2010 Perpetual Annual Report

P e r p e t u a l
L i m i t e d
A B N
8 6
0 0 0
4 3 1
8 2 7
shareholder calendar
Final dividend payment Annual General Meeting Interim profit and dividend announcement
Please note that dates are subject to change.
28 September 2010 26 October 2010 23 February 2011
Contents
Five year profile .........................................................................................................02 Five year results at a glance ......................................................................03 Chairman and CEO Report .............................................................................04 Message from the Chairman-elect ........................................................ 07 Business unit review............................................................................................ 08 Board and management.....................................................................................14 Directors Report .........................................................................................................19 Corporate Responsibility Statement ................................................25 Remuneration Report ......................................................................................34 Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) ..............................61 Financial Statements........................................................................................... 88 Securities exchange and investor information .........................146
five year
profile
Perpetual Limited and its controlled entities comparative performance for financial years 2006 to 2010 inclusive.
2006
Total revenue1 Underlying EBITDA
2 3 3
2007
466.2 238.0 206.9 145.3 182.1 353 442 43.2 54.2 360 341.0 17.9 3,234 41.2 41.2 78.51 67.80 84.20
2008
495.7 227.1 193.6 133.5 128.8 321 309 40.7 39.3 330 314.4 17.7 1,794 41.6 42.0 42.77 40.95 83.27
2009
375.1 135.7 98.2 65.7 37.7 156 89 21.8 12.5 100 290.0 14.0 1,214 42.2 42.5 28.55 21.60 52.44
2010
422.3 152.0 107.7 72.8 90.5 169 211 22.4 27.9 210 361.0 11.8 1,227 43.0 43.4 28.26 25.36 41.15
$m $m $m $m $m
5 5
402.8 206.6 178.0 122.4 135.3 300 332 40.8 45.1 326 100 331.0 26.4 2,977 40.8 40.7 73.15 57.60 74.00
Underlying profit before tax
Underlying profit after tax (UPAT) Net profit after tax (NPAT)
4
Earnings per share UPAT
cents cents % % cents cents $m $m $m m m $ $ low $ high
Earnings per share NPAT
Return on average shareholders equity UPAT6 Return on average shareholders equity NPAT7 Dividend per share ordinary8 Dividend per share special8 Total shareholders equity at 30 June Capital expenditure Market capitalisation No. of shares on issue weighted average9 No. of shares on issue at 30 June9 Share price at 30 June Share price range for year
1 2 3 4 5 6 7 8 9
Excludes income from structured investments. EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items. Excludes significant items and costs of major strategic initiatives. Attributable to equity holders of Perpetual Limited. Diluted earnings per share calculated using the weighted average number of ordinary shares and potential ordinary shares on issue. Calculated using underlying profit after tax. Calculated using net profit after tax. Dividends declared with respect to the financial year. Includes ordinary shares and potential ordinary shares.
five year results
at a glance
145.3 122.4 133.5
182.1 135.3
$ million
65.7 72.8
$ million
128.8 90.5 37.7
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
Underlying profit after tax for year ended 30 June
Net profit after tax for year ended 30 June
cents per share
54.2 45.1 39.3 27.9 12.5

2006 2007 2008 2009 2010
332 326
442 360
Earnings per share Dividends
per cent
309 330 89 100 211 210
2006
2007
2008
2009
2010
Return on equity NPAT for year ended 30 June
Earnings per share NPAT v dividends for year ended 30 June
PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES | 3
chairman
and ceo report

We are pleased to report that for the year to 30 June 2010, Perpetuals performance and financial position improved considerably over the previous year. our net profit increased substantially, allowing us to more than double our dividend payments to shareholders, and the doubledigit growth of our underlying profit bodes well for the future. We further strengthened our already strong balance sheet and continued to reduce our risk profile. We also continued to invest in our operational capability, the quality of our client services, our adviser base, and our brand. At the same time, we have made changes to ensure all of our businesses are clearly focused on meeting the requirements of their key client segments. Having safely steered through the global financial crisis by controlling costs, reducing risk and improving our financial strength, we have emerged in good shape to execute our vision: to be the leading provider of wealth management services to financially successful investors and their advisers, and to be the leading corporate trustee. Times of change are times of opportunity and we are confident we have the experience, values and capability to once again benefit from the major changes underway in the sectors in which we operate. In the eighties and nineties, we transformed from a traditional trustee house into one of Australias leading fund managers and played a formative role in the development of the countrys securitisation industry. Exchange Source: Australian SecuritiesIn the first decade of this century, we have become a broad-based wealth manager, providing specialised products, services and advice for people who want to take active responsibility for their financial wellbeing. Robert Savage, AM (left) and David Deverall. We have developed our Private Wealth business to offer premium advice and services specifically for financially successful Australians and their families. In addition to strategic financial planning and investment advice, we provide estate planning, philanthropic services, and fiduciary services, where we protect clients interests and assets as trustee or custodian. our Corporate Trust business has also expanded its offering to financial services companies to include mortgage processing services.
Improved operating environment

over the past year, we experienced a much improved operating environment compared to the prior year. Both equity and credit markets continued to improve through the first three quarters of the year. In the fourth quarter, concerns over government debt levels, particularly in Europe, caused renewed market instability, although this subsided somewhat as the financial year closed. Retail investor confidence gradually improved during most of the year but remains fragile. While new inflows remained subdued, there was some movement by investors from risk-averse cash and fixed income funds towards managed funds with higher potential returns. These more actively managed funds also generate higher revenue for us. The global financial crisis will not be forgotten by investors for some time. The concerns about sovereign debt that caused global market instability in the final quarter reminded investors that its after-effects will impact government economic management, regulation and markets for years to come.
Perpetuals performance and financial position improved considerably over the previous year.
In this environment, clients will prefer to deal with wealth management institutions that are financially strong in their own right, with established reputations for managing their clients money and protecting their interests. Perpetuals track record through the global financial crisis, and over the past 124 years, means we are well placed to benefit. Securitisation markets for residential mortgage backed securities, in which our corporate trustee business is the market leader, saw a tentative rebound in activity, although it is still at much reduced levels when compared to those prior to the global financial crisis.
of net profit after tax, in keeping with our policy of paying dividends to shareholders of between 80 and 100 per cent of net profit after tax on an annualised basis. Underlying profit after tax for the year, which excludes significant items such as the EMCF recoveries, was $72.8 million, a solid 11 per cent increase on the previous year. The largest influence on our revenue is the performance of the Australian sharemarket, which directly impacts our funds under management and funds under advice. As at 30 June 2010, we calculate that each 1 per cent movement in the Australian All ordinaries Index affects our annualised revenue by $2 to $2.5 million. Stronger markets in the first three quarters of the year saw average funds under management for the year increase 7 per cent over the prior year. Due to market declines in the fourth quarter as well as net outflows, year-on-year to 30 June 2010, funds under management only increased 3 per cent to $26.9 billion. As investors started to shift to asset classes with higher potential returns, cash and fixed interest funds saw a $1.4 billion net outflow. Similarly, quantitative funds saw a general trend away from this type of investment approach.
Results overview
The Groups net profit after tax* for the year ended 30 June 2010 was $90.5 million, a 140 per cent increase on the previous year. This included a $20 million after tax recovery of past losses from the Exact Market Cash Fund (EMCF). our return on equity for the year based on net profit after tax was 27.9 per cent, up from 12.5 per cent in the prior year. We have been able to increase dividend payments to shareholders to 210 cents per share for the year, compared to 100 cents the previous year. This represents 100 per cent Australian sharemarket July 2008 - June 2010
5,250 5,000 4,750 Index 4,500 4,250 4,000 3,750 3,500 3,250 Sep 2008 Dec 2008 Mar 2009 Jun 2009
FY09 Avg All Ords
Spot close All Ords
Avg All Ords
FY09
FY10
FY10 Avg All Ords
Sep 2009
Dec 2009
Mar 2010
Jun 2010
S&P ASX All ordinaries Price Index 1 July 2008 to 30 June 2010. * Attributable to Perpetual Limited ordinary equity holders.
This shift in asset preferences had a positive effect on our active share funds, which recorded $600 million in net inflows, a $1.2 billion turnaround from the $600 million of net outflows these funds recorded last year. our Private Wealth average funds under advice for the year increased 17 per cent. Year-on-year to 30 June 2010, they increased 22 per cent to $8.3 billion, including $900 million of funds from the acquisition of the advice businesses, Grosvenor and Fordham. Corporate Trusts securitised funds under administration decreased by 13 per cent to $210 billion at 30 June 2010 as the run-off from the existing portfolio of residential mortgage backed securities (RMBS) was not compensated for by the volume from new issues. However, issuance increased over the prior year, including the first new issues since the global financial crisis undertaken without Australian Government support. Group expenses for the year increased over the previous year by $41.7 million or 15 per cent to $318.6 million. This increase was predominantly the result of the acquisition of financial advice businesses to better position Private Wealth, the expansion of our mortgage services capability, and higher performance-related staff remuneration linked to our improved results. over the course of the year, we further strengthened our balance sheet by increasing our equity and cash resources. We also continued to reduce our exposure to capital guaranteed and structured products.
our brand remains a great strength and was again the funds management brand rated highest by advisers. We have continued to invest in targeted advertising campaigns to increase awareness of our credentials and offerings amongst prospective clients and their advisers.
Regulatory environment
Following the extensive Government reviews into taxation, superannuation and financial advice, we are hopeful that the proposed reforms resolve some of the key issues that have undermined the confidence of some retail investors in recent years. We support the plans for stronger professional standards and transparent remuneration for financial advisers, including the phasing out of commissions by 2012. Likewise, plans to increase efficiencies across the industry through more standardised processes are welcomed. These initiatives are in line with the longstanding principles at the core of Perpetuals approach to financial advisory services. our expertise in fiduciary duties would also confirm us as a thought leader in an industry where such duties could find wider application. The proposal to increase mandatory employer superannuation contributions to 12 per cent of salary by 2020 and establish MySuper as a default fund would help ensure minimum standards for everyone who contributes to superannuation, even if they are not actively engaged in how their retirement savings are managed. However, our expertise is primarily directed at people who wish to take a more active approach to providing for their retirement, for example through self managed super funds and actively managed investments. We believe Australias market for quality financial advice and active wealth management will continue to grow strongly in coming years as more people choose to take control of their own financial wellbeing. This is clearly illustrated by the dramatic growth in self managed super funds, now the largest sector of superannuation by assets, and an area in which we offer specialist expertise.
Investing in future growth

