Perpetual Limited ABN 86 000 431 827 focus and delivery annual report 2013 annual report 2013 t rust and advocacy Perpetual’s trustee heritage, fiduciary culture and service focus underpin the exceptional trust and advocacy of our clients and the longevity of our relationships. Csontent About Perpetual 2 Chairman’s Report 4 2013 Highlights 6 CEO’s Report 8 Group Result 12 Business Unit Review 14 Directors’ Report 20 Corporate Responsibility Statement 25 Remuneration Report 35 Operating and Financial Review 65 Financial Report 107 Securities Exchange and Investor Information 176
Shareholder calendar Final Dividend Payment 4 October 2013 Annual General Meeting 31 October 2013 Interim profit and dividend announcement 27 February 2014
Please note that dates are subject to change. About Perpetual
O ne Perpetual Our origin as a trustee Perpetual Limited is an independent and diversified financial services group providing specialised investment company, together with our management, personal wealth advisory and corporate fiduciary services. outstanding performance Our vision is to be Australia’s largest track record in investment independent wealth manager of choice. Perpetual was founded as the Perpetual Trustee Company in 1886 and is one of the management, has built our country’s oldest financial institutions. Our origin as a trustee company, together with reputation as one of the most our outstanding performance track record in investment management, has built our respected brands in financial reputation as one of the most respected brands in financial services in Australia. services in Australia. Our clients range from institutions to financial advisers, families, and individuals, and our passion is to protect, manage and grow their wealth, through both prosperity and adversity, and across multiple generations. Perpetual consists of three core businesses: Perpetual Investments, Perpetual Private and Corporate Trust. They share the trustee heritage, fiduciary culture and service focus that underpin the exceptional trust and advocacy of our clients and the longevity of our relationships.
2 Perpetual Limited and its controlled entities Our passion is to protect and grow our clients’ wealth and our vision is to be Australia’s largest independent wealth manager of choice.
P erpetual Investments Perpetual Private Corporate Trust Perpetual Investments is one of Australia’s Perpetual Private provides a complete Corporate Trust is a leading provider of most highly regarded investment fund range of tailored financial advice and corporate fiduciary services. Our extensive managers, providing a broad range solutions for high net worth individuals in knowledge of financial markets, together of products for personal investment, our target segments of business owners, with our trustee heritage, means we are superannuation and retirement to established wealthy and professionals. entrusted by Australia’s major institutions individuals, advisers and institutions. Fordham, a specialist business within to administer their portfolios, ultimately Perpetual Private, acts exclusively for ensuring the interests of investors We offer strong investment capabilities private, family businesses, their owners are protected. across a range of asset classes, including and their families. Australian and international equities, fixed Our standing in the industry has helped income, and multi-sector strategies. We aim to be the leading provider of wealth us establish strong and long-standing advice for financially successful individuals, relationships with our clients across the In addition, Perpetual Investments offers families, businesses and not-for-profit full range of our services. the WealthFocus platform, which provides organisations and help manage, protect clients with a range of funds managed by We have four key service offerings: trustee and build their wealth. both Perpetual and other fund managers services, fund services, trust management, under one account. Perpetual Private manages financial and data services. assets for around 6,500 private clients At Perpetual, we never lose sight of the Corporate Trust has been involved in the and 3,200 business owners, as well as for fact that we are investing on behalf of our Australian securitisation industry since estates, trusts and charitable trusts. clients. That is why we believe it is essential its inception in the 1980s, and today we to have a clear investment philosophy and We are one of Australia’s largest are the leading provider of trustee and apply it diligently, so that our clients know managers of philanthropic funds, advising transaction support services. Our products exactly how we are investing their money. over 550 clients in regards to charitable and services include trustee services for trusts, private ancillary funds, and covered bonds, mortgage backed and other Our proven approach is to make active endowment funds, supporting medical, securitisation programs. investment decisions based on the social, environmental, religious, cultural intensive analysis of an investment’s We have provided fiduciary and and educational causes. quality, value and risk. We do not attempt administrative fund services to the to predict where markets are heading – Perpetual Private’s hallmark is the fullness managed funds industry for more than we simply aim to choose the best quality of the service it provides: our advice and 20 years across a variety of asset classes, investments at prices that represent services ensure our clients’ complex needs including equities, debt, alternatives, good value, based on their potential are met at all stages of their life and beyond. private equity, infrastructure, property risks and returns. This includes investment and strategic and mortgages. advice, superannuation and retirement We invest strongly in the quality of our Corporate Trust provides trust planning, asset protection and insurance, investment professionals and the depth management services to the Australian debt and tax management, estate planning of our team. This is why we have one securitisation market since 2002. We and philanthropy. of the most experienced and highly currently administer more than 50 trusts awarded investment teams in Australia. In keeping with our trustee and fiduciary on behalf of our clients. values, we spend time getting to know Perpetual Investments offers market- We have been a leading provider of data our clients, carefully understanding their leading long-term investment performance, services since the launch of our reporting particular situation and intentions. Our creating better outcomes for investors. service in 1997. The ABSPerpetual.com highly bespoke and personalised approach Almost all of our funds can demonstrate website is recognised as the primary gives our clients the confidence that their above-market returns over medium and point of reference for domestic and global wealth is being prudently managed, in longer term horizons. investors and other market participants who line with their financial goals and wishes. want timely and comprehensive transaction Perpetual Limited is a signatory to the In an increasingly complex tax and and collateral information. We also provide United Nations Principles for Responsible legislative environment, Perpetual Private’s bespoke data to clients such as major Investing (UNPRI), which means we deep, tailored advice is highly effective. banks, rating agencies, data aggregators consider the environmental, social and and wholesale investors. governance factors that can affect the quality and value of an investment.
Annual Report 2013 3 Dear Shareholder We concluded the financial year with the chairman’s announcement that we propose to acquire I have the pleasure of presenting to you The Trust Company, a further initiative report the Perpetual Limited Annual Report for aimed at accelerating our growth. While the year ended 30 June 2013. at the time of compiling this report, we do It has been a year during which we have not yet have certainty of outcome, we view accomplished the challenging task of this potential acquisition as a compelling implementing the Transformation 2015 opportunity to enhance shareholder value. program while remaining focused on our ongoing business activities. Exceptional client relationships We started the year with a number Perpetual is a company with a unique of initiatives to simplify and refocus heritage and philosophy, and while the our corporate structure. We signed an 2013 financial year has been a period outsourcing agreement to modernise of change, we have at all times remained our IT infrastructure and applications, conscious of the values that have shaped and we completed the sale of a your company for 127 years. We take number of administration businesses the view that these values drive the way to enhance Corporate Trust’s focus we service our clients, and continue on its core clients and services. to be a valuable differentiator in a In the second half, we completed the roll-out competitive industry. of the new wrap platform within Perpetual Evidence of this can be seen in the Private, and in the process fundamentally exceptional strength of our client modernised its service offering. Throughout relationships. In Perpetual Investments, the year, Perpetual Investments produced some retail investors have been the outstanding investment performance unitholders of our blue chip funds, such as the Industrial Share Fund, for several We have at all times decades. In Perpetual Private, we have been the wealth adviser of choice for some remained conscious of the families for multiple generations. In the competitive institutional environment, values that have shaped your Corporate Trust has been the pre-eminent provider to some of Australia’s largest company for 127 years. corporations for over 20 years.
that continues to set us apart, again winning a Not only have these clients been with number of awards in the process. At the same Perpetual for many years, they are often time, the reinvigoration of our sales approach public advocates of your company, resulted in a more prominent position of our endorsing our services to others and funds on key distribution channels, paving the helping us build relationships with new way for stronger flows into our products. clients and in new business areas.
4 Perpetual Limited and its controlled entities It has been a year during which we have accomplished the challenging task of implementing the Transformation 2015 program while remaining focused on our ongoing business activities.
A consistent focus on values Gr owing on solid The values underlying our service ethic foundations also define our efforts to align the interests Our fiduciary and trustee values are of you, our shareholders, to those of our also reflected in the way we manage clients and our staff, and they drive our our own finances, for example through thinking in business activities that have a capital management and our approach direct or indirect impact on the wellbeing to remuneration. of communities. We have maintained a conservative balance Examples of this can be found in our sheet, our gearing is low and cash flow is role as trustee or manager of many strong. While the Global Financial Crisis charitable trusts. In addition to providing now fades in the memory of many, we philanthropy advice and investment believe that our ability to overcome that management capabilities, we distribute challenge is testament to the merits of our more than $50 million each year on behalf approach. We also maintained a strong of our clients and from the Perpetual expense discipline across the Group, Foundation to areas such as the arts, the including through the continued review environment, education, medical research, of our remuneration framework. social welfare, and initiatives supporting Last year, this resulted in a reduction of indigenous causes. overall Board costs by about 30% and this Perpetual is increasingly interacting year, a leaner leadership team has helped with Aboriginal and Torres Strait Islander cut its annualised target remuneration communities, including through our Native by approximately $6 million, or 40%. Title Trust team within Perpetual Private. The reduction of fixed remuneration costs While Native Title trusteeship is a business across the Group – assisted by a smaller, enterprise for Perpetual, we do take the more focused portfolio of businesses – has view that performing our duties as a trustee been a major factor in the reduction in our relies on a profound understanding of the total expenses and our improved financial values, the culture and the objectives performance. of the communities the trusts support. I encourage you to review our CEO’s report Developing this understanding involves and read more on some of our initiatives educating ourselves as a community of elsewhere in this Annual Report. I am co-workers about Aboriginal and Torres confident his overview will demonstrate Strait Islander cultures and exploring how to you that our efforts over the past year we can contribute to greater equality. In have built a more resilient, more focused order to do so, Perpetual has commenced company, one that is in a better position a Reconciliation Action Plan, which aims to grow and make further progress. to build relationships and respect between I thank you, our shareholders, for your Perpetual and these communities. We continued support. I also thank the also entered into an agreement with Board and our staff for the commitment Jawun Indigenous Corporate Partnerships in what has been a transformational year to share knowledge and expertise and for Perpetual. provide practical assistance by seconding our people to local communities.
peter scott / Chairman
Annual Report 2013 5 2013 Highlights
6 Perpetual Limited and its controlled entities Underlying Profit after tax August 2012 Year ended 30 June ($M) Perpetual signs an IT outsourcing 9 65.7 agreement, allowing it to modernise 10 72.8 its IT infrastructure and applications 11 70.2 12 65.4 13 75.9 November 2012 Perpetual signs a sale agreement Net profit after tax 8 6 for Corporate Trust’s loan servicing Year ended 30 June ($M) business, which, after the sale of the 9 37.7 mortgage processing business in August, 10 90.5 11 62.0 completes the unit’s refocus on its 12 26.7 corporate fiduciary services 13 61.0
january 2013 roe on npat Year ended 30 June (%) New Executive Leadership Team in place after the arrival of Michael Gordon, Group 9 12.5 Executive Perpetual Investments 10 27.9 11 17.1 12 8.4 13 20.9 february 2013 Perpetual Investments wins Morningstar’s overall Australian Fund Manager of the eps0 on0 npat vs0 . divide0 nds0 Year 2013 title, in recognition of the Year ended 30 June (cents per share) quality of its investment team and the 89 9 100 strong performance of its funds 211 10 210 Perpetual announces that its 141 11 185 Transformation 2015 program, launched 64 in June 2012, has delivered the equivalent 12 90 149 of $28 million of cost savings on a before 13 130 tax annualised basis, well ahead of initial eps dividend guidance of $7 – 10 million
April 2013 Perpetual Private completes the roll-out of its new wrap platform, fundamentally modernising the unit’s service offering, with stage 1 deliverable Super Wrap attracting $200 million in flows in its first full year of operation
May 2013 Perpetual announces a proposal to acquire The Trust Company to accelerate its growth and access significant strategic benefits
June 2013 Perpetual’s total Funds under Management reaches $25.3 billion, up from $22.6 billion in the previous year
Annual Report 2013 7 Dear Shareholder This pleasing result has been achieved CEO ’s Report through the transformational changes we I am pleased to report on Perpetual’s commenced this year. The progress we financial performance for the year made has strengthened our confidence in ended 30 June 2013. Perpetual’s future and has built momentum When I was appointed Chief Executive going into the 2014 financial year. It Officer of Perpetual in February 2012, confirms that, as an organisation, we have I committed with the Board to three the focus and the capability to execute and immediate goals for your company: it is early evidence that our Transformation refinement of our growth strategy, 2015 strategy is working. meaningful cost reductions and the reinvigoration of sales and distribution. more positive markets and regulatory change 2013 has been the year in which – through the Transformation 2015 strategy and the FY13 was a positive year for global relentless focus and clarity it has brought sharemarkets, supported by attractive to our day-to-day business – we have valuations and an improving US economy. delivered on these objectives and made In Australia, the mining investment boom decisive progress towards our vision to peaked and growth began to moderate in a be Australia’s largest independent wealth measured way. The Australian sharemarket manager of choice. performed strongly, with the All Ords increasing by 15% during the period. Investor confidence not only responds Flows into our products to improving markets, it is also greatly and services have shown affected by volatility. While equity markets recovered during the year, volatility did improvement, contributing continue. Having experienced market turmoil since 2008, investors are clearly to double digit increases taking longer to regain confidence. As a in terms of funds under result, the modest improvement we have witnessed during the year has been gradual management, advice and and interrupted. administration. Given that the strengthening of investor confidence and the reduction in market volatility were not sustained throughout During the year, a number of key drivers the year, improvements in flows have been strengthened. Flows into our products equally hesitant. Lower interest rates have and services have shown improvement, undoubtedly helped improve underlying contributing to double digit increases in conditions, but there still is a significant terms of funds under management, advice amount of cash in term deposits that is not and administration. Revenue was up while yet moving into equity markets. we implemented the transformational agenda, total expenses were reduced, Total market flows are still subdued and and margins widened. In terms of will require a sustained period of market financial performance, this has resulted stability to return to reasonable levels. As in improved profitability, increases in all there have been positive net industry flows return measures, and higher dividends in just two of the last seven quarters, we for shareholders. believe this will only be achieved in the medium to long term. Net flows are a key driver of our revenues and in this constrained growth environment, we do not remain idle waiting for a market recovery, but are focused on driving inflows across our Perpetual Investments and Perpetual Private businesses. In the Corporate Trust business, we have seen a similarly tentative return to previous industry activity levels. The issuance of residential mortgage backed securities, or RMBS, for which we provide securitisation services, has increased by 50% this year. Issuance of covered bonds, first launched in the previous financial year, has also continued.
geoff lloyd / CEO and Managing Director
8 Perpetual Limited and its controlled entities In addition to the impact of occasional Transformation 2015 volatility on sentiment, both Australian While markets and industry changes investors and the financial services continued to create a volatile operating industry also had to assess the likely environment in FY13, we took control impact of the Future of Financial Advice, of the factors that we do master. or FoFA, legislation that came into effect Transformation 2015 was launched in June on 1 July 2013. 2012 to do precisely that – fix and grow, or The impact of FoFA will work its way more precisely, reduce our costs and focus through the financial services industry our business on growth. on many fronts, but in summary, FoFA In the ensuing 12 months, we executed to is likely to result in margin compression, plan. By the end of FY13, Transformation further consolidation and higher demands 2015 had delivered $28.2 million of from clients as they increasingly require program benefits, which equates to an justification for fees paid. While this is annualised run-rate at the end of the period a challenge for all market players, we of around $41 million before tax. believe that Perpetual can turn some of these changes into opportunities. We have sold three non-core businesses, outsourced our IT infrastructure, replaced Our competitors are likely to face greater our advice and fiduciary platform and costs and more disruption to deal with reduced our total headcount by over some of the mandatory changes. Because 500. Importantly, we have been able to Perpetual has a better starting position introduce these changes while improving as a result of its existing business and fee our client advocacy, confirming that we model, we do not believe that responding managed to execute the transformation to the changes will be a material cost to and maintain business as usual at the the company. same time. More discriminating clients are also more Not only did we deliver against the cost likely to opt for a recognised and trusted and simplification objectives, we also advice provider, able to offer quality started making strong progress on the services that are tailored to their specific growth initiatives in the Transformation needs. We believe this will make the high 2015 strategy. This has built good net worth segment, in which we already momentum going into the 2014 financial have a good position, more attractive. year. We still have more to do as we now increasingly turn towards the drivers of growth in our businesses, but all the remaining activities of the strategy are on track to be delivered against their original benefit objectives. strong p rogress with our growth initiatives, building momentum going into the 2014 financial year.
Annual Report 2013 9 E nabling better business growth initiatives, this will allow us to build revenue was stable – again demonstrating performance on the significant improvement already our ability to transform and operate at the Transformation 2015 has been the key achieved in year one of Transformation same time – and profit benefited from the enabler of our improved performance 2015 in Perpetual Investments. generated cost savings. by creating more efficient and focused businesses. Reinvigoration of sales and distribution The enhanced focus of Corporate Trust has also been part of the transformation also yielded a positive response from In Perpetual Investments, we identified agenda in Perpetual Private, driving the clients, with improving advocacy in fund sales and distribution as an area for now completed introduction of a new team services and strong growth in trust and improvement prior to FY13, but until structure and a tiered advice and service fund management mandate wins. this year had made limited headway. As model in that business. The new model The business maintains its leadership part of the Transformation 2015 strategy, has started to deliver on its objectives, with position in the RMBS market and we accelerated the modernisation of a significant improvement in net flows stands to benefit from current growth our approach to build a smaller, more and new client wins, supported by strong in securitisation. Together with the specialised team, focused on the right growth in alliance partner relationships continued acquisition of clients by the decision makers in the distribution process and referrals. and leveraging their relationships across MARQ Services venture and the business all channels. While investor confidence FY13 has seen a number of significant growth delivered by its refocused sales remains vital to fund flows, this new developments in Perpetual Private, team, Corporate Trust is in a good approach has had an immediate impact none more important than the roll-out position for FY14. of its new wrap and fiduciary platform on the visibility and use of our products. In May 2013, we announced our proposal in April 2013, which has modernised its to acquire The Trust Company, and We remained focused on delivering service proposition. An earlier deliverable although at the date of this Annual consistent, above market returns, and of this project, Super Wrap, has picked up Report the transaction remains subject most of the Group’s core funds are momentum throughout the year, attracting to certain conditions, there is no doubt represented in the first or second quartile $200 million in flows in its first full that an acquisition is on strategy and of performance rankings over the last year of operation. five years. This demonstrates the value highly complementary for all three of of our disciplined investment process, Progress was also made in our Native our businesses. We share a fiduciary and the experience and expertise of the Title Trust business, which manages and service heritage with The Trust Perpetual Investments team. native title land access royalty payments Company and a combination of our two via a trust structure. Two additional companies would deliver greater scale and Perpetual was recognised twice as the trust appointments were added in FY13. capabilities and represents a financially leading fund manager in the industry I encourage you to read our native title compelling opportunity for shareholders. in the past 12 months, winning both case study in this Annual Report. We will maintain our disciplined approach the Morningstar and the AFR Smart as we continue to pursue this acquisition. Investor Fund Manager of the Year titles, As was the case elsewhere in the Group, as well as picking up category wins the significant change in Perpetual Private A team effort has not jeopardised our client relationships for its SHARE-PLUS Long-Short and It has been a very significant year and advocacy has remained strong. Ethical SRI funds. of change for your company. As One Perpetual, we are now a refocused The funds’ investment performance Recognition of this and the continued high business, with a new and smaller executive also supported their ratings from regard in which Perpetual Private is held team, a well-directed distribution business research houses and asset consultants. came after the end of the reported period, in Perpetual Investments, a new service and Strong ratings are an important factor with the 2013 Institutional Dealer Group advice model and platform in Perpetual in supporting distribution through the of the Year Award by Money Management. Private, and a refocused Corporate intermediary and retail channels as they Perpetual Private is now well placed to Trust business generating growth in facilitate the inclusion of our products extract further benefits from its improved its core capabilities. in model portfolios, approved product service model and will be able to capitalise on its new wrap platform. lists and on platforms. Positive ratings The reshaping of Perpetual is to be credited from asset consultants are also important During FY13, Corporate Trust completed to the hard work of all of Perpetual’s staff, as they are a crucial tool in winning its transformation into a focused including those who have left us as a institutional mandates. provider of corporate fiduciary services consequence of the significant changes. by concentrating on its core expertise The improved ratings and stronger One Perpetual is about focusing on one and selling a number of administration relationships with strategic distribution set of priorities so that we can deliver our businesses. Following the sale of its third partners are now showing a positive impact whole-of-company strategy. In all of our party registry business in FY12, Perpetual in terms of net flows, which improved by business units, we now have lean, high Lenders Mortgage Services and the loan $2.3 billion on FY12. Australian equity quality teams, remaining fully aware servicing business were sold during the funds were in net inflow in the second half, of the task ahead. Similarly, my own reported period. the first time since 2006. leadership team has become leaner and more focused. I would like to acknowledge We are confident that the combination This has allowed Corporate Trust to their contribution during FY13 as they have of continued strong investment direct the efforts of its sales team towards been instrumental in managing the dual performance and a better sales and its fund services, trust services, trust task of implementing Transformation 2015 distribution approach will further improve management and data services offerings. and directing ongoing business activities. flows in the year ahead. Together with other Despite these changes, core fiduciary
10 Perpetual Limited and its controlled entities Left to right: Michael Gordon, Chris Green, Gillian Larkins, Mark Smith, Geoff Lloyd, Rebecca Nash
As part of Transformation 2015, a single Protecting and Group Executive is now responsible growing your company for Perpetual Investments’ end-to-end In FY13, we have undertaken the business. Michael Gordon joined us in significant changes that form part of the January 2013 in that role. Michael has Transformation 2015 strategy to deliver on significant domestic and international our objective to become Australia’s largest experience as a leader of asset independent wealth manager of choice. management businesses and is a 30-year We remain committed to this vision, veteran of the financial services industry. which has become more compelling as we progressed through FY13, achieving key milestones along the way. Despite the Transformation 2015 has been hard work completed, we have remained the key enabler of our improved conscious of our core competencies, our values and our heritage. We have deepened performance by creating more them further and in the process reinforced efficient and focused businesses. our client focus. A lot more can and will be done. While investor confidence has some way to go to Mark Smith joined us as Group Executive a full recovery, the underlying drivers for for Perpetual Private in November 2012. the industry are strong. We will maintain Mark has over 20 years of experience in our discipline and focus to ensure we the financial services industry. Chris Green protect and grow your company, whilst continues to lead the Corporate Trust team we continue to also protect and grow the in the role of Group Executive, as he has wealth of our clients. done since October 2008. I look forward to meeting you at our Annual Gillian Larkins joined Perpetual in General Meeting on 31 October 2013. October 2012, and assumed the role of Chief Financial Officer in January 2013. Gillian is responsible for finance, legal, risk, compliance and IT activities of the company. She has approximately 20 years of experience in finance, strategy and management roles. Rebecca Nash joined Perpetual as Group Executive People and Culture in August 2012. Rebecca geoff lloyd / has extensive experience in the financial Chief Executive Officer and Managing Director services and consulting industries.
Annual Report 2013 11 Gr oup result
Asia softened, in particular in China, The improvement triggering flow-on effects in the region, with growth moderating in many in underlying profit economies, including Australia. Reflecting the more positive sentiment in performance included the markets, the Australian funds management industry (excluding cash) returned to net cumulative inflows in the 12 months to positive impact from the first March 2013, based on Plan for Life data. However, net inflows continue to remain year of realised cost savings well below pre-GFC levels. under the Transformation Flows and revenues In line with this, Perpetual Investments’ 2015 program. FUM and Perpetual Private’s FUA increased by 12% and 13% on the prior period, to $25.3 billion and $9.0 billion Fni ancial results Market environment respectively. The 20% increase in Corporate Trust’s FUA, to $259.4 billion, Perpetual Limited recorded a full year The largest drivers of Perpetual’s total reflected primarily growth in activity in underlying profit after tax (UPAT) of revenues are the value of funds under RMBS-repos and covered bonds. $75.9 million, an increase of $10.5 million management (FUM) within Perpetual or around 16% from $65.4 million in the Investments and funds under advice The improved flows in all three businesses previous financial year. Statutory net profit (FUA) within Perpetual Private, which also positively influenced total revenue after tax (NPAT) attributable to Perpetual are mainly influenced by the level of the excluding income from structured Limited equity holders increased 128%, Australian equity market. Corporate investments for the period, which or $34.3 million, to $61.0 million. Trust’s funds under administration (FUA) increased by 1% to $361.6 million. is primarily influenced by issuance The level of significant items after activity in residential mortgage backed Final dividend tax reduced on the prior year, from securities (RMBS). The Board determined to pay a FY13 final $38.7 million to $14.9 million. fully franked dividend of 80 cents per The average value of the Australian equity The Group’s stronger financial share, an increase of 100% on the FY12 market in the reported period, as measured performance reflects an improvement in final dividend, bringing total fully franked by the S&P/ASX All Ordinaries Price global sharemarkets, as well as the benefits dividends in respect of FY13 to 130 cents Index, or All Ords, was around 9% higher of a number of management initiatives per share, up 40 cents per share, or 44%, than in the previous year. implemented during the year. on FY12. This equates to a payout ratio of FY13 was a positive year for global around 90% based on FY13 NPAT, in line Transformation 2015 sharemarkets, with prices initially with the Group’s policy to pay dividends The improvement in underlying profit supported by attractive valuations, the within a range of 80 – 100% of NPAT on performance included the positive impact continued accommodative stance of an annualised basis. from the first year of realised cost savings central banks, and an improving US under the Transformation 2015 program, economy. Late in the financial year, the which was announced at the end of FY12. US Federal Reserve began preparing Transformation 2015 cost management markets for the end of its quantitative initiatives delivered benefits of $28.2 easing program, resulting in a brief million before tax in its first year, the increase in market volatility. Similarly, in equivalent of an end of period annual Europe, the overall situation fractionally run-rate of $41 million before tax. improved, albeit from a very low base. In contrast, the growth outlook in
12 Perpetual Limited and its controlled entities five-yer a profile
June 2009 June 2010 June 2011 June 2012 June 2013 (10) (10) (10)
Total revenue(1) $m 375.1 422.3 404.4 357.5 361.6 Underlying EBITDA(2) $m 135.7 152.0 137.8 116.1 130.6 Underlying profit before tax(3) $m 98.2 107.7 101.6 91.0 107.4 Underlying profit after tax (UPAT)(3) $m 65.7 72.8 70.2 65.4 75.9 Net profit after tax (NPAT)(4) $m 37.7 90.5 62.0 26.7 61.0 Earnings per share (UPAT)(5) cents 156 169 160 157 185 Earnings per share (NPAT)(5) cents 89 211 141 64 149 Return on average shareholders’ equity – UPAT(6) % 21.8 22.4 19.4 20.6 26.1 Return on average shareholders’ equity – NPAT(7) % 12.5 27.9 17.1 8.4 20.9 Dividend per share – ordinary(8) cents 100 210 185 90 130 Total equity at 30 June $m 290.0 361.0 376.1 280.5 323.7 Capital expenditure $m 14.0 11.8 13.9 10.2 14.2 Market capitalisation $m 1,214 1,227 1,114 961 1,486 No. of shares on issue – weighted average(9) m 42.2 43.0 44.0 41.7 41.0 No. of shares on issue at 30 June(9) m 42.5 43.4 44.7 42.0 42.0 Share price at 30 June $ 28.55 28.26 24.93 22.90 35.40 Share price range for year $ low 21.60 25.36 24.39 19.24 22.30 $ high 52.44 41.15 39.39 27.35 45.54
1. Excludes income from structured investments. 6. Calculated using underlying profit after tax. 2. EBITDA represents earnings before interest, taxation, depreciation, 7. Calculated using net profit after tax. amortisation of intangible assets, equity remuneration expense and 8. Dividends declared with respect to the financial year. significant items. 9. Includes ordinary shares and potential ordinary shares. 3. Excludes significant items and costs of major strategic initiatives. 10. Total revenue, underlying EBITDA, underlying profit before tax and 4. Attributable to equity holders of Perpetual Limited. underlying profit after tax exclude discontinued operations for the 5. Diluted earnings per share calculated using the weighted average years ended 30 June 2013, 30 June 2012 and 30 June 2011. number of ordinary shares and potential ordinary shares on issue.
Annual Report 2013 13 Business Unit Review Perpetual Investments
Perpetual Investments’ profit before tax for the 12-month 2012 2013 change change for FY13 was $87.2 million, $15.2 million period ended 30 june $m $m $m % or 21% higher than in FY12. Profit before Revenues 190.5 195.9 5.4 3 tax margin on revenues also improved, Expenses (118.5) (108.7) 9.8 8 from 38% to 45%, helped by continued cost discipline and rebounding equity markets. Profit before tax 72.0 87.2 15.2 21 Stronger markets also had a beneficial impact on revenues, which increased Several of Perpetual Investments’ strategies Investment performance by 3% to $195.9 million. received initial or upgraded ratings from Perpetual Investments continued its The average margin on Funds under asset consultants in FY13. This contributed trend of generating above market Management (FUM) revenue declined by to an improvement in institutional flows, returns in almost all of its funds. This 1 basis point to 77 basis points, reflecting from $2.0 billion in net outflows in FY12 to achievement was again recognised by changes in the FUM mix between $0.2 billion in net outflows in the reported research houses and resulted in strong institutional and retail investors, as well period. In the intermediated channel, the ratings, which supports intermediary as changes in the mix of asset classes. positive impact of the Group’s focus on and retail channel distribution. strategic partner distribution relationships At the end of the period, FUM was was demonstrated by multiple platform, The business received several industry $25.3 billion, 12% higher than at the end approved product list and model additions awards during the year, including the of FY12. On an average basis, FUM was and a third consecutive quarterly increase Morningstar Fund Manager of the $24.9 billion or 4% higher than in FY12. in gross flows. An improvement was also Year 2013 title. After the end of the Both increases reflect higher equity markets seen in the retail channel, where net outflows reported period, in August 2013, it also offsetting net outflows, which totalled declined by $0.1 billion, to $0.7 billion. won the AFR Smart Investor Funds $1.8 billion in FY13. This is significantly Manager of the Year 2013 award. lower than the $4.1 billion of net outflows Transformation 2015 cost initiatives experienced in FY12. In the second half of reduced total expenses by $7.6 million, a FY13, Australian equities returned to net significant proportion of the total decline in inflows for the first time since the second expenses by $9.8 million to $108.7 million. half of FY06. Variable remuneration increased in line with improvements in the financial performance of the Group and certain business measures.
Excess/(under) investment performance p.a. – gross as at end June 2013
Smaller Perpetual Active Australian Industrial Companies Concentrated Share Ethical Diversif ed Fixed Interest Period Share Fund Share Fund Fund Equity Fund Plus Fund Sri Fund Income Fund Fund
1 year 6.0% (0.4%) 25.5% 8.9% 16.7% 15.6% 5.2% 2.7% 3 years 4.2% 0.1% 14.7% 5.2% 9.6% 9.7% 3.5% 1.9% 5 years 4.2% 1.8% 11.7% 5.6% 7.0% 12.5% 2.0% 1.5% 7 years 3.1% 2.0% 9.6% 4.5% 5.7% 7.4% 0.6% 0.9% 10 years 3.1% 1.7% 6.3% 3.4% 4.5% 5.5% N/A N/A
The table provides no allowance for management expenses, redemption fees or taxation.
14 Perpetual Limited and its controlled entities pe rpetual ethical sri fund
Perpetual Investments offers a wide The Fund is also certified by the A case in point: Freedom Foods range of managed funds to investors. For Responsible Investment Association As an investor, the Perpetual Ethical SRI those applying their personal values to Australasia (RIAA) according to its Fund has invested in many worthwhile their investment approach and preferring strict requirements. business initiatives. One example is exposure to socially responsible companies Freedom Foods, a diversified food while not compromising returns, we offer Ethical companies company operating in the health and investors win the Perpetual Ethical SRI Fund. and wellness sector. Its philosophy is to The end result of this rigorous process produce food that is free from ingredients How does an ethical is the investment of funds supporting that negatively affect the functioning of fund work? the business activities of quality socially the body. The Ethical SRI Fund applied Perpetual’s Ethical SRI strategy uses the responsible companies, and a fund its screening process and decided to same investment process as our broad portfolio that has the potential to create participate in a capital raising by Freedom Australian equities strategies. However, it long-term returns for investors. Foods. The result was welcome funding for applies a number of additional screening The proof that sound ethics and sound the company to invest in its production, as steps to exclude companies that are investment do go together is provided well as a significant return on investment engaged in the production or distribution by the Fund’s exceptional return over for the Fund and its unitholders. of ethically unacceptable products and the last two financial years, ranking its services, have a detrimental impact on wholesale version second among all society and the environment, or have Australian share funds in the industry. demonstrated a poor record in terms of Its good performance also earned business practices, corporate governance the Perpetual Ethical SRI Fund the or community awareness. Responsible Investments title at the Perpetual enlists the help of a leading Money Management/Lonsec 2013 Ethical SRI research firm to ensure Fund Manager of the Year Awards. all relevant issues are identified.
Annual Report 2013 15 B usiness Unit Review Perpetual private
Perpetual Private’s FY13 profit before tax was $9.2 million, an increase of $0.9 million or around 11% on FY12. This result came in the context of continued investment in the business, with a particular focus on scale, structure and efficiency to facilitate future growth, and a number of productivity and service initiatives as part of Transformation 2015. Revenues increased by $1.0 million on FY12, to $115.7 million, with stronger market related revenue, up $3.6 million or 5%, offsetting a $2.6 million decline in non-market revenue. This increase in market related revenue reflected higher average FUA, in line with rebounding equity markets. Market related revenue margins were broadly unchanged at 81 basis points. Perpetual Private’s FUA at the end of FY13 was $9.0 billion, 13% or $1.0 billion higher than at the end of FY12. On an average basis, FUA was 7% higher, at $8.8 billion. The increase in average FUA benefited from improved investment markets and a significantly lower level of net outflows. Helped by a 38% improvement in gross inflows, total net outflows shrank from for the 12-month 2012 2013 change change $0.4 billion in FY12 to $0.1 billion in FY13. period ended 30 june $m $m $m % In April 2012, the business launched Super Revenues 114.7 115.7 1.0 1 Wrap, a product designed as an alternative Expenses (106.4) (106.5) (0.1) (0) to a self managed superannuation fund. Profit before tax 8.3 9.2 0.9 11 Gross inflows into Super Wrap were around $0.2 billion in FY13, of which around 40% was new client inflow. P ortfolio wrap service It is the unique combination In FY12, Perpetual Private also established a In April 2013, Perpetual Private rolled out of Perpetual’s long-term dedicated Native Title Trusts team. The initial its new, enhanced portfolio wrap service. response has been positive, with five trust The completion of the two-year project experience, breadth of appointments totalling around $55 million. fundamentally modernises the business’ knowledge, fiduciary Total expenses for FY13 were $106.5 million, service offering and supports its current background and investment in line with $106.4 million in FY12. and foreseeable needs. The market-leading management capability Savings generated by Transformation 2015 platform can administer master fund, wrap that makes us a leading initiatives were $7.8 million, $5.3 million and fiduciary activity, and a diverse range of which were in the form of lower fixed of assets, enhancing the alignment between professional trustee. remuneration expenses as a result of Perpetual Private’s service model and the business productivity improvements. needs of its target high net worth segment. Variable remuneration increased by This was also recognised after the end $2.6 million as the financial performance of the reported period by the business’ of the Group and certain business Money Management Institutional measures improved. Dealer Group of the Year win.
16 Perpetual Limited and its controlled entities
native title trusts
At Perpetual, our values drive our Torres Strait Islander groups. We act Jawun Indigenous approach to all aspects of our business. as a trusted partner, working with the Corporate Partnerships We strive for excellence and we believe communities to meet their goals. Our Perpetual has signed a corporate that a profound understanding of our service is designed to optimise and partnership with Jawun that will help our clients’ needs is the first step to providing prudently manage native title trusts and staff connect with Aboriginal and Torres an outcome that is beneficial for all our assist these groups to maximise their Strait Islander communities to share stakeholders. This is particularly relevant financial resources and their positive knowledge and expertise. We see this as to our role as professional trustee for impact within the community. an opportunity to better understand our native title trusts. role and responsibilities as a native title We are committed to making a trustee, as well as contribute by seconding Understanding values difference to the communities we work our people to assist with the development and objectives with. We believe that as a community efforts of local communities. Native title trusts are established when of co-workers ourselves, it is important Aboriginal or Torres Strait Islander that we understand the values of those Perpetual’s Reconciliation communities receive financial payment the title trusts support so that we can Action Plan for access to their lands. In recent years, approach our trustee duties in a way Understanding and sharing values professional trustee companies such as that mirrors their objectives. To be able also means recognising the past. Perpetual have had a greater involvement to do this, we believe we need to further At Perpetual, we have put in place a in the management of these funds via an build our understanding of Aboriginal Reconciliation Action Plan to foster appropriate trust structure. and Torres Strait Islander cultures respect between communities, build and build long-term relationships with relationships and investigate what Within our Perpetual Private business, local communities. we can do, as a provider of financial we have created a team that provides services, to support greater equality. a specialist service to Aboriginal and
Annual Report 2013 17 B usiness Unit Review corporate trust
Corporate Trust’s FY13 profit before tax was $18.3 million, $0.9 million or 5% higher than in FY12. Profit margin on revenue was 37% in FY13, a 4% improvement on the prior year, mainly due to savings generated by Transformation 2015 and the divestment of non-core businesses. Revenue from the business’ core fiduciary services was in line with the prior year. The $2.2 million or 4% decrease was mainly attributable to revenue foregone as a result of business divestments. Corporate Trust’s primary revenue driver is the public RMBS securitisation market. The net outflow in this market was offset by net growth in asset backed securities and the relatively lower revenue margin asset classes of covered bonds and non-marketed self-securitised RMBS. FUA at the end of FY13 increased by 20% on the end of FY12 to $259.4 billion. The majority of this growth came from RMBS-repos and covered bonds, on which fees earned are significantly lower than for the other asset classes. This shift in asset mix has continued from FY12. Total expenses in FY13 were for the 12-month 2012 2013 change change $31.5 million, a decrease of $3.1 million period ended 30 june $m $m $m % on FY12. Transformation 2015 savings were $1.7 million. Remuneration expense Revenues 52.0 49.8 (2.2) (4) changes mirrored those elsewhere in the Expenses (34.6) (31.5) 3.1 9 Group, with a $2.5 million net decrease Profit before tax 17.4 18.3 0.9 5 in fixed remuneration as a result of Transformation 2015 initiatives partially offset by a $0.8 million increase in variable As a result, it divested its three business We hope that our support remuneration as a result of the improvement process outsourcing administration units, of this pioneering program in the Group’s financial performance and namely the third party registry business certain business measures. (sold in FY12), the Perpetual Lenders will help establish and Mortgage Services business, and the loan grow social benefit bonds Business refocus servicing business (both sold in FY13). as an alternative source During FY13, Corporate Trust executed In August 2012, the Group entered of funding for community on the Transformation 2015 strategy to into a joint venture agreement with simplify, refocus and grow by concentrating assistance projects. Oliver Wyman and Morgij Analytics to on its core expertise of corporate fiduciary launch MARQ Services, a platform that services, as provided by its Fund Services, provides standardised data and reporting Trust Services, Trust Management and analytics for RMBS and covered bond Data Services businesses. markets. The venture is aligned with Corporate Trust’s Data Services business. In FY13, the Group’s share of loss from its 45% investment in MARQ Services was $0.7 million.
18 Perpetual Limited and its controlled entities S ocial benefit bonds
Perpetual’s Corporate Trust business The Benevolent Society, a charity administrative aspects of managing is recognised throughout the industry organisation that aims to help the bonds. Our involvement provides as a leader in the provision of corporate change people’s lives through additional reassurance to financial trustee services. Our extensive support and education. markets that the bonds are a knowledge of financial markets, sound investment. The so-called social benefit bond, together with our longstanding trustee which is arranged by Westpac and experience, means we are entrusted A service in keeping with the Commonwealth Bank of Australia, by some of Australia’s major institutions our values seeks to attract private funds into to administer their fund and bond Perpetual already has a strong preventative programs aimed at reducing portfolios, ultimately ensuring the presence in philanthropic services the need for taxpayer-funded foster care. interests of investors are protected. within its Perpetual Private business. These funds will then be provided to As an organisation, we are also The recognition that we receive from The Benevolent Society to form a family committed to contributing our own our clients for our professional expertise preservation service, supporting up to time and resources to charities such as also means we are often the first point 400 families over five years. The service The Benevolent Society. We therefore of call when new concepts or ideas focuses on reducing the number of family considered it appropriate to offer our requiring corporate trustee services breakdowns and children placed in services for the social benefit bond are being considered. foster care in New South Wales. program on a pro bono basis. Trustee support The bond provides secure, attractive We hope that our support of this returns to investors while at the same Recently, one of our most valued clients, pioneering program will help establish time allowing institutions to play an Westpac, approached us to perform the and grow social benefit bonds as an active role in addressing social issues. role of trustee for a bond program alternative source of funding for to be launched in partnership with Under the program structure, Perpetual community assistance projects. will act as trustee and security trustee and provide assistance in some of the
Annual Report 2013 19 di rectors’ report
D irectors senior management and client service Workforce and Productivity Agency and The Directors of the Company at any roles during his career with that firm. National VET Equity Advisory Council, time during or since the end of the Mr Brasher was Client Service Partner and/ as a member of the Education Investment financial year are: or Lead Engagement Partner for some of Fund and the Australia India Education the firm’s most significant clients. He also Council. He is a member of Perpetual’s Peter B Scott spent significant periods working with Investment Committee and People and Chairman and Independent Director PricewaterhouseCoopers in the US and Remuneration Committee. BE (Hons), M Eng Sc (Age 59) the UK. Mr Brasher is currently Chairman Mr Bullock brings to the Board extensive of Incitec Pivot Limited and a Board Appointed Director in July 2005 and management experience in Australia member of Essendon Football Club. He is Chairman on 26 October 2010. Mr Scott and Asia in technology, sales and Chairman of Perpetual’s Audit Risk and was formerly the Chief Executive Officer client management, product and brand Compliance Committee and a member of MLC and an Executive General management, distribution, marketing and of the Nominations Committee and the Manager of National Australia Bank, and talent development. held a number of senior positions with People and Remuneration Committee. Listed company directorships held during Lend Lease. He is Chairman of Sinclair Mr Brasher brings to the Board his local and the past three financial years: Knight Merz Pty Limited and a Director global experience as a senior executive and of Stockland Corporation Limited. Mr Scott director, particularly in the areas of strategy, ll Healthscope Limited (from September is an advisory board member of Igniting finance, audit and risk management and 2007 to October 2010) Change. He is Chairman of Perpetual’s public company governance. ll CSG Limited (from August 2009 to Nominations Committee. the present) Listed company directorships held during Mr Scott has more than 20 years of senior the past three financial years: S ylvia Falzon business experience in publicly listed ll Incitec Pivot Limited (from September Independent Director companies and extensive knowledge of 2010 to the present) MIR (Hons), BBus, GAICD, SF Fin (Age 48) the wealth management industry. Philip Bullock Appointed Director in November 2012. Listed company directorships held during Ms Falzon has worked in the financial the past three financial years: Independent Director BA, MBA, GAICD, Dip Ed (Age 60) services industry for over 27 years and ll Stockland Corporation Limited (from during that time has held senior executive August 2005 to the present) Appointed Director in June 2010. positions responsible for institutional Mr Bullock was formerly Vice President, and retail funds management businesses, Paul V Brasher Systems and Technology Group, IBM both domestically and internationally. Independent Director Asia Pacific, Shanghai, China. Prior to Her roles have included Head of Business BEc (Hons), FCA (Age 63) that he was CEO and Managing Director Development at Aviva Investors Australia, Appointed Director in November 2009. of IBM Australia and New Zealand. His equity partner at Alpha Investment Mr Brasher was formerly Chairman of the career with IBM spanned almost 30 years Management and Chief Manager Global Board of PricewaterhouseCoopers in the Asia Pacific region. Mr Bullock International Sales and Service at National International. He previously chaired is a Director of CSG Limited. He also Mutual Funds Management/AXA. the Board of PricewaterhouseCoopers’ provides advice to the Federal Government, Ms Falzon is currently a Non-Executive Australian firm and held a number of other through his role as Chair of the Australian Director of Cabrini Health Ltd and the
20 Perpetual Limited and its controlled entities Left to right: Sylvia Falzon, Geoff Lloyd, Paul Brasher, Peter Scott, P Craig Ueland, Elizabeth Proust, Philip Bullock
Museums Board of Victoria, and serves and governance through her many senior Geoff Lloyd as Chairman of the Cabrini Foundation. executive and board roles. Managing Director and CEO She is a member of Perpetual’s Audit LLM (Distinction) (UTS), Adv Mgt Listed company directorships held during Risk and Compliance Committee and Program (Harvard) (Age 45) the past three financial years: Investment Committee. Appointed Managing Director and Chief ll Spotless Group Limited (from June Ms Falzon brings to the Board her 2008 to 16 August 2012) Executive Officer in February 2012. Prior extensive knowledge of and insight into to this appointment, Mr Lloyd joined the development of asset management P Craig Ueland Perpetual in August 2010 as Group businesses, with a particular focus on Independent Director Executive of Perpetual Private and has led marketing, sales and service, as well as high BA (Hons and Distinction), MBA (Hons), the development and implementation of level engagement with institutional clients, CFA (Age 55) the growth strategy for this business unit. asset consultants and research houses. He took on the additional responsibility of Appointed Director in September 2012. Head of Retail Distribution in September Elizabeth M Proust AO Mr Ueland was formerly President 2011. Mr Lloyd was previously General Independent Director and Chief Executive Officer of Russell Manager, Advice and Private Banking BA (Hons), LLB, FAICD (Age 62) Investments, a global leader in multi- at BT Financial Group (BTFG) following manager investing. He previously served the merger with St.George’s wealth Appointed Director in January 2006. as Russell’s Chief Operating Officer, Chief management business. Prior to the Ms Proust was formerly Managing Director Financial Officer, and Managing Director merger, he led St.George’s entire wealth of Esanda, part of the ANZ Group. Prior of International Operations, which he management portfolio and was a member to joining ANZ, she was Secretary (CEO) led from both London and the firm’s of the St.George Bank Group Executive of the Victorian Department of Premier headquarters in the US. Earlier in his career reporting to the CEO. He has held many and Cabinet and Chief Executive Officer he opened and headed Russell’s first office senior positions at BTFG, including Chief of the City of Melbourne. She is currently in Australia. He is a member of Perpetual’s Legal Counsel and Head of the Customer Chairman of the Nestlé Australia Ltd and Audit Risk and Compliance Committee and and Business Services Division. Bank of Melbourne Boards; a Director of Investment Committee. Insurance Manufacturers of Australia Pty Mr Lloyd has over 20 years’ experience in Ltd and Sinclair Knight Merz Pty Ltd and Mr Ueland brings to the Board detailed the financial services industry and has an a Trustee of the Prince’s Charities Australia. knowledge of global financial markets extensive understanding of the industry She is Chairman of Perpetual’s People and and the investment management industry, and demonstrated leadership skills. Remuneration Committee and a member gleaned from more than 20 years as a of Perpetual’s Audit Risk and Compliance senior executive of a major investment Committee and Nominations Committee. firm, along with a strong commitment to leadership development and corporate In addition to her skills from her leadership strategy development and execution. roles in significant change management programs, Ms Proust brings to the Board her strengths in human resources, public affairs and strategy development, and her strong knowledge of board processes
Annual Report 2013 21 di rectors’ report continued
Alternate Director Directors who retired Company secretaries during the period Gillian Larkins Joanne Hawkins Alternate Director E Paul McClintock AO BCom, LLB, Grad Dip CSP FCIS, GAICD BCom, Grad Dip, MBA, CA, GAICD Independent Director Appointed Company Secretary in (Age 42) BA, LLB (Age 64) June 2003. Ms Hawkins is head of Appointed Alternate Director for Appointed Director in April 2004. Perpetual’s Legal, Risk and Compliance Geoff Lloyd on 25 January 2013. Mr McClintock retired as a Director at and Company Secretariat teams. Prior Ms Larkins joined Perpetual as Group the conclusion of the Company’s Annual to joining Perpetual, Ms Hawkins Executive Transformation Office in General Meeting on 1 November 2012. was Assistant Company Secretary of October 2012 and assumed the role of Macquarie Bank and Ord Minnett and Chief Financial Officer in January 2013. Philip J Twyman was Company Secretary, National Bank She has 20 years of experience in finance, Independent Director of the Solomon Islands. Ms Hawkins strategy and management roles across a BSc, MBA, FAICD (Age 69) has also worked as a solicitor and legal number of industries. Most recently, she Appointed Director in November 2004. adviser in New Zealand. was Chief Financial Officer, Managing Mr Twyman retired as a Director on Director of Westpac Institutional Bank, 30 November 2012. Glenda Charles responsible for finance and strategy, Grad Dip Corp Gov ASX Listed Entities, and prior to that, Chief Financial Officer CSA (Cert) Alternate directors who Australia and New Zealand of Citigroup. resigned during the period Joined Perpetual in August 1994. She was Ms Larkins has also served on the appointed Assistant Company Secretary board of Hastings Fund Management Roger L Burrows of Perpetual in 1999 and Deputy as a Non‑Executive Director from 2009 Alternate Director Company Secretary in 2009. Ms Charles to 2011. BCom, CPA, MAICD (Age 49) has over 15 years’ experience in company Appointed Alternate Director for secretarial practice and administration Peter Scott on 27 October 2010. and has worked in the financial services Mr Burrows resigned as an Alternate industry for over 25 years. Director for Mr Scott on 25 January 2013.
Ivan D Holyman Directors’ meetings Alternate Director The number of Directors’ meetings BEc, LLB (Age 57) which Directors were eligible to attend (including meetings of Board Appointed Alternate Director for committees) and the number of meetings Geoff Lloyd on 5 February 2012. attended by each Director during the Mr Holyman resigned as Alternate financial year to 30 June 2013 were: Director for Mr Lloyd on 6 July 2012.
People and A udit, Risk and Investment Nominations Remuneration Board1 Compliance Committee Committee Committee* Committee
Eligible Eligible Eligible Eligible Eligible Director to attend Attended to attend Attended to attend Attended to attend Attended to attend Attended P B Scott 17 17 – – – – 1 1 – – P V Brasher 17 16 7 7 – – 1 1 7 7 P Bullock 17 17 – – 3 3 – – 7 7 S Falzon 11 11 4 4 1 1 – – – – E P McClintock 6 5 – – 2 2 – – 2 1 E M Proust 17 16 7 7 – – 1 1 7 7 P J Twyman 7 6 3 3 2 2 – – – – P C Ueland 13 12 5 5 1 1 – – – – G Lloyd 17 17 ––––––––
* A meeting of the Perpetual Limited Board, in place of the Nominations Committee was held on 28 August 2012 and a circular resolution was approved by the Nominations Committee on 17 September 2012. 1. Board meeting held on 20 June 2013 was an unscheduled meeting.
22 Perpetual Limited and its controlled entities Pr incipal activities Review of operations The principal activities of the consolidated A review of operations is included in the entity during the financial year were funds Operating and Financial Review section management, portfolio management, of the Annual Report. financial planning, trustee, responsible For the financial year to 30 June 2013, entity and compliance services, executor Perpetual reported a net profit after tax services, investment administration and of $61.0 million compared to the net custody services. profit after tax for the financial year to There were no significant changes in the 30 June 2012 of $26.7 million. nature of activities of the consolidated The reconciliation of net profit after tax entity during the year. to underlying profit after tax for the 2013 financial year is as follows:
30 June 30 June 2013 2012 Reconciliation of Underlying Profit after tax $’000 $’000 Net profit after tax attributable to equity holders of Perpetual Limited 60,968 26,679 Add: Transformation and restructuring costs (after tax)1 10,732 22,589 Less: Gain on disposal of investments (after tax) (2,943) (359) Add/(less): (Gain)/loss on the sale of businesses/discontinued operations (after tax) (2,595) 283 Add: Impairment of assets (after tax) 3,307 20,910 Add: Foreign currency translation costs2 5,207 – Less: Net tax benefit/(expense) on non-recurring capital/equity items (387) – Add: Due diligence costs for Trust Company scheme of arrangement 1,463 – Add/(less): Profit/(loss) after tax attributable to non-controlling interests3 568 (2,479) Underlying profit after tax attributable to equity holders of Perpetual Limited 76,320 67,623 Underlying profit after tax from discontinued operation 426 2,230 Underlying profit after tax from continuing operations 75,894 65,393
1. Transformation office costs relate to the continued investment of the Group to achieve its Transformation 2015 strategy announced on 25 June 2012 of reducing annualised operating expenses by $50 million per annum by FY15. 2. The Foreign currency translation costs of $5.2 million are a non-cash expense which relate to the reclassification of the Foreign Currency Translation Reserve (FCTR) to the Statement of Comprehensive Income as a result of the closure of the business in Dublin which has ceased operations. The legal entity through which the business operated is in voluntary liquidation. 3. (Loss)/profit after tax attributable to non-controlling interests within seed fund investments. Underlying profit after tax (UPAT) attributable to equity holders of Perpetual Limited reflects an assessment of the result for the ongoing business of the Group as determined by the Board and management. UPAT has been calculated in accordance with the AICD/Finsia principles for reporting underlying profit and ASIC’s Regulatory Guide 230 – Disclosing non-IFRS financial information. UPAT attributable to equity holders of Perpetual Limited has not been audited by our external auditor; however, the adjustments to net profit after tax attributable to equity holders of Perpetual Limited have been extracted from the books and records that have been audited.
Annual Report 2013 23 di rectors’ report continued
D ividends Dividends paid or provided by the Company to members since the end of the previous financial year were:
Total cents per amount Franked#/ date of share $’000 unfranked payment
Declared and paid during the financial year 2013 Final 2012 ordinary 40 16,792 Franked 5 Oct 2012 Interim 2013 ordinary 50 20,990 Franked 5 Apr 2013 Total 37,782 Declared after end of year After balance date, the Directors declared the following dividend: Final 2013 ordinary 80 33,585 Franked 4 Oct 2013 Total 33,585
# 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 affect the operations of the consolidated The consolidated entity is not aware of after year end are not reflected in the entity, the results of those operations or any material non-compliance in relation 30 June 2013 financial statements the state of affairs of the consolidated to these licence requirements during the and will be recognised in subsequent entity in subsequent financial years. financial year. financial reports. The consolidated entity has determined Likely developments that it is not required to register to report State of affairs Information about the business strategies under the National Greenhouse and There were no significant changes in the and prospects for future financial Energy Reporting Act 2007, which is state of affairs of the consolidated entity years of the consolidated entity are Commonwealth environmental legislation during the financial year. included in the Operating and Financial that imposes reporting obligations on Review on pages 65 to 106. Further entities that reach reporting thresholds Events subsequent information about business strategies, during the financial year. to reporting date future prospects, likely developments Perpetual Limited entered into a Scheme in the operations of the consolidated of Arrangement on 7 May 2013 under Indemnification of directors entity and the expected results of those and officers which Perpetual proposes to acquire operations in future financial years has The Company and its controlled entities all of the ordinary shares in ASX listed not been included in this report because indemnify the current Directors and The Trust Company Limited (TrustCo). disclosure of the information would be officers of the companies against all TrustCo represents an attractive growth likely to result in unreasonable prejudice liabilities to another person (other than opportunity given its strong strategic fit to the consolidated entity because the the Company or a related body corporate) with Perpetual’s existing businesses. information is commercially sensitive. that may arise from their position as An acquisition of TrustCo is expected Directors of the consolidated entity, to deliver greater scale and capabilities Environmental regulation except where the liabilities arise out of across the whole business and represents The consolidated entity acts as trustee or conduct involving a lack of good faith. a financially compelling opportunity for custodian for a number of property trusts, The Company and its controlled entities Perpetual’s shareholders. which have significant developments will meet the full amount of any such throughout Australia. These fiduciary liabilities, including costs and expenses. At the date of this report, the transaction operations are subject to environmental is not yet complete, as there are a regulations under both Commonwealth Insurance number of hurdles such as regulatory and State legislation in relation to In accordance with the provisions of the and third party approvals which are property developments. Approvals for Corporations Act 2001, the Company has yet to be finalised, nor have TrustCo commercial property developments are a Directors and officers’ liability policy shareholders met to approve a Scheme required by state planning authorities which covers all Directors and officers of of Arrangement. and environmental protection agencies. the consolidated entity. The terms of the Other than the event noted above, the The licence requirements relate to air, policy specifically prohibit disclosure of Directors are not aware of any other noise, water and waste disposal. The details of the amount of the insurance event or circumstance since the end of responsible entity or manager of each cover and the premium paid. the financial year not otherwise dealt with of these property trusts is responsible in this report that has or may significantly for compliance and reporting under the government legislation.
24 Perpetual Limited and its controlled entities D irectors’ Report Corporate Responsibility Statement
Perpetual’s Board and management ll monitoring the Perpetual of Directors by ensuring that each Director have a long-standing commitment to Group’s investment activities and fully participates in the Board’s activities. good corporate governance. The success investment performance Details of the background, experience, of Perpetual’s core businesses – the ll monitoring that signifcant professional skills and expertise and period management of other people’s money and business risks are identifed and in offce of each Director are set out on the safekeeping of assets and securities managed effectively pages 20 to 22 of the Directors’ Report. – relies on a reputation of absolute ll ensuring that the performance of the trustworthiness. This statement sets out The structure of the Board accords with Board, Managing Director and senior ASX Principle 2. our approach to corporate governance. management are regularly assessed, and Copies of or summaries of documents that ll monitoring compliance with regulatory, are underlined like this in this Corporate 3. Director independence prudential, legal and ethical standards, The Board considers all Non-Executive Responsibility Statement are available on including workplace health and our website at www.perpetual.com.au Directors to be independent Directors, safety obligations. including the Chairman. ASX Corporate Governance The Board Charter is reviewed annually In assessing the independence of each Council’s Corporate to ensure the balance of responsibilities Director, the Board considers, on a Director- Governance Principles and remains appropriate to Perpetual. The roles by-Director basis, whether the Director has Recommendations and responsibilities of Perpetual’s Board and any relationships that would materially affect At Perpetual, good corporate governance management are established in accordance his or her ability to exercise unfettered and includes a genuine commitment to the ASX with ASX Principle 1. independent judgement in the interests of Corporate Governance Council’s Principles Perpetual’s shareholders. Consistent with and Recommendations (ASX Principles). Each year, the Board’s People and Remuneration Committee oversees the emphasis on ‘substance over form’ The Board considers that it complies with the performance review process for the advocated by the ASX Principles, Perpetual all the ASX Principles, and has done so Managing Director and Group Executives. takes a qualitative approach to materiality throughout the reporting period. A table The Group Executives report directly to rather than setting strict quantitative setting out each Principle and the location the Managing Director. thresholds, and considers each Director’s of Perpetual’s associated disclosure in this individual circumstances on its merits. Corporate Responsibility Statement is The Managing Director’s performance The independence of each Director is located on pages 33 to 34. objectives are set by the Board at the beginning of each fnancial year. formally reviewed each May and at any time when a change occurs that may affect At the end of the fnancial year, the 1. Role of the Board a Director’s independence. Non-Executive Chairman of the Board reviews the The Board has its own Board Charter, which Directors also formally advise the Chairman Managing Director’s performance against sets out the functions and responsibilities of any relevant information, and update the his goals with input from all Board members. reserved to the Board and delegations made Chairman if their circumstances change at to management. The Board delegates day-to- The Managing Director sets performance any time. day responsibility for the management and objectives for each Group Executive at the In determining the independence of operation of the Company to the Managing beginning of each fnancial year. The Board’s individual Directors, the Board has considered Director, but remains responsible for People and Remuneration Committee the relevant elements of the definition of overseeing management’s performance. reviews the performance objectives set independence adopted by the Board. These The Board’s specific responsibilities include: for the Group Executives. The Managing elements include whether the Director: ll setting Perpetual’s values and standards Director carries out the performance review ll has a substantial shareholding in ll reviewing and approving Perpetual’s of each Group Executive against their Perpetual or is an offcer of a company strategy objectives with input from appropriate which has a substantial shareholding in stakeholders including Board members. ll selecting the Managing Director and Perpetual (or is otherwise associated with approving the appointment and removal In 2013, performance reviews of the a substantial shareholder of Perpetual) of Group Executives Managing Director and each Group ll has been employed by the Perpetual ll setting the remuneration of the Executive were conducted in accordance Group at any stage and in any capacity Managing Director with this process. within the previous three years ll aligning remuneration outcomes to ll has been involved with the Perpetual 2. Board structure Perpetual’s fnancial soundness and risk Group in a material advising or The Board currently comprises seven management framework consulting role at any time within the Directors: six Non-Executive Directors ll setting the Non-Executive Director previous three years remuneration within shareholder and the Managing Director. The roles of ll is (or is associated with) a material approved limits Chairman and Managing Director are performed by different individuals. supplier or customer of the Perpetual ll monitoring business performance and Group, or the Perpetual Group’s financial position The Chairman is responsible for leadership ll is in a material contractual relationship of the Board and ensuring it performs its ll overseeing the integrity of the Perpetual with the Perpetual Group (other than role and functions. He is also responsible Group’s fnancial accounts and reporting as a Director). for facilitating the effective contribution
Annual Report 2013 25 directors’ report Corporate responsibility Statement continued
Paul Brasher receives post-termination Non-Executive Directors regularly confer Board (see ‘Diversity’ below for Perpetual’s benefts from his former employer, without management present, and the approach to diversity). PricewaterhouseCoopers (PwC). PwC has Chairman presides over these sessions. The Nominations Committee is responsible been appointed as Perpetual’s remuneration All Directors have unrestricted access to for administering Perpetual’s Policy on the consultant and occasionally provides Company records and information. Perpetual Appointment of Directors, which sets out the consulting services to Perpetual, which has a formal policy allowing the Board or selection process and selection criteria for are not considered material in nature an individual Director to seek independent identifying candidates to fll Board vacancies. or quantity. The Board does not believe professional advice at the Perpetual Consistent with the ASX Principles regarding that this appointment of PwC affects the Group’s expense, provided that the Director disclosure of Board selection processes, the independence of Paul Brasher. has obtained the prior approval of the Policy is disclosed in full on our website. From time to time, funds managed by Chairman or, if the relevant Director is the If a Board vacancy arises, the Nominations the Perpetual Group may take holdings, Chairman, the prior approval of a majority Committee will conduct a search in including substantial holdings, in securities of Perpetual’s Non-Executive Directors. In accordance with the Policy and the Board of listed entities. Perpetual Directors may the 2013 financial year, no Director sought will appoint the most suitable candidate, also serve as non-executive directors on professional advice under this policy. having regard to the recommendation of the boards of these entities. This factor the Nominations Committee. External alone is not considered to impact Director 7. Nomination, appointment, consultants may be engaged to assist with re-election and retirement independence as decisions as to stock of directors the identifcation of appropriate candidates. selection are not made by the Board Consistent with ASX Principle 2, the Board A Director appointed to fill a casual vacancy of Perpetual but by Perpetual’s asset has a Nominations Committee with its must stand for election at the next Annual management team in accordance with own Terms of Reference. The Nominations General Meeting. client or fund investment mandates. Committee is made up of independent Upon appointment, new Directors receive It is the Board’s view that no Directors Directors (and is chaired by an independent a detailed letter of appointment and currently hold other positions that Director). In accordance with its Terms of participate in a comprehensive induction materially affect their ability to exercise Reference, it is made up of the Chairman program designed to familiarise them independent judgement in the interests of the Board, the chairman of the Audit, Risk with Perpetual’s business, strategy, of Perpetual shareholders. and Compliance Committee, the chairman of operations, Group Executives and senior the Investment Committee and the chairman management team. 4. Contracts with Directors of the People and Remuneration Committee. Directors who have been in offce without In the 2013 financial year, no Director The Nominations Committee is responsible re-election for three years since their disclosed a material personal interest in any for reviewing the size and structure of the last appointment must retire and seek contract entered into by any member of the Board. The aim is to ensure that the Board re‑election at the company’s Annual General Perpetual Group other than the remuneration comprises an appropriate balance of skills, Meeting. In order to continue to refresh the paid to the Directors as outlined in this diversity, experience and independence composition of the Board, Directors agree Annual Report and the deeds of indemnity in order to enhance Board performance not to seek re-election after three terms described below. and maximise value for shareholders. The of three years unless the Board requests mix of skills and diversity which the Board them to do so. The nine-year principle 5. Indemnity of Directors and is looking to achieve in its membership does not displace shareholders’ rights to Officers includes the following: vote on the appointment and removal of Perpetual has entered into deeds to Directors, as set out in the ASX Listing indemnify Directors and Offcers of the ll knowledge of the fnancial services Rules and the Corporations Act 2001 (Cth) Perpetual Group, to the extent permissible industry (Australia and /or international) (Corporations Act). by law, from all liabilities incurred as ll management skills Directors or Offcers. Liabilities to the ll fnancial expertise 8. Meetings of the Board Perpetual Group, and liabilities that arise ll funds management experience In the 2013 financial year, the Board met out of conduct that was not in good faith, are ll investment experience 17 times, including a strategic planning not covered in the indemnities. In addition, ll public company governance session. The Board receives performance, Perpetual has Directors’ and Offcers’ ll risk management operations and risk reports from the insurance against claims Perpetual may be ll marketing and communications Managing Director, the Chief Financial liable to pay under these indemnities. This Offcer, and the heads of each business policy insures Directors and Offcers directly. ll strategic planning and change management division. The Board also receives reports and updates on strategic issues. 6. Board access to ll IT knowledge information and ll M&A and transactions, and In addition, Directors spend time reading independent advice and analysing Board papers and reports ll sales and distribution. Directors receive regular updates on submitted by management, and they changes in the regulatory environment A summary of the experience of each engage in regular informal discussions affecting Perpetual and the financial services Director can be found at pages 20 to 22. with management. The views of the industry. Directors are also encouraged to The Nominations Committee also takes Chairman and the Non-Executive Directors attend relevant conferences and seminars. diversity considerations into account when are canvassed regularly by the Managing recommending any new appointment to the Director and the Group Executive on a range of strategic and operational issues.
26 Perpetual Limited and its controlled entities The Chief Financial Offcer and Company arrangements, the monitoring of the internal remuneration and incentive programs Secretary attend all Board meetings. Other audit function, the effectiveness of the risk designed to retain high calibre employees Group Executives and senior management management framework and the adequacy and which demonstrate a clear relationship attend Board and committee meetings to of insurance programs, and to report on these between performance and remuneration. report on particular issues and to engage in matters to the Board. This Committee is also The Committee is authorised to directly discussion on these issues. Senior executive responsible for monitoring overall legal and engage external remuneration advisers and, attendance at Board and committee meetings regulatory compliance. after obtaining their advice as and when is subject to the overriding requirement that All members of the Committee (of which appropriate, the Committee recommends no senior executive will be directly involved there must be at least three) are independent remuneration for Non-Executive Directors, in deciding their own remuneration. Non-Executive Directors and are required to the Managing Director, the Group Executives Attendance of Directors at Board and be financially literate. At least one member and other senior managers, to the Board. committee meetings is set out in the must have accounting or finance related The Committee reviews succession and Directors’ Report on page 22. expertise. Members are also required to have career plans for key executives. an understanding of the fnancial services All members of the Committee are 9. Board committees industry in which Perpetual operates. The independent Non-Executive Directors. A key component of the Board’s governance Chairman of the Committee cannot be the structure is its four Board committees. Each Chairman of the Board. Nominations Committee committee has a written charter known as its Members: Peter Scott (Chairman), Terms of Reference which is accessible on Investment Committee Elizabeth Proust and Paul Brasher. the Company’s website under the ‘Corporate Members: Craig Ueland, Philip Bullock, Changes to the Committee since Responsibility’ heading. and Sylvia Falzon. last Report: All committees except the Nominations Changes to the Committee since ll Paul McClintock and Philip Twyman Committee generally meet at least quarterly, last Report: ceased to be members of the Committee and more frequently if required. The ll Paul McClintock ceased to be in November 2012 Nominations Committee meets at least Chairman and Philip Twyman ceased ll Paul Brasher was appointed as a member twice a year. Aside from the Nominations to be a member of the Committee in of the Committee in November 2012. Committee, the Managing Director attends November 2012, and all committee meetings except where The Committee’s role is to recommend to the ll Craig Ueland and Sylvia Falzon were Board nominees for appointment/election matters relating to his own remuneration appointed as members of the Committee (including re-election of existing Board and performance are discussed. in November 2012 and December 2012, members) and to review Board succession The qualifcations and skills of the members respectively. of each committee are set out on pages 20 to plans. At least annually, the Committee 22 of the Directors’ Report. The Committee’s role is to monitor reviews the size and structure of the Board management to ensure that it has in place, to ensure that it comprises appropriately The membership and key responsibilities of and carries out, appropriate investment qualified and experienced people. This each of the Board committees (as at the date strategies and processes for the investment Committee is also responsible for the formal of this report) are set out below. activities conducted both for third parties and evaluation of the Board’s performance on the Group’s own behalf. This Committee as a whole and the program of Director Audit, Risk and Compliance does not select stocks for individual Perpetual education. All members of the Committee Committee funds, as stock selection is carried out by are independent Non-Executive Directors. Members: Paul Brasher (Chairman), Perpetual’s asset management team. All Elizabeth Proust, Craig Ueland and members of the Committee are independent 10. Board performance Sylvia Falzon. Non-Executive Directors. The Board undertakes ongoing self- Changes to the Committee since assessment as well as a formal annual review last Report: People and Remuneration of the performance of the Board, individual Committee ll Philip Twyman ceased to be a member Directors and its committees. At the date of of the Committee in November 2012 Members: Elizabeth Proust (Chairman), publication of this Annual Report, the Board Paul Brasher and Philip Bullock was in the process of fnalising its internal ll Paul Brasher was appointed as the Committee’s Chairman in November Changes to the Committee since annual review of the Board’s, its committees’, 2012, and last Report: and individual Directors’ performance. The Board review process aims to ensure that ll Craig Ueland and Sylvia Falzon were ll Paul McClintock ceased to be a member individual Directors continue to contribute appointed as members of the Committee of the Committee in November 2012. effectively to the Board’s performance and in November 2012 and December 2012, The Committee’s role is to monitor the that the Board as a whole and its committees respectively. Perpetual Group’s people and culture policies continue to function effectively. The Committee’s role is to oversee the and practices, including the diversity of Perpetual Group’s accounting policies and Perpetual’s workforce, and to assist the practices, the integrity of financial statements Managing Director to implement fair, and reports, the scope, quality and effective and market competitive independence of Perpetual’s external audit
Annual Report 2013 27 directors’ report Corporate responsibility Statement continued
11. Company Secretaries and associated policies are in keeping with recommendations to the Board with respect The Board has access to the services and ASX Principle 3. to appropriate measurable objectives. This advice of Joanne Hawkins, the Company Perpetual’s Company Secretary is Committee also has other key diversity- Secretary, and Glenda Charles, Deputy Perpetual’s Code of Conduct ombudsman related responsibilities including reviewing Company Secretary. The Company Secretary and is available to all staff for a confidential and reporting to the Board on Perpetual’s is accountable to the Board on governance discussion in relation to Code of Conduct measurable objective(s) (and its progress matters. Details of the experience and matters. All new Perpetual employees are towards achieving them) and reviewing qualifications of Joanne Hawkins and required to familiarise themselves with the and reporting to the Board on the relative Glenda Charles are set out in the Directors’ Code of Conduct as part of their induction proportion of men and women employed Report on page 22. training requirements. by Perpetual. Both reviews must occur at least annually. The Committee also gives 12. Perpetual’s subsidiary Perpetual has a Whistleblowing Policy consideration to any gender diversity Boards to protect employees who make reports targets when reviewing both succession The boards of Perpetual’s subsidiaries in good faith of wrongdoing, prejudice plans for key executive positions and are generally made up of Executive or disadvantage. As part of Perpetual’s career development plans in place for Directors. The exceptions include Perpetual Whistleblowing Policy, a third party has key executives. Superannuation Limited, which carries out been engaged to provide an independent In accordance with Perpetual’s Diversity Perpetual’s superannuation activities, and and confidential hotline for Perpetual Policy, from time to time Perpetual Queensland Trustees Pty Limited, which acts employees who prefer to raise their concern establishes ‘measurable objectives’ for as trustee for Perpetual’s share plans. The with an external organisation. achieving gender diversity throughout board of Perpetual Superannuation Limited the Group. Perpetual’s current measurable is made up of a majority of independent 14. Diversity objective is to achieve 38% representation directors, including an independent Perpetual has a strong commitment of women in senior management by 2015. Chair; the board of Queensland Trustees to diversity and recognises the value Pty Limited is made up of independent of attracting and retaining employees As at 30 June 2013: Directors. Perpetual’s corporate governance with different backgrounds, knowledge, ll the Perpetual Group has 33% policies are applied to its subsidiaries but experiences and abilities. representation of women in senior adapted to reflect the size and nature of Perpetual’s Diversity Strategy is supported management, an increase from the 29% each subsidiary’s operations. The subsidiary by a Diversity Council and chaired by the reported last year boards are a key component of Perpetual’s Managing Director with representation ll 53% of the Perpetual Group’s employee Risk Management Framework. from each of the business units who serve population are female, and
as Council Members, encouraging shared ll 33% of the Non-Executive Perpetual 13. Ethical conduct accountability for diversity. The Diversity Board members are female. Perpetual has a Code of Conduct which Council identifes and agrees the initiatives Over the course of the next 12 months, draws from and expands on Perpetual’s that are aligned to the following four Perpetual will review the measurable Values. The Code of Conduct applies to strategic priorities: objective, and the progress made against the all Directors, executives and employees ll representation of women in senior measurable objective, to ensure it remains and is designed to assist them in making management roles ethical business decisions. It is based on the relevant and ambitious given recent changes ll meeting the identifed needs of to the current strategy and operating model. following principles: employees at different life stages – Baby ll acting with integrity Boomer, Generation X and Generation Y In addition to this, Perpetual, through its ll Diversity Strategy, is committed to a more managing conficts of interests ll fexibility for employees, and appropriately culturally aware workplace, a culture that is ll ethnicity and cultural diversity. open, accepting and inclusive of individual ll upholding the spirit as well as the letter of the law Gender equality at all levels of the differences. This year, in support of that organisation is a key component of our strategy, we have elected to implement a ll commitment to our clients and Reconciliation Action Plan (RAP), which consistently delivering shareholder value Diversity Strategy. To encourage greater representation of women at senior levels of is about turning good intentions into ll respecting privacy and confdentiality the organisation, Perpetual has undertaken actions in terms of addressing community ll maintaining a fair and safe work and continues to develop initiatives division, discord and injustice to indigenous environment, and targeting an improvement in gender Australians. This RAP has been registered ll protecting those who report wrongdoing. diversity, including the refnement and with Reconciliation Australia, and we have formed a working group to ensure we meet Additional policies deal with a range of improvement of our recruitment processes our commitments in this space. Perpetual ethical issues such as the obligation to and expansion of career and leadership has also chosen to commit to Jawun, maintain client confidentiality and to development, mentoring, networking forums the Indigenous Corporate Partnerships protect Company information, the need and knowledge sharing opportunities Program. This will involve us sending our to make full and timely disclosure of any available to female employees. top talent on secondments to work with price sensitive information and to provide a Perpetual’s People and Remuneration indigenous organisations in areas where safe workplace for employees, which is free Committee is responsible for overseeing the they request support. from discrimination. The Code of Conduct Diversity Policy generally and making
28 Perpetual Limited and its controlled entities 15. Risk Management Each of the Chief Financial Offcer, General ll the risk management and internal The Board is committed to effective risk Manager Internal Audit and General compliance and control systems, to the management, and all Group Executives are Manager Legal and Risk has the right extent they relate to financial reporting, accountable for managing risk within their to, and do, meet with the Audit, Risk and are operating effectively and effciently, area of responsibility. They are also required Compliance Committee, or its Chairman, in all material respects, based on the risk to manage risk as part of their business without other management present. management framework adopted by the objectives, with risk management integrated The Managing Director and Chief Company, and across business processes. Financial Offcer report to the Board on the ll the Company’s material business risks The Risk Group consists of risk management effectiveness of Perpetual’s management of (including non-fnancial risks) are being professionals and lawyers who provide the its material business risks in accordance with managed effectively. framework, tools, advice and assistance to ASX Principle 7. The Board received this The statements referred to above are enable management to effectively identify, report in 2013 together with the declarations supported by written statements from senior assess and manage risk. and statements outlined in section 16 below. management, detailed financial analysis and Consistent with ASX Principle 7, Perpetual’s Perpetual’s Risk Management Framework. As Risk Management Framework is designed 16. Financial Reporting previously noted, the Chief Financial Offcer to manage the Company’s material business The Board has adopted policies designed is present when the Board considers fnancial risks. The framework consists of programs to ensure that Perpetual’s financial reports: matters, as she attends all Board meetings. ll are true and fair and policies which are designed to address The statements made by the Managing key areas of risk including strategic, ll meet high standards of disclosure and Director and Chief Financial Offcer are fnancial, operational, investment, people audit integrity consistent with ASX Principle 7.3. In 2013, and legal compliance risk. ll when read with Perpetual’s other reports the Board received the declarations and The Board and the Group Executive seek to to shareholders, provide all material statements referred to above. ensure that Perpetual’s Risk Management information necessary to understand Framework remains consistent with industry Perpetual’s financial performance 17. Audit process best practice. As such the Risk Management and position. The Perpetual Group’s financial reports Framework is regularly reviewed by both In accordance with section 295A of the are subject to an annual audit by an management and independent experts on Corporations Act, the Board requires independent, professional auditor, who also a regular basis. The last independent review that, in respect of each fnancial year, the reviews the Group’s half yearly financial took place in November 2012. Further to this Managing Director and Chief Financial statements. The Audit, Risk and Compliance review and in line with the broader strategic Offcer provide a written declaration that, Committee oversees this process on behalf planning process, the Board and the Group in their respective opinions: of the Board, in accordance with its Terms Executive revisited Perpetual’s Risk Appetite of Reference. ll the financial records of the Company in March 2013. Subsequent to this review, have been properly maintained in The external auditor attends each meeting some changes are in the process of being accordance with section 286 of the of the Committee, and it is the Committee’s refected in our Risk Appetite Statement. Corporations Act, and policy to meet with the auditor for part
The Board and its committees are provided ll the financial statements and notes of these meetings without management with independent reporting of the comply with the accounting standards present. The Committee chairman meets effectiveness of Perpetual’s management and give a true and fair view of the with the audit partner at least once every of its material business risks. In addition, financial position and performance of quarter, also in the absence of management. the Board reviews the Company’s key risks the Company and consolidated entity. The auditor has a standing invitation to regularly through the Key Risk Assessment meet with the Committee, its Chairman or process, further detailed in the Risk To underpin the integrity of Perpetual’s with the Board’s Chairman in the absence Management Framework. financial reporting and risk management of management. The auditor attends the framework, it is also Perpetual’s practice for Board meetings at which the annual and half Perpetual also has an internal audit function. the Managing Director and Chief Financial The General Manager Internal Audit yearly fnancial reports are adopted, and at Offcer to state to the Board in writing that, these meetings the Non-Executive Directors reports to the Audit, Risk and Compliance in their respective opinions: Committee as well as to the Chief Financial have an opportunity to meet with the auditor ll the statements made regarding the Offcer and is independent from the external without management present. integrity of the financial statements auditor. Internal Audit provides independent The current external auditor is KPMG. are founded on a sound system of risk assurance over the effectiveness of Perpetual’s The lead audit partner for 2013 was management and internal compliance risk management, internal control, and Andrew Yates, and the engagement partner and control systems which implement governance processes. The Internal Audit was Brendan Twining. This is the fourth the policies adopted by the Board team does not make management decisions year that Mr Yates has been acting as lead of Directors or engage in other activities which could be audit partner, and Mr Twining has acted perceived as compromising its independence. as engagement partner for six years.
Annual Report 2013 29 directors’ report Corporate responsibility Statement continued
18.o Audit r independence 19. Market Disclosure Perpetual will hold its Annual General The Board has policies in place relating to Perpetual has a Continuous Disclosure Meeting in October, and a copy of the the quality and independence of Perpetual’s Policy to ensure compliance with its notice of Annual General Meeting is posted external auditor. These policies include: continuous disclosure obligations under on the Perpetual website as well as being ll a formal review of the appointed auditor ASX Listing Rule 3.1 and the Corporations provided directly to shareholders via their every 5 years, to be timed during the Act. The Managing Director, Chief Financial nominated means of communication. The middle of the lead partner’s tenure. The Offcer, and Company Secretary are Board encourages shareholders to attend results of the review are reported to the members of the Continuous Disclosure the Annual General Meeting or to appoint Audit, Risk and Compliance Committee Committee responsible for deciding a proxy to vote on their behalf if they are and the Board information that is required to be disclosed unable to attend. The formal addresses at to the ASX. Perpetual ensures that all the Annual General Meeting are webcast ll an annual review of the external audit frm’s fees and performance, as well as senior management give regular sign-offs for those shareholders who are unable to be the independence of the external audit as to whether there are matters that require present. In accordance with the Corporations frm, the results of which are reported disclosure to the ASX. The Board considers Act, a representative of the external auditor, to the Audit, Risk and Compliance its disclosure obligations at each scheduled KPMG, attends the Annual General Meeting Committee and the Board Board meeting. Perpetual’s Continuous for the purpose of answering shareholder Disclosure Policy contains the matters questions about the audit report and ll the lead audit partner on each Perpetual audit process. audit must be rotated at least every recommended by ASX Principle 5. five years, with a two-year gap before Perpetual’s website includes copies of Perpetual periodically holds briefngs for a partner may be reappointed announcements lodged with the ASX by institutional shareholders and analysts ll former audit partners and audit firm Perpetual. In addition, advance notifcation that aim to increase the fow of information employees involved in our audit cannot of scheduled analyst briefngs are provided and engagement with shareholders and become Directors or employees of to shareholders and the briefngs are webcast. analysts outside of reporting season and Perpetual Group companies for at least These can be found on the Company’s provide a greater insight into revenue two years, and website along with media releases, briefings building strategic initiatives. A webcast of and annual reports for the last five years. these ‘Business Updates’, as well as copies ll the external audit firm is prohibited from providing non-audit services that of any other investor presentations held may materially confict with its ability 20. Shareholders from time from time, are made available to exercise objective and impartial The Board is committed to ensuring that on Perpetual’s website. judgement on issues that may arise shareholders are fully informed of material within Perpetual’s audit, such as: matters that affect Perpetual’s position and 21. Remuneration prospects. It seeks to accomplish this through Perpetual has formed a People and –– corporate fnancial services including a strategy which involves the effective Remuneration Committee consistent with mergers and acquisitions and due dissemination of information to shareholders ASX Principles 8.1 and 8.2 and ASX Listing diligence on potential targets using various mediums, including, in Rule 12.8. Its role is set out on page 27 of –– tax planning and strategy particular, technology. Key information this report. Details of Board and executive –– senior management recruitment released to shareholders includes: remuneration are set out in the Remuneration –– significant valuations and ll the half year results released in February Report which commences on page 35. appraisals, and each year In accordance with the ASX Principles, –– design and implementation of the structure of Non-Executive Director ll the full year results released in August financial information systems. each year remuneration is clearly distinguished from that of Executive Directors and senior The Audit, Risk and Compliance Committee ll the Annual Report released in management. In particular, Non-Executive is responsible for making recommendations on September each year Directors do not receive performance related the annual engagement of the external auditor. ll the Chairman’s and Managing Director’s remuneration and are not entitled to receive addresses to the Annual General In 2013, the greater part of fees paid to performance shares, rights or options over Meeting, and KPMG for work other than the audit of Perpetual shares. Perpetual Group accounts was for audit ll market briefngs and other signifcant Non-Executive Directors are not entitled services in relation to investment funds information (which are posted on to receive any retirement benefts, other of which Perpetual companies are the Perpetual’s website as soon as it is than superannuation in accordance with responsible entity, manager or trustee, and disclosed to the market). Perpetual’s statutory superannuation work in relation to the review of Perpetual’s Perpetual also publishes an ‘event calendar’ obligations. Scheme of Arrangement with The Trust on its website which sets out important dates Company and the Transformation 2015 (for example, the date Perpetual releases its project. It is the Board’s view that these full year results and the date of its Annual services are consistent with KPMG’s General Meeting). Shareholders can submit appointment as auditor and are not services their email addresses if they wish to receive of a kind that might impair its impartial a reminder of these dates. judgement in relation to the Perpetual Group’s audit.
30 Perpetual Limited and its controlled entities 22. Trading in securities by ll contributing time and money to charities climate change on investments. The Directors and Employees which we know have a track record of IGCC aims to ensure that the risks and Perpetual has a Trading Policy that complies delivering on their promises, and opportunities associated with climate with the requirements of ASX Listing ll reducing the environmental impact of change are incorporated into investment Rule 12.12, which is available on the our operations. decisions for the ultimate beneft of Company’s website. individual investors. Some examples of how we are achieving Perpetual’s overriding policy in respect of these goals include: personal trading is that there should be no Social dealings in the Company’s shares by any Investment Philanthropy and the Perpetual Foundation Director or employee who is in possession Long-term investment approach of price sensitive information or where the Perpetual is one of the largest managers of Perpetual’s asset managers are ‘value’ dealing is for short-term or speculative gain. private charitable foundations in Australia, managers who focus on quality. Their initial Provided they do not have price sensitive with $1.3 billion in funds under management investment criteria include: information, Directors and employees are (as at 31 December 2012). Perpetual ll the strength of the company’s permitted to deal in the Company’s shares manages over 550 charitable trusts and balance sheet only in specifed one-month trading windows. endowments, supporting medical, social, ll whether the company can demonstrate The Trading Policy requires prior approval environmental, religious, cultural and a recurring earnings stream for any share dealings from the Chairman educational causes. ll the quality of the business, and in the case of Directors, from a nominated The Philanthropy team provides support to Director in the case of the Chairman and ll the soundness of management running the non-proft sector via thought leadership from the Managing Director in the case the company. forums, regular IMPACT philanthropy of senior executives. Prior approval is also We believe this approach holds corporate newsletters, and facilitating a number of required from the Managing Director or Australia to high standards and encourages knowledge sharing opportunities. The Company Secretary in the case of certain behaviour in the long-term interests Perpetual Foundation has also sponsored employees who are more likely to have of shareholders. non-proft sector research, including research access to information that is potentially price at the Australian Centre for Philanthropy sensitive due to their role with the Company. Signatory to the United Nations and Non-Proft Studies, and also provided, The policy also prohibits Non-Executive Principles for Responsible Investment in the 2013 fnancial year alone, over 400 Directors and employees from entering Perpetual is a signatory to the United Nations scholarships for directors of charitable into ‘hedging arrangements’ in relation to Principles for Responsible Investment non-proft entities to attend the Australian Perpetual securities. Perpetual employees (PRI), representing a commitment to take Institute of Company Directors Non Proft cannot trade in financial products issued environmental, social and governance factors Directors Course through the Australian over Perpetual securities by third parties into account in our investment decision- Scholarships Foundation. or trade in any associated products making and ownership practices. PRI are Staff Giving which limit the economic risk of holding about institutional investors encouraging Perpetual securities. Perpetual employees sustainable business practices, which is Perpetual’s Staff Giving program encourages and Directors are prohibited from margin aligned to Perpetual’s long-term view. staff to donate to charities in a tax-effective lending in relation to Perpetual securities. way, with all donations being matched Member of the Responsible Investment dollar-for-dollar by Perpetual. In addition to 23. Stakeholders Association Australasia monetary donations, Perpetual’s Staff Giving At Perpetual, we take advantage of The Responsible Investment Association program also encourages employees to opportunities to build our social, Australasia is the industry body representing volunteer their time to charitable causes. environmental and fnancial performance responsible investors throughout Australasia, Pro bono legal assistance in ways that enhance our core values and with the aim of promoting responsible business sustainability. We draw on our investment to accelerate its uptake and Perpetual’s legal team has partnered with the people’s experience, knowledge and expertise deepen its impact. The Responsible Cancer Council NSW to provide pro bono in investing, governance, fnancial advice Investment Association’s purpose is to legal assistance to people with cancer and trusteeship to contribute positively to provide training, professional development, who are unable to afford legal assistance the community. We focus on activities where events, research and policy initiatives that will themselves. This initiative aims to alleviate we can add the most value to society while promote stable markets, maximise fnancial some of the diffculties faced by people minimising our environmental impact – returns and create positive environmental, through this diffcult time, and it has also doing the greatest good while leaving the social and governance outcomes. fostered a great sense of achievement and smallest footprint. We are committed to pride within Perpetual’s legal team. doing our part to enrich our community by: Member of the Investor Group on Climate Change Political donations ll having the highest standards Perpetual does not make political donations. of corporate governance and The Investor Group on Climate Change business probity (IGCC) was established in 2005 and represents institutional investors, with ll investing responsibly and encouraging funds under management of approximately sustainable business practices $1 trillion, and others in the investment community interested in the impact of
Annual Report 2013 31 directors’ report Corporate responsibility Statement continued
Environmental ll Contribution Leave policy, which Perpetual aims to meet the needs of Carbon Disclosure Project provides an additional week of employees at different stages of their lives, Perpetual has responded to the Carbon ‘Contribution Leave’ to allow employees and Parental Leave benefts are available for Disclosure Project (CDP) surveys on to make a difference to their community, both men and women. This not only includes seven occasions and has been included family or personal wellbeing. Employees greater access to fexible working options, in the Climate Disclosure Leadership are only eligible to take Contribution but also paid parental leave options and a Index (Australia and New Zealand) on Leave if their Annual Leave balance is return to work bonus payable to the primary three occasions. less than 10 days. This helps Perpetual care giver. During 2013 the Parental Leave manage its accrued leave liability policy was reviewed and revised to become Our People and support risk management by gender neutral, meaning that 12 weeks’ Perpetual is committed to attracting, encouraging employees to take their paid parental leave is now available to the developing and engaging employees leave entitlement primary care giver, whether male or female. in a culture that is underpinned by ll Purchased Leave policy, which enables All of the Parental Leave benefts have been Perpetual’s Values. employees to apply for up to four weeks added to a dedicated page on the Perpetual intranet, and employees are also provided Perpetual’s inclusive culture is based on of additional leave to spend more time with a Parental Leave pack which contains teamwork and collaboration and allows with family, for holidays or greater this information as well as comprehensive high performing employees to excel and be work/life balance checklists to help assist with their planning. rewarded for their success. There is a focus ll Sabbatical Leave and Leave Without on developing leaders from within Perpetual Pay policies, which allow employees to Shareholders who wish to know more and on employee engagement. Employee take an extended period of unpaid leave about Perpetual’s corporate policies engagement is assessed annually, and results where they may choose to take time out are invited to review our website are used to develop future people initiatives. to be with their family, travel overseas or www.perpetual.com.au or to contact us by undertake further study email at [email protected]. Comments The wellbeing of employees is supported ll Working From Home policy, which and suggestions from shareholders by fnancial, insurance, health, wellbeing, allows employees to work from home are welcome. and lifestyle-based employee benefts. A for greater work/life balance, and the refreshed Benefts Program was launched to all Perpetual employees during 2013, ll Flexibility Policy, which enables and some of the policies that underpin and employees to achieve work/life support employee wellbeing and work/life balance and meet parental or carer balance include: responsibilities. Perpetual has a tailored fexible working program to support managers and employees in managing requests for fexibility, which includes training all managers in managing fexibility.
32 Perpetual Limited and its controlled entities 24.S A X Corporate Governance Council’s Corporate Governance Principles and Recommendations Relevant Principle/Recommendation section(s) Comply? 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 offcer should not be exercised by the same individual. 2 Yes 2.4 The Board should establish a nomination committee 7, 9 Yes 2.5 Disclose the process for evaluating the performance of the Board, its committees and individual Directors. 10 Yes 2.6 Provide the information indicated in the guide to reporting on Principle 2. 2,3, 6 – 10 Yes Principle 3 – Promote ethical and responsible decision-making 3.1 Establish and disclose a code of conduct outlining
ll the practices necessary to maintain confdence in the Company’s integrity
ll the practices necessary to take into account legal obligations and the reasonable expectations of stakeholders
ll the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 13 Yes 3.2 Establish a policy concerning diversity and disclose the policy or a summary of that policy. The policy should 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. 14 Yes 3.3 Disclose in each annual report the measurable objectives for achieving gender diversity set by the Board in accordance with the diversity policy and progress toward achieving them. 14 Yes 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. 14 Yes 3.5 Provide the information indicated in the guide to reporting on Principle 3. 13, 14 Yes Principle 4 – Safeguard integrity in financial reporting 4.1 Establish an Audit Committee. 9 Yes 4.2 Structure the Audit Committee so that it:
ll consists only of non-executive Directors
ll consists of a majority of independent Directors
ll is chaired by an independent chair, who is not the Chair of the Board and
ll has at least three members. 9 Yes 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. 8,9, 18 Yes
Annual Report 2013 33 directors’ report Corporate responsibility Statement continued
Relevant Principle/Recommendation section(s) Comply? Principle 5 – Make timely and balanced disclosure 5.1 Establish and disclose written policies designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance. 19 Yes 5.2 Provide the information indicated in the guide to reporting on Principle 5. 19 Yes Principle 6 – Respect the rights of shareholders 6.1 Design and disclose a communications policy for promoting effective communication with shareholders and encouraging their effective participation at general meetings and disclose the policy or a summary of the policy. 20 Yes 6.2 Provide the information indicated in the guide to reporting on Principle 6. 20 Yes Principle 7 – Recognise and manage risk 7.1 Establish and disclose policies for the oversight and management of material business risks. 15 Yes 7.2 Require management to design and implement the risk management and internal control system to manage the 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. 15, 16 Yes 7.3 Disclose whether the Board has received assurance from the Managing Director and the Chief Financial Offcer that 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 fnancial reporting risks. 16 Yes 7.4 Provide the information indicated in the guide to reporting on Principle 7. 15,16 Yes Principle 8 – Remunerate fairly and responsibly 8.1 The Board should establish a remuneration committee. 9, 21 Yes 8.2 The remuneration committee should be structured so that it consists of a majority of independent Directors, is chaired by an independent chair and has at least three members. 9 Yes 8.3 Clearly distinguish the structure of Non-Executive Directors’ remuneration from that of Executive Directors and senior management. 21* Yes 8.4 Provide the information indicated in the guide to reporting on Principle 8. 8, 9, 21, 22 Yes * 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 35 to 62 of this Report.
34 Perpetual Limited and its controlled entities Dir ectors’ Report remuneration report
Dear Shareholder, I am pleased to present our Remuneration Report for 2013. The past year has seen considerable change at Perpetual as we’ve embarked on our Transformation 2015 strategy. This has resulted in us significantly simplifying our corporate structure and refocusing operational activities to better leverage us for growth. An example of this is the restructure of the Executive Leadership Team which has seen the team reduce from 10 members to six since the appointment of Geoff Lloyd as Managing Director and CEO in February 2012. Further, the annualised target remuneration of the executive team and the Board has reduced by over $6 million, or 40%, in that time. Through our focus on cost management and enhanced business performance, we have seen improved financial results and share price. These results are largely due to the efforts of our staff and as a result the funding available for STI awards will be 88% of target. As we flagged in last year’s Remuneration Report, we have implemented a number of structural changes during the year to the remuneration of Key Management Personnel following a review conducted by the Board (with the assistance of PwC) in 2011/12 (FY12). The changes strengthen the alignment of the executive remuneration framework to the business strategy, and therefore shareholders’ interests, and better reflect market practice. The changes include: ll making all future LTI awards in the form of performance rights, meaning that no dividends are received by executives prior to performance targets being met ll commencing the transition to a deferral of 40% of the Managing Director and Group Executives’ annual STI award, and ll transitioning to a remuneration mix that provides greater consistency and alignment with Perpetual’s business model. These changes support other changes made to the executive remuneration framework since 2010/11 (FY11) to strengthen alignment to shareholders and the Perpetual risk management framework, including: ll moving away from solely using short-term profit to measure performance for determining the funding for STI awards to a balanced scorecard of financial and longer-term value creation measures ll introducing a risk and behaviour gateway for eligibility for STI awards, as well as claw-back provisions on LTI and deferred equity ll removing retesting and accelerated vesting provisions on LTI, and ll introducing a minimum shareholding guideline for executives and non-executive directors. Whilst we will continue to review and refine our remuneration arrangements as the business environment changes and legislative reform continues, we believe the changes we have made over the past three years have transformed our remuneration practices to be contemporary, strongly aligned to our shareholders’ interests and motivating to our staff. Thank you for taking the time to read this report.
Elizabeth M Proust AO Chairman, People and Remuneration Committee
Annual Report 2013 35 directors’ report Remuneration report continued
Contents 1. Remuneration snapshot 38 2. Link between Company performance and remuneration 42 3. The role of the People and Remuneration Committee 43 4. Our remuneration philosophy and structure 44 5. Short-term incentives 47 6. Long-term incentives 49 7. Details of remuneration 53 8. Contract terms of the Managing Director and Group Executives 58 9. Remuneration of Non-Executive Directors 60
About this report This report sets out the remuneration arrangements for all Key Management Personnel (KMP), including the Managing Director, 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 terms used in this report Annualised target The total remuneration calculated as the sum of Fixed Remuneration, STI at target and the face value of remuneration LTI grants. Balanced scorecard A list of business performance measures agreed by the Board to assess Company performance for the purposes of determining the funding of the short-term incentive pool. More details are on page 47. EPS Earnings per share for the purpose of determining performance against LTI performance targets. When measuring the growth in EPS to determine the vesting of long-term incentive awards, we define EPS as Net Profit divided by the average number of issued shares during the year. Executives The Managing Director and Group Executives. 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 seeks to align executive remuneration with sustainable shareholder wealth creation. Since October 2012, LTI awarded to the Managing Director and Group Executives has been issued in the form of performance rights. More details are on page 49. Market peers For the purposes of benchmarking remuneration practices and levels, Perpetual’s market peers refers to listed companies in the diversified financial services industry (excluding major banks and other financial services companies in the S&P/ASX 50). Net Profit Net Profit is a financial measure which, together with the Perpetual balanced scorecard, determines the funding of the STI pool. Net Profit is defined as net profit after tax with the post-tax amount of the STI pool added back, and adjusted for any other items determined by the Board. The general principle used is to adjust NPAT for items of a capital nature. This includes capital gains and losses on investments, sale of businesses/activities, and exit from material operations/activities. As a general principle, no adjustment is made for redundancy costs. For 2012/13 (FY13), adjustments were made for the following items:
ll gains and losses on the sale of investments and businesses
ll impairment charges for the write-down of the carrying value of IT assets to their net realisable value in respect of outsourced operations, and
ll selected one-off costs related to delivering our Transformation 2015 strategy. STI Short-term incentive. An incentive paid to employees 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 business performance. For executives, a fixed portion of STI is paid in cash and a portion deferred into Perpetual shares. The Board retains discretion to claw back deferred STI shares in certain circumstances. More details are on page 47. 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.
36 Perpetual Limited and its controlled entities Key terms used in this report UPAT Underlying profit after tax is derived from NPAT after excluding items considered to be either non-recurring or not part of the operating results as a significant item. Underlying profit after tax has been prepared in accordance with the AICD/Finsia principles for reporting underlying profit and ASIC’s Regulatory Guide 230 Disclosing non-IFRS financial information. Underlying profit after tax attributable to equity holders of Perpetual Limited has not been audited by our external auditor; however, the adjustments to net profit after tax attributable to equity holders of Perpetual Limited have been extracted from the books and records that have been audited.
Key Management Personnel Below are Perpetual’s KMP this year: Name Position Term Non-Executive Directors Peter Scott Chairman Full year Elizabeth Proust Independent Director Full year Paul Brasher Independent Director Full year Philip Bullock Independent Director Full year Craig Ueland Independent Director From 25 September 2012 to 30 June 2013 Sylvia Falzon Independent Director From 20 November 2012 to 30 June 2013 Paul McClintock Independent Director From 1 July 2012 to 1 November 2012 Philip Twyman Independent Director From 1 July 2012 to 30 November 2012 Managing Director Geoff Lloyd Chief Executive Officer and Managing Director Full year Current Group Executives Michael Gordon Group Executive, Perpetual Investments From 29 January 2013 to 30 June 2013 Christopher Green Group Executive, Corporate Trust Full year Gillian Larkins Group Executive, Transformation Office From 3 October 2012 to 6 January 2013 Chief Financial Officer From 7 January 2013 to 30 June 2013 Rebecca Nash Group Executive, People & Culture From 15 August 2012 to 30 June 2013 Mark Smith Group Executive, Perpetual Private From 19 November 2012 to 30 June 2013 Acting Group Executives during the year Paul Chasemore Acting Group Executive, People & Culture From 1 July 2012 to 14 August 2012 Nick Langton Acting Group Executive, Perpetual Private & Head of Retail Sales From 1 July 2012 to 18 November 2012 Group Executives who departed during the year Richard Brandweiner Acting Group Executive, Perpetual Investments From 1 July 2012 to 31 January 2013 Group Executive Income & Multi Sector From 1 February 2013 to 31 March 2013 Roger Burrows Chief Financial Officer From 1 July 2012 to 1 February 2013 Cathy Doyle Group Executive Equities From 1 July 2012 to 31 July 2012 Brian Henderson Group Executive Marketing & Communications From 1 July 2012 to 13 July 2012 Ivan Holyman Chief Risk Officer From 1 July 2012 to 13 July 2012 Richard Vahtrick Group Executive Operations From 1 July 2012 to 21 December 2012
Annual Report 2013 37 directors’ report Remuneration report continued
1. Remuneration snapshot We are realigning our 1.2 Fixed remuneration 1.1 Key changes made to remuneration mix to the increases for FY14 the KMP remuneration business model In consideration of the ongoing challenging framework in FY13 Perpetual has commenced a transition to operating environment and the need to During FY13, a number of changes to the a new remuneration mix for the Managing closely manage our costs, there will be remuneration of KMP were implemented. Director and Group Executives that no increases in fixed remuneration to the This followed an extensive review of provides greater consistency and alignment Managing Director and Group Executives KMP remuneration by the Board in FY12 with Perpetual’s business model. For in FY14. A limited number of increases with the assistance of its remuneration new Group Executives who commenced to GEC will be made to employees with adviser, PricewaterhouseCoopers (PwC). after 1 July 2012, the long-term incentive fixed remuneration of $200,000 or above In summary, the changes were as follows: component has decreased as a proportion of where commercially appropriate or in total remuneration generally corresponding other exceptional circumstances such as New LTI awards are made in the to a higher fixed remuneration proportion. on promotion. Any such increases will be form of performance rights Total remuneration on a fair value basis subject to the approval of the Managing Since October 2012, all new LTI grants continues to be set in consideration of Director. For employees with fixed to the Managing Director and Group Perpetual’s market peers. remuneration below $200,000, a budget Executives have been made in the form of increase of 2.5% will apply. performance rights, meaning that dividends The quantum of remuneration will not be received by executives until the paid to KMP has reduced As a result of the minimum level of employer performance rights have vested and been As part of the FY12 review into KMP contributions under the Superannuation converted into Perpetual shares. remuneration, the Board also sought Guarantee (SG) legislation increasing from 9% to 9.25% on 1 July 2013, employees Dividends on unvested shares held by the feedback from shareholders and PwC on with a base salary less than the Maximum Managing Director and Group Executives what they consider to be an appropriate Contribution Base received a 0.25% increase in respect of LTI previously granted will approach to the remuneration of to their fixed remuneration to maintain their continue to be paid. Non‑Executive Directors. A reduction in overall board costs by approximately cash salary. This increase is in addition to any increase to fixed remuneration made Our approach to STI deferral $500,000, or 30%, was applied from 1 July has been refined 2012. The remuneration of the Chairman at the annual remuneration review. No The approach to STI deferral for the was reduced by 42%, while for other increases to fixed remuneration were made Managing Director and Group Executives Non‑Executive Directors, remuneration, to employees with a base salary equal to or has been refined to strengthen the focus including committee allowances, was greater than the Maximum Contribution on risk management and better align reduced by an average of 25%. Base as a result of the increase to the SG rate, as this would otherwise have increased their with Perpetual’s market peers. For FY13 Further, the restructure of the Executive cash salary which was not the intention of (ie payments to be awarded in September Leadership Team which commenced in the legislation. 2013), 60% of the STI will be received in February 2012 has resulted in the size of cash and 40% deferred in Perpetual shares the team reducing from 10 to six and has (with the exception of the Managing reduced the annualised target remuneration Director and Group Executive Corporate of the Executive Leadership Team by Trust for whom the STI will be awarded in approximately $6 million, or 40%. FY13 on a transitional basis as 80% cash and 20% deferred shares, before reverting to 60% cash and 40% deferred shares from 2013/14 (FY14)). Previously, only STI awarded in excess of a certain threshold was deferred. The new approach ensures that a meaningful amount of STI will be deferred annually and provides an additional retention and risk management tool through the ‘claw-back’ provision. This approach also assists the Managing Director and Group Executives build share ownership and therefore increases alignment with shareholders. Dividends on deferred STI shares are paid during the vesting period as the performance criteria for awarding the STI has already been met.
38 Perpetual Limited and its controlled entities 1.3 Remuneration outcomes in FY13 A summary of the remuneration outcomes for the Managing Director and Group Executives for FY13 is set out below.
Remuneration Component FY13 outcomes Fixed remuneration Managing Director There was no increase to the fixed remuneration of the Managing Director during the year. and CEO More information on the remuneration of the Managing Director, including a summary of contractual arrangements, is on page 58. Group Executives In line with Perpetual’s undertaking to only award increases to employees with fixed remuneration at or above $200,000 where commercially appropriate or in other exceptional circumstances such as promotion, no increases to fixed remuneration were awarded to incumbent Group Executives. During the year, four new Group Executives were appointed. The fixed remuneration for each new Group Executive on commencement was determined by the Board in reference to market peers and the target remuneration mix for each role. Gillian Larkins, who was initially recruited as Group Executive Transformation Office, received an increase of 8.3% to her fixed remuneration upon promotion to the role of Chief Financial Officer on 7 January 2013. Higher duties allowances were paid to Richard Brandweiner, Nick Langton and Paul Chasemore in respect of their Acting Group Executive roles during the year. Other employees Increases were granted to employees with fixed remuneration below $200,000 where their remuneration was considered not competitive against market. A small number of increases were granted to employees with fixed remuneration above $200,000 where their circumstances were considered exceptional and approval was given by the Managing Director. Short-term incentives STI pool The amount available for funding STI awards to employees for FY13 is approximately 82% higher than in FY12, reflecting the significant improvement in financial performance and performance against other measures in the Company balanced scorecard. As a result, the funding of STI for FY13 is, on average, 88% of target, compared to 35% in FY12. A summary of the FY13 balanced scorecard including an assessment of performance against the measures is set out on page 47. Managing Director Based on the Board’s assessment of the performance of the Managing Director, a short-term incentive of and CEO – $980,100 was awarded to Geoff Lloyd. Of this, 20% (or $196,020) will be deferred in the form of Perpetual shares Geoff Lloyd with vesting after two years subject to service conditions and claw-back provisions. This equates to an achievement rate of 89% of his short-term incentive target for FY13, compared to an achievement rate of 52% awarded in FY12. Group Executives The Board approved short-term incentive awards to Group Executives ranging between 0% and 89% of their respective targets, based on the recommendations of the Managing Director. A fixed portion of the short-term incentive award for each Group Executive for FY13 will be deferred in the form of Perpetual shares with vesting after two years subject to service conditions and claw-back provisions. For Chris Green, who was an incumbent at 1 July 2012, the deferred portion is 20%. For all other Group Executives, who have commenced since 1 July 2012, the deferred portion is 40%. Details of STI outcomes for Group Executives are included in the remuneration tables on pages 41, 49 and 54.
Annual Report 2013 39 directors’ report Remuneration report continued
Remuneration Component FY13 outcomes Long-term incentives Former Managing Effective 1 April 2011, Chris Ryan was awarded a sign-on incentive grant of 20,422 shares for which vesting was Director and CEO – subject to TSR and EPS growth performance targets over a two-year performance period. Chris Ryan The portion of Mr Ryan’s sign-on share grant subject to a TSR performance target vested in full on 1 April 2013 as Perpetual’s TSR performance over the performance period ranked in the top quartile of the comparator group. This resulted in 10,211 shares vesting to Mr Ryan. The portion of Mr Ryan’s sign-on grant subject to an EPS growth performance target lapsed without value as the performance measure was not met. As a result 10,211 shares were forfeited by Mr Ryan. Managing Director No long-term incentives held by Geoff Lloyd reached a vesting point during FY13. and CEO – Geoff Lloyd Group Executives All LTI grants made to executives in 2008 were forfeited during the year as the TSR and EPS growth performance targets were not met when retested on 1 October 2012. No LTI grants made to executives in 2009 vested as a result of the initial test of the performance targets on 1 October 2012. Subsequent to this test, the 2009 LTI award for Richard Brandweiner was retested at the time of his termination on 31 March 2013. As a result of this retest, 2,144 shares vested to Mr Brandweiner. For other Group Executives who have a 2009 LTI grant and remain in service, the retest will be conducted as at 1 October 2013. The 2010 LTI grant will be tested as at 1 October 2013. There are no retesting provisions for this or any later LTI grants. Further detail on the LTI performance measures is on page 50. Other payments Group Executives In recognition of remuneration forgone as a consequence of joining Perpetual, sign-on payments were made to Michael Gordon and Mark Smith. These sign-on payments were determined taking into account the value, form, likelihood and time to vest of the incentive forfeited by the executives on ceasing employment with their previous employers. The reasonable costs of relocating Michael Gordon from the UK to Sydney for the purposes of his employment were met by Perpetual. Non-Executive Total fees paid to Non-Executive Directors in FY13 were $1,146,950 which represented a reduction of 32% from the Director fees total fees of $1,693,432 paid in FY12. This follows the decision of the Board to significantly reduce their fees with effect from 1 July 2012. The total remuneration available to Non-Executive Directors remains at $2,250,000, as approved by shareholders at the 2006 Annual General Meeting. Further detail on Non-Executive Director remuneration is provided on page 60.
40 Perpetual Limited and its controlled entities 1.4 Actual remuneration received The table below provides a summary of actual remuneration received by the Managing Director and Group Executives during FY13. This includes: ll fixed remuneration (consisting of cash salary, superannuation, packaged employee benefits, associated fringe benefits tax and higher duties allowances) ll the cash component of short-term incentives awarded for FY13 (paid September 2013) ll the value of equity grants awarded in previous years which vested during the year ll cash dividends on unvested LTI shares received during the year ll relocation benefits, and ll cash termination benefits. This table differs from the remuneration table on page 54 which has been constructed in accordance with the requirements of the relevant accounting standards. actual remuneration received Equity Dividends paid vested on unvested Sign-on & Payments Total fixed during LTI during relocation made on Total remuneration STI Cash1 year2 year3 benefits4 termination5 Name $ $ $ $ $ $ $ Managing Director G Lloyd 1,986,373 1,108,575 784,080 – 93,718 – – Current Group Executives M Gordon 920,796 278,828 112,046 – – 529,922 – C Green 793,914 441,736 310,464 – 41,714 – – G Larkins 619,343 473,574 141,449 – 4,320 – – R Nash 626,360 505,236 119,005 – 2,119 – – M Smith 756,290 348,930 144,012 – 13,348 250,000 – Acting Group Executives during the year6 P Chasemore 52,571 41,219 11,352 – – – – N Langton 296,407 194,397 87,737 – 14,273 – – Group Executives who departed during the year R Brandweiner 1,201,323 409,736 291,600 86,360 31,083 – 382,544 R Burrows 352,558 336,459 – – – – 16,099 C Doyle 122,706 46,250 – – – – 76,456 B Henderson 78,655 17,490 – – – 46,841 14,324 I Holyman 86,924 21,031 – – – – 65,893 R Vahtrick 306,444 191,449 68,647 – 3,800 – 42,548 Totals 8,200,664 4,414,910 2,070,392 86,360 204,375 826,763 597,864
1. Represents the cash portion of STI outcome for FY13 paid in September 2013 as detailed on page 39. 2. Represents the value at vesting of the 2009 LTI grant made to R Brandweiner on 1 October 2009. These shares have been valued at $40.28 being the closing market value of Perpetual shares on the vesting date of 31 March 2013. 3. Dividends paid during FY13 on unvested long-term incentives held during the year. 4. Includes overseas relocation allowances and reasonable cost of flights and sign-on bonuses received. 5. Consists of payments made during FY13 for: – unused accrued annual leave for R Brandweiner, R Burrows, C Doyle, B Henderson, I Holyman and R Vahtrick, and – severance entitlements for R Brandweiner and R Vahtrick. Termination payments for C Doyle, B Henderson and I Holyman were disclosed in Perpetual’s Remuneration Report 2012. In all cases, the entitlements paid on termination were less than the relevant caps required by legislation and as a result shareholder approval for these payments was not sought. 6. Remuneration received while in Acting Group Executive roles.
Annual Report 2013 41 directors’ report Remuneration report continued
2. Link between company performance and remuneration One of Perpetual’s remuneration guiding principles is that the remuneration structure should align value creation for shareholders, clients and employees. This section demonstrates the strong alignment between Company performance and remuneration outcomes for KMP over the last fiveyears. The following table shows the Company’s five-year performance. Year end
30 June 30 June 30 June 30 June 30 June Perpetual’s five-year performance 2009 2010 2011 2012 2013
Net profit after tax reported ($’000s) 37,749 90,505 62,031 26,679 60,968 UPAT reported ($’000s) 65,697 72,793 72,879 67,623 76,320 Ordinary dividend per share declared with respect to the year ($) 1.00 2.10 1.85 0.90 1.30 Earnings per share – UPAT1 ($) 1.67 1.83 1.79 1.74 1.98 Closing share price ($) 28.55 28.26 24.93 22.90 35.40 Annual total shareholder return (TSR) –39.52% 12.43% –8.76% –10.65% 78.38%
1. Based on basic EPS calculated based on the number of ordinary shares only.
2.1 STI outcomes are aligned to company performance The amount available for funding STI awards to employees for FY13 is approximately 82% higher than in FY12, using consistent principles and methodology of calculating the Net Profit for the purposes of determining the funding of STI awards. This increase reflects the significant improvement in financial performance and performance against other measures in the Company balanced scorecard. Net Profit for the purposes of determining the amount to fund STI awards is statutory net profit after tax with the post-tax amount of the aggregate STI payments added back, and adjusted for any other items determined by the Board. For FY13, adjustments were made for the following items: ll gains and losses on the sale of investments and businesses ll impairment charges for the write-down of the carrying value of IT assets to their net realisable value in respect of outsourced operations, and ll selected one-off costs related to delivering our Transformation 2015 strategy. The chart below demonstrates the alignment between profit and STI outcomes over the past five years.
Company performance (STI outcomes)
100 NPAT UPAT STI INDEX 200
80 150
60
100 STI INDEX 2013 = 100 40 NPAT/UPAT ($M)
50 20
0 0 2009 2010 2011 2012 2013
42 Perpetual Limited and its controlled entities
2.2 How LTI aligns to company performance The following charts show the vesting outcomes of all LTI issued to KMP (past and present) in 2008, 2009 and 2010. No vesting has occurred in respect of grants for which EPS growth performance hurdles have applied. Minimal vesting has occurred in respect of grants for which TSR growth performance hurdles have applied. This clearly demonstrates that LTI outcomes and Company performance are aligned.
1% 9% 4% 91% 95% 54% 9%
37%
2008 2009 2010 GRANTS GRANTS GRANTS
LTI THAT HAS VESTED LTI THAT REMA NS UNVESTED LTI THAT HAS FORFEITED
We are confident that a portion of annual long-term incentives granted in 2009 and 2010 will vest upon testing of performance hurdles in October 2013. In the event any of these shares vest, it will be the first significant amount of long-term incentives that are subject to TSR and EPS hurdles to vest since the 2004 award vested in 2007.
3. The role of the People and Remuneration Committee The role of the People and Remuneration Committee (PARC) is to help the Board fulfil its responsibilities to shareholders through a strong focus on governance, and in particular, the principles of accountability and transparency. The PARC operates under delegated authority from the Board. The PARC’s terms of reference are available on our website (http://www.perpetual.com.au) and are shown graphically below:
Oversee HR management policy and practices, Oversee Equal including overall Review succession Employment Remuneration and career planning for
Opportunity and Policy the Managing Director,
diversity policies Group Executives and at all levels 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 disclosure requirements with occupational health are met and safety regulations
Review and Review and recommend recommend Board Managing Director’s remuneration as well performance, as Managing Director remuneration and and Group Executive contractual arrangements remuneration to the Board
Annual Report 2013 43 directors’ report Remuneration report continued
The terms of reference are broad, 4. Our remuneration 4.2 Alignment with sound encompassing remuneration as well as philosophy and structure risk management executive development, talent management Perpetual’s remuneration philosophy is that When determining the variable (or ‘at risk’) and succession planning. This enables the the remuneration strategy should align with elements of remuneration, we ensure that risk PARC to focus on ensuring a high quality and support the achievement of our business management is a key performance metric of succession planning and executive strategy, while ensuring remuneration using specific performance goals and targets. development at all levels of Perpetual. outcomes are aligned with shareholder Sound risk management practices include: interests and are market competitive. To that The PARC members for FY13 were: ll deeming employees to be ineligible for end we have created six guiding principles the payment of STI in the event they ll Elizabeth Proust (Chairman) that direct our remuneration approach. exhibit poor risk behaviours ll Paul Brasher ll incorporating in employee performance ll Philip Bullock, and 4.1 Remuneration principles plans goals that are specifically related ll Paul McClintock Our remuneration policy is designed around to risk management performance (until 1 November 2012). the following six guiding principles: measures. These goals are approved The PARC met seven times during the year. 1. The remuneration structure should by the Board and cascade down to A standing invitation exists to all Directors attract, motivate and retain the desired all employees to attend PARC meetings. Attendance at talent within Perpetual ll performing scenario testing on potential these meetings is set out on page 22 of the 2. The remuneration structure should align outcomes under any new incentive plans Directors’ Report. value creation for shareholders, clients ll regularly reviewing the alignment At the PARC’s invitation, the Managing and employees between remuneration outcomes and Director and Group Executive People 3. The remuneration structure should performance achievement for existing and Culture attended meetings except embed sound risk management incentive plans ll deferring a portion of STI into Perpetual where matters associated with their own 4. Incentive arrangements should shares to align remuneration outcomes performance evaluation, development and motivate performance remuneration were to be considered. with longer-term Company performance 5. Remuneration should be delivered The PARC considers advice and views from ll including provisions in incentive efficiently and effectively considering plans for the Board or the PARC to those invited to attend meetings and draws the level of administration required, and on services from a range of external sources, adjust incentive payments downwards, 6. The remuneration structure should be including remuneration consultants. if required, to protect Perpetual’s supported by a governance framework financial soundness, or to respond to that avoids conflict of interest and 3.1 Use of remuneration significant unexpected or unintended consultants ensures proper controls are in place. consequences In March 2011, the PARC appointed The PARC has also adopted a number of ll including a provision for the Board or PricewaterhouseCoopers (PwC) as its practices that collectively contribute to each the PARC to ‘claw back’ deferred STI principal remuneration consultant to provide remuneration principle. shares in certain circumstances, and specialist advice on executive remuneration ll continuous monitoring of remuneration and other Group-wide remuneration matters. outcomes by the Board, the PARC During the year PwC provided information and management, to ensure that to the PARC in respect of executive results are promoting behaviours that benchmarking. This information did not support Perpetual’s long-term financial include any recommendations in relation soundness and the desired culture. to the remuneration of KMP.
44 Perpetual Limited and its controlled entities 4.3 Alignment with shareholders Link to business strategy A key tenet of our remuneration philosophy is that the remuneration strategy should support the achievement of our business strategy while ensuring that remuneration outcomes are aligned with shareholder outcomes. The remuneration structure for the Managing Director and Group Executives in FY13 was as follows: Fixed Fixed Set in consideration of total target Paid as cash remuneration remuneration package and the desired remuneration mix for the role, taking into account the remuneration of market peers, internal relativities and the skill and expertise brought to the role. Calculated on a ‘total cost to company’ basis, consisting of cash 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 are based on individual, divisional and Company performance against stretch targets using financial and longer-term, value‑creation measures. Deferred STI 40% of the STI award is deferred into Awarded as equity subject to Perpetual shares for two years, with performance hurdles and/or vesting subject to service conditions service conditions and claw‑back provisions. For the Managing Director and Group Executive Corporate Trust, a transitional arrangement applies where the amount deferred for FY13 is 20% of the STI award, before reverting to 40% from FY14. LTI Granted in the form of performance rights and are subject to service conditions and performance targets measured over a three- year period.
Minimum shareholding guideline A minimum shareholding guideline applies to the Managing Director and Group Executives. The purpose of this guideline is 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: ll Managing Director: 1.5 times fixed remuneration ll Group Executives: 0.5 times fixed remuneration The value of each performance right or share held in tax deferral by the executive is treated as being equal to 50% of that share or performance right, as this represents the value of the share in the hands of the executive after allowing for tax. Unvested shares or performance rights 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.
Annual Report 2013 45
directors’ report
Remuneration report continued
As at 30 June 2013, progress towards the minimum shareholding target for the Managing Director and each Group Executive was as follows: Value of eligible Value of minimum shareholdings shareholding as at 30 June 20131 guideline $ $ Managing0 Director G Lloyd 225,976 1,650,000 Group Executives M Gordon – 330,000 C Green 84,889 220,000 G Larkins – 330,000 R Nash – 290,000 M Smith – 280,000
1. Value is calculated through reference to the closing Perpetual share price at 30 June 2013 of $35.40.
Hedging and Share Trading Policy Consistent with Corporations Act obligations, Perpetual’s Share Trading Policy prohibits employees and directors from entering into hedging % arrangements in relation9% to Perpetual securities. Perpetual employees4% and directors cannot trade in financial products issued over Perpetual securities91% by third parties or trade in any associated5 products which limit the economic5 risk of holding Perpetual securities. Share-dealing can only take place during agreed trading windows throughout the year and is subject to certain approvals (as set37 out% below).
Share dealing approval Any share dealings,2008 whether these shares are held20 personally09 or were acquired as part of20 remuneration,10 require prior approval. The table below shows theGR approval required: TS Person wishing to deal in shares Approval required from
Managing Director Chairman Director Chairman
Chairman Nominated Director Group Executive Managing Director An employee likely to have price-sensitive information Managing Director/Company Secretary
4.4 Remuneration mix As a result of the Board reviewing the remuneration mix of the Managing Director and Group Executives during FY12, Perpetual is transitioning to a new remuneration mix for the Managing Director and Group Executives. This new desired remuneration mix provides greater consistency and alignment with Perpetual’s business model which is materially influenced by macro-economic issues and business cycles. This means incentives, in particular LTI, have decreased as a proportion of total remuneration. Total remuneration on a fair value basis will continue to be set in consideration of Perpetual’s market peers. The Managing Director and all Group Executives continue to have a significant portion of their remuneration linked to performance and at risk. This is shown in the table below which shows the desired remuneration mix for the Managing Director and Group Executive roles.
Desired remuneration mix
MANAGING DIRECTOR 35% 21% 14% 30%
GROUP EXECUTIVES 45-50% 18-21% 12-14% 20% FIXED (CASH) STI (CASH) DEFERRED STI (EQUITY) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% LTI (EQUITY)
46 Perpetual Limited and its controlled entities 4.5 Asset manager remuneration Asset manager remuneration is developed in consideration of the same principles that apply to all remuneration across Perpetual. The strategy for asset manager remuneration differentiates between asset managers managing what we consider to be funds in a mature state as compared to those managing funds in the growth phase. We may also vary our practices for differing asset classes such as equities or fixed income. In all cases, we seek to align asset manager remuneration with longer-term shareholder interests whilst balancing client outcomes. For asset managers managing funds in growth phase, remuneration arrangements have a heavier focus on rewarding business-building outcomes such as revenue. For asset managers managing mature funds, the focus is more biased to rewarding longer-term investment performance as measured against the relevant benchmark. Senior asset managers receive a significant component of their variable remuneration in the form of Perpetual shares which vest over several years, ensuring a strong alignment to shareholder outcomes. Dividends are paid on unvested shares as share grants are usually earned through meeting targets in annual performance agreements. From the FY13 performance period, many asset managers will receive a percentage of their deferred incentives as a notional investment in the products they manage. This arrangement further builds alignment with clients over the longer term.
5. Short-term incentives Short-term incentives (STI) are incentives paid in the form of cash and deferred Perpetual shares for meeting annual targets aimed at delivering our longer-term strategic plan.
5.1 How the STI Pool is determined The Board determines the size of the STI pool under the STI plan by assessing Company performance against a range of measures in the balanced scorecard. This is then calibrated against net profit to ensure the STI pool is appropriately correlated to shareholder outcomes. The balanced scorecard includes stretch targets approved by the Board, allowing the business to be assessed in the context of the operating environment. Net profit remains a key performance measure to ensure STI outcomes under the STI plan are closely aligned with shareholder interests. The scorecard is considered to be ‘balanced’ because it includes a range of short-term financial and longer-term value-creation measures. This approach aims to balance rewards for meeting financial objectives for the year, with rewarding activities designed to deliver sustainable future profits. For FY13, performance against the balanced scorecard resulted in an STI pool funded at 88% of target being allocated to employees. The balanced scorecard for FY13 and our performance against those measures is summarised in the following table:
Measure Full Year Performance Financial Outcome Comments Underlying Profit After Tax Achieved Increased by 16% on prior year underpinned by the first year’s impact of the Transformation 2015 strategy, which delivered cost savings, and the benefits from a rebound in equity markets. Clients Outcome Comments Increase client advocacy Achieved Client and market sentiment, as measured by net promoter score and client pipeline metrics, remains very favourable towards Perpetual as a result of specialist expertise in core areas. Growth Outcome Comments New business Partially achieved While net flows in both Perpetual Investments and Perpetual Private improved considerably on the prior year they still did not result in a return to net inflows. This year saw significant improvement on the prior year. The benefits from many of the business initiatives implemented this year are expected to produce improved business performance in future periods. Funds under administration and new business in Corporate Trust exceeded their target. Strategy Outcome Comments Transformation 2015 objectives Achieved All Transformation initiatives for FY13 have been successfully delivered. Transformation 2015 program savings of $50 million remains on track. Costs savings achieved in FY13 exceeded forecast. Overall result Above target
Annual Report 2013 47 directors’ report Remuneration report continued
5.2 How the STI pool People: engagement survey scores, The STI plan requires that 40% of an is allocated leadership measures. executive’s STI award be delivered in the Employees must first meet risk and Performance objectives are assessed form of unvested Perpetual shares. For the behaviour thresholds to be eligible to receive throughout the year as part of the Managing Director and Group Executive an STI payment. For the Managing Director performance management process. Corporate Trust, a transitional arrangement and Group Executives, this is assessed by At year end, an annual assessment of applies where the amount deferred for FY13 the Board. each employee’s performance is made is 20% of the STI award, before reverting to Individual STI allocations are determined and the STI is then allocated based 40% from FY14. through an assessment of overall Company on Company, relative divisional and Deferred STI shares may vest after a performance against the balanced scorecard, individual performance. two-year vesting period, subject to service divisional performance against a divisional For the FY13 year, 90% of the Managing conditions and claw-back provisions. scorecard and individual performance. Director’s STI outcome was weighted to Dividends on deferred STI shares are At the conclusion of each financial year, the overall performance against the Company paid during the vesting period as the Perpetual Board considers the Company scorecard, with 10% weighted to individual performance criteria for awarding the performance against each measure and on measures. For Group Executives, 80% of STI has already been met. the basis of this review recommends the pool their STI outcome was weighted to overall that is available for distribution to employees performance against the Company scorecard, Termination of employment by way of STI payments. The performance with 20% weighted to the performance of In the event of the Managing Director or of each division against their scorecard is their division and individual measures. The Group Executive ceasing employment with assessed by the Managing Director. The high weighting of Group Executives to overall the Company, all unvested STI shares will be outcome of this assessment determines Company performance is designed to build forfeited at the termination date, except as the proportion of the overall pool each a One Perpetual mindset and ensure there noted below. division receives. is shared accountability for delivering the If an executive is made redundant or retires, Divisional pools are then allocated to Transformation 2015 strategy and beyond. dies or resigns due to total and permanent the employees of that division based on The Managing Director makes disablement, unvested shares are retained the individual performance rating and recommendations to the Board on STI by the executive or their estate, with vesting target STI of the respective employees. allocations for the Group Executives subject to the original two-year period and The maximum STI opportunity for each and these are subject to approval by the claw-back provisions. employee is two times their target STI. Each Board. The Chairman of the Board makes This approach strengthens the alignment year performance targets and goals are recommendations to the Board on the STI between executives’ and shareholders’ interest set for employees in consideration of the allocation for the Managing Director and in the long-term performance of Perpetual, balanced scorecards for their division and this is also approved by the Board. extending beyond the executives’ tenure. the Company. Performance objectives are classified into 5.3 How the STI is delivered Claw-back provisions four categories, as provided below with STI payments are delivered in cash and The Board retains a discretion to claw back example measures: deferred Perpetual shares. Cash payments deferred STI shares awarded to executives are made in September following the end prior to the shares vesting if the Board Financial: revenue and cost targets, profit, of the performance year less applicable tax becomes aware of any information that, net inflows and superannuation. had it been available at the time STI awards Strategic: project milestones and execution were determined, would have resulted in a objectives, eg completion of acquisitions Deferral arrangements different (or no) STI amount being awarded. and/or divestments As a result of the review of KMP Operational: client advocacy, operational remuneration in FY12, the approach to STI efficiency, audit outcomes, process deferral was refined for FY13 and beyond. improvements
48 Perpetual Limited and its controlled entities 5.4 Total STI outcome received for FY13 The table below provides the total STI outcomes (both the cash and deferred portions) received by the Managing Director and Group Executives during FY13. Total STI STI 2013 STI STI Cash Deferred (as % of Name $ $ $ Target)1 Managing Director G Lloyd 980,100 784,080 196,020 89% Current Group Executives M Gordon 186,744 112,046 74,698 89% C Green 388,080 310,464 77,616 87% G Larkins 235,748 141,449 94,299 88% R Nash 198,341 119,005 79,336 88% M Smith 240,020 144,012 96,008 87% Acting Group Executives during the year P Chasemore 11,352 11,352 – 90% N Langton 87,737 87,737 – 67% Group Executives who departed during the year R Brandweiner 291,600 291,600 – 72% R Burrows – – – 0% C Doyle – – – 0% B Henderson – – – 0% I Holyman – – – 0% R Vahtrick 68,647 68,647 – 72% Totals 2,688,369 2,070,392 617,977
1. Represents total STI outcome for FY13 (including deferred portion) as a percentage of target STI.
6.t Long- erm incentives Long-term incentives (LTI) provide executives with remuneration delivered in equity if conditions are met over a three-year period. LTI awards are granted annually, which provides ongoing benefits to executives for increasing shareholder value. This section explains LTI plans in place and how they work.
6.1 Perpetual Limited Long-term Incentive Plan Long-term incentives are provided to the Managing Director, Group Executives and selected senior leaders through the Perpetual Long-term Incentive Plan. This plan was introduced in February 2011 (replacing the Perpetual Limited Executive Share Plan) to modernise terms and conditions in light of significant changes to market practice and regulation of employee equity plans over the past decade. Since 1 October 2012, LTI has been awarded to the Managing Director and Group Executives in the form of performance rights. A performance right is a right to acquire a fully paid Perpetual share (or, subject to Board discretion, its cash value) at the end of a performance period, subject to tenure and performance hurdles for no consideration. This means dividends are not received by the Managing Director and Group Executives on performance rights until they have vested and been converted into Perpetual shares. Performance rights are awarded at no cost to the participant. Prior to October 2012, LTI was delivered in the form of fully paid ordinary shares in Perpetual. Dividends on unvested shares held by the Managing Director and Group Executives in respect of LTI previously granted will continue to be paid.
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The table below compares performance shares with performance rights at Perpetual. Performance shares Performance rights (applied prior to October 2012) (applied from October 2012) Description A right to full legal ownership of a Perpetual share A right to acquire a fully paid Perpetual share (or, at the end of a performance period, subject to subject to Board discretion, receive its cash value) tenure and performance hurdles. at the end of a performance period, subject to tenure and perfomance hurdles. Ownership Beneficial ownership of the share transfers to Full legal ownership of a share transfers to the the executive at the initial grant date. Full legal executive once the rights vest if the performance ownership may pass to the executive if the and tenure hurdles are met at the end of the performance targets are met at the end of the three-year performance period and the rights are three‑year performance period. exercised into shares. Treatment of dividends Paid to executives. None Voting rights Limited voting rights (for example, KMP are not None permitted to vote on remuneration matters). How is the number of The number of shares granted is determined by The number of performance rights granted is securities issued each year dividing the value of the LTI grant by the volume determined by dividing the value of the LTI grant determined? weighted average price (VWAP) of Perpetual by the VWAP (discounted for the non-payment of shares traded on the ASX in the five business days dividends) of Perpetual shares traded on the ASX up to the grant date. in the five business days up to the grant date.
Performance targets Vesting of LTI grants is subject to two performance measures directly linked to Company performance: ll 50% of each grant is subject to a TSR performance target, and ll 50% is subject to an earnings per share (EPS) growth target. Shares are held in trust for a maximum of seven years from the grant date (10 years for grants made before 1 July 2009).
TSR performance target The TSR performance target requires Perpetual’s TSR over the performance period to be equal to or better than the TSR of half of the comparator group, which consists of companies listed on the S&P/ASX 100 (excluding listed property trusts). This comparator group was chosen in the absence of a suitable peer group of direct competitors, and as it best represents Perpetual’s performance which is influenced by equity market movements (given that Perpetual’s revenue is significantly dependent on funds under management and funds under advice). For TSR performance greater than median, a sliding scale applies to determine the vesting percentage.
TSR vesting schedule
Perpetual’s TSR ranking relative Percentage of shares and to the comparator group options that will vest Less than median 0% Median 50% Greater than median but less than 75th percentile 2% for every one percentile increase in Perpetual’s relative position Greater than 75th percentile 100%
TSR is measured independently by Orient Capital and reported to the PARC.
EPS performance target The EPS performance target requires Perpetual’s EPS growth during the performance period to be equal to or greater than the target set by the Board. This target, which is currently 10% p.a., may be reviewed by the Board from time to time. Growth in EPS is defined as compound average annual growth in the Company’s earnings per share comprising basic earnings per share (after tax) before annual goodwill amortisation. The Board may adjust EPS for items such as those of a capital nature that do not reflect management and employee performance and day-to-day business operations and activities. The achievement of this performance target links the individual’s remuneration to the Company’s growth in earnings.
50 Perpetual Limited and its controlled entities EPS vesting schedule For LTI awarded to the Managing Director and Group Executives the following vesting schedule applies: Percentage of shares Percentage of shares that will vest for grants that will vest for grants Perpetual’s growth in EPS made prior to FY11 made from FY11 EPS growth less than or equal to 5% p.a. 0% EPS growth between 5% p.a. and 10% p.a. 0% 2% for every 0.1% of EPS growth above 5% p.a. EPS growth at or above 10% p.a. 100% 100%
Performance target testing and retesting guidelines A three-year performance testing period applies to TSR and EPS targets. For grants made before 1 July 2010, if the target is not met after the initial three-year period, it is retested on the fourth anniversary of the grant date, against four-year TSR and EPS targets. If the performance target is not met after this retest, the portion of the LTI that has not vested is forfeited. The LTI grant made on 1 October 2009 is the last of the grants with a retest provision and will have its performance hurdles retested on 1 October 2013. For grants made after 1 July 2010, TSR and EPS performance is calculated and tested against the respective target on the third anniversary of the grant date. There is no retesting of grants made from 1 July 2010.
Termination of employment In the event of the Managing Director or Group Executive ceasing employment with the Company, all unvested shares and performance rights will be forfeited at the termination date, except as noted below.
For LTI grants made in FY11, FY12 and FY13: ll On death, all unvested shares and performance rights are retained by the executive’s estate, with vesting subject to the same performance conditions as if they had remained employed by Perpetual. ll If an executive is made redundant or retires, or resigns due to total and permanent disablement, unvested shares and performance rights granted within the past 12 months lapse immediately. Unvested shares and performance rights granted more than 12 months prior to termination are retained by the executive, with vesting subject to the same performance conditions as if they had remained employed by Perpetual. This approach strengthens the alignment between executives’ and shareholders’ interest in the long-term performance of Perpetual, extending beyond the executives’ tenure.
For LTI grants made before FY11: ll If an executive dies or resigns due to total and permanent disability, all unvested shares vest to the executive at the date of death or on termination. ll If an executive is made redundant or retires, the executive will be entitled to a pro rata portion of the grant based on the length of their employment (including any notice period actually given and any nominal notice period in respect of which any payment in lieu of notice is made). The pro rata amount will be based on the most recent performance targets to determine the number of shares that will vest.
Treatment of LTI on change in control If Perpetual were to be taken over or there were a partial or full change in control, LTI awards may vest in part or in full at the discretion of the Board. Guiding principles have been developed to help the Board determine vesting outcomes that are consistent, fair and reasonable, and balance multiple stakeholder interests.
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6.2 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 primary plan to be used for LTI grants to eligible 181 members employees, 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 7 members team, 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 This plan allows all employees, including the Managing Director and Group Plan (TESP) Executives, to purchase shares using a salary-sacrifice arrangement. 54 members 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 52 members employees within the Perpetual Private 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 FY10.
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, 118 members including the Managing Director and Group Executives. Employee Share Purchase Plan (ESPP) This plan was used for granting shares under a non-recourse loan arrangement. It has 111 members been closed to new issues since FY04. The ESPP and another inactive plan, the Employee Reward Share Plan, are discussed in Note 28 to the financial statements. Non-Executive Director Share Purchase This plan was used only by non-executive directors and was closed to new purchases Plan (NEDSPP) on 1 July 2009, following changes to taxation rules. 2 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. As at 30 June 2013, the proportion of unvested shares and performance rights (excluding unallocated shares as a result of forfeitures) held in Perpetual’s employee share plans as a percentage of issued shares was 6.1%. This has reduced from 7.2% as at 30 June 2012. Going forward, it is expected that dilution levels will continue to reduce due to: ll the likely forfeiture of shares granted as LTI as a result of performance measures not being met ll the de-emphasis of LTI in terms of the remuneration mix for executives, and ll the intention to reduce the number of shares granted to asset managers as a result of the arrangement whereby asset managers may invest a portion of their incentives into the products that they manage. 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 46 for detail on the share dealing approval process.
52 Perpetual Limited and its controlled entities 7. Details of remuneration
Index to tables Remuneration of the Managing Director and Group Executives (Statutory Reporting) 54 Remuneration components as a proportion of total remuneration 55 Value of unvested remuneration that may vest in future years 56 Unvested share and performance rights holdings of the Managing Director and Group Executives 57
Annual Report 2013 53 directors’ report Remuneration report continued
Remuneration of Managing Director and Group Executives (statutory reporting) Fixed Payments remuneration made on Fixed remuneration STI4 & STI LTI termination6 Post Total fixed Short term employment remuneration Equity based Total LTI Cash salary and short-term Non- Cash Deferred compensated monetary Pension short-term short-term Performance Name Total absences1 benefits2 Other3 and super incentives incentive Shares5 Rights $ $ $ $ $ $ $ $ $ $ $ $ Managing Director G Lloyd 2013 2,237,263 1,008,986 81,383 1,736 16,470 1,108,575 784,080 65,340 1,957,995 165,892 113,376 279,268 – 2012 1,423,253 752,082 79,548 1,736 15,775 849,141 437,000 – 1,286,141 137,112 – 137,112 – Current Group Executives M Gordon 2013 1,042,457 259,666 10,432 530,417 8,235 808,750 112,046 24,899 945,695 96,762 – 96,762 – C Green 2013 910,891 423,530 – 1,736 16,470 441,736 310,464 25,872 778,072 90,948 41,871 132,819 – 2012 799,223 417,558 – 1,736 15,775 435,069 264,000 – 699,069 100,154 – 100,154 – G Larkins 2013 664,535 460,345 – 876 12,353 473,574 141,449 31,433 646,456 – 18,079 18,079 – R Nash 2013 663,537 479,683 – 1,736 23,817 505,236 119,005 26,445 650,686 – 12,851 12,851 – M Smith 2013 916,210 335,853 – 250,724 12,353 598,930 144,012 32,003 774,945 74,998 66,267 141,265 – Acting Group Executives during the year7 P Chasemore 2013 56,995 39,032 – 202 1,985 41,219 11,352 – 52,571 4,424 – 4,424 – 2012 39,502 29,981 – 147 1,724 31,852 6,011 – 37,863 1,639 – 1,639 – N Langton 2013 357,183 182,959 4,455 666 6,317 194,397 87,737 – 282,134 75,049 – 75,049 – 2012 331,204 177,974 5,706 688 6,250 190,618 84,187 – 274,805 56,399 – 56,399 – Group Executives who departed during the year R Brandweiner 2013 1,279,885 395,647 – 1,736 12,353 409,736 291,600 – 701,336 196,005 – 196,005 382,544 2012 748,901 378,808 – 1,736 15,775 396,319 240,000 – 636,319 112,582 – 112,582 – R Burrows 2013 254,747 316,774 6,814 553 12,318 336,459 – – 336,459 (97,811) – (97,811) 16,099 2012 988,064 531,823 14,402 1,736 23,775 571,736 198,000 – 769,736 218,328 – 218,328 – C Doyle 2013 158,327 41,125 1,007 – 4,118 46,250 – – 46,250 35,621 – 35,621 76,456 2012 1,526,262 520,689 13,536 1,736 15,775 551,736 181,500 – 733,236 493,170 – 493,170 299,856 B Henderson 2013 81,335 11,688 1,684 46,841 4,118 64,331 – – 64,331 2,680 – 2,680 14,324 2012 649,087 364,518 – 51,930 15,775 432,223 92,800 – 525,023 56,276 – 56,276 67,788 I Holyman 2013 97,027 106 – – 20,925 21,031 – – 21,031 10,103 – 10,103 65,893 2012 1,181,892 358,264 – 1,736 47,889 407,889 59,500 – 467,389 367,124 – 367,124 347,379 R Vahtrick 2013 360,899 177,714 – 1,705 12,030 191,449 68,647 – 260,096 58,255 – 58,255 42,548 2012 478,832 350,225 – 1,736 49,775 401,736 66,000 – 467,736 11,096 – 11,096 – Total 2013 9,081,291 4,133,108 105,775 838,928 163,862 5,241,673 2,070,392 205,992 7,518,057 712,926 252,444 965,370 597,864 Total 20128 11,197,982 4,912,166 118,124 68,389 235,894 5,334,573 1,812,748 – 7,147,321 2,084,349 – 2,084,349 1,966,312
1. Cash salary is the ordinary cash salary received in the year including payment for annual, long service, sick or other types of paid leave and higher duties allowances paid to Acting Group Executives. 2. Non-monetary benefits represents those amounts salary sacrificed from fixed remuneration to pay for benefits such as leased motor vehicles and car parking. 3. Other short-term benefits relate to: – salary continuance and death and total and permanent disability insurance provided as part of the remuneration package – payments in respect of relocation expenses M Gordon ($28,823.50) and repatriation expenses B Henderson ($46,841.10), and – sign-on bonuses for M Gordon and M Smith. 4. Annual incentives consists of the cash payments to be made in September 2013 from the Group STI plan and costs incurred in FY13 for the deferred portion of STI for performance during FY13, as detailed on page 49. 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. 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 shares 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. 6. Consists of payments made during FY13 for: – unused accrued annual leave for R Brandweiner, R Burrows, C Doyle, B Henderson, I Holyman and R Vahtrick, and – severance entitlements for R Brandweiner and R Vahtrick. Termination payments for C Doyle, B Henderson and I Holyman were disclosed in Perpetual’s Remuneration Report 2012. 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. 7. Represents accounting value of remuneration while in acting Group Executive roles. 8. The totals shown relate to executives disclosed in Perpetual’s Remuneration Report 2012 and so do not equal the 2012 totals for executives disclosed in this table.
54 Perpetual Limited and its controlled entities Remuneration components as a proportion of total remuneration The remuneration components below are determined based on the Remuneration of Managing Director and Group Executives (statutory reporting) table on page 54. Performance linked benefits Value of performance rights as a proportion Fixed of total remuneration STI LTI Total1 remuneration Name % % % % % Managing Director G Lloyd 50 38 12 100 5 Current Group Executives M Gordon 78 13 9 100 0 C Green 48 37 15 100 5 G Larkins 71 26 3 100 3 R Nash 76 22 2 100 2 M Smith 65 19 16 100 7 Acting Group Executives during the year P Chasemore 72 20 8 100 0 N Langton 54 25 21 100 0 Group Executives who departed during the year R Brandweiner 46 32 22 100 0 R Burrows 100 0 0 100 0 C Doyle 56 0 44 100 0 B Henderson 96 0 4 100 0 I Holyman 68 0 32 100 0 R Vahtrick 60 22 18 100 0
1. Termination payments are not included in this table.
Annual Report 2013 55 directors’ report Remuneration report continued
V alue of unvested remuneration that may vest in future years Estimates of the maximum future cost of equity-based remuneration granted by the Company1
30 Jun 14 30 Jun 15 30 Jun 16 Maximum Maximum Maximum Managing Director G Lloyd 334,892 332,008 82,670 Group Executives M Gordon 193,524 86,857 22,857 C Green 137,924 125,676 30,531 G Larkins 33,144 48,587 13,182 R Nash 23,560 34,536 9,370 M Smith 258,986 149,540 26,303 Acting Group Executives during the year P Chasemore 42,309 38,482 9,333 N Langton 187,242 98,842 17,498 Group Executives who departed during the year R Brandweiner – – – R Burrows – – – C Doyle – – – B Henderson – – – I Holyman – – – R Vahtrick – – –
1. The minimum value of the grants is $nil if the performance targets are not met. The values above are determined in accordance with accounting standards. The fair value of granted shares is recognised as an employee expense with a corresponding increase in equity. Fair value is measured at grant date and amortised over the period during which employees become unconditionally entitled to the shares.
56 Perpetual Limited and its controlled entities Unvested share and performance rights holdings of the Managing Director and Group Executives The table below summarises the share and performance rights holdings and movements by number granted to the Managing Director and Group Executives by Perpetual Limited, for the year ended 30 June 2013. For details of the fair valuation methodology, refer to Note 40 to the financial statements.
Movement during the year Fair Fair value per value per instrument instrument at grant at grant Issue Held at Held at ($) TSR ($) non‑TSR Name Instrument Grant date price Vesting date 1 July 2012 Granted Forfeited Vested 30 June 2013 Hurdle hurdle No of No of No of instruments instruments instruments Managing Director G Lloyd Shares 1 October 2010 30.80 1 October 2013 21,915 – – – 21,915 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 32,066 – – – 32,066 14.60 21.05 P erformance rights 1 October 2012 23.54 1 October 2015 – 37,383 – – 37,383 14.38 23.54 Aggregate Value1 $879,996 $0 $0 Group Executives M Gordon Shares 29 January 2013 35.70 30 June 2014 – 4,482 – – 4,482 N/A 35.70 Shares 29 January 2013 35.70 30 June 2015 – 4,482 – – 4,482 N/A 35.70 Shares2 29 January 2013 35.70 30 June 2016 – 2,241 – – 2,241 N/A 35.70 Aggregate Value $400,000 $0 $0 C Green Shares 1 October 2008 48.63 1 October 2011 4,112 – 4,112 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 20123 6,553 – – – 6,553 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 10,551 – – – 10,551 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 15,439 – – – 15,439 14.60 21.05 P erformance rights 1 October 2012 23.54 1 October 2015 – 13,806 – – 13,806 14.38 23.54 Aggregate Value $324,993 $114,026 $0 G Larkins P erformance rights 1 October 2012 23.54 1 October 2015 – 4,800 – – 4,800 14.38 23.54 Aggregate Value $112,992 $0 $0 R Nash P erformance rights 1 October 2012 23.54 1 October 2015 – 4,237 – – 4,237 14.38 23.54 Aggregate Value $99,739 $0 $0 M Smith Shares 1 October 2012 26.34 1 October 2014 – 9,491 – – 9,491 N/A 26.34 Performance rights 1 October 2012 23.54 1 October 2014 – 5,310 – – 5,310 14.26 23.54 Performance rights 1 October 2012 23.54 1 October 2015 – 11,894 – – 11,894 14.38 23.54 A ggregate Value $654,975 $0 $0 Acting Group Executives during the year P Chasemore Shares 1 October 2009 38.15 1 October 2012 1,048 – 1,048 – – N/A 37.93 Shares 1 October 2010 30.80 1 October 2013 2,110 – – – 2,110 N/A 30.80 Shares 1 October 2011 21.05 1 October 2014 3,325 – – – 3,325 N/A 21.05 Shares 1 October 2012 26.34 1 October 2015 – 3,037 – – 3,037 N/A 26.34 Aggregate Value $79,995 $29,061 $0 N Langton Shares 4 January 2011 31.43 4 January 2014 5,727 – – – 5,727 N/A 31.43 Shares 1 October 2011 21.05 1 October 2014 7,125 – – – 7,125 N/A 21.05 Shares 1 July 2012 23.14 31 December 2013 – 5,000 – – 5,000 N/A 23.15 Shares 1 July 2012 23.14 31 December 2014 – 5,000 – – 5,000 N/A 23.15 Shares 1 October 2012 26.34 1 October 2015 – 5,694 – – 5,694 N/A 26.34 Aggregate Value $381,380 $0 $0 Departed Executives R Brandweiner Shares 1 October 2008 48.63 1 October 2011 4,112 – 4,112 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 20123 7,208 – 5,064 2,144 – 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 11,931 – – – 11,931 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 19,002 – – – 19,002 14.60 21.05 Aggregate Value $0 $321,700 $86,360 R Burrows Shares 1 October 2008 48.63 1 October 2011 12,338 – 12,338 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 2012 15,727 – 15,727 – – 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 19,480 – 19,480 – – 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 28,503 – 28,503 – – 14.60 21.05 Aggregate Value $0 $2,800,246 $0 C Doyle Shares 1 October 2008 48.63 1 October 2011 7,197 – 7,197 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 2012 9,174 – 9,174 – – 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 22,727 – – – 22,727 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 33,254 – – – 33,254 14.60 21.05 Aggregate Value $0 $448,565 $0 B Henderson Shares 1 October 2011 21.05 1 October 2014 8,076 – – – 8,076 14.60 21.05 Aggregate Value $0 $0 $0 I Holyman Shares 1 October 2008 48.63 1 October 2011 9,253 – 9,253 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 2012 11,795 – 11,795 – – 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 14,610 – – – 14,610 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 21,377 – – – 21,377 14.60 21.05 Aggregate Value $0 $485,156 $0 R Vahtrick Shares 1 October 2011 21.05 1 October 2014 9,501 – – – 9,501 14.60 21.05 Aggregate Value $0 $0 $0
1. Granted aggregate value is calculated through multiplying the number of shares by the issue price. Vested and forfeited aggregate value is calculated through multiplying the number of shares by the Perpetual closing share price on the vesting date or next business day if the vesting date falls on a weekend or public holiday. 2. Unvested Company shares were granted to M Gordon on 29 January 2013 as part of his sign-on payment. Shares will vest over three years and are subject to service conditions only. 3. Initial vesting date. KMP LTI Grants prior to 2010 were retested at the fourth year or on earlier termination if they failed to vest at the three year test.
Annual Report 2013 57 directors’ report Remuneration report continued
8. Contract terms of the Managing Director and Group Executives Contract terms for the Managing Director
C ontract Details Geoff Lloyd, Managing Director and Chief Executive Officer Term of contract Open-ended Fixed remuneration $1,100,000 per annum, reviewable in accordance with Perpetual’s policies. STI Target STI of 100% of fixed remuneration STI amounts are determined by the Board taking into account the executive’s performance against performance criteria determined by the Board annually. The performance criteria include threshold risk measures and behaviour objectives which must be met by the executive for any STI to be awarded. Subject to the Board’s discretion, the executive may be required to apply a proportion of his STI payment to acquire deferred STI shares. LTI Eligible to receive LTI grants of 80% of fixed remuneration provided by way of performance shares, performance rights or options in such proportions determined by the Board annually in its discretion. Vesting of LTI grants is subject to performance targets determined by the Board and advised to the executive prior to the effective date of grant. Termination of The agreement contains provisions for the termination of Mr Lloyd’s employment as follows: employment (a) Termination by Mr Lloyd 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 and all unvested LTI 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 to be considered for a STI payment for that financial year; and unvested STI held as shares and unvested LTI 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 and unvested LTI 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 and unvested LTI 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 and all unvested LTI is forfeited. (f) Termination in the event of Mr Lloyd’s death – his estate is entitled to pro rata STI for that financial year; and unvested STI held as shares and unvested LTI 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.
58 Perpetual Limited and its controlled entities Termination provisions for Group Executives
Term Who Conditions Duration of contract All Group Executives Ongoing until notice is given by either party
Notice to be provided by Group Nick Langton 2 months Executive to terminate the Chris Green, Paul Chasemore 3 months employment agreement All other Group Executives 6 months Notice to be provided by Perpetual All Group Executives 3 months to terminate the employment agreement for poor performance Notice to be provided by Perpetual Chris Green, Paul Chasemore 3 months to terminate the employment Nick Langton 2 months agreement without cause All other Group Executives 6 months Termination payments and/or Payment in lieu of notice benefits to be made on termination All Group Executives Group Executives are entitled to payment in lieu without cause 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 Chris Green, Paul Chasemore 3 months Nick Langton 2 months All other Group Executives 6 months STI All Group Executives Subject to the terms and conditions of the STI plan LTI All Group Executives Subject to the terms of the offer and LTI plan Post-employment restraints All Group Executives 12 months from date notice of termination is given
Annual Report 2013 59 directors’ report Remuneration report continued
9. Remuneration of Non-executive Directors 9.1 Remuneration Policy The Company’s Remuneration Policy for Non-Executive Directors aims to ensure we can attract and retain suitably skilled, experienced and committed individuals to serve on the Board. Non-Executive Directors do not receive performance related remuneration and are not entitled to receive performance shares or options over Perpetual shares.
9.2 Fee framework Non-Executive Directors receive a base fee. Except for the Chairman, they also receive fees for participating in Board Committees (other than the Nominations Committee), either as Chairman or as a member of a Committee. Following a significant reduction in fees for the FY13 year, there will be no change to Non-Executive Director fees for FY14.
FY13 FY14 Non-executive Directors’ fees $ $
Chairman 280,000 280,000 Directors 140,000 140,000 Audit Risk and Compliance Committee Chairman 30,000 30,000 Audit Risk and Compliance Committee Member 15,000 15,000 People and Remuneration Committee Chairman 20,000 20,000 People and Remuneration Committee Member 12,000 12,000 Investment Committee Chairman 15,000 15,000 Investment Committee Member 10,000 10,000 Nominations Committee Member Nil Nil
The fees above are inclusive of superannuation contributions of 9%, capped at the maximum prescribed under Superannuation Guarantee legislation. Non-Executive Directors 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 FY13 were $1,146,951. More details are provided on page 62.
9.3 Alignment with shareholder interests The constitution requires Non-Executive Directors to acquire a minimum of 500 Perpetual shares on appointment and at least 1,000 shares when they have held office for three years. However, Non-Executive Directors are encouraged to hold ordinary Perpetual shares equivalent in value to 100% of their annual base fee within a reasonable period of their appointment. The Non-Executive Directors’ Share Purchase Plan (now closed) allowed Non-Executive Directors to sacrifice up to 50% of their Directors’ fees to acquire shares in Perpetual. Shares acquired in this way are not subject to performance targets, as they are acquired in place of cash payments. Following changes to tax rules, this plan was closed on 1 July 2009. Shares are held in the plan until the earlier of 10 years or retirement from the Board. Non-Executive Directors do not receive share options. Directors’ holdings held directly or indirectly (for example, through a superannuation fund) are shown on page 62.
9.4 Retirement Policy Non-Executive Directors who have held office for three years since their last appointment must retire and seek re-election at the Annual General Meeting. In order to revitalise the Board, Perpetual’s Non-Executive Directors agree not to seek re-election after three terms of three years. However, the Board may invite a non-executive director to continue in office beyond nine years if it is advantageous to the Company for reasons such as leadership or continuity.
60 Perpetual Limited and its controlled entities Non-executive Director fees and responsibilities*
Paul Philip Sylvia E Paul Elizabeth M Philip J Craig Peter B Scott Brasher Bullock Falzon Mcclintock1 Proust Twyman1 Ueland $ $ $ $ $ $ $ $ Board fees (per annum) Chairman 280,000 – – – – – – – Independent Director – 140,000 140,000 140,000 140,000 140,000 140,000 140,000 Committee fees (per annum) Audit Risk and Compliance Committee Chairman – 30,000 – – – – 30,000 – Member – – – 15,000 – 15,000 – 15,000 People and Remuneration Committee Chairman – – – – – 20,000 – – Member – 12,000 12,000 – 12,000 – – – Investment Committee Chairman – – – – 15,000 – – – Member – – 10,000 10,000 – – 10,000 10,000 Nomination Committee2 Member – – – – – – – – Appointed July 2005 November June November April January November September as Director 2009 2010 2012 2004 2006 2004 2012 and October 2010 as Chairman
* In addition to committee fees, Directors are entitled to minimum superannuation guarantee contributions. See page 38 for information on agreed fee reductions from 1 July 2012. 1. Paul McClintock retired from the Board effective 1 November 2012. Philip Twyman retired from the Board effective 30 November 2012. Amounts shown above are annual, see page 62 for payments in accordance with accounting standards. 2. From 1 July 2012, no fees were paid to any members for serving on the Nominations Committee.
Annual Report 2013 61 directors’ report Remuneration report continued
Remuneration of the Non-executive Directors (statutory reporting)
Total Short-term Post-employment Cash salary, fees and short-term compensated Pension and absences1 Superannuation2 FY13 FY123 FY13 FY12 FY13 FY12 Name $ $ $ $ $ $
P B Scott 280,000 484,275 263,530 468,500 16,470 15,775 E M Proust 175,001 234,275 160,551 218,500 14,450 15,775 P V Brasher 175,795 220,025 161,280 170,025 14,515 50,000 P Bullock 162,000 214,275 148,624 198,500 13,376 15,775 C Ueland 123,236 – 98,236 – 25,000 – S Falzon 99,788 – 91,549 – 8,239 – E P McClintock 56,131 228,525 51,496 212,750 4,635 15,775 P J Twyman 75,000 240,025 68,807 224,250 6,193 15,775 TOTAL 1,146,951 1,621,400 1,044,073 1,492,525 102,878 128,875
1. Cash salary is the ordinary cash salary. 2. Non-executive directors do not receive any non-cash benefits as part of their remuneration. 3. The total shown relates to non-executive directors disclosed in the Perpetual’s Remuneration Report 2013 and so does not equal the FY12 totals disclosed in Perpetual’s Remuneration Report 2012.
Non-executive Director holdings held directly or indirectly Balance at the start Balance at the end of the year, or for of the year, or for directors appointed Shares acquired directors who in the year, the via salary sacrifice Other changes retired in the year, date of appointment during the year during the year the date of retirement
Name No. of Shares
P V Brasher 1,000 – – 1,000 P Bullock 2,000 – 650 2,650 S Falzon1 – – 1,000 1,000 E P McClintock2 9,594 – 97 9,691 E Proust 4,550 – 1,069 5,619 P B Scott 2,431 – 1,067 3,498 P J Twyman3 8,107 – – 8,107 P C Ueland4 – – 1,000 1,000
1. Sylvia Falzon was appointed as a director on 20 November 2012. 2. Paul McClintock retired as a director on 1 November 2012. 3. Philip Twyman retired as a director on 30 November 2012. 4. P Craig Ueland was appointed as a director on 25 September 2012.
62 Perpetual Limited and its controlled entities Chief Executive Officer’s and Chief Financial Officer’s Declaration The Chief Executive Officer and Chief Financial Officer declared in writing to the Board, in accordance with section 295A of the Corporations Act 2001 that the financial records of the Company for the financial year have been properly maintained, the Company’s financial reports for the year ended 30 June 2013 comply with accounting standards and present a true and fair view of the Company’s financial condition and operational results. This statement is required annually.
Non-audit services In addition to its statutory duties, non-audit services paid to KPMG in the current year were $228,000 (2012: $nil) in relation to the review of the Company’s Scheme of Arrangement with Trust Company and the Transformation 2015 project. 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 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: ll 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 ll non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they do not involve reviewing or auditing the auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. The Lead Auditor’s independence declaration for the 30 June 2013 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 gEoff Lloyd Chairman Chief Executive Officer and Managing Director Sydney 29 August 2013
Annual Report 2013 63 ABCD
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Perpetual Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2013 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Andrew Yates Partner Sydney 29 August 2013
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms Liability limited by a scheme affiliated with KPMG International Cooperative approved under Professional (“KPMG International”), a Swiss entity. Standards Legislation.
64 Perpetual Limited and its controlled entities O Perating and financial review for The 12 months ended 30 june 2013
contents Overview 66 Business model 66 Financial performance 66 Segment results summary 67 Movement in key revenue drivers 68 Operating environment 69 Regulatory environment 72 Shareholder returns 73 Dividends 73 Outlook 74 Review of Businesses 75 Perpetual Investments 75 Perpetual Private 80 Corporate Trust 82 Group Support Services 84 Transformation 2015 86 Significant Items 88 Capital Management 91 Interest rate risk 91 Credit risk 91 Exact Market Cash Fund 91 Equity risk 92 Market risk 92 Operational risk 92 Financial strength 93 Cash flow 93 Summary Consolidated Balance Sheet 94 Events subsequent to balance date 95 Appendices 96 Appendix A: Segment Results 96 Appendix B: Average funds under management (FUM) 100 Appendix C: FY13 ASX Announcements 101 Appendix D: Dividend History 103 Appendix E: Bridge for FY13 Statutory Accounts and OFR 104 Glossary 106
Note in this review: ll 1H13 refers to the financial reporting period for the six months ended 31 December 2012 ll 2H13 refers to the financial reporting period for the six months ended 30 June 2013 ll FY13 refers to the financial reporting period for the 12 months ended 30 June 2013 ll with similar abbreviations for previous and subsequent periods.
Annual Report 2013 65 OPerating and financial review overview
This is a review of Perpetual’s operations for Business model FY13 underlying profit after tax (UPAT) was the 12 months ended 30 June 2013 (FY13). Perpetual is an Australian diversified $75.9 million, an increase of $10.5 million It also includes a review of its financial financial services company operating in or around 16% from $65.4 million in FY12. condition as at 30 June 2013. asset management, financial advice and The improvement in FY13 UPAT included The following information should be read trustee services. In each of these businesses, the benefits from the first year of realised in conjunction with the Group’s audited Perpetual earns the majority of revenue cost savings under the Transformation 2015 consolidated financial statements and from fees charged on assets either under program, which was announced at the end associated notes for FY13. management, advice or administration. of FY12. Revenue is influenced by movement in the All amounts shown are stated in Australian In FY13, Transformation 2015 cost underlying asset values, revenue margin management initiatives, in its first year, dollars unless otherwise noted, and are and net client flows. The business model subject to rounding. delivered program benefits of $28.2 million provides Perpetual with recurring revenue before tax, equivalent to an end of period A list of relevant ASX announcements since streams and leverage to movement in annual run-rate of $41 million before tax. the start of FY13 can be found at Appendix asset values. FY13 statutory net profit after tax (NPAT) C. Additional information is available on As a provider of high quality financial the Group’s website www.perpetual.com.au. attributable to equity holders of Perpetual services, employment expenses comprise Limited was $61.0 million, an increase of A glossary of frequently used terms and the largest component of expenses. 128%, or $34.3 million, compared to FY12. abbreviations can be found at the end of Factors which affect the performance of the review. The Board determined to pay an FY13 final these sectors include, amongst others, global fully franked dividend of 80 cents per share, and Australian economic performance, bringing total fully franked dividends in global and Australian financial markets, respect of FY13 to 130 cents per share, up consumer and investor confidence, and 40 cents per share or 44% on FY12. The government policy. FY13 final dividend is payable on 4 October 2013. Refer to the ‘Dividends’ section for Financial performance additional information. FY13 was a very positive year for global At the end of FY13: sharemarkets, with prices initially supported by attractive valuations, the continued ll total regulatory capital requirements accommodative stance of central banks and were $89.1 million an improving US economy. The Australian ll total economic capital requirements S&P/ASX All Ordinaries Price Index (All were $122 million, compared to around Ords) increased by around 15% during $230 million of liquid funds, which FY13, closing at 4,775.4 at the end of the equates to a coverage ratio of 1.89 times period, while the average All Ords in FY13 the Group’s economic capital needs was around 9% higher than the average ll total equity was $323.7 million, All Ords in FY12. This improvement compared to $280.5 million at the end in markets was reflected in the Group’s of FY12 and
financial performance. ll shares on issue were 42.0 million, unchanged from the end of FY12.
66 Perpetual Limited and its controlled entities Segment results summary
Profit before/ Operating revenue EBITDA1 after tax
FY12 FY13 FY12 FY13 FY12 FY13 For the 12 month period $m $m $m $m $m $m
Perpetual Investments 190.5 195.9 83.2 98.2 72.0 87.2 Perpetual Private 114.7 115.7 16.2 17.4 8.3 9.2 Corporate Trust 52.0 49.8 19.3 20.0 17.4 18.3 Group Support Services 7.1 8.3 (2.6) (5.0) (6.7) (7.3) Totals before tax and significant items 364.3 369.7 116.1 130.6 91.0 107.4 Income tax expense (25.6) (31.5) Underlying profit after tax (UPAT)2 before significant items 65.4 75.9 Significant items after tax: ll Operating income from discontinued operations 2.2 0.4 ll Non-recurring tax benefit – 0.4 ll Gain/(Loss) on disposal of businesses (0.2) 2.6 ll Loss on disposal/impairment of investments (5.6) (0.8) ll Restructuring costs (22.6) (10.7) ll Impairment of assets (12.5) (0.1) ll Foreign currency translation costs – (5.2) ll Costs relating to The Trust Company proposal – (1.5) Statutory net profit after tax (NPAT) attributable to equity holders of Perpetual Limited 26.7 61.0
1. EBITDA represents earnings before financing costs, taxation, depreciation, amortisation of intangible assets, equity remuneration expense, and significant items. 2. UPAT attributable to equity holders of Perpetual Limited reflects an assessment of the result for the ongoing business of the Group as determined by the Board and management. UPAT has been calculated in accordance with the AICD/Finsia principles for reporting underlying profit and ASIC’s Regulatory Guide 230 – Disclosing non- IFRS financial information. UPAT attributable to equity holders of Perpetual Limited has not been audited by the Group’s external auditor; however, the adjustments to NPAT attributable to equity holders of Perpetual Limited have been extracted from the books and records that have been audited.
Annual Report 2013 67 OPerating and financial review overview continued
The following table presents the change in underlying profit before tax by business segment for 2H13 compared to 2H12 and 1H13, and FY13 compared to FY12.
2H13 v 2H13 v 2H13 v 2H13 v FY13 v FY13 v 2H12 2H12 1H13 1H13 FY12 FY12 Change in underlying profit $m % $m % $m % before tax change change change change change change Perpetual Investments 13.1 38% 7.6 19% 15.2 21% Perpetual Private 1.4 41% 0.4 9% 0.9 11% Corporate Trust 1.0 11% 1.1 13% 0.9 5% Group Support Services 0.7 17% 0.3 8% (0.6) -9% Total continuing operations 16.2 38% 9.4 19% 16.4 18%
Appendix A details business segment results for these periods.
Movement in key revenue drivers The profitability of each business segment is heavily influenced by its key revenue drivers: ll funds under management (FUM) for Perpetual Investments ll funds under advice (FUA) for Perpetual Private, and ll 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. The following table summarises the movements in each business segment’s key revenue driver, for its continuing operations, across the period. More detailed analysis is contained within the ‘Review of Businesses’ section.
FY13 v Net FY12 FY12 flows Other1 FY13 % At end of $b $b $b $b change
Perpetual Investments FUM 22.6 (1.8) 4.5 25.3 12% Perpetual Private FUA 8.0 (0.1) 1.1 9.0 13% Corporate Trust FUA 217.0 42.4 – 259.4 20%
1. Includes reinvestments, distributions, income, and asset growth.
The largest drivers of total revenue are the value of FUM within Perpetual Investments and FUA within Perpetual Private, which are mainly influenced by the level of the Australian equity market. At the end of FY13, Perpetual Investments’ FUM and Perpetual Private’s FUA were around 80% and 55% respectively exposed to equity markets. Management calculates the expected impact on revenue, across all of its businesses, for each 1% movement in the All Ords. Based on the level of the All Ords at the end of FY13, a 1% movement in the market changes annualised revenue by approximately $1.75 million to $2.25 million. It is worth noting that this movement is not linear to the overall value of the market. This means that as the market reaches higher or lower levels, a 1% movement may have a larger or smaller effect on revenue as FUM and FUA are comprised of both equity and non-equity asset classes. Note that the above revenue sensitivity is a guide only and may vary due to a number of factors, including but not limited to: ll equity funds under the Group’s management and advice performing broadly in line with the All Ords ll the impact of FUM and FUA flows, both inflows and outflows, and their timing, and ll changes in distribution channel, product mix and pricing policy possibly affecting the level of revenue earned from the Perpetual Investments and Perpetual Private businesses.
68 Perpetual Limited and its controlled entities Operating environment In Europe, several policy decisions suggest that the economy is not at the end of FY13 was a very positive year for global culminated in markets repricing government this process. The Reserve Bank of Australia sharemarkets, with prices initially supported risk premiums and bond yields in Greece, progressively cut the target cash rate to by attractive valuations, the continued Italy, Spain and Portugal, all declining 2.75% in May 2013 as it tried to initiate a accommodative stance of central banks rapidly. This sparked strong price gains in ‘growth handover’ from mining investment and an improving US economy. Early in the all asset markets across the region. However, to non-mining spending. However, the state year, the outlook for the global economy volatility occasionally spiked in the region, of household balance sheets and the still and sharemarkets appeared precarious, with caused by the Spanish banks having to be elevated Australian dollar partially offset Europe seemingly succumbing to the weight bailed out in late 2012 and deposit holders the impact of record low interest rates on of its debt, Asia continuing to slow down and in Cyprus experiencing major losses as its the economy, and both households and the US facing increasing concerns regarding banking sector collapsed. Nevertheless, businesses remain cautious ahead of the the fiscal cliff. At this time, global central the overall situation in Europe fractionally 2013 Federal Election. banks provided unprecedented support, improved, albeit from a very low base. Although the major downside risks to starting with European Central Bank (ECB) In contrast, the growth outlook in Asia global economic growth have diminished President Mario Draghi’s ‘whatever it takes’ softened as China continued the process as a result of continued supportive central commitment and quickly followed by more of lifting the growth contribution from bank policy, the FY14 outlook remains quantitative easing programs in the UK, US consumption and reducing its dependency below trend as the world continues to work and Japan. on exports and investment growth, with its way through various debt issues and While central bank policy has been reduced liquidity in the banking sector periodic stresses. The World Bank and the instrumental in improving market sentiment impacting investor sentiment. The International Monetary Fund both lowered at a time when global earnings growth associated slowdown in Chinese growth their FY14 growth outlook, primarily has been disappointing, an additional (to around 7.5%) had flow-on effects in the reflecting a growth slowdown in Asia. supporting theme has been the improving region, with industrial production growth Despite softening global growth, the reduced US economy. Since FY12, US economic moderating in many economies. Growth risk of a Eurozone break-up and continued growth has doubled to 2.4%, with activity in Japan accelerated, however, in response central bank stimulus underpinned strong supported by continued job creation and to policy initiatives by the new Abe gains in regional sharemarkets. However, improvement in the housing market, after a Government and the Bank of Japan, which the rise in global share prices has not been seven year malaise. Improving US household rapidly improved confidence. matched by expected earnings growth for balance sheets have given consumers more Political uncertainty in 1H13 in major calendar year 2013. In contrast, earnings confidence to increase their spending even economies was occasionally evident, but expectations for this year have declined though income growth has been subdued. short-lived, with seemingly smooth power in 20 of the largest 25 markets, with only Meanwhile, US unemployment has declined transitions in China and Japan, and the Japan, the US, China, India and Hong Kong to a four-year low of 7.6%, with 2.3 million re-election of President Obama in the US. recording expected earnings improvement. jobs created in the past 12 months, the Meanwhile, there were continued political However, for the first time in many years, highest payroll increase since 2006. With stresses in Italy, Portugal, Greece and Spain. unemployment progressively declining, sharemarket gains included large rises Occasional market volatility was triggered in financial stocks as investors became households took advantage of cheap by the collapse of governments as the funding and the long-awaited recovery confident that the worst of the GFC anti-austerity movement in Europe received aftermath has passed. Overall, the Australian in the housing market began, resulting increased public support. in rising dwelling construction. sharemarket performed strongly, producing In the Australian economy, the mining the seventh highest return (+20.2%) in the However, late in the financial year, the US investment boom peaked, and growth began largest 50 markets in the world, comparing Federal Reserve began preparing markets to moderate in a measured way. In line with favourably with its historical return average for the end of its latest quantitative easing this, official interest rates declined, and the (+11.5% per annum since 1882). The positive program, which had been instrumental Australian currency depreciated by more than sentiment in global sharemarkets was also in the US and global sharemarkets’ rally. 10%, falling below parity against the US dollar evident in credit markets, where spreads Market volatility initially increased as a late in the year. Softening growth culminated narrowed relative to government bonds result. Markets settled again after the Federal in a rise in domestic unemployment to a nine- as investors sought to diversify away from Reserve provided reassurance that the year high – excluding the Global Financial lower risk, lower yielding investments. ‘tapering’ of the program would be executed Crisis (GFC) – and forward indicators in a careful and measured way.
Annual Report 2013 69
OPerating and financial review overview continued
The4,700 following chart shows the movement in the daily All Ords as well as the average levels for each half and full year of FY12 and FY13.
All Ordinaries Index
FY12 FY13
1H12 2H12 1H13 2H13
5,300
5,100
4,900
4,700
+8.9 4,500
4,300
4,100 SPOT CLOSE (@ END OF EACH DAY) ALL ORDS FY AVG ALL ORDS 3,900 1ST HALF AVG ALL ORDS 2ND HALF AVG ALL ORDS 3,700 JUN 11 AUG 11 OCT 11 DEC 11 FEB 12 APR 12 JUN 12 AUG 12 OCT 12 DEC 12 FEB 13 APR 13
The All Ords increased in value during FY13 by around 15%, closing at 4,775.4 at the end of the period, compared to 4,135.5 at the end of FY12. The average All Ords for FY13 was around 9% higher than during FY12. The average All Ords for 2H13 was around 12% higher than in 1H13.
Based on the most recent Plan for Life data (March 2013), the Australian funds management industry (excluding cash) returned to net cumulativeTo inflowsal Re ainil theand 12 Unitimonse hs tod WMarchho l2013.esa leAs Marcan kebe seent: Quar from erthe yfollowing Flows chart,(Excl thereud ngdoes appearash) to be some sign of improvement as each of the last five quarters has recorded an improvement in net flows over the prior period, with the December 2012 quarter recording its first quarter of net inflows since June 2011. Net inflows were also recorded in the subsequent March 2013 quarter. Net inflows continue to remain well below pre-GFC levels.
Total Retail and Unitised Wholesale Market: Quarterly Flow (Excluding Cash)
25,000
22,500
20,000
17,500
15,000
12,500
10,000
7,500
5,000
MILLIONS
$ 2,500
0
(2,500)
(5,000)
(7,500)
(10,000)
(12,500) MAR 01 MAR 02 MAR 03 MAR 04 MAR 05 MAR 06 MAR 07 MAR 08 MAR 09 MAR 10 MAR 11 MAR 12 MAR 13
Source: Plan for life March 2013 (note: excludes Mandate data).
70 Perpetual Limited and its controlled entities
A similar(5 000 trend) can be seen in the following chart, which focuses on Australian sharemarket retail and unitised wholesale fund flows. The asset class continues to remain in net outflow; however, net outflows have continued to decline over the last three reported periods.
Australian Sharemarket: Retail and Unitised Wholesale Fund Flows 12,500 INFLOWS OUTFLOWS NET FLOWS
10,000
7,500
5,000
2,500
0 MILLIONS $ (2,500)
(5,000)
(7,500)
(10,000)
(12,500SE)C MAR 01 MAR 02 MAR 03 MAR 04 MAR 05 MAR 06 MAR 07 MAR 08 MAR 09 MAR 10 MAR 11 MAR 12 MAR 13
Source: Plan for life March 2013 (note: excludes Mandate data).
As can be seen from the following chart, securitisation issuance in Australia has improved significantly since the GFC. In FY13, residential mortgage backed security (RMBS) issuance recovered to levels similar to that experienced in FY11, while the issuance of covered bonds declined following the debut of this asset class in FY12. Securitisation Issuance
90 ABS 250 CBMS 80 RMBS COVERED BONDS 200 70 2-YEAR WEIGHTED AVERAGE LIFE
SENIOR REVAL MARGIN (RHS) )
60 bps 150 50
40
100 ISSUANCE ($B) 30 REVALUATION MARGIN ( 20 50
10
0 0 FY07 FY08 FY09 FY10 FY11 FY12 FY13
YEAR ENDED 30 JUNE
Source: Macquarie Bank.
Annual Report 2013 71
OPerating and financial review overview continued
Regulatory environment Perpetual Private is well placed to comply risk management framework to have In FY13, the financial services industry with and capitalise on these reforms, as the an Operational Risk Framework witnessed continued legislative and tenets of transparency and acting in the Requirement (ORFR) target amount regulatory reform which affects or could client’s best interests are already a core part of at least 0.25% of funds under affect the Group’s operations. of the culture and heritage of Perpetual. management. While the Group’s high quality private The Future of Financial Stronger Super wealth advice model and product and service Advice (FoFA) The Stronger Super reforms are designed to offering position it well to transition to the The Future of Financial Advice (FoFA) improve Australia’s superannuation system new regulatory environment for financial package of legislation received Royal by removing unnecessary costs and by better advice and superannuation, these changes in Assent on 27 June 2012. It amends safeguarding the retirement savings of all legislation are placing cost and consolidation the Corporations Act and, through the Australians. pressure on small and medium-sized financial introduction of regulations and ASIC The reform package is divided into four key advisory businesses and on superannuation policy, seeks to address conflicts of interest areas and continues to evolve: funds. Both of these groups are clients of the associated with the provision of personal Perpetual Investments business. financial advice. ll MySuper – The Government has introduced a low cost default Importantly, it introduced the following key T he Tax Agent Services Act superannuation product called MySuper reforms from 1 July 2013. The existing Tax Agent Services Act from 1 July 2013, which aims to simplify legislation (TASA) provides an exemption ll There will be a blanket ban on default superannuation products conflicted remuneration between for financial planners who hold an Australian and improve their transparency and Financial Services Licence from complying product manufacturers and advisers, comparability. where financial product advice is with TASA. While this exemption is still ll SuperStream – SuperStream is a package provided to retail clients. Conflicted in place, there has been a clear intent from of measures designed to enhance the remuneration is defined as a benefit the current Federal Government to remove ‘back office’ of superannuation. When that could reasonably be expected to the exemption. This would see financial fully implemented, these measures influence the choice of products advisers planning firms, including Perpetual should improve the productivity of the recommend to their clients. Conflicted Private, required to register with the Tax superannuation system and make the remuneration includes commissions Practitioners Board (TPB). Furthermore, system easier to use. and volume-based rebates paid by planners are to comply with the TPB Code product manufacturers to advisers. ll Self managed superannuation funds of Conduct as well as other education Volume-based fees paid to platform (SMSFs) – The Government will obligations, meet ‘Competency and Fit operators are also banned under the implement a range of measures relating & Proper’ requirements and have Professional reforms. Generally, arrangements to SMSFs. Reforms in this area will Indemnity insurance arrangements in place entered into prior to 1 July 2013 will be improve their integrity and increase that cover the provision of tax advice. grandfathered and allowed to continue. community confidence in SMSFs. They will also improve the operation and Review of Licensed Trustee ll A duty was introduced for financial efficiency of the sector. Companies (CAMAC) advisers to act in the best interests of In May 2013, the Federal Government’s ll Governance – As part of the Stronger their clients, subject to a ‘reasonable Corporations and Market Advisory Committee steps’ qualification, and place the best Super reforms, APRA has released a number of prudential standards (CAMAC) published an independent interests of their clients ahead of their report detailing the operation of Charitable own when providing personal advice aimed at mandating governance and risk management practices for Trusts administered by Licensed Trustee to retail clients. There is a safe harbour, Companies (LTCs). The report makes a series which advice providers can rely on superannuation trustees. These prudential standards are akin to those of recommendations in respect of the changes to show that they have met the best to the existing regulatory setting, namely: interests duty. This is intended to be placed on other APRA-regulated industries (such as banks and insurers) ll an independent audit of a cross- the minimum standard of compliance section of charitable trusts administered with the best interests duty. and also include superannuation-specific topics. These standards seek to ensure by trustees ll Where a client agrees to an ongoing fee that superannuation trustees have ll amendments to the Corporations Act to arrangement, there is a requirement to clearly defined governance processes in include a fair and reasonable requirement send an annual fee disclosure statement place across a range of areas, including to the setting of fees and reimbursement setting out the fees paid and the the management of risk, outsourcing, of costs incurred by trustees services provided. conflicts of interest, provision of ll the provision by each trustee of an ll An opt-in obligation was introduced that insurance and investment management. annual statement to a designated requires advice providers to renew their Effective 1 July 20131, APRA requires regulator confirming that fees are fair clients’ agreement to ongoing fees every all registerable superannuation entity and reasonable two years. ASIC will have the ability to (RSE) licensees to maintain and ll the creation of new powers for the exempt advisers from the opt-in obligation manage financial resources to cover the court to review the fees associated with if it is satisfied the adviser is signed up to operational risk that relates to each RSE charitable trusts of LTCs in regard to a professional code that makes the need within its business operations. APRA being fair and reasonable, and for the opt-in provisions unnecessary. expects a soundly run RSE licensee ll enhanced dispute resolution procedures that has implemented an effective concerning charitable trusts.
1. An RSE licensee must build the financial resources to meet the ORFR target amount within three years of the effective date in a manner that ensures that the RSE licensee acts fairly in dealing with beneficiaries. 72 Perpetual Limited and its controlled entities ASIC’s new financial requirements for Custodians In June 2013, after a period of consultation with the industry, ASIC made changes to the amount of net tangible assets (NTA) required to be held by licensed custodians. Under the changes, custodians and asset holders will be required to hold NTA amounting to the greater of $10 million or 10% of average revenue. The changes come into effect from 1 July 2014 for existing custodians. The reforms are not expected to have a material impact, as the Group holds $230 million of liquid funds at the end of FY13.
Foreign Account Tax Compliance Act (FATCA) The Foreign Account Tax Compliance Act (FATCA) is United States legislation aimed at reducing US tax avoidance by requiring financial institutions to report on accounts held by US taxpayers. The Australian Government is expected to sign an intergovernmental agreement with the Internal Revenue Service (IRS) and introduce legislation requiring Australian financial institutions to comply with FATCA. These obligations are expected to commence on 1 July 2014, and Perpetual has a project underway to achieve FATCA compliance. The Group believes that it remains strongly capitalised, and the cost of responding to these changes is not expected to be material.
Shareholder returns for the period 1,2 1H12 2H12 1H13 2H13 FY12 FY13
Diluted earnings per share (EPS) on UPAT cents 80.6 76.1 86.1 99.0 156.8 185.0 Diluted EPS on NPAT cents 53.8 9.3 67.0 81.8 64.0 148.7 Annualised return on average equity (ROE) on UPAT % 21.3 22.8 24.9 26.8 20.6 26.1 Annualised ROE on NPAT % 14.2 2.8 19.4 22.1 8.4 20.9
1. Diluted 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 equity holders of Perpetual Limited for the period, divided by average equity attributable to equity holders of Perpetual Limited, multiplied by the number of such periods in a calendar year in order to arrive at an annualised ROE.
In FY13, EPS on a UPAT and NPAT basis increased by 18% and 132% respectively, reflecting the improvement in underlying profitability and a lower level of negative significant items. In FY13, ROE on a UPAT and NPAT basis increased from 20.6% to 26.1% and from 8.4% to 20.9% respectively, also in line with the improvement in underlying profitability and a lower level of negative significant items. During FY13, the number of shares on issue remained unchanged at 42.0 million. Shares to satisfy the DRP in relation to the FY12 final dividend and the FY13 interim dividend were acquired on market, hence there were no new shares issued. Shareholders’ equity increased by $46.1 million, or around 17%, from $268.2 million at the end of FY12 to $314.3 million at the end of FY13, principally due to: ll a $30.0 million increase in retained earnings, underpinned by: –– FY13 NPAT of $61.0 million –– a $6.8 million transfer from reserves to retained earnings in respect of forfeited market linked employee share plan shares and dividends paid on employee share plan shares offset by –– $37.8 million of dividend payments in FY13, and ll a $12.9 million increase in relation to reserves.
Dividends For the period 1H12 2H12 1H13 2H13 FY12 FY13
Fully franked dividends paid/payable $m 21.0 16.8 21.0 33.6 37.8 54.6 Fully franked dividend per ordinary share cents 50.0 40.0 50.0 80.0 90.0 130.0 Dividend payout ratio1 % 92.9 430.1 74.6 97.8 140.6 87.4 Proportion of NPAT paid/payable as dividend % 91.6 441.9 76.9 99.7 141.4 89.52
1. Dividend payout ratio is calculated using dividend(s) resolved to be paid for the relevant period divided by the diluted earnings per share. 2. Based on ordinary fully paid capital at end of FY13.
A FY13 final fully franked dividend of 80 cents per share will be payable on 4 October 2013 (ex-dividend date of 6 September 2013 and record date of 12 September 2013). This represents an increase of 100% when compared to the FY12 final dividend of 40 cents per share fully franked.
Annual Report 2013 73 OPerating and financial review overview continued
This brings total fully franked dividends Outlook Notwithstanding the legislative changes for FY13 to 130 cents per share, compared Perpetual expects to continue to grow in underway, Perpetual operates in a to total dividends of 90 cents per share financial year 2014 and beyond as the Group privileged industry. Australia’s compulsory fully franked in FY12 and equates to a FY13 pursues its strategic objective to become superannuation system mandates growth in dividend payout ratio of around 90% based the largest independent wealth manager of retirement savings, and so the fundamentals on FY13 statutory NPAT. A dividend history choice. The Transformation 2015 program for Perpetual are strong in the medium and can be found at Appendix D. has delivered significant benefits in cost long term. At the same time, the Group is Perpetual’s dividend policy is to pay savings, management focus and growth intensely proud of the contribution made dividends within a range of 80 – 100% initiatives, and will deliver more in this to Australians’ retirement savings through of NPAT on an annualised basis, with a coming year. its record in growing and protecting the goal to maximise fully franked dividends In reducing the ongoing cost base for the wealth of clients. The Group believes that to shareholders. The dividend policy is business, shareholders should be better its investment record, specialist advice and designed to be sustainable over the long placed to benefit from any improvements fiduciary heritage mean that it will continue term while providing the Group with an in market conditions and better insulated to increase share within this growing market. appropriate degree of financial flexibility. from market shocks that may occur. As Given the Group’s revenue sensitivity to The DRP will be operational for the FY13 discussed in the section entitled ‘Market Australian equity markets, this outlook is final dividend. It is the Company’s intention Risk’, exposure to Australian equity markets subject to significant variability. But the that shares to satisfy the DRP will be is a key risk to Perpetual, but also the key Group is confident that a lean, focused acquired on market and transferred to DRP source of earnings leverage. While the Perpetual is well placed to benefit from participants. DRP shares will be allocated Group does not forecast market movements, long‑term market growth, improving to participants at the Average Market Price the Group expects improved flows in FY14, investor sentiment and growing as defined in the DRP terms2. There will and shareholders should expect to enjoy the retirement savings. be no discount applicable to the Average benefits of the leaner cost base in the form Market Price. of improved profitability. The Pricing Period for the FY13 final Simplification of Perpetual’s business dividend DRP will be the ten Trading Days portfolio and structure allows management commencing 13 September 2013 and ending greater focus to respond to the changing 26 September 2013. strategic environment and client needs. The intersection of legislative, demographic The Group’s franking credit balance as at and technological changes means that the the end of FY13, prior to the payment of environment in which the Group operates the FY13 final dividend, was $36.3 million is evolving rapidly and the Group is tracking (equivalent to around 87 cents per these developments closely. Clients are share), which will enable it to fully frank seeking to do business in new ways, and the $84.6 million of cash dividends or around Group’s services to clients will continue to 202 cents per share. After payment of evolve in response to their needs. the final dividend for FY13, the franking balance is capable of fully franking a further A better understanding of client needs $51.1 million of cash dividends, or around is central to the Group’s organic growth 122 cents per share. initiatives, particularly its focus on reinvigorating marketing and distribution The ability to distribute the franking account across all three business segments. This balance is effectively constrained by the level focus has delivered early results, and the of retained earnings in the parent company. Group anticipates further success in FY14 As at 30 June 2013: and beyond. At the same time, the Group ll Perpetual Limited, the Group’s parent is pursuing disciplined inorganic growth entity, had retained earnings of opportunities, such as the proposed $36.6 million (equivalent to around acquisition of The Trust Company 87 cents per share), and Limited, using the Group’s strong balance ll the Group had $31.5 million of retained sheet to create sustainable growth and earnings in subsidiaries that were shareholder value. available to pay dividends to the parent entity.
2. The Group’s DRP Rules can be found at http://shareholders.perpetual.com.au/phoenix.zhtml?c=171717&p=irol-drip
74 Perpetual Limited and its controlled entities Review of Businesses Perpetual Investments Perpetual Investments is one of Australia’s most highly regarded investment fund managers, offering a broad range of products for personal investment, superannuation and retirement. The business offers clients strong investment capabilities across a range of asset classes, including Australian and international equities, fixed income and multi-sector strategies. In addition to in-house and sub-advised investment manufacturing, Perpetual Investments also offers the WealthFocus platform, which provides clients with a range of funds managed by both Perpetual and other fund managers under one account. Perpetual Investments services a diverse range of client types, from large institutional investors through to smaller retail investors. As part of the Transformation 2015 strategy, a single Group Executive is now responsible for Perpetual Investments’ end-to-end business, comprising investment management, product, distribution and operations. Mr Michael Gordon joined the Group on 29 January 2013 as Group Executive for Perpetual Investments. Mr Gordon has more than 30 years of experience in the financial services industry.
Financial summary Perpetual Investments profit before tax for FY13 was $87.2 million, $15.2 million or 21% higher than in FY12. A rebound in equity markets and a continued focus on expenses has enabled the business to improve its profit margin on revenues3 from 38% in the prior year to 45% in FY13.
1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Revenue 99.1 91.4 93.6 102.3 190.5 195.9 Operating expenses (55.2) (52.1) (48.4) (49.3) (107.3) (97.7) EBITDA 43.9 39.3 45.2 53.0 83.2 98.2 Depreciation and amortisation (2.0) (2.3) (1.0) (0.8) (4.3) (1.8) Equity remuneration expense (4.2) (2.7) (4.4) (4.8) (6.9) (9.2) Profit before tax 37.7 34.3 39.8 47.4 72.0 87.2 Average FUM revenue margin (revenues/average FUM) 79 bps 76 bps 77 bps 77 bps 78 bps 77 bps Average FUM $24.3b $23.5b $23.7b $26.2b $23.9b $24.9b
Revenue FY13 revenue of $195.9 million represented an increase of $5.4 million or 3% on the prior year. This increase in revenue was principally the result of the rebound in equity markets that occurred during FY13, offset by the impact of net outflows of $1.8 billion. These outflows were significantly lower than the $4.1 billion of net outflows experienced in FY12. The average FUM revenue margin in FY13 was 77 bps, 1 bp lower than in the prior year. Movements in average margins are mainly brought about by changes in the mix of FUM between lower margin institutional and higher margin retail investors, as well as changes in the mix of asset classes such as cash (generally lower margin) and equities (generally higher margin) and the contribution from performance related fees. The following table provides an analysis of Perpetual Investments’ revenue by asset class:
1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m By asset class: 77.6 72.7 73.1 82.7 150.3 155.8 ll Equities 14.9 13.1 14.1 13.6 28.0 27.7 ll Cash and fixed income ll Other FUM related 3.7 3.5 4.3 4.2 7.2 8.5 ll Other non-FUM related 2.9 2.1 2.1 1.8 5.0 3.9 Revenues 99.1 91.4 93.6 102.3 190.5 195.9
3. Calculated as profit before tax divided by revenue.
Annual Report 2013 75 OPerating and financial review R eview of Businesses continued
In FY13, the business earned $8.7 million Protected Investments (PPI) structured ll a $2.5 million decrease in custody in performance related fees, compared to products (which have been in run-off since fees following the renegotiation of the $5.7 million in FY12. The main source of 2009). In FY13, Other FUM related revenue contract with the service provider performance related fees has been the Exact of $8.5 million represented an increase of ll a $1.5 million decrease in general and Market Cash Fund product, which earned $1.3 million or 18% on FY12, mainly as a administrative expenses as a result of the $5.7 million and $7.6 million in FY12 and result of higher average FUM. closure of Dublin, the sale of smartsuper, FY13 respectively. Other non-FUM related revenue mainly as well as increased discipline around Equities revenues represent fees earned includes the net interest margin derived discretionary expenditure, offset by on Australian and Global equities products. from the structured products loan book ll a $5.9 million increase in variable This revenue was $155.8 million in FY13, an and interest earned on operational bank remuneration in line with the improved increase of 4% on FY12. The average revenue accounts across the business. In FY13, financial performance of the Group margin in FY13 was 82 bps, 3 bps lower than revenue was $3.9 million, $1.1 million less and the improvement in certain in FY12, predominantly due to net outflows than in FY12, reflecting the impact of a lower business measures, as well as sign-on experienced for the mature Industrial Share interest rate environment on operational payments, and
Fund product in the higher margin retail bank account interest earned, the continued ll a $0.9 million IT expense following and intermediary channels and the full run-off in the structured products loan book, the transition to an IT outsourcing year impact of a smart beta equity strategy, and lower mortgage lending fees. arrangement in early 2H13. which earns relatively lower fees than other Depreciation and amortisation expense equity strategies. T otal Expenses in FY13 was $1.8 million, a decrease of In FY13, total expenses were $108.7 million, Cash and fixed income revenues are $2.5 million from $4.3 million in FY12, $9.8 million lower than in FY12. derived from fixed income, cash and primarily due to the reduction in the mortgage products. FY13 revenue of Transformation 2015 cost management carrying value of the underlying IT assets in $27.7 million was $0.3 million lower than initiatives reduced FY13 total expenses 2H12 as a result of Transformation 2015. in FY12. Lower revenues were derived from by $7.6 million. Equity remuneration expense in FY13 was the retail and intermediary mortgage fund Operating expenses in FY13 of $97.7 million products, which are closed and in run-off. $9.2 million, an increase of $2.3 million from were $9.6 million lower than in FY12, $6.9 million in FY12, principally due to FY12 In FY13, investors received $0.4 billion in predominantly due to: returns of their capital from mortgage fund being impacted by the forfeiture of equity ll a $6.6 million decrease in Group products compared to $0.3 billion in FY12. share awards by departing executives as well shared services costs as a result of the The average revenue margin in FY13 was as specific business hurdles not being met. implementation of a leaner and more 59 bps compared to 54 bps in FY12. This efficient operating model, coupled improvement in margin was underpinned Funds under management with a decrease in shared service by a combination of a $1.9 million increase At the end of FY13, FUM was $25.3 billion, allocations based on resources utilised in revenue from the EMCF product suite, net an increase of 12% from the end of FY12, and the transition to an IT outsourcing inflows into the higher margin Diversified underpinned by a rebound in equity arrangement in early 2H13 Income Fund and net outflows from lower markets, offset by net outflows of $1.8 billion. margin cash mandates. ll a $5.8 million net decrease in fixed Net outflows were substantially lower than employment expense principally related the $4.1 billion experienced in the same Other FUM related revenue includes to the closure of Dublin, the sale of period last year. management fees for opportunity funds, smartsuper and the transition to the new On an average basis, FY13 FUM was sub-advisory mandates, external funds retail distribution model on the WealthFocus platform and $24.9 billion or 4% higher than in the prior administration fees on the Perpetual corresponding period.
76 Perpetual Limited and its controlled entities The table below details the closing FUM for the last two financial years.
Net FY12 flows Other1 FY13 At end of $b $b $b $b
Institutional 6.7 (0.2) 1.3 7.8 Intermediary (master fund and wrap) 10.9 (0.9) 2.3 12.3 Retail 5.0 (0.7) 0.9 5.2 All channels 22.6 (1.8) 4.5 25.3 Australian equities 15.5 (0.7) 3.9 18.7 Global equities 0.9 – 0.2 1.1 Equities 16.4 (0.7) 4.1 19.8 Cash and fixed income 4.8 (1.0) 0.4 4.2 Other 1.4 (0.1) – 1.3 All asset classes 22.6 (1.8) 4.5 25.3
1. Includes changes in asset value, income, reinvestments, distributions, and asset class rebalancing within the Group’s diversified funds.
Net flows Net flows for products by distribution channel and asset class for the last four reporting periods are detailed in the following table.
1H12 2H12 1H13 2H13 FY12 FY13 For the period $b $b $b $b $b $b
Institutional (1.7) (0.3) (0.4) 0.2 (2.0) (0.2) Intermediary (master fund and wrap) (0.8) (0.5) (0.4) (0.5) (1.3) (0.9) Retail (0.5) (0.3) (0.4) (0.3) (0.8) (0.7) All distribution channels (3.0) (1.1) (1.2) (0.6) (4.1) (1.8) Australian equities (2.0) (0.7) (0.8) 0.1 (2.7) (0.7) Global equities (0.1) – – – (0.1) – Equities (2.1) (0.7) (0.8) 0.1 (2.8) (0.7) Cash and fixed income (0.8) (0.4) (0.4) (0.6) (1.2) (1.0) Other (0.1) – – (0.1) (0.1) (0.1) All asset classes (3.0) (1.1) (1.2) (0.6) (4.1) (1.8)
As can be seen from the above table, net flows improved significantly over FY13. In 2H13, Australian equities returned to net inflows for the first time since 2H06. In FY13, there were $0.4 billion in capital returned to investors in the closed mortgage funds compared to $0.3 billion in FY12, and a $0.5 billion outflow from the cash asset class due to the transition to the new Perpetual Private wrap service. Adjusting the above table for these non-client initiated flows produces the following adjusted net flow profile for the last two years:
1H12 2H12 1H13 2H13 FY12 FY13 For the period $b $b $b $b $b $b
Institutional (1.7) (0.3) (0.4) 0.2 (2.0) (0.2) Intermediary (master fund and wrap) (0.8) (0.3) (0.3) 0.1 (1.1) (0.2) Retail (0.5) (0.2) (0.3) (0.2) (0.7) (0.5) All distribution channels (3.0) (0.8) (1.0) 0.1 (3.8) (0.9) Australian equities (2.0) (0.7) (0.8) 0.1 (2.7) (0.7) Global equities (0.1) – – – (0.1) – Equities (2.1) (0.7) (0.8) 0.1 (2.8) (0.7) Cash and fixed income (0.8) (0.1) (0.2) 0.1 (0.9) (0.1) Other (0.1) – – (0.1) (0.1) (0.1) All asset classes (3.0) (0.8) (1.0) 0.1 (3.8) (0.9) As can be seen from the above table, FUM net flows, excluding non-client initiated transactions, returned to net inflow in 2H13, for the first time since 2H09.
Annual Report 2013 77
OPerating and financial review Review of Businesses continued
Flows Analysis by Distribution Channel The following chart presents gross flows4 by distribution channel for the last three years.
Applications, Redemptions and Return of Capital
2.0
1.3 1.2 1.1 1.0 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.6 0.6 INFLOWS
0 BILLIONS $ (-1.0) (1.0) (1.1) (1.2) (1.4) (1.4) (1.4) (1.4) (1.5) (1.6) (1.7) (1.7)
OUTFLOWS (-2.0) INTERMEDIARY MORTGAGES RETURN OF CAPITAL RETAIL WRAP PLATFORM CASH TRANSITION INSTITUTIONAL NET FLOWS (2.8) (-3.0) SEP QTR DEC QTR MAR QTR JUN QTR SEP QTR DEC QTR MAR QTR JUN QTR SEP QTR DEC QTR MAR QTR JUN QTR 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013
Institutional – includes industry superannuation funds and clients who invest large sums. The business earns its lowest revenue margin from this channel. However, institutional FUM does not require complex technology and service structures, such as call centres and dedicated sales and distribution support, so the servicing cost is lower. During FY13, a number of investment strategies received either initial or upgraded ratings from asset consultants whose clients are predominantly institutional investors. During FY13, this channel experienced net outflows of $0.2 billion, a substantial improvement when compared to the $2.0 billion of net outflows experienced in FY12. In FY13, the equities asset class had neutral flows, compared to $1.3 billion of net outflows in FY12. Equities experienced net inflows into both the Concentrated Equity and Sustainable Shares strategies, offset by net outflows from the Australian Shares strategy. This compares favourably to FY12, when both the Concentrated Equity and the Sustainable Shares strategies collectively experienced net outflows of $0.9 billion. In FY13, the cash and fixed income asset class had net outflows of $0.2 billion, compared to $0.7 billion of net outflows in FY12. These outflows were predominantly from the Exact Market Cash Fund product, which occurred in late 2H13. Intermediary – this channel includes FUM from financial advisers who invest with Perpetual via external platform providers. This is the business’ largest source of FUM. In FY13, the Group’s renewed focus on distribution resulted in the following achievements with strategic partners: ll eight additions onto discretionary platforms ll eight additions to financial adviser Approved Product Lists (APLs) ll five additions to model portfolios ll four product upgrades from research houses, and ll 11 new investment grade (or its equivalent) or above fund ratings. As can be seen from the previous chart, the refocused distribution approach has started to have a positive impact on flows in the intermediary channel, which has now shown an increase in gross inflows for the third consecutive quarter since September 2012.
4. Institutional inflows and outflows into Cash, Enhanced Cash and Exact Market Cash Funds have been netted during the quarter so that only the net increase or decrease from this asset class is included.
78 Perpetual Limited and its controlled entities In FY13, the intermediary channel experienced net outflows of $0.9 billion, a significant improvement on the $1.3 billion of net outflows experienced in FY12. Adjusting for the non-client initiated flows, referred to above, the year-on-year improvement would have been even more substantial, with FY13 net outflows of $0.2 billion compared to FY12 net outflows of $1.1 billion. In FY13, the equities asset class had $0.5 billion of net outflows, compared to $1.0 billion in FY12, predominantly due to net outflows from the mature Industrial Share Fund in both periods. In FY13 the Concentrated Equity, Ethical, Pure Value and SHARE-PLUS strategies all experienced net inflows of around $0.3 billion collectively. In FY13, the cash and fixed income asset class experienced $0.5 billion of net outflows compared to net outflows of $0.2 billion in FY12. The channel benefited from $0.2 billion of net inflows into the Credit Income and the Diversified Income strategies. This increase was offset by net outflows of $0.2 billion of capital returned to investors in closed mortgage funds, and the $0.5 billion transfer from a cash strategy as a result of the transition to the new Perpetual Private wrap service in 2H13. The transfer to the wrap service is revenue neutral from a Group perspective, as the revenue forgone in Perpetual Investments is now recognised in Perpetual Private. Retail – this channel sources FUM from advisers and individual clients who invest with Perpetual directly. This FUM earns the highest average gross margin. However, it requires an increased level of support infrastructure, which makes the cost to service this channel the highest. Net outflows from this channel in FY13 were $0.7 billion, a $0.1 billion improvement on net outflows of $0.8 billion in FY12. In FY13, the equities asset class experienced $0.2 billion of net outflows, compared to $0.4 billion in FY12, driven predominantly by net outflows from the Industrial Share Fund in both periods. The cash and fixed income asset class had $0.3 billion of net outflows, unchanged from the prior period. In FY13, this comprised a $0.2 billion return of capital to investors in closed mortgage funds and $0.1 billion from cash products, with a similar pattern exhibited in the prior year. In FY13, there was $0.2 billion of outflows from the Other asset class, compared to $0.1 billion in FY12.
Investment performance Almost all of Perpetual Investments’ funds have generated returns greater than that of the market over the medium to longer-term horizons. The consistency of excess returns against benchmark provides a better outcome for investors and demonstrates the value of Perpetual’s disciplined investment process, combined with the experience and expertise of Perpetual’s investment managers. The following table5 outlines the consistent outperformance against the relevant benchmark for the main funds across nearly all of the periods.
Excess/(under) investment performance p.a. – gross as at end June 2013
Smaller Perpetual Australian Industrial Companies Concentrated Share Ethical Diversified Active Fixed Period Share Fund Share Fund Fund Equity Fund Plus Fund SRI Fund Income Fund Interest Fund
1 year 6.0% (0.4%) 25.5% 8.9% 16.7% 15.6% 5.2% 2.7% 3 years 4.2% 0.1% 14.7% 5.2% 9.6% 9.7% 3.5% 1.9% 5 years 4.2% 1.8% 11.7% 5.6% 7.0% 12.5% 2.0% 1.5% 7 years 3.1% 2.0% 9.6% 4.5% 5.7% 7.4% 0.6% 0.9% 10 years 3.1% 1.7% 6.3% 3.4% 4.5% 5.5% N/A N/A
Perpetual Investments’ investment management performance continues to be recognised by industry peers and various research houses. Most of the Group’s core funds are represented in the first or second quartile of performance rankings6 over the last five years. Fund ratings outcomes during the year were strong. Around 75% of reviews resulted in ratings being maintained and around 15% resulted in upgrades. Eleven new ratings were assigned during the period, with seven achieving a rating of recommended, or its equivalent, or above. Strong ratings are an important factor in supporting distribution through the intermediary and retail channels. A number of strategies also received either initial or upgraded ratings from asset consultants whose clients are predominantly institutional investors. The business also received a number of industry awards during the year, including: ll winner of the Morningstar Fund Manager of the Year for 2013 7 ll winner of the AFR’s Smart Investor Funds Manager of the Year for 2013 ll winner of the Morningstar Emerging Manager Australia and Multi-Sector Australia category for the Share-Plus Long-Short Fund for 2013, and ll winner of the Money Management/Lonsec Responsible Investments Award for the Ethical SRI Fund.
5. The table provides no allowance for management expenses, redemption fees, or taxation. 6. Mercer wholesale surveys – quartile rankings – June 2013. 7. This award was announced in August 2013.
Annual Report 2013 79 OPerating and financial review R eview of Businesses continued
Perpetual Private Perpetual Private provides holistic financial solutions for high net worth individuals in the target segments of business owners, established wealthy and professionals. It aims to be the leading provider of wealth advice for financially successful individuals, families, businesses and not-for-profit organisations. Perpetual Private manages financial assets for private clients, estates, trusts and charitable trusts, with funds under advice (FUA) of $9.0 billion at the end of FY13, up 13% from $8.0 billion at the end of FY12. Perpetual is one of Australia’s largest managers of philanthropic funds, including as trustee for over 550 charitable trusts and endowment funds, with over $1.3 billion in funds under management at the end of FY13. In late 1H13, Mr Mark Smith joined the Group as Group Executive for Perpetual Private. Mr Smith has over 20 years of experience in the financial services industry. Key accomplishments for FY13 included: ll an improvement in net flows by $0.3 billion ll a full year’s contribution from the new Super Wrap product which was launched in April 2012 with FY13 sales of around $0.2 billion ll the launch in April 2013 of the new enhanced portfolio wrap service ll the implementation of management initiatives, as part of Transformation 2015, that are designed to improve both the customer experience and productivity, such as: –– transitioning from a separate sales and service model to an integrated model where senior advisers are responsible for both developing new business and servicing existing clients, and –– transitioning a number of clients with less complex advice needs into the Perpetual Plus advice team, where the business can continue to service these clients to the same standard with less advisers, and ll Perpetual Private was awarded the 2013 Institutional Dealer Group of the Year by Money Management.
Financial summary FY13 has continued to be a further year of investment for Perpetual Private with a focus on scale, structure and efficiency for future growth. FY13 profit before tax was $9.2 million, an increase of $0.9 million or around 11% on FY12.
1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Market related revenue 33.7 33.9 34.5 36.7 67.6 71.2 Non-market related revenue 23.1 24.0 22.0 22.5 47.1 44.5 Total revenues 56.8 57.9 56.5 59.2 114.7 115.7 Operating expenses (48.4) (50.1) (48.4) (49.9) (98.5) (98.3) EBITDA 8.4 7.8 8.1 9.3 16.2 17.4 Depreciation and amortisation (3.1) (3.2) (2.6) (3.3) (6.3) (5.9) Equity remuneration expense (0.4) (1.2) (1.1) (1.2) (1.6) (2.3) Profit before tax 4.9 3.4 4.4 4.8 8.3 9.2 Closing funds under advice (FUA) $8.1b $8.0b $8.8b $9.0b $8.0b $9.0b Average funds under advice (FUA) $8.2b $8.2b $8.5b $9.1b $8.2b $8.8b Market related revenue margin 82 bps 83 bps 81 bps 81 bps 82 bps 81 bps
Note: During 1H13, a review of the business segment’s classification of revenue accounts was undertaken. This review identified that certain revenue accounts previously classified as market related revenue should be classified as non-market related revenue. These revenue accounts have now been reclassified for 1H13 and 2H13. 1H12 and 2H12 revenues have been re-presented using the same classification methodology adopted in FY13 to provide comparability. This reclassification has no impact on the total revenue for Perpetual Private, or any other business segment.
80 Perpetual Limited and its controlled entities Revenues allocations based on resources utilised By partnering with an external administration FY13 revenues of $115.7 million represented and the transition to an IT outsourcing provider, the business will be able to focus an increase of $1.0 million on FY12. While arrangement in early 2H13 on the provision of advice to its target client market related revenue increased, this was offset by segments rather than incur prohibitive offset by a decline in non-market revenue. ll a $2.6 million increase in variable maintenance and development spend on its The main revenue driver for Perpetual remuneration underpinned by the existing in-house platform administration Private is FUA, with market related revenue improved financial performance of the service (PACT). contributing approximately 62% of total Group and an improvement in certain In FY13, the business incurred $5.7 million revenues in FY13 compared to 59% in business measures, as well as sign-on of operating expenses in relation to the FY12. In FY13, market related revenue was payments new wrap service, compared to $5.3 million $71.2 million, an increase of $3.6 million ll a $1.9 million IT expense following in FY12. Based on the level of FUA on the or 5% on FY12. This increase in revenue the transition to an IT outsourcing wrap platform at the end of FY13, operating was broadly in line with the increase in arrangement in early 2H13 expenses for client administration in average FUA experienced during the year, ll a $0.8 million increase in the costs FY14 are expected to increase by around underpinned by the rebound in equity associated with the new portfolio wrap $2 million when the operating expense markets that occurred over the period. service (Project ICE), and savings associated with the retirement of the
The FY13 market related revenue margin ll a $0.4 million increase in various PACT system are included. As previously of 81 basis points was broadly unchanged other expenses. mentioned, depreciation and amortisation from the prior year. will also increase in FY14 in line with The FY13 depreciation and amortisation FY13 non-market revenue of $44.5 million the first full year’s utilisation of the new expense of $5.9 million was $0.4 million enhanced service. represented a decline of $2.6 million or less than incurred in FY12. The business 6% on FY12. While insurance sales revenue received a $1.0 million lower expense due increased around $0.3 million in FY13, the Funds under advice to the reduction in the carrying value of the Perpetual Private’s FUA at the end of FY13 following business lines experienced a underlying IT assets in 2H12 as a result of decline in revenue: was $9.0 billion, an increase of $1.0 billion Transformation 2015. This reduction was offset or 13% from the end of FY12. Average FY13 ll property related placement fees, by by a $0.6 million expense as a result of the FUA was $8.8 billion or 7% higher than $0.8 million, due to fewer market commissioning of the new wrap service in the in FY12. This increase in average FUA opportunities last quarter of FY13. The business has invested was principally as a result of improved ll business advisory services, by a total of $15 million in capital expenditure in investment markets and a significantly $0.7 million, due to lower demand for relation to Project ICE. lower level of net outflows than experienced discretionary business services The FY13 equity remuneration expense in the prior year. ll administration fees, by $0.6 million, of $2.3 million represented an increase In FY13, there were $0.1 billion of net due to the departure of an external of $0.7 million on FY12. In FY12, equity dealer group outflows, compared to $0.4 billion in the prior remuneration was lower due to the write-back corresponding period. This improvement in ll estate administration fees by of previously amortised long-term incentives net flows was due to a 38% improvement in $0.3 million, and (LTIs) as a result of performance measures not gross inflows to $0.7 billion and a 19% fall ll other business lines, by $0.5 million being met. in gross outflows to $0.8 billion. due to lower client activity. Perpetual Private portfolio In April 2012, the business launched the Perpetual Private Super Wrap. The product Expenses wrap service (Project ICE) is designed for clients who are ideally Total expenses in FY13 were $106.5 million, In April 2013, the business completed the seeking an alternative to a self managed broadly unchanged from $106.4 million in roll-out of the new enhanced portfolio wrap superannuation fund, where they don’t want FY12. Transformation 2015 savings were service. The completion of the two-year the responsibility or risk of being a trustee, $7.8 million. project, known as Project ICE (Improving the Client Experience), fundamentally but still want flexibility and control over their Operating expenses in FY13 were modernises the business’ service offering. investments. In FY13, gross inflows were $98.3 million, $0.2 million lower than The market-leading platform can administer around $0.2 billion, of which around 40% incurred in FY12. master fund, wrap and fiduciary activity, was new client inflow. Key variances between FY13 and FY12 were: and caters for a diverse range of assets, At the end of FY13, around 55% of Perpetual ll a $5.3 million net decrease in fixed essential prerequisites for high net worth Private’s FUA was invested in equities. and fiduciary clients. It has been designed remuneration expense as a result of The table on the following page details the to support the current and foreseeable future Transformation 2015 initiatives to closing FUA for the last two financial years. improve business productivity needs of the business. The Perpetual Private ll a $0.6 million decrease in Group portfolio wrap service will significantly shared services costs in response to the improve the client experience by offering implementation of a leaner and more sophisticated web-based reporting and efficient operating model, coupled self-service capabilities. with a decrease in shared service
Annual Report 2013 81 OPerating and financial review R eview of Businesses continued
Net FY12 flows Other1 FY13 At end of $b $b $b $b Financial advisory: ll superannuation 3.3 (0.1) 0.6 3.8 ll non-superannuation 1.9 – 0.2 2.1 5.2 (0.1) 0.8 5.9 Fiduciary services: ll philanthropic 1.1 – 0.1 1.2 ll trusts and estates 1.7 – 0.2 1.9 2.8 – 0.3 3.1 Total funds under advice (FUA) 8.0 (0.1) 1.1 9.0
1. Includes reinvestments, distributions, income, and asset growth.
At the end of FY13: ll around 50% of FUA was held in direct investments and ll around 50% of FUA was held in managed investments, of which –– around 40% was managed by Perpetual Investments, and –– around 60% was managed by other managers.
Native title Throughout Australia, mining companies and Aboriginal communities have been negotiating royalty payments in return for access to registered native title lands for some years. A recent trend is for these funds to be managed by a professional trustee company via an appropriate trust structure. Perpetual Private recognised this opportunity in FY12, establishing a dedicated Native Title Trusts team that leverages the Group’s long-term experience, breadth of knowledge, fiduciary background and investment management capability. Initial response to Perpetual’s services has been positive, with five trust appointments totalling around $55 million. Perpetual Private is well placed to accelerate its growth and profitability provided market volatility remains subdued and a turnaround in investor sentiment continues.
Corporate Trust Corporate Trust is a leading provider of corporate trustee services. Products and services include trustee services for covered bonds, mortgage backed and other securitisation programs for major banks and non-bank organisations; regulatory compliance services (responsible entity) for fund managers; custody, accounting services for property, private equity and mortgage funds; and trusteeships for corporate debt issues, infrastructure projects and other structures. During FY13, the business executed on the Transformation 2015 strategy to simplify, refocus and grow by concentrating on its core expertise of corporate fiduciary services, comprising: ll Fund Services – provision of outsourced responsible entity, trustee and custody services to the managed funds industry ll Trust Services – provision of trustee, custody and standby servicing to the debt capital and securitisation markets ll Trust Management – provision of specialised trust management and accounting services to the debt capital markets, and ll Data Services – provision of data warehouse and investor reporting to the Australian securitisation market. In order to align with this renewed focus, the business has divested its three business process outsourcing administration businesses, which no longer aligned with its strategic core fiduciary purpose. The divested businesses comprised of a third party registry business (sold in FY12); the Perpetual Lenders Mortgage Services business – which was already classified as a discontinued business in FY12 and sold in FY13; and a loan servicing business, sold in FY13.
82 Perpetual Limited and its controlled entities Financial summary Corporate Trust’s FY13 profit before tax was $18.3 million, which was $0.9 million or 5% higher than in FY12. The business generated a profit margin on revenue of 37% in FY13, which represented a 400 basis point improvement on FY12. This improvement in profit was the result of: ll Transformation 2015 savings, and ll cost benefits associated with the divestment of non-core loan servicing and registry businesses.
1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Fiduciary services revenues 24.6 24.7 24.6 24.6 49.3 49.2 Investment in associates (MARQ) – – (0.3) (0.4) – (0.7) Sold businesses: Loan servicing and registry revenues 1.5 1.2 1.0 0.3 2.7 1.3 Total revenues 26.1 25.9 25.3 24.5 52.0 49.8 Operating expenses (16.6) (16.1) (15.8) (14.0) (32.7) (29.8) EBITDA 9.5 9.8 9.5 10.5 19.3 20.0 Depreciation and amortisation (1.0) (0.9) (0.7) (0.6) (1.9) (1.3) Equity remuneration amortisation 0.2 (0.2) (0.2) (0.2) - (0.4) Profit before tax 8.7 8.7 8.6 9.7 17.4 18.3
Revenue Corporate Trust’s FY13 revenues of $49.8 million represented a decrease of $2.2 million or 4% on FY12. Revenue from core fiduciary services was in line with the prior year. The decline in revenue was principally due to the revenue forgone associated with the divested administration businesses that were sold to enable the business to focus on its core expertise of corporate fiduciary services. The primary revenue driver of Corporate Trust is the public RMBS securitisation market, which continued to be in net outflow in FY13. This reduction was offset by net growth in asset backed securities (ABS), and the relatively lower revenue margin asset classes of covered bonds and non-marketed self-securitised RMBS. In August 2012, the Group entered into a joint venture agreement with Oliver Wyman and Morgij Analytics to launch MARQ Services, a platform that provides standardised data and reporting analytics for the RMBS and covered bond markets. In its first year of operations, the business has acquired four clients. In FY13, the Group’s share of loss from its 45% investment in MARQ Services was $0.7 million.
Expenses Total expenses in FY13 were $31.5 million, a decrease of $3.1 million on FY12. Transformation 2015 savings were $1.7 million. Operating expenses of $29.8 million in FY13 were $2.9 million lower than in FY12. Key variances between FY13 and FY12 were: ll a $2.5 million net decrease in fixed remuneration expense as a result of Transformation 2015 initiatives, including the reduction in Full Time Equivalents (FTEs) following the sale of non-core businesses ll a $1.7 million decrease in Group shared services costs as a result of the implementation of a leaner and more efficient operating model, coupled with a decrease in shared service allocations based on resources utilised and the transition to an IT outsourcing arrangement in early 2H13, and ll a $0.3 million decrease in other expenses offset by ll a $0.8 million IT expense following the transition to an IT outsourcing arrangement in early 2H13, and ll a $0.8 million increase in variable remuneration underpinned by the improved financial performance of the Group as well as improvement in certain business measures. Depreciation and amortisation expense in FY13 was $1.3 million compared to $1.9 million in FY12, a decrease of $0.6 million primarily due to the reduction in the carrying value of the underlying IT assets in 2H12 as a result of Transformation 2015. The equity remuneration expense in FY13 was $0.4 million compared to $nil in FY12, an increase of $0.4 million on FY12. Equity remuneration in FY12 was lower due to the write-back of previously amortised long-term incentives (LTIs) as a result of performance measures not being met.
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Funds under administration (FUA)1 1H12 2H12 1H13 2H13 At end of $b $b $b $b
CMBS and ABS 23.3 24.8 27.1 28.4 RMBS – non-bank 45.6 43.2 40.3 36.5 RMBS – bank 53.2 50.4 51.7 51.9 RMBS – repos 80.1 74.9 95.5 102.1 Covered bonds 3.5 23.7 33.9 40.5 Total funds under administration (FUA) 205.7 217.0 248.5 259.4
1. Includes warehouse and liquidity finance facilities.
FUA at the end of FY13 increased by 20% compared to the end of FY12, to $259.4 billion. FUA increased across all asset classes other than non-bank RMBS. The majority of growth has come from RMBS – repos and covered bonds. RMBS – repos and covered bonds now represent around 39% and 16% of FUA respectively. Fees earned on RMBS – repos and covered bonds are significantly lower than for the other asset classes. This shift in asset mix has continued from FY12 and consequently resulted in lower average revenue margins for the business. Run-off rates across existing RMBS increased during FY13 compared to FY12, reflecting the continued de-leveraging of households.
Group Support Services Costs that have been retained in Group Support Services (GSS) reflect costs that management deems to be associated with corporate rather than reportable business segment activity. These include costs associated with the Board of Directors and 50% of the costs associated with the Group Executives of each of the GSS Business Units (CEO, Corporate Services and People and Culture) as it is deemed that approximately 50% 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 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Revenues 3.8 3.3 4.0 4.3 7.1 8.3 Operating expenses (4.4) (5.3) (6.6) (6.7) (9.7) (13.3) EBITDA (0.6) (2.0) (2.6) (2.4) (2.6) (5.0) Depreciation and amortisation (0.6) (0.4) (0.1) - (1.0) (0.1) Equity remuneration expense 0.0 (0.6) (0.2) (0.2) (0.6) (0.4) Interest expense (1.3) (1.2) (0.9) (0.9) (2.5) (1.8) Profit/(loss) before tax (2.5) (4.2) (3.8) (3.5) (6.7) (7.3)
FY13 revenue from the Group’s cash and principal investments of $8.3 million represented an increase of $1.2 million on FY12. This increase was underpinned by increased income from the Group’s seed fund investments. Total expenses for FY13 were $15.6 million compared to $13.8 million in FY12. Transformation 2015 savings were $7.6 million. Operating expenses in FY13 of $13.3 million were $3.6 million higher than in FY12. Key variances between FY13 and FY12 were: ll a $12.8 million net decrease in fixed remuneration expense predominantly as a result of lower headcount from the implementation of a leaner and more efficient operating model and the transition to an IT outsourcing arrangement, and ll a $1.8 million reduction in marketing expenditure offset by ll an $8.9 million decrease in Group shared services cost recoveries as a result of the implementation of a leaner and more efficient operating model, coupled with a decrease in shared service allocations based on resources utilised and the transition to an IT outsourcing arrangement in early 2H13 ll a $2.4 million increase due to the non-recurring nature of the FY12 write-back of deferred consideration payable in relation to acquisitions where certain pre-determined hurdles had not been met
84 Perpetual Limited and its controlled entities ll a $3.2 million increase in professional fees in relation to general corporate advice ll a $1.5 million IT expense following the transition to an IT outsourcing arrangement in early 2H13 ll a $1.7 million increase in variable remuneration underpinned by the improved financial performance of the Group and an improvement in certain business measures, and ll a $0.5 million increase in other expenses. The FY13 depreciation and amortisation expense of $0.1 million represented a decrease of $0.9 million due to the reduction in the carrying value of the underlying IT assets in 2H12 as a result of Transformation 2015. The FY13 equity remuneration expense of $0.4 million was $0.2 million lower than in FY12. The prior period was impacted by the accelerated amortisation of the former CEO’s TSR-linked equity remuneration. A lower interest rate expense in FY13 reflects the recent falls in short-term interest rates.
Consolidated Group Total Group expenses before tax including depreciation and amortisation and equity remuneration expense (excluding significant items8 and discontinued operations) decreased by $11 million, or around 4% from FY12 to $262.3 million in FY13.
Movement in Group expenses 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Employment (91.7) (89.6) (85.9) (83.2) (181.3) (169.1) Occupancy (10.3) (10.2) (10.3) (9.8) (20.5) (20.1) General and administrative (32.8) (34.3) (32.4) (37.1) (67.2) (69.5) Other intangibles (0.9) (0.9) (0.9) (0.9) (1.8) (1.8) Financing costs (1.3) (1.2) (0.9) (0.9) (2.5) (1.8) Total expenses before tax (137.0) (136.3) (130.4) (131.9) (273.3) (262.3)
The previous table excludes expenses that are considered non-recurring and unrelated to the ongoing business activities of the Group. The key drivers of the decrease in the Group’s continuing operations expenses in FY13 are set out in the following table.
$m
FY12 expenses 273.3 Decrease in fixed remuneration (26.4) Increase in variable remuneration 11.0 Increase in equity remuneration 3.2 Decrease in depreciation and amortisation (5.0) Decrease in custody fees (2.5) Decrease in marketing expenses (1.8) Decrease in other expenses (0.9) Decrease in financing costs (0.7) Increase in IT outsourcing arrangement fees 5.1 Absence of any write-back of deferred consideration in FY13 2.4 Increase in professional fees 3.2 Increase in Private Wrap expenses (includes operating expenses and depreciation and amortisation) 1.4 FY13 expenses 262.3
The reduction in expenses in FY13 has primarily been due to a decrease in fixed remuneration in line with reduced headcount, depreciation and amortisation and custody fees as a consequence of Transformation 2015 cost management initiatives.
8. Costs associated with the Transformation Program Office (including employment) are reported as part of the Group’s restructuring costs, which are considered a significant item and therefore are not reflected in the Group expenses table.
Annual Report 2013 85 OPerating and financial review R eview of Businesses continued
Transformation 2015 In late FY12, the Group announced its Transformation 2015 strategy to achieve its vision of becoming Australia’s largest independent wealth manager of choice. To achieve this vision, the Company announced a program that will significantly simplify its corporate structure, refocus its operational activities and capture new opportunities for growth. A cost savings program was announced targeting $50 million of annualised cost savings before tax in FY15. In FY13, cost management initiatives from Transformation 2015 have delivered $28.2 million of program benefits before tax, of which $24.7 million of savings before tax relates to the Group’s continuing operations and $3.5 million before tax relates primarily to cost avoidance from the transfer of future premises obligations as part of the sale of the discontinued PLMS business. The following table provides an analysis of the net $11.0 million in expense reductions for the continuing operations in FY13 attributable to the Transformation 2015 cost management program, in part offset by an increase in expenses associated with the execution of the Group’s underlying business as usual (BAU) and costs associated with new initiatives.
Transformation 2015 BAU Total $m $m $m
Decrease in fixed remuneration (23.4) (3.0) (26.4) Increase in variable remuneration – 11.0 11.0 Increase in equity remuneration – 3.2 3.2 Increase/(Decrease) in employment expenses (23.4) 11.2 (12.2) Decrease in depreciation and amortisation (3.4) (1.6) (5.0) Decrease in custody fees (2.5) – (2.5) Decrease in marketing expenses – (1.8) (1.8) Decrease in other expenses (0.5) (0.4) (0.9) Decrease in finance expenses – (0.7) (0.7) Increase in IT outsourcing arrangements 5.1 – 5.1 Absence of any write-back of deferred consideration in FY13 – 2.4 2.4 Increase in professional fees – 3.2 3.2 Increase in Private Wrap expenses – 1.4 1.4 Increase/(Decrease) in non-employment expenses (1.3) 2.5 1.2 Increase/(Decrease) in total expenses before tax (24.7) 13.7 (11.0)
The key driver of the Transformation 2015 expense savings in FY13 has been the decrease in fixed remuneration expenses in line with the reduction in FTEs. The increase in FY13 BAU expenses was primarily attributable to an increase in variable remuneration of $11.0 million, principally in line with the improved financial performance of the Group. By contrast, FY12 variable remuneration declined by $17.3 million when compared to FY11. The $28.2 million of Transformation 2015 program benefits in FY13 equates to annualised program run-rate benefits at the end of FY13 of around $41 million before tax. The annualised rate includes $4 million before tax of cost avoidance from the transfer of future premises obligations as part of the sale of the discontinued PLMS business. The FY13 annualised run-rate savings of around $37 million before tax for the Group’s continuing operations equates to 74% of the program’s expected $50 million of annualised before tax run-rate savings by the end of FY14, in line with the original estimate. Costs incurred in relation to Transformation 2015 during FY13 were $13.6 million before tax. Total program expenditure for Transformation 2015 to the end of FY13 was $49.7 million before tax. The total program cost for Transformation 2015 is expected to be $70 million before tax, in line with the original estimate.
86 Perpetual Limited and its controlled entities At the end of 2H13, FTEs had reduced to 838 from 1,343 at the end of 2H12, a decrease of 38%. The following table provides an analysis of FTEs by business segment over the last two years.
1H12 2H12 1H13 2H13 For the period ended FTEs FTEs FTEs FTEs
Perpetual Investments 162 150 138 134 Perpetual Private 404 405 405 353 Corporate Trust 146 151 138 111 Group Support Services 386 384 365 240 Total continuing operations 1,098 1,090 1,046 838 Discontinued operations (PLMS) 284 253 0 0 Total 1,382 1,343 1,046 838 Permanent 1,077 1,072 998 810 Contractors 21 18 48 28 Total continuing operations 1,098 1,090 1,046 838
As can be seen from the above table, total FTEs have reduced by 505 FTEs from 1,343 at the end of 2H12 to 838 at the end of 2H13. This reduction was principally due to: ll sale of PLMS and loan servicing businesses ll outsourcing of IT in 2H13, and ll transition to a leaner and more efficient operating model.
T ax expense Perpetual’s average tax rate in FY13 was 29% (FY12: 28%), calculated from underlying profit from continuing operations before tax (UPBT), which is broadly in line with Company tax rate of 30%.
Annual Report 2013 87 OPerating and financial review R eview of Businesses continued
Significant Items The Group separately discloses items that were material to the financial performance of the Group, but are considered to be either non-recurring or not part of the operating result as a significant item. Significant items are excluded from UPAT.
Profit/(Loss) Before Tax
1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m Significant items: 1. Operating income from discontinued operations (PLMS) 0.6 2.6 0.6 – 3.2 0.6 2. Non-recurring tax benefit/(expense) items – – 1.9 (1.5) – 0.4 3. Gain/(Loss) on disposal of businesses 0.6 (0.8) 2.1 0.5 (0.2) 2.6 4. Gain/(Loss) on disposal/impairment of investments and associates (2.8) (2.8) (0.9) 1.7 (5.6) 0.8 5. Restructuring costs (11.1) (17.8) (8.5) (6.8) (28.9) (15.3) 6. Impairment of assets – (17.9) (0.1) – (17.9) (0.1) 7. Foreign currency translation costs – – (5.2) – – (5.2) 8. Costs relating to Trust Company proposal – – – (1.5) – (1.5) Total significant items (12.7) (36.7) (10.1) (7.6) (49.4) (17.7)
Profit/(Loss) after Tax
1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m Significant items: 1. Operating income from discontinued operations (PLMS) 0.4 1.8 0.4 – 2.2 0.4 2. Non-recurring tax benefit/(expense) items – – 1.9 (1.5) – 0.4 3. Gain/(Loss) on disposal of businesses 0.6 (0.8) 2.1 0.5 (0.2) 2.6 4. Gain/(Loss) on disposal/impairment of investments and associates (2.2) (3.4) (0.9) 0.1 (5.6) (0.8) 5. Restructuring costs (10.2) (12.4) (6.0) (4.7) (22.6) (10.7) 6. Impairment of assets – (12.5) (0.1) – (12.5) (0.1) 7. Foreign currency translation costs – – (5.2) – – (5.2) 8. Costs relating to Trust Company proposal – – – (1.5) – (1.5) Total significant items (11.4) (27.3) (7.8) (7.1) (38.7) (14.9)
1. Operating income from discontinued operations (PLMS) 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Profit before tax 0.6 2.6 0.6 – 3.2 0.6 Tax expense (0.2) (0.8) (0.2) – (1.0) (0.2) Restructuring expenses after tax 0.4 1.8 0.4 – 2.2 0.4
In 2H12, as part of the Transformation 2015 strategy, the Group announced its intention to exit the mortgage servicing business (PLMS) and accordingly, the business became a discontinued operation held for sale at the end of 2H12. The net operating profit after tax from the PLMS discontinued business in FY12 was $2.2 million. On 12 July 2012, a sale for PLMS was announced and this sale was completed on 1 August 2012. The net operating profit after tax from the PLMS discontinued business in FY13 was $0.4 million. Refer to significant item 3: Gain/(Loss) on disposal of businesses for the profit on sale of the PLMS business and Note 7: Discontinued operations held for sale in the FY13 financial statements.
88 Perpetual Limited and its controlled entities 2. Non-recurring tax benefit/(expense) items 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Non-recurring tax benefit/(expense) items – – 1.9 (1.5) – 0.4
In FY13, the Group received a net tax benefit of $0.4 million from non-recurring items. In 1H13, the Group was able to claim a tax offset under the Australian Taxation Office’s research and development tax incentive for process improvements undertaken by Perpetual Private, predominantly for Project ICE. The $1.9 million benefit consists of $0.5 million in relation to FY11 and $1.4 million in relation to FY12. In 2H13, a review of the Group’s Equity Compensation Reserve was undertaken and the Company became aware that $1.5 million of tax benefits claimed in prior years, in respect of the equity remuneration expense in relation to TSR linked shares, needed to be reversed following the forfeiture of those shares.
3. Gain/(loss) on disposal of businesses 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Gain/(Loss) on disposal of businesses 0.6 (0.8) 2.1 0.5 0.2 2.6 Tax benefit/(expense) – – – – – – Gain/(Loss) on disposal of businesses after tax 0.6 (0.8) 2.1 0.5 0.2 2.6
In FY13, the Group generated a net $2.6 million from the sale of the discontinued PLMS operation in 1H13 ($2.4 million net) and Corporate Trust’s loan servicing business in 2H13 ($0.2 million net). In FY12, the Group sold Perpetual Investments’ smartsuper business in 1H12 and in 2H12 it sold Corporate Trust’s third party registry business for a gain of $0.8 million, offset by $1.4 million of selling costs in relation to PLMS.
4. Gain/(loss) on sale/impairment of investments and associates 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Gain/(Loss) on disposal/impairment of investments (2.8) (2.8) (0.9) 1.7 (5.6) 0.8 Income tax benefit/(expense) 0.6 (0.6) – (1.6) – (1.6) Total gain/(loss) after tax on sale/impairment of investments (2.2) (3.4) (0.9) 0.1 (5.6) (0.8)
In FY13, the Group incurred a $0.8 million after-tax loss on investments and associates, compared to a loss of $5.6 million in the prior year. Profit or loss on investments relates to gains/losses on sale or impairment of the underlying investments in managed funds that are predominantly exposed to equity markets. These funds relate to the seeding of new investments. In 2H13, the Group took up a $1.1 million impairment charge in relation to its investment in the MARQ Services joint venture to reflect its recoverable amount as at the end of FY13. In FY12 the Company did not hold any investments that it accounted for as an investment in associates or joint ventures.
Annual Report 2013 89 OPerating and financial review R eview of Businesses continued
5. Restructuring costs 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Restructuring costs (11.1) (17.8) (8.5) (6.8) (28.9) (15.3) Tax benefit 0.9 5.4 2.5 2.1 6.3 4.6 Restructuring expenses after tax (10.2) (12.4) (6.0) (4.7) (22.6) (10.7)
In FY13, the Group incurred $10.7 million in restructuring costs after tax. These costs principally relate to the Group’s continued execution of its Transformation 2015 strategy. Restructuring costs in 2H12 were principally related to Transformation 2015. 1H12 restructuring costs were principally related to the closure of the Group’s Dublin operation.
6. Impairment of assets 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Impairment of assets – (17.9) (0.1) – (17.9) (0.1) Tax benefit – 5.4 – – 5.4 – Total impairment of assets after tax – (12.5) (0.1) – (12.5) (0.1)
In FY13, impairment related to a further charge in 1H13 in relation to the carrying value of certain IT assets that were subsequently sold in 2H13 as part of the Group’s Transformation 2015 strategy to outsource its IT. In FY12, impairment charges of $12.5 million were incurred in relation to a review of the carrying value of the group’s IT assets in response to the Transformation 2015 initiatives relating to IT.
7. Foreign currency translation costs 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Foreign currency translation costs after tax – – (5.2) – – (5.2)
In 1H13, the Group recognised a $5.2 million non-cash after-tax expense as a result of the reclassification of the foreign currency translation reserve to the statement of comprehensive income as a result of the closure of the business in Dublin, which has ceased operations. The legal entity through which the business operated is now in voluntary liquidation.
8. Cost relating to the Trust Company proposal 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Trust Company proposal costs after tax – – – (1.5) – (1.5)
On 7 May 2013, Perpetual Limited entered into a Scheme Implementation Agreement under which Perpetual Limited proposes to acquire all of the ordinary shares in ASX listed The Trust Company Limited (TrustCo) via a scheme of arrangement. TrustCo represents an attractive growth opportunity given its strong strategic fit with Perpetual’s existing businesses. At the date of this report, the transaction is not yet complete as a number of necessary approvals remain outstanding, including TrustCo shareholder approval and regulatory approvals. In FY13, the Group incurred expenses of $1.5 million after tax associated with the proposed acquisition of TrustCo.
90 Perpetual Limited and its controlled entities Capital Management ll maintaining a committed debt facility where the Group pays a return based The Group manages its capital and liquidity from its long-term banking partner on the UBS Bank Bill Index and to sustain a strong and flexible balance for $70 million, drawn to $45 million; receives the return on the underlying sheet. It has adopted a conservative and $25 million remain undrawn as at portfolio, which is subject to credit and prudent policy to ensure that the Group: 29 August 2013, and market risks. ll ll ll can efficiently support all of its focusing on ensuring strong discretionary The Group is exposed to credit risk on businesses expense discipline across each business its loan assets to PPI customers. This segment and support group. risk is capped at $5 million for Series 1 ll retains sufficient surplus capital to provide for uncertainty and operational and 2, and 7% of the outstanding loan risk that resides within the businesses Interest rate risk book for Series 3, as the borrowings used to fund these loans are limited recourse ll can maintain adequate liquidity to Perpetual’s balance sheet is subject to in nature. ensure financial flexibility, and interest rate risk. ll has capital resources to take advantage The Group generates positive cash flows The Group limits the number of of inorganic growth opportunities as from operations from a relatively light counterparties upon which it is willing they arise. capital structure. Cash balances are held to take credit risk. This can lead to in high quality credit and highly liquid concentrations of credit risk. The Group The Group uses a risk-based capital model investment funds managed by the Group. operates under a Treasury policy that based on the Basel II framework to assess These investments generally invest in limits its financial exposure to any its capital requirements. The model requires short-term assets and earn a variable counterparty. The Group does not expect capital to be set aside for operational, credit interest rate. any counterparties to fail to meet their and market risk and any known capital obligations beyond what has been provided Perpetual has both corporate and commitments. At the end of FY13, the total for in the carrying value of those assets. amount of economic capital assessed by operational debt facilities. The corporate the model exceeds the Group’s $89.1 million facility has a variable interest rate. As Exact Market Cash Fund of regulatory capital by a factor of around at 29 August 2013, there are no interest The EMCF products are investment funds 35%. At the end of FY13, total economic rate hedges against the drawn portion managed by the Group that invest in a capital requirements were $122 million, ($45 million) of this facility. diversified portfolio of cash and credit compared to around $230 million of liquid Operational debt facilities are used to securities, offering investors a guaranteed funds, which equates to a coverage ratio finance clients into capital protected return linked to the UBS Bank Bill Index. of 1.89 times the Group’s economic capital investment products. The facilities are The Group delivers the guaranteed return needs, compared to 1.38 times at the end a combination of fixed and variable rate to investors via a swap agreement. of FY12. borrowings used to finance a combination As investments mature in EMCF1, proceeds The above calculation for regulatory of fixed and variable structured product are used to meet redemptions or are capital includes a capital allowance loans. To minimise interest rate risk between reinvested in bank bills or cash, in line with required to meet APRA’s requirement that these fixed rate assets and variable rate the Group’s decision to reduce risk on its all registerable superannuation entity liabilities, management uses interest rate balance sheet. As assets in the portfolio (RSE) licensees maintain and manage swaps to broadly match fixed rate assets mature, the unrealised mark-to-market losses the necessary financial resources to cover to floating rate liabilities. recorded in prior years are being recovered. the operational risk that relates to each RSE within its business operations. APRA Credit risk The majority of the unrealised mark-to- expects a soundly run RSE licensee that has Credit risk is the risk of default and change market losses from prior periods in the implemented an effective risk management in the credit quality of issuers of securities, EMCF1 portfolio have now been recovered, framework to have an Operational Risk counterparties and intermediaries to whom and the remainder are expected to be Framework Requirement (ORFR) target the Group has exposure. recovered as the portfolio matures. The average maturity of the portfolio at the end amount of at least 0.25 per cent of funds The Group is subject to credit risk in the of FY13 was around 2.0 years. The portfolio’s under management. following areas: maturity profile is considered to be The Group maintains a conservative balance ll All cash and cash equivalent balances appropriately structured to meet a level and sheet and in FY13 has continued to reduce are subject to credit risk, as they pattern of redemptions consistent with past its balance sheet risk following the difficult represent deposits made by the experience. The recovery rate of unrealised trading environment experienced in the Group with external banks and other losses is expected to decline over time as years immediately following the GFC. institutions. The Group invests its securities in the portfolio continue to mature corporate cash balances principally During FY13, the Group has continued to at their face value. execute a number of strategies to strengthen with Authorised Deposit-taking its balance sheet, including: Institutions and in cash funds managed by the Group. ll continuing to improve the overall credit quality of the Group’s risk assets and ll The Group is exposed to the reduce exposure to structured products performance of assets held in the EMCF on the balance sheet products through a swap agreement,
Annual Report 2013 91 OPerating and financial review Capital Management continued
1H12 2H12 1H13 2H13 EMCF liabilities at end of period $m $m $m $m
EMCF1 287.3 180.1 163.2 115.3 EMCF2 513.7 515.1 528.0 308.5 Total EMCF liabilities 801.0 695.2 691.2 423.8
Funds invested in the EMCF have declined further in FY13, particularly in respect of EMCF2, which experienced a net outflow of around $0.2 billion late in 2H13. By way of comparison, at the end of 2H13, the carrying value of EMCF assets was $427.0 million (compared to $694.6 million at the end of 2H12) and was at a surplus to the fair value of its liabilities by $3.2 million, compared to a deficit $0.6 million at the end of 2H12. The financial performance of the EMCF products is reported in the cash and fixed income asset class in Perpetual Investments.
Equity risk Equity risk is the risk of change in value of an issued equity security to which the Group has an exposure. The Group is subject to equity risk from its investments in managed funds. These investments ‘seed’ new investment funds for the Group to develop a track record and examine the viability of the fund to the investment community. If the investment fund is successful, the fund is opened to third party investors.
Market risk The Group’s revenue is significantly dependent on FUM and FUA, which are influenced by equity market movements. Management calculates the expected impact on revenue, across all of its businesses, for each 1% movement in the All Ords. Based on the level of the All Ords at the end of FY13, a 1% movement in the market changes annualised revenue by approximately $1.75 million to $2.25 million. It is worth noting that this movement is not linear to the overall movement in the market. This means that as the market reaches higher or lower levels, a 1% movement may have a larger or smaller effect on revenue as FUM and FUA are comprised of both equity market and non-equity market-sensitive asset classes. Note that the above revenue sensitivity is a guide only and may vary due to a number of factors, including but not limited to: ll equity funds under the Group’s management and advice performing broadly in line with the All Ords ll the impact of FUM and FUA flows, both inflows and outflows, and their timing, and ll changes in distribution channel, product mix and pricing policy possibly affecting the level of revenue earned from the Perpetual Investments and Perpetual Private businesses.
Operational risk Operational risk is the risk arising from the daily functioning of the Group’s businesses as well as outsourced functions. Operational risk is mitigated through internal controls, vendor risk management, active management overview and regular reviews by Perpetual’s independent Risk teams that reside in Corporate Services. Each business and support head is responsible for identifying risks within their businesses and ensuring that they are appropriately managed. The Risk teams assist the business by providing the framework, tools, advice and assistance to enable the business to effectively identify, assess and manage risk. The Board of Directors oversees the risk management within the business, ensuring that it is within an accepted risk tolerance range, and that all organic and inorganic business initiatives are consistent with the Group’s strategy and conducted ethically, responsibly and with the highest degree of integrity. The Board’s oversight of risk management is assisted by the Audit, Risk and Compliance Committee (ARCC). The ARCC’s main responsibilities are to oversee Group accounting policies and practices; the integrity of financial statements and reports; the scope, quality and independence of external audit arrangements; the monitoring of the internal audit function; the effectiveness of risk management policies; and the adequacy of insurance.
92 Perpetual Limited and its controlled entities Financial strength
At end of 1H12 2H12 1H13 2H13 FY12 FY13
Total equity $m 290.0 280.5 307.2 323.7 280.5 323.7 Cash $m 122.6 153.1 180.3 217.1 153.1 217.1 Corporate debt $m (45.0) (45.0) (45.0) (45.0) (45.0) (45.0) Net cash $m 77.6 108.1 135.3 172.1 108.1 172.1 Corporate debt to capital ratio % 13.4 13.8 12.8 12.2 13.8 12.2 (corporate debt/(corporate debt + equity))1
Interest coverage calculation for continuing times 47x 46x 67x 78x 46x 73x operations (EBITDA/interest expense)2
Net tangible assets per share $ 2.91 3.23 3.82 4.10 3.23 4.10
1. Excludes structured product debt, which is operational debt used to fund PPI loans. 2. EBITDA for continuing operations represents earnings before financing costs, taxation, depreciation, amortisation of intangible assets, equity remuneration expense, and significant items.
At the end of FY13, Perpetual’s gross corporate debt was $45.0 million. The Group’s gearing ratio (corporate debt to capital ratio) remains low at 12.2% and is well within its stated risk appetite limit of 30%. FY13 interest coverage for continuing operations, at 73 times, was well in excess of financial covenant requirements. Financial covenants under the debt facilities include minimum shareholders’ funds, leverage and interest coverage ratios and caps on operational debt. At the end of FY13, the Group was in compliance with all of its debt covenants. At the end of FY13, the Group had a committed bank corporate debt facility of $70.0 million. At 29 August 2013, $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 $3.23 at the end of FY12 to $4.10 at the end of FY13, primarily due to the increase in total shareholder funds, which was underpinned by an increase in retained earnings and reserves.
Cash flow 1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Net cash from operating activities 9.5 56.9 38.5 67.0 66.4 105.5 Net cash provided by/(used in) investing activities (0.8) (6.4) 7.4 (6.8) (7.2) 0.6 Net cash used in financing activities (106.4) (20.1) (18.7) (23.4) (126.5) (42.1) Net increase/(decrease) in cash and cash equivalents (97.7) 30.4 27.2 36.8 (67.3) 64.0
In FY13, cash and cash equivalents increased by $64.0 million compared to a decrease of $67.3 million in FY12. This represented a turnaround in cash flows of $131.3 million, principally due to: ll a $71.0 million decrease in cash outflows as no share buy-back was undertaken in FY13 ll a $24.9 million improvement in net operating cash flows ll a $23.4 million reduction in cash dividends ll a $14.9 million reduction in tax payments ll an $8.4 million cash inflow from the sale of businesses, offset by ll a $10.0 million cash outflow in relation to liquid investments.
Annual Report 2013 93 OPerating and financial review Capital Management continued
Summary Consolidated Balance Sheet 1H12 1 2H12 1 1H13 1 2H13 1 At end of $m $m $m $m Assets Cash and cash equivalents 122.6 153.1 180.3 217.1 Liquid investments 42.8 39.7 38.5 35.4 Assets held for sale – 14.0 2.2 0.8 Structured products – PPI loans to clients 116.4 109.2 83.0 76.7 Goodwill and other intangibles 116.3 109.5 108.6 107.7 Software intangibles 30.4 13.2 16.7 21.6 Other assets 135.5 119.3 118.9 121.2 Total assets 564.0 558.0 548.2 580.5 Liabilities Corporate loan facility 45.0 45.0 45.0 45.0 Liabilities held for sale – 5.6 – – Structured products – PPI finance facilities 119.5 111.4 85.9 84.1 Other liabilities 109.5 115.5 110.1 127.7 Total liabilities 274.0 277.5 241.0 256.8 Net assets 290.0 280.5 307.2 323.7 Shareholder funds Contributed equity 222.7 236.6 248.5 239.8 Reserves 32.5 24.2 27.2 37.1 Retained earnings 22.9 7.4 19.2 37.4 Total shareholder funds 278.1 268.2 294.9 314.3 Non-controlling interest 11.9 12.3 12.3 9.4 Total equity 290.0 280.5 307.2 323.7
1. Excludes the offsetting asset and liability for the EMCF structured product. At 1H12, the EMCF asset was $798.2 million, with the liability being $801.0 million. At 2H12, the EMCF asset was $694.6 million, with the liability being $695.2 million. At 1H13, the EMCF asset was $694.3 million, with the liability being $691.2 million. At 2H13, the EMCF asset was $427.0 million, with the liability being $423.8 million. The net liability of $2.8 million and $0.6 million at 1H12 and 2H12 respectively have been included with Other liabilities. The net asset of $3.1 million and $3.2 million at 1H13 and 2H13 respectively have been included with Other assets.
94 Perpetual Limited and its controlled entities Cash and cash equivalents increased from $153.1 million at the end of FY12 to $217.1 million at the end of FY13, an increase of $64.0 million, sourced principally from net cash inflows from operations of $105.6 million, offset by cash dividends of $37.8 million paid during the period. Liquid investments decreased due to the combination of the impact of declines in valuation and a decrease in investment by minority interests in funds controlled by the Group. PPI loans to clients continued to decline in FY13 as clients continued to close out their investment in the product. Goodwill and other intangibles have decreased during FY13, primarily due to the amortisation associated with other intangibles. 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: FY14 FY15 FY16 FY17 $m $m $m $m
Amortisation of identifiable intangibles1 1.8 1.7 1.6 1.6
1. Based on $10.4 million net book value at end of FY13.
As the Group continues to seek to acquire businesses in line with its strategic goals, the level of identifiable intangible assets carried on the balance sheet is likely to increase, which in turn will increase the amortisation of identifiable intangible assets. At the end of FY13, total shareholder funds were $314.3 million, which represented an increase of $46.1 million over the year, principally due to: ll a $30.0 million increase in retained earnings, underpinned by: –– FY13 NPAT of $61.0 million –– a $6.8 million transfer from reserves to retained earnings in respect of forfeited market linked employee share plan shares and dividends paid on employee share plan shares, offset by –– $37.8 million of dividend payments in FY13, and ll a $12.9 million increase in relation to reserves. The non-controlling interest of $9.4 million at the end of FY13 comprises third party interests in consolidated funds managed by the Group.
Events subsequent to balance date As previously announced on 7 May 2013, Perpetual Limited entered into a Scheme Implementation Arrangement under which Perpetual proposes to acquire all of the ordinary shares in ASX listed The Trust Company Limited (TrustCo) via a scheme of arrangement. TrustCo represents an attractive growth opportunity given its strong strategic fit with Perpetual’s existing businesses. An acquisition of TrustCo is expected to deliver greater scale and capabilities across the whole business and represents a financially compelling opportunity for Perpetual’s shareholders. At the date of this report, the transaction is not yet complete as a number of necessary approvals remain outstanding, including TrustCo shareholder approval and regulatory approvals.
Annual Report 2013 95 OPerating and financial review APPENDICES
Appendix A: Segment Results
Operating revenue
1H12 2H12 1H13 2H13 FY12 FY13 For the period $m $m $m $m $m $m
Perpetual Investments 99.1 91.4 93.6 102.3 190.5 195.9 Perpetual Private 56.8 57.9 56.5 59.2 114.7 115.7 Corporate Trust 26.1 25.9 25.3 24.5 52.0 49.8 Group Support Services 3.8 3.3 4.0 4.3 7.1 8.3 Underlying profit before tax and significant items 185.8 178.5 179.4 190.3 364.3 369.7 Income tax expense Underlying profit after tax (UPAT)2 before significant items Significant items: ll Operating income from discontinued operations (PLMS) ll Net tax benefit/(expense) from non-recurring items ll Gain/(Loss) on disposal of businesses ll Gain/(Loss) on disposal/impairment of investments and associates ll Restructuring costs ll Impairment of assets ll Foreign currency translation costs ll Costs relating to Trust Company proposal Net profit after tax (NPAT) attributable to equity holders of Perpetual Limited
1. EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense, and significant items. 2. UPAT attributable to equity holders of Perpetual Limited excludes certain items, as determined by the Board and management, that are either significant by virtue of their size and impact on NPAT attributable to equity holders of Perpetual Limited, or are deemed to be outside normal operating activities. It reflects an assessment of the result for the ongoing business of the Group. UPAT has been calculated in accordance with the AICD/Finsia principles for reporting underlying profit and ASIC’s Regulatory Guide 230 – Disclosing non-IFRS financial information. UPAT attributable to equity holders of Perpetual Limited has not been audited by the Group’s external auditors, however the adjustments to NPAT attributable to equity holders of Perpetual Limited have been extracted from the books and records that have been audited for the FY12 and FY13 periods
96 Perpetual Limited and its controlled entities
EBITDA1 Profit before/after tax
1H12 2H12 1H13 2H13 FY12 FY13 1H12 2H12 1H13 2H13 FY12 FY13 $m $m $m $m $m $m $m $m $m $m $m $m
43.9 39.3 45.2 53.0 83.2 98.2 37.7 34.3 39.8 47.4 72.0 87.2 8.4 7.8 8.1 9.3 16.2 17.4 4.9 3.4 4.4 4.8 8.3 9.2 9.5 9.8 9.5 10.5 19.3 20.0 8.7 8.7 8.6 9.7 17.4 18.3 (0.6) (2.0) (2.6) (2.4) (2.6) (5.0) (2.5) (4.2) (3.8) (3.5) (6.7) (7.3) 61.2 54.9 60.2 70.4 116.1 130.6 48.8 42.2 49.0 58.4 91.0 107.4 (14.5) (11.1) (13.9) (17.6) (25.6) (31.5) 34.3 31.1 35.1 40.8 65.4 75.9
l 0.4 1.8 0.4 – 2.2 0.4 l – – 1.9 (1.5) – 0.4 l 0.6 (0.8) 2.1 0.5 (0.2) 2.6 l (2.2) (3.4) (0.9) 0.1 (5.6) (0.8)
(10.2) (12.4) (6.0) (4.7) (22.6) (10.7) l – (12.5) (0.1) – (12.5) (0.1) l l – – (5.2) – – (5.2) l – – – (1.5) – (1.5)
22.9 3.8 27.3 33.7 26.7 61.0
Annual Report 2013 97 OPerating and financial review APPENDICES continued
segment results
2013 1H13 2H13
Group Perpetual Perpetual Corporate Support Perpetual Investments Private Trust Services Total Investments $m $m $m $m $m $m
Operating revenue 93.6 56.5 25.3 4.0 179.4 102.3 Operating expenses (48.4) (48.4) (15.8) (6.6) (119.2) (49.3)
EBITDA 45.2 8.1 9.5 (2.6) 60.2 53.0 Depreciation and amortisation (1.0) (2.6) (0.7) (0.1) (4.4) (0.8) Equity remuneration (4.4) (1.1) (0.2) (0.2) (5.9) (4.8) EBIT 39.8 4.4 8.6 (2.9) 49.9 47.4 Interest expense – – – (0.9) (0.9) – UPBT 39.8 4.4 8.6 (3.8) 49.0 47.4
2012 1H12 2H12
Group Perpetual Perpetual Corporate Support Perpetual Investments Private Trust Services Total Investments $m $m $m $m $m $m
Operating revenue 99.1 56.8 26.1 3.8 185.8 91.4 Operating expenses (55.2) (48.4) (16.6) (4.4) (124.6) (52.1) EBITDA 43.9 8.4 9.5 (0.6) 61.2 39.3 Depreciation and amortisation (2.0) (3.1) (1.0) (0.6) (6.7) (2.3) Equity remuneration (4.2) (0.4) 0.2 – (4.4) (2.7) EBIT 37.7 4.9 8.7 (1.2) 50.1 34.3 Interest expense – – – (1.3) (1.3) – UPBT 37.7 4.9 8.7 (2.5) 48.8 34.3
98 Perpetual Limited and its controlled entities
2H13 FY13
Group Group Perpetual Corporate Support Perpetual Perpetual Corporate Support Private Trust Services Total Investments Private Trust Services Total $m $m $m $m $m $m $m $m $m
59.2 24.5 4.3 190.3 195.9 115.7 49.8 8.3 369.7 (49.9) (14.0) (6.7) (119.9) (97.7) (98.3) (29.8) (13.3) (239.1) 9.3 10.5 (2.4) 70.4 98.2 17.4 20.0 (5.0) 130.6 (3.3) (0.6) - (4.7) (1.8) (5.9) (1.3) (0.1) (9.1) (1.2) (0.2) (0.2) (6.4) (9.2) (2.3) (0.4) (0.4) (12.3) 4.8 9.7 (2.6) 59.3 87.2 9.2 18.3 (5.5) 109.2 – – (0.9) (0.9) – – – (1.8) (1.8) 4.8 9.7 (3.5) 58.4 87.2 9.2 18.3 (7.3) 107.4
2H12 FY12
Group Group Perpetual Corporate Support Perpetual Perpetual Corporate Support Private Trust Services Total Investments Private Trust Services Total $m $m $m $m $m $m $m $m $m
57.9 25.9 3.3 178.5 190.5 114.7 52.0 7.1 364.3 (50.1) (16.1) (5.3) (123.6) (107.3) (98.5) (32.7) (9.7) (248.2) 7.8 9.8 (2.0) 54.9 83.2 16.2 19.3 (2.6) 116.1 (3.2) (0.9) (0.4) (6.8) (4.3) (6.3) (1.9) (1.0) (13.5) (1.2) (0.2) (0.6) (4.7) (6.9) (1.6) – (0.6) (9.1) 3.4 8.7 (3.0) 43.4 72.0 8.3 17.4 (4.2) 93.5 – – (1.2) (1.2) – – – (2.5) (2.5) 3.4 8.7 (4.2) 42.2 72.0 8.3 17.4 (6.7) 91.0
Annual Report 2013 99 OPerating and financial review APPE NDices continued
Appendix B: Average funds under management (FUM) 1H11 2H11 1H12 2H12 1H13 2H13 FY12 FY13 % A verage FUM $b $b $b $b $b $b $b $b change
Australian equities 18.9 19.8 16.9 16.4 16.7 19.3 16.7 18.0 +8% Global equities 1.1 1.0 0.9 0.9 0.9 0.9 0.9 0.9 NA Quantitative investments 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 NA Equities 20.1 20.8 17.8 17.3 17.6 20.2 17.6 18.9 +7% Cash and fixed income 6.2 6.0 5.4 5.1 4.8 4.7 5.2 4.7 -10% Other 1.2 1.2 1.1 1.1 1.3 1.3 1.1 1.3 +18% Total 27.5 28.0 24.3 23.5 23.7 26.2 23.9 24.9 +4%
100 Perpetual Limited and its controlled entities Appendix C: FY13 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
12 July 2012 PPT – Sale of PLMS to First Mortgage Services 26 July 2012 PPT – Funds Under Management at 30 June 2012 01 August 2012 PPT – Sale of PLMS to First Mortgage Services Completed 08 August 2012 PPT – Independent Director Resignation – Paul McClintock 30 August 2012 PPT – Full Year Results Presentation PPT – MD&A PPT – Media Release PPT – Full Year Statutory Accounts PPT – Preliminary Final Report 06 September 2012 PPT – Independent Director Appointments – Craig Ueland and Sylvia Falzon 25 September 2012 PPT – Notice of Annual General Meeting/Proxy Form PPT – Annual Report to shareholders PPT – Resignation of Phillip Twyman as Independent Director 28 September 2012 PPT – DRP Allocation Price 2012 Final Dividend 04 October 2012 PPT – Appendix 3B 09 October 2012 PPT – Shareholder Update October 2012 17 October 2012 PPT – Funds Under Management at 30 September 2012 26 October 2012 PPT – Michael Gordon appointed Group Executive for Perpetual Investments 01 November 2012 PPT – Results of Meeting 1 November 2012 PPT – 2012 AGM Addresses to Shareholders PPT – 2012 AGM Media Release 02 November 2012 PPT – Constitution approved at AGM 1 November 2012 05 November 2012 PPT – Management Change 26 November 2012 PPT – Appendix 3B 05 December 2012 PPT – Appendix 3B 10 December 2012 PPT – Gillian Larkins appointed Chief Financial Officer 07 January 2013 PPT – Becoming a substantial holder 25 January 2013 PPT – Funds Under Management at 31 December 2012 28 February 2013 PPT – Appendix 4D PPT – MD&A PPT – Half Year Accounts PPT – Half Year Results Announcement PPT – Half Year Results Presentation 31 December 2012 15 March 2013 PPT – Appendix 3B 28 March 2013 PPT – Dividend Reinvestment Plan 02 April 2013 PPT – Transformation 2014 Update 05 April 2013 PPT – Shareholder Update April 2013 18 April 2013 PPT – Funds Under Management 31 March 2013 07 May 2013 TRU – Perpetual Scheme of Arrangement PPT – Acquisition of Trust Company PPT – Investor Presentation – Acquisition of Trust Company
Annual Report 2013 101 OPerating and financial review APPE NDices continued
Appendix C: FY13 ASX Announcements continued 08 May 2013 EQT – Considers its offer for The Trust Company 10 May 2013 TRU – Correspondence to all Shareholders re PPT 16 May 2013 PPT – Shareholder Update 16 May 2013 20 May 2013 TRU – Correspondence to all Shareholders re PPT 21 May 2013 PPT – Change in Substantial Holding (VINVA) 27 May 2013 EQT – Takeover of Trust Company – Extension of Offer Period 23 July 2013 TRU – EY Synergies Assessment 26 July 2013 PPT – Funds Under Management at 30 June 2013 01 August 2013 AXX – ACCC calls for comment on Perpetual/Trust Company 01 August 2013 PPT – Notes ACCC Statement of Issues 1 August 2013 14 August 2013 TRU – TRU and EQT agree a process of further inquiry
102 Perpetual Limited and its controlled entities Appendix D: Dividend History
In February 2009, Perpetual announced that it had revised its dividend policy to a payout ratio range of between 80-100 per cent of net profit after tax on an annualised basis.
Dividend Franking Company Year Dividend Date paid per share rate tax rate DRP price
Not determined at FY13 Final 4 Oct 2013 80 cents 100% 30% time of publication FY13 Interim 5 Apr 2013 50 cents 100% 30% $40.7149 FY12 Final 5 Oct 2012 40 cents 100% 30% $27.0003 FY12 Interim 29 Mar 2012 50 cents 100% 30% $24.3352 FY11 Final 27 Sep 2011 90 cents 100% 30% $22.3996 FY11 Interim 30 Mar 2011 95 cents 100% 30% $28.4425 FY10 Final 28 Sep 2010 105 cents 100% 30% $29.5983 FY10 Interim 1 Apr 2010 105 cents 100% 30% $35.2134 FY09 Final 30 Sep 2009 60 cents 100% 30% $37.7777 FY09 Interim 13 Mar 2009 40 cents 100% 30% N/A FY08 Final 12 Sep 2008 141 cents 100% 30% N/A FY08 Interim 14 Mar 2008 189 cents 100% 30% N/A FY07 Final 14 Sep 2007 187 cents 100% 30% N/A FY07 Interim 16 Mar 2007 173 cents 100% 30% N/A FY06 Special 12 Sep 2006 100 cents 100% 30% N/A FY06 Final 12 Sep 2006 164 cents 100% 30% N/A FY06 Interim 17 Mar 2006 162 cents 100% 30% N/A FY05 Special 12 Sep 2005 100 cents 100% 30% N/A FY05 Final 12 Sep 2005 130 cents 100% 30% N/A FY05 Interim 18 Mar 2005 130 cents 100% 30% N/A FY04 Special 17 Sep 2004 200 cents 100% 30% N/A FY04 Final 17 Sep 2004 80 cents 100% 30% N/A FY04 Special 23 Jun 2004 50 cents 100% 30% N/A FY04 Interim 19 Mar 2004 70 cents 100% 30% N/A FY03 Final 3 Sep 2003 70 cents 100% 30% N/A FY03 Special 25 Jun 2003 50 cents 100% 30% N/A FY03 Interim 21 Mar 2003 60 cents 100% 30% N/A
Annual Report 2013 103 OPerating and financial review APPENDICES continued
Appendix E: Bridge for FY13 Statutory Accounts and Operating and Financial Review
Operating income from FY13 Stat OFR UPAT FY13 OFR discontinued Accounts Adjustments Presentation EMCF operations
Total revenue from continuing operations 397,478 (27,826) 369,652 (28,273) – Staff related expenses excluding equity remuneration expense (161,011) 4,190 (156,821) – – Occupancy expenses (17,668) 495 (17,173) – – Administrative and general expenses (81,954) 16,830 (65,124) – – Distributions and expenses relating to structured products (28,273) 28,273 – 28,273 – Financing costs (1,764) – (1,764) – – Equity remuneration expense (12,727) 480 (12,247) – – Depreciation and amortisation expense (9,092) 1 (9,091) – – Proceeds from sale of investments 38,802 (38,802) – – – Costs of investments disposed of (37,511) 37,511 – – – Impairment of assets (3,348) 3,348 – – – Gain on sale of businesses 145 (145) – – – Share of loss of equity accounted investment (704) 704 – – – Net profit before tax from continuing operations 82,373 25,059 107,432 – – Income tax expense (24,864) (6,674) (31,538) – – Net profit after tax from continuing operations 57,509 18,385 75,894 – – Net profit after tax from discontinued operations 2,876 (2,876) – – (426) Net profit after tax consolidated entity 60,385 15,509 75,894 – (426) Loss after tax attributable to non-controlling interests 583 (583) – – – Net profit after tax attributable to equity holders of Perpetual Limited 60,968 14,926 75,894 – (426) Operating income from discontinued operations 426 Net tax benefit on non-recurring items 389 Gain/(Loss) on disposal of businesses 2,595 Loss on disposal/impairment of investments (829) Restructuring costs (10,734) Impairment of assets (103) Foreign currency translation costs (5,207) Costs relating to the Trust Company proposal (1,463) Net profit after tax attributable to equity holders 60,968
104 Perpetual Limited and its controlled entities
Net tax Loss on Costs Share of benefit disposal/ Foreign relating to loss of on non- Gain/(Loss) impairment Currency the Trust equity recurring on disposal of Restructuring Impairment Translation Company accounted Total items of businesses investments Costs of assets Costs proposal investments Adjustments
– – 1,151 – – – – (704) (27,826) – – – 4,100 – – 90 – 4,190 – – – 495 – – 1 (1) 495 – – – 10,250 – 5,207 1,372 1 16,830 – – – – – – – – 28,273 – – – – – – – – – – – – 480 – – – – 480 – – – 1 – – – – 1 – – (38,802) – – – – – (38,802) – – 37,511 – – – – – 37,511 – – 3,204 – 144 – – – 3,348 – (145) – – – – – – (145) – – – – – – – 704 704 – (145) 3,064 15,326 144 5,207 1,463 – 25,059 (389) – (1,652) (4,592) (41) – – – (6,674) (389) (145) 1,412 10,734 103 5,207 1,463 – 18,385 – (2,450) – – – – – – (2,876) (389) (2,595) 1,412 10,734 103 5,207 1,463 – 15,509 – – (583) – – – – – (583)
(389) (2,595) 829 10,734 103 5,207 1,463 – 14,926
Annual Report 2013 105 OPerating and financial review APPE NDices continued
Glossary 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 Group Perpetual Limited and its controlled entities (the consolidated entity) and the consolidated entity’s interests in associates m Million NPAT Net profit after tax OFR Operating and Financial Review 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
106 Perpetual Limited and its controlled entities financial report
Annual Report 2013 107 financialfinan cial rePorreportt Financial Statements of Perpetual Limited and its controlled entities for the year ended 30 June 2013
Table of Contents Consolidated Statement of Profit or Loss and other Comprehensive Income for the year ended 30 June 2013 109 Consolidated Statement of Financial Position at 30 June 2013 111 Statement of Changes in Equity for the year ended 30 June 2013 112 Cash Flow Statement for the year ended 30 June 2013 114 Notes to and forming part of the financial statements for the year ended 30 June 2013 115 Note 1. Reporting entity 115 Note 2. Summary of significant accounting policies 115 Note 3. Revenue from continuing operations 124 Note 4. Net profit before tax 124 Note 5. Individually significant items included in profit for the year 125 Note 6. Segment information 126 Note 7. Discontinued operation 129 Note 8. Auditor’s remuneration 130 Note 9. Income tax expense 131 Note 10. Deferred tax assets/(liabilities) 132 Note 11. Dividends 135 Note 12. Earnings per share 136 Note 13. Cash and cash equivalents 136 Note 14. Receivables 137 Note 15. Assets and liabilities held for sale 137 Note 16. Other financial assets 138 Note 17. Derivative financial instruments 138 Note 18. Equity accounted investee 139 Note 19. Property, plant and equipment 140 Note 20. Intangibles 141 Note 21. Prepayments 142 Note 22. Payables 142 Note 23. Structured products – income received in advance 142 Note 24. Non-current interest-bearing liabilities 143 Note 25. Provisions 143 Note 26. Contributed equity 144 Note 27. Reserves 145 Note 28. Employee benefits 145 Note 29. Financial arrangements 148 Note 30. Financial risk management 149 Note 31. Structured products assets and liabilities 157 Note 32. Commitments 161 Note 33. Contingencies 161 Note 34. Related parties 161 Note 35. Controlled entities 162 Note 36. Parent entity disclosures 164 Note 37. Business combinations 165 Note 38. Notes to the Cash Flow Statement 166 Note 39. Subsequent events 167 Note 40. Remuneration details provided as part of the financial report 167 Directors’ declaration 173 Independent auditor’s report to the members of Perpetual Limited 174 Securities exchange and investor information 176
108 Perpetual Limited and its controlled entities Consolidated Statement of Profit or Loss and other Comprehensive Income for The year ended 30 june 2013
Consolidated
2013 2012 Note $’000 $’000
Revenue from the provision of services 353,391 349,118 Income from structured products 35,899 42,010 Investment income 8,188 8,380 Total revenue from continuing operations 3 397,478 399,508 Staff related expenses excluding equity remuneration expense (161,011) (194,637) Occupancy expenses (17,668) (18,085) Administrative and general expenses (81,954) (62,733) Distributions and expenses relating to structured products (28,273) (36,355) Financing costs (1,764) (2,479) Equity remuneration expense (12,727) (12,248) Depreciation and amortisation expense 4 (9,092) (13,509) Proceeds from sale of investments 38,802 54,349 Cost of investments disposed of (37,511) (53,990) Impairment of assets 5 (3,348) (26,266) Gain on sale of business 5 145 1,151 Share of loss of equity accounted investments 18 (704) – Net profit before tax from continuing operations 82,373 34,706 Income tax expense 9 (24,864) (13,893) Net profit after tax from continuing operations 57,509 20,813 Discontinued operation Net profit after tax from discontinued operation 7 2,876 2,230 Net profit after tax 60,385 23,043 (Loss)/profit after tax attributable to non-controlling interests (583) (3,636) Net profit after tax attributable to equity holders of Perpetual Limited 60,968 26,679
The Consolidated Statement of Profit or Loss and other Comprehensive Income is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 115 to 172.
Annual Report 2013 109 financial report Consolidated Statement of Profit or Loss and other Comprehensive Income for The year ended 30 june 2013 CONTINUED
Consolidated
2013 2012 Note $’000 $’000
Net profit after tax 60,385 23,043 Other comprehensive income/(expense) Items that may be reclassified subsequently to profit or loss: Cash flow hedge reserve Effective portion of changes in fair value of cash flow hedges 140 (113) Foreign currency reserve Foreign currency translation differences – foreign operations 5,313 (744) Reclassification of foreign currency differences Available-for-sale reserve Net (decrease)/increase in fair value of available-for-sale financial assets 10,898 (12,530) Impairment of available-for-sale financial assets reclassified to profit or loss 2,108 8,412 Loss of previously impaired available-for-sale financial assets reclassified to profit or loss upon disposal (5,218) (2,115) Income tax on items that may be reclassified to profit or loss 10 (1,982) 1,343 Other comprehensive income/(expense), net of income tax 11,259 (5,747) Total comprehensive income 71,644 17,296 Total comprehensive income is attributable to: Non-controlling interests 626 (4,691) Equity holders of Perpetual Limited 71,018 21,987 Total comprehensive income 71,644 17,296 Earnings per share Basic earnings per share attributable to ordinary equity holders – cents per share 12 158.2 68.6 Diluted earnings per share attributable to ordinary equity holders – cents per share 12 148.7 64.0 Earnings per share – continuing operations Basic earnings per share attributable to ordinary equity holders – cents per share 12 150.7 62.9 Diluted earnings per share attributable to ordinary equity holders – cents per share 12 141.7 58.6
The Consolidated Statement of Profit or Loss and other Comprehensive Income is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 115 to 172.
110 Perpetual Limited and its controlled entities Consolidated Statement of Financial Position at 30 June 2013
Consolidated
2013 2012 Note $’000 $’000 Current assets Cash and cash equivalents 13 217,119 153,057 Receivables 14 62,020 58,237 Assets held for sale 15 803 14,033 Other financial assets 16 40 100 Current tax assets 9 – 1,282 Structured products – EMCF assets 31(i) 427,006 694,621 Structured products – receivable from investors 31(ii) 34,882 24,222 Prepayments 21 6,927 8,803 Total current assets 748,797 954,355 Non-current assets Other financial assets 16 35,415 39,716 Structured products – loans receivable from investors 31(ii) 41,859 84,943 Property, plant and equipment 19 18,289 19,668 Intangibles 20 129,267 122,691 Deferred tax assets 10 30,345 30,820 Prepayments 21 396 369 Total non-current assets 255,571 298,207 Total assets 1,004,368 1,252,562 Current liabilities Payables 22 37,911 31,283 Liabilities held for sale 15 – 5,612 Structured products – EMCF liabilities 31(i) 423,848 695,199 Structured products – interest-bearing liabilities 31(ii) 36,231 23,046 Structured products – income received in advance 23 5,468 7,138 Derivative financial instruments 17 423 768 Current tax liabilities 9 13,308 – Employee benefits 28 41,534 40,592 Provisions 25 2,779 2,226 Total current liabilities 561,502 805,864 Non-current liabilities Interest-bearing liabilities 24 45,000 45,000 Structured products – interest-bearing liabilities 31(ii) 42,418 88,370 Deferred tax liabilities 10 8,071 8,471 Employee benefits 28 2,402 3,255 Provisions 25 21,237 21,141 Total non-current liabilities 119,128 166,237 Total liabilities 680,630 972,101 Net assets 323,738 280,461 Equity Contributed equity 26 239,801 236,530 Reserves 27 37,124 24,228 Retained earnings 37,415 7,440 Total equity attributable to equity holders of Perpetual Limited 314,340 268,198 Non-controlling interest 9,398 12,263 Total equity 323,738 280,461
The Consolidated Statement of Financial Position is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 115 to 172.
Annual Report 2013 111 financial report Statement of Changes in Equity for The year ended 30 june 2013
Consolidated Gross Treasury Total Available- contributed share contributed for-sale General $’000 equity reserve equity reserve reserve
Balance at 1 July 2012 379,567 (143,037) 236,530 (370) 103 Total comprehensive income/(expense) – – – 4,639 – Movement on treasury shares (23,250) 26,521 3,271 – – Equity remuneration expense – – – – – Dividends paid to shareholders – – – – – Non-controlling interest – – – – – Balance at 30 June 2013 356,317 (116,516) 239,801 4,269 103 Balance at 1 July 2011 411,947 (166,881) 245,066 3,499 103 Total comprehensive income/(expense) – – – (3,869) – Movement on treasury shares (1,494) 23,844 22,350 – – Equity remuneration expense – – – – – Off market share buy-back (30,886) – (30,886) Dividends paid to shareholders – – – – – Non-controlling interest – – – – – Balance at 30 June 2012 379,567 (143,037) 236,530 (370) 103
The Statement of Changes in Equity is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 115 to 172.
112 Perpetual Limited and its controlled entities Foreign currency Equity Cash flow Equity Non- translation compensation hedge Total Retained holders of controlling reserve reserve reserve reserves earnings Perpetual interest Total
(5,379) 30,369 (495) 24,228 7,440 268,198 12,263 280,461 5,313 – 98 10,050 60,968 71,018 626 71,644 – (9,899) – (9,899) 6,789 161 – 161 – 12,745 – 12,745 – 12,745 – 12,745 – – – – (37,782) (37,782) – (37,782) – – – – – – (3,491) (3,491) (66) 33,215 (397) 37,124 37,415 314,340 9,398 323,738 (4,635) 45,694 (416) 44,245 76,705 366,016 10,085 376,101 (744) – (79) (4,692) 26,679 21,987 (4,691) 17,296 – (27,543) – (27,543) 4,380 (813) – (813) – 12,218 – 12,218 – 12,218 – 12,218 (39,127) (70,013) – (70,013) – – – – (61,197) (61,197) – (61,197) – – – – – – 6,869 6,869 (5,379) 30,369 (495) 24,228 7,440 268,198 12,263 280,461
Annual Report 2013 113 financial report Cash Flow Statement for The year ended 30 june 2013
Consolidated
2013 2012 Note $’000 $’000 Cash flows from operating activities Cash receipts in the course of operations 395,560 444,188 Cash payments in the course of operations (285,204) (358,740) Dividends received 955 892 Interest received 7,259 8,709 Interest paid (1,764) (2,479) Income taxes paid (11,228) (26,123) Net cash from operating activities 38 105,578 66,447 Cash flows from investing activities Payments for property, plant, equipment and software (14,225) (10,193) Payments for investments (33,779) (50,461) Repayments of advances made under the Employee Share Purchase Plan 136 190 Acquisition of business (599) (1,110) Proceeds from sale of property, plant and equipment 1,881 – Proceeds from sale of businesses 8,399 – Proceeds from the sale of investments 38,802 54,349 Net cash used in investing activities 615 (7,225) Cash flows from financing activities Sale of units in seed funds to non-controlling interests (4,349) 5,711 Share buy-back (LTI market purchase) – (986) Off market share buy-back – (70,013) Dividends paid (37,782) (61,197) Net cash used in financing activities (42,131) (126,485) Net (decrease)/increase in cash and cash equivalents 64,062 (67,263) Cash and cash equivalents at 1 July 153,057 220,320 Cash and cash equivalents at 30 June 13 217,119 153,057
The Cash Flow Statement is to be read in conjunction with the ‘Notes to the Financial Statements’ set out on pages 115 to 172.
114 Perpetual Limited and its controlled entities NOS TE TO AND FORMING PART OF THE FINANCIAL STATEMENTS for The year ended 30 june 2013
Note 1. Reporting entity The preparation of the financial report When the excess is negative, a bargain Perpetual Limited (‘the Company’) is requires management to make judgements, purchase gain is recognised immediately domiciled in Australia. The consolidated estimates and assumptions that affect the in profit. financial report of the Company as at and application of accounting policies and The consideration transferred does not for the year ended 30 June 2013 comprises the reported amounts of assets, liabilities, include amounts related to the settlement the Company and its controlled entities income and expenses. Actual results may of pre-existing relationships. Such amounts (together referred to as (‘the consolidated differ from these estimates. Estimates and are generally recognised in profit or loss. entity’) and the consolidated entity’s underlying assumptions are reviewed on interests in associates. an ongoing basis. Revisions to accounting Costs related to the acquisition, other than estimates are recognised in the period in those associated with the issue of debt or Perpetual is a for-profit entity and primarily equity securities, that the Group incurs in involved in funds management, portfolio which the estimate is revised and in any future periods affected. connection with a business combination are management, financial planning, trustee, expensed as incurred. responsible entity and compliance services, In particular, information about significant executor services, investment administration areas of estimation uncertainty and critical Any contingent consideration payable is and custody services and mortgage judgements in applying accounting policies recognised at fair value at the acquisition processing services. that have the most significant effect on the date. If the contingent consideration is classified as equity, it is not remeasured and The financial report was authorised for issue amount recognised in the consolidated financial report is disclosed in: settlement is accounted for within equity. by the Directors on 29 August 2013. Otherwise, subsequent changes to the fair ll Note 10. Deferred tax assets/(liabilities) The consolidated annual report for the value of the contingent consideration are consolidated entity as of and for the ll Note 17. Derivative financial instruments recognised in profit or loss. ll Note 20. Intangibles year ended 30 June 2013 is available at When share-based payment awards ll Note 25. Provisions www.perpetual.com.au. (replacement awards) are required to be ll Note 28. Employee benefits exchanged for awards held by the acquiree’s Note 2. Summary of ll Note 31. Structured products assets employees (acquiree’s awards) and related significant accounting and liabilities to past services, then all or a portion of the policies ll Note 33. Contingencies. i. Statement of compliance amount of the acquirer’s replacement award The financial report is a general purpose is included in measuring the consideration financial report prepared in accordance with iii. Basis of consolidation transferred in the business combination. Australian Accounting Standards adopted by (a) Business combinations This determination is based in the market- the Australian Accounting Standards Board Business combinations are accounted for based value of the replacement awards (AASB) and the Corporations Act 2001. using the acquisition method as at the compared with the market-based value of the acquisition date, which is the date on which acquiree’s awards and the extent to which The financial report of the consolidated control is transferred to the Group. Control the replacement awards relate to past and/or entity also complies with International is the power to govern the financial and future service. Financial Reporting Standards (IFRS) operating policies of an entity so as to obtain adopted by the International Accounting benefits from its activities. In assessing Acquisitions between 1 July 2004 Standards Board (IASB). control, the Group takes into consideration and 1 July 2009 potential voting rights that currently For acquisitions between 1 July 2004 ii. Basis of preparation are exercisable. and 1 July 2009, goodwill represents the The consolidated financial statements have excess of the cost of the acquisition over the been prepared on a historical cost basis, Acquisitions on or after 1 July 2009 Group’s interest in the recognised amount except for available-for-sale financial assets For acquisitions on or after 1 July 2009, the (generally fair value) of the identifiable and derivative financial instruments which Group measures goodwill at the acquisition assets, liabilities and contingent liabilities of are measured at fair value. Non-current date as: the acquiree. When the excess was negative, assets are stated at the lower of carrying ll the fair value of the consideration a bargain purchase gain was recognised amount or fair value less selling costs. transferred; plus immediately in profit or loss. The consolidated financial statements are ll the recognised amount of any Transaction costs, other than those presented in Australian dollars, which is the non‑controlling interests in the acquiree; associated with the issue of debt or equity functional currency of the majority of the plus if the business combination is securities, that the Group incurred in consolidated entity. achieved in stages, the fair value of connection with business combinations The Company is of a kind referred to in the existing equity interest in the were capitalised as part of the cost of ASIC Class Order 98/100 dated 10 July acquiree; less the acquisition.
1998 and in accordance with that Class ll the net recognised amount (generally Order, all financial information presented in fair value) of the identifiable assets Australian dollars has been rounded to the acquired and liabilities assumed. nearest thousand unless otherwise stated.
Annual Report 2013 115 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 2. Summary of (d) Associates differences on non‑monetary financial assets significant accounting Associates are those entities in which the and liabilities such as equities held at fair policies continued consolidated entity has significant influence, value through profit or loss are recognised in iii. Basis of consolidation but not control, over the financial and profit or loss as part of the fair value gain or continued operating policies. Significant influence is loss. Translation differences on non-monetary (a) Business combinations continued presumed to exist when the consolidated financial assets such as equities classified as Acquisitions prior to 1 July 2004 entity holds between 20 and 50 per cent available-for-sale financial assets are included (date of transition to IFRS) of the voting power of another entity. in the available for sale reserve in equity. Associates are accounted for using the As part of its transition to IFRS, the Group equity method. The consolidated financial (b)F oreign operations elected to restate only those business statements include the consolidated The results and financial position of combinations that occurred on or after entity’s share of the income and expenses subsidiaries that have a functional currency 1 July 2003. In respect of acquisitions of associates, after adjustments to align different from the presentation currency are prior to 1 July 2003, goodwill represents the accounting policies with those of translated into Australian dollars as follows: the amount recognised under the Group’s the consolidated entity, from the date previous accounting framework, Australian ll Assets and liabilities for each Balance significant influence commences until the Generally Accepted Accounting Practices. Sheet presented are translated at date significant influence ceases. When the Acquisitions of non-controlling interests are the closing rate at the date of that consolidated entity’s share of losses exceeds accounted for as transactions with owners balance sheet. its interest in an associate, the carrying in their capacity as owners and therefore ll Income and expenses for each Statement amount is reduced to nil and recognition no goodwill is recognised as a result of of Comprehensive Income are translated of further losses is discontinued except to such transactions. The adjustments to at average exchange rates (unless this is the extent that the consolidated entity has non-controlling interests are based on a not a reasonable approximation of the incurred legal or constructive obligations proportionate amount of the net assets cumulative effect of the rates prevailing to make payments on behalf of an associate. of the subsidiary. on the transaction dates, in which case income and expenses are translated (e) Transactions eliminated on at the dates of the transactions). (b) Subsidiaries consolidation Subsidiaries are entities controlled by the Intra-group balances and transactions, and Foreign currency differences are recognised consolidated entity. Control exists when any unrealised income and expenses arising in other comprehensive income. When a the consolidated entity has the power to from intra-group transactions, are eliminated foreign operation is disposed of, in part or govern the financial and operating policies in preparing consolidated financial in full, the relevant amount in the foreign of an entity so as to obtain benefits from statements. Unrealised gains arising from currency translation reserve is transferred its activities. In assessing control, potential transactions with associates are eliminated to profit or loss or to non-controlling interest voting rights presently exercisable are against the investment to the extent of as part of the profit or loss on disposal. taken into account. Financial statements of the consolidated entity’s interest in the subsidiaries are included in the consolidated associate. Unrealised losses are eliminated v. Intangible assets financial statements from the date control in the same way as unrealised gains, but only (a) Goodwill commences until the date control ceases. to the extent that there is no evidence of Goodwill that arises upon the acquisition of impairment. Gains and losses are recognised subsidiaries is included in intangible assets. (c) Share plan entities when the contributed assets are consumed For the measurement of goodwill at initial The consolidated entity has established or sold by the associates or, if not consumed recognition, see Note 20. a number of share plan entities (SPE) in or sold, when the consolidated entity’s relation to the administration of employee interest in such entities is disposed of. Measurement share plans rather than for trading and Goodwill represents the excess of acquisition investment purposes. A SPE is consolidated iv. Foreign currency cost over the fair value of the consolidated if, based on an evaluation of the substance translation entity’s share of the net identifiable assets of its relationships within the consolidated (a) Foreign currency of the acquired subsidiary or associate at the entity and the SPE’s risks and rewards, the transactions and balances date of acquisition. Goodwill on acquisition consolidated entity concludes that it controls Foreign currency transactions are translated of subsidiaries is presented with intangible the SPE. SPE’s controlled by the consolidated into the functional currency using the assets and on acquisition of associates entity were established under terms that exchange rates prevailing at the dates of the is included in investment in associates. impose strict limitations on the decision transactions. Foreign exchange gains and Goodwill is allocated to cash-generating making powers of the SPE’s management losses resulting from the settlement of such units and is not amortised, but tested for and that result in the consolidated entity transactions and from the translation at year impairment annually or more frequently if receiving the majority of the benefits related end exchange rates of monetary assets and events or changes in circumstances indicate to the SPE operations and net assets, being liabilities denominated in foreign currencies that it might be impaired. When impaired, exposed to risks incidental to the SPE’s are recognised in the profit or loss. goodwill is carried at cost less accumulated activities and retaining the majority of the Translation differences on financial assets and impairment losses (see accounting policy xx). residual or ownership risks related to the liabilities carried at fair value are reported as SPE or its assets. part of their fair value gain or loss. Translation
116 Perpetual Limited and its controlled entities Note 2. Summary of assets are indefinite life assets. Goodwill and of an item of property, plant and equipment significant accounting other intangible assets with an indefinite is determined as the difference between policies continued useful life are systematically tested for net disposal proceeds, being the cash price v. Intangible assets impairment at each balance sheet date or equivalent where payment is deferred, and continued more frequently if events or changes in the carrying amount of the item. (a) Goodwill continued Subsequent measurement circumstances indicate that they might Profit or loss on disposal of assets is brought be impaired. Other intangible assets are Goodwill is measured at cost less to account at the date an unconditional amortised from the date they are available accumulated impairment losses. In respect contract of sale is signed. for use. of associates, the carrying amount of goodwill is included in the carrying amount The estimated useful lives in the current and vii. Segment reporting of the investment, and an impairment loss comparative periods are as follows: The consolidated entity determines and on such an investment is not allocated to any ll capitalised software costs: 2.5 – 7 years presents operating segments based on the assets, including goodwill, that forms part ll funds under management acquired: information that internally is provided to of the carrying amount of the associate. 5 years the Chief Executive Officer (CEO), who is the consolidated entity’s chief operating Gains and losses on the disposal of an entity ll customer contracts and relationships decision maker. include the carrying amount of goodwill acquired: 5 – 10 years. An operating segment is a component of the relating to the entity sold. A discount upon Amortisation methods, useful lives and consolidated entity that engages in business acquisition is recognised directly in profit residual values are reviewed at each financial activities from which it may earn revenues or loss. year-end and adjusted if appropriate. and incur expenses, including revenues (b) Software and expenses that relate to transactions vi. Revenue and income with any of the consolidated entity’s other Certain internal and external costs directly recognition components. All operating segments’ incurred in acquiring and developing Revenue is recognised at fair value of operating results are regularly reviewed software have been capitalised and are consideration received or receivable net by the consolidated entity’s CEO to make amortised over their useful life. Development of goods and services tax payable to the decisions about resources to be allocated costs include only those costs directly taxation authority. attributable to the development phase and to the segment and assess its performance, are only recognised following completion (a) Revenue from the provision and for which discrete financial information of a technical feasibility study and where of services is available. the consolidated entity has an intention Revenue is earned from provision of services Segment results that are reported to the and ability to use the asset. Costs incurred to customers outside the consolidated CEO include items directly attributable on software maintenance are expensed entity. Revenue is recognised when services to a segment as well as those that can be as incurred. are provided. allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, (c) Other intangible assets (b) Income from structured head office expenses, and income tax Other intangible assets acquired by the products expenses, assets and liabilities. consolidated entity, which have finite useful Refer to accounting policy xi for details on lives, are stated at cost less accumulated income from structured products. viii. Interest-bearing amortisation (refer to accounting policy borrowings v(e)) and impairment losses (see accounting (c) Investment income Interest-bearing borrowings are initially policy xx). Interest income is recognised as it accrues recognised at fair value net of transaction taking into account the effective yield of the costs incurred. Subsequent to initial (d)S ubsequent expenditure financial asset. recognition, interest-bearing borrowings Subsequent expenditure is capitalised only Dividend income is recognised in profit or are stated at amortised cost with any when it increases future economic benefits loss on the date the entity’s right to receive difference between initial carrying amount embodied in the specific asset to which it payment is established which, in the case and redemption value being recognised relates. All other expenditure is expensed of quoted securities, is the ex-dividend date. in the profit or loss over the period as incurred. of the borrowings using the effective Unit trust distributions are recognised in interest method. profit or loss as they are received. (e) Amortisation Interest-bearing borrowings are removed Amortisation is calculated over the cost of (d) Proceeds from sale of from the Statement of Financial Position the asset, or another amount substituted for investments when the obligation specified in the contract cost, less its residual value. Net gains or losses on disposal of is discharged, cancelled or expired. Amortisation is recognised in profit or loss non‑current assets are included in profit or on a straight-line basis over the period the loss. The gain or loss arising from disposal benefits from the assets arise, unless these
Annual Report 2013 117 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 2. Summary of The Company and its wholly owned (a) Exact Market Cash Funds significant accounting Australian resident entities are part of a The EMCF product consisting of two Funds policies continued tax consolidated group. As a consequence, (EMCF 1 and EMCF 2) is consolidated ix. Income tax all members of the tax consolidated group as the consolidated entity is deemed to Income tax expense comprises current are taxed as a single entity. The head control the EMCF Funds since it retains and deferred tax. Income tax expense is entity within the tax consolidated group is the residual risks and benefits through the recognised in the net profit or loss except to Perpetual Limited. swap agreements. The swap agreements the extent that it relates to items recognised result in the benchmark rate of return directly in equity, in which case it is x. Investments being paid to the unit holders in the Fund. recognised in other comprehensive income. (a) Held-to-maturity investments The swap agreements are inter-company Current tax is expected tax payable on the Investments are classified as held-to- transactions between a subsidiary of the taxable income for the year, using tax rates maturity if the consolidated entity has the Company and the Funds and are eliminated enacted or substantially enacted at reporting positive intent and ability to hold to maturity. on consolidation. date and any adjustment to tax payable in Held-to-maturity investments are measured Assets and liabilities of the EMCF product respect of previous years. at amortised cost using the effective interest are disclosed separately on the face of the Deferred tax is recognised in respect of method, less any impairment losses. Statement of Financial Position as structured temporary differences between carrying product assets and structured product amounts of assets and liabilities for financial (b) Available-for-sale liabilities. The benchmark return generated financial assets reporting purposes and amounts used for by the EMCF product and distributions The consolidated entity’s investments in taxation purposes. to unit holders are shown separately on equity securities and unlisted unit trusts the Statement of Comprehensive Income Deferred tax is not recognised for the are classified as available-for-sale financial as distributions and expenses related to following temporary differences: assets. Subsequent to initial recognition, structured products. ll the initial recognition of goodwill they are measured at fair value and changes The financial assets represented by the ll the initial recognition of assets or therein, other than impairment losses (see liabilities that affect neither accounting accounting policy xx), are recognised in structured products assets balance are nor taxable profit other comprehensive income. When an accounted for in accordance with the investment is derecognised, the cumulative underlying accounting policies of the ll differences relating to investments consolidated entity. These consist of in subsidiaries to the extent that gain or loss in equity is transferred to profit investments accounted for at fair value they probably will not reverse in the or loss. as available-for-sale financial assets. foreseeable future. The fair value of financial instruments classified as available-for-sale is their quoted Deferred tax is measured at the tax rates that (b) Perpetual Protected bid price at the reporting date. are expected to be applied to the temporary Investments differences when they reverse, based on the Loans to investors which are held as (c) Investments at fair value non‑current assets at amortised cost on laws that have been enacted or substantively through profit or loss the Statement of Financial Position (refer enacted by the reporting date. Investments are classified at fair value to structured products – loan receivables) A deferred tax asset is recognised to the through profit or loss if they are held for are non-derivative financial assets with extent that it is probable that future taxable trading or designated as such upon initial fixed or determinable payments that are profits will be available against which recognition. The consolidated entity’s not quoted in an active market. Such assets temporary differences can be utilised. derivative instruments within asset are recognised initially at fair value plus Deferred tax assets are reviewed at each management incubation funds are classified any directly attributable transaction costs. balance sheet date and are reduced to the as held for trading financial assets. On Subsequent to initial recognition loans and extent that it is no longer probable that the initial recognition, attributable transaction receivables are measured at amortised cost related tax benefit will be realised. costs are recognised in profit or loss using the effective interest method, less any when incurred. Deferred tax assets and liabilities are offset impairment losses. when there is a legally enforceable right Financial instruments designated at fair Loans to investors are subject to recurring to offset current tax assets and liabilities value through profit or loss are measured review and assessment for possible and when the deferred tax balances relate at fair value and changes recognised in impairment. Provisions for loan losses are to the same taxation authority. Current tax profit or loss. based on an incurred loss model, which assets and tax liabilities are offset where recognises a provision where there is the entity has a legally enforceable right to xi. Structured products objective evidence of impairment at each offset and intends either to settle on a net Structured products comprise products balance sheet date, and are calculated based basis, or to realise the asset and settle the sold to investors where there is residual on the discounted values of expected future liability simultaneously. risk taken by the Company. Currently, cash flows. Additional income taxes that arise from the structured products comprise products distribution of dividends are recognised such as the Exact Market Cash Funds (the at the same time as the liability to pay the EMCF product) and Perpetual Protected related dividend is recognised. Investments (PPI).
118 Perpetual Limited and its controlled entities Note 2. Summary of (b) Subsequent costs (b) Financing costs significant accounting The consolidated entity recognises the cost Financing costs comprise interest payments policies continued of replacing part of an item of property, on borrowings and derivative financial xi. Structured products plant and equipment in the carrying amount instruments calculated using the effective continued of that item when the cost is incurred, it interest method, and unwinding of discounts (b) Perpetual Protected Investments continued is probable that future economic benefits on provisions. The incurred loss model makes specific embodied within the item will flow to the provisions where specific loan impairment is consolidated entity and the cost of the item xv. Payables identified. For individual loans not impaired, can be measured reliably. The carrying Payables are non-interest bearing and are assets with similar risk profiles are pooled amount of the replaced part is derecognised. stated at amortised cost, with the exception and collectively assessed for losses that may All other costs are recognised in profit or of contingent consideration recognised in have been incurred but not yet identified. loss as an expense when incurred. business combinations which is recorded Bad debts are written off in the period in at fair value at the acquisition date. which they are identified. (c) Depreciation Contingent consideration recognised in Depreciation is recognised in the Statement Management makes judgements whether business combinations is classified as of Comprehensive Income on a straight‑line a financial liability and is subsequently there is any observable data indicating basis over the estimated useful lives of that there is a significant decrease in remeasured to fair value with changes in each part of an item of property, plant and fair value recognised in profit or loss. the estimated future cash flows from a equipment. The estimated useful lives for portfolio of loans. This evidence may the current and comparative periods are xvi. Provisions include observable data indicating that as follows: there has been an adverse change in the A provision is recognised in the Statement ll plant and equipment: 4 – 10 years payment status of the borrowers in a group, of Financial Position when the consolidated ll leasehold improvements: 3 – 15 years. or national or local economic conditions entity has a present legal or constructive that correlate with defaults on assets in The residual value, useful life and obligation as a result of a past event that that group. depreciation method applied to an asset can be measured reliably and it is probable are reassessed at least annually. that an outflow of economic benefits will be xii. Property, plant required to settle the obligation. and equipment xiii. Loans and receivables Management exercise judgement in (a) Recognition and Loans and receivables are financial assets estimating provision amounts. It may be measurement with fixed or determinable payments that are possible, based on existing knowledge, Property, plant and equipment are measured not quoted in an active market. Such assets that outcomes in the next annual reporting at cost or deemed cost less accumulated are recognised initially at fair value plus any period differ from amounts provided and depreciation and impairment losses (see directly attributable transaction costs. may require adjustment to the carrying accounting policy xx). Subsequent to initial recognition loans amount of the liability affected. Cost includes expenditures that are directly and receivables are measured at amortised Provisions are determined by discounting attributable to the acquisition of the asset. cost using the effective interest method the expected future cash flows at a pre-tax Cost of self-constructed assets includes cost less impairment losses (see accounting rate that reflects current market assessments of materials, direct labour, an appropriate policy xx). of the time value of money and, where proportion of overheads and where appropriate, the risks specific to the liability. relevant, the initial estimate of the costs of Loans and receivables comprise trade and other receivables. Refer to accounting The unwinding of the discount is recognised dismantling and removing the items and as a finance cost. restoring the site on which they are located. policy xi(b) for structured-products loan receivables. Purchased software that is integral to the (a) Onerous leases and functionality of the related equipment is make good capitalised as part of that equipment. xiv. Expenses A provision for onerous leases is recognised (a) Operating leases Where parts of an item of property, plant when the expected benefits to be derived Operating lease payments are recognised and equipment have different useful lives, by the consolidated entity from a lease as an expense in profit or loss on a they are accounted for as separate items contract are lower than the unavoidable straight‑line basis over the term of the lease. of property, plant and equipment. cost of meeting its obligations under the Incentives received by the consolidated contract. The provision is measured at the Gains and losses on disposal of an item entity on entering a lease agreement are present value of the lower of the expected of property, plant and equipment are recognised on a straight-line basis over the cost of terminating the contract and the determined by comparing the proceeds term of the lease. expected net cost of continuing with the from disposal with the carrying amount The difference between the cash amount contract. Before a provision is established, of property, plant and equipment. When paid and the amount recognised as an the consolidated entity recognises any revalued assets are sold, the amounts expense is recognised as a lease provision impairment loss on the assets associated included in the revaluation reserve are in the Statement of Financial Position (see with that contract. A provision for make transferred to retained earnings. accounting policy xvi). The provision is good is recognised when the consolidated expected to be realised over the term of entity is responsible for the make good the underlying leases. of leased premises on termination of operating leases.
Annual Report 2013 119 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 2. Summary of and recognised as part of the cost of held-to-maturity investment securities significant accounting the investment. are assessed for specific impairment. All policies continued individually significant receivables and xvi. Provisions Continued xviii. Share capital held-to-maturity investment securities found (b) Restructuring (a) Ordinary shares not to be specifically impaired are then A provision for restructuring is recognised Ordinary shares are classified as equity. collectively assessed for any impairment when the consolidated entity has approved Incremental costs directly attributable to the that has been incurred but not yet identified. a detailed and formal restructuring plan and issue of ordinary shares are recognised as a Receivables and held-to-maturity investment the restructuring has either commenced deduction from equity, net of any tax effects. securities that are not individually or has been announced publicly. Future significant are collectively assessed operating costs are not provided for. (b) Repurchase of share capital for impairment by grouping together (treasury shares) receivables and held-to-maturity investment (c) Operational process review When share capital recognised as equity securities with similar risk characteristics. A provision for operational process reviews is repurchased or held by employee share In assessing collective impairment the is recognised when operational errors in plans and subject to vesting conditions, the consolidated entity uses historical trends relation to unit pricing are identified and amount of the consideration paid, including of the probability of default, timing of represents the cost that the consolidated directly attributable costs, is recognised as recoveries and the amount of loss incurred, entity expects to incur in rectification and a deduction from equity. When treasury adjusted for management’s judgement as restitution costs. shares are sold or reissued subsequently, the to whether current economic and credit amount received is recognised as an increase conditions are such that the actual losses (d) Self-insurance in equity. Provision for self-insurance recognises are likely to be greater or less than suggested by historical trends. incurred but not reported claims. These (c) Dividends provisions are measured at the cost that Dividends are recognised as a liability in the An impairment loss in respect of a financial the consolidated entity expects to incur period in which they are declared. asset measured at amortised cost is calculated in settling the claim, discounted using a as the difference between its carrying amount government bond rate with a maturity date xix. Cash and cash and the present value of the estimated approximating the term of the obligation. equivalents future cash flows discounted at the asset’s Cash and cash equivalents comprise bank original effective interest rate. Losses are (e) Legal provision balances, deposits at call and short-term recognised in profit and loss and reflected A provision for litigation is recognised when deposits. in an allowance account against receivables. reported litigation claims arise and are Interest on the impaired asset continues to measured at the cost that the consolidated xx. Impairment be recognised through the unwinding of the entity expects to incur in settling the claim. (a) Financial assets (including discount. When a subsequent event causes receivables) the amount of impairment loss to decrease, (f) Lease expense A financial asset not carried at fair value the decrease in impairment loss is reversed A provision for lease expense represents the through profit or loss is assessed at each through profit or loss. difference between the cash amount paid reporting date to determine whether there Impairment losses on available-for-sale and the amount recognised as an expense. is any objective evidence of impairment. A investment securities are recognised by The provision is expected to be realised over financial asset is considered to be impaired transferring the cumulative loss that has the term of the underlying lease. if objective evidence indicates that one or more events have had a negative effect on been recognised in other comprehensive income, and presented in the available-for- (g) Employee benefits the estimated future cash flows of that asset. sale reserve in equity, to profit or loss. The Refer to accounting policy xxiii for details Objective evidence that financial assets on employee benefits provisions. cumulative loss that is removed from other (including equity securities) are impaired comprehensive income and recognised can include default or delinquency by a in profit or loss is the difference between xvii. Financial guarantee debtor, restructuring of an amount due to contracts the acquisition cost, net of any principal the consolidated entity on terms that the Financial guarantee contracts are repayment and amortisation, and the consolidated entity would not consider recognised as a financial liability at the current fair value, less any impairment loss otherwise, indications that a debtor or issuer time the guarantee is issued. The liability previously recognised in profit or loss. will enter bankruptcy and the disappearance is initially measured at fair value and of an active market for a security. In addition, If, in a subsequent period, the fair value of subsequently at the higher of the amount for an investment in an equity security, an impaired available-for-sale debt security determined in accordance with AASB 137 a significant or prolonged decline in fair increases and the increase can be related Provisions, Contingent Liabilities and value below its cost is objective evidence objectively to an event occurring after Contingent Assets and the amount initially of impairment. the impairment loss was recognised in recognised less cumulative amortisation, profit or loss, then the impairment loss is where appropriate. The consolidated entity considers evidence reversed, with the amount of the reversal of impairment for receivables and held- Where guarantees in relation to loans recognised in profit or loss. However, any to-maturity investment securities at both or other payables of subsidiaries are subsequent recovery in the fair value of an a specific asset and collective level. All provided for no compensation, the fair impaired available-for-sale equity security is individually significant receivables and values are accounted for as contributions recognised in other comprehensive income.
120 Perpetual Limited and its controlled entities Note 2. Summary of An impairment loss in respect of goodwill xxii. Derivative financial significant accounting is not reversed. In respect of other assets, instruments policies continued impairment losses recognised in prior periods The consolidated entity holds derivative xx. Impairment Continued are assessed at each balance sheet date for financial instruments within structured (b) Non-financial assets any indications that the loss has decreased products and incubation funds to hedge its The carrying amounts of the consolidated or no longer exists. An impairment loss is interest rate, foreign exchange and market entity’s non-financial assets, other than reversed if there has been a change in the risk exposures. deferred tax assets (see accounting policy estimates used to determine the recoverable On initial designation of the hedge, the ix), are reviewed at each reporting date to amount. An impairment loss is reversed consolidated entity formally documents determine whether there is any indication only to the extent that the asset’s carrying the relationship between the hedging of impairment. If any such indication exists, amount does not exceed the carrying instrument and the hedged item, including the asset’s recoverable amount is estimated. amount that would have been determined, the risk management objectives and strategy For goodwill and intangible assets that have net of depreciation or amortisation, if no in undertaking the hedge transaction, indefinite lives or that are not yet available impairment loss had been recognised. together with the methods that will be used for use, recoverable amount is estimated at to assess the effectiveness of the hedging each balance sheet date. xxi. Recognition and relationship. The consolidated entity makes The recoverable amount of an asset or derecognition of financial an assessment, both at the inception of the assets and liabilities cash-generating unit is the greater of its hedge relationship as well as on an ongoing The consolidated entity initially recognises value in use and its fair value less costs to basis, whether the hedging instruments are loans and receivables and deposits on the sell. In assessing value in use, the estimated expected to be ‘highly effective’ in offsetting date that they are originated. All other future cash flows are discounted to their the changes in the fair value or cash flows financial assets (including assets designated present value using a pre-tax discount rate of the respective hedged items during the at fair value through profit or loss) are that reflects current market assessments period for which the hedge is designated, recognised initially on the trade date at of the time value of money and the risks and whether the actual results of each hedge which the consolidated entity becomes specific to the asset. For the purpose of are within a range of 80-125 per cent. For a party to the contractual provisions of impairment testing, assets that cannot be a cash flow hedge of a forecast transaction, the instrument. tested individually are grouped together into the transaction should be highly probable the smallest group of assets that generates The consolidated entity derecognises a to occur and should present an exposure to cash inflows from continuing use that are financial asset when the contractual rights variations in cash flows that could ultimately largely independent of the cash inflows to the cash flows from the asset expire, affect reported net income. of other assets or groups of assets (the or it transfers the rights to receive the Derivatives are recognised initially at fair ‘cash-generating unit’ or CGU). Subject to contractual cash flows on the financial asset value. Attributable transaction costs are an operating segment ceiling test, for the in a transaction in which substantially all recognised in profit or loss when incurred. purposes of goodwill impairment testing, the risks and rewards of ownership of the Subsequent to initial recognition, derivatives CGUs to which goodwill has been allocated financial asset are transferred. Any interest are measured at fair value, and changes are aggregated so that the level at which in transferred financial assets that is created therein are accounted for as described below. impairment is tested reflects the lowest level or retained by the consolidated entity is at which goodwill is monitored for internal recognised as a separate asset or liability. (a) Cash flow hedges reporting purposes. Financial liabilities (including liabilities To the extent that the hedge is effective, The consolidated entity’s corporate assets do designated at fair value through profit changes in the fair value of a derivative not generate separate cash inflows. If there or loss) are recognised initially on the hedging instrument designated as a cash is an indication that a corporate asset may trade date at which the consolidated flow hedge are recognised in the cash flow be impaired, then the recoverable amount entity becomes a party to the contractual hedge reserve. To the extent that the hedge is determined for the CGU to which the provisions of the instrument. The is ineffective, changes in fair value are corporate asset belongs. consolidated entity derecognises a financial recognised in the net profit or loss. liability when its contractual obligations are An impairment loss is recognised if If the hedging instrument no longer meets discharged or cancelled or expire. the carrying amount of an asset or its the criteria for hedge accounting, expires or cash‑generating unit exceeds its recoverable Financial assets and liabilities are offset and is sold, terminated or exercised, then hedge amount. Impairment losses are recognised the net amount presented in the Statement accounting is discontinued prospectively. in the Statement of Comprehensive Income. of Financial Position when, and only when, The cumulative gain or loss previously Impairment losses recognised in respect of the consolidated entity has a legal right to recognised in equity remains there until cash-generating units are allocated first to offset the amounts and intends either to the forecast transaction occurs. When the reduce the carrying amount of any goodwill settle on a net basis or to realise the asset hedged item is a non-financial asset, the allocated to the units and then, to reduce the and settle the liability simultaneously. amount recognised in equity is transferred carrying amount of the other assets in the to the carrying amount of the asset when unit on a pro rata basis. it is recognised. In other cases the amount recognised in equity is transferred to the net profit or loss in the same period that the hedged item affects profit or loss.
Annual Report 2013 121 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 2. Summary of Non-accumulating benefits, such as sick The consolidated entity makes estimates significant accounting leave, are not provided for but are expensed of the number of shares that are expected to policies continued as the benefits are taken by the employees. vest. Where appropriate, revised estimates xxii. Derivative financial are reflected in profit or loss with the instruments continued Non-accumulating non-monetary benefits, corresponding adjustment to the equity (b) Other derivatives such as medical care, housing, cars and compensation reserve. Where shares When a derivative financial instrument free or subsidised goods and services are containing a market linked hurdle do not is not designated in a qualifying hedge expensed based on the net marginal cost to vest, due to total shareholder return not relationship, any changes in fair value are the consolidated entity as the benefits are achieving the threshold for vesting, an recorded in profit or loss. taken by the employees. adjustment is made to retained earnings A provision is recognised for the amount and equity compensation reserve. xxiii. Employee benefits expected to be paid under short-term bonus (a) Defined contribution or profit-sharing plans if the consolidated (c) Performance rights superannuation funds entity has a present legal or constructive A defined contribution plan is a Performance rights are issued for the benefit obligation to pay this amount as a result of Perpetual employees pursuant to the post‑employment benefit plan under of past service provided by the employee. which an entity pays fixed contributions Perpetual Limited Long Term Incentive Plan. into a separate entity and will have no legal xxiv. Share-based payment Unlike Perpetual’s other employee share or constructive obligation to pay further transactions plans, there will be no treasury shares issued amounts. Obligations for contributions (a) Employee share purchase to employees at the performance rights to defined contribution pension plans are and option plans grant date. recognised as an expense in the periods Share option and share incentive programs Over the vesting period of the performance during which services are rendered allow employees to acquire shares in the rights an equity remuneration expense will by employees. Company. The fair value of shares and/or be amortised to equity compensation reserve rights granted under these programs is based on the fair value of the performance (b) Long service leave recognised as an employee expense with a rights at the grant date. The liability for long service leave is corresponding increase in equity. Fair value recognised in the provision for employee is measured at grant date and amortised over On vesting, the intention is to settle the benefits and measured as the present value the period during which employees become performance rights with available treasury of expected future payments to be made in unconditionally entitled to the shares shares. A fair value adjustment between respect of services provided by employees and/or options. contributed equity and treasury shares will up to the reporting date using the projected be recognised to revalue the recycled shares The fair value of the options granted is unit credit method. Consideration is to the fair value of the performance rights at measured using a binomial model, taking given to expected future wage and salary the vesting date. into account the terms and conditions upon levels, experience of employee departures which the options were granted. The amount and periods of service. Expected future xxv. Earnings per share recognised as an expense is adjusted to payments are discounted using market The consolidated entity presents basic and reflect the actual number of share options yields at the reporting date on bonds with diluted earnings per share (EPS) data for its that vest except where forfeiture is due to terms to maturity and currency that match, ordinary shares. Basic EPS is calculated by share prices not achieving their threshold as closely as possible, the estimated future dividing the net profit or loss attributable for vesting. cash outflows. to ordinary shareholders of the Company by the weighted average number of ordinary (b) Deferred staff incentives shares outstanding during the period, (c) Wages, salaries, annual The Company grants certain employees leave, sick leave and adjusted for shares held by the Company’s non‑monetary benefits shares under long-term incentive, short-term employee share plan trust. Diluted EPS is Liabilities for employee benefits for wages, incentive and retention plans. Under these determined by dividing the net profit or loss salaries and annual leave expected to be plans, shares vest to employees over relevant attributable to ordinary shareholders by settled within 12 months of the reporting vesting periods. To satisfy the long-term the weighted average number of ordinary date represent present obligations resulting incentives granted, the Company purchases shares outstanding, adjusted for shares held from employees’ services provided to or issues shares under the Executive Share by the Company’s sponsored employee reporting date. These liabilities are Plan, Deferred Share Plan or the Global share plan trust and for the effects of all calculated at undiscounted amounts Employees Share Trust. dilutive potential ordinary shares, which based on wage and salary rates that the The fair value of the shares granted is comprise shares and options/rights granted consolidated entity expects to pay as at measured by the share price adjusted for the to employees under long-term incentive and reporting date including related on-costs, terms and conditions upon which the shares retention plans. such as workers compensation insurance were granted. This fair value is amortised and payroll tax. on a straight-line basis over the applicable vesting period.
122 Perpetual Limited and its controlled entities Note 2. Summary of (b) AASB 10 Consolidated Standards. Subject to limited exceptions, significant accounting Financial Statements, AASB 11 AASB 13 is applied when fair value policies continued Joint Arrangements, AASB 12 measurements or disclosures are required Disclosure of Interest in Other xxvi. New standards and or permitted by other AASBs. The interpretations not yet Entities (2011) adopted AASB 10 introduces a single control model consolidated entity is currently reviewing A number of new accounting standards to determine whether an investee should be its methodologies in determining fair values and amendments have been issued but consolidated. As a result, the Group reviewed but it is not expected to have material impact are not yet effective. The Perpetual Group the impact of adopting AASB 10 and have in the financial statements on adoption. has not elected to early adopt any of these identified that there will be no significant AASB 13 is effective for annual periods new standards or amendments in this changes to its consolidation conclusion in beginning on or after 1 January 2013 with financial report. respect of its investees, and no changes in early adoption permitted. The Perpetual the current accounting for these investees Group has not elected to early adopt this These new standards and amendments, new standard. when applied in future periods, are not (see Note 2 iii (a) – significant accounting policies, basis of consolidation, subsidiaries). expected to have a material impact on the (d) AasB 119 Employee Benefits (2011) financial position or performance of the AASB 12 brings together into a single AASB 119 (2011) changes the definition of Perpetual Group other than the following: standard all the disclosure requirements short-term and other long-term employee about an entity’s interest in subsidiaries, benefits to clarify the distinction between (a) AasB 9 Financial Instruments joint arrangements, associates and the two. For defined benefit plans, removal of (2010), AASB 9 Financial unconsolidated structured entities. The Instruments (2009) the accounting policy choice for recognition Group is currently assessing the disclosure of actuarial gains and losses is not expected AASB 9 (2009) introduces new requirements for interest in subsidiaries, requirements for the classification and to have any impact on the consolidated interests in joint arrangements and entity. The Group will need to reclassify a measurement of financial assets. Under associates and unconsolidated structured AASB 9 (2009), financial assets are portion of its Current Employee Benefits entities in comparison with the existing to Non Current, however this amount has classified and measured based on the disclosures. AASB 12 requires the disclosure business model in which they are held not been quantified but it is not expected of information about the nature, risks and to have a material impact on the Financial and the characteristics of their contractual financial effects of these interests. cash flows. AASB 9 (2010) introduces Statements on adoption. AASB 119 (2011) additions relating to financial liabilities. These standards are effective for annual is effective for annual periods beginning on The IASB currently has an active project periods beginning on or after 1 January or after 1 January 2013 with early adoption that may result in limited amendments 2013 with early adoption permitted. permitted. The Perpetual Group has not to the classification and measurement The Perpetual Group has not elected to elected to early adopt this new standard. requirements of AASB 9 and add new early adopt any of these new standards requirements to address the impairment or amendments in this financial report. xxvii. Australian Government’s proposed of financial assets and hedge accounting. However Perpetual has considered a review of the adoption of these new standards and carbon pricing mechanism AASB 9 (2010 and 2009) are effective they will not have a material impact on the The Clean Energy Act introduced a carbon for annual periods beginning on or after future financial statements. pricing mechanism into the Australian 1 January 2015 with early adoption economy from 1 July 2012. The introduction permitted. The adoption of AASB 9 (2010) (c) AASB 13 Fair Value of the carbon pricing mechanism has not is expected to have an impact on the Measurement (2011) had a material impact on the future cash consolidated entity’s financial assets, but AASB 13 provides a single source of flows generated from the cash-generating no impact on the consolidated entity ’s guidance on how fair value is measured, units for the purpose of fair value financial liabilities. and replaces the fair value measurement calculations in asset impairment models. guidance that is currently dispersed throughout Australian Accounting
Annual Report 2013 123 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 3. Revenue from continuing operations
Consolidated
2013 2012 $’000 $’000 Revenue from the provision of services Gross revenue from fees and commissions 353,391 349,118 Total revenue from the provision of services 353,391 349,118 Other income Income from structured products 35,899 42,010 Total other income 35,899 42,010 Investment income Dividends 938 905 Interest and unit trust distribution 7,250 7,475 Total investment income 8,188 8,380 397,478 399,508
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 2,969 2,990 – Plant and equipment 1,007 2,187 3,976 5,177 Amortisation of intangible assets: – Capitalised software 3,290 7,212 – Other intangible assets 1,826 2,439 5,116 9,651 Total depreciation and amortisation expense for continuing and discontinued operations 9,092 14,828 Total depreciation and amortisation expense for continuing operations 9,092 13,509 Total depreciation and amortisation expense for discontinued operations – 1,319 9,092 14,828 Rental charges – operating leases 12,869 15,901 Net loss on sale of property, plant and equipment 343 2 Net movements in provision for: – Employee benefits 89 (146) – Bad and doubtful debts (272) 345 – Credit losses on structured products (234) 233 Net foreign exchange (gain)/loss – operational (103) (115) Total staff related expenses: – Staff related expenses 161,011 194,637 – Equity remuneration expense 12,727 12,248 173,738 206,885
124 Perpetual Limited and its controlled entities Note 5. Individually significant items included in profit for the year
Consolidated
2013 2012 $’000 $’000
Profit on sale of part of investment portfolio 1,291 359 Income tax benefit applicable 1,652 – Total gain on disposal of investments after tax 2,943 359
Transformation and restructuring costs (15,324) (28,909) Income tax benefit applicable 4,592 6,320 (10,732) (22,589)
Gain on sale of business** 145 1,151 145 1,151
Gain/(loss) on sale of discontinued operation** 2,450 (1,434) 2,450 (1,434)
Impairment of available-for-sale securities (2,108) (8,412) Impairment of investment in associate* (1,096) – Impairment of intangible assets (144) (14,498) Impairment of property, plant and equipment – (3,356) Total impairment of assets before tax (3,348) (26,266) Income tax benefit applicable 41 5,356 Total impairment of assets after tax (3,307) (20,910)
Foreign currency translation costs* (5,207) – (5,207) –
Research and development tax incentives 1,865 – Tax expense on forfeited treasury shares in equity (1,478) – Net tax benefit/(expense) on non-recurring capital/equity items 387 –
Acquisition costs for The Trust Company (1,463) – (1,463) –
* No income tax benefit recognised. ** Tax losses not previously recognised have been utilised.
Annual Report 2013 125 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 6. Segment information Perpetual Perpetual Corporate Investments1 Private Trust2 Total $’000 $’000 $’000 $’000 30 June 2013 External revenues 221,061 116,815 53,715 391,591 Inter-segment revenue/(expense) 1,210 (1,210) – – Interest revenue 1,924 135 33 2,092 Total revenue for reportable segment 224,195 115,740 53,748 393,683 Depreciation and amortisation (1,880) (5,877) (1,223) (8,980) Reportable segment net profit before tax 87,210 9,227 18,908 115,345 Reportable segment assets 548,276 136,341 27,358 711,975 Reportable segment liabilities (530,076) (15,406) (3,248) (548,730) Capital expenditure 408 11,930 165 12,503 30 June 2012 External revenues 225,230 115,966 86,108 427,304 Inter-segment revenue/(expense) 1,265 (1,265) – – Interest revenue 400 31 561 992 Total revenue for reportable segment 226,895 114,732 86,669 428,296 Depreciation and amortisation (4,028) (6,118) (3,113) (13,259) Reportable segment net profit before tax 72,024 8,228 20,598 100,850 Reportable segment assets 846,463 126,264 40,270 1,012,997 Reportable segment liabilities (831,444) (14,204) (9,923) (855,571) Capital expenditure 1,061 4,887 432 6,380
1. Segment information for Perpetual Investments includes the Exact Market Cash Funds. 2. Segment information for Corporate Trust includes discontinued operations, Perpetual Lenders Mortgage Services. Further information is provided in Note 7.
126 Perpetual Limited and its controlled entities Note 6. Segment information continued
Consolidated
2013 2012 note $’000 $’000 Reconciliations of reportable segment revenues, net profit before tax, total assets and liabilities Revenues Total revenue for reportable segments 393,683 428,296 Less: Revenue from discontinued operation 7 (3,271) (34,718) Add: Group and Support Services revenue 7,066 5,930 Total Group revenue from continuing operations 397,478 399,508 Net profit before tax Total net profit before tax for reportable segments 115,345 100,850 Less: Net profit before tax for discontinued operation 7 (609) (3,186) Financing costs (1,764) (2,479) Profit/(loss) on disposal of investments 1,291 359 Impairment of assets (3,348) (26,266) Gain on sale of business 145 1,151 Costs incurred for sale of discontinued operation – (1,434) Transformation office and restructuring costs (15,324) (28,909) Foreign currency translation costs (5,207) – Acquisition costs for The Trust Company (1,463) – Group and Support Services expense (6,693) (5,380) Net profit before tax from continuing operations 82,373 34,706 Total assets Total assets for reportable segments 711,975 1,012,997 Group and Support Services assets 292,393 239,565 Total assets 1,004,368 1,252,562 Total liabilities Total liabilities for reportable segments 548,730 855,571 Group and Support Services liabilities 131,900 116,530 Total liabilities 680,630 972,101
Annual Report 2013 127 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 6. Segment information continued The consolidated entity has identified three reportable 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.
Perpetual Private Perpetual Private 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. Perpetual Private 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. The Corporate Trust division provided mortgage processing services until the sale of Perpetual Lenders Mortgage Services (PLMS) on 1 August 2012. b. Geographical information The consolidated entity operates in Australia. Following the closure of the business in Dublin, all of the consolidated entity’s revenue and non‑current assets relate to operations in Australia. c. Major customers The consolidated entity does not rely on any major customer.
128 Perpetual Limited and its controlled entities Note 7. Discontinued Operation On 1 August 2012, Perpetual Lenders Mortgage Services (PLMS) was sold to FAF International Property Services (Australia) Pty Limited, an affiliate of First Mortgage Services (FMS). The operation was a discontinued operation and classified as held for sale at 30 June 2012. The results of the discontinued operation have been shown separately from continuing operations. A gain on sale of the business of $2,450,000 has been recognised in the year ended 30 June 2013. The assets and liabilities of PLMS were classified as held for sale and included in Note 15 Assets and liabilities held for sale.
2013 2012 $’000 $’000 Results of discontinued operation Revenue 3,271 34,718 Expenses (2,662) (31,532) Profit before tax 609 3,186 Income tax expense (183) (956) Profit from a discontinued operation 426 2,230 Gain on sale of business 2,450 – Net profit after tax from a discontinued operation 2,876 2,230 Earnings per share: Basic profit for the year, from discontinued operation – cents per share 7.5 5.7 Diluted profit for the year, from discontinued operation – cents per share 7.0 5.4 Cash flows from/(used in) discontinued operation Net cash from operating activities (309) 7,670 Net cash used in investing activities 2,450 (52) Net cash used in financing activities (2,141) (7,804) Net cash flows for the year – (186)
Effect of disposal on the financial position of the Group Intangibles 5,648 Property, plant and equipment 1,091 Trade and other receivables 1,158 Other asset 813 Deferred tax assets 149 Trade and other payables (736) Employee benefits (1,938) Lease provision (236) Net assets 5,949 Proceeds from disposal (8,399) Gain on sale (2,450)
Annual Report 2013 129 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 8. Auditor’s remuneration
Consolidated
2013 2012 $ $ Audit Services Auditor of the Company KPMG Australia Audit and review of the consolidated and subsidiary financial statements 474,012 463,098 Audit services in accordance with regulatory requirements 191,128 209,000 Other assurance services 63,100 5,000 Overseas KPMG firms Audit and review of financial statements – 16,992 Total audit fee attributable to the audit of Perpetual Limited 728,240 694,090 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 1,566,700 1,952,817 Audit of DIY superannuation funds for which Perpetual acts as administrator or trustee1 797,264 759,573 Audit services in accordance with regulatory requirements 272,426 293,221 Overseas KPMG firms Audit of funds – 17,301 Total audit fee attributable to the audit of non-consolidated funds 2,636,390 3,022,912 3,364,630 3,717,002
1. These fees were paid for the audit and review of 358 managed funds (2012: 590 managed funds) and 1,062 (2012: 1,120) DIY superannuation funds and which contained assets totalling $25.3 billion (2012: $22.6 billion). These fees are incurred by the consolidated entity and are effectively recovered from the funds via management fees.
Non-audit services KPMG Australia Trust Co. acquisition 115,000 – Transformation 2015 113,000 – 228,000 –
Non-audit services paid to KPMG in the current year were incurred in relation to the review of the Company’s scheme of arrangement with Trust Company and Transformation 2015 project and are in accordance with the Company’s auditor independence policy as outlined in Perpetual’s Corporate Responsibility Statement.
130 Perpetual Limited and its controlled entities Note 9. Income tax expense a. Income tax expense
Consolidated
2013 2012 $’000 $’000
Current tax expense 28,213 10,730 Deferred tax expense/(benefit) (918) 4,885 Over provided in prior years (383) (766) Research and development tax incentives (1,865) – Total 25,047 14,849 Deferred tax included in income tax expense comprises: (Decrease)/increase in deferred tax assets 287 (4,349) Decrease/(increase) in deferred tax liabilities 631 (536) Total 918 (4,885) The above movements in deferred tax assets and deferred tax liabilities are net of movements in these balances recognised directly in other comprehensive income. Tax expense from continuing operations 24,864 13,893 Tax expense from discontinuing operation 183 956 Total 25,047 14,849 b. Reconciliation of income tax expense to prima facie income tax payable Profit before tax for the year from continuing operations 82,373 34,706 Profit before tax from discontinued operations 609 3,186 Gain on sale of business 2,450 – Profit before tax 85,432 37,892 Prima facie income tax expense calculated at 30% (2012: 30%) on profit for the year 25,630 11,367 Increase in income tax expense due to: – Accounting impairment on assets (604) 1,712 – Foreign source loss 1,553 2,699 – Net taxable capital gain 692 179 – Imputation gross-up on dividends received 63 175 – Other non-deductible expenditure 631 706 Decrease in income tax expense due to: – Write back of deferred tax liability arising from business combinations (460) (640) – Franking credits on dividends received (210) (583) Income tax expense attributable to profit for the year before tax 27,295 15,615 Less: Income tax over provided in prior years (383) (766) Less: R&D tax credits from prior years (1,865) – Income tax expense attributable to profit for the year 25,047 14,849
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 10.
Annual Report 2013 131 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 9. Income tax expense continued c. Current tax (liabilities)/assets
Consolidated
2013 2012 $’000 $’000
Current tax (liabilities)/assets (13,308) 1,282
The current tax liability for the consolidated entity at 30 June 2013 represents income taxes payable in respect of the current 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. The current tax asset at 30 June 2012 represented instalments paid in advance. d. Income tax recognised in other comprehensive income Cash flow hedges 42 (34) Available-for-sale financial assets 1,940 (1,309) 1,982 (1,343)
Note 10. Deferred tax assets/(liabilities) The balance comprises temporary differences attributable to: Provisions and accruals 10,978 14,028 Capital expenditure deductible over five years 952 658 Structured products – interest received in advance 1,738 2,229 Employee benefits 11,779 8,350 Property, plant and equipment 343 291 Realised net capital losses 3,946 2,294 Unrealised net capital losses 196 2,365 Other items 413 605 Deferred tax assets from continuing operations 30,345 30,820 Deferred tax assets for the discontinued operation reclassified to held for sale assets – 989 Total deferred tax assets 30,345 31,809 Intangible assets (5,723) (5,920) Unrealised net capital gains (2,199) (1,562) Other items (149) (989) Total deferred tax liabilities (8,071) (8,471) Net deferred tax assets 22,274 23,338
At 30 June 2013, the consolidated entity had carried forward realised net capital losses of $13,152,000 (30 June 2012: $7,644,000) which had a tax benefit of $3,946,000 (30 June 2012: $2,294,000). The tax benefit of these capital losses has been recognised in deferred tax assets. At 30 June 2013, the consolidated entity had carried forward realised tax capital losses of $17,537,000 (30 June 2012: $21,724,000) which had a tax benefit of $5,260,000 (30 June 2012: $6,516,000). The tax benefit of these capital losses has not been recognised in deferred tax assets.
132 Perpetual Limited and its controlled entities Note 10. Deferred tax assets/(liabilities) continued As at 30 June 2013, the consolidated entity had carried forward unrealised net capital losses of $653,000 (30 June 2012: $7,883,000) which had a tax benefit of $196,000 (30 June 2012: $2,365,000). Of this amount $Nil (30 June 2012: $1,393,000) which had a tax benefit of $nil (30 June 2012: $418,000) has been recognised in profit or loss in the current and prior periods, and $653,000 (30 June 2012: $6,490,000) which had a tax benefit of $196,000 (30 June 2012: $1,947,000) 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. PI Investment Management Limited, the controlled entity incorporated in Ireland, was placed into voluntary liquidation on 8 June 2012. At 30 June 2013, the consolidated entity had carried forward foreign trading tax losses attributable to PI Investment Management Limited of EUR $51,794,140 (30 June 2012: EUR 47,560,000) which translates to A$73,000,901 (30 June 2012: A$58,774,000). The tax benefit of $9,125,113 (30 June 2012 : $7,346,775) relating to these carried forward foreign trading tax losses has not been recognised as a deferred tax asset at 30 June 2013. On completion of the voluntary liquidation process the consolidated entity will realise a capital loss on its investment in PI Investment Management Limited. The tax benefit relating to the capital loss has not been recognised as a deferred tax asset at 30 June 2013.
Recognised Recognised in other Balance in profit comprehensive Balance 1 July 2012 or loss income 30 June 2013 $’000 $’000 $’000 $’000 Movement in temporary differences during the year Consolidated Deferred tax assets Provisions and accruals 14,028 (3,050) – 10,978 Capital expenditure deductible over five years 658 294 – 952 Structured products – interest received in advance 2,229 (491) – 1,738 Employee benefits 8,350 3,429 – 11,779 Property, plant and equipment 291 52 – 343 Realised net capital losses 2,294 1,652 – 3,946 Unrealised net capital losses 2,365 (418) (1,751) 196 Other items 605 (192) – 413 Deferred tax assets from continuing operations 30,820 1,276 (1,751) 30,345 Deferred tax assets for discontinued operation reclassified to held for sale assets 989 (989) – – Total 31,809 287 (1,751) 30,345 Deferred tax liabilities Intangible assets (5,920) 197 – (5,723) Unrealised net capital gains (1,562) (406) (231) (2,199) Other items (989) 840 – (149) (8,471) 631 (231) (8,071) Net deferred tax assets 23,338 918 (1,982) 22,274
Annual Report 2013 133 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 10. Deferred tax assets/(liabilities) continued
Recognised Recognised in other Balance in profit comprehensive Balance 1 July 2011 or loss income 30 June 2012 $’000 $’000 $’000 $’000 Movement in temporary differences during the previous year Consolidated Deferred tax assets Provisions and accruals 10,766 3,262 – 14,028 Intangible assets 1,076 (1,076) – – Capital expenditure deductible over five years 1,266 (608) – 658 Structured products – interest received in advance 3,418 (1,189) – 2,229 Employee benefits 10,750 (2,400) – 8,350 Property, plant and equipment 3,691 (3,400) – 291 Realised net capital losses 2,078 216 – 2,294 Unrealised net capital losses 523 97 1,745 2,365 Other items 845 (240) – 605 Deferred tax assets from continuing operations 34,413 (5,338) 1,745 30,820 Deferred tax assets for discontinued operation reclassified to held for sale assets – 989 – 989 Total 34,413 (4,349) 1,745 31,809 Deferred tax liabilities Intangible assets (5,464) (456) – (5,920) Unrealised net capital gains (1,176) 16 (402) (1,562) Other items (893) (96) – (989) (7,533) (536) (402) (8,471) Net deferred tax assets 26,880 (4,885) 1,343 23,338
134 Perpetual Limited and its controlled entities Note 11. Dividends a. Dividends paid Dividends paid or provided for in the current and comparative year are as follows:
Total Cents per amount Franked1/ Date of share $’000 Unfranked payment 2013 Final 2012 ordinary 40 16,792 Franked 5 Oct 2012 Interim 2013 ordinary 50 20,990 Franked 5 Apr 2013 90 37,782 2012 Final 2011 ordinary 90 40,229 Franked 27 Sep 2011 Interim 2012 ordinary 50 20,968 Franked 29 Mar 2012 Total amount 140 61,197
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. Shareholders 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.
Total Cents per amount2 Franked1/ Date of share $’000 Unfranked payment
Final 2013 ordinary 80 33,585 Franked 4 Oct 2013
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 2013.
The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2013 and will be recognised in subsequent financial reports. c. Dividend franking account 2013 2012 $’000 $’000
30% franking credits available to shareholders for subsequent financial years 36,273 26,764
The above available amounts are based on the balance of the dividend franking account at 30 June 2013 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 $21,879,000 (2012: $19,606,000).
Annual Report 2013 135 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 12. Earnings per share
Consolidated
2013 2012
Cents per share Earnings per share Basic earnings per share 158.2 68.6 Diluted earnings per share 148.7 64.0 Earnings per share – continuing operations Basic earnings per share 150.7 62.9 Diluted earnings per share 141.7 58.6 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 60,968 26,679
Net profit after tax from discontinued operation 2,876 2,230 Net profit after tax from continuing operations attributable to equity holders of Perpetual Limited 58,092 24,449
Number of shares
Weighted average number of ordinary shares used in the calculation of basic earnings per share 38,538,247 38,892,721 Effect of dilutive securities: Weighted average number of dilutive potential ordinary shares (including those subject to performance rights) 2,472,193 2,815,178 Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share 41,010,440 41,707,899
Note 13. Cash and cash equivalents
$’000 $’000
Bank balances 177,974 72,547 Deposits at call 14,965 61,182 Short-term deposits 24,180 19,328 217,119 153,057
Included within deposits at call are investments in a cash management trust operated by the consolidated entity. Short-term deposits in the Perpetual High Grade Treasury Fund has a Standard & Poor’s fund credit quality rating of ‘Af’ and invests in high grade credit products with the intention of generating a return in excess of the UBS Bank Bill Index. Funds are generally available at seven days’ notice. In accordance with the Group’s Capital Management Policy, the Group holds cash and cash equivalents to support its minimum base capital requirements of $122 million as at 30 June 2013, of which $89 million relates to regulatory capital.
136 Perpetual Limited and its controlled entities Note 14. Receivables
Consolidated
2013 2012 $’000 $’000 Current Trade debtors 57,628 55,511 Less: Provision for doubtful debts (573) (845) 57,055 54,666 Other debtors 4,965 3,571 62,020 58,237 Movements in the provision for bad and doubtful debts are as follows: Balance as at 1 July 2012 845 500 Provision for impairment recognised during the year 273 676 Receivables written off during the year as uncollectible (424) (147) Unused amount reversed (121) (184) Balance as at 30 June 2013 573 845
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 provision account are generally written off when there is no expectation of recovering additional cash. This note should be read in conjunction with Note 30 (i)(c).
Note 15. Assets and liabilities held for sale Assets and liabilities held for sale at 30 June 2013 comprise assets and liabilities being sold as part of the Company’s Transformation 2015 strategy.
Consolidated
2013 2012 Note $’000 $’000 Assets classified as held for sale IT and Registry assets 15(a) 803 2,328 Discontinued operation – PLMS 15(b) – 11,705 803 14,033 Liabilities classified as held for sale Discontinued operation – PLMS 15(b) – 5,612 – 5,612
Annual Report 2013 137 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 15. Assets and liabilities held for sale continued a. IT and Registry assets Perpetual remains committed to partnering with an IT managed service provider as outlined in the ‘Transformation 2015’ strategy and the assets held for sale form part of this strategy. During the year, an agreement with Fujitsu Australia was announced which included the sale of IT assets classed as held for sale. On 31 January 2013, Perpetual received $1.38 million consideration for the assets transferred. This agreement allows Perpetual to modernise IT infrastructure and applications, and enables a number of material service and capability improvements. The balance of $0.8 million asset held for sale at 30 June 2013 are the remaining Registry assets which Perpetual is working with a short list of providers, to sell these assets under a managed service agreement. An impairment loss of $0.14 million (2012: $17.9 million) has been recognised in Net profit before tax from continuing operations (see Note 5 Individually significant items included in profit for the year).
Consolidated
2013 2012 $’000 $’000 Assets classified as held for sale Intangibles – capitalised software 778 1,560 Property, plant and equipment 25 768 803 2,328 b. PLMS At 30 June 2012, Perpetual Lenders Mortgage Services (PLMS) was presented as a discontinued operation and a disposal group held for sale, comprising of assets of $11,705,000 and liabilities of $5,612,000. PLMS had been identified as a non-core business through the implementation of the ‘Transformation 2015’ strategy. The sale was completed on 1 August 2012 and a gain on sale of the business of $2,450,000 has been recognised in the year ended 30 June 2013.
Note 16. Other financial assets
Consolidated
2013 2012 $’000 $’000 Current Government, municipal and other public securities held to maturity 40 100 Non-current Listed equity securities available-for-sale – at fair value 30,217 33,946 Unlisted unit trusts available-for-sale – at fair value 4,750 5,352 Government, municipal and other public securities held-to-maturity 102 102 Secured loans 346 316 35,415 39,716
Note 17. Derivative financial instruments Current liabilities Swap contracts 423 768
This note should be read in conjunction with Note 30(iii)(b).
Swap contracts Swap contracts are held for hedging purposes associated with the PPI structured product as disclosed in Note 30(iii)(b).
138 Perpetual Limited and its controlled entities Note 18. Equity accounted investee Perpetual made a $1.8 million cash investment in an associate during the year. Perpetual has a 45% interest in the associate and has recognised a $704,000 share of loss in the year ended 30 June 2013. Perpetual has recognised an impairment of $1,096,000. The impairment amount reflects the difference between the $1.8 million investment, adjusted for the $704,000 share of loss and its recoverable amount.
Consolidated
2013 2012 $’000 $’000
Income 80 – Expenses (1,644) – Profit/(loss) (1,564) – Group share of profit/(loss) (704) – Provision for impairment (1,096) – Carrying amount – – Group share of net assets – –
Annual Report 2013 139 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 19. Property, plant and equipment
Consolidated
2013 2012 $’000 $’000
Plant and equipment – at cost 8,840 16,131 Accumulated depreciation (5,583) (12,683) 3,257 3,448 Leasehold improvements – at cost 31,421 31,799 Accumulated depreciation (16,389) (15,632) 15,032 16,167 Project work in progress – at cost – 53 18,289 19,668 Depreciation and amortisation Amortisation is recognised in the following line items in the Statement of Profit or Loss: Depreciation and amortisation expense from continuing operations 3,976 4,695 Depreciation and amortisation expense from discontinued operations – 482 Total depreciation and amortisation 3,976 5,177
Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:
Project Plant and Leasehold work in equipment improvements progress Total $’000 $’000 $’000 $’000 Consolidated Balance as at 1 July 2012 3,448 16,167 53 19,668 Additions 780 1,326 – 2,106 Depreciation and amortisation (1,007) (2,969) – (3,976) Reclassification from/(to) assets held for sale 83 579 – 662 Disposals (47) (71) (53) (171) Balance as at 30 June 2013 3,257 15,032 – 18,289 Consolidated Balance as at 1 July 2011 6,037 19,199 1,074 26,310 Additions 2,965 1,493 – 4,458 Transfers from work in progress 495 526 (1,021) – Depreciation and amortisation (2,187) (2,990) – (5,177) Impairment1 (2,744) (612) – (3,356) Reclassification (to)/from assets held for sale (1,095) (1,444) – (2,539) Disposals (23) (5) – (28) Balance as at 30 June 2012 3,448 16,167 53 19,668
1. An impairment loss of $3.4 million at 30 June 2012 was recognised in Net profit before tax from continuing operations. The impairment loss related to Perpetual’s plan to partner with an IT managed service provider as part of the Transformation 2015 strategy and the remeasurement of property, plant and equipment to the lower of their carrying value and their fair value less costs to sell.
140 Perpetual Limited and its controlled entities Note 20. Intangibles
Consolidated
2013 2012 $’000 $’000
Goodwill – at cost 97,308 97,308 Impairment loss – – 97,308 97,308 Other intangibles – at cost 17,887 17,887 Accumulated amortisation (7,511) (5,685) 10,376 12,202 Capitalised software – at cost 35,684 32,064 Accumulated amortisation (15,059) (24,096) 20,625 7,968 Project work in progress – at cost 958 5,213 129,267 122,691 Amortisation Amortisation is recognised in the following line items in the Statement of Profit or Loss: Depreciation and amortisation expense from continuing operations 5,116 8,814 Depreciation and amortisation expense from discontinued operations – 837 Total depreciation and amortisation 5,116 9,651
Reconciliations of the carrying amounts for each class of intangibles are set out below:
Project Other Capitalised work in Goodwill intangibles software progress Total $’000 $’000 $’000 $’000 $’000 Consolidated Balance as at 1 July 2012 97,308 12,202 7,968 5,213 122,691 Additions – – – 12,119 12,119 Transfers from work in progress – – 16,222 (16,222) – Amortisation for the year – (1,826) (3,290) – (5,116) Impairment – – – – – Disposals – – (275) (152) (427) Balance as at 30 June 2013 97,308 10,376 20,625 958 129,267 Balance as at 1 July 2011 102,956 14,656 20,826 9,888 148,326 Additions – – 15 5,722 5,737 Transfers from work in progress – – 10,397 (10,397) – Amortisation for the year – (2,439) (7,212) – (9,651) Impairment1 – – (14,498) – (14,498) Reclassification to assets held for sale (5,648) (15) (1,560) – (7,223) Balance as at 30 June 2012 97,308 12,202 7,968 5,213 122,691
1. An impairment loss of $14.5 million at 30 June 2012 was recognised in Net profit before tax from continuing operations. The impairment loss related to Perpetual’s plan to partner with an IT managed service provider as part of the Transformation 2015 strategy and the remeasurement of the intangible assets to the lower of their carrying value and their fair value less costs to sell.
Annual Report 2013 141 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 20. Intangibles continued
Consolidated
2013 2012 $’000 $’000 Impairment tests for cash-generating units containing goodwill The following cash-generating units have significant carrying amounts of goodwill: Perpetual Private 77,159 77,159 Securitisation 16,653 16,653 Australian Equities 3,496 3,496 97,308 97,308
Impairment testing of these goodwill balances is based on each cash-generating unit’s value in use, calculated as the present value of forecast future cash flows from those cash-generating units using discount rates of between 12.5% and 15% (2012: discount rates of between 12.5% and 15%). 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 three years based on the 2014-2016 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%. The Clean Energy Act introduced a carbon pricing mechanism into the Australian economy from 1 July 2012. The introduction of the carbon pricing mechanism has not had a material impact on the future cash flows generated from the cash-generating units for the purpose of fair value calculations in asset impairment models.
Note 21. Prepayments
Consolidated
2013 2012 $’000 $’000 Current Prepayments 6,927 8,803 Non-current Prepayments 396 369
Note 22. Payables Current Trade creditors 33,850 26,312 Other creditors and accruals 4,061 4,971 37,911 31,283
This note should be read in conjunction with Note 30 (iii).
Note 23. Structured products – income received in advance Current Interest income 5,468 7,138
Income received in advance consists of deferred interest income received in association with the PPI structured product. The PPI structured product is disclosed in Note 30 (i)(a).
142 Perpetual Limited and its controlled entities Note 24. Non-current interest-bearing liabilities
Consolidated
2013 2012 $’000 $’000
Floating rate bill facility 45,000 45,000
See Notes 29 and 30 (iii)(b) for additional information. Bank facility associated with the PPI structured product is disclosed in Note 31 (ii).
Note 25. Provisions
Consolidated
2013 2012 $’000 $’000 Current Internal insurance and legal provision1 626 721 Operational process review provision 116 170 Lease expense provision 2,037 1,335 2,779 2,226 Non-current Internal insurance and legal provision1 800 800 Lease expense provision 20,437 20,341 21,237 21,141
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.
Consolidated
2013 2012 $’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 1,521 1,277 Additional provision made during the year 993 862 Payments made during the year (981) (416) Unused amounts reversed during the year (107) (202) Carrying amount at end of year 1,426 1,521 Operational process review provision Carrying amount at beginning of year 170 249 Additional provision made during the year 298 513 Unused amounts reversed during the year (338) (301) Payments made during the year (14) (291) Carrying amount at end of year 116 170 Lease expense provision Carrying amount at beginning of year 21,676 23,641 Additional provision made during the year 15,693 15,627 Payments made during the year (14,720) (16,383) Unused amounts reversed during the year (175) (1,862) Unwinding of provisions – 653 Carrying amount at end of year 22,474 21,676
Annual Report 2013 143 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 26. Contributed equity
Consolidated
2013 2012 $’000 $’000 Share capital 41,980,678 (2012: 41,980,678) ordinary shares, fully paid 239,801 236,530
2013 2012
Number Number of shares $’000 of shares $’000 Movements in share capital Balance at beginning of year 38,106,316 236,530 41,021,469 245,066 Shares issued: Movement on treasury shares 672,074 3,271 434,731 22,350 Off market share buy-back – – (3,349,884) (30,886) Balance at end of year 38,778,390 239,801 38,106,316 236,530 Ordinary shares fully paid (excluding unvested shares from share plans) 38,778,390 239,801 38,106,316 236,530 Unvested shares from share plans 3,202,288 116,516 3,874,362 143,037 Ordinary shares fully paid 41,980,678 356,317 41,980,678 379,567
During the year, the Company granted $2,990,000 (30 June 2012: Nil) performance rights in accordance with Perpetual Limited’s Long Term Incentive Plan. On 17 October 2011 the Company completed an off-market share buy-back. The buy-back price was $20.90 per share, which represented a discount to the market price of 10% being the maximum discount in the tender discount range. The capital component was $9.22 per share. The Company does not have authorised capital or par value in respect of its issued shares.
Terms and conditions Holders of ordinary shares are entitled to receive dividends as declared from time to time and entitled to one vote per share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after creditors and are fully entitled to any surplus capital.
144 Perpetual Limited and its controlled entities Note 27. Reserves
Consolidated
2013 2012 $’000 $’000
General 103 103 Available-for-sale reserve 4,269 (370) Equity compensation reserve 33,215 30,369 Cash flow hedge reserve (397) (495) Foreign currency translation reserve (66) (5,379) 37,124 24,228
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 or 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 or 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 (xxii)(a). Amounts are recognised in the Statement of Comprehensive Income when the associated hedged transaction affects profit or loss. The Foreign Currency Translation Reserve (FCTR) 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. During the year $5.2 million has been re-classified from the FCTR to net profit after tax as a result of the closure of the business in Dublin which has ceased operations. This reclassification is a non cash expense item. The legal entity through which the business operated is now in voluntary liquidation.
Note 28. Employee benefits i. Aggregate liability for employee benefits, including on-costs
Consolidated
2013 2012 $’000 $’000 Current Provision for annual leave 4,722 5,385 Provision for long service leave 3,364 3,224 Other employee benefits 27,200 14,756 Restructuring provision 6,248 17,227 41,534 40,592 Non-current Liability for long service leave 2,402 3,255 Restructuring provision Carrying amount at beginning of year 17,227 6,025 Additional provision made during the year – 26,476 Payments made during the year (10,578) (15,274) Unused amounts reversed during the year (401) – Carrying amount at end of year 6,248 17,227
The non-current portion of the long service leave provision has been discounted using a rate of 4.3 per cent which is based on the 10 year corporate bond rate (2012: 3.95 per cent which is based on the 10 year corporate bond rate). The number of full time equivalent employees at 30 June 2013 was 838 (2012: 1,343).
Annual Report 2013 145 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 28. Employee benefits continued ii. Equity based plans (a) Performance rights The performance rights are granted as part of the Perpetual Limited Long-term Incentive Plan (LTI). Performance rights do not receive dividends or have voting rights until they have vested and been converted into Perpetual shares. The number of performance rights granted is determined by dividing the value of the LTI grant value by the VWAP of Perpetual shares traded on the ASX in the five business days up to the grant date, discounted for the non-payment of dividends during the performance period, as calculated by an independent external adviser. Refer to accounting policy xxiv(c).
Movement in number of performance rights granted
TSR hurdle or Grant Vest Expiry Non-TSR Issue 1 July Outstanding at date date date hurdle price 2012 Granted Forfeited Vested 30 June 2013 Jul 2012 Jul 2015 Jul 2019 Non-TSR $20.36 – 73,529 –– 73,529 Oct 2012 Oct 2014 Oct 2019 TSR $14.26 – 2,655 –– 2,655 Oct 2012 Oct 2014 Oct 2019 Non-TSR $23.54 – 2,655 –– 2,655 Oct 2012 Oct 2015 Oct 2019 TSR $14.38 – 33,659 –– 33,659 Oct 2012 Oct 2015 Oct 2019 Non-TSR $23.54 – 38,461 –– 38,461 – 150,959 –– 150,959
The fair value of services received in return for performance rights granted is based on the fair value of performance rights granted, measured using a face value approach for scorecard performance conditions, Monte Carlo simulation for TSR performance conditions and the Black Scholes model for EPS performance conditions, with the following inputs:
V aluation Valuation Date Date 1 July 2012 1 Oct 2012
Performance period 3 years 2 or 3 years Share price ($) 23.14 26.34 Dividend yield (per cent) 4.35 4.2 Expected volatility (per cent) N/A 35 Risk free interest rate (per cent) N /A 2.53 or 2.41
146 Perpetual Limited and its controlled entities Note 28. Employee benefits Perpetual. Executives are not eligible Voting rights attached to unvested shares continued to participate in this plan. that are held in the GEST are exercisable ii. Equity based plans by the trustee of the GEST. continued (e) The Tax Deferred Share Grants under the plan vest subject to the (b) Executive Share Plan (ESP) Plan (TDSP) achievement of specific performance hurdles. The ESP was approved by shareholders at Under the TDSP, eligible employees are able the Company’s Annual General Meeting in to salary sacrifice all or part of their short (h) Long-term incentive plan (LTI) 1997 and was amended at the 1999 AGM. term incentive to acquire an equivalent value In February 2011, the Board approved of Perpetual shares. Shares are acquired The ESP forms part of the structure for the introduction of a new plan, the in the ordinary course of trading on the short and long term variable remuneration Perpetual Limited Long-term Incentive ASX. Executives have the opportunity to components paid to employees. Grants Plan, for the purpose of making future participate in this plan. Shares acquired under the plan for short-term performance long-term incentive grants to executives, under this plan by executive directors and are made on achievement of specific including the sign-on grant of shares to the executives are not subject to performance performance goals. Long-term grants vest former Managing Director, approved by hurdles because they are acquired on a after periods of between three and five years, shareholders at the 2011 AGM. and may include the achievement of specific salary or bonus sacrifice basis. performance hurdles. The new plan was introduced to modernise (f) Deferred Share Plan (DSP) terms and conditions in light of significant The issue price of grants of shares is the The DSP forms part of the structure changes to market practice and regulation weighted average of the prices at which for short-term and long-term variable of employee equity plans over the past shares were traded on the ASX for the five remuneration components paid to eligible decade. A single set of rules has been days up to the date of issue. Shares are employees of the Australian business. developed to enable grants of performance either purchased on market or issued by Grants under the plan vest subject to the shares or options. Having these included the Company to satisfy the grants made achievement of specific performance hurdles under a single plan ensures consistency and to eligible employees. and service. additional flexibility. While shares are held by the ESP, employees The issue price of grants is the weighted receive dividends and have voting rights. (i) Details of the movement in average of the prices at which shares traded employee shares on the ASX for the five days up to the date of (c) Employee Share Purchase Of share grants under the ESP, DSP and LTI Plan (ESPP) issue. Shares are either purchased on market in the 2013 financial year, all shares were This plan was discontinued on 10 December or issued by the Company to satisfy grants re-issued from the forfeited share pool at 2004 and no further issues have been made made to eligible employees. market price. As a result of changes in the under this plan. While shares are held by the DSP, eligible employee share scheme rules enacted in The ESPP provided eligible employees employees have voting rights and receive 2009, dividends that were being reinvested with a non-recourse interest free loan, for a dividends directly or reinvest dividends into in Perpetual shares on long-term incentive period not exceeding 10 years, to purchase Perpetual shares. schemes are either now being received shares under the plan. The invitation directly by the employees or held in the was open to employees who commenced (g) Global Employee Share share plan bank account depending on the Trust (GEST) permanent employment with Perpetual prior likelihood of the shares vesting. The GEST formed part of the structure to 1 June 2004 with an offer to purchase a The amounts recognised in the financial for long-term variable remuneration minimum number of shares equivalent in statements of the consolidated entity components paid to eligible employees of value to $1,000 and a maximum number of in relation to the share plans referred to the Perpetual Investments Global Equities shares equivalent in value to $4,000. The above during the year were amortisation of business. The plan is closed and no longer issue price under the plan was the weighted performance shares totalling $12,745,000 being used. average of the prices at which shares were (2012: $12,218,000) recognised as an traded on the ASX for the five days up to The issue price of grants is the weighted expense with the corresponding entry the date of issue. average of the prices at which shares directly in equity. traded on the ASX for the five days prior The shares vest when the loan is fully repaid. to the date of grant of shares. Shares were either purchased on market or issued by (d) Tax Exempt Share Plan (TESP) the Company to satisfy grants made to Under the TESP, eligible employees will be eligible employees. able to salary sacrifice up to $1,000 of short term incentive to acquire an equivalent value Dividends paid on shares held by the of Perpetual shares. These shares cannot be GEST are retained in the GEST for the sold or transferred until the earlier of three benefit of the employee until performance years after the date of allocation or the time hurdles are tested, at which time the the participant ceases to be an employee dividend accumulated may be distributed of Perpetual. Shares will be acquired in to the employee. ordinary trading on the ASX or issued by
Annual Report 2013 147 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 28. Employee benefits continued ii. Equity based plans continued (i) details of the movement in employee shares continued The following table illustrates the movement in employee shares during the financial year:
Consolidated
2013 2012 Unvested Shares from Share Plans Opening Balance 1 July 3,874,362 3,649,660 Vested shares (671,158) (482,392) Forfeited shares (502,751) (466,363) Granted shares 501,835 1,173,457 Closing balance 30 June 3,202,288 3,874,362
(j) Non-executive directors’ share purchase plan A share purchase plan for non-executive directors was approved by shareholders at the Annual General Meeting in October 1998, under which each non-executive director can sacrifice up to 50 per cent of their director’s fees to acquire shares in the Company. The shares are purchased four times throughout the year at market value and have a disposal restriction of 10 years, or when the director ceases to be a director of the Company. This plan was used only by non-executive directors and was closed to new purchases on 1 July 2009.
Note 29. Financial arrangements The consolidated entity has access to the following line of credit:
Consolidated
2013 2012 $’000 $’000 Facilities utilised Floating rate bank facility 45,000 45,000 Facilities not utilised Floating rate bank facility 25,000 25,000
Bill facilities The floating rate bank bill facility is unsecured and has a floating interest rate of 3.61 per cent at 30 June 2013 (30 June 2012: 4.78 per cent). Repayment of the existing facility is due on 31 January 2015. The consolidated entity has agreed to various debt covenants including shareholders’ funds as a specified percentage of total assets, a minimum amount of shareholders’ funds, a maximum ratio of total debt, a minimum interest cover and a maximum amount of structured product liabilities. The consolidated entity is in compliance with the covenants at 30 June 2013. Should the consolidated entity not satisfy any of these covenants, the outstanding balance of the loans may become due and payable. Bank facilities associated with the PPI structured product are disclosed in Note 31 (ii). This note should be read in conjunction with Note 30 (iii)(b).
148 Perpetual Limited and its controlled entities Note 30. Financial risk management Perpetual recognises that risk is part of doing business and that the ongoing management of risk is critical to its success. The approach to managing risk is articulated in the Risk Management Framework. The Risk Management Framework is supported by the Risk Group, who are responsible for the design and maintenance of the framework, establishing and maintaining group-wide risk management policies, and providing regular risk reporting to the Board, the Audit, Risk and Compliance Committee (ARCC) and the Group Executive Leadership Team. This framework is approved by the Perpetual Board of Directors (the Board) and is reviewed for adequacy and appropriateness on an annual basis. The Board regularly monitors the overall risk profile of the group and sets the risk appetite for the group, usually in conjunction with the annual planning process. The Board is responsible for ensuring that management has appropriate processes in place for managing all types of risk, ranging from financial risk to operational risk. To assist in providing ongoing assurance and comfort to the Board, responsibility for risk management oversight has been delegated to the ARCC. The main functions of this Committee are to oversee the consolidated entity’s accounting policies and practices, the integrity of financial statements and reports, the scope, quality and independence of external audit arrangements, the monitoring of the internal audit function, the effectiveness of risk management policies and the adequacy of insurance programs. This Committee is also responsible for monitoring overall legal and regulatory compliance. The activities of the consolidated entity expose it to the following financial risks: credit risk, liquidity risk and market risk. These are distinct from the financial risks borne by customers which arise from financial assets managed by the consolidated entity in its role as fund manager, trustee and responsible entity. The risk management approach to and exposures arising from the Exact Market Cash Fund (EMCF) are disclosed in Note 31. The following discussion relates to financial risks exposure of the consolidated entity in its own right. i. Credit risk Credit risk is the risk of financial loss from a counterparty failing to meet its contractual commitments. The consolidated entity is predominantly exposed to credit risk on its Perpetual Protected Investments (PPI) loans which are issued only in Australia to retail customers, derivative financial instruments and deposits with banks and financial institutions, outstanding receivables and committed transactions. The maximum exposure of the consolidated entity to credit risk on financial assets which have been recognised on the Statement of Financial Position is the carrying amount, net of any provision for doubtful debts. The table below outlines the consolidated entity’s maximum exposure to credit risk as at reporting date.
Consolidated
2013 2012 $’000 $’000
Cash and cash equivalents 217,119 153,057 Trade debtors 57,055 54,666 Structured products – loans receivable (PPI) 76,741 109,165 Other loan receivables 5,311 3,887 Available-for-sale listed equity securities and unlisted unit trusts 34,967 39,298 Held-to-maturity securities 142 202
Credit risk is managed on a functional basis across the various business segments. As a result of the swap agreements between the EMCF and the consolidated entity, the consolidated entity is also exposed to credit risk on its exposure to the $427 million (2012: $695 million) of underlying investments held by the EMCF. This maximum exposure would only be realised in the unlikely event that the recoverable value of all of the underlying investments held by the EMCF decline to $nil. Further details of the credit risk relating to the EMCF are disclosed in Note 31.
Annual Report 2013 149 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 30. Financial risk management continued i. Credit risk continued (a) Structured products – Perpetual Protected Investment loans In order to manage the credit risk arising from lending to investors in PPI structured product offerings, the consolidated entity has in place a Credit Office who report to the General Manager, Service and Operations. The Credit Office is governed by the Credit Risk Policy which stipulates the criteria that investors are required to meet prior to being granted a loan, and hence ensures that all investors under this arrangement possess the desired level of credit worthiness. The Credit Risk Policy is reviewed periodically by the General Manager Legal and Risk to ensure its continued compliance with the Group’s Risk Management Framework. All loans are secured by the investor’s investment in the structured product and the consolidated entity has recourse to the investor and the investment in the event of default. A charge over additional collateral may be required for loans greater than $2 million. As at 30 June 2013, loans for which Perpetual holds additional collateral amounted to $nil (30 June 2012: $nil). The Credit Office monitors the loan portfolio on a daily basis and provides reports on a monthly basis to Group Finance and the Risk Group for review. Arrears above 30 days are reviewed on a monthly basis by the Credit Committee, and are followed up and managed by the Credit Officer and recovery initiatives can include litigation if required. The consolidated entity minimises concentrations of credit risk by imposing a limit on the exposure it can have with each investor. The maximum standard exposure per borrower is set at $1 million. For amounts greater than $1 million, approval from both the General Manager Legal and Risk and the Chief Financial Officer (CFO) is required. There were no PPI loans that were past due but not impaired as at the reporting date. Further information on the risk management approach to and exposures arising from the PPI structured product offerings is disclosed below in this note and in Note 31.
(b)I nvestments held by incubation funds Perpetual incubates new investment strategies through the establishment of seed funds for the purpose of building investment track records and developing asset management skills before releasing products to Perpetual’s investors. Exposure to credit risk arises on the consolidated entity’s financial assets held by the incubation funds, mainly being deposits with financial institutions and derivative financial instruments. The exposure to credit risk is monitored on an ongoing basis by the funds’ investment manager and managed in accordance with the investment mandate of the funds. Credit risk is not considered to be significant to the incubation funds as investments held by the funds are predominantly equity securities.
(c) Other financial assets The consolidated entity’s exposure to trade debtors is influenced mainly by the individual characteristic of each customer. Trade debtors are managed by the accounts receivable department. Outstanding fees and receivables are monitored on a daily basis and an aged debtors report is prepared and monitored by Group Finance. Management assesses the credit quality of customers by taking into account their financial position, past experience and other factors. Credit risk further arises in relation to financial guarantees given to wholly owned subsidiaries. Such guarantees are only provided in exceptional circumstances and are subject to specific Board approval and are monitored on a quarterly basis as part of the consolidated entity’s regulatory reporting. Credit risk arising from cash investments is mitigated by ensuring they have a Standard & Poor’s rating of ‘A’ or higher, and transactions involving derivatives are limited to high credit quality financial institutions. The credit quality of financial assets that are neither past due nor impaired is assessed by reference to external credit ratings, if available, or to historical information on counterparty default rates.
150 Perpetual Limited and its controlled entities Note 30. Financial risk management continued i. Credit risk continued (c) Other financial assets continued The tables below provide an aged analysis of the financial assets which were past due but not impaired as at the reporting date.
30 June 2013 30 June 2012
More More LESS THAN 30 TO 6O 60 to 90 than 90 LESS THAN 30 TO 6O 60 to 90 than 90 30 DAYS DAYS days days Total 30 DAYS DAYS days days Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Consolidated Trade debtors 1,001 598 258 176 2,033 2,071 1,049 278 261 3,659 Other debtors 1,641 140 - 750 2,531 1,211 3 375 671 2,260 2,642 738 258 926 4,564 3,282 1,052 653 932 5,919
The trade debtors in the above table relate to a number of independent customers and investors for whom there is no recent history of default. The nominal values of financial assets which were impaired and have been provided for are as follows:
Consolidated
2013 2012 $’000 $’000
Trade debtors 573 845 Structured products – loans receivable 3,298 3,064 3,871 3,909
The impaired financial assets relate mainly to independent customers and investors who are in unexpectedly difficult economic situations, where the consolidated entity is of the view that the full carrying value of the receivable cannot be recovered. The consolidated entity does not hold any collateral against the trade debtors. Collateral held in respect of PPI loans is discussed in Note 30 (i)(a) above. For details of the provisions for impairment, refer to Notes 14 and 31. ii. Liquidity risk Liquidity risk is the risk that the financial obligations of the consolidated entity cannot be met as and when they fall due without incurring significant costs. The consolidated entity’s approach to managing liquidity is to maintain a level of cash or liquid investments sufficient to meet its ongoing financial obligations. The consolidated entity has a robust liquidity risk framework in place which is principally driven by the Capital Management Review (refer to Capital management disclosed below in Note 30 (iv) for further details). The consolidated entity manages liquidity risk by continually monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Surplus funds are generally only invested in instruments that are tradeable in highly liquid markets. In addition, a three year forecast of liquid assets, cash flows and Statement of Financial Position is reviewed by the Board on a semi-annual basis as part of the Business Planning Process to ensure there is sufficient liquidity within the Group. The repayment of the existing utilised facility of $45 million (refer to Note 29) is due on 31 January 2015.
Annual Report 2013 151 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 30. Financial risk management continued ii. Liquidity risk continued The $25 million unutilised bank facility may be drawn at any time at the discretion of the consolidated entity. The consolidated entity’s bank facilities are subject to annual review and management intends to refinance the existing facility for a further period after the due date.
Maturities of financial liabilities The tables below show the maturity profiles of the financial liabilities and gross settled derivative financial instruments for the consolidated entity. These have been calculated using the contractual undiscounted cash flows.
30 June 2013 30 June 2012
Less than 1 to 5 More than Less than 1 to 5 More than 1 year years 5 years Total 1 year years 5 years Total $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Consolidated Liabilities Trade and other payables 37,911 – – 37,911 31,283 – – 31,283 Interest bearing liabilities – 45,000 – 45,000 – 45,000 – 45,000 Structured products – interest bearing liabilities 36,231 42,418 – 78,649 23,046 88,370 – 111,416 74,142 87,418 – 161,560 54,329 133,370 – 187,699 Derivatives Net settled – Swap contracts 210 118 – 328 123 95 – 218 Gross settled – other derivatives – outflow 689 – – 689 127 – – 127 – (inflow) (679) – - (679) (125) – – (125) 220 118 – 338 125 95 – 220 iii. Market risk The consolidated entity is subject to the following market risks:
(a) Currency risk The exposure to currency risk, as defined in AASB 7 Financial Instruments: Disclosures, arises when financial instruments are denominated in a currency that is not the functional currency of the entity and are of a monetary nature. Hence the gains/(losses) arising from the translation of the controlled entities’ financial statements into Australian dollars are not considered in this note. A significant proportion of the monetary financial instruments held by the consolidated entity, being liquid assets, receivables, loans receivable, interest-bearing liabilities and payables, interest rate swaps, are denominated in Australian dollars. Hence fluctuations in exchange rates do not materially impact the profit/(loss) for the year or shareholders’ equity. Investments held in listed securities and unlisted unit trusts including incubation funds are of a non-monetary nature and therefore are not exposed to currency risk as defined in AASB 7 Financial Instruments: Disclosures. The currency risk relating to non-monetary assets and liabilities is a component of price risk and arises as the value of the securities denominated in other currencies fluctuates with changes in exchange rates.
(b) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The consolidated entity’s exposure to interest rate risk arises predominantly on investor loans granted under the PPI structured product offering. PPI structured product loans bear interest rates which are either fixed for the term of the product (seven years), fixed annually or variable. The consolidated entity has entered into fixed and variable rate banking facilities in order to finance loans provided to investors as a result of exposure to interest rate risk arising from: a) Fixed rate assets being financed with floating rate liabilities; and b) Maturity or duration mismatches. In order to manage the interest rate risk relating to PPI structured 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 interest rate swaps where the banking facilities have a variable interest rate. The hedging of interest rate exposure is managed by Group Finance and is reported to the Audit, Risk and Compliance Committee on a half‑yearly basis.
152 Perpetual Limited and its controlled entities Note 30. 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:
Fixed interest rate maturing in
Floating Non- interest 6 months 6-12 2-3 interest rate or less months years bearing Total Note $’000 $’000 $’000 $’000 $’000 $’000 At 30 June 2013 Financial assets Cash assets 13 197,119 20,000 – – 217,119 Receivables 14 1,362 – – – 60,658 62,020 Other financial assets 16 – 142 – – 35,313 35,455 Structured products – loans receivable – current 31 9,415 – 25,467 – – 34,882 Structured products – loans receivable – non-current 31 4,269 – 19,014 18,576 – 41,859 212,165 20,142 44,481 18,576 95,971 391,335 Financial liabilities Payables 22 – – – – 37,911 37,911 Interest-bearing liabilities 24 45,000 – – – – 45,000 Structured products – interest-bearing liabilities – current 30(ii) 11,356 – – 24,875 – 36,231 Structured products – interest-bearing liabilities – non-current 30(ii) 27,599 – 1,029 13,790 – 42,418 Effect of interest rate swaps (21,446) – 16,600 4,846 – – 62,509 – 17,629 43,511 37,911 161,560 At 30 June 2012 Financial assets Cash assets 13 153,057 – – – – 153,057 Receivables 14 – – – – 58,237 58,237 Other financial assets 16 60 142 – – 39,614 39,816 Structured products – loans receivable – current 31 24,222 – – – – 24,222 Structured products – loans receivable – non-current 31 7,991 – 30,416 46,536 – 84,943 185,330 142 30,416 46,536 97,851 360,275 Financial liabilities Payables 22 – – – – 31,283 31,283 Interest-bearing liabilities 24 45,000 – – – – 45,000 Structured products – interest-bearing liabilities – current 30(ii) 23,046 – – – – 23,046 Structured products – interest-bearing liabilities – non-current 30(ii) 40,850 – 7,680 39,840 – 88,370 Effect of interest rate swaps (27,400) – 21,214 6,186 – – 81,496 – 28,894 46,026 31,283 187,699
Annual Report 2013 153 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 30. Financial risk management continued iii. Market risk continued (b) Interest rate risk continued The table below demonstrates the impact of a 1 per cent change in interest rates, with all other variables held constant, on the profit after tax and equity of the consolidated entity.
30 June 2013 30 June 2012
Impact Impact on profit Impact on profit Impact after tax on equity after tax on equity $’000 $’000 $’000 $’000 Consolidated Change in variable + 1 per cent 1,039 1,328 728 1,122 - 1 per cent (1,039) (1,328) (728) (1,130)
The impact on profit after tax for the year also ensure management has appropriate The incubation funds may be exposed to would be mainly as a result of an increase/ processes and systems in place for currency risk and interest rate risk. Their (decrease) in interest revenue earned on cash managing investment risk for each fund. investment managers may enter into and cash equivalents. The impact on equity The funds’ specialist asset managers aim to derivative contracts (such as forwards, would be mainly the result of an increase/ manage the impact of price risks through the swaps, options and futures) through (decrease) in the fair value of the cash flow use of consistent and carefully considered approved counterparties to minimise risk. hedges associated with variable interest investment guidelines. Risk management However, the use of these contracts must rate borrowings. techniques are used in the selection of be consistent with the investment strategy investments, including derivatives, which and restrictions of each incubation fund, (c) Market risks arising from are only acquired if they meet specified and agreed acceptable level of risk. These Funds Under Management and investment criteria. Daily monitoring of funds are also exposed to interest rate risk Funds Under Advice trade restrictions and derivative exposure on cash holdings. Interest income from cash The consolidated entity’s revenue is against limits is undertaken with any breach holdings is earned at variable interest rates significantly dependent on Funds Under of these restrictions reported to the General and investments in cash holdings are at call. Management (FUM) and Funds Under Manager Legal and Risk. Advice (FUA) which are influenced by equity These funds may be party to derivative (e) Market risks arising from the market movements. Management calculates Exact Market Cash Funds financial instruments in the normal the expected impact on revenue for each 1 The consolidated entity is further subject course of business in order to hedge per cent movement in the All Ords. Based to market risks through the establishment exposure to fluctuations in foreign on the level of the All Ords at the end of the Exact Market Cash Fund (EMCF). exchange rates, interest rates and equity of 30 June 2013 (4,775.4), a 1 per cent The fund was established with the purpose indices in accordance with the funds’ movement in the market changes annualised of providing an exact return utilising the investment guidelines. revenue by approximately $1.75 million UBS Bank Bill Index (the benchmark index) to $2.25 million. It is worth noting this The impact on the consolidated profit after to investors. The impact of the EMCF on movement is not linear to the overall value tax of a potential change in the returns of the consolidated entity’s financial results is of the market. This means that as the the funds in which the consolidated entity dependent on the performance of the fund market reaches higher or lower levels, a 1 invested at year end is not material. The relative to the benchmark. per cent movement may have a larger or potential change has been determined The risk management approach to and smaller effect on revenue as FUM and FUA using historical analysis and management’s exposures arising from the EMCF are are comprised of both equity market and assessment of an appropriate rate of return. disclosed in Note 31. non‑equity market-sensitive asset classes. The analysis is based on the assumption that the returns on asset classes have moved, with iv. Capital management (d) Market risks arising from all other variables held constant and that the A Capital Management Review is carried incubation funds relevant change occurred as at the reporting out on a semi-annual basis and is submitted The consolidated entity is exposed to date. However, actual movements in the risk to the Board for review and approval. The equity price risk on investments held by its may be greater or less than anticipated due capital management policy ensures that the incubation funds. The funds may also be to a number of factors, including unusually level of financial conservatism is appropriate exposed, to a small extent, to the other risks large market shocks resulting from changes for the Company’s businesses including which influence the value of those shares or in the performance of economies, markets acting as custodian and manager of clients’ units (including foreign exchange rates and and securities in which the funds invest. assets and operation as a trustee company. interest rates). As a result, historic variations in risk This policy also aims to provide business variables are not a definitive indicator The Investment Committee is responsible stability and accommodate the growth of future variations in the risk variables. for determining the size of and approving needs of the consolidated entity. new incubation fund strategies. They
154 Perpetual Limited and its controlled entities Note 30. Financial risk returned to shareholders in the absence v. Fair value management continued of a strategically aligned, value accretive The following tables present the iv. Capital management investment opportunity. consolidated entity’s assets and liabilities continued measured and recognised at fair value, by This policy comprises three parts: (c) Gearing Policy valuation method, at 30 June 2013. The (a) Dividend Policy The consolidated entity seeks to maintain different levels have been defined as follows: Dividends paid to shareholders are typically a conservative financial management profile. Level 1: quoted prices in active markets in the range of 80–100 per cent of the Its gearing policy includes a maximum debt/ for identical assets and liabilities consolidated entity’s net profit after tax debt and total equity ratio of 30 per cent Level 2: inputs other than quoted prices attributable to members of the Company, and EBITDA interest cover of more than included within Level 1 that are which is in line with the historical dividend 10 times. Corporate debt (excluding product observable for the asset or liability, range paid to shareholders. In certain debt) has been maintained at $45 million either directly or indirectly circumstances, the Board may declare throughout the year (2012: $45 million), and Level 3: inputs for the asset or liability a dividend outside that range. the consolidated entity is within its stated that are not based on observable gearing policy at year end. market data. (b) Review of capital and The gearing ratio for the consolidated distribution of excess capital entity as at 30 June 2013 is 12.2 per cent A review of the consolidated entity’s capital (2012: 13.8 per cent) and an EBITDA interest base is performed at least semi-annually cover ratio of 73 times (2012: 48 times) and excess capital that is surplus to the was achieved. Group’s current requirements is potentially
Level 1 Level 2 Level 3 Total Consolidated $’000 $’000 $’000 $’000 At 30 June 2013 Financial assets Available-for-sale listed equity securities 30,217 – – 30,217 Available-for-sale unlisted unit trusts – 4,750 – 4,750 Structured products – EMCF assets1 – 405,957 – 405,957
30,217 410,707 – 440,924 Financial liabilities Swap contracts – 34 – 34 Derivative financial instruments – forward exchange contracts and index futures – (15) – (15) Derivative financial instruments – 404 – 404
– 423 – 423
Level 1 Level 2 Level 3 Total Consolidated $’000 $’000 $’000 $’000 At 30 June 2012 Financial assets Available-for-sale listed equity securities 33,946 – – 33,946 Available-for-sale unlisted unit trusts – 5,352 – 5,352 Structured products – EMCF assets1 – 652,020 – 652,020 33,946 657,372 – 691,318 Financial liabilities Swap contracts – 110 – 110 Derivative financial instruments – forward exchange contracts and index futures – 2 – 2 Derivative financial instruments – 656 – 656 Deferred acquisition consideration – – 599 599
– 768 599 1,367
1. The EMCF liability is not included as it is accounted for at amortised cost.
Annual Report 2013 155 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 30. Financial risk management continued v. fair value continued
Consolidated
2013 2012 $’000 $’000 Deferred acquisition consideration Opening balance 599 3,339 Unused amounts reversed – (1,777) Accrual of interest – 147 Payments made during the year (599) (1,110) Closing balance – 599
The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the consolidated entity is the current bid price. Marketable shares included in other financial assets are traded in an organised financial market and their fair value is the current quoted market bid price for an asset. The carrying amounts of bank term deposits and receivables approximate fair value. The fair value of investments in unlisted shares in other corporations is determined by reference to the underlying net assets and an assessment of future maintainable earnings and cash flows of the respective corporations. Derivative contracts classified as held for trading are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The estimates of fair value where valuation techniques are applied are subjective and involve the exercise of judgement. Changing one or more of the assumptions applied in valuation techniques to reasonably possible alternative assumptions may impact on the amounts disclosed. The consolidated entity’s financial assets and liabilities included as current and non-current in the Statement of Financial Position are carried at amounts in accordance with Notes 13, 14, 16, 22 and 31. The carrying amount of financial assets and financial liabilities, less any impairment, approximates their fair value, except for those outlined in the table below, which are stated at amortised cost.
30 June 2013 30 June 2012
Carrying Fair Carrying Fair Amount Value Amount Value $’000 $’000 $’000 $’000 Non-current Structured products – loans receivable 41,859 40,007 84,943 82,352 Structured products – interest bearing liabilities 42,418 41,970 88,370 86,536
156 Perpetual Limited and its controlled entities Note 31. Structured products assets and liabilities i. Exact Market Cash Funds
Consolidated
2013 2012 $’000 $’000 Current assets Exact Market Cash Fund 1 116,930 178,395 Exact Market Cash Fund 2 310,076 516,226 427,006 694,621 Current liabilities Exact Market Cash Fund 1 115,364 180,126 Exact Market Cash Fund 2 308,484 515,073 423,848 695,199
The Exact Market Cash Funds current asset balances reflect the fair value of the net assets held by the funds. The current liabilities balances represent the consolidated entity’s obligation to the funds’ investors under the swap agreements and reflect the net assets of the funds for unit pricing purposes. The difference between the current assets and current liabilities balance has been recorded in equity in the available for sale reserve. The Exact Market Cash Fund 1 (EMCF 1) was established during the financial year ended 30 June 2005 with the purpose of providing an exact return that matched the UBS Bank Bill rate (the benchmark index), or a variant thereon, to investors. The fund’s ability to pay the benchmark return to the investors is guaranteed by the consolidated entity. The National Australia Bank has provided the EMCF 1 product with a guarantee to the value of $3 million in 2013 (2012: $5 million) to be called upon in the event that the consolidated entity is unable to meet its obligations. Due to the guaranteed benchmark return to investors, the consolidated entity is exposed to the risk that 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 investments in the EMCF 1 portfolio, which are market, liquidity, and credit risks. The Exact Market Cash Fund 2 (EMCF 2) was established in July 2008 and aims to provide an exact return that matches the benchmark index to investors in the fund. It has a similar structure to EMCF 1, but in addition, there are specific rules that govern the withdrawal of funds. The EMCF 2 product invests directly into a variety of cash and debt securities, predominantly floating rate securities, cash deposits and fixed rate securities with a minimum credit rating band of ‘BBB-’ by Standard & Poor’s or equivalent rating agency at the time of purchase. The investments held by EMCF 2 are recorded at fair value within the fund, and in the consolidated entity’s financial statements. National Australia Bank has provided the fund with a guarantee to the value of $6 million (2012: $6 million) to be called upon in the event that Perpetual does not meet its obligations to the fund under the swap agreement. The EMCF 1 product has been assigned a ‘AAf’ fund credit quality rating by Standard & Poor’s and invests predominantly in the Perpetual Premium Treasury Fund and Cash Alpha Pool Fund of the consolidated entity. These funds cannot invest in securities which have a Standard & Poor’s credit rating below ‘BBB-’. They can invest in assets directly or indirectly by investing in other managed funds that have similar investment objectives and authorised investments. The underlying funds may invest in a variety of cash and debt securities, predominantly floating rate securities, cash deposits and fixed rate securities.
Annual Report 2013 157 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 31. Structured products assets and liabilities continued i. Exact Market Cash Funds continued EMCF 1 and EMCF 2 (EMCF) use professional investment managers to manage the impact of these risks by using prudent investment guidelines and investment processes. The investment manager explicitly targets low volatility and aims to achieve this through a quality‑screening process that is designed to assess the likelihood of default and difficult trading patterns during periods of rapid systematic risk reduction. There is a clearly defined mandate for the inclusion of sectors and issuances. In periods of risk reduction, diversification may be narrowly focused on cash and highly liquid investment-grade assets. At times of higher risk tolerance, appropriate diversification should be expected. Interest rate exposure is limited to +/ – 90 days versus the benchmark. The portfolio is constructed with the goal of having a diversified portfolio of securities, while largely retaining the low-risk characteristics of a cash investment. Liquidity risk of EMCF is managed by maintaining a level of cash or liquid investments in the portfolio which are sufficient to meet a level and pattern of investor redemptions (consistent with past experience), distributions or other of the fund’s financial obligations. This is complemented by a dynamic portfolio management process that ensures liquidity is increased when there is an expectation of a deterioration in market conditions. Cash flow forecasts are prepared for the funds, including the consideration of the maturity profile of the securities, interest and other income earned by the funds, and projected investor flows based on historical trends and future expectations. Furthermore, the credit quality of financial assets is managed by the EMCF using Standard & Poor’s rating categories or equivalent, in accordance with the investment mandate of the EMCF. The EMCF’s exposure in each credit rating category is monitored on a daily basis. This review process allows assessment of potential losses as a result of risks and the undertaking of corrective actions. The investment managers have undertaken to restrict the asset portfolio of the underlying funds to securities, deposits or obligations that meet Standard & Poor’s ‘AAf’ fund credit quality rating criteria. The investment managers of the underlying funds invested by the EMCF enter into a variety of derivative financial instruments such as credit default swaps and foreign exchange forwards in the normal course of business in order to mitigate credit risk exposure, and to hedge fluctuations in foreign exchange rates. Details of the assets held by the underlying funds are set out below:
AAA A+ BBB+ to AA- to A- to BBB- Total 30 June 2013 $’000 $’000 $’000 $’000
Corporate bonds 156,772 – – 156,772 Mortgage and asset backed securities 8,984 51,919 8,375 69,278 Cash 204,679 – – 204,679 370,435 51,919 8,375 430,729
AAA A+ BBB+ to AA- to A- to BBB- Total 30 June 2012 $’000 $’000 $’000 $’000
Corporate bonds 246,819 148 – 246,967 Mortgage and asset backed securities 203,479 68,129 16,949 288,557 Cash 159,349 – – 159,349 609,647 68,277 16,949 694,873
158 Perpetual Limited and its controlled entities Note 31. Structured products assets and liabilities continued i. Exact Market Cash Funds continued The table below demonstrates the impact of a 1 per cent change in the fair value of the underlying assets of the EMCF, due to market price movements, based on the values at reporting date.
2013 2012 $’000 $’000
1 per cent increase 4,307 6,949 1 per cent decrease (4,307) (6,949)
The actual impact of a change in the fair value of the underlying assets of the EMCF on the consolidated profit before tax is dependent on the calculation of the swap agreement between the fund and the consolidated entity and the performance of the fund relative to the benchmark index. If the fund’s performance is below the benchmark return, then the consolidated entity will be obliged to make payments to the fund under the swap agreement. Conversely, if the fund’s performance is higher than the benchmark, then the fund will make payments to the consolidated entity. Any variance between the consolidated entity’s current assets EMCF balance and the consolidated entity’s current liabilities EMCF balance would be reflected in reserves, except in the case of a credit default which would impact the consolidated profit before tax. ii. Perpetual Protected Investments The Perpetual Protected Investments structured product (the PPI product) was established in the financial year ended 30 June 2007 for the purpose of providing investors the ability to select investments from a menu of managed funds while providing capital protection at maturity via a constant proportion portfolio insurance structure. The seven-year investment allows investors to borrow up to 100 per cent of their original invested amount (and their first year’s interest if the interest is pre-paid), subject to a minimum loan of $50,000. Structured products – loans receivable at reporting date consists of the following:
Consolidated
2013 2012 $’000 $’000 Current Structured products – receivable from investors 36,892 24,222 Less: loan establishment fees (24) –
36,868 24,222 Less: provision for credit losses (1,986) –
34,882 24,222 Non-current Structured products – loans receivable from investors 43,202 88,122 Less: loan establishment fees (31) (115)
43,171 88,007 Less: provision for credit losses (1,312) (3,064) 41,859 84,943 Movements in the provision for credit losses are as follows: Current and non-current Balance as at 1 July 3,064 2,831 Provision utilised during the year (192) (39) Provision for credit losses recognised during the year 426 272 Balance as at 30 June 3,298 3,064
Annual Report 2013 159 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 31. Structured products assets and liabilities continued ii. Perpetual Protected Investments continued In June 2013, a number of investors in the PPI product advised the Group that they intended to repay all or some of their loans. This gave rise to the reclassification to current assets and liabilities in relation to the PPI and corresponding bank funding facilities. Repayments received from investors will be applied to reduce the bank funding facilities used to finance these loans. Investment and interest loans made to investors are funded by fixed and variable interest rate banking facilities. Total bank facilities available and utilised under these financial arrangements as at 30 June 2013 were $78.7 million (2012: $111.4 million). It is the consolidated entity’s policy to hedge variable rate facilities from exposure to fluctuating interest rates in accordance with its financial risk management policies. Accordingly, the consolidated entity has entered into interest rate swap contracts in order to hedge exposure to fluctuations in interest rates under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. Details of the consolidated entity’s exposure to risks arising from Perpetual Protected Investments are set out in Note 30. The contracts are settled on a net basis. For the 1 year interest rate swap, the fixed rate payment is paid either annually in advance or monthly in arrears, and the floating rate payment is received monthly in arrears; for the 7 years interest rate swap, the fixed rate leg is paid annually in advance, and the floating rate leg is received quarterly in arrears. At year end interest rate swap contracts entered into cover approximately 97.5 per cent (2012: 96 per cent) of the variable interest rate banking facilities and are timed to expire as each loan falls due. The fixed interest rates of these swaps range from 2.56 per cent to 7.37 per cent (2012: 2.91 per cent to 7.37 per cent) and the banking facilities’ variable interest rates range from 4.14 per cent to 4.32 per cent (2012: 4.93 per cent to 5.52 per cent). The interest rates under the fixed interest banking facilities range from 2.98 per cent to 7.77 per cent (2012: 3.37 per cent to 7.77 per cent). There were $39.7 million (2012: $47.4 million) fixed interest banking facilities at 30 June 2013. Interest rate swaps have been both terminated and entered into in accordance with the Group’s product interest rate risk policy. The fair value of interest rate swap contracts outstanding as at reporting date and period of expiry are as follows:
30 June 2013 30 June 2012
Fair Notional Fair Notional Value amount Value amount $’000 $’000 $’000 $’000
Less than 1 year 7 16,600 37 21,214 1-4 years (440) 4,846 (724) 6,186 (433) 21,446 (687) 27,400
The gain or loss from remeasuring interest rate swap contracts at fair value is deferred in other comprehensive income in the cash 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 loss immediately. As at 30 June 2013, an unrealised loss of $0.4 million (2012: loss of $0.5 million) was deferred in equity in the cash flow hedge reserve.
160 Perpetual Limited and its controlled entities Note 32. Commitments
Consolidated
2013 2012 $’000 $’000 Capital expenditure commitments Contracted but not provided for and payable within one year – – Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable: Not later than 1 year 17,901 17,612 Later than 1 year and not later than 5 years 63,368 68,101 Later than 5 years 30,777 45,098 112,046 130,811
Operating leases are predominantly related to premises.
Note 33. Contingencies The Directors are of the opinion that the recognition of liabilities is not required in respect of the matters below, as it is not probable that future sacrifice of economic benefits will be required and the amount is not capable of reliable measurement.
Contingent liabilities Bank guarantees of a controlled entity in favour of the ASX Settlement and Transfer Corporation Pty Limited with respect to normal trading activities. 1,000 1,000 Bank guarantees of a controlled entity in favour of various lessors: – Rental bonds on leased premises 1,784 1,784 – Master rental agreement 837 837
In the ordinary course of business, contingent liabilities exist in respect of claims and potential claims against entities in the consolidated entity. The consolidated entity does not consider that the outcomes 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.
Note 34. Related parties Controlled entities and associates The consolidated entity has a related party relationship with its Key Management Personnel (see Note 40). Business transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.
Annual Report 2013 161 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 35. Controlled entities
Beneficial interest
2013 2012 Country of Name of Company % % incorporation Perpetual Limited Controlled Entities1 Australian Trustees Limited 100 100 Australia Commonwealth Trustees Pty Limited2 100 100 Australia Financial Pursuit Pty Limited2 100 100 Australia Fordham Business Advisors Pty Ltd2 100 100 Australia Grosvenor Financial Services Pty Ltd2 100 100 Australia Investor Marketplace Limited 100 100 Australia Perpetual Acquisition Company Limited4 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 Limited2 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 Property and Mortgage Services Australia Pty Limited3 – – Australia Queensland Trustees Pty Limited 100 100 Australia Perpetual Superannuation Ltd6 100 100 Australia Perpetual Resource Fund 64 57 Australia Perpetual Asia Pool Fund – 100 Australia Perpetual Equity Imputation Portfolio – 100 Australia Perpetual Capital Accumulation Portfolio 100 100 Australia Perpetual Pure Equity Yield Fund – Class X 100 – Australia Global Equities UCITS Fund 100 100 Ireland Perpetual Pure Value 2 Fund 100 100 Australia Perpetual Wholesale Dynamic Fixed Income Fund 74 64 Australia Exact Market Cash Fund 1 100 100 Australia Exact Market Cash Fund 2 100 100 Australia
162 Perpetual Limited and its controlled entities Note 35. Controlled entities continued
Beneficial interest
2013 2012 Country of Name of Company % % incorporation Entities under the control of Fordham Business Advisors Pty Limited Fordham Investment Management Pty Ltd2 100 100 Australia Garnet Investment Management Pty Ltd2 100 100 Australia Garnet Superannuation Pty Ltd2 100 100 Australia Entities under the control of Grosvenor Financial Services Pty Limited Perpetual Tax and Accounting Pty Ltd2 100 100 Australia Entities under the control of Perpetual Assets Pty Limited Perpetual Asset Management Limited 100 100 Australia Entities under the control of Perpetual Trustee Company Limited Perpetual Corporate Trust Limited 100 100 Australia Perpetual Custodians Limited 100 100 Australia PT Limited 100 100 Australia Entities under the control of Perpetual Trustees Consolidated Limited Perpetual Custodian Nominees Pty Limited2 100 100 Australia Entities under the control of PT Limited1 Perpetrust Nominees Pty Limited2 100 100 Australia Associates Marq Services Management Pty. Ltd.5 45 – Australia
1. Entities in bold are directly owned by Perpetual Limited with the exception of Perpetual Asset Management Limited and P.T. 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. On 2 July 2012, ACN 159 300 580 Pty Ltd was incorporated and changed its name to Property and Mortgage Services Australia Pty Ltd on 9 July 2012. The company was sold by Perpetual on 1 August 2012. 4. Perpetual Acquisition Company Limited was incorporated on 6 May 2013. 5. In August 2012, Perpetual Limited entered into a joint venture agreement and holds 45% of Marq Services Management Pty. Ltd. The remaining 55% is shared between Morgij Holdings Pty Ltd and Oliver Wyman Pty Ltd. 6. Perpetual holds 75% of Perpetual Superannuation Limited’s share capital directly, the remaining 25% is held by Perpetual Asset Management Limited a 100% wholly owned subsidiary of Perpetual Ltd.
Annual Report 2013 163 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 36. Parent entity disclosures As at, and throughout, the financial year ended 30 June 2013 the parent entity of the consolidated entity was Perpetual Limited.
c ompany
2013 2012 $’000 $’000 Result of the parent entity Profit for the period 57,453 16,599 Other comprehensive income/(expense) (2,637) 5,641 Total comprehensive income for the period 54,816 22,240 Financial position of the parent entity at year end Current assets 142,809 101,724 Total assets 461,805 420,998 Current liabilities 121,756 93,389 Total liabilities 147,485 118,655 Total equity of the parent entity comprising: Share capital 239,802 254,493 Reserves 37,907 37,699 Retained earnings 36,611 10,151 Total equity 314,320 302,343 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. 7,100 7,100 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. Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable: Not later than 1 year 12,079 11,672 Later than 1 year and not later than 5 years 48,741 49,247 Later than 5 years 30,777 43,086 91,597 104,005
Operating leases are predominantly related to premises.
164 Perpetual Limited and its controlled entities Note 36. Parent entity disclosures continued 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: ll Guarantee to secure a $70,000,000 bank facility ($45,000,000 is utilised) of a controlled entity amounting to $70,000,000 (2012: $70,000,000). ll Guarantees to secure lending associated with structured products amounting to $7,135,000 (2012: $6,201,000). ll 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 37. Business combinations Contingent consideration At 30 June 2013, there is $nil contingent consideration outstanding (2012: $nil). Contingent consideration relating to business combinations acquired in preceding periods have historically been recognised as liabilities at their discounted fair value, reducing each year with payments being made to the selling stakeholders on the basis of pre-determined targets being achieved. Total cash consideration of $nil (2012: $1.1 million) was paid to the selling stakeholders for the year ended 30 June 2013 in respect of pre-determined targets being reached. All earnout periods have ceased, and unused provisions of $nil (2012: $1.7 million) have been released. There was no unwinding of discounts, relating to business combinations in previous periods (2012: $147,000) for the year ended 30 June 2013.
Annual Report 2013 165 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 38. Notes to the Cash Flow Statement
Consolidated
2013 2012 $’000 $’000 Cash flows from operating activities
Profit for the year 60,968 26,679 Add/(less) items classified as investing/financing activities: Profit on sale of investments (1,291) (359) Reinvestment of dividends and unit distributions (88) (399) Gain/loss from sale of businesses (2,595) – Deferred acquisition consideration 599 1,110 Share of loss of equity accounted investees, net of income tax 704 – Loss on sale of property, plant and equipment 598 2 Add/(less) non-cash items: Depreciation and amortisation expense 9,092 14,828 Equity remuneration expense 12,745 12,218 Impairment of software intangibles 144 14,498 Impairment of fixed assets – 3,356 Transfer to foreign currency translation reserve 5,313 (744) MTM movements on available-for-sale including minority interest (9,267) 8,217 Impairment of available-for-sale securities 2,108 8,412 Impairment of equity accounted investees 1,096 – Net cash provided by operating activities before change in assets and liabilities 80,126 87,818 Change in assets and liabilities during the financial year: (Increase)/decrease in receivables (3,783) 14,485 (Increase) in net structured products assets (2,013) (2,104) (Decrease)/increase in derivative liabilities (346) 155 Increase/(decrease) in payables 6,626 (9,059) Decrease/(increase) in prepayments 1,850 (2,033) Increase/(decrease) in employee benefits 88 (146) Increase/(decrease) in provisions 649 (1,800) Increase/(decrease) in current tax liabilities 14,591 (16,750) Decrease in deferred tax assets 475 3,593 (Decrease)/increase in deferred tax liabilities (400) 938 Decrease/(increase) in assets held for sale 13,229 (13,279) (Decrease)/increase in liabilities held for sale (5,612) 4,708 Decrease/(increase) in cash flow hedge reserve 98 (79) Net cash provided by operating activities 105,578 66,447
166 Perpetual Limited and its controlled entities Note 39. Subsequent events Perpetual Limited entered into a Scheme of Arrangement on 7 May 2013 under which Perpetual proposes to acquire all of the ordinary shares in ASX listed The Trust Company Limited (TrustCo). TrustCo represents an attractive growth opportunity given its strong strategic fit with Perpetual’s existing businesses. An acquisition of TrustCo is expected to deliver greater scale and capabilities across the whole business and represents a financially compelling opportunity for Perpetual’s shareholders. At the date of this report, the transaction is not yet complete as there are a number of hurdles such as regulatory and third party approvals which are yet to be finalised, nor have TrustCo shareholders met to approve a Scheme of Arrangement. Other than the event noted above, 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.
Note 40. 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: 1. Para 17 ‘Total Compensation of Key Management Personnel’ 2. Para 29.7.3 ‘Option and Rights Holdings’ 3. Para 29.7.4 ‘Equity Holdings and Transactions’ 4. Para 29.9 ‘Disclosure of Other Transactions’
T otal compensation of key management personnel (KMP)
Consolidated
2013 2012 $’000 $’000
Short-term 7,148,203 6,911,427 Post-employment 163,862 235,894 Termination benefits 597,864 1,966,312 Share-based 1,171,362 2,084,349 Total 9,081,291 11,197,982
Related party disclosures Executives have not entered into material contracts with the Company or a member of the consolidated entity since the end of the previous financial year and there were no material contracts involving KMPs’ interests existing at year end.
Annual Report 2013 167 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 40. Remuneration details provided as part of the financial report continued Unvested shareholdings of Executive Director, group and other executives
Movement during the year
Fair Fair value value per per Held at Held at share share ($) Grant Issue Vesting 1 July 30 June ($) TSR non–TSR Name Instrument date price date 2012 Granted Forfeited Vested 2013 Hurdle hurdle
No of No of No of shares shares shares
Managing Director G Lloyd Shares 1 October 2010 30.80 1 October 2013 21,915 – – – 21,915 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 32,066 – – – 32,066 14.60 21.05 PR4 1 October 2012 23.54 1 October 2015 – 37,383 – – 37,383 14.38 23.54 Aggregate Value1 $879,996 $0 $0
Group Executives M Gordon Shares 29 January 2013 35.70 30 June 2014 – 4,482 – – 4,482 N/A 35.70 Shares 29 January 2013 35.70 30 June 2015 – 4,482 – – 4,482 N/A 35.70 Shares2 29 January 2013 35.70 30 June 2016 – 2,241 – – 2,241 N/A 35.70 Aggregate Value $400,000 $0 $0
C Green Shares 1 October 2008 48.63 1 October 2011 4,112 – 4,112 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 20123 6,553 – – – 6,553 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 10,551 – – – 10,551 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 15,439 – – – 15,439 14.60 21.05 PR 1 October 2012 23.54 1 October 2015 – 13,806 – – 13,806 14.38 23.54 Aggregate Value $324,993 $114,026 $0
G Larkins PR 1 October 2012 23.54 1 October 2015 – 4,800 – – 4,800 14.38 23.54 Aggregate Value $112,992 $0 $0
R Nash PR 1 October 2012 23.54 1 October 2015 – 4,237 – – 4,237 14.38 23.54 Aggregate Value $99,739 $0 $0
M Smith Shares 1 October 2012 26.34 1 October 2014 – 9,491 – – 9,491 N/A 26.34 PR 1 October 2012 23.54 1 October 2014 – 5,310 – – 5,310 14.26 23.54 PR 1 October 2012 23.54 1 October 2015 – 11,894 – – 11,894 14.38 23.54 A ggregate Value $654,975 $0 $0
Acting Group Executives during the year P Chasemore Shares 1 October 2009 38.15 1 October 2012 1,048 – 1,048 – – N/A 37.93 Shares 1 October 2010 30.80 1 October 2013 2,110 – – – 2,110 N/A 30.80 Shares 1 October 2011 21.05 1 October 2014 3,325 – – – 3,325 N/A 21.05 Shares 1 October 2012 26.34 1 October 2015 – 3,037 – – 3,037 N/A 26.34 Aggregate Value $79,995 $29,061 $0
N Langton Shares 4 January 2011 31.43 4 January 2014 5,727 – – – 5,727 N/A 31.43 Shares 1 October 2011 21.05 1 October 2014 7,125 – – – 7,125 N/A 21.05 Shares 1 July 2012 23.14 31 December 2013 – 5,000 – – 5,000 N/A 23.15 Shares 1 July 2012 23.14 31 December 2014 – 5,000 – – 5,000 N/A 23.15 Shares 1 October 2012 26.34 1 October 2015 – 5,694 – – 5,694 N/A 26.34 Aggregate Value $381,380 $0 $0
Departed Executives R Brandweiner Shares 1 October 2008 48.63 1 October 2011 4,112 – 4,112 – 38.97 50.80 Shares 1 October 2009 38.15 1 October 20123 7,208 – 5,064 2,144 – 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 11,931 – – – 11,931 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 19,002 – – – 19,002 14.60 21.05 Aggregate Value $0 $321,700 $86,360 –
R Burrows Shares 1 October 2008 48.63 1 October 2011 12,338 – 12,338 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 2012 15,727 – 15,727 – – 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 19,480 – 19,480 – – 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 28,503 – 28,503 – – 14.60 21.05 Aggregate Value $0 $2,800,246 $0
168 Perpetual Limited and its controlled entities Note 40. Remuneration details provided as part of the financial report continued Unvested shareholdings of Executive Director, group and other executives continued
Movement during the year
Fair Fair value value per per Held at Held at share share ($) Grant Issue Vesting 1 July 30 June ($) TSR non–TSR Name Instrument date price date 2012 Granted Forfeited Vested 2013 Hurdle hurdle
No of No of No of shares shares shares
Departed Executives C Doyle Shares 1 October 2008 48.63 1 October 2011 7,197 – 7,197 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 2012 9,174 – 9,174 – – 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 22,727 – – – 22,727 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 33,254 – – – 33,254 14.60 21.05 Aggregate Value $0 $448,565 $0
B Henderson Shares 1 October 2011 21.05 1 October 2014 8,076 – – – 8,076 14.60 21.05 Aggregate Value $0 $0 $0
I Holyman Shares 1 October 2008 48.63 1 October 2011 9,253 – 9,253 – – 38.97 50.80 Shares 1 October 2009 38.15 1 October 2012 11,795 – 11,795 – – 29.02 37.93 Shares 1 October 2010 30.80 1 October 2013 14,610 – – – 14,610 20.59 30.80 Shares 1 October 2011 21.05 1 October 2014 21,377 – – – 21,377 14.60 21.05 Aggregate Value $0 $485,156 $0
R Vahtrick Shares 1 October 2011 21.05 1 October 2014 9,501 – – – 9,501 14.60 21.05 Aggregate Value $0 $0 $0
1. Granted aggregate value is calculated through multiplying the number of shares by the issue price. Vested and forfeited aggregate value is calculated through multiplying the number of shares by the Perpetual closing share price on the vesting date or next business day if the vesting date falls on a weekend or public holiday. 2. Unvested company shares were granted to M Gordon on 29 January 2013 as part of his sign-on payment. Shares will vest over three years and are subject to service conditions only. 3. Initial vesting date. KMP LTI Grants prior to 2010 were retested at the fourth year or on earlier termination if they failed to vest at the three year test. 4. PR stands for performance rights.
Movement during the year
Fair Fair value value per per Held at Held at share share ($) Issue 1 July 30 June ($) TSR non-TSR Name Grant date price Vesting date 2011 Granted Forfeited Vested 2012 Hurdle hurdle
No of No of No of shares shares shares
Executive Director G Lloyd 10 August 2010 31.33 10 August 2011 12,767 – – 12,767 – N/A 31.33 1 October 2010 30.80 1 October 2013 21,915 – – – 21,915 20.59 30.80 1 October 2011 21.05 1 October 2014 – 32,066 – – 32,066 14.60 21.05 Aggregate Value2 $674,989 – $277,172
Former Executive Director C Ryan2 1 April 2011 29.38 1 April 2013 – 20,422 – – 20,422 18.80 29.38 1 October 2011 21.05 1 October 2014 – 58,194 – – 58,194 14.60 21.05 Aggregate Value $1,824,982 – –
Group Executives R Brandweiner 1 October 2008 48.63 1 October 20114 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 1 October 2011 21.05 1 October 2014 – 19,002 – – 19,002 14.60 21.05 Aggregate Value $399,992 – –
R Burrows 31 March 2008 52.71 31 March 20114 11,383 – 11,383 – – 57.22 52.71 1 October 2008 48.63 1 October 2014 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 1 October 2011 21.05 1 October 2014 – 28,503 – – 28,503 14.60 21.05 Aggregate value $599,988 $232,555 –
Annual Report 2013 169 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 40. Remuneration details provided as part of the financial report continued Unvested shareholdings of Executive Director, group and other executives continued
Movement during the year
Fair Fair value value per per Held at Held at share share ($) Issue 1 July 30 June ($) TSR non-TSR Name Grant date price Vesting date 2011 Granted Forfeited Vested 2012 Hurdle hurdle
No of No of No of shares shares shares
Group Executives continued C Doyle 20 February 2008 52.28 1 January 20114 9,563 – 9,563 – – N/A 52.28 1 October 2008 48.63 1 October 20114 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 1 October 2011 21.05 1 October 2014 – 33,254 – – 33,254 14.60 21.05 Aggregate Value $699,997 $195,370 –
C Green 1 October 2008 48.63 1 October 20114 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 1 October 2011 21.05 1 October 2014 – 15,439 – – 15,439 14.60 21.05 Aggregate Value $324,991 – –
B Henderson 1 October 2011 21.05 1 October 2014 – 8,076 – – 8,076 14.60 21.05 Aggregate Value $170,000 – –
I Holyman 1 October 2007 73.54 1 October 2010 6,119 – 6,119 – – 57.22 80.08 1 October 2008 48.63 1 October 20114 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 1 October 2011 21.05 1 October 2014 – 21,377 – – 21,377 14.60 21.05 Aggregate Value $449,986 $122,992 –
R Vahtrick 1 October 2011 21.05 1 October 2014 – 9,501 – – 9,501 14.60 21.05 Aggregate Value $199,966 – –
Current Executives who were in Acting Group Executive roles during the year N Langton3 4 January 2011 31.43 4 January 2014 5,727 – – – 5,727 N/A 31.43 1 April 2011 29.33 15 November 2011 4,773 – – 4,773 – N/A 29.33 1 October 2011 21.05 1 October 2014 – 7,125 – – 7,125 14.60 21.05 Aggregate Value $149,981 – $99,660
P Chasemore 1 October 2008 48.63 1 October 2011 416 – 416 – – 38.97 50.80 1 October 2009 38.15 1 October 2012 1,048 – – – 1,048 29.02 37.93 1 October 2010 30.80 1 October 2013 2,110 – – – 2,110 20.59 30.80 1 October 2011 21.05 1 October 2014 – 3,325 – – 3,325 14.60 21.05 Aggregate Value $69,991 $8,362 –
Departed Executives J Stewart 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 1 October 2011 21.05 1 October 2014 – 6,342 6,342 – – 14.60 21.05 Aggregate Value $133,499 $492,920 –
1. Granted aggregate value is calculated through multiplying the number of shares by the issue price. Vested and forfeited aggregate value is calculated through multiplying the number of shares by the Perpetual closing share price on the vesting date or next business day if the vesting date falls on a weekend or a public holiday. 2. Approval for the issue of shares to Chris Ryan was obtained under ASX Listing Rule 10.14 at Perpetual’s AGM held in November 2011. 3. 4,773 shares vested in November 2011 prior to N Langton becoming Acting Group Executive and are therefore not included in the Actual Remuneration Table. 4. Initial vesting date. KMP LTI Grants prior to 2010 were retested at the fourth year if they failed to vest at the three year test.
170 Perpetual Limited and its controlled entities Note 40. Remuneration details provided as part of the financial report continued Vested shareholdings of Managing Director, group and other executives
Other LTI Shares changes Balance at Balance at vesting in during 30 June 1 July 2012 the period the year 2013*
No of No of No of Name shares shares shares Managing Director G Lloyd 12,767 – – 12,767 Group Executives M Gordon – – – – C Green 4,796 – – 4,796 G Larkins – – – – R Nash – – – – M Smith – – – – Acting Group Executives roles during the year P Chasemore – – – – N Langton 4,773 – – 4,773 Departed Group Executives R Brandweiner 402 2,144 – 2,546 R Burrows – – – – C Doyle 825 – – 825 B Henderson – – – – I Holyman 2,736 – – 2,736 R Vahtrick – – – –
* Or date of departure for Group Executives that departed in the year. Other changes during the year represent shares acquired via bonus sacrifice, conversion of options into shares and disposal of shares.
Other LTI Shares changes Balance at Balance at vesting in during 30 June 1 July 2011 the period the year 2012*
No of No of No of Name shares shares shares Managing Director G Lloyd – 12,767 – 12,767 Former Managing Director C Ryan – – – – Group Executives R Brandweiner 402 – – 402 R Burrows – – – – C Doyle 825 – – 825 C Green 4,796 – – 4,796 B Henderson – – – – I Holyman 2,736 – – 2,736 R Vahtrick – – – – N Langton – 4,773 – 4,773 P Chasemore – – – – Departed Group Executives J Stewart – – – –
* Or date of departure for Group Executives that departed in the year. Other changes during the year represent shares acquired via bonus sacrifice, conversion of options into shares and disposal of shares. There were no disposals during the year.
Annual Report 2013 171 financial report NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS continued
Note 40. Remuneration details provided as part of the financial report continued Remuneration of Non-Executive Directors Directors’ Individual shareholdings
Balance at the Balance at the start end of the year, of the year, or for or for directors directors appointed Shares acquired via who retired in the in the year, the date salary sacrifice Other changes year, the date of of appointment during the year during the year retirement Directors P V Brasher 1,000 – – 1,000 P Bullock 2,000 – 650 2,650 S Falzon1 – – 1,000 1,000 E P McClintock2 9,594 – 97 9,691 E Proust 4,550 – 1,069 5,619 P B Scott 2,431 – 1,067 3,498 P J Twyman3 8,107 – - 8,107 P C Ueland4 – – 1,000 1,000
1. Sylvia Falzon was appointed as a director on 20 November 2012. 2. Paul McClintock retired as a director on 1 November 2012. 3. Philip Twyman retired as a director on 30 November 2012. 4. P Craig Ueland was appointed as a director on 25 September 2012.
Prior year Directors’ individual shareholdings
Balance at the Balance at the start end of the year, of the year, or for or for directors directors appointed Shares acquired via who retired in the in the year, the date salary sacrifice Other changes year, the date of of appointment during the year during the year retirement Directors P V Brasher 1,000 – – 1,000 P Bullock 1,000 – 1,000 2,000 M J Brooks1 6,156 – 380 6,536 E P McClintock 9,203 – 391 9,594 E Proust 4,401 – 149 4,550 P B Scott 2,291 – 140 2,431 P J Twyman 8,107 – – 8,107
1. Meredith Brooks retired as a director on 28 October 2011.
172 Perpetual Limited and its controlled entities finan cial rePort 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 35 to 62, 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 2013 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards 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 2013.
Signed in accordance with a resolution of the directors:
Dated at Sydney this 29th day of August 2013.
Peter B Scott Geoff Lloyd Director Director
Annual Report 2013 173 finan cial rePort
Independent auditor’s report to the members of Perpetual Limited Report on the financial report We have audited the accompanying financial report of Perpetual Limited (the Company), which comprises the consolidated statement of financial position as at 30 June 2013, and consolidated statement of profit or loss and other comprehensive income, statement of changes in equity and cash flow statement for the year ended on that date, notes 1 to 40 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Consolidated Entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In note 2, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Consolidated Entity comply with International Financial Reporting Standards.
Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control 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. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Consolidated Entity’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.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms Liability limited by a scheme affiliated with KPMG International Cooperative approved under professional (“KPMG International”), a Swiss entity. Standards Legislation.
174 Perpetual Limited and its controlled entities Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion In our opinion: (a) the financial report of the Consolidated Entity is 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 2013 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2. Report on the remuneration report We have audited the Remuneration Report included in pages 36 to 62 of the directors’ report for the year ended 30 June 2013. The directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the remuneration report of Perpetual Limited for the year ended 30 June 2013, complies with Section 300A of the Corporations Act 2001.
KPMG
Andrew Yates Partner Sydney 29 August 2013
Annual Report 2013 175 S ecurities exchange and investor information
2013 Annual General Meeting The 2013 Annual General Meeting of the Company will be held in the Heritage Ballroom, Level 6, The Westin Sydney, 1 Martin Place, Sydney on 31 October 2013 commencing at 10:00 am.
Securities exchange listing The ordinary shares of Perpetual Limited are listed on the Australian Securities Exchange under the ASX code PPT, with Sydney being the home exchange. Details of trading activity are published in most daily newspapers.
Substantial shareholders Queensland Trustees Pty Limited (3,221,460 shares) and Vinva Investment Management (2,888,996 shares) are substantial shareholders of Perpetual Limited as at 31 July 2013.
Distribution schedule of holdings Number Number as at 31 July 2013 of holders of shares
1 – 1,000 shares 14,995 5,463,934 1,001 – 5,000 shares 3,570 7,592,512 5,001 – 10,000 shares 348 2,464,969 10,001 – 100,000 shares 233 4,811,804 100,001 and over shares 34 21,647,459 Total 19,180 41,980,678
Number of shareholders with less than a marketable parcel: 362
Twenty Largest Shareholders as at 31 July 2013 Number of Percentage ordinary of issued Name shares capital
National Nominees Limited1 3,659,737 8.72% JP Morgan Nominees Australia Limited1 3,292,240 7.84% Queensland Trustees Pty Limited1 3,221,460 7.67% HSBC Custody Nominees (Australia) Limited1 2,870,124 6.84% JP Morgan Nominees Australia Limited (Cash Income and Income Reinvestment A/c)1 1,092,541 2.60% Citicorp Nominees Pty Limited1 1,053,690 2.51% Milton Corporation Limited 824,126 1.96% Bond Street Custodians Limited1 791,561 1.89% BNP Paribas Noms Pty Ltd1 656,983 1.56% Australian Foundation Investment Company Limited 614,903 1.46% Washington H Soul Pattinson & Co Ltd 529,598 1.26% BNP Paribas Nominees Pty Ltd1 527,934 1.26% Enbeear Pty Ltd 310,678 0.74% Carlton Hotel Ltd 262,332 0.62% Argo Investments Ltd 238,905 0.57% UBS Wealth Management Australia 228,470 0.54% AMP Life Limited 223,206 0.53% Jesseck Pty Limited 207,416 0.49% John Sevior 201,355 0.48% HSBC Custody Nominees (Australia) Limited (NT C’wealth Super Corp A/c)1 188,335 0.45% Total 20,995,594 49.99%
1. Held in capacity as executor, trustee or agent.
176 Perpetual Limited and its controlled entities O ther Information Perpetual Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
Voting rights Under the Company’s Constitution, each member present at a general meeting (whether in person, by proxy, attorney or corporate representative) is entitled: 1. on a show of hands to one vote; and 2. on a poll to one vote for each share held. If a member is present in person, any proxy of that member is not entitled to vote.
Voting by proxy Voting by proxy allows shareholders to express their views on the direction and management of the economic entity without attending a meeting in person. Shareholders who are unable to attend the 2013 Annual General Meeting are encouraged to complete and return the proxy form that accompanies the notice of meeting enclosed with this report.
On-market buy-back There is no current on-market buy-back.
Final dividend The final dividend of 80 cents per share will be paid on 4 October 2013 to shareholders entitled to receive dividends and registered on 12 September 2013 being the record date.
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 below, or visit its website at www.linkmarketservices.com.au or email [email protected] Link Market Services Limited Perpetual Shareholder Information Line: 1A Homebush Bay Drive 1300 732 806 or (02) 8280 7620 Rhodes NSW 2138 Fax: (02) 9287 0303 Locked Bag A14 Sydney South NSW 1235 Any other enquiries which you may have about the Company, can be directed to the Company’s registered office or visit the Company’s website.
Principal registered office Level 12 Tel: (02) 9229 9000 123 Pitt Street Fax: (02) 8256 1461 Sydney NSW 2000
Company Secretary Joanne Hawkins www.perpetual.com.au
Perpetual’s 2013 Annual Report is printed on Pacesetter and Precision supplied by Spicers Paper. The cover is printed on 250gsm Pacesetter Satin and inside sections on 128gsm Pacesetter Satin and 80gsm 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.
Photos supplied by: (p16) the National Heart Foundation, 2013; (p18) The Benevolent Society
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