17.4 25.1 (0.8) 110.5 Interest expense - - - (1.2) (1.2) - - - (1.6) (1.6) - - - (2.8) (2.8)

UPBT 34.5 6.4 13.8 (0.7) 54.0 34.3 11.0 11.3 (2.9) 53.7 68.8 17.4 25.1 (3.6) 107.7

86 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Analysis of segment results

1H11 2H11 FY11

Perpetual Private Corporate Group Total Perpetual Private Corporate Group Total Perpetual Private Corporate Group Total Investments Wealth Trust Support Investments Wealth Trust Support Investments Wealth Trust Support Services Services Services $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Operating revenue 112.8 56.9 52.3 5.1 227.1 112.2 59.3 44.9 5.2 221.6 225.0 116.2 97.2 10.3 448.7 Operating expenses (65.2) (45.1) (35.4) (4.9) (150.6) (65.8) (49.3) (32.7) (7.1) (154.9) (131.0) (94.4) (68.1) (12.0) (305.5)

EBITDA 47.6 11.8 16.9 0.2 76.5 46.4 10.0 12.2 (1.9) 66.7 94.0 21.8 29.1 (1.7) 143.2 Depreciation and amortisation (2.7) (3.0) (1.3) (0.4) (7.4) (2.7) (3.3) (1.9) (0.4) (8.3) (5.4) (6.3) (3.2) (0.8) (15.7) Equity remuneration (6.8) (1.1) (0.3) (0.2) (8.4) (8.5) (1.1) (0.3) (0.2) (10.1) (15.3) (2.2) (0.6) (0.4) (18.5)

EBIT 38.1 7.7 15.3 (0.4) 60.7 35.2 5.6 10.0 (2.5) 48.3 73.3 13.3 25.3 (2.9) 109.0 Interest expense - - - (1.6) (1.6) - - - (2.0) (2.0) - - - (3.6) (3.6)

UPBT 38.1 7.7 15.3 (2.0) 59.1 35.2 5.6 10.0 (4.5) 46.3 73.3 13.3 25.3 (6.5) 105.4

1H10 2H10 FY10

Perpetual Private Corporate Group Total Perpetual Private Corporate Group Total Perpetual Private Corporate Group Total Investments Wealth Trust Support Investments Wealth Trust Support Investments Wealth Trust Support Services Services Services $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Operating revenue 111.5 41.8 41.6 5.2 200.1 116.2 59.0 45.9 5.1 226.2 227.7 100.8 87.5 10.3 426.3 Operating expenses (62.1) (32.7) (25.8) (4.0) (124.6) (65.9) (44.7) (32.7) (6.4) (149.7) (128.0) (77.4) (58.5) (10.4) (274.3)

EBITDA 49.4 9.1 15.8 1.2 75.5 50.3 14.3 13.2 (1.3) 76.5 99.7 23.4 29.0 (0.1) 152.0 Depreciation and amortisation (3.1) (1.7) (1.8) (0.4) (7.0) (2.8) (2.9) (1.8) (0.2) (7.7) (5.9) (4.6) (3.6) (0.6) (14.7) Equity remuneration (11.8) (1.0) (0.2) (0.3) (13.3) (13.2) (0.4) (0.1) 0.2 (13.5) (25.0) (1.4) (0.3) (0.1) (26.8)

EBIT 34.5 6.4 13.8 0.5 55.2 34.3 11.0 11.3 (1.3) 55.3 68.8 17.4 25.1 (0.8) 110.5 Interest expense - - - (1.2) (1.2) - - - (1.6) (1.6) - - - (2.8) (2.8)

UPBT 34.5 6.4 13.8 (0.7) 54.0 34.3 11.0 11.3 (2.9) 53.7 68.8 17.4 25.1 (3.6) 107.7

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 87 Appendix B: Business segment reclassification table

Original disclosure Perpetual Investments Private Wealth Corporate Trust Group Support Services Total

1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Total Revenue 105.9 111.0 216.9 112.8 47.4 64.2 111.6 56.9 41.6 45.9 87.5 52.3 5.2 5.1 10.3 5.1 200.1 226.2 426.3 227.1

Operating Expenses (54.4) (60.1) (114.5) (60.7) (30.6) (43.3) (73.9) (41.7) (22.2) (29.7) (51.9) (32.2) (17.4) (16.6) (34.0) (16.0) (124.6) (149.7) (274.3) (150.6)

Amortisation and Depreciation (2.9) (2.4) (5.3) (2.6) (1.4) (2.5) (3.9) (2.6) (1.5) (1.6) (3.1) (1.0) (1.2) (1.2) (2.4) (1.2) (7.0) (7.7) (14.7) (7.4)

Equity Remuneration Amortisation (11.7) (13.3) (25.0) (6.6) (0.9) (0.3) (1.2) (1.0) (0.1) (0.1) (0.2) (0.2) (0.6) 0.2 (0.4) (0.6) (13.3) (13.5) (26.8) (8.4)

Interest Operating Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.2) (1.6) (2.8) (1.6) (1.2) (1.6) (2.8) (1.6)

Total Expenses (69.0) (75.8) (144.8) (69.9) (32.9) (46.1) (79.0) (45.3) (23.8) (31.4) (55.2) (33.4) (20.4) (19.2) (39.6) (19.4) (146.1) (172.5) (318.6) (168.0)

Underlying Profit Before Tax 36.9 35.2 72.1 42.9 14.5 18.1 32.6 11.6 17.8 14.5 32.3 18.9 (15.2) (14.1) (29.3) (14.3) 54.0 53.7 107.7 59.1

Direct Channel reclassification Perpetual Investments Private Wealth Total

1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11

$m $m $m $m $m $m $m $m $m $m $m $m

Total Revenue 5.6 5.2 10.8 0.0 (5.6) (5.2) (10.8) 0.0 0.0 0.0 0.0 0.0

Operating Expenses (1.8) (1.6) (3.4) 0.0 1.8 1.6 3.4 0.0 0.0 0.0 0.0 0.0

Underlying Profit Before Tax 3.8 3.6 7.4 0.0 (3.8) (3.6) (7.4) 0.0 0.0 0.0 0.0 0.0

Support Services Allocations Perpetual Investments Private Wealth Corporate Trust Group Support Services Total

1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Operating Expenses (5.9) (4.2) (10.1) (4.5) (3.9) (3.0) (6.9) (3.4) (3.6) (3.0) (6.6) (3.2) 13.4 10.2 23.6 11.1 0.0 0.0 0.0 0.0

Amortisation and Depreciation (0.2) (0.4) (0.6) (0.1) (0.3) (0.4) (0.7) (0.4) (0.3) (0.2) (0.5) (0.3) 0.8 1.0 1.8 0.8 0.0 0.0 0.0 0.0

Equity Remuneration Amortisation (0.1) 0.1 0.0 (0.2) (0.1) (0.1) (0.2) (0.1) (0.1) 0.0 (0.1) (0.1) 0.3 0.0 0.3 0.4 0.0 0.0 0.0 0.0

(6.2) (4.5) (10.7) (4.8) (4.3) (3.5) (7.8) (3.9) (4.0) (3.2) (7.2) (3.6) 14.5 11.2 25.7 12.3 0.0 0.0 0.0 0.0

Revised disclosure Perpetual Investments Private Wealth Corporate Trust Group Support Services Total

1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Total Revenue 111.5 116.2 227.7 112.8 41.8 59.0 100.8 56.9 41.6 45.9 87.5 52.3 5.2 5.1 10.3 5.1 200.1 226.2 426.3 227.1

Operating Expenses (62.1) (65.9) (128.0) (65.2) (32.7) (44.7) (77.4) (45.1) (25.8) (32.7) (58.5) (35.4) (4.0) (6.4) (10.4) (4.9) (124.6) (149.7) (274.3) (150.6)

Amortisation and Depreciation (3.1) (2.8) (5.9) (2.7) (1.7) (2.9) (4.6) (3.0) (1.8) (1.8) (3.6) (1.3) (0.4) (0.2) (0.6) (0.4) (7.0) (7.7) (14.7) (7.4)

Equity Remuneration Amortisation (11.8) (13.2) (25.0) (6.8) (1.0) (0.4) (1.4) (1.1) (0.2) (0.1) (0.3) (0.3) (0.3) 0.2 (0.1) (0.2) (13.3) (13.5) (26.8) (8.4)

Interest Operating Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.2) (1.6) (2.8) (1.6) (1.2) (1.6) (2.8) (1.6)

Total Expenses (77.0) (81.9) (158.9) (74.7) (35.4) (48.0) (83.4) (49.2) (27.8) (34.6) (62.4) (37.0) (5.9) (8.0) (13.9) (7.1) (146.1) (172.5) (318.6) (168.0)

Underlying Profit Before Tax 34.5 34.3 68.8 38.1 6.4 11.0 17.4 7.7 13.8 11.3 25.1 15.3 (0.7) (2.9) (3.6) (2.0) 54.0 53.7 107.7 59.1

88 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Original disclosure Perpetual Investments Private Wealth Corporate Trust Group Support Services Total

1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Total Revenue 105.9 111.0 216.9 112.8 47.4 64.2 111.6 56.9 41.6 45.9 87.5 52.3 5.2 5.1 10.3 5.1 200.1 226.2 426.3 227.1

Operating Expenses (54.4) (60.1) (114.5) (60.7) (30.6) (43.3) (73.9) (41.7) (22.2) (29.7) (51.9) (32.2) (17.4) (16.6) (34.0) (16.0) (124.6) (149.7) (274.3) (150.6)

Amortisation and Depreciation (2.9) (2.4) (5.3) (2.6) (1.4) (2.5) (3.9) (2.6) (1.5) (1.6) (3.1) (1.0) (1.2) (1.2) (2.4) (1.2) (7.0) (7.7) (14.7) (7.4)

Equity Remuneration Amortisation (11.7) (13.3) (25.0) (6.6) (0.9) (0.3) (1.2) (1.0) (0.1) (0.1) (0.2) (0.2) (0.6) 0.2 (0.4) (0.6) (13.3) (13.5) (26.8) (8.4)

Interest Operating Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.2) (1.6) (2.8) (1.6) (1.2) (1.6) (2.8) (1.6)

Total Expenses (69.0) (75.8) (144.8) (69.9) (32.9) (46.1) (79.0) (45.3) (23.8) (31.4) (55.2) (33.4) (20.4) (19.2) (39.6) (19.4) (146.1) (172.5) (318.6) (168.0)

Underlying Profit Before Tax 36.9 35.2 72.1 42.9 14.5 18.1 32.6 11.6 17.8 14.5 32.3 18.9 (15.2) (14.1) (29.3) (14.3) 54.0 53.7 107.7 59.1

Direct Channel reclassification Perpetual Investments Private Wealth Total

1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11

$m $m $m $m $m $m $m $m $m $m $m $m

Total Revenue 5.6 5.2 10.8 0.0 (5.6) (5.2) (10.8) 0.0 0.0 0.0 0.0 0.0

Operating Expenses (1.8) (1.6) (3.4) 0.0 1.8 1.6 3.4 0.0 0.0 0.0 0.0 0.0

Underlying Profit Before Tax 3.8 3.6 7.4 0.0 (3.8) (3.6) (7.4) 0.0 0.0 0.0 0.0 0.0

Support Services Allocations Perpetual Investments Private Wealth Corporate Trust Group Support Services Total

1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Operating Expenses (5.9) (4.2) (10.1) (4.5) (3.9) (3.0) (6.9) (3.4) (3.6) (3.0) (6.6) (3.2) 13.4 10.2 23.6 11.1 0.0 0.0 0.0 0.0

Amortisation and Depreciation (0.2) (0.4) (0.6) (0.1) (0.3) (0.4) (0.7) (0.4) (0.3) (0.2) (0.5) (0.3) 0.8 1.0 1.8 0.8 0.0 0.0 0.0 0.0

Equity Remuneration Amortisation (0.1) 0.1 0.0 (0.2) (0.1) (0.1) (0.2) (0.1) (0.1) 0.0 (0.1) (0.1) 0.3 0.0 0.3 0.4 0.0 0.0 0.0 0.0

(6.2) (4.5) (10.7) (4.8) (4.3) (3.5) (7.8) (3.9) (4.0) (3.2) (7.2) (3.6) 14.5 11.2 25.7 12.3 0.0 0.0 0.0 0.0

Revised disclosure Perpetual Investments Private Wealth Corporate Trust Group Support Services Total

1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11 1H10 2H10 FY10 1H11

$m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m $m

Total Revenue 111.5 116.2 227.7 112.8 41.8 59.0 100.8 56.9 41.6 45.9 87.5 52.3 5.2 5.1 10.3 5.1 200.1 226.2 426.3 227.1

Operating Expenses (62.1) (65.9) (128.0) (65.2) (32.7) (44.7) (77.4) (45.1) (25.8) (32.7) (58.5) (35.4) (4.0) (6.4) (10.4) (4.9) (124.6) (149.7) (274.3) (150.6)

Amortisation and Depreciation (3.1) (2.8) (5.9) (2.7) (1.7) (2.9) (4.6) (3.0) (1.8) (1.8) (3.6) (1.3) (0.4) (0.2) (0.6) (0.4) (7.0) (7.7) (14.7) (7.4)

Equity Remuneration Amortisation (11.8) (13.2) (25.0) (6.8) (1.0) (0.4) (1.4) (1.1) (0.2) (0.1) (0.3) (0.3) (0.3) 0.2 (0.1) (0.2) (13.3) (13.5) (26.8) (8.4)

Interest Operating Expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.2) (1.6) (2.8) (1.6) (1.2) (1.6) (2.8) (1.6)

Total Expenses (77.0) (81.9) (158.9) (74.7) (35.4) (48.0) (83.4) (49.2) (27.8) (34.6) (62.4) (37.0) (5.9) (8.0) (13.9) (7.1) (146.1) (172.5) (318.6) (168.0)

Underlying Profit Before Tax 34.5 34.3 68.8 38.1 6.4 11.0 17.4 7.7 13.8 11.3 25.1 15.3 (0.7) (2.9) (3.6) (2.0) 54.0 53.7 107.7 59.1

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 89 Appendix C: Average FUM

Average FUM 1H09 2H09 1H10 2H10 1H11 2H11 FY10 FY11 % $b $b $b $b $b $b $b $b change

Australian equities 16.9 13.8 17.8 18.7 18.9 19.8 18.3 19.4 +6% Global equities 1.2 1.1 1.3 1.3 1.1 1.0 1.3 1.0 -23% Quantitative investments 1.2 1.0 0.9 0.4 0.1 0.0 0.6 0.1 -83%

Equities 19.3 15.9 20.0 20.4 20.1 20.8 20.2 20.5 +1%

Cash and fixed interest 7.9 7.6 7.3 6.8 6.2 6.0 7.0 6.1 -13% Other 1.2 1.1 1.1 1.2 1.2 1.2 1.2 1.2 0

Total 28.4 24.6 28.4 28.4 27.5 28.0 28.4 27.8 -2%

Appendix D: Recent ASX announcements Full text of these announcements can be found at: http://shareholders.perpetual.com.au/phoenix.zhtml?c=171717&p=irol-news&nyo=0

23 July 2010 Peter Scott to succeed Bob Savage as Perpetual Chairman

29 July 2010 Funds under Management as at 30 June 2010

17 August 2010 Funds under Management as at 31 July 2010

24 August 2010 Preliminary Final Report (Appendix 4E) for the year ended 30 June 2010

Media release – Perpetual delivers solid increase in full year profit and dividend

MD&A to 30 June 2010

Financial Statements for the year ended 30 June 2010

Directors’ Report to 30 June 2010

Market briefing presentation – Full year results for the year ended 30 June 2010

15 September 2010 Funds under Management as at 31 August 2010

20 September 2010 2010 Annual Report

22 September 2010 Dividend Reinvestment Plan 2010 Final Dividend

Notice of Annual General Meeting/Proxy Form

18 October 2010 Notification of approach

21 October 2010 Funds under Management as at 30 September 2010

25 October 2010 Response to approach

26 October 2010 Annual General Meeting media release

Annual General Meeting addresses by Chairman, CEO and Chairman Elect

Results of Annual General Meeting

27 October 2010 Letter to shareholders – KKR approach

90 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES 16 November 2010 Funds under Management as at 31 October 2010

15 December 2010 Funds under Management as at 30 November 2010

20 December 2010 Discussions ended

22 December 2010 Letter to shareholders – Perpetual and KKR end discussions

23 December 2010 Policy re trading in Perpetual securities by Directors and employees

11 Januar y 2011 Appointment of new Managing Director and CEO

20 January 2011 Funds under Management as at 31 December 2010

11 Februar y 2011 Funds under Management as at 31 January 2011

15 February 2011 Market Update

23 February 2011 Preliminary Final Report (Appendix 4D) for the period ended 31 December 2010

Media release – Perpetual reports 13 per cent increase in Underlying Profit After Tax/Chris Ryan takes over from David Deverall as CEO and MD

MD&A to 31 December 2010

Financial Statements for the half year ended 31 December 2010

Market briefing presentation – Half year results for the six months ended 31 December 2010

16 March 2011 Funds under Management at 28 February 2011

24 March 2011 Dividend Reinvestment Plan 2011 Interim Dividend

19 April 2011 Funds under Management at 31 March 2011

17 May 2011 Funds under Management at 30 April 2011

26 May 2011 Perpetual announces first series of initiatives targeting improved focus and performance

Market briefing presentation

1 June 2011 Shareholder update from the Chief Executive Officer

15 June 2011 Funds under Management at 31 May 2011

28 June 2011 Response to ASX price query

27 July 2011 Funds under Management at 30 June 2011

15 August 2011 Market Update

17 August 2011 Reclassification of financial disclosure

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 91 Glossary

1H09 Six months ended 31 December 2008 2H09 Six months ended 30 June 2009

1H10 Six months ended 31 December 2009 2H10 Six months ended 30 June 2010

1H11 Six months ended 31 December 2010 2H11 Six months ended 30 June 2011

ABS Asset backed securities AICD Australian Institute of Company Directors

AOFM Australian Office of Financial Management APRA Australian Prudential Regulation Authority

ARCC Audit Risk and Compliance Committee ASX Australian Securities Exchange b Billion bps Basis point (0.01 of 1%)

CMBS Commercial mortgage backed securities DPS Dividend(s) per share

DRP Dividend Reinvestment Plan EBITDA Earnings before tax, depreciation and amortisation of intangible assets, equity remuneration expense and significant items

EMCF Perpetual Exact Market Cash Fund EPS Earnings per share

Finsia Financial Services Institute of Australasia FUA Funds under advice or funds under administration

FUM Funds under management FY09 12 months ended 30 June 2009

FY10 12 months ended 30 June 2010 FY11 12 months ended 30 June 2011

FY12 12 months ended 30 June 2012 Group Perpetual Limited and its controlled entities (the consolidated entity) and the consolidated entity’s interests in associates

GFC Global Financial Crisis LTI Long-term incentive m Million NPAT Net profit after tax

PLMS Perpetual Lenders Mortgage Services PPI Perpetual Protected Investments

RBA Reserve Bank of Australia RMBS Residential mortgage backed securities

ROE Return on equity SMSF Self-managed superannuation fund

UPAT Underlying profit after tax US United States of America

92 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 93 Financial Statements Financial Statements of Perpetual Limited and its controlled entities for the year ended 30 June 2011

Table of contents Page number Consolidated Statement of Comprehensive Income...... 95 Balance Sheet...... 97 Statement of Changes in Equity...... 98 Cash Flow Statement...... 100 Notes to the Financial Statements Note 1. Reporting entity...... 101 Note 2. Summary of significant accounting policies...... 101 Note 3. Revenue...... 110 Note 4. Net profit before tax ...... 110 Note 5. Individually significant items included in profit for the year...... 110 Note 6. Segment information...... 111 Note 7. Auditor’s remuneration...... 112 Note 8. Income tax expense...... 113 Note 9. Deferred tax assets/(liabilities)...... 114 Note 10. Dividends...... 116 Note 11. Earnings per share...... 117 Note 12. Cash and cash equivalents...... 117 Note 13. Receivables...... 118 Note 14. Assets and liabilities held for sale...... 118 Note 15. Other financial assets...... 119 Note 16. Derivative financial instruments ...... 119 Note 17. Property, plant and equipment...... 120 Note 18. Intangibles...... 120 Note 19. Prepayments...... 121 Note 20. Payables ...... 122 Note 21. Structured products – income received in advance ...... 122 Note 22. Non-current interest-bearing liabilities...... 122 Note 23. Provisions...... 122 Note 24. Contributed equity...... 123 Note 25. Reserves...... 124 Note 26. Employee benefits...... 124 Note 27. Financial arrangements ...... 127 Note 28. Financial risk management...... 127 Note 29. Structured products assets and liabilities...... 133 Note 30. Commitments ...... 135 Note 31. Contingencies...... 135 Note 32. Related parties ...... 135 Note 33. Controlled entities ...... 136 Note 34. Parent entity disclosures...... 138 Note 35. Business combinations...... 138 Note 36. Notes to the Cash Flow Statement...... 139 Note 37. Subsequent events...... 139 Note 38. Remuneration details provided as part of the financial report...... 140 Directors’ Declaration...... 148 Independent Auditor’s Report to the members of Perpetual Limited...... 149 Securities exchange and investor information ...... 150

94 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Consolidated Statement of Comprehensive Income for the year ended 30 June 2011

Consolidated

Note 2011 2010

$’000 $’000

Revenue from the provision of services 430,415 407,923

Income from structured products 69,149 83,595

Investment income 13,964 14,422

Total revenue 3 513,528 505,940

Staff related expenses excluding equity remuneration expense (225,534) (195,441)

Occupancy expenses (20,920) (18,734)

Administrative and general expenses (72,490) (60,076)

Distributions and expenses relating to structured products (50,904) (50,606)

Financing costs (3,627) (2,772)

Equity remuneration expense (18,586) (26,755)

Depreciation and amortisation expense 4 (15,649) (14,857)

Proceeds from sale of investments 75,138 36,977

Cost of investments disposed of (68,977) (33,064)

Impairment of assets 5 (14,694) -

Impairment of available-for-sale securities 5 (1,534) ( 7,0 85)

Share of loss of equity accounted investments, net of income tax - (16)

Net profit before tax 95,751 133,511

Income tax expense (32,661) (43,573)

Income tax (expense)/benefit on disposal of investments 5 (722) 784

Income tax expense 8 (33,383) (42,789)

Net profit after tax 62,368 90,722

Profit after tax attributable to non-controlling interests (337) (216)

Net profit after tax attributable to equity holders of Perpetual Limited 62,031 90,506

The Consolidated Statement of Comprehensive Income is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 101 to 147.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 95 Consolidated Statement of Comprehensive Income for the year ended 30 June 2011 (continued)

Consolidated

Note 2011 2010

$’000 $’000

Net profit after tax 62,368 90,722

Other comprehensive income/(expense), net of tax

Available-for-sale reserve Net increase in fair value of available-for-sale financial assets 1,761 2,051 Impairment of available-for-sale financial assets reclassified 1,534 5,259 to profit and loss Loss of previously impaired available-for-sale financial assets (2,416) (423) reclassified to profit and loss upon disposal

Cash flow hedge reserve Effective portion of changes in fair value of cash flow hedges 38 301

Foreign currency reserve Foreign exchange translation differences (1,288) (2,856)

Other comprehensive (expense)/income, net of income tax (371) 4,332

Total comprehensive income 61,997 95,054

Total comprehensive income is attributable to: Non-controlling interests 588 216 Equity holders of Perpetual Limited 61,409 94,838 Total comprehensive income 61,997 95,054

Basic earnings per share attributable to ordinary equity holders 11 152.7 227.1 – cents per share

Diluted earnings per share attributable to ordinary equity holders 11 140.8 210.5 – cents per share

The Consolidated Statement of Comprehensive Income is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 101 to 147.

96 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Balance Sheet as at 30 June 2011

Consolidated

Note 2011 2010

$’000 $’000

Current assets Cash and cash equivalents 12 220,320 187,539 Receivables 13 72,722 86,843 Assets held for sale 14 754 - Other financial assets 15 100 100 Structured products – EMCF assets 29 899,146 1,191,066 Structured products – receivable from investors 29 20,806 26,157 Derivative financial instruments 16 - 11 Prepayments 19 6,525 7,4 47 Total current assets 1,220,373 1,499,163 Non-current assets Receivables 13 - 3,648 Other financial assets 15 53,732 49,949 Structured products – loans receivable from investors 29 130,253 162,675 Property, plant and equipment 17 26,310 27,79 6 Intangibles 18 148,326 163,508 Deferred tax assets 9 34,413 33,219 Prepayments 19 614 858 Total non-current assets 393,648 441,653 Total assets 1,614,021 1,940,816 Current liabilities Payables 20 40,342 40,661 Liabilities held for sale 14 904 - Structured products – EMCF liabilities 29 896,348 1,190,342 Structured products – interest-bearing liabilities 28 17,38 6 24,818 Structured products – income received in advance 21 11,057 13,918 Derivative financial instruments 16 613 662 Current tax liabilities 15,468 16,736 Employee benefits 26 40,792 35,880 Provisions 23 1,585 7,670 Total current liabilities 1,024,495 1,330,687 Non-current liabilities Payables 20 - 6,206 Interest-bearing liabilities 22 45,000 45,000 Structured products – interest-bearing liabilities 28 134,109 164,807 Deferred tax liabilities 9 7,533 7,19 8 Employee benefits 26 3,201 2,894 Provisions 23 23,582 23,000 Total non-current liabilities 213,425 249,105 Total liabilities 1,237,920 1,579,792 Net assets 376,101 361,024 Equity Contributed equity 24 245,066 206,017 Reserves 25 44,245 56,861 Retained earnings 76,705 96,494 Total equity attributable to equity holders of Perpetual Limited 366,016 359,372 Non-controlling interest 10,085 1,652 Total equity 376,101 361,024

The Balance Sheet is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 101 to 147.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 97 Statement of Changes in Equity for the year ended 30 June 2011

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

Balance at 1 July 2010 379,392 (173,375) 206,017 2,871 103 (3,347) 57,6 8 8 (454) 56,861 96,494 359,372 1,652 361,024

Total comprehensive income/(expense) - - - 628 - (1,288) - 38 (622) 62,031 61,409 588 61,997

Issue of ordinary shares 93 - 93 ------93 - 93

Employee Share Purchase Plan loan repayments during the year - 177 177 ------177 - 177

Treasury shares issued during the year 23,726 (23,726) ------

Treasury shares vested during the year - 24,777 24,777 - - - (24,777) - (24,777) - - - -

Fair value adjustment on recycled and vested TSR shares (5,308) 5,308 ------

Dividends on treasury shares used to purchase equity - (42) (42) - - - 42 - 42 - - - -

Dividends paid to shareholders ------(73,774) (73,774) - (73,774)

Dividends reinvestment plan allotment 14,044 - 14,044 ------(14,044) - - -

Dividends paid on treasury shares ------(5,747) - (5,747) 5,747 - - -

Equity remuneration expense ------18,488 - 18,488 - 18,488 - 18,488

Non-controlling interest ------251 251 7,8 45 8,096

Balance at 30 June 2011 411,947 (166,881) 245,066 3,499 103 (4,635) 45,694 (416) 44,245 76,705 366,016 10,085 376,101

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 10,569 - 10,569 ------10,569 - 10,569

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 ------(61,609) (61,609) - (61,609)

Dividends reinvestment plan allotment 9,295 - 9,295 ------(9,295) - - -

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

The Statement of Changes in Equity is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 101 to 147.

98 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Statement of Changes in Equity for the year ended 30 June 2011

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

Balance at 1 July 2010 379,392 (173,375) 206,017 2,871 103 (3,347) 57,6 8 8 (454) 56,861 96,494 359,372 1,652 361,024

Total comprehensive income/(expense) - - - 628 - (1,288) - 38 (622) 62,031 61,409 588 61,997

Issue of ordinary shares 93 - 93 ------93 - 93

Employee Share Purchase Plan loan repayments during the year - 177 177 ------177 - 177

Treasury shares issued during the year 23,726 (23,726) ------

Treasury shares vested during the year - 24,777 24,777 - - - (24,777) - (24,777) - - - -

Fair value adjustment on recycled and vested TSR shares (5,308) 5,308 ------

Dividends on treasury shares used to purchase equity - (42) (42) - - - 42 - 42 - - - -

Dividends paid to shareholders ------(73,774) (73,774) - (73,774)

Dividends reinvestment plan allotment 14,044 - 14,044 ------(14,044) - - -

Dividends paid on treasury shares ------(5,747) - (5,747) 5,747 - - -

Equity remuneration expense ------18,488 - 18,488 - 18,488 - 18,488

Non-controlling interest ------251 251 7,8 45 8,096

Balance at 30 June 2011 411,947 (166,881) 245,066 3,499 103 (4,635) 45,694 (416) 44,245 76,705 366,016 10,085 376,101

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 10,569 - 10,569 ------10,569 - 10,569

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 ------(61,609) (61,609) - (61,609)

Dividends reinvestment plan allotment 9,295 - 9,295 ------(9,295) - - -

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

The Statement of Changes in Equity is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 101 to 147.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 99 Cash Flow Statement for the year ended 30 June 2011

Consolidated

Note 2011 2010

$’000 $’000

Cash flows from operating activities

Cash receipts in the course of operations 503,416 484,067

Cash payments in the course of operations (361,794) (310,896)

Dividends received 1,101 838

Interest received 11,954 12,386

Interest paid (3,627) (2,772)

Income taxes paid (36,566) (31,070)

Net cash from operating activities 36 114,484 152,553

Cash flows from investing activities

Payments for property, plant, equipment and software (13,884) (11,816)

Payments for investments (74,227) (38,141)

Repayments of advances made under the Employee Share 177 157 Purchase Plan

Acquisition of businesses (net of cash acquired) (9,673) (35,449)

Proceeds from the sale of investments 75,138 36,977

Repayment of Palisade loan 7,16 5 -

Tax paid on sale of investments (722) -

Net cash used in investing activities (16,026) (48,272)

Cash flows from financing activities

Proceeds from issue of shares 14,044 9,295

Sale of units in seed funds to non-controlling interests 8,097 -

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

Dividends paid (87,818) (70,904)

Net cash used in financing activities (65,677) (62,880)

Net increase in cash and cash equivalents 32,781 41,401

Cash and cash equivalents at 1 July 187,539 146,138

Cash and cash equivalents at 30 June 12 220,320 187,539

The Cash Flow Statement is to be read in conjunction with ‘Notes to the Financial Statements’ set out on pages 101 to 147.

100 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Notes to and forming part of the financial statements for the year ended 30 June 2011 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 2011 comprises the Company and ▪▪ Note 26. Employee benefits its controlled entities (together referred to as ‘the consolidated entity’) and the consolidated entity’s interests in associates. ▪▪ Note 29. Structured products assets and liabilities

The financial report was authorised for issue by the Directors ▪▪ Note 31. Contingencies. on 26th August 2011. iii. Basis of consolidation The consolidated Annual Report for the consolidated entity (a) Business combinations as of and for the year ended 30 June 2011 is available at www.perpetual.com.au Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which Note 2. Summary of significant accounting control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as policies to obtain benefits from its activities. In assessing control, the i. Statement of compliance Group takes into consideration potential voting rights that The financial report is a general purpose financial report prepared currently are exercisable. in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and the Acquisitions on or after 1 July 2009 Corporations Act 2001. For acquisitions on or after 1 July 2009, the Group measures goodwill at the acquisition date as: The financial report of the consolidated entity also complies with International Financial Reporting Standards adopted by the – the fair value of the consideration transferred, plus International Accounting Standards Board (IASB). – the recognised amount of any non-controlling interests in ii. Basis of preparation the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the The consolidated financial statements have been prepared on a acquiree, less historical cost basis, except for available-for-sale financial assets and derivative financial instruments which are measured at fair – the net recognised amount (generally fair value) of the value. Non-current assets are stated at the lower of carrying identifiable assets acquired and liabilities assumed. amount or fair value less selling costs. When the excess is negative, a bargain purchase gain is The consolidated financial statements are presented in Australian recognised immediately in profit. dollars, which is the functional currency of the majority of the consolidated entity. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are The Company is of a kind referred to in ASIC Class Order 98/100 generally recognised in profit or loss. dated 10 July 1998 and in accordance with that Class Order, all financial information presented in Australian dollars has been Costs related to the acquisition, other than those associated rounded to the nearest thousand unless otherwise stated. with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as The preparation of the financial report requires management to incurred. make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of Any contingent consideration payable is recognised at fair value assets, liabilities, income and expenses. Actual results may differ at the acquisition date. If the contingent consideration is classified from these estimates. Estimates and underlying assumptions are as equity, it is not remeasured and settlement is accounted for reviewed on an ongoing basis. Revisions to accounting estimates within equity. Otherwise, subsequent changes to the fair value of are recognised in the period in which the estimate is revised and the contingent consideration are recognised in profit. in any future periods affected. When share-based payment awards (replacement awards) are In particular, information about significant areas of estimation required to be exchanged for awards held by the acquiree’s uncertainty and critical judgements in applying accounting employees (acquiree’s awards) and related to past services, policies that have the most significant effect on the amount then all or a portion of the amount of the acquirer’s replacement recognised in the consolidated financial report is disclosed in: award is included in measuring the consideration transferred in the business combination. This determination is based in the ▪▪ Note 9. Deferred tax assets/(liabilities) market-based value of the replacement awards compared with the market-based value of the acquiree’s awards and the extent ▪▪ Note 16. Derivative financial instruments

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 101 Note 2. Summary of significant accounting (d) Associates policies (continued) Associates are those entities in which the consolidated entity has significant influence, but not control, over the financial and iii. Basis of consolidation (continued) operating policies. Significant influence is presumed to exist when (a) Business combinations (continued) the consolidated entity holds between 20 and 50 per cent of the to which the replacement awards relate to past and/or future voting power of another entity. Associates are accounted for using service. the equity method. The consolidated financial statements include the consolidated entity’s share of the income and expenses of Acquisition between 1 July 2004 and 1 July 2009 associates, after adjustments to align the accounting policies with For acquisitions between 1 July 2004 and 1 July 2009, goodwill those of the consolidated entity, from the date significant influence represents the excess of the cost of the acquisition over the commences until the date significant influence ceases. When the Group’s interest in the recognised amount (generally fair value) consolidated entity’s share of losses exceeds its interest in an of the identifiable assets, liabilities and contingent liabilities of the associate, the carrying amount is reduced to nil and recognition acquiree. When the excess was negative, a bargain purchase of further losses is discontinued except to the extent that the gain was recognised immediately in profit or loss. consolidated entity has incurred legal or constructive obligations to make payments on behalf of an associate. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurred in connection (e) Transactions eliminated on consolidation with business combinations were capitalised as part of the cost Intra-group balances and transactions, and any unrealised income of the acquisition. and expenses arising from intra-group transactions, are eliminated in preparing consolidated financial statements. Unrealised gains Acquisition prior to 1 July 2004 (date of transition to IFRSs) arising from transactions with associates are eliminated against As part of its transition to IFRSs, the Group elected to restate the investment to the extent of the consolidated entity’s interest in only those business combinations that occurred on or after the associate. Unrealised losses are eliminated in the same way as 1 July 2003. In respect of acquisitions prior to 1 July 2003, unrealised gains, but only to the extent that there is no evidence of goodwill represents the amount recognised under the Group’s impairment. Gains and losses are recognised when the contributed previous accounting Framework, Australian Generally Accepted assets are consumed or sold by the associates or, if not consumed Accounting Practices. or sold, when the consolidated entity’s interest in such entities is disposed of. Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners iv. Foreign currency translation and therefore no goodwill is recognised as a result of such transactions. The adjustments to non-controlling interests are (a) Foreign currency transactions and balances based on a proportionate amount of the net assets Foreign currency transactions are translated into the functional of the subsidiary. currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the (b) Subsidiaries settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated Subsidiaries are entities controlled by the consolidated entity. in foreign currencies are recognised in the profit or loss. Control exists when the consolidated entity has the power to govern the financial and operating policies of an entity so Translation differences on financial assets and liabilities carried as to obtain benefits from its activities. In assessing control, at fair value are reported as part of their fair value gain or loss. potential voting rights presently exercisable are taken into Translation differences on non-monetary financial assets and account. Financial statements of subsidiaries are included in liabilities such as equities held at fair value through profit and loss the consolidated financial statements from the date control are recognised in profit and loss as part of the fair value gain or commences until the date control ceases. loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale financial assets (c) Share plan entities are included in the available for sale reserve in equity. The consolidated entity has established a number of share plan entities (SPE) in relation to the administration of employee share (b) Foreign operations plans rather than for trading and investment purposes. A SPE The results and financial position of subsidiaries that have a is consolidated if, based on an evaluation of the substance of functional currency different from the presentation currency are its relationships within the consolidated entity and the SPE’s translated into Australian dollars as follows: risks and rewards, the consolidated entity concludes that it controls the SPE. SPEs controlled by the consolidated entity ▪▪ assets and liabilities for each Balance Sheet presented are were established under terms that impose strict limitations on translated at the closing rate at the date of that balance sheet the decision making powers of the SPE’s management and that result in the consolidated entity receiving the majority of the ▪▪ income and expenses for each Statement of Comprehensive benefits related to the SPE operations and net assets, being Income are translated at average exchange rates (unless this is exposed to risks incidental to the SPE’s activities and retaining not a reasonable approximation of the cumulative effect of the the majority of the residual or ownership risks related to the SPE rates prevailing on the transaction dates, in which case income or their assets. and expenses are translated at the dates of the transactions).

102 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Foreign currency differences are recognised in other (e) Amortisation comprehensive income. When a foreign operation is disposed Amortisation is calculated over the cost of the asset, or another of, in part or in full, the relevant amount in the foreign currency amount substituted for cost, less its residual value. translation reserve 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 v. Intangible assets these assets are indefinite life assets. Goodwill and other intangible assets with an indefinite useful life are systematically (a) Goodwill tested for impairment at each balance sheet date or more Goodwill that arises upon the acquisition of subsidiaries is frequently if events or changes in circumstances indicate that included in intangible assets. they might be impaired. Other intangible assets are amortised from the date they are available for use. For the measurement of goodwill at initial recognition, see Note 18. The estimated useful lives in the current and comparative periods Measurement are as follows: Goodwill represents the excess of acquisition cost over the fair value of the consolidated entity’s share of the net identifiable ▪▪ capitalised software costs: 2.5-7 years assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisition of subsidiaries is presented ▪▪ funds under management acquired: 5 years with intangible assets and on acquisition of associates is included ▪▪ customer contracts and relationships acquired: 5-10 years. 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 vi. Revenue and income recognition accounting policy xx). Revenue is recognised at fair value of consideration received or receivable net of goods and services tax payable to the Subsequent measurement taxation authority. Goodwill is measured at cost less accumulated impairment losses. In respect of associates, the carrying amount of goodwill (a) Revenue from the provision of services is included in the carrying amount of the investment, and an Revenue is earned from provision of services to customers impairment loss on such an investment is not allocated to any outside the consolidated entity. Revenue is recognised when assets, including goodwill, that forms part of the carrying amount services are provided. of the associate.

Gains and losses on the disposal of an entity include the carrying (b) Income from structured products amount of goodwill relating to the entity. Refer to accounting policy xi for details on income from structured products. A discount upon acquisition is recognised directly in profit or loss. (c) Investment income (b) Software Interest income is recognised as it accrues taking into account Certain internal and external costs directly incurred in acquiring the effective yield of the financial asset. and developing software have been capitalised and are amortised over their useful life. Development costs include only Dividend income is recognised in profit or loss on the date the those costs directly attributable to the development phase and entity’s right to receive payment is established which, in the case are only recognised following completion of a technical feasibility of quoted securities, is the ex-dividend date. study and where the consolidated entity has an intention and Unit trust distributions are recognised in profit or loss as they ability to use the asset. Costs incurred on software maintenance are received. are expensed as incurred.

(d) Proceeds from sale of investments (c) Other intangible assets Net gains or losses on disposal of non-current assets are Other intangible assets acquired by the consolidated entity, included in profit or loss. The gain or loss arising from disposal which have finite useful lives, are stated at cost less accumulated of an item of property, plant and equipment is determined as the amortisation (refer to accounting policy v(e)) and impairment difference between net disposal proceeds, being the cash price losses (see accounting policy xx). equivalent where payment is deferred, and the carrying amount of the item. (d) Subsequent expenditure Subsequent expenditure is capitalised only when it increases Profit or loss on disposal of assets is brought to account at the future economic benefits embodied in the specific asset to which date an unconditional contract of sale is signed. it relates. All other expenditure is expensed as incurred.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 103 Note 2. Summary of significant accounting Deferred tax is measured at the tax rates that are expected to be policies (continued) applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by vii. Segment reporting the reporting date. The consolidated entity determines and presents operating segments based on the information that internally is provided to A deferred tax asset is recognised to the extent that it is the Chief Executive Officer (CEO), who is the consolidated entity’s probable that future taxable profits will be available against which chief operating decision maker. 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. The Company and its wholly owned Australian resident entities are part of a tax consolidated group. As a consequence, all viii. Interest-bearing borrowings members of the tax consolidation group are taxed as a single Interest-bearing borrowings are initially recognised at fair entity. The head entity within the tax consolidated group is value net of transaction costs incurred. Subsequent to initial Perpetual Limited. recognition, interest-bearing borrowings are stated at amortised cost with any difference between initial carrying amount and x. Investments redemption value being recognised in the profit or loss over the period of the borrowings using the effective interest method. (a) Held-to-maturity investments Investments are classified as held-to-maturity if the consolidated Interest-bearing borrowings are removed from the Balance Sheet entity has the positive intent and ability to hold to maturity. Held- when the obligation specified in the contract is discharged, to-maturity investments are measured at amortised cost using cancelled or expired. the effective interest method, less any impairment losses. ix. Income tax (b) Available-for-sale financial assets Income tax expense comprises current and deferred tax. Income The consolidated entity’s investments in equity securities and tax expense is recognised in the net profit or loss except to the unlisted unit trusts are classified as available-for-sale financial extent that it relates to items recognised directly in equity, in assets. Subsequent to initial recognition, they are measured at which case it is recognised in other comprehensive income. fair value and changes therein, other than impairment losses (see accounting policy xx), are recognised in other comprehensive Current tax is expected tax payable on the taxable income for income. When an investment is derecognised, the cumulative the year, using tax rates enacted or substantially enacted at gain or loss in equity is transferred to profit or loss. reporting date and any adjustment to tax payable in respect of previous years. The fair value of financial instruments classified as available-for- sale is their quoted bid price at the reporting date. Deferred tax is recognised in respect of temporary differences between carrying amounts of assets and liabilities for financial (c) Investments at fair value through profit or loss reporting purposes and amounts used for taxation purposes. Investments are classified at fair value through profit or loss if they Deferred tax is not recognised for the following temporary are held for trading or designated as such upon initial recognition. differences: The consolidated entity’s derivative instruments within asset management incubation funds are classified as held for trading ▪▪ the initial recognition of goodwill financial assets. On initial recognition, attributable transaction costs are recognised in profit or loss when incurred. ▪▪ the initial recognition of assets or liabilities that affect neither accounting nor taxable profit Financial instruments designated at fair value through profit or loss are measured at fair value and changes recognised in profit ▪▪ differences relating to investments in subsidiaries to the extent or loss. that they probably will not reverse in the foreseeable future.

104 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES xi. Structured products xii. Property, plant and equipment Structured products comprise products sold to investors where (a) Recognition and measurement there is residual risk taken by the Company. Currently, structured Property, plant and equipment are measured at cost or deemed products comprise products such as the Exact Market Cash Funds cost less accumulated depreciation and impairment losses (see (the EMCF product) and Perpetual Protected Investments (PPI). accounting policy xx).

(a) Exact Market Cash Funds Cost includes expenditures that are directly attributable to the The EMCF product consisting of two Funds (EMCF 1 and EMCF 2) acquisition of the asset. Cost of self-constructed assets includes is consolidated as the consolidated entity is deemed to control cost of materials, direct labour, an appropriate proportion of the EMCF Funds since it retains the residual risks and benefits overheads and where relevant, the initial estimate of the costs through the swap agreements. The swap agreements result in of dismantling and removing the items and restoring the site on the benchmark rate of return being paid to the unit holders in which they are located. Purchased software that is integral to the the Fund. The swap agreements are inter-company transactions functionality of the related equipment is capitalised as part of that between a subsidiary of the Company and the Funds and are equipment. eliminated on consolidation. Where parts of an item of property, plant and equipment have Assets and liabilities of the EMCF product are disclosed different useful lives, they are accounted for as separate items separately on the face of the Balance Sheet as structured of property, plant and equipment. product assets and structured product liabilities. The benchmark return generated by the EMCF product and distributions Gains and losses on disposal of an item of property, plant to unit holders are shown separately on the Statement of and equipment are determined by comparing the proceeds Comprehensive Income as distributions and expenses related to from disposal with the carrying amount of property, plant and structured products. equipment. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. The financial assets represented by the structured products assets balance are accounted for in accordance with the (b) Subsequent costs underlying accounting policies of the consolidated entity. These The consolidated entity recognises the cost of replacing part consist of investments accounted for at fair value as available-for- of an item of property, plant and equipment in the carrying sale financial assets. amount of that item when the cost is incurred, it is probable that future economic benefits embodied within the item will (b) Perpetual Protected Investments flow to the consolidated entity and the cost of the item can be Loans to investors which are held as non-current assets at measured reliably. The carrying amount of the replaced part is amortised cost on the Balance Sheet (refer to structured derecognised. All other costs are recognised in profit or loss as products - loan receivables) are non-derivative financial assets an expense when incurred. with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value (c) Depreciation plus any directly attributable transaction costs. Subsequent Depreciation is recognised in the Statement of Comprehensive to initial recognition loans and receivables are measured at Income on a straight-line basis over the estimated useful lives amortised cost using the effective interest method, less any of each part of an item of property, plant and equipment. The impairment losses. estimated useful lives for the current and comparative periods are as follows: Loans to investors are subject to recurring review and assessment for possible impairment. Provisions for loan losses ▪▪ plant and equipment: 4-10 years are based on an incurred loss model, which recognises a provision where there is objective evidence of impairment at each ▪▪ leasehold improvements: 3-15 years. balance sheet date, and are calculated based on the discounted values of expected future cash flows. The residual value, useful life and depreciation method applied to an asset are reassessed at least annually. The incurred loss model makes specific provisions where specific loan impairment is identified. For individual loans not impaired, xiii. Loans and receivables assets with similar risk profiles are pooled and collectively Loans and receivables are financial assets with fixed or assessed for losses that may have been incurred but not yet determinable payments that are not quoted in an active market. identified. Bad debts are written off in the period in which they Such assets are recognised initially at fair value plus any directly are identified. attributable transaction costs.

Management makes judgements whether there is any Subsequent to initial recognition loans and receivables are observable data indicating that there is a significant decrease measured at amortised cost using the effective interest method in the estimated future cash flows from a portfolio of loans. This less impairment losses (see accounting policy xx). evidence may include observable data indicating that there has 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 xi(b) for structured-products loan with defaults on assets in that group. receivables.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 105 Note 2. Summary of significant accounting (b) Restructuring policies (continued) A provision for restructuring is recognised when the consolidated entity has approved a detailed and formal restructuring plan and xiv. Expenses the restructuring has either commenced or has been announced (a) Operating leases publicly. Future operating costs are not provided for. Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the term of the lease. (c) Operational process review Incentives received by the consolidated entity on entering a lease A provision for operational process reviews is recognised when agreement are recognised on a straight-line basis over the term operational errors in relation to unit pricing are identified and of the lease. represents the cost that the consolidated entity expects to incur in rectification and restitution costs. The difference between the cash amount paid and the amount recognised as an expense is recognised as a lease provision in (d) Self-insurance the Balance Sheet (see accounting policy xvi). The provision is Provision for self-insurance recognises incurred but not reported expected to be realised over the term of the underlying leases. claims. These provisions are measured at the cost that the consolidated entity expects to incur in settling the claim, (b) Financing costs discounted using a government bond rate with a maturity date Financing costs comprise interest payments on borrowings and approximating the term of the obligation. derivative financial instruments calculated using the effective interest method, and unwinding of discounts on provisions. (e) Legal provision A provision for litigation is recognised when reported litigation xv. Payables claims arise and are measured at the cost that the consolidated Payables are non-interest bearing and are stated at amortised entity expects to incur in settling the claim. cost, with the exception of contingent consideration which is recorded at fair value at the acquisition date. (f) Lease expense A provision for lease expense represents the difference between Contingent consideration is classified as a financial liability and is the cash amount paid and the amount recognised as an subsequently remeasured to fair value with changes in fair value expense. The provision is expected to be realised over the term recognised in profit or loss. of the underlying lease. xvi. Provisions (g) Employee benefits A provision is recognised in the Balance Sheet when the Refer to accounting policy xxiii for details on employee benefits consolidated entity has a present legal or constructive obligation provisions. as a result of a past event that can be measured reliably and it is probable that an outflow of economic benefits will be required to xvii. Financial guarantee contracts settle the obligation. Financial guarantee contracts are recognised as a financial liability Management exercise judgement in estimating provision at the time the guarantee is issued. The liability is initially measured amounts. It may be possible, based on existing knowledge, that at fair value and subsequently at the higher of the amount outcomes in the next annual reporting period differ from amounts determined in accordance with AASB 137 Provisions, Contingent provided and may require adjustment to the carrying amount of Liabilities and Contingent Assets and the amount initially the liability affected. recognised less cumulative amortisation, where appropriate.

Provisions are determined by discounting the expected Where guarantees in relation to loans or other payables of future cash flows at a pre-tax rate that reflects current market subsidiaries are provided for no compensation, the fair values assessments of the time value of money and, where appropriate, are accounted for as contributions and recognised as part of the the risks specific to the liability. The unwinding of the discount is cost of the investment. recognised as a finance cost. xviii. Share capital (a) Onerous leases and make good (a) Ordinary shares A provision for onerous leases is recognised when the expected Ordinary shares are classified as equity. Incremental costs benefits to be derived by the consolidated entity from a lease directly attributable to the issue of ordinary shares are recognised contract are lower than the unavoidable cost of meeting its as a deduction from equity, net of any tax effects. obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating (b) Repurchase of share capital (treasury shares) the contract and the expected net cost of continuing with the When share capital recognised as equity is repurchased or held contract. Before a provision is established, the consolidated by employee share plans and subject to vesting conditions, the entity recognises any impairment loss on the assets associated amount of the consideration paid, including directly attributable with that contract. A provision for make good is recognised costs, is recognised as a deduction from equity. When treasury when the consolidated entity is responsible for the make good of shares are sold or reissued subsequently, the amount received is leased premises on termination of operating leases. recognised as an increase in equity.

106 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES (c) Dividends income and recognised in profit or loss is the difference Dividends are recognised as a liability in the period in which they between the acquisition cost, net of any principal repayment and are declared. amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. xix. Cash and cash equivalents If, in a subsequent period, the fair value of an impaired available- Cash and cash equivalents comprise bank balances, deposits at for-sale debt security increases and the increase can be related call and short-term deposits. objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is xx. Impairment reversed, with the amount of the reversal recognised in profit or (a) Financial assets (including receivables) loss. However, any subsequent recovery in the fair value of an A financial asset not carried at fair value through profit or loss impaired available-for-sale equity security is recognised in other is assessed at each reporting date to determine whether there comprehensive income. is any objective evidence of impairment. A financial asset is considered to be impaired if objective evidence indicates that one (b) Non-financial assets or more events have had a negative effect on the estimated future The carrying amounts of the consolidated entity’s non-financial cash flows of that asset. assets, other than deferred tax assets (see accounting policy ix), are reviewed at each reporting date to determine whether there Objective evidence that financial assets (including equity is any indication of impairment. If any such indication exists, securities) are impaired can include default or delinquency by the asset’s recoverable amount is estimated. For goodwill and a debtor, restructuring of an amount due to the consolidated intangible assets that have indefinite lives or that are not yet entity on terms that the consolidated entity would not consider available for use, recoverable amount is estimated at each otherwise, indications that a debtor or issuer will enter bankruptcy balance sheet date. and the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or The recoverable amount of an asset or cash-generating unit is prolonged decline in fair value below its cost is objective evidence the greater of its value in use and its fair value less costs to sell. of impairment. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate The consolidated entity considers evidence of impairment for that reflects current market assessments of the time value of receivables and held-to-maturity investment securities at both money and the risks specific to the asset. For the purpose of a specific asset and collective level. All individually significant impairment testing, assets that cannot be tested individually are receivables and held-to-maturity investment securities are grouped together into the smallest group of assets that generates assessed for specific impairment. All individually significant cash inflows from continuing use that are largely independent of receivables and held-to-maturity investment securities found the cash inflows of other assets or groups of assets (the ‘cash- not to be specifically impaired are then collectively assessed for generating unit’ or CGU). Subject to an operating segment ceiling any impairment that has been incurred but not yet identified. test, for the purposes of goodwill impairment testing, CGUs to Receivables and held-to-maturity investment securities that which goodwill has been allocated are aggregated so that the are not individually significant are collectively assessed for level at which impairment is tested reflects the lowest level at impairment by grouping together receivables and held-to- which goodwill is monitored for internal reporting purposes. maturity investment securities with similar risk characteristics. The consolidated entity’s corporate assets do not generate In assessing collective impairment the consolidated entity uses separate cash inflows. If there is an indication that a corporate historical trends of the probability of default, timing of recoveries asset may be impaired, then the recoverable amount is and the amount of loss incurred, adjusted for management’s determined for the CGU to which the corporate asset belongs. judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than An impairment loss is recognised if the carrying amount of suggested by historical trends. an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Statement of An impairment loss in respect of a financial asset measured Comprehensive Income. Impairment losses recognised in respect at amortised cost is calculated as the difference between its of cash-generating units are allocated first to reduce the carrying carrying amount and the present value of the estimated future amount of any goodwill allocated to the units and then, to reduce the cash flows discounted at the asset’s original effective interest carrying amount of the other assets in the unit on a pro rata basis. rate. Losses are recognised in profit and loss and reflected in an allowance account against receivables. Interest on the impaired An impairment loss in respect of goodwill is not reversed. asset continues to be recognised through the unwinding of In respect of other assets, impairment losses recognised in the discount. When a subsequent event causes the amount of prior periods are assessed at each balance sheet date for any impairment loss to decrease, the decrease in impairment loss is indications that the loss has decreased or no longer exists. reversed through profit or loss. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An Impairment losses on available-for-sale investment securities impairment loss is reversed only to the extent that the asset’s are recognised by transferring the cumulative loss that has been carrying amount does not exceed the carrying amount that would recognised in other comprehensive income, and presented have been determined, net of depreciation or amortisation, if no in the available-for-sale reserve in equity, to profit or loss. The impairment loss had been recognised. cumulative loss that is removed from other comprehensive

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 107 Note 2. Summary of significant accounting Subsequent to initial recognition, derivatives are measured at policies (continued) fair value, and changes therein are accounted for as described below. xxi. Recognition and derecognition of financial assets and liabilities (a) Cash flow hedges The consolidated entity initially recognises loans and receivables To the extent that the hedge is effective, changes in the fair and deposits on the date that they are originated. All other value of a derivative hedging instrument designated as a cash financial assets (including assets designated at fair value through flow hedge are recognised in the cash flow hedge reserve. To profit or loss) are recognised initially on the trade date at which the extent that the hedge is ineffective, changes in fair value are the consolidated entity becomes a party to the contractual recognised in the net profit and loss. provisions of the instrument. If the hedging instrument no longer meets the criteria for hedge The consolidated entity derecognises a financial asset when the accounting, expires or is sold, terminated or exercised, then contractual rights to the cash flows from the asset expire, or it hedge accounting is discontinued prospectively. The cumulative transfers the rights to receive the contractual cash flows on the gain or loss previously recognised in equity remains there until financial asset in a transaction in which substantially all the risks the forecast transaction occurs. When the hedged item is a non- and rewards of ownership of the financial asset are transferred. financial asset, the amount recognised in equity is transferred to Any interest in transferred financial assets that is created or the carrying amount of the asset when it is recognised. In other retained by the consolidated entity is recognised as a separate cases the amount recognised in equity is transferred to the net asset or liability. profit or loss in the same period that the hedged item affects profit and loss. Financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade (b) Other derivatives date at which the consolidated entity becomes a party to the When a derivative financial instrument is not designated in a contractual provisions of the instrument. The consolidated entity qualifying hedge relationship, any changes in fair value are derecognises a financial liability when its contractual obligations recorded in profit and loss. are discharged or cancelled or expire.

Financial assets and liabilities are offset and the net amount xxiii. Employee benefits presented in the balance sheet when, and only when, the (a) Defined contribution superannuation funds consolidated entity has a legal right to offset the amounts and A defined contribution plan is a post-employment benefit plan intends either to settle on a net basis or to realise the asset and under which an entity pays fixed contributions into a separate settle the liability simultaneously. entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined xxii. Derivative financial instruments contribution pension plans are recognised as an expense in the The consolidated entity holds derivative financial instruments periods during which services are rendered by employees. within structured products and incubation funds to hedge its interest rate, foreign exchange and market risk exposures. (b) Long service leave On initial designation of the hedge, the consolidated entity The liability for long service leave is recognised in the provision formally documents the relationship between the hedging for employee benefits and measured as the present value of instrument and the hedged item, including the risk management expected future payments to be made in respect of services objectives and strategy in undertaking the hedge transaction, provided by employees up to the reporting date using the together with the methods that will be used to assess the projected unit credit method. Consideration is given to expected effectiveness of the hedging relationship. The consolidated future wage and salary levels, experience of employee departures entity makes an assessment, both at the inception of the hedge and periods of service. Expected future payments are discounted relationship as well as on an ongoing basis, whether the hedging using market yields at the reporting date on national government instruments are expected to be ‘highly effective’ in offsetting the bonds with terms to maturity and currency that match, as closely changes in the fair value or cash flows of the respective hedged as possible, the estimated future cash outflows. items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of (c) Wages, salaries, annual leave, sick leave and 80-125 per cent. For a cash flow hedge of a forecast transaction, non-monetary benefits the transaction should be highly probable to occur and should Liabilities for employee benefits for wages, salaries and annual present an exposure to variations in cash flows that could leave expected to be settled within 12 months of the reporting ultimately affect reported net income. date represent present obligations resulting from employees’ services provided to reporting date. These liabilities are Derivatives are recognised initially at fair value. Attributable calculated at undiscounted amounts based on wage and salary transaction costs are recognised in profit or loss when incurred. rates that the consolidated entity expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax.

Non-accumulating benefits, such as sick leave, are not provided for but are expensed as the benefits are taken by the employees.

108 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Non-accumulating non-monetary benefits, such as medical care, xxvi. New standards and interpretations not housing, cars and free or subsidised goods and services are yet adopted expensed based on the net marginal cost to the consolidated A number of new standards, amendments to standards and entity as the benefits are taken by the employees. interpretations are effective for annual periods beginning after 1 July 2010, and have not been applied in preparing these A provision is recognised for the amount expected to be paid consolidated financial statements. None of these is expected to under short-term bonus or profit-sharing plans if the consolidated have a significant effect on the consolidated financial statements entity has a present legal or constructive obligation to pay this of the consolidated entity, except for AASB 9 Financial amount as a result of past service provided by the employee. Instruments, which becomes mandatory for the consolidated entities 2014 consolidated financial statements and could change xxiv. Share-based payment transactions the classification and measurement of financial assets. The (a) Employee share purchase and option plans consolidated entity does not plan to adopt this standard early Share option and share incentive programs allow employees to and the extent of the impact has not been determined. acquire shares in the Company. The fair value of shares and/ or options granted under these programs is recognised as an xxvii. Australian Government’s proposed carbon employee expense with a corresponding increase in equity. Fair pricing mechanism value is measured at grant date and amortised over the period The Australian Government announced the ‘Securing a Clean during which employees become unconditionally entitled to the Energy Future – the Australian Government’s Climate Change shares and/or options. Plan’ (the Plan) on 10 July 2011. Whilst the announcement provides further details of the framework for a carbon pricing The fair value of the options granted is measured using a binomial mechanism, uncertainties continue to exist on the impact of any model, taking into account the terms and conditions upon which carbon pricing mechanism on the Group as legislation has yet the options were granted. The amount recognised as an expense to be drafted, and must be voted on and passed by both houses is adjusted to reflect the actual number of share options that vest of Parliament. except where forfeiture is due to share prices not achieving their threshold for vesting. The consolidated entity has not incorporated the potential impact of any carbon price mechanism in its impairment testing at (b) Deferred staff incentives 30 June 2011. The Plan is not expected to have a material impact The Company grants certain employees shares under long-term on the financial statements. incentive and retention plans. Under these plans, shares vest to employees over relevant vesting periods. To satisfy the long-term incentives granted, the Company purchases or issues shares under the Executive Share Plan, Deferred Share Plan or the Global Employees Share Trust.

The fair value of the shares granted is measured by the share price adjusted for the terms and conditions upon which the shares were granted. This fair value is amortised on a straight-line basis over the applicable vesting period.

The consolidated entity make estimates on the number of shares that are expected to vest. Where appropriate, revised estimates are reflected in profit or loss with the corresponding adjustment to the equity compensation reserve. Where shares containing a market linked hurdle do not vest, due to total shareholder return not achieving the threshold for vesting, an adjustment is made to contributed equity and equity compensation reserve. xxv. Earnings per share The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the net profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for shares held by the Company’s employee share plan trust. Diluted EPS is determined by dividing the net profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, adjusted for shares held by Company’s sponsored employee share plan trust and for the effects of all dilutive potential ordinary shares, which comprise shares and options granted to employees under long-term incentive and retention plans.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 109 Note 3. Revenue

Consolidated 2011 2010 $’000 $’000 Revenue from the provision of services Gross revenue from fees and commissions 430,415 407,923 Total revenue from the provision of services 430,415 407,923 Other income Income from structured products 69,149 83,595 Total other income 69,149 83,595 Investment income Dividends 1,071 901 Interest 12,241 13,213 Unit trust distributions 652 308 Total investment income 13,964 14,422 513,528 505,940

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 2,628 2,750 – Plant and equipment 2,624 2,996 5,252 5,746 Amortisation of intangible assets: – Capitalised software 6,569 5,783 – Other intangible assets 3,828 3,328 10,397 9,111 Depreciation and amortisation expense 15,649 14,857

Rental charges – operating leases 16,296 14,729 Net loss on sale of property, plant and equipment 795 78 Net movements in provision for: – Employee benefits 5,219 7,107 – Bad and doubtful debts (22) 251 – Credit losses on structured products 196 1,644 Net foreign exchange (loss)/gain (717) 2,421 Total staff related expenses: – Staff related expenses 225,534 195,441 – Equity remuneration expense 18,586 26,755 244,120 222,196

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

Profit/(loss) on disposal and impairment of investments: – Profit on sale of part of investment portfolio 6,161 3,913 – Impairment of available-for-sale securities (1,534) ( 7,0 85) Total profit/(loss) on disposal of investments 4,627 (3,172) Income tax (expense)/benefit applicable (722) 784 Total gain/(loss) on disposal and impairment of investments after tax 3,905 (2,388)

Exact Market Cash Fund profit 13,932 29,024 Income tax expense applicable (4,180) (8,707) 9,752 20,317

Restructuring costs (9,125) - Income tax benefit applicable 2,737 - (6,388) -

Private equity proposal response costs (4,408) - Income tax benefit applicable 1,322 - (3,086) -

Impairment of assets (14,694) - Income tax benefit applicable - - (14,694) -

110 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 6. Segment information

Perpetual Investments1 Private Wealth Corporate Trust Total $’000 $’000 $’000 $’000 30 June 2011 External revenues 287,937 117,334 96,249 501,520 Inter-segment revenue/(expense) 1,239 (1,239) - - Interest revenue 692 42 956 1,690 Total revenue for reportable segment 289,868 116,137 97,20 5 503,210 Depreciation and amortisation (5,459) (6,259) (3,156) (14,874) Reportable segment net profit before tax 87,142 13,312 25,346 125,800 Reportable segment assets 1,111,605 128,326 44,602 1,284,533 Reportable segment liabilities (1,088,104) (16,485) (8,764) (1,113,353) Capital expenditure 1,997 2,305 891 5,193

30 June 20102 External revenues 295,408 112,002 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 307,407 100,768 87,46 8 495,643 Depreciation and amortisation (5,900) (4,626) (3,592) (14,118) Reportable segment net profit before tax 97,78 9 17,387 25,111 140,287 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

1 Segment information for Perpetual Investments includes the Exact Market Cash Funds. 2 Prior period comparatives have been amended to reflect the reportable segments as at 30 June 2011.

Consolidated 2011 2010 $’000 $’000 Reconciliations of reportable segment revenues, net profit before tax, total assets and liabilities

Revenues Total revenue for reportable segments 503,210 495,643 Group and Support Services revenue 10,318 10,297 Total group revenue 513,528 505,940

Net profit before tax Total net profit before tax for reportable segments 125,800 140,287 Financing costs (3,627) (2,772) Profit on disposal of investments 6,161 3,913 Impairment of available-for-sale securities (1,534) ( 7,0 85) Impairment of assets (14,694) - Restructuring costs (9,125) - Private equity proposal response costs (4,408) - Share of loss of equity accounted investees - (16) Group and Support Services expenses (2,822) (816) Net profit before tax 95,751 133,511

Total assets Total assets for reportable segments 1,284,533 1,650,464 Group and Support Services assets 329,488 290,352 Total assets 1,614,021 1,940,816

Total liabilities Total liabilities for reportable segments 1,113,353 1,453,508 Group and Support Services liabilities 124,567 126,284 Total liabilities 1,237,920 1,579,792

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 111 Note 6. Segment information (continued) Reconciliations of reportable segment revenues, net profit before tax, total assets and liabilities (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.

As a result of changes in information reported to the consolidated entity’s CEO, the comparative segment information has been restated in conformity with the requirement of AASB 8 Operating Segments. Segment information has been prepared on a revised basis.

(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 2011 2010 $ $ Audit services Auditors of the Company KPMG Australia: Audit and review of the consolidated and subsidiary financial statements 533,314 595,568 Audit services in accordance with regulatory requirements 205,000 175,000 Other assurance services 31,800 5,000 Overseas KPMG firms: Audit and review of financial statements 70,625 63,800 Other assurance services 2,470 2,400 Total audit fee attributable to the audit of Perpetual Limited 843,209 841,768

Audit services for non-consolidated managed funds, Superannuation funds and DIY superannuation funds; KPMG Australia: Audit and review of managed funds and superannuation funds for which the consolidated entity acts as responsible entity1 2,007,098 1,891,047 Audit of DIY superannuation funds for which Perpetual acts as administrator or trustee1 715,256 695,774 Audit services in accordance with regulatory requirements 301,421 290,867 Overseas KPMG firms: Audit of funds 19,750 22,340 Other assurance services 91,780 15,955 Total audit fee attributable to the audit of non-consolidated funds 3,135,305 2,915,983

3,978,514 3,757,751 1 These fees were paid for the audit and review of 574 managed funds (2010: 573 managed funds) and 1,180 (2010: 1,171) DIY superannuation funds and which contained assets totalling $27.2 billion (2010: $26.9 billion). These fees are incurred by the consolidated entity and are subsequently recovered from the funds via management fees.

112 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 7. Auditor’s remuneration (continued)

Consolidated 2011 2010 $ $ Non-audit services KPMG Australia: Assurance services 288,000 - 288,000 Non-audit services paid to KPMG have been incurred in relation to assurance services for the Company’s private equity response and are in accordance with the Company’s auditor independence policy as outlined in Perpetual’s Corporate Responsibility Statement.

Note 8. Income tax expense

(a) Income tax expense Consolidated 2011 2010 $’000 $’000 Current tax expense 37,0 82 48,022 Deferred tax expense (1,831) (4,798) Over provided in prior years (1,868) (435) Total 33,383 42,789

Deferred tax included in income tax expense comprises: Increase in deferred tax assets 1,008 5,316 Decrease/(increase) in deferred tax liabilities 823 (518) Total 1,831 4,798

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 payable1 Prima facie income tax expense calculated at 30% (2010: 30%) on profit for the year 28,726 40,053 Increase in income tax expense due to: – Accounting write down on assets 4,408 - – Foreign source loss 1,866 2,294 – Net taxable capital gain - 173 – Imputation gross-up on dividends received 79 60 – Other non-deductible expenditure 2,186 1,204

Decrease in income tax expense due to: – Net taxable capital loss (accounting gain on sale of investments) (1,148) - – Write back deferred tax liability arising from business combinations (602) (361) – Franking credits on dividends received (264) (199)

Income tax expense attributable to profit for the year before tax 35,251 43,224 Less: Income tax over provided in prior years (1,868) (435) Income tax expense attributable to profit for the year 33,383 42,789

1 Prior period comparatives have been restated.

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.

(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 Cash flow hedges (186) (227) Available-for-sale financial assets 1,158 2,705 972 2,478

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 113 Note 9. Deferred tax assets/(liabilities)1

Consolidated 2011 2010 $’000 $’000 The balance comprises temporary differences attributable to: Provisions and accruals 10,766 11,589 Intangible assets 1,076 - Capital expenditure deductible over 5 years 1,266 274 Structured products - interest received in advance 3,418 4,289 Employee benefits 10,750 10,970 Property, plant and equipment 3,691 1,819 Realised net capital losses 2,078 1,433 Unrealised net capital losses 523 2,636 Other items 845 209 Total deferred tax assets 34,413 33,219

Intangible assets (5,464) (6,845) Unrealised net capital gains (1,176) - Other items (893) (353) Total deferred tax liabilities (7,533) (7,198)

Net deferred tax assets 26,880 26,021

At 30 June 2011, the consolidated entity had carried forward realised tax capital losses of $6,925,000 (30 June 2010: $4,778,000) which had a tax benefit of $2,078,000 (30 June 2010: $1,433,000); the tax benefit of these capital losses has been recognised in deferred tax assets.

As at 30 June 2011, the consolidated entity had carried forward unrealised tax capital losses of $1,745,000 (30 June 2010: $8,787,000) which had a tax benefit of $523,000 (30 June 2010: $2,636,000). Of this amount $1,070,000 (30 June 2010: $8,732,000) which had a tax benefit of $321,000 (30 June 2010: $2,620,000) has been recognised in profit and loss in the current and prior periods, and $675,000 (30 June 2010: $55,000) which had a tax benefit of $202,000 (30 June 2010: $16,000) 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.

At 30 June 2011, the consolidated entity has carried forward foreign tax losses of EUR$40,647,697 (30 June 2010: EUR$36,387,552). This loss converted to $54,892,231 (30 June 2010: $52,138,634) which had a tax benefit of $6,861,529 (30 June 2010: $6,517,329) at 12.5 per cent that was not recognised in the Balance Sheet.

1 Prior period comparatives have been restated.

114 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 9. Deferred tax assets/(liabilities) (continued)

Consolidated Balance Recognised in profit Recognised in other Acquired in business Balance 1 July 2010 or loss comprehensive income combinations 30 June 2011 $’000 $’000 $’000 $’000 $’000 Movement in temporary differences during the year Deferred tax assets Provisions and accruals 11,589 (823) - - 10,766 Intangible assets - 1,076 - - 1,076 Capital expenditure deductible over 5 years 274 992 - - 1,266 Structured products - interest paid in advance 4,289 (871) - - 3,418 Employee benefits 10,970 (220) - - 10,750 Property, plant and equipment 1,819 1,872 - - 3,691 Realised net capital losses 1,433 645 - - 2,078 Unrealised net capital losses 2,636 (2,299) 186 - 523 Other items 209 636 - - 845 33,219 1,008 186 - 34,413 Deferred tax liabilities Intangible assets (6,845) 1,381 - - (5,464) Unrealised net capital gains - (18) (1,158) - (1,176) Other items (353) (540) - - (893) ( 7,19 8) 823 (1,158) - ( 7,533)

26,021 1,831 (972) - 26,880

Consolidated 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 Deferred tax assets Provisions and accruals 10,288 1,301 - - 11,589 Intangible assets (3,685) 3,685 - - - Capital expenditure deductible over 5 years - 274 - - 274 Structured products - interest paid in advance 4,281 8 - - 4,289 Employee benefits 8,102 2,868 - - 10,970 Property, plant and equipment 4,181 (2,362) - - 1,819 Realised net capital losses 1,734 (301) - - 1,433 Unrealised net capital losses 5,157 (43) (2,478) - 2,636 Other items 323 (114) - - 209 30,381 5,316 (2,478) - 33,219

Deferred tax liabilities Intangible assets - (2,302) - (4,543) (6,845) Structured products - interest paid in advance (1,575) 1,575 - - - Other items (562) 209 - - (353) (2,137) (518) - (4,543) ( 7,19 8)

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

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 115 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 2011 Final 2010 ordinary 105 45,602 Franked 28 Sep 2010 Interim 2011 ordinary 95 42,216 Franked 30 Mar 2011 Total amount 200 87,818

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

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. 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 Franked1/Unfranked Date of share $’000 payment Final 2011 ordinary 90 40,204 Franked 27 Sep 2011

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 2011.

The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2011 and will be recognised in subsequent financial reports.

(c) Dividend franking account 2011 2010 $’000 $’000 30% franking credits available to shareholders for subsequent financial years 60,880 62,474

The above available amounts are based on the balance of the dividend franking account at 30 June 2011 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 $43,650,000 (2010: $42,936,000).

116 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 11. Earnings per share

Consolidated 2011 2010 Cents per share Basic earnings per share 152.7 227.1 Diluted earnings per share 140.8 210.5

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 62,031 90,506

Number of shares Weighted average number of ordinary shares used in the calculation of basic earnings per share 40,618,084 39,855,523 Effect of dilutive securities: Share options 9,252 27,8 93 Weighted average number of treasury shares on issue 3,421,085 3,115,243 Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share 44,048,421 42,998,659

Subsequent to the reporting date, no options were exercised by employees who have left the Company (2010: nil).

Note 12. Cash and cash equivalents Consolidated 2011 2010 $’000 $’000 Bank balances 79,478 54,345 Deposits at call 86,601 79,462 Short-term deposits 54,241 53,732 220,320 187,539

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 High Grade Treasury 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.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 117 Note 13. Receivables

Consolidated 2011 2010 $’000 $’000 Current Trade debtors 70,196 70,699 Less: Provision for doubtful debts (500) (522) 69,696 70,177

Other debtors 3,026 16,666 72,722 86,843 Non-current Other debtors - 3,648

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

Balance as at 1 July 2010 522 271 Provision for impairment recognised during the year 316 770 Receivables written off during the year as uncollectible (260) (214) Unused amount reversed (78) (305) Balance as at 30 June 2011 500 522

Movements in the provision for bad and doubtful debts have been recognised in administrative and general expenses in the Consolidated 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 i(c).

Note 14. Assets and liabilities held for sale The operations of smartsuper Pty Ltd within the Perpetual Investments operating segment are presented as a disposal group held for sale following the commitment of the Group’s management in June 2011 to a plan to sell the operation. Efforts to sell the disposal group commenced prior to 30 June 2011, and the sale was completed on 12 August 2011. At 30 June 2011 the disposal group comprised assets of $0.8 million and liabilities of $0.9 million.

An impairment loss of $4.1 million on the remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell has been recognised in impairment of assets. This is in addition to the $10.6 million impairment of goodwill recognised in the six months to 31 December 2010.

Consolidated 2011 2010 $’000 $’000 Assets classified as held for sale Receivables 716 - Prepayments 38 - 754 - Liabilities classified as held for sale Payables 760 - Employee benefits 144 - 904 -

118 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 15. Other financial assets

Consolidated 2011 2010 $’000 $’000 Current Government, municipal and other public securities 100 100

Non-current Listed equity securities available-for-sale – at fair value 47,461 36,030 Unlisted unit trusts available-for-sale – at fair value 5,882 13,538 Government, municipal and other public securities held-to-maturity 102 122 Secured loans 287 259 53,732 49,949

Note 16. Derivative financial instruments

Consolidated 2011 2010 $’000 $’000 Current assets Forward foreign exchange contracts - 11

Current liabilities Interest rate swap contracts 613 662

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

Instruments used by incubation funds As part of the consolidated entity’s asset management incubation fund strategy and to diversify its investment portfolio, seed capital was invested in various incubation funds. These funds may be party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates, interest rates, equity indices and to trade from their movements in accordance with the funds’ financial risk management policy.

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.

These contracts are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. Any changes in fair values are recorded in profit or loss.

Interest rate swap contracts Interest rate swap contracts held for hedging purposes associated with the PPI structured product are disclosed in Note 28 iii(b).

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 119 Note 17. Property, plant and equipment

Consolidated 2011 2010 $’000 $’000 Plant and equipment – at cost 17,281 19,276 Accumulated depreciation (11,244) (12,653) 6,037 6,623 Leasehold improvements – at cost 31,887 30,820 Accumulated depreciation (12,688) (10,186) 19,199 20,634

Project work in progress – at cost 1,074 539 26,310 27,796

Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:

Consolidated Leasehold Project Plant and equipment Total improvements work in progress $’000 $’000 $’000 $’000 Balance as at 1 July 2010 6,623 20,634 539 27,79 6 Additions 2,234 1,309 535 4,078 Transfers from work in progress - - - - Depreciation and amortisation (2,624) (2,628) - (5,252) Reclassification to assets held for sale (189) (96) - (285) Disposals (7) (20) - (27) Balance as at 30 June 2011 6,037 19,199 1,074 26,310

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

Note 18. Intangibles

Consolidated 2011 2010 $’000 $’000 Goodwill – at cost 113,539 113,539 Impairment loss (10,583) - 102,956 113,539

Other intangibles – at cost 22,636 27,618 Accumulated amortisation ( 7,9 8 0) (6,276) 14,656 21,342

Capitalised software – at cost1 37,724 76,749 Accumulated amortisation1 (16,898) (53,704) 20,826 23,045

Project work in progress – at cost 9,888 5,582 148,326 163,508

1 Capitalised software – at cost and accumulated amortisation have been reduced by $31,227,000 during the year as those fully amortised assets which were no longer in use were removed.

Amortisation Amortisation is recognised in the following line items in the Statement of Comprehensive Income: Depreciation and amortisation expense 10,397 9,111

120 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 18. Intangibles (continued) Reconciliations of the carrying amounts for each class of intangibles are set out below:

Consolidated Goodwill Other intangibles Capitalised software Project Total work in progress $’000 $’000 $’000 $’000 $’000 Balance as at 1 July 2010 113,539 21,342 23,045 5,582 163,508 Additions - - 198 9,608 9,806 Transfers from work in progress - - 4,833 (4,833) - Impairment loss (10,583) - - - (10,583) Amortisation for the year - (3,828) (6,569) - (10,397) Reclassification to assets held for sale - (2,858) (165) - (3,023) Disposals - - (516) (469) (985) Balance as at 30 June 2011 102,956 14,656 20,826 9,888 148,326

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

Consolidated 2011 2010 $’000 $’000 Impairment tests for cash generating units containing goodwill The following cash generating units have significant carrying amounts of goodwill: Private Wealth 77,159 77,159 Securitisation 16,653 16,653 Perpetual Lenders Mortgage Services 5,648 5,648 smartsuper - 10,583 Australian Equities 3,496 3,496 102,956 113,539

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 per cent and 15 per cent (2010: discount rates of between 12.5 per cent and 15 per cent). 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 five years based on the 2012-2016 Operating Plan which has 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 per cent.

Following a review of the smartsuper business at 31 December 2010, the group assessed the recoverable amount of the cash-generating unit that comprises that business. As a result of this assessment, an impairment loss of $10,583,000 (30 June 2010: nil) has been recognised. The impairment loss was allocated to goodwill, reducing the goodwill included in the smartsuper business to nil and is included in impairment of assets in the consolidated statement of comprehensive income. The recoverable amount of the smartsuper cash generating unit was based on value in use. Value in use was determined by discounting the future cash flows expected to be generated from the continuing use of the unit determined at 31 December 2010. As at 30 June 2011, the smartsuper cash generating unit was classified as held for sale. See Note 14 for additional information.

Note 19. Prepayments

Consolidated 2011 2010 $’000 $’000 Current Prepayments 6,525 7,447

Non-current Prepayments 614 858

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 121 Note 20. Payables Consolidated 2011 2010 Current $’000 $’000 Trade creditors 30,825 29,024 Other creditors and accruals 9,517 11,637 40,342 40,661 Non-current Other creditors and accruals - 6,206

This Note should be read in conjunction with Note 28 ii.

Note 21. Structured products – income received in advance Current Interest income 11,057 13,918

Income received in advance consists of deferred interest income received associated with the PPI structured product. The PPI structured product is disclosed in Note 28 i(a).

Note 22. Non-current interest-bearing liabilities

Consolidated 2011 2010 $’000 $’000 Floating rate bill facility 45,000 45,000

See Notes 27 and 28 iii(b) for additional information. Bank facility associated with the PPI structured product is disclosed in Note 29 ii.

Note 23. Provisions

Consolidated 2011 2010 $’000 $’000 Current Internal insurance and legal provision1 477 5,404 Onerous leases and make good - 75 Operational process review provision 249 1,667 Lease expense provision 859 524 1,585 7,670 Non-current Internal insurance and legal provision1 800 800 Lease expense provision 22,782 22,200 23,582 23,000

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.

122 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 23. Provisions (continued) Consolidated 2011 2010 $’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 6,204 5,969 Additional provision made during the year 440 1,180 Payments made during the year (417) (895) Unused amounts reversed during the year (4,950) (50) Carrying amount at end of year 1,277 6,204

Onerous leases and make good Carrying amount at beginning of year 75 172 Additional provision made during the year - 25 Payments made during the year (75) (122) Carrying amount at end of year - 75

Operational process review provision Carrying amount at beginning of year 1,667 5,469 Amount transferred from other debtors - 1,406 Additional provision made during the year 2,250 5,520 Unused amounts reversed during the year (1,204) (3,207) Payments made during the year (2,464) (6,259) Amounts paid, recognised as receivable - (1,262) Carrying amount at end of year 249 1,667

Lease expense provision Carrying amount at beginning of year 22,724 21,144 Additional provision made during the year 14,894 12,475 Payments made during the year (14,376) (11,310) Unused amounts reversed during the year (231) (133) Unwinding of provisions 630 548 Carrying amount at end of year 23,641 22,724

Note 24. Contributed equity

Share capital 44,671,129 (2010: 43,417,478) ordinary shares, fully paid 245,066 206,017

2011 2010 Number Number $’000 $’000 of shares of shares Movements in share capital Balance at beginning of year 40,094,528 206,017 39,358,781 174,222 Shares issued: Issued in business combination - - 283,950 10,569 Dividend reinvestment 483,569 14,044 255,682 9,295 Executive share plans (vested during the year) 441,443 24,777 225,580 13,110 Employee equity allocation purchased on market (1,162) (42) (29,465) (1,336) Employee share plans (vested during the year) - 177 - 157 Issued on market 3,091 93 - - Balance at end of year 41,021,469 245,066 40,094,528 206,017

Ordinary shares fully paid (excluding unvested 41,021,469 245,066 40,094,528 206,017 shares from share plans) Unvested shares from share plans 3,649,660 166,881 3,322,950 173,375 Ordinary shares fully paid 44,671,129 411,947 43,417,478 379,392

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.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 123 Note 25. Reserves

Consolidated 2011 2010 $'000 $'000 General 103 103 Available-for-sale reserve 3,499 2,871 Equity compensation reserve 45,694 57,6 8 8 Cash flow hedge reserve (416) (454) Foreign currency translation reserve (4,635) (3,347) 44,245 56,861

The available-for-sale reserve represents movements in the fair value of shares and unit trusts. 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.

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.

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 xxiii(a). Amounts are recognised in the Statement of Comprehensive Income when the associated hedged transaction affects profit and loss.

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 iv.

Note 26. Employee benefits i. Aggregate liability for employee benefits, including on-costs

Consolidated

2011 2010 $'000 $'000 Current Liability for annual leave 6,650 6,705 Liability for long service leave 3,512 3,283 Other employee benefits 24,605 25,852 Restructuring provision 6,025 40 40,792 35,880

Non-current Liability for long service leave 3,201 2,894

Restructuring provision Carrying amount at beginning of year 40 804 Additional provision made during the year 9,125 - Payments made during the year (3,140) (764) Carrying amount at end of year 6,025 40

The non-current portion of the long service leave provision has been discounted using a rate of 5.3 per cent (2010: 5.3 per cent).

The number of full time equivalent employees at 30 June 2011 was 1,480 (2010: 1,550). ii. Equity based plans (a) 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.

124 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES ii. Equity based plans (continued) (a) Option plans (continued) 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.

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 2010 Issued Forfeited Exercised 30 June 2011 exercisable Jul 2004 Jun 2007 Jul 2010 $ 47.0 8 978 - (978) - - - Jul 2006 Jun 2009 Jul 2012 $71.88 29,950 - (29,950) - - - Jul 2007 Jun 2010 Jul 2013 $79.17 236,436 - (236,436) - - - Jul 2008 Jun 2011 Jul 2014 $42.73 57,39 0 - (57,39 0) - - - Jun 2009 Jun 2012 Jun 2015 $28.34 47,585 - (47,585) - - - Jul 2009 Jul 2012 Jun 2015 $28.34 5,911 - (5,911) - - - Jul 2010 Jul 2013 Jun 2016 $28.74 - 76,606 (76,606) - - - 378,250 76,606 (454,856) - - -

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 Exercised 30 June 2010 exercisable Jul 2004 Jun 2007 Jul 2010 $ 47.0 8 978 - - - 978 978 Jul 2005 Jun 2008 Jul 2011 $56.85 28,144 - (28,144) - - - Jul 2006 Jun 2009 Jul 2012 $71.88 29,950 - - - 29,950 - Jul 2007 Jun 2010 Jul 2013 $79.17 236,436 - - - 236,436 - Mar 2008 Mar 2011 Mar 2013 $52.71 75,301 - (75,301) - - - Jul 2008 Jun 2011 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 2012 Jun 2015 $28.34 47,585 - - - 47,585 - Jul 2009 Jul 2012 Jun 2015 $28.34 - 5,911 - - 5,911 - 716,938 5,911 (344,599) - 378,250 978

* 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 had a carrying value of $Nil.

The options outstanding at 30 June 2010 have an exercise price (b) Executive Share Plan (ESP) of $28.34 to $79.17 and a weighted average contractual life of The ESP was approved by shareholders at the Company’s three years. There are no options outstanding at 30 June 2011. Annual General Meeting in 1997 and was amended at the 1999 AGM. The weighted average share price at the date of exercise for share options exercised during the year ended 30 June 2011 The ESP forms part of the structure for short and long-term was nil (2010: $Nil). variable remuneration components paid to employees. Grants under the plan for short-term performance are made on The fair value of services received in return for share options achievement of specific performance goals. Long-term grants granted is based on the fair value of share options granted, vest after periods of between three to five years, and may include measured using a binomial option pricing model, with the the achievement of specific performance hurdles. following inputs (weighted average):

2011 2010 The issue price of grants of shares is the weighted average of the prices at which shares were traded on the ASX for the five days Fair value at grant date ($) 5.29 8.25 up to the date of issue. Shares are either purchased on market Share price ($) 30.80 28.54 or issued by the Company to satisfy the grants made to eligible Exercise price ($) 28.74 28.34 employees. Expected volatility (%) 30 45 While shares are held by the ESP, employees receive dividends Option life (years) 5 5 and have voting rights. Expected dividends (%) 6.16 5.60 Risk free interest rate (%) 4.83 5.18

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 125 Note 26. Employee benefits (continued) The issue price of grants is the weighted average of the prices at which shares traded on the Australian Securities Exchange for ii. Equity based plans (continued) the five days prior to the date of grant of shares. Shares are either (c) 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 (h) Long-term incentive plan the date of issue. In February 2011, the Board approved the introduction of a The shares vest when the loan is fully repaid. new plan, the Perpetual Limited Long-term Incentive Plan, for the purpose of making future long-term incentive grants to (d) Tax Exempt Share Plan (TESP) Executives, including the sign-on grant of shares to the new Under the TESP, eligible employees will be able to salary Managing Director if approved by shareholders. sacrifice up to $1,000 of short-term incentive to acquire an The new plan was introduced to modernise terms and conditions equivalent value of Perpetual shares. These shares cannot be in light of significant changes to market practice and regulation of sold or transferred until the earlier of three years after the date of employee equity plans over the past decade. A single set of rules allocation or the time the participant ceases to be an employee has been developed to enable grants of performance shares of Perpetual. Shares will be acquired in ordinary trading on the or options. Having these included under a single plan ensures Australian Securities Exchange or issued by Perpetual. Executive consistency and additional flexibility. Directors and Executives are not able to participate in this plan.

(i) Details of the movement in employee shares (e) The Tax Deferred Share Plan (TDSP) Of share grants under the ESP, DSP and GEST in the 2011 Under the TDSP, eligible employees are able to salary sacrifice all financial year, 750,351 shares were issued at market price and or part of their short-term incentive to acquire an equivalent value 281,126 shares were re-issued from the forfeited share pool of Perpetual shares. Shares are acquired in the ordinary course at market price. Certain share plans stipulate that dividends of trading on the Australian Securities Exchange. Executive received on unvested long-term incentive shares (44,887 shares Directors and Executives have the opportunity to participate in at last dividend payment) are to be reinvested into Perpetual this plan. Shares acquired under this plan by Executive Directors shares. During the period 1,155 shares were purchased on and Executives are not subject to performance hurdles because market at an average price of $36.92 to satisfy this requirement. they are acquired on a salary or bonus sacrifice basis. As a result of changes in the employee share scheme rules enacted in 2009, dividends that were being reinvested in (f) Deferred Share Plan (DSP) Perpetual shares on long-term incentive schemes are either now The DSP forms part of the structure for short-term and long-term being received directly by the employees or held in the share plan variable remuneration components paid to eligible employees of bank account depending on the likelihood of the shares vesting. the Australian business. Grants under the plan vest subject to the achievement of specific performance hurdles and service. The amounts recognised in the financial statements of the consolidated entity in relation to the share plans referred to above The issue price of grants is the weighted average of the prices at during the year were amortisation of performance shares totalling which shares traded on the Australian Securities Exchange for $18,586,000 (2010: $26,755,000) recognised as an expense with the five days up to the date of issue. Shares are either purchased the corresponding entry directly in equity. on market or issued by the company to satisfy grants made to eligible employees. (j) Non-executive Directors’ share purchase plan While shares are held by the DSP, eligible employees have voting A share purchase plan for Non-executive Directors was approved rights and receive dividends directly or reinvest dividends into by shareholders at the annual general meeting in October 1998, Perpetual shares. under which each Non-executive Director can sacrifice up to 50 per cent of their Director’s fees to acquire shares in the Company. (g) Global Employee Share Trust (GEST) The shares are purchased four times throughout the year at market value and have a disposal restriction of 10 years, or when The GEST forms part of the structure for long-term variable the Director ceases to be a Director of the Company. remuneration components paid to eligible employees of the Perpetual Investments Global Equities business. During this financial year there were no Directors that purchased shares on market in the Non-executive Directors share purchase plan.

126 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 27. Financial arrangements and the adequacy of insurance programs. This Committee is also responsible for monitoring overall legal and regulatory Consolidated compliance. 2011 2010 $'000 $'000 The activities of the consolidated entity expose it to the following The consolidated entity has access financial risks: credit risk, liquidity risk and market risk. These are to the following line of credit: distinct from the financial risks borne by customers which arise Facilities utilised from financial assets managed by the consolidated entity in its Floating rate bank facility 45,000 45,000 role as fund manager, trustee and responsible entity.

The risk management approach to and exposures arising from Facilities not utilised the Exact Market Cash Fund (EMCF) are disclosed in Note 29. Floating rate bank facility 25,000 25,000 The following discussion relates to financial risks exposure of the Bill facilities consolidated entity in its own right. The floating rate bank bill facility is unsecured and has a floating interest rate of 5.45 per cent at 30 June 2011 (30 June 2010: i. Credit risk 5.07 per cent). Repayment of the existing facility is due on Credit risk is the risk of financial loss from a counterparty failing 31 December 2012. to meet its contractual commitments. The consolidated entity is predominantly exposed to credit risk on its Perpetual Protected The consolidated entity has agreed to various debt covenants Investments (PPI) loans which are issued only in Australia to retail including shareholders’ funds as a specified percentage of total customers, derivative financial instruments and deposits with assets, a minimum amount of shareholders’ funds, a maximum banks and financial institutions, outstanding receivables and ratio of total debt, a minimum interest cover, a maximum amount committed transactions. of structured product liabilities and a maximum provision for PPI credit losses as a specified percentage of PPI investor loans. The maximum exposure of the consolidated entity to credit The consolidated entity is in compliance with the covenants at risk on financial assets which have been recognised on the 30 June 2011. Should the consolidated entity not satisfy any balance sheet is the carrying amount, net of any provision for of these covenants, the outstanding balance of the loans may doubtful debts. The table below outlines the consolidated entity’s become due and payable. maximum exposure to credit risk as at reporting date.

Bank facilities associated with the PPI structured product are Consolidated disclosed in Note 29 ii. 2011 2010 $'000 $'000 This Note should be read in conjunction with Note 28 iii(b). Cash and cash equivalents 220,320 187,539 Trade debtors 69,696 70,177 Note 28. Financial risk management Structured products - loans receivable (PPI) 151,059 188,832 Perpetual recognises that risk is part of doing business and that Other loan receivables 3,312 20,573 the ongoing management of risk is critical to its success. The Available-for-sale listed equity securities approach to managing risk is articulated in the Risk Management and unlisted unit trusts 53,344 49,568 Framework. The Risk Management Framework is supported Held-to-maturity securities 202 222 by the Risk Group, who are responsible for the design and Derivative financial instruments used for maintenance of the framework, establishing and maintaining hedging: assets - 11 group wide risk management policies, and providing regular risk reporting to the Board, the Audit Risk and Compliance Credit risk is managed on a functional basis across the various Committee (ARCC) and the Group Executive Committee. This business segments. As a result of the swap agreements between framework is approved by the Perpetual Board of Directors (the the EMCF and the consolidated entity, the consolidated entity Board) and is reviewed for adequacy and appropriateness on an is also exposed to credit risk on its exposure to the $906 million annual basis. (2010: $1,199 million) of underlying investments held by the EMCF. This maximum exposure would only be realised in the The Board regularly monitors the overall risk profile of the group unlikely event that the recoverable value of all of the underlying and sets the risk appetite for the group, usually in conjunction investments held by the EMCF decline to $Nil. Further details of with the annual planning process. The Board is responsible the credit risk relating to the EMCF are disclosed in Note 29. for ensuring that management have appropriate processes in place for managing all types of risk, ranging from financial risk (a) Structured products – Perpetual Protected Investment loans to operational risk. To assist in providing ongoing assurance In order to manage the credit risk arising from lending to investors and comfort to the Board, responsibility for risk management in PPI structured product offerings, the consolidated entity has in oversight has been delegated to the ARCC. The main functions place a Credit Office who report to the General Manager, Service of this Committee are to oversee the consolidated entity’s and Operations. The Credit Office is governed by the Credit Risk accounting policies and practices, the integrity of financial Policy which stipulates the criteria that investors are required to statements and reports, the scope, quality and independence meet prior to being granted a loan, and hence ensures that all of external audit arrangements, the monitoring of the internal investors under this arrangement possess the desired level of audit function, the effectiveness of risk management policies credit worthiness. The Credit Risk Policy is reviewed periodically

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 127 Note 28. Financial risk management (continued) Trade debtors are managed by the accounts receivable department. Outstanding fees and receivables are monitored on a i. Credit risk (continued) daily basis and an aged debtors report is prepared and monitored (a) Structured products – Perpetual Protected Investment loans by Group Finance. Management assesses the credit quality of (continued) customers by taking into account their financial position, past by the Chief Risk Officer (CRO) to ensure its continued compliance experience and other factors. with the Group’s Risk Management Framework. All loans are Credit risk further arises in relation to financial guarantees given secured by the investor’s investment in the structured product to wholly owned subsidiaries. Such guarantees are only provided and the consolidated entity has recourse to the investor and in exceptional circumstances and are subject to specific Board the investment in the event of default. A charge over additional approval and are monitored on a quarterly basis as part of the collateral may be required for loans greater than $2 million. As at consolidated entity’s regulatory reporting. 30 June 2011, loans for which Perpetual holds additional collateral amounted to $3.5 million (30 June 2010: $3.5 million). Credit risk arising from cash investments is mitigated by ensuring they have a Standard & Poor’s rating of ‘A’ or higher, and The Credit Office monitors the loan portfolio on a daily basis and transactions involving derivatives are limited to high credit quality provides reports on a monthly basis to Group Finance and the financial institutions. Risk Group for review. Arrears above 30 days are reviewed on a 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 tables below provide 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. For amounts greater than $1 million, approval from both the CRO The trade debtors in the tables below relate to a number of and the Chief Financial Officer (CFO) is required. independent customers and investors for whom there is no recent history of default. There were no PPI loans that were past due but not impaired as at the reporting date. Further information on the risk management A loan of $7.2 million was included in Other debtors – Current as approach to and exposures arising from the PPI structured product at 30 June 2010. The loan was repaid in full on 31 July 2010. offerings is disclosed below in this Note and in Note 29. The nominal values of financial assets which were impaired are as (b) Investments held by incubation funds follows: Perpetual incubates new investment strategies through the Consolidated establishment of seed funds for the purpose of building investment 2011 2010 track records and developing asset management skills before $'000 $'000 releasing products to Perpetual’s investors. Exposure to credit Trade debtors 500 522 risk arises on the consolidated entity’s financial assets held by the incubation funds mainly being deposits with financial institutions Structured products – loans receivable 2,831 2,635 and derivative financial instruments. 3,331 3,157 The exposure to credit risk is monitored on an ongoing basis by the funds’ investment manager and managed in accordance with The impaired financial assets relate mainly to independent the investment mandate of the funds. customers and investors who are in unexpectedly difficult Credit risk is not considered to be significant to the incubation economic situations, where the consolidated entity is of the view funds as investments held by the funds are predominantly equity that the full carrying value of the receivable cannot be recovered. securities. The consolidated entity does not hold any collateral against the trade debtors. Collateral held in respect of PPI loans is discussed (c) Other financial assets in Note 28 i(a) above. For details of the provisions for impairment refer to Notes 13 and 29. The consolidated entity’s exposure to trade debtors is influenced mainly by the individual characteristic of each customer.

Consolidated 30 June 2011 30 June 2010 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 Trade debtors 2,176 737 371 693 3,977 1,696 803 607 664 3,770

Other debtors 936 57 119 12 1,124 697 10 - 95 802

3,112 794 490 705 5,101 2,393 813 607 759 4,572

128 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES ii. Liquidity risk arising from the translation of the controlled entities’ financial Liquidity risk is the risk that the financial obligations of the statements into Australian dollars are not considered in this Note. consolidated entity cannot be met as and when they fall due A significant proportion of the monetary financial instruments held without incurring significant costs. The consolidated entity’s by the consolidated entity, being liquid assets, receivables, loans approach to managing liquidity is to maintain a level of cash receivable, interest-bearing liabilities and payables, interest rate or liquid investments sufficient to meet its ongoing financial swaps, are denominated in Australian dollars. Hence fluctuations obligations. The consolidated entity has a robust liquidity risk in exchange rates do not materially impact the profit/(loss) for the framework in place which is principally driven by the Capital year or shareholders’ equity. Management Review (refer to capital management disclosed in Note 28 iv for further details). Investments held in listed securities and unlisted unit trusts including incubation funds are of a non-monetary nature and The consolidated entity manages liquidity risk by continually therefore are not exposed to currency risk as defined in AASB 7 monitoring forecast and actual cash flows, and by matching the Financial Instruments: Disclosures. The currency risk relating to maturity profiles of financial assets and liabilities. Surplus funds non-monetary assets and liabilities is a component of price risk are generally only invested in instruments that are tradeable in and arises as the value of the securities denominated in other highly liquid markets. In addition, a five year forecast of liquid currencies fluctuates with changes in exchange rates. assets, cash flows and balance sheet is reviewed by the Board on a semi-annual basis as part of the Capital Management (b) Interest rate risk Review to ensure there is sufficient liquidity within the Group. Interest rate risk is the risk that the fair value or future cash The repayment of the existing utilised facility of $45 million (refer flows of a financial instrument will fluctuate because of changes to Note 27) is due on 31 December 2012. in market interest rates. The consolidated entity’s exposure to interest rate risk arises predominantly on investor loans granted The $25 million unutilised bank facility may be drawn at any time under the PPI structured product offering. at the discretion of the consolidated entity. The consolidated entity’s bank facilities are subject to annual review and PPI structured product loans bear interest rates which are management intends to refinance the existing facility for a further either fixed for the term of the product (seven years), fixed period after the due date. annually or variable. The consolidated entity has entered into fixed and variable rate banking facilities in order to finance loans Maturities of financial liabilities provided to investors as a result of exposure to interest rate risk The tables below show the maturity profiles of the financial arising from: liabilities and gross settled derivative financial instruments for ▪▪ fixed rate assets being financed with floating rate liabilities, and the consolidated entity. These have been calculated using the contractual undiscounted cash flows. ▪▪ maturity or duration mismatches. iii. Market risk In order to manage the interest rate risk relating to PPI structured The consolidated entity is subject to the following market risks: 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 (a) Currency risk interest rate swaps where the banking facilities have a variable The exposure to currency risk, as defined in AASB 7 Financial interest rate. The hedging of interest rate exposure is managed by Instruments: Disclosures, arises when financial instruments are Group Finance and is reported to the Audit Risk and Compliance denominated in a currency that is not the functional currency of Committee on a half-yearly basis. the entity and are of a monetary nature. Hence the gains/(losses)

Consolidated 30 June 2011 30 June 2010 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 Liabilities Trade and other payables 40,342 - - 40,342 40,661 6,206 - 46,867 Interest bearing liabilities - 45,000 - 45,000 - 45,000 - 45,000 Structured products – interest 17,38 6 134,109 - 151,495 24,818 164,807 - 189,625 bearing liabilities 57,728 179,109 - 236,837 65,479 216,013 - 281,492

Derivatives Net settled – interest rate swaps 200 509 - 709 227 812 - 1,039 Gross settled – other derivatives – outflow 1,134 - - 1,134 663 - - 663 – (inflow) (1,117) - - (1,117) (663) - - (663) 217 509 - 726 227 812 - 1,039

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 129 Note 28. Financial risk management (continued) iii. Market risk (continued) (b) Interest rate risk (continued) The consolidated entity’s exposure to interest rate risk for the financial assets and liabilities is set out as follows:

Consolidated 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 2011 Financial assets Cash assets 12 220,070 250 - - - 220,320 Receivables 13 - - - - 72,722 72,722 Other financial assets 15 60 142 - - 53,630 53,832 Structured products – loans receivable - current 29 20,806 - - - - 20,806 Structured products – loans receivable 29 15,583 - 51,368 63,302 - 130,253 - non-current 256,519 392 51,368 63,302 126,352 497,933

Financial liabilities Payables 20 - - - - 40,342 40,342 Interest-bearing liabilities 22 45,000 - - - - 45,000 Structured products – interest-bearing liabilities 29 17,38 6 - - - - 17,38 6 - current Structured products – interest-bearing liabilities 29 64,572 - 13,255 56,282 - 134,109 - non-current Effect of interest rate swaps (43,186) - 36,455 6,731 - - 83,772 - 49,710 63,013 40,342 236,837

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 15 60 162 - - 49,827 50,049 Structured products – loans receivable - current 29 26,157 - - - - 26,157 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 liabilities 29 24,818 - - - - 24,818 - current Structured products – interest-bearing liabilities 29 80,729 - 17,150 66,928 - 164,807 - non-current Effect of interest rate swaps (50,815) - 43,600 7,215 - - 99,732 - 60,750 74,143 46,867 281,492

The table below demonstrates the impact of a one per cent The impact on profit after tax for the year would be mainly as change in interest rates, with all other variables held constant, a result of an increase/(decrease) in interest revenue earned on the profit after tax and equity of the consolidated entity. on cash and cash equivalents. The impact on equity would be mainly the result of an increase/(decrease) in the fair value Consolidated 30 June 2011 30 June 2010 of the cash flow hedges associated with variable interest rate Impact on Impact on Impact on Impact on borrowings. profit after equity profit after equity tax tax $’000 $’000 $’000 $’000 Change in variable + 1 per cent 1,074 1,670 1,016 1,758 - 1 per cent (1,074) (1,676) (1,016) (1,768)

130 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES (c) Market risks arising from Funds Under Management and The incubation funds may be exposed to currency risk and Funds Under Advice interest rate risk. Their investment managers may enter into The consolidated entity’s revenue is significantly dependent on derivative contracts (such as forwards, swaps, options and Funds Under Management and Funds Under Advice which are futures) through approved counterparties to minimise risk. influenced by equity market movements. Management calculates However, the use of these contracts must be consistent with the the expected impact on revenue for each one per cent movement investment strategy and restrictions of each incubation fund, and in the All Ords. Based on the level of the All Ords at the end of agreed acceptable level of risk. These funds are also exposed 30 June 2011 (4,659.8), a one per cent movement in the market to interest rate risk on cash holdings. Interest income from cash changes annualised revenue by approximately $2.0 million to holdings is earned at variable interest rates and investments in $2.5 million. It is worth noting this movement is not linear to cash holdings are at call. the overall value of the market. This means that as the market reaches higher or lower levels, a one per cent movement may (e) Market risks arising from the Exact Market Cash Funds have a larger or smaller effect on revenue as FUM and FUA are The consolidated entity is further subject to market risks through comprised of both equity market and non-equity market-sensitive the establishment of the Exact Market Cash Fund (EMCF). The asset classes. fund was established with the purpose of providing an exact return utilising the UBS Bank Bill Index (the benchmark index) to (d) Market risks arising from incubation funds investors. The impact of the EMCF on the consolidated entity’s The consolidated entity is exposed to equity price risk on financial results is dependent on the performance of the fund investments held by its incubation funds. The funds may also be relative to the benchmark. exposed, to a small extent, to the other risks which influence the The risk management approach to and exposures arising from value of those shares or units (including foreign exchange rates the EMCF are disclosed in Note 29. and interest rates).

Market risk in the incubation funds is limited by a predetermined iv. Capital management seed capital funding pool which has been allocated based on the A Capital Management Review is carried out on a semi-annual consolidated entity’s balance sheet. The Investment Committee basis and is submitted to the Board for review and approval. is responsible for determining the size of the pool and approving The capital management policy ensures that the level of financial new incubation fund strategies. They also ensure management conservatism is appropriate for the Company’s businesses has appropriate processes and systems in place for managing including acting as custodian and manager of clients’ assets and investment risk for each fund. The funds’ specialist asset operation as a trustee company. This policy also aims to provide managers aim to manage the impact of price risks through the use business stability and accommodate the growth needs of the of consistent and carefully considered investment guidelines. Risk consolidated entity. This policy comprises three parts: management techniques are used in the selection of investments, including derivatives, which are only acquired if they meet specified (a) Dividend Policy investment criteria. Daily monitoring of trade restrictions and Dividends paid to shareholders are typically in the range of 80-100 derivative exposure against limits is undertaken with any breach of per cent of the consolidated entity’s net profit after tax attributable these restrictions reported to the Chief Risk Officer. to members of the Company, which is in line with the historical dividend range paid to shareholders. In certain circumstances, the These funds may be party to derivative financial instruments in Board may declare a dividend outside that range. the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates, interest rates and equity (b) Review of capital and distribution of excess capital indices in accordance with the funds’ investment guidelines. A review of the consolidated entity’s capital base is performed at least semi-annually and excess capital that is surplus to The impact on the consolidated profit after tax of a potential the Group’s current requirements is potentially returned to change in the returns of the funds in which the consolidated shareholders in the absence of a strategically aligned, value entity invested at year end is not material. The potential change accretive investment opportunity. has been determined using historical analysis and management’s assessment of an appropriate rate of return. The analysis is (c) Gearing Policy based on the assumption that the returns on asset classes have The consolidated entity seeks to maintain a conservative financial moved, with all other variables held constant and that the relevant management profile. Its gearing policy includes a maximum debt/ change occurred as at the reporting date. However, actual debt and total equity ratio of 30 per cent and EBITDA interest movements in the risk may be greater or less than anticipated cover of more than 10 times. Corporate debt (excluding product due to a number of factors, including unusually large market debt) has been maintained at $45 million throughout the year shocks resulting from changes in the performance of economies, (2010: $45 million), and the consolidated entity is within its stated markets and securities in which the funds invest. As a result, gearing policy at year end. historic variations in risk variables are not a definitive indicator of future variations in the risk variables. The gearing ratio for the consolidated entity as at 30 June 2011 is 11 per cent (2010: 11 per cent) and an EBITDA interest cover ratio of 40 times (2010: 54 times) was achieved.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 131 Note 28. Financial risk management (continued) The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for- v. Fair value sale securities) is based on quoted market prices at the reporting The following tables present the consolidated entity’s assets and date. The quoted market price used for financial assets held by liabilities measured and recognised at fair value, by valuation the consolidated entity is the current bid price. Marketable shares method, at 30 June 2011. The different levels have been defined included in other financial assets are traded in an organised financial as follows: market and their fair value is the current quoted market bid price for an asset. The carrying amounts of bank term deposits and – Level 1: quoted prices in active markets for identical assets receivables approximate fair value. The fair value of investments in and liabilities unlisted shares in other corporations is determined by reference to the underlying net assets and an assessment of future maintainable – Level 2: inputs other than quoted prices included within Level 1 that earnings and cash flows of the respective corporations. are observable for the asset or liability, either directly or indirectly Derivative contracts classified as held for trading are fair valued – Level 3: inputs for the asset or liability that are not based on by comparing the contracted rate to the current market rate for a observable market data. contract with the same remaining period to maturity.

Consolidated The fair value of financial instruments that are not traded in Level 1 Level 2 Level 3 Total an active market (for example, over-the-counter derivatives) is $’000 $’000 $’000 $’000 determined using valuation techniques. The fair value of interest At 30 June 2011 rate swaps is calculated as the present value of the estimated Financial assets future cash flows. The fair value of forward exchange contracts is Available-for-sale listed equity securities 47,461 - - 47,461 determined using forward exchange market rates at the reporting Available-for-sale unlisted date. The estimates of fair value where valuation techniques are unit trusts - 5,882 - 5,882 applied are subjective and involve the exercise of judgement. Structured products - Changing one or more of the assumptions applied in valuation EMCF assets1 - 866,996 - 866,996 techniques to reasonably possible alternative assumptions may 47,461 872,878 - 920,339 impact on the amounts disclosed. Financial liabilities Derivative financial The consolidated entity’s financial assets and liabilities included instruments - forward as current and non-current in the balance sheet are carried at exchange contracts - 6 6 amounts in accordance with Notes 12, 13, 15, 20 and 29. The Derivative financial carrying amount of financial assets and financial liabilities, less instruments - 607 - 607 any impairment, approximates their fair value, except for those Deferred acquisition outlined in the table below, which are stated at amortised cost. consideration - - 3,339 3,339 - 613 3,339 3,952 2011 2010 At 30 June 2010 Financial assets Carrying Fair Carrying Fair amount value amount value Available-for-sale listed equity securities 36,030 - - 36,030 $’000 $’000 $’000 $’000 Available-for-sale unlisted Non-current unit trusts - 13,538 - 13,538 Structured products – Derivative financial loans receivable 130,253 124,702 162,675 159,318 instruments - 11 - 11 Structured products - Structured products – EMCF assets1 - 1,154,517 - 1,154,517 interest bearing liabilities 134,109 125,714 164,807 154,309 36,030 1,168,066 - 1,204,096 Financial liabilities Derivative financial instruments - 662 - 662 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.

Consolidated 2011 2010 $'000 $'000 Deferred acquisition consideration Opening balance 11,819 2,440 Acquisitions through business combinations - 8,583 Accrual of interest 1,193 796 Payments made during the year (9,673) - Closing balance 3,339 11,819

132 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 29. Structured products assets The EMCF 1 product has been assigned a ‘AAf’ fund credit and liabilities quality rating by Standard & Poor’s and invests predominantly in the Perpetual Premium Treasury Fund and Cash Alpha Pool i. Exact Market Cash Funds Fund of the consolidated entity. These funds cannot invest in Consolidated securities which have a Standard & Poor’s credit rating below 2011 2010 ‘BBB-’. They can invest in assets directly or indirectly by investing $'000 $'000 in other managed funds that have similar investment objectives Current assets and authorised investments. The underlying funds may invest in Exact Market Cash Fund 1 382,901 693,243 a variety of cash and debt securities, predominantly floating rate Exact Market Cash Fund 2 516,245 497,823 securities, cash deposits and fixed rate securities.

899,146 1,191,066 The EMCF 2 product invests directly into a variety of cash and Current liabilities debt securities, predominantly floating rate securities, cash Exact Market Cash Fund 1 383,598 695,129 deposits and fixed rate securities with a minimum credit rating Exact Market Cash Fund 2 512,750 495,213 band of ‘BBB-’ by Standard & Poor’s or equivalent rating agency 896,348 1,190,342 at the time of purchase.

EMCF 1 and EMCF 2 (EMCF) use professional investment The Exact Market Cash Funds current asset balances reflect the managers to manage the impact of these risks by using prudent fair value of the net assets held by the funds. The current liabilities investment guidelines and investment processes. The investment balances represent the consolidated entity’s obligation to the manager explicitly targets low volatility and aims to achieve this funds investors under the swap agreements and reflect the net through a quality-screening process that is designed to assess assets of the funds for unit pricing purposes. the likelihood of default and difficult trading patterns during The Exact Market Cash Fund 1 (EMCF 1) was established periods of rapid systematic risk reduction. There is a clearly during the financial year ended 30 June 2005 with the purpose defined mandate for the inclusion of sectors and issuances. In of providing an exact return that matched the UBS Bank Bill periods of risk reduction, diversification may be narrowly focused rate (the benchmark index), or a variant thereon, to investors. on cash and highly liquid investment-grade assets. At times The fund’s ability to pay the benchmark return to the investors of higher risk tolerance, appropriate diversification should be is guaranteed by the consolidated entity. The National Australia expected. Bank has provided the EMCF 1 product with a guarantee to the value of $20 million in 2011 (2010: $20 million) to be called Interest rate exposure is limited to +/- 90 days versus the upon in the event that the consolidated entity is unable to meet benchmark. The portfolio is constructed with the goal of having its obligations. Due to the guaranteed benchmark return to a diversified portfolio of securities, while largely retaining the low- investors, the consolidated entity is exposed to the risk that risk characteristics of a cash investment. the return of the EMCF 1 differs from that of the benchmark. The return of the EMCF 1 is affected by risks to the underlying Liquidity risk of EMCF is managed by maintaining a level of cash investments in the EMCF 1 portfolio, which are market, liquidity, or liquid investments in the portfolio which are sufficient to meet and credit risks. a reasonable expectation of investor redemptions, distributions or other of the fund’s financial obligations. This is complemented by In March 2009, the consolidated entity changed the swap a dynamic portfolio management process that ensures liquidity agreement valuation methodology between the fund and the is increased when there is an expectation of a deterioration in consolidated entity. The underlying investments are now valued market conditions. Cash flow forecasts are prepared for the on a hold to maturity basis for unit pricing purposes, which is funds, including the consideration of the maturity profile of the consistent with the way in which Perpetual now manages the securities, interest and other income earned by the funds, and portfolio. The underlying assets were valued at their fair value projected investor flows based on historical trends and future at the date of change, which for many assets was at a discount expectations. to their maturity value. The discount to maturity value will be amortised over the remaining term of the assets. The change in Furthermore, the credit quality of financial assets is managed valuation methodology will not affect the investment returns to by the EMCF using Standard & Poor’s rating categories or investors in the EMCF 1. equivalent, in accordance with the investment mandate of the EMCF. The EMCF’s exposure in each credit rating category The Exact Market Cash Fund 2 (EMCF 2) was established in is monitored on a daily basis. This review process allows July 2008 and aims to provide an exact return that matches the assessment of potential losses as a result of risks and the benchmark index to investors in the fund. It has a similar structure undertaking of corrective actions. The investment managers have to EMCF 1, but in addition, there are specific rules that govern undertaken to restrict the asset portfolio of the underlying funds the withdrawal of funds. EMCF 2 invests in debt securities issued to securities, deposits or obligations that meet Standard & Poor’s by parties or securities with a minimum credit rating of ‘BBB-’ by Standard & Poor’s or equivalent rating agency at the time of ‘AAf’ fund credit quality rating criteria. purchase. The investments held by EMCF 2 are recorded at fair The investment managers of the underlying funds invested by value within the fund, and in the consolidated entity’s financial the EMCF enter into a variety of derivative financial instruments statements. National Australia Bank has provided the fund with a such as credit default swaps and foreign exchange forwards guarantee to the value of $6 million (2010: $6 million) to be called in the normal course of business in order to mitigate credit risk upon in the event that Perpetual does not meet its obligations to exposure, and to hedge fluctuations in foreign exchange rates. the fund under the swap agreement.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 133 Note 29. Structured products assets investments from a menu of managed funds while providing and liabilities (continued) capital protection at maturity via a constant proportion portfolio insurance structure. The seven-year investment allows investors i. Exact Market Cash Funds (continued) to borrow up to 100 per cent of their original invested amount Details of the assets held by the underlying funds are set out (and their first year’s interest if the interest is pre-paid), subject to below: a minimum loan of $50,000.

AAA to A+ to BBB+ to Total Structured products – loans receivable at reporting date consists AA- A- BBB- of the following: $’000 $’000 $’000 $’000 Consolidated 30 June 2011 Corporate bonds 240,382 80,756 43,039 364,177 2011 2010 Mortgage and asset 383,062 3,181 3,796 390,039 $'000 $'000 backed securities1 Current Cash 151,706 - - 151,706 Structured products – receivable from investors 20,806 26,157 775,150 83,937 46,835 905,922 Non-current Structured products – loans receivable from 30 June 2010 investors 133,314 165,690 Corporate bonds 234,236 167,492 61,990 463,718 Less: loan establishment fees (230) (380) Mortgage and asset 537,385 5,011 9,831 552,227 backed securities 133,084 165,310 Cash 183,375 - - 183,375 954,996 172,503 71,821 1,199,320 Less: provision for credit losses (2,831) (2,635) 130,253 162,675 1 An asset with a value of $822,325 as at 30 June 2011, and which had been rated by Standard & Poor’s, ceased to be rated on 17 May 2011. Movements in the provision for credit losses are as follows: The table below demonstrates the impact of a one per cent Balance as at 1 July 2,635 991 change in the fair value of the underlying assets of the EMCF, due Provision utilised during the year (189) - to market price movements, based on the values at reporting Provision for credit losses recognised during date. 385 2,376 the year

2011 2010 Unused amounts reversed - (732) 2,831 2,635 $'000 $'000 Balance as at 30 June 1 per cent increase 9,059 11,993 In June 2011, a number of investors in the PPI product advised 1 per cent decrease (9,059) (11,993) the Group that they intended to repay all or some of their loans. This gave rise to the reclassification to current assets and The actual impact of a change in the fair value of the underlying liabilities in relation to the PPI and corresponding bank funding assets of the EMCF on the consolidated profit before tax is facilities. Repayments received from investors will be applied to dependent on the calculation of the swap agreement between reduce the bank funding facilities used to finance these loans. the fund and the consolidated entity and the performance of the fund relative to the benchmark index. If the fund’s performance Investment and interest loans made to investors are funded is below the benchmark return, then the consolidated entity by fixed and variable interest rate banking facilities. Total bank will be obliged to make payments to the fund under the swap facilities available and utilised under these financial arrangements agreement. Conversely, if the fund’s performance is higher as at 30 June 2011 were $151.5 million (2010: $189.6 million). than the benchmark, then the fund will make payments to the consolidated entity. It is the consolidated entity’s policy to hedge variable rate facilities from exposure to fluctuating interest rates in accordance with its A one per cent increase or decrease in the fair value of the financial risk management policies. Accordingly, the consolidated underlying assets of the EMCF, assuming all other variables are entity has entered into interest rate swap contracts in order to hedge held constant, would result in a $9,059,000 (2010: $11,993,000) exposure to fluctuations in interest rates under which it is obliged increase or decrease in the consolidated entity’s current assets to receive interest at variable rates and to pay interest at fixed rates. EMCF balance. However, any variance between the consolidated Details of the consolidated entity’s exposure to risks arising from entity’s current assets EMCF balance and the consolidated Perpetual Protected Investments are set out in Note 28. entity’s current liabilities EMCF balance would be reflected in reserves, except in the case of a credit default which would The contracts are settled on a net basis. For the one year impact the consolidated profit before tax. interest rate swap, the fixed rate payment is paid either annually in advance or monthly in arrears, and the floating rate payment ii. Perpetual Protected Investments is received monthly in arrears; for the seven years interest rate The Perpetual Protected Investments structured product (the swap, the fixed rate leg is paid annually in advance, and the PPI product) was established in the financial year ended 30 June floating rate leg is received quarterly in arrears. 2007 for the purpose of providing investors the ability to select

134 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES At year end interest rate swap contracts entered into cover Note 31. Contingencies approximately 96 per cent (2010: 97 per cent) of the variable The Directors are of the opinion that the recognition of liabilities is interest rate banking facilities and are timed to expire as each loan not required in respect of the matters below, as it is not probable falls due. The fixed interest rates of these swaps range from 4.94 that future sacrifice of economic benefits will be required and the per cent to 7.37 per cent (2010: 4.74 per cent to 7.37 per cent) and amount is not capable of reliable measurement. the banking facilities’ variable interest rates range from 6.24 per cent to 6.26 per cent (2010: 5.89 per cent to 6.1 per cent). Consolidated

The interest rates under the fixed interest banking facilities range 2011 2010 from 5.34 per cent to 7.77 per cent (2010: 5.24 per cent to 7.77 $'000 $'000 per cent). There were $69.5 million fixed interest banking facilities Contingent liabilities at 30 June 2011. A controlled entity has bank guarantees to - 20 the favour of the Australian Securities and Interest rate swaps have been both terminated and entered into in Investments Commission in respect of dealer's accordance with the Group’s product interest rate risk policy. licence arrangements. Bank guarantees of a controlled entity in favour 1,000 1,000 The fair value of interest rate swap contracts outstanding as at of the ASX Settlement and Transfer Corporation reporting date and period of expiry are as follows: Pty Limited with respect to normal trading activities. 2011 2010 Bank guarantees of a controlled entity in 984 340 Fair value Notional Fair value Notional favour of various lessors for rental bonds amount amount on leased premises. $’000 $’000 $’000 $’000 Less than 1 year (102) 36,455 (11) 43,600 In the ordinary course of business, contingent liabilities exist 4-7 years (539) 6,731 (651) 7,215 in respect of claims and potential claims against entities in the (641) 43,186 (662) 50,815 consolidated entity. The consolidated entity does not consider that the outcomes of any such claims known to exist at the date The gain or loss from remeasuring interest rate swap contracts at of this report, either individually or in aggregate, are likely to have fair value is deferred in other comprehensive income in the cash a material effect on its operations or financial position. flow hedge reserve, to the extent that the hedge is effective, and reclassified into profit or loss when the hedged interest expense is recognised. The ineffective portion is recognised in profit or Note 32. Related parties loss immediately. Controlled entities and associates The consolidated entity has a related party relationship with its As at 30 June 2011, an unrealised loss of $0.4 million Key Management Personnel (see Note 38). (2010: loss of $0.4 million) was deferred in equity in the cash flow hedge reserve. Business transactions with related parties are on normal commercial terms and conditions no more favourable than those Note 30. Commitments available to other parties unless otherwise stated. Consolidated 2011 2010 For a fixed term from 2 November 2009 to 2 May 2010, $'000 $'000 Meredith Brooks provided advisory and consulting services

Capital expenditure commitments to Perpetual Investment’s Global Equities business. In accordance with the consultancy agreement, Ms Brooks Contracted but not provided for and payable received $197,000 for providing those services. This cash within one year 320 1,207 payment is in addition to the fees Ms Brooks received in her capacity as a Non-executive Director. Capital expenditure contracted but not provided for and payable within one year relates primarily to costs associated with the Ms Brooks did not provide advisory consulting services to fit-out of Angel Place, Sydney and the costs associated with Perpetual in the year ended 30 June 2011. software development.

Consolidated 2011 2010 $'000 $'000

Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable:

Not later than 1 year 16,350 15,761

Later than 1 year and not later than 5 years 61,674 62,100

Later than 5 years 58,981 73,581

137,005 151,442

Operating leases are predominantly related to premises.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 135 Note 33. Controlled entities

Name of Company Beneficial interest Country 2011 2010 of % % 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 Ltd 100 100 Australia Grosvener Financial Services Pty Ltd 100 100 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 Legal Services Pty 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 Concentrated International Share Fund - 100 Australia Perpetual Resource Fund 66 92 Australia Perpetual Wholesale Geared International Share Fund - 92 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 100 100 Ireland Perpetual Pure Value 2 Fund 100 100 Australia Perpetual Wholesale Dynamic Fixed Income 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 Ltd 100 100 Australia Garnet Investment Management Pty Ltd 100 100 Australia Garnet Superannuation Pty Ltd 100 100 Australia Transcript Pty Ltd2# 100 100 Australia

Entities under the control of Grosvenor Financial Services Pty Limited Perpetual Tax and Accounting Pty Limited3 100 100 Australia

136 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 33. Controlled entities (continued)

Name of Company Beneficial interest Country 2011 2010 of % % incorporation Entities under the control of Perpetual Assets Pty Limited Perpetual Asset Management Limited 100 100 Australia

Entities under the control of Perpetual Asset Management Limited1 Perpetual Superannuation Ltd 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

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 Grosvenor Tax & Accounting Pty Limited changed its name to Perpetual Tax & Accounting Pty Ltd on 19 January 2011. # Perpetual applied to Australian Securities and Investments Commission (ASIC) to voluntarily deregister these companies prior to 30 June 2011. We are waiting for confirmation from ASIC that these companies have been now deregistered.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 137 Note 34. Parent entity disclosures Company 2011 2010 $'000 $'000 As at, and throughout, the financial year ending 30 June 2011 the parent entity of the Group was Perpetual Limited. Result of the parent entity Profit for the period 72,398 56,296 Other comprehensive (expense)/income (619) 4,478 Total comprehensive income for the period 71,779 60,774

Financial position of the parent entity at year end Current assets 177,49 8 154,815 Total assets 534,760 576,524

Current liabilities 106,432 155,157 Total liabilities 133,255 190,121

Total equity of the parent entity comprising: Share capital 274,980 236,724 Reserves 37,029 50,509 Retained earnings 89,496 99,170 Total equity 401,505 386,403

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 7,10 0 9,893

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

Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable:

Not later than 1 year 10,661 10,817 Later than 1 year and not later than 5 years 44,656 55,340 Later than 5 years 53,946 53,946 109,263 120,103 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 it 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 (2010: $70,000,000)

▪▪ guarantees to secure lending associated with structured products amounting to $8,991,000 (2010: $11,371,000)

▪▪ 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.

Note 35. Business combinations

Contingent consideration The balance of contingent consideration relating to business combinations acquired in previous periods has decreased by $8.5 million in the year ended 30 June 2011. Total cash consideration of $9.7 million was paid to the selling stakeholders of Financial Pursuit Pty Limited and Fordham Business Advisors Pty Ltd as certain pre-determined targets were achieved. The unwinding of the discount, relating to business combinations in previous periods, was $1.2 million for the year ended 30 June 2011.

138 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Note 36. Notes to the Cash Flow Statement

Consolidated 2011 2010 $'000 $'000 Cash flows from operating activities

Profit for the year 62,031 90,506

Add/(less) items classified as investing/financing activities: Profit on sale of investments (6,161) (3,913) Reinvestment of dividends and unit distributions (153) (512) Working capital acquired from business combinations - 5,724 Leave liabilities acquired from business combinations - (903) Deferred acquisition consideration 9,673 (8,583) Repayment of Palisade loan 7,16 5 - Deferred tax recognised on intangibles acquired - (4,543) Share of loss of equity accounted investees, net of income tax - 16 Tax paid on the sale of investments 722 (784) Add/(less) non-cash items: Loss on sale of property, plant and equipment 795 78 Depreciation and amortisation expense 15,649 14,857 Equity remuneration expense 18,586 26,755 Transfer to foreign currency translation reserve (1,288) (2,856) Transfer to available-for-sale reserve (1,261) (1,125) Profit after tax attributable to non-controlling interests 337 216 Impairment of available-for-sale securities 1,534 7,0 85 Net cash provided by operating activities before change in assets and liabilities 107,629 122,018 Change in assets and liabilities during the financial year: Decrease/(increase) in receivables 17,76 9 (8,143) (Increase)/decrease in net structured products assets (3,218) 2,051 Decrease in derivative assets 11 134 Decrease in derivative liabilities (49) (159) (Decrease)/increase in payables (6,525) 9,606 Decrease in prepayments 1,166 3,515 Increase in employee benefits 5,219 7,107 Decrease in provisions (5,503) (2,084) (Decrease)/increase in current tax liabilities (1,268) 16,586 Increase in deferred tax assets (1,194) (2,838) Increase in deferred tax liabilities 335 5,061 Increase in assets held for sale (754) - Increase in liabilities held for sale 904 - Increase in cash flow hedge reserve (38) (301) Net cash provided by operating activities 114,484 152,553

Note 37. Subsequent events ii. Sale of smartsuper On 15 August 2011 the Company announced the following events On 12 August 2011 the smartsuper business was sold on terms to the market: in line with its revised carrying value. Proceeds from the sale were not material. ▪▪ the closure of its Dublin-based in-house manufacturing capability for the international equity asset class, and iii. Off-market Buy-Back On 26 August 2011 the Company announced its intention to return ▪▪ the sale of the smartsuper business. up to approximately $70 million of surplus capital to shareholders through an off-market Buy-Back tender process. i. International Share funds Effective 15 August 2011, the Dublin-based in-house The Directors are not aware of any other event or circumstance manufacturing capability of Perpetual’s International Share since the end of the financial year not otherwise dealt with in this funds product was closed. The closure is expected to generate report that has or may significantly affect the operations of the around $7 million in after tax annualised savings based on the consolidated entity, the results of those operations or the state of current level of funds under management. Net savings in 2012 affairs of the consolidated entity in subsequent financial years. are estimated to be $4 million after tax due to the timing of the closure of the Dublin office. The closure will result in a $10 million after tax restructuring charge in the current 2012 financial year.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 139 Note 38. Remuneration details provided as part of the financial report The following disclosures required under AASB 124 are required to be included in the Financial Report:

▪▪ Para 16 ‘Total Compensation of Key Management Personnel’

▪▪ Para 25.7.3 ‘Options and Rights holdings’

▪▪ Para 25.7.4 ‘Equity Holdings and Transactions’

▪▪ Para 25.9 ‘Disclosure of Other Transactions’.

Total compensation of key management personnel

Consolidated

2011 2010

$'000 $'000

Short-term 8,119,849 8,309,185

Post-employment 262,101 336,371

Termination benefits 1,308,470 742,219

Share-based 1,552,701 (444,168)

Total 11,243,121 8,943,607

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.

140 | 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 Held at Held at 30 exercisable Exercise per option at received on period 1 July 2010 June 2011 at 30 June price Granted Forfeited Exercised grant date1 exercise 2011 $ No. of options No. of options No. of options No. of options $ $ Former Managing Director D Deverall2 Options granted prior to 1 July 20083 267,36 4 - 267,36 4 - - - 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 1 Jul 13 - 1 Jul 10 28.34 - 76,606 76,606 - - - 5.47 - 29 Jun 16 Aggregate Value $419,035 $27,087,496 - - Options granted to the former Managing Director are granted from the Executive Option Plan. No other key management personnel 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; 100% forfeited in the current year), 1 July 2006 (29,950; 100% forfeited in the current year) and 1 July 2007 (236,436; 100% forfeited in the current year). There are no options outstanding as at 30 June 2011. 4 Percentage of total remuneration received as options for the Managing Director and Group Executives was: D Deverall (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 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 former Managing Director were granted from the Executive Option Plan. No other key management personnel 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, 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 | 141 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 2010 30 June 2011 Granted Forfeited Vested hurdle TSR hurdle No. of shares No. of shares No. of shares Executive Director C Ryan ------Aggregate Value - - - Former Executive Director D Deverall1 Shares granted prior to 1 July 20082 51,496 - 51,496 - - 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 1 June 2010 28.34 1 July 2013 - 17,832 17,832 - - 18.97 27.65 Aggregate Value $512,492 $5,562,385 - Group Executives R Brandweiner Shares granted prior to 1 July 20083 1,359 - 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 1 October 2010 30.80 1 October 2013 - 11,931 - - 11,931 20.59 30.80 Aggregate Value $367,475 $99,941 - 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 1 October 2010 30.80 1 October 2013 - 19,480 - - 19,480 20.59 30.80 Aggregate Value $599,984 - - C Doyle Shares granted prior to 1 July 20085 25,531 - 8,030 7,938 9,563 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 1 October 2010 30.80 1 October 2013 - 22,727 - - 22,727 20.59 30.80 Aggregate Value $699,992 $554,938 $415,005 C Green Shares granted prior to 1 July 20086 2,291 - 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 1 October 2010 30.80 1 October 2013 - 10,551 - - 10,551 20.59 30.80 Aggregate Value $324,971 $168,480 - B Henderson ------Aggregate Value - - - I Holyman Shares granted prior to 1 July 20087 11,992 - 5,873 - 6,119 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 1 October 2010 30.80 1 October 2013 - 14,610 - - 14,610 20.59 30.80 Aggregate Value $449,988 $424,970 - G Lloyd Shares granted prior to 1 July 2008 ------10 August 2010 31.33 10 August 2011 - 12,767 - - 12,767 N/A 27.65 1 October 2010 30.80 1 October 2013 - 21,915 - - 21,915 20.59 30.80 Aggregate Value $1,074,972 J Stewart Shares granted prior to 1 July 20088 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 1 October 2010 30.80 1 October 2013 - 8,668 - - 8,668 20.59 30.80 Aggregate Value $266,974 $43,940 - R Vahtrick ------Aggregate Value - - -

142 | 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 2010 30 June 2011 Granted Forfeited Vested hurdle TSR hurdle No. of shares No. of shares No. of shares Current Executives who were in Acting Group Executive roles during the year P Ryan Shares granted prior to 1 July 20089 1,495 - 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 1 October 2010 30.80 1 October 2013 - 4,870 - - 4,870 20.59 30.80 Aggregate Value $149,996 $109,942 - S Singh Shares granted prior to 1 July 200810 1,365 - 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 1 October 2010 30.80 1 October 2013 - 4,870 - - 4,870 20.59 30.80 Aggregate Value $149,996 $100,232 - Departed Executives M Miller Shares granted prior to 1 July 200811 1,631 - 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 1 October 2010 30.80 1 October 2013 - 10,551 10,551 - - 20.59 30.80 Aggregate Value $324,971 $889,885 -

M Pancino Shares granted prior to 1 July 200812 2,294 - 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 - $667,656 -

R MacIntyre Shares granted prior to 1 July 200813 7,241 - 2,283 4,958 -

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 - $292,718 $337,094

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 October 2009. 2 These shares were granted on 1 July 2006 (7,130; 100% forfeited in the current year) and 1 July 2007 (44,366; 100% forfeited in the current year). 3 These shares were granted on 1 October 2007 (1,359; 100% forfeited in the current year). 4 These shares were granted on 31 March 2008 (11,383). 5 These shares were granted on 4 December 2006 (1,645; 100% forfeited in the current year), 1 October 2007 (4,759; 100% forfeited in the current year) and 20 February 2008 (19,127; 9% forfeited in the current year and 41% vested in the current year). 6 These shares were granted on 1 October 2007 (2,291; 100% forfeited in the current year). 7 These shares were granted on 2 October 2006 (5,873; 100% forfeited in the current year) and 1 October 2007 (6,119). 8 These shares were granted on 10 September 2007 (584; 100% forfeited in the current year). 9 These shares were granted on 1 October 2007 (1,495; 100% forfeited in the current year). 10 These shares were granted on 3 July 2006 (139; 100% forfeited in the current year) and 1 October 2007 (1,226; 100% forfeited in the current year). 11 These shares were granted on 1 October 2007 (1,631; 100% forfeited in the current year). 12 These shares were granted on 14 August 2006 (255; 100% forfeited in the current year) and 1 October 2007 (2,039; 100% forfeited in the current year). 13 These shares were granted on 1 October 2007 (1,359; 100% forfeited in the current year), 3 December 2007 (2,941: 4% forfeited in the current year and 96% vested in the current year), 3 December 2007 (2,941: 28% forfeited in the current year and 72% vested 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 | 143 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 2,748 - 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 -

144 | 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 - 20,969 20,969 - - 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). 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 which take into account the probability of vesting as reflected in the fair value at grant.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 145 Note 38. Remuneration details provided as part of the financial report (continued)

Vested shareholdings of Executive Director, Group and other Executives

Name Balance at 1 July 2010 LTI Shares vesting in the period Other changes during the year Balance at 30 June 2011*

No. of shares

Managing Director C Ryan - - - - Former Managing Director D Deverall 35,540 - - 35,540 Group Executives R Brandweiner 402 - - 402 R Burrows - - - - C Doyle - 7,938 ( 7,113) 825 C Green 4,796 - - 4,796 B Henderson - - - - I Holyman 2,736 - - 2,736 G Lloyd - - - - J Stewart - - - - R Vahtrick - - - - P Ryan - - - - S Singh - - - - Departed Group Executives M Miller 234 - (234) - M Pancino - - - - R MacIntyre 16,893 4,958 (440) 21,411

*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 C Doyle (7,113), M Miller (234) and R MacIntyre (440).

Name Balance at 1 July 2009 LTI Shares vesting in the period Other changes during the year Balance at 30 June 2010*

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).

146 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Remuneration of Non-executive Directors Directors’ individual shareholdings

Name Balance at the start of the year, Shares acquired via salary Other changes during the year Balance at the end of the year or for Directors sacrifice during the year or, for Directors who retired in the appointed in the year, the date year, the date of retirement of appointment

Directors

R M Savage 9,609 - 178 9,787

P V Brasher 1,000 - - 1,000

M J Brooks 5,753 - 403 6,156

P Bullock 1,000 - - 1,000

E P McClintock 8,768 - 435 9,203

E Proust 3,245 - 1,156 4,401

P B Scott 2,140 - 151 2,291

P J Twyman 8,107 - - 8,107

Prior year Directors’ individual shareholdings

Name Balance at the start of the year, Shares acquired via salary Other changes during the year Balance at the end of the year or for Directors sacrifice during the year or, for Directors who retired in the appointed in the year, the date 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 - (665) 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.

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 147 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 29 to 56, are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the Consolidated Entity’s financial position as at 30 June 2011 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 i

c. there are reasonable grounds to believe that the consolidated entity 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 Act 2001 from the Chief Executive Officer and the Chief Financial Officer for the financial year ended 30 June 2011.

Signed in accordance with a resolution of the Directors.

Dated at Sydney this 26th day of August 2011.

Peter B Scott Chris Ryan Director Director

148 | 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 Perpetual In conducting our audit, we have complied with the Limited (the Company) which comprises the balance sheet as independence requirements of the Corporations Act 2001. at 30 June 2011, and consolidated statement of comprehensive income, consolidated statement of changes in equity and Auditor’s opinion consolidated statement of cash flows for the year ended on In our opinion: that date, notes 1 to 38 comprising a summary of significant accounting policies and other explanatory information and the (a) the financial report of the Group is in accordance with the directors’ declaration of the Group comprising the Company and Corporations Act 2001, including: the entities it controlled at the year’s end or from time to time during the financial year. (i) giving a true and fair view of the Group’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and Directors’ responsibility for the financial report The directors of the Company are responsible for the preparation (ii) complying with Australian Accounting Standards of the financial report that gives a true and fair view in accordance (including the Australian Accounting Interpretations) and with Australian Accounting Standards and the Corporations Act the Corporations Regulations 2001. 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that (b) the financial report also complies with International Financial is free from material misstatement whether due to fraud or error. Reporting Standards as disclosed in note 2. In note 2, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Report on the remuneration report Statements, that the financial report, comprising the financial We have audited the Remuneration Report included in pages 29 statements of the Group comply with International Financial to 56 of the directors’ report for the year ended 30 June 2011. Reporting Standards. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with Auditor’s responsibility Section 300A of the Corporations Act 2001. Our responsibility is Our responsibility is to express an opinion on the financial report to express an opinion on the remuneration report, based on our based on our audit. We conducted our audit in accordance with audit conducted in accordance with auditing standards. Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to Auditor’s opinion audit engagements and plan and perform the audit to obtain In our opinion, the remuneration report of Perpetual Limited for reasonable assurance whether the financial report is free from the year ended 30 June 2011, complies with Section 300A of the material misstatement. Corporations Act 2001. 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 those risk assessments, the auditor considers internal control KPMG relevant to the entity’s preparation of the financial report that gives a true and fair view 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 presentation of the financial report. Andrew Yates We performed the procedures to assess whether in all material Partner respects the financial report presents fairly, in accordance with Sydney the Corporations Act 2001 and Australian Accounting Standards, 26 August 2011 a true and fair 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 | 149 Securities exchange and investor information

2011 Annual General Meeting Substantial shareholders The 2011 Annual General Meeting of the Company will be held Queensland Trustees Pty Limited is a substantial shareholder of in the Heritage Ballroom, Level 6, The Westin Sydney, 1 Martin Perpetual Limited as at 31 July 2011. Place, Sydney on 3 November 2011 commencing at 10:00 am. Distribution schedule Number Number Securities exchange listing of holdings of holders of shares The ordinary shares of Perpetual Limited are listed on the as at 31 July 2011 Australian Securities Exchange under the ASX code PPT, with 1-1,000 shares 21,287 8,051,116 Sydney being the home exchange. Details of trading activity are published in most daily newspapers. 1,001-5,000 shares 4,898 10,255,146 5,001-10,000 shares 443 3,174,417

10,001-100,000 shares 293 6,227,803

100,001 and over shares 30 16,962,647

Total 26,951 44,671,129

Number of shareholders with less than a marketable parcel 638

Twenty largest shareholders as at 31 July 2011 Number of Percentage of Name ordinary shares issued capital Queensland Trustees Pty Limited¹ 3,092,536 6.92% HSBC Custody Nominees (Australia) Limited¹ 2,166,477 4.85% National Nominees Limited¹ 2,110,853 4.73% J P Morgan Nominees Australia Limited¹ 1,582,716 3.54% Australian Foundation Investment Company Limited 933,657 2.09% Milton Corporation Limited 818,126 1.83% RBC CEES Trustee Limited¹ 620,921 1.39% J P Morgan Nominees Australia Limited (Cash Income A/c)¹ 593,622 1.33% Perpetual Trustee Company Limited¹ 581,584 1.30% Washington H Soul Pattinson & Co Ltd 529,598 1.19% Diversified United Investment Limited 500,000 1.12% Australian United Investment Co. Limited 400,000 0.90% Bond Street Custodians Limited¹ 376,211 0.84% Argo Investments Limited 350,880 0.79% UBS Wealth Management Australia Nominees Pty Ltd¹ 344,048 0.77% Citicorp Nominees Pty Limited1 330,989 0.74% Enbeear Pty Ltd 310,678 0.70% T Eustace 285,081 0.64% RBC Dexia Investor Services Australia Nominees Pty Ltd¹ 244,993 0.55% Carlton Hotel Ltd 237,3 32 0.53% Total 16,410,302 36.75%

1 Held in capacity as executor, trustee or agent.

150 | 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 office Voting rights below, or visit their website at www.linkmarketservices.com.au Under the Company’s Constitution, each member present or email [email protected] at a general meeting (whether in person, by proxy, attorney Link Market Services Limited or corporate representative) is entitled: Level 12, 680 George Street ▪▪ on a show of hands to one vote, and Sydney NSW 2000

▪▪ on a poll to one vote for each share held. Locked Bag A14 Sydney South NSW 1235 If a member is present in person, any proxy of that member is not entitled to vote. Perpetual Shareholder Information Line 1300 732 806 or + 61 2 8280 7620 Voting by proxy Fax + 61 2 9287 0303 Voting by proxy allows shareholders to express their views on Any other enquiries which you may have about the Company, the direction and management of the economic entity without can be directed to the Company’s registered office or visit the attending a meeting in person. Company’s website. Shareholders who are unable to attend the 2011 Annual General Meeting are encouraged to complete and return the proxy form Principal registered office that accompanies the notice of meeting enclosed with this report. Level 12 123 Pitt Street On-market Buy-Back Sydney NSW 2000 There is no current on-market Buy-Back. Phone +61 2 9229 9000 Fax +61 2 8256 1461 Final dividend The final dividend of 90 cents per share will be paid on Company Secretary 27 September 2011 to shareholders entitled to receive dividends Joanne Hawkins and registered on 6 September 2011 being the record date. www.perpetual.com.au

PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES | 151 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 you are invited to 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 their 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 2011 Annual Report is printed on Pacesetter and Precision supplied by Spicers Paper. The cover is printed on 250gsm Pacesetter Satin and inside sections on 110gsm and 90gsm Precision. Pacesetter Satin is a coated, FSC Mix Certified paper, which ensures that all virgin pulp is derived from well-managed forests and controlled sources. It contains elemental chlorine-free bleached pulp and is manufactured by an ISO 14001 certified mill. Precision is an Australian made stock, 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.

152 | PERPETUAL LIMITED AND ITS CONTROLLED ENTITIES Inside front cover spine - glue area

iii Fold line 29.1_BKAREP1_0911 Perpetual Limited Annual 2011 Report

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