During the year we continued to invest in improving the systems, processes and staffing that most impact the quality of our client services. In Private Wealth, our new client management system improved our efficiency and ability to provide a more seamless service and a broader range of offerings. We also continued to execute on our strategy to acquire and integrate adviser groups with proven capabilities and track records in servicing key segments of the high net worth market. Melbourne-based Fordham Group, which provides financial advice and services to private business owners, expands our specialist expertise and presence in Victoria. Sydney-based Grosvenor Financial Services is predominantly serving medical and legal professionals. Both these groups are being integrated into our Private Wealth business. In Perpetual Investments, we have brought together our Australian and international equities teams into a single business unit. This will improve business efficiencies and deepen the expertise and resources available to our fund managers. We further bolstered our investment team, which remains one of the most experienced and stable in the industry, and has a clear and disciplined investment process focused on quality, value and risk. This means clients can rely on us to manage their investments the way they expect, whatever the market conditions. In Corporate Trust, we have invested in staff and technology to meet the increased demand for our mortgage processing business.
Leadership renewal
This is our final annual report as Chairman and CEo respectively, after lengthy tenures in these roles. We believe it is an appropriate time to renew both the Board and senior leadership team. Perpetual is in a strong financial position, having successfully negotiated the market turmoil of recent years. At the same time, we have sharpened our operational capability and market focus, and with the impending changes to the industry ahead, it is an ideal time for a new Chairman and CEo to take charge. Following our Annual General Meeting on 26 october 2010, Mr Peter Scott will become the new Chairman of your Board. Mr Scott has outstanding credentials for this role. He has an extensive background in financial services, and wealth management in particular. He was previously chief executive officer of major wealth manager MLC, and held senior management roles at both National Australia Bank and Lend Lease.
He has been a director of your Board for over five years and is a member of Perpetuals Investment Committee and People and Remuneration Committee. Mr Scott is also overseeing the selection process for the new chief executive officer. His longstanding involvement with our company and the industry maintains the quality and continuity of your Board. This year, we welcomed two new members to your Board. Mr Paul Brasher, who joined on 1 November 2009, and Mr Philip Bullock who joined on 1 June 2010. Both have excellent credentials. During his career with PricewaterhouseCoopers, Mr Brasher was chairman of both their global and Australian boards. He brings to your Board extensive experience in finance, accounting and corporate governance. Mr Brasher is a member of our Audit, Risk and Compliance Committee and People and Remuneration Committee. During his career with IBM, Mr Bullock was Managing Director, Australia and New Zealand, and he has extensive experience in Asia. He brings to your Board his broad knowledge of organisation management, technology and marketing. Mr Bullock is a member of our Investment Committee and People and Remuneration Committee.
Message from the Chairman-elect

Dear Shareholders It is a great privilege for me to succeed Mr Savage as Chairman of your Board. Shareholders have been very well served by Mr Savages astute and diligent leadership and I believe the stability of your Board and the skills of my fellow directors continue to be a great asset for the company. Your Board is committed to creating shareholder value by ensuring a strong management team is in place, approving the strategic direction, carefully reviewing business plans, and providing good governance and accountability. on your behalf I would like to thank both Mr Savage and Mr Deverall for their significant contributions to the company over a number of years. My first priority is to oversee the selection process for the new chief executive officer and ensure a smooth transition. Perpetual has continually demonstrated its capacity to grasp the opportunities of change, whilst maintaining the core values that mean so much to our stakeholders. We have a very talented team, a great brand, a proud heritage and an exciting future. I look forward to the challenges ahead.
Investing for generations

It has been a privilege to lead this great Australian company through an eventful period in its distinguished history and we both leave very confident about its future. In a world of constant change, Perpetual will continue to do what we have done for 124 years help our clients grow and protect their wealth by remaining committed to our investment principles and sound financial management. Thank you to our shareholders for your support over the years and to our staff for your commitment to the company and our values. We wish you and Perpetual all the best for the future.
Robert Savage, AM Chairman
David Deverall Chief Executive officer and Managing Director Peter Scott Chairman-elect
business unit
review
Perpetual operates through three business units, each of which focuses on a specific financial services sector: Perpetual Investments on funds management, Private Wealth on financial advice, and Corporate Trust on trustee services.
Contribution to 2010 underlying profit before tax
Corporate Trust
Perpetual Investments
24% 52% 24%

Private Wealth
PerPetual Investments Is one of australIas most hIghly regarded fund managers, offerIng a broad range of Investment, suPerannuatIon and retIrement Income Products. We have a strong Investment caPabIlIty In all major asset classes, IncludIng australIan and InternatIonal equItIes, ProPerty securItIes, multI-sector and multI-manager funds, mortgages, fIxed Income and cash.
We actively manage investment portfolios based on our intensive analysis of quality, value and risk. While prices can fluctuate greatly with prevailing market sentiment, we believe that, over the long term, they should reflect fundamental value. In November 2009 Perpetual Investments signed the United Nations Principles for Responsible Investment, which means we formally incorporate environmental, social and governance factors as part of our investment decision-making and ownership practices. Quality investment management requires highly trained professionals, clear principles and processes, and effective teamwork. over the past year, we have again retained all of our key investment managers and continued to attract talented new
Results for the year ended 30 June
Revenues Expenses
Corporate Trust
2009 $m 203.0 (144.0) 59.0
Private $m Wealth
2010
change change Perpetual % $m
216.9
Investments
13.9 (0.8) 13.1
7%
(144.8) 72.1
(1%) 22%
Profit before tax
staff who value our reputation as a fund manager with strong principles and proven track record. Average funds under management for the year increased 7 per cent over the prior year due to stronger markets in the first three quarters. Due to market declines in the fourth quarter as well as net outflows, year-on-year to 30 June 2010, funds under management only increased 3 per cent to $26.9 billion. Revenue for the year increased 6 per cent to $216.9 million, mainly due to increased revenue from actively managed equity funds. Perpetual Investments profit before tax for the year ended 30 June 2010 was $72.1 million, a 22 per cent increase on the previous year. As the global financial system stabilised and the worst fears of a global economic recession subsided, the past year saw investors and their advisers gradually become more confident about
making investment decisions for the longer term. This improving confidence was somewhat dampened in the June quarter, when markets reacted negatively to concerns about the finances and credit-worthiness of some European countries. The change in investor and adviser attitudes was clearly reflected in our net flows for the year. While our quantitative equity funds recorded net outflows of $1 billion, our actively managed equity funds recorded net inflows of $600 million. Net outflows from cash and fixed interest funds were $1.4 billion, as investors moved money from risk-averse cash investments to asset classes with potentially higher returns. Most of the cash and similar funds generate lower fee margins than our more actively managed funds. While there has been a broad market trend over the past decade towards passive investment strategies, particularly index funds, we believe demand for actively managed funds will continue but investors will be more selective in choosing a proven, quality manager. our business focuses on four key client segments institutions, high net worth and mass affluent clients and their respective advisers, and direct investors. For high net worth clients and their advisers, we will continue to develop specialised funds, able to meet particular investment objectives, such as the Pure Value Share Fund, Global Resources Fund and Diversified Income Fund.
For the mass affluent client segment, our major equity, cash and fixed income funds are available through Perpetual, as well as through a broad range of adviser groups and other financial institutions. Similarly, our WealthFocus platform offers a broad range of investment choices from Perpetual and other leading fund managers. We enjoy strong relationships with many institutions and are able to construct and manage customised portfolios to meet their specific risk and return objectives. For example, over the past year we developed a sustainable investment fund specifically for one of Australias largest super funds and won other substantial mandates for concentrated equities and smaller companies. During calendar 2010, the Australian and international equities teams were brought together into a single business unit so they can share resources and expertise in both business management and investment. over the past year, we invested considerable resources in our systems and processes to improve efficiency and the service our clients receive whether this is receiving tax statements as soon as possible after year-end, reduced call centre waiting times or a more informative and easier-to-use website. In managing investments, there is one thing we never lose sight of: the fact that it is not our money we are managing, it is our clients money, entrusted to us to manage on their behalf.
Perpetual Investments funds outperformance

Annualised returns 1 year 3 years 5 years 7 years 10 years Industrial Share Fund + 0.07% + 4.07% + 2.57% + 2.40% + 4.46% Australian Share Fund + 5.90% + 4.13% + 2.53% + 2.66% + 4.21% Small Companies Fund + 14.64% + 6.13% + 4.17% + 2.49% + 8.28% Concentrated Equity Fund + 2.80% + 5.83% + 3.76% + 2.68% + 5.06% International Share Fund - 0.36% + 2.43% + 1.20% N/A N/A
Gross outperformance per annum against benchmarks to end June 2010.
We have become a broad-based wealth manager for people who want to take active responsibility for their financial wellbeing.
Private Wealth
PrIvate Wealth Is the grouPs sPecIalIst fInancIal servIces and advIce busIness, ProvIdIng a broad range of servIces to fInancIally successful australIans and theIr famIlIes. We take a holIstIc aPProach to ProvIdIng advIce, WhIch covers strategIc PlannIng, Investment strategy, suPerannuatIon and retIrement Income, estate PlannIng, tax, and Personal Insurance.
Drawing on our experience as a trustee for generations of Australians, we also provide a range of trustee and fiduciary services to help people protect and manage their assets and income in their lifetime and beyond. We are able to establish and manage an array of trusts including private trusts, testamentary trusts, philanthropic trusts, and special purpose trusts to manage compensation settlements. We are one of Australias largest managers of philanthropic trusts, with over $1.1 billion in funds under management on behalf of 450 trusts. our fiduciary services also include estate planning and administration, enduring powers of attorney, and business succession planning. Results for the year ended 30 June
2009 $m Revenues Expenses Profit before tax 85.7 (56.6) 29.1 2010 $m 111.6 (79.0) 32.6 change $m 25.9 (22.4) 3.5 change % 30% (40%) 12%
With the growth in self managed super funds and the need for estate planning as the population ages, the market for these fiduciary services is set to expand strongly in coming years and we believe there are exciting opportunities to market our services through external adviser groups and other professional referral networks. The past few years have been challenging for many of our clients as their investments have been subject to the intense volatility of financial markets. However, our prudent, long-term approach to investing helped shield them from the worst of the downturn and enabled them to benefit from the market recovery. We focus strongly on ensuring we understand our clients circumstances and objectives, and in turn they clearly understand our advice and the ongoing service they will receive. Average funds under advice for the year increased 17 per cent. Year-on-year to 30 June 2010, it increased 22 per cent to $8.3 billion, including $900 million of funds from the acquisition of advice businesses Grosvenor and Fordham.
10
Revenue increased by $25.9 million to $111.6 million, 30 per cent up on the prior year. In addition to increased fees earned from funds under advice, revenue was bolstered by revenue from the acquired advice businesses, which contributed to a $10 million increase in fee revenue for accounting and tax services. Private Wealths profit before tax for the year increased by 12 per cent to $32.6 million. This reflected the improvement in investment markets, offset by investment in the business as well as the acquisition and integration costs of the acquired businesses. over the past year, we continued to invest in improving the service we provide to clients across all areas of the business. We hired new client facing staff, including advisers, and added substantial capacity and specialist expertise in accounting and taxation services, and strategic consulting. We also further strengthened our investment research team with a number of highly experienced professionals and enhanced our equities selection and model portfolio construction processes. our new client relationship management system, introduced in the prior year, was further integrated into our business operations and enhanced during the past year. It puts our clients at the centre of all our processes and helps us provide better service to our clients across the range of services we can provide. It also improves reporting, compliance and risk management.
The acquisitions of Grosvenor and Fordham have not only strengthened our adviser resources in the key markets of Sydney and Melbourne, but have given us specialist expertise in serving the financial needs of private business owners and medical and legal professionals. We intend to acquire other advice businesses that meet our acquisition criteria, professional standards and values, particularly if they offer specialist expertise we can leverage for our broader client base and service offering. We are well positioned to transition to the proposed new regulations for adviser responsibilities and remuneration, as most of our revenue is already derived from professional fees rather than commissions. our fiduciary duty to our clients has always been paramount as a trustee and is demonstrated by the way we deliver impartial advice. We also ensure our advisers have professional qualifications well above the minimum standards required. As the financial advice sector enters a major period of change, we believe many good advisers and their clients are attracted to Perpetual because of the quality of our brand and our reputation for integrity in managing and protecting our clients interests.
Perpetual Private Wealth funds under advice as at 30 June

2009 $b Financial advisory Superannuation Non-superannuation Fiduciary services Philanthropic Trusts and estates Total funds under advice
1 2
Net flows $b -
Acquired1 $b 0.7 0.2 0.9 0.9
Market2 $b 0.2 0.2 0.4 0.1 0.1 0.2 0.6
2010 $b 3.3 2.2 5.5 1.1 1.7 2.8 8.3
2.4 1.8 4.2 1.0 1.6 2.6 6.8
Includes FUA acquired through the purchase of Grosvenor Financial Services in September 2009 and Fordham Business Advisors in January 2010. Includes reinvestments, distributions, income and asset growth.
Corporate Trust
our corPorate trust busIness Is the leadIng ProvIder of sPecIalIst trustee and related busIness servIces to other fInancIal InstItutIons. thIs Includes actIng as trustee for a broad range of Investment funds, securItIsatIon of mortgage PortfolIos, and mortgage ProcessIng and admInIstratIon.
While residential mortgage backed securities (RMBS) in Australia avoided the problems associated with securitised sub-prime loans in the US, Australias securitisation market was nevertheless greatly impacted by the negative repercussions that affected all credit and securitisation markets worldwide. During the global financial crisis, the Australian Government provided assistance to support securitisation issuance in order to maintain an efficient market. over the past year, more stable credit markets generally and reduced credit spreads on RMBS have revived interest in this market, although at a much reduced level compared to the period prior to the global financial crisis. In a positive sign for the future, new securitisation issues increased over the prior year, including the first new issues since the global financial crisis undertaken without Australian Government support. However, while Corporate Trust increased its market share during the course of the year, new issuance did not make up for the runoff of the existing portfolio as low interest rates allowed people to pay off existing mortgages more quickly. However, this trend has slowed as interest rates have risen. Securitisation funds under administration as at 30 June Results for the year ended 30 June
2009 $m Revenues Expenses Profit before tax 80.3 (44.2) 36.1 2010 $m 87.5 (55.2) 32.3 change $m 7.2 (11.0) (3.8) change % 9% (25%) (11%)
As a result, Corporate Trusts securitised funds under administration decreased by 13 per cent for the year to $210.5 billion. Revenue increased 9 per cent to $87.5 million, largely driven by increased demand for our mortgage services. Perpetual Lenders Mortgage Services (PLMS) more than doubled the amount of mortgage transactions processed to almost 200,000, increasing its revenue by 46 per cent over the prior year. Corporate Trust recorded a profit before tax of $32.3 million for the year ended 30 June 2010, an 11 per cent decrease on the prior year, due to lower securitisation revenues and a 25 per cent increase in expenses over the prior year to $55.2 million. The increased expenses primarily related to a substantial investment in the scale of PLMS in order to service the dramatic increase in demand for its services. our extensive knowledge of financial markets, together with our trustee experience, means we continue to be entrusted by many of Australias major institutions to administer key aspects of their business and to protect the interests of investors.
Mortgage transactions for the year ended 30 June
$241b
$211b
Residential mortgage backed securities bank Residential mortgage backed securities repos Residential mortgage backed securities non-bank Commercial mortgage and asset backed securities
199, 257 95, 687

2009 2010
2009
2010
12
our values
We are trustworthy We keep raising the bar We consistently deliver We succeed together
board and
Perpetual Board
management
Robert M Savage AM, Chairman and Independent Director FASCPAS, FAICD, FAIM (Age 68) Appointed as a Director in 2001 and as Chairman in october 2005. Mr Savage will retire as Chairman and Director at the conclusion of the Annual General Meeting on 26 october 2010. He is a member of Perpetuals Nominations Committee and the People and Remuneration Committee. Mr Savage brings to the Perpetual Board his experience as a senior executive in Australia and the Asian region, including experience in people management and organisation effectiveness and several years as a non-executive director and chairman across a range of Australian companies. Paul V Brasher, Independent Director BEc (Hons), FCA (Age 60) Appointed as a Director in November 2009. He is a member of Perpetuals Audit Risk and Compliance Committee and People and Remuneration Committee. Mr Brasher brings to the Board his local and global experience as a senior executive and director, particularly in the areas of strategy, audit and risk management, and public company governance. Meredith J Brooks, Independent Director BA, FIAA (Age 48) Appointed as a Director in November 2004. She is a member of Perpetuals Audit Risk and Compliance Committee and Investment Committee. Ms Brooks brings to the Board over 20 years experience as a senior funds management executive, both in Australia and internationally. Philip Bullock, Independent Director BA, MBA, Dip Ed, GAICD (Age 57) Appointed as a Director in June 2010. He is a member of Perpetuals Investment Committee and People and Remuneration Committee. Mr Bullock brings to the Board his broad management experience in Australia and Asia in technology, sales and
14
client management, product and brand management, industry solutions and equity joint ventures. E Paul McClintock AO, Independent Director BA, LLB (Age 61) Appointed as a Director in April 2004. He is Chairman of Perpetuals Investment Committee and a member of the Nominations Committee and People and Remuneration Committee. Mr McClintock brings to the Board over 30 years experience as a legal adviser, investment banker and senior policy adviser to Government and corporations. Elizabeth M Proust AO, Independent Director BA (Hons), LLB, FAICD (Age 59) Appointed as a Director in January 2006. She is Chairman of Perpetuals People and Remuneration Committee and a member of Perpetuals Audit Risk and Compliance Committee and Nominations Committee. Ms Proust brings to the Board her strengths in change management, human resources, public affairs and strategy development, and her strong knowledge of board processes and governance gained through her many senior executive and board roles. Peter B Scott, Independent Director BE (Hons), MEngSc (Age 56) Appointed as a Director in July 2005. Mr Scott was appointed as Chairman-elect on 23 July 2010, to succeed Robert Savage AM, who will be retiring at the conclusion of the Annual General Meeting on 26 october 2010. He is Chairman of the Nominations Committee and a member of Perpetuals Investment Committee and People and Remuneration Committee. Mr Scott has more than 20 years experience as a senior executive in publicly listed companies and extensive knowledge of the wealth management industry.
Philip J Twyman, Independent Director BSc, MBA, FAICD (Age 66) Appointed as a Director in November 2004. He is Chairman of Perpetuals Audit Risk and Compliance Committee and a member of the Investment Committee and Nominations Committee. As an experienced international executive and director, Mr Twyman brings to the Board his background in financial services, investment and wealth management, together with practical experience in audit and risk management issues. David M Deverall, Managing Director BE (Hons), MBA (Stanford) (Age 44) Appointed Managing Director in September 2003. Mr Deverall gave notice of his resignation on 23 June 2010 and will stay until the new CEo has been appointed or until 31 March 2011, whichever occurs first. Mr Deverall brings to Perpetual a combination of strategic ability, commercial drive and skills in product innovation and management experience across a broad range of investment products and services. He also possesses an extensive understanding of the wealth management and wider financial services industries.
Alternate Directors
Roger Burrows Chief Financial Officer Ivan Holyman Chief Risk Officer For more detailed information on the Board of Perpetual Limited, please refer to page 20. Left to right: Philip Bullock, Paul McClintock Ao, Meredith Brooks, David Deverall, Robert Savage AM, Peter Scott, Elizabeth Proust Ao, Paul Brasher, Philip Twyman.
Perpetual management
Richard Brandweiner, BEc, CFA Group Executive, Income and Multi Sector Richard is responsible for Perpetuals funds management business covering cash, fixed income and multi-strategy portfolios. He chairs Perpetuals Investment Review Committee, Credit Committee and Multi-Manager Investment Committee. Richard joined Perpetual in 2001 and has previously held the roles of General Manager, Investments across all asset classes and Portfolio Manager, Diversified Funds. Prior to joining Perpetual, Richard worked in investment manager research at ASSIRT and Advance Asset Management. He is currently Vice President of the Chartered Financial Analysts Society of Sydney and a member of the Financial Services Council Investment Committee. Roger Burrows, BCom, CPA, MAICD Chief Financial Officer Roger is responsible for Perpetuals overall finance function, including strategy, business planning, treasury, capital management and investor relations. He is also a Director of the Groups regulated/licensed entities, including Chairman of Perpetual Superannuation Limited. He is Alternate Director for Robert Savage, Perpetuals Chairman, and is a member of the Perpetual Foundation Committee of Management. Roger joined Perpetual in April 2008 as Chief Financial officer. He has more than 25 years finance experience in a diverse range of industries, including property, financial services, information technology services, professional services and manufacturing. Prior to joining Perpetual, Roger was Group Chief Financial officer at Lend Lease. During 20 years with Lend Lease he held a number of senior finance roles in operating companies in Australia and overseas, including heading group investor relations and corporate affairs. Roger commenced his career with BHP Steel International and KPMG Chartered Accountants. He is Chairman of the UTS Bachelor of Accounting Steering Committee, of which he has been a member for over 10 years. He is also a member of the Group of 100 National Executive. Cathy Doyle BSocSc, GradDipPsych, GradDipVET, MBA, GAICD Group Executive, Equities Cathy is responsible for Perpetuals funds management business covering Australian and Global Equities. She is a Director of Perpetual Investment Management Limited and a member of Perpetuals Investment Review Committee and the Perpetual Foundation Committee of Management. Prior to assuming her current role in April 2010, Cathy held the positions of Group Executive Perpetual Investments Business Services, Chief operating officer Australian Equities and Group Executive People and Culture. Prior to joining Perpetual in 2006, Cathy held senior roles in human resources, change management, strategy and sales in several companies and industries. This included roles as Group General Manager People for Qantas, Executive General Manager, People and Change at Commonwealth Bank, and General Manager Human Resources and Strategy at NRMA Member Services. Since 2007 Cathy has been Chairman of odyssey House, which conducts rehabilitation programs for people with drug, alcohol or gambling problems. Chris Green, BCom, MBA, LLB, MAICD Group Executive, Corporate Trust Chris heads up Perpetuals Corporate Trust securitisation and mortgage services businesses. He joined Perpetual in July 2006 and was appointed Group Executive in November 2008. Prior to joining Perpetual, Chris was at JP Morgan Chase Bank for 10 years, most recently as Australasia Business Head Institutional Trust Services based in Sydney and previously as Vice President Head of Account Management and Vice President Head of Analytics based in London, covering the European, Middle Eastern and African markets. Chris began his career as a solicitor for Corrs Chambers Westgarth. Ivan Holyman, BEc, LLB Chief Risk Officer Ivan is responsible for Perpetuals Risk Management framework and reporting. He is a Director of a number of the Groups regulated/licensed entities, and Alternate Director for David Deverall, Perpetuals Managing Director. He is a member of the Perpetual Foundation Committee of Management, the Investment Review Committee and the Compliance Committees of Perpetual Investment Management Limited and Perpetual Trust Services Ltd. Ivan joined Perpetual in June 2004 as Chief Risk officer. Prior to joining Perpetual he was involved in a number of private equity ventures. He previously spent 19 years with UBS AG (and predecessor organisations), during which time he held the positions of Chief operating officer, Asia Pacific, as well as Director Corporate Finance, Head of Risk and Chief operating officer for Australia/New Zealand. Prior to UBS Ivan worked with merchant bank Samuel Montagu & Co. in London, and at Blake Dawson Waldron, Solicitors in Melbourne. Geoff Lloyd Barrister at Law, LLM Group Executive, Private Wealth Geoff is responsible for Perpetuals Private Wealth business, which provides financial advisory services and solutions. Geoff joined Perpetual in August 2010 as Group Executive, Private Wealth. He is a member of the Perpetual Foundation Committee of Management. Prior to joining Perpetual Geoff was General Manager, Advice and Private Banking at BT Financial Group, following the merger with St Georges wealth management business. Prior to this, he was Group Executive of St Georges wealth management business, for which he held a number of roles, including CEo of Asgard Wealth Solutions and the financial planning, private banking and platform businesses of St George. Geoff previously held many senior roles at BT Financial Group, including Chief Legal Counsel and Head of the Customer and Business Services Division. Early in his career Geoff worked at the Australian Securities Commission.
16
Michael Miller, CA, BCom Group Executive, Superannuation and Operations Michael is responsible for Perpetual Investments operations, information technology and fund accounting, and the business comprising our investment platform, structured products and smartsuper service for self managed super funds. He was appointed a Group Executive in January 2010. Michael is a director of Perpetual Investment Management Limited and Perpetual Superannuation Limited, and is a member of the Superannuation Investment Committee. He joined Perpetual in 2001 and previously held the positions of Chief Financial officer for Perpetual Investments asset management businesses and Deputy Chief Financial officer of Perpetual Limited, as well as Head of External Reporting, Group Strategy Manager and Head of Internal Reporting. Prior to joining Perpetual, Michael worked with Deloitte in Brisbane, London and Sydney.
Janine Stewart Group Executive, People and Culture Janine is responsible for overall People and Culture policy and practices including talent and succession planning, remuneration, diversity, recruitment and occupational health and safety. She was appointed Group Executive, People and Culture in September 2008. Janine joined Perpetual in 2007, initially responsible for remuneration, benefits and employee relations. She is chairman of Perpetuals Workplace Giving Committee. Janine has over 20 years experience in customer service strategy and design, employee relations, people and leadership, and cultural change, primarily in the aviation industry. Centre: David Deverall, CEo and Managing Director. Group Executives, clockwise from top left: Richard Brandweiner, Chris Green, Cathy Doyle, Michael Miller, Roger Burrows, Janine Stewart, Ivan Holyman, Geoff Lloyd.
directors report
for the year ended 30 June 2010
Contents of the Directors Report Page no.
directors ..................................................................................................................................20 alternate directors .............................................................................................................22 company secretaries.......................................................................................................22 directors meetings ............................................................................................................22 Principal activities............................................................................................................... 23 review of operations........................................................................................................ 23 dividends ................................................................................................................................. 23 state of affairs .....................................................................................................................24 events subsequent to reporting date ....................................................................24 likely developments .........................................................................................................24 environmental regulation................................................................................................24 Indemnification of directors and officers.............................................................24 Insurance .................................................................................................................................24 corporate responsibility statement ..................................................................... 25 remuneration report .......................................................................................................34
Glossary ................................................................................................................................. 34 Remuneration outcomes for 2010 ........................................................................................... 35 Changes to the executive remuneration framework to apply from 1 July 2010........................ 35 The role of the People and Remuneration Committee..............................................................37 overview of remuneration for 2010 ......................................................................................... 38 Managing Director and Group Executives ............................................................................ 38 Non-executive Directors ....................................................................................................... 39 Asset manager remuneration arrangements ........................................................................ 40 Short-term incentives .............................................................................................................. 40 How STI is funded ................................................................................................................ 40 Allocation of the PPP ............................................................................................................ 40 Delivery of STI ...................................................................................................................... 40 Long-term incentives............................................................................................................... 40 Executive share program and executive options program .................................................... 40 Employee share plans ...........................................................................................................42 Summary of company performance ....................................................................................... 44 Profit participation pool payments for 2010 .......................................................................... 44 Unvested LTI issued to key management personnel (KMP) .................................................. 44 Key management personnel ................................................................................................... 45 Appendices ............................................................................................................................. 46
chief executive officers and chief financial officers declaration .........................................................................................................60 non-audit services ............................................................................................................60 rounding off...........................................................................................................................60 lead auditors independence declaration ...........................................................60
The directors present their report together with the consolidated financial report of Perpetual Limited, (Perpetual or the Company) and its controlled entities (the consolidated entity), for the year ended 30 June 2010 and the auditors report thereon.
Directors
The directors of the Company at any time during or since the end of the financial year are: Robert M Savage AM, Chairman and Independent Director FASCPAS, FAICD, FAIM (Age 68) Appointed as a Director in 2001 and as Chairman in october 2005. Mr Savage will retire as Chairman at the conclusion of the Annual General Meeting on 26 october 2010. He was formerly Chairman and Managing Director of IBM Australia and New Zealand. He is Chairman of David Jones Limited and a director of Fairfax Media Limited. He is a member of Perpetuals Nominations Committee and a member of the People and Remuneration Committee. Mr Savage brings to the Perpetual Board his experience as a senior executive in Australia and the Asian region, including experience in people management and organisation effectiveness issues and several years as a non-executive director and chairman across a wide range of Australian companies. Listed company directorships held during the past three financial years: David Jones Limited from october 1999 (current) Smorgon Steel Group Limited from April 2000 to August 2007 Mincom Limited (Chairman) from May 2002 to May 2007 Fairfax Media Limited from June 2007 (current). Paul V Brasher, Independent Director BEc (Hons), FCA (Age 60) Appointed as a Director in November 2009. Mr Brasher was formerly Chairman of the Global Board of PricewaterhouseCoopers International. He previously chaired the Board of PricewaterhouseCoopers Australian firm and held a number of other senior management and client services roles during his career with the firm. Mr Brasher was Client Service Partner and/or Lead Engagement Partner for some of the firms most significant clients. He also spent significant periods working with PricewaterhouseCoopers in the US and UK. Mr Brasher is currently Chairman of the Reach Foundation, a Board member of the Victorian Arts Centre Trust and Honorary Treasurer of Vision Australias i-access project. He is a member of Perpetuals Audit Risk and Compliance Committee and People and Remuneration Committee. Mr Brasher brings to the Board his local and global experience as a senior executive and director, particularly in the areas of strategy, audit and risk management, and public company governance. Meredith J Brooks, Independent Director BA, FIAA (Age 48) Appointed as a Director in November 2004. She was formerly Managing Director, US Institutional Investment Services for Frank Russell Company based in New York. Prior to that she held the position of Managing Director of Frank Russell Australasia for five years and was previously Director, European Funds based in London. Ms Brooks is Chair of Synergy & Taikoz Limited and has been appointed to the industry advisory board of Macquarie University Faculty of Business and Economics. She is a member of Perpetuals Audit Risk and Compliance Committee and Investment Committee. Ms Brooks brings to the Board over 20 years of senior funds management experience, both in Australia and internationally. Philip Bullock, Independent Director BA Maths, MBA, Dip Ed (Age 57) Appointed as a Director in June 2010. Mr Bullock was formerly Vice President, Systems and Technology Group, IBM Asia Pacific, Shanghai, China. Prior to that he was CEo and Managing Director of IBM Australia and New Zealand in a career spanning almost 30 years in the Asia Pacific region. Mr Bullock is a director of CSG Limited and Healthscope Limited. He also provides advice to the Federal Government through his role as Chair of Skills Australia, as a member of the Education Investment Fund and as a member of the recently concluded National Resources Sector Employment Taskforce. He is a member of Perpetuals Investment Committee and People and Remuneration Committee. Mr Bullock brings to the Board his broad management experience in Australia and Asia in technology, sales and client management, product and brand management, industry solutions and equity joint ventures. Listed company directorships held during the past three financial years: Healthscope Limited from September 2007 (current) CSG Limited from August 2009 (current). E Paul McClintock AO, Independent Director BA, LLB (Age 61) Appointed as a Director in April 2004. He is Chairman of Thales Australia, Medibank Private Limited and the CoAG Reform Council, and has served as Secretary to Cabinet and Head of the Cabinet Policy Unit in the Australian Government. He is Chairman of Perpetuals Investment Committee and a member of the Nominations Committee and People and Remuneration Committee. Mr McClintock brings to the Board over 30 years experience as a legal adviser, investment banker and senior policy adviser to Government and corporations.
20 | PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES
Listed company directorships held during the past three financial years: Symbion Health Limited (Chairman) from June 2005 to February 2008 Intoll Management Limited (formerly Macquarie Infrastructure Investment Management Limited) from May 2003 (current). Elizabeth M Proust AO, Independent Director BA (Hons), LLB, FAICD (Age 59) Appointed as a Director in January 2006. She was formerly Managing Director of Esanda, part of the ANZ Group. Prior to joining ANZ, she was Secretary (CEo) of the Victorian Department of the Premier and Cabinet and Chief Executive officer of the City of Melbourne. She is currently Chairman of Nestl Australia Ltd, a director of Spotless Group Limited, Insurance Manufacturers of Australia Pty Ltd and Sinclair Knight Merz Pty Ltd. She is Chairman of Perpetuals People and Remuneration Committee and a member of Perpetuals Audit Risk and Compliance Committee and Nominations Committee. In addition to her skills from her leadership 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 and governance gained through her many senior executive and board roles. Listed company directorships held during the past three financial years: Spotless Group Limited from June 2008 (current). Peter B Scott, Independent Director BE (Hons), MEngSc (Age 56) Appointed as a Director in July 2005. Mr Scott was appointed as Chairman-elect on 23 July 2010, to succeed Robert Savage AM, who will be retiring at the conclusion of the Annual General Meeting on 26 october 2010. He was formerly the Chief Executive officer of MLC, an Executive General Manager of National Australia Bank, and held a number of senior positions with Lend Lease. He is Chairman of Sinclair Knight Merz Pty Limited and a director of Stockland Corporation Limited. Mr Scott is an advisory board member of Pilotlight Australia and an advisory panel member of Laing oRourke Australia. He is Chairman of the Nominations Committee and a member of Perpetuals Investment Committee and People and Remuneration Committee. Mr Scott has more than 20 years of senior business experience in publicly listed companies and extensive knowledge of the wealth management industry. Listed company directorships held during the past three financial years: Stockland Corporation Limited from August 2005 (current).
Philip J Twyman, Independent Director BSc, MBA, FAICD (Age 66) Appointed as a Director in November 2004. He was formerly Group Executive Director of London-based Aviva plc, one of the worlds largest insurance groups, with extensive fund management and wealth management businesses. Mr Twyman was also formerly Chairman of Morley Fund Management, a director of the Quilter Group, a UK private client stockbroker, and a senior executive of AMP in Australia. He has also been Chief Financial officer of General Accident plc, Aviva plc and the AMP Group. Since returning to Australia, Mr Twyman has joined the board of IAG Limited, Medibank Private Limited and the local boards of the Swiss Re Group. He is also Chairman of ANZ Lenders Mortgage Insurance Pty Ltd and overseas Council Australia. He is Chairman of Perpetuals Audit Risk and Compliance Committee and a member of the Investment Committee and Nominations Committee. As an experienced international executive and director, Mr Twyman brings to the Perpetual Board his background in financial services, investment and wealth management, together with considerable practical experience in relation to the audit and risk management issues faced by public companies in Australia and overseas. Listed company directorships held during the past three financial years: IAG Limited from July 2008 (current). David M Deverall, Managing Director BE (Hons), MBA (Stanford) (Age 44) Appointed Managing Director in September 2003. Mr Deverall gave notice of his resignation on 23 June 2010 and will stay until the new CEo has been appointed or until 31 March 2011, whichever occurs first. Prior to his appointment as Managing Director and CEo of Perpetual, Mr Deverall held senior management positions at Macquarie Bank Limited for seven years, including Group Head of the Funds Management Group and Head of Strategy and Planning. He was previously a strategy consultant with Bain and Company and The LEK Partnership. Mr Deverall is Chair of the Financial Services Council and a member of the Executive Council of the Faculty of Business at the University of Technology Sydney. Mr Deverall brings to Perpetual a combination of strategic ability and commercial drive and skills in product innovation, and experience in management across a broad range of investment products and services. He also possesses an extensive overall understanding of the wealth management and wider financial services industry.
Alternate directors
Roger L Burrows, Alternate Director BCom, CPA, MAICD (Age 46) Alternate Director for Mr Savage from December 2008. He joined Perpetual as Chief Financial officer in March 2008. Mr Burrows has over 25 years of experience as a senior finance executive in a diverse range of industries, including property, financial services, IT services, professional services and manufacturing. Prior to working at Perpetual, Mr Burrows was with Lend Lease for 20 years, including three years as Group Chief Financial officer. Ivan D Holyman, Alternate Director BEc, LLB (Age 54) Alternate Director for Mr Deverall from May 2006. He joined Perpetual in June 2004 as Chief Risk officer. Prior to joining Perpetual he held the position of Chief operating officer Asia Pacific for UBS Warburg and spent 19 years with UBS AG (and its predecessor organisations) in various positions. Prior to UBS AG he spent two years with Samuel Montagu & Co Limited (a UK merchant bank) and four years with Blake Dawson Waldron, Solicitors in Melbourne.
Company secretaries
Joanne Hawkins, Company Secretary BCom, LLB, Grad Dip CSP, FCIS Appointed Company Secretary in June 2003. Prior to this, Ms Hawkins was Assistant Company Secretary of Macquarie Bank and ord Minnett and was Company Secretary, National Bank of the Solomon Islands. Ms Hawkins has also worked as a solicitor and legal adviser in New Zealand. Ms Hawkins is also head of Perpetuals legal team. Glenda Charles, Deputy Company Secretary Grad Dip Corp Gov ASX Listed Entities, CSA (Cert) Joined Perpetual in August 1994. She was appointed Assistant Company Secretary of Perpetual in 1999 and Deputy Company Secretary in 2009. Ms Charles has over 15 years experience in company secretarial practice and administration and has worked in the financial services industry for over 25 years.
Directors meetings
The number of directors meetings that directors were eligible to attend (including meetings of board committees) and the number of meetings attended by each director during the financial year to 30 June 2010 were:
Director Eligible to attend R M Savage P Brasher M J Brooks P Bullock E P McClintock E M Proust P B Scott
4
Board Attended 11 6 11 1 11 11 10 11 11
Audit Risk and Compliance Committee Eligible to attend 3 4 7 7 7 Attended 2 4 7 7 7 -
Investment Committee Eligible to attend 7 7 7 7 Attended 7 7 7 7 -
Nominations Committee Eligible to attend 2 2 2 2 Attended 2 2 2 2 -
People & Remuneration Committee Eligible to attend 6 3 6 6 6 Attended 6 3 6 6 6 -
11 6 11 1 11 11 11 11 11
P J Twyman D M Deverall5 1 2 3 4 5
Robert Savage retired from the Audit Risk and Compliance Committee on 17 November 2009 and retired as Chairman of the Nominations Committee on 23 July 2010, but remains as a member of that Committee until his retirement from the Board on 26 october 2010. Paul Brasher was appointed to the Board on 1 November 2009, the Audit Risk and Compliance Committee on 17 November 2009 and the People and Remuneration Committee on 16 February 2010. Philip Bullock was appointed to the Board on 1 June 2010 and to the Investment Committee and People and Remuneration Committee on 9 August 2010. Peter Scott became Chairman-elect and Chairman of the Nominations Committee on 23 July 2010. Mr Deverall gave notice of his resignation on 23 June 2010 and will stay until the new CEo has been appointed or until 31 March 2011, whichever occurs first.
Principal activities
The principal activities of the consolidated entity during the financial year were funds management, portfolio management, financial planning, trustee, responsible entity and compliance services, executor services, investment administration and custody services and mortgage processing services.
Review of operations
A review of operations is included in the Managements Discussion and Analysis of Financial Condition and Results of operations (MD&A) section of the Annual Report. For the financial year to 30 June 2010, Perpetual reported a profit after tax of $90.5 million compared to the profit after tax for the financial year to 30 June 2009 of $37.8 million.
The reconciliation of net profit after tax to underlying profit after tax for the 2010 financial year is as follows:
Reconciliation of underlying profit after tax 30 June 2010 $000 Net profit after tax attributable to equity holders of Perpetual Limited Add/(less): Profit/(loss) after tax attributable to minority interests1 Net profit after tax Add: Loss on sale of investments (after tax) Add: Restructuring costs (after tax) (Less)/add: Exact Market Cash Fund (gains)/losses (after tax) Underlying profit after tax 1 90,506 216 90,722 2,388 (20,317) 72,793 30 June 2009 $000 37,749 (58) 37,691 6,081 8,115 13,810 65,697
Profit/(loss) after tax attributable to minority interests arising from the sale of underlying investments within a seed fund.
Dividends
Dividends paid or provided by the Company to members since the end of the previous financial year were:
Cents per share Declared and paid during the financial year 2010 Final 2009 ordinary Interim 2010 ordinary Total Declared after end of year After balance sheet date, the directors declared the following dividend: Final 2010 ordinary Total # 105 45,588 45,588 Franked 28 Sep 2010 60 105 25,506 45,398 70,904 Franked Franked 30 Sep 2009 1 Apr 2010 Total amount $000 Franked #/unfranked Date of payment
All franked dividends declared or paid during the year were franked at a tax rate of 30 per cent and paid out of retained earnings.
The financial effect of dividends declared after year end are not reflected in the 30 June 2010 financial statements and will be recognised in subsequent financial reports.
State of affairs
Significant changes in the state of affairs of the consolidated entity during the financial year were as follows: The consolidated entitys net profit before tax increased by $29.0 million as a result of its guarantee of the benchmark return to Exact Market Cash Fund 1 investors. The consolidated entity acquired Grosvenor Financial Services Pty Ltd and Fordham Business Advisors Pty Ltd for consideration totalling $54.9 million.
Indemnification of directors and officers

The Company and its controlled entities have resolved to indemnify the current directors and officers of the companies against all liabilities to another person (other than the company or a related body corporate) that may arise from their position as directors of the consolidated entity, except where the liabilities arise out of conduct involving a lack of good faith. The resolution stipulates that the Company and its controlled entities will meet the full amount of any such liabilities, including costs and expenses.
Events subsequent to reporting date

The Directors are not aware of any event or circumstance since the end of the financial year not otherwise dealt with in this report that has affected, or may significantly affect, the operations of the consolidated entity, the results of those operations or the state of affairs of the consolidated entity in subsequent financial years. Events subsequent to balance sheet date are set out in Note 37 to the consolidated Financial Statements.
Insurance
In accordance with the provisions of the Corporations Act 2001 the Company has a directors and officers liability policy, which covers all directors and officers of the consolidated entity. The terms of the policy specifically prohibit disclosure of details of the amount of the insurance cover and the premium paid.
Likely developments
Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity.
Environmental regulation
The consolidated entity acts as trustee or custodian for a number of property trusts, which have significant developments throughout Australia. These fiduciary operations are subject to environmental regulations under both Commonwealth and State legislation in relation to property developments. Approvals for commercial property developments are required by state planning authorities and environmental protection agencies. The licence requirements relate to air, noise, water and waste disposal. The responsible entity or manager of each of these property trusts is responsible for compliance and reporting under the government legislation. The consolidated entity is not aware of any material non-compliance in relation to these licence requirements during the financial year. The consolidated entity has determined that it is not required to register to report under the National Greenhouse and Energy Reporting Act 2007, which is Commonwealth environmental legislation that imposes reporting obligations on entities that reach reporting thresholds during the financial year.
Corporate Responsibility Statement

Perpetuals Board and management have a long-standing commitment to good corporate governance. The success of Perpetuals core businesses the management of other peoples money and the safekeeping of assets and securities relies on a reputation of absolute trustworthiness. This statement sets out our approach to corporate governance. Copies or summaries of documents that are underlined like this in this Corporate Governance Statement are available on our website at www.perpetual.com.au
ASX Corporate Governance Councils Corporate Governance Principles and Recommendations

At Perpetual, good corporate governance includes a genuine commitment to the ASX Corporate Governance Councils Principles and Recommendations (ASX Principles). This includes recent amendments to the ASX Principles that will not come into effect for Perpetual until the financial year ending 30 June 2012, which we have approached with a view to implementing their substance as early as possible. The Board considers that it complies with all the ASX Principles, and has done so throughout the reporting period.
Relevant section(s) Comply?
Principle/Recommendation Principle 1 Lay solid foundations for management and oversight 1.1 1.2 1.3 Establish and disclose the functions reserved to the board and those delegated to management. Disclose the process for evaluating the performance of senior executives. Provide the information indicated in the guide to reporting on Principle 1.
1 1 *
Yes Yes Yes
Principle 2 Structure the board to add value 2.1 2.2 2.3 2.4 2.5 2.6 A majority of the board should be independent directors. The chair should be an independent director. The roles of chair and managing director should not be exercised by the same individual. The board should establish a nomination committee. Disclose the process for evaluating the performance of the board, its committees and individual directors. Provide the information indicated in the guide to reporting on Principle 2. 3 3 2 9 10 * Yes Yes Yes Yes Yes Yes
Principle 3 Promote ethical and responsible decision-making 3.1 Establish and disclose a code of conduct outlining: the practices necessary to maintain confidence in the companys integrity the practices necessary to take into account legal obligations and the reasonable expectations of stakeholders the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. 3.2 3.3 Establish and disclose the policy concerning trading in company securities by directors, senior management and employees. Provide the information indicated in the guide to reporting on Principle 3. 14 * Yes Yes 13 Yes
Principle 4 Safeguard integrity in financial reporting 4.1 4.2 Establish an audit committee. Structure the audit committee so that it: consists only of non-executive directors; consists of a majority of independent directors; is chaired by an independent chair, who is not the chair of the board; and has at least three members. 4.3 4.4 The audit committee should have a formal charter. Provide the information indicated in the guide to reporting on Principle 4. 9 * Yes Yes 9 9 Yes Yes
Principle 5 Make timely and balanced disclosure 5.1 5.2 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. Provide the information indicated in the guide to reporting on Principle 5. 19 * Yes Yes
Principle 6 Respect the rights of shareholders 6.1 6.2 Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings. Provide the information indicated in the guide to reporting on Principle 6. 20 * Yes Yes
Principle/Recommendation Principle 7 Recognise and manage risk 7.1 7.2 Establish and disclose policies for the oversight and management of material business risks. Require management to design and implement the risk management and internal control system to manage the companys material business risks and report to the board on whether those risks are being managed effectively. The board should disclose whether management has reported to it on the management of those risks. Disclose whether the board has received assurance from the managing director and the chief financial officer 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 financial reporting risks. Provide the information indicated in the guide to reporting on Principle 7.
Relevant section(s)
Comply?
15 15, 16
Yes Yes
7.3
16
Yes
7.4
Yes
Principle 8 Remunerate fairly and responsibly 8.1 8.2 8.3 * 1 The board should establish a remuneration committee. Distinguish the structure of non-executive directors remuneration from that of executive directors and senior management. Provide the information indicated in the guide to reporting on Principle 8. 9 21 *
1
Yes Yes Yes
The whole of this Corporate Responsibility Statement covers off on the requirements to include information indicated in the guide to reporting sections of the ASX Principles. Full details of the remuneration policies and structures of Perpetual Limited and its controlled entities (Perpetual Group) are set out in the Remuneration Report section of the Directors Report on pages 34 to 59 of this Report.
1. Role of the Board

The Board has its own Board Charter, which sets out the functions and responsibilities reserved to the Board and delegations made to management. The Board delegates day to day responsibility for the management and operation of the company to the Managing Director but remains responsible for overseeing managements performance. The Boards specific responsibilities include: reviewing and approving Perpetuals strategy selecting the Managing Director and approving the appointment and removal of Group Executives setting the remuneration of the Managing Director setting the non-executive director remuneration within shareholder approved limits setting Perpetuals values and standards monitoring business performance and the Perpetual Groups financial position overseeing the integrity of the Perpetual Groups financial accounts and reporting monitoring the Perpetual Groups investment activities and investment performance monitoring that significant business risks are identified and managed effectively ensuring that the performance of the Board, Managing Director and senior management are regularly assessed. The Board Charter is reviewed annually to ensure the balance of responsibilities remains appropriate to Perpetual.
The roles and responsibilities of Perpetuals Board and management are established in accordance with ASX Principle 1. Each year, the Boards People and Remuneration Committee oversees the performance review process for the Managing Director and Group Executives. The Group Executives report directly to the Managing Director. The Managing Directors performance objectives are set by the Board at the beginning of each financial year. At the end of the financial year, the Chairman of the Board reviews the Managing Directors performance against his/her goals with input from all Board members. The Managing Director sets performance objectives for each Group Executive at the beginning of each financial year. The Boards People and Remuneration Committee reviews the performance objectives set for the Group Executives. The Managing Director carries out the performance review of each Group Executive against their objectives with input from appropriate stakeholders, including Board members. In 2010, performance reviews were conducted in accordance with this process. Group Executives who are new to Perpetual participate in Perpetuals orientation program and an additional induction process tailored to their own responsibilities. Perpetual has an orientation program for all new employees covering Perpetuals history, business strategy, values, risk and compliance obligations and performance management.
2. Board structure
The Board currently comprises nine directors: eight nonexecutive directors and the Managing Director. The roles of Chairman and Managing Director are separate. The Chairman is responsible for leadership of the Board and ensuring the Board performs its role and functions.
He is also responsible for facilitating the effective contribution of directors by ensuring that each director fully participates in the Boards activities. Details of the background, experience, professional skills and period in office of each director are set out on pages 20 to 22 of the Directors Report. The structure of the Board accords with ASX Principle 2.
required to absent themselves from Board deliberations by reason of conflicts of interest. In the case of Paul McClintock, the Board considered that in his position as a director of Perpetual, he is sufficiently removed from Perpetuals operations so as to make the likelihood of any actual or perceived conflict of interest between his Perpetual and his outside role minimal. During the year, Meredith Brooks provided advisory and consulting services to Perpetuals Global Equities business for a fixed period of six months. Ms Brooks took on the short-term role in order to provide strategic support to the Global Equities business during the critical period leading up to and following the departure of Emilio Gonzalez. Ms Brooks did not have a hands on management role and was at no time an employee of Perpetual. The Board considered that the provision of the services did not affect Ms Brooks independent status. In arriving at this conclusion the Board had regard to the one off transitional nature of the consultancy. In particular, the Board took account of the fact that the role was established with a finite timeframe and for a specific non-recurring purpose. Paul Brasher receives superannuation benefits from his former employer, PricewaterhouseCoopers (PwC). From time to time, PwC provides consulting services to Perpetual which are not considered material in nature or quantity. From time to time, funds managed by the Perpetual Group may take holdings, including substantial holdings in securities of listed entities. Perpetual directors may also serve as non-executive directors on the boards of these entities. This factor alone is not considered to impact director independence as decisions as to stock selection are not made by the Board of Perpetual but by Perpetuals asset management team in accordance with client or fund investment mandates. It is the Boards view that no directors currently hold other positions that materially affect their ability to exercise independent judgement in the interests of Perpetual shareholders.
3. Director independence
The Board considers all non-executive directors to be independent directors, including the Chairman. In assessing the independence of each director, the Board considers, on a director-by-director basis, whether he or she has any relationships that would materially affect the directors ability to exercise unfettered and independent judgment in the interests of Perpetuals shareholders. Consistent with the emphasis on substance over form advocated by the ASX Principles, Perpetual takes a qualitative approach to materiality rather than setting strict quantitative thresholds, and considers each directors individual circumstances on its merits. The independence of each director is formally reviewed each May and at any time when a change occurs that may affect a directors independence. Non-executive directors also formally advise the Chairman of any relevant information, and update the Chairman if their circumstances change at any time. In determining the position of individual directors, the Board has considered the relevant elements of the definition of independence adopted by the Board. These elements include whether the director: has a substantial shareholding in Perpetual or is an officer of a company that has a substantial shareholding in Perpetual (or is otherwise associated with a substantial shareholder of Perpetual) has been employed by the Perpetual Group at any stage and in any capacity within the previous three years has been involved with the Perpetual Group in a material advising or consulting role at any time within the previous three years is (or is associated with) a material supplier or customer of the Perpetual Group is in a material contractual relationship with the Perpetual Group (other than as a director). Until March 2010, Paul McClintock was a director of Macquarie Infrastructure Investment Management Limited (now Intoll Management Limited), a company that operated in the financial services sector and whose businesses may, in part, compete with Perpetual. In considering whether such circumstances materially affect the independence of individual directors, the Board considers the extent of competition relative to each organisations total business, and the frequency with which directors may be
4. Contracts with directors

In the 2010 financial year, no director disclosed a material personal interest in any contract entered into by any member of the Perpetual Group other than the remuneration paid to the directors as outlined in this Annual Report, Meredith Brooks consultancy contract and the deeds of indemnity described below.
5. Indemnity of directors and officers

Perpetual has entered into deeds to indemnify directors and officers of the Perpetual Group, to the extent permissible by law, from all liabilities incurred as directors or officers. Liabilities to the Perpetual Group, and liabilities that arise out of conduct that was not in good faith are not covered in the indemnities. In addition, Perpetual has directors and officers insurance against claims Perpetual may be liable to pay under these indemnities. This policy insures directors and officers directly.
6. Board access to information and independent advice

Directors receive regular updates on changes in the regulatory environment affecting Perpetual and the financial services industry. Directors are also encouraged to attend relevant conferences and seminars. Non-executive directors regularly confer without management present and the Chairman presides over these sessions. All directors have unrestricted access to company records and information. Perpetual has a formal policy allowing the Board or an individual director to seek independent professional advice at the Perpetual Groups expense, provided that the director has obtained the prior approval of the Chairman, or if the relevant director is the Chairman, the prior approval of a majority of Perpetuals non-executive directors. In the 2010 financial year, no director sought professional advice under this policy.
8. Meetings of the Board

In the 2010 financial year, the Board met 11 times, including a strategic planning session held over two days. The Board receives performance, operations and risk reports from the Managing Director, the Chief Financial officer, the Chief Risk officer and the heads of each business division. The Board also receives reports and updates on strategic issues. In addition, directors spend time reading and analysing board papers and reports submitted by management and they engage in regular informal discussions with management. The views of the Chairman and the non-executive directors are canvassed regularly by the Managing Director and the Group Executives on a range of strategic and operational issues. The Chief Financial officer and Company Secretary attend all board meetings. other Group Executives and senior management attend board and committee meetings to report on particular issues and to engage in discussion on these issues. Senior executive attendance at board and committee meetings is subject to the overriding requirement that no senior executive will be directly involved in deciding their own remuneration. Attendance of directors at board and committee meetings is set out in the Directors Report on page 22.
7. Nomination, appointment, re-election and retirement of directors

Consistent with ASX Principle 2, the Board has a Nominations Committee with its own Terms of Reference. The Nominations Committee is responsible for reviewing the size and structure of the Board. The aim is to ensure that the Board comprises an appropriate balance of skills, diversity, experience and independence in order to enhance Board performance and maximise value for shareholders. The Nominations Committee is responsible for administering Perpetuals Policy on the Appointment of Directors, which sets out the selection process and selection criteria for identifying candidates to fill board vacancies. Consistent with recent amendments to the ASX Principles regarding disclosure of board selection processes, the Policy is disclosed in full on our website. If a board vacancy arises, the Nominations Committee will conduct a search in accordance with the Policy and the Board will appoint the most suitable candidate, having regard to the recommendation of the Nominations Committee. External consultants may be engaged to assist with the identification of appropriate candidates. A director appointed to fill a casual vacancy must stand for election at the next Annual General Meeting. Upon appointment, new directors receive a detailed letter of appointment and participate in a comprehensive induction program designed to familiarise them with Perpetuals business, strategy, operations, Group Executives and senior management team. Directors who have been in office without re-election for three years since their last appointment must retire and seek re-election at the companys Annual General Meeting. In order to revitalise the Board, directors agree not to seek re-election after three terms of three years unless the Board requests them to do so. The nine year principle does not displace shareholders rights to vote on the appointment and removal of directors, as set out in the ASX Listing Rules and the Corporations Act 2001.
9. Board committees
A key component of the Boards governance structure are its four board committees. Each committee has written Terms of Reference. Unless more frequent meetings are required, all committees except the Nominations Committee generally meet at least quarterly. The Nominations Committee meets at least twice a year. The Managing Director attends all committee meetings except where matters relating to his own remuneration and performance are discussed. The qualifications and skills of the members of each committee are set out on pages 20 to 22 of the Directors Report. The membership and key responsibilities of each of the board committees (as at the date of this report) are set out below.
Audit Risk and Compliance Committee

Members: Philip Twyman (Chairman), Meredith Brooks, Elizabeth Proust and Paul Brasher Changes to the committee since last Report: Robert Savage retired November 2009 Paul Brasher appointed November 2009 The Committees role is to oversee the Perpetual Groups accounting policies and practices, the integrity of financial statements and reports, the scope, quality and independence of Perpetuals external audit arrangements, the monitoring of the internal audit function, the effectiveness of risk management policies and the adequacy of insurance programs, and to report on these matters to the Board. This Committee is also responsible for monitoring overall legal and regulatory compliance.
All members of the Committee are independent non-executive directors and are required to be financially literate. At least one member must have accounting or finance related expertise. Members are also required to have an understanding of the financial services industry in which Perpetual operates.
At least annually, the Committee reviews the size and structure of the Board to ensure that the Board comprises appropriately qualified and experienced people. This Committee is also responsible for the formal evaluation of the Boards performance as a whole. All members of the Committee are independent non-executive directors.
Investment Committee
Members: Paul McClintock (Chairman), Meredith Brooks, Philip Bullock, Peter Scott and Philip Twyman Changes to the committee since last Report: Philip Bullock appointed August 2010 The Committees role is to monitor management to ensure that it has in place, and carries out, appropriate investment strategies and processes for the investment activities conducted both for third parties and on the Groups own behalf. This Committee does not select stocks for individual Perpetual funds as stock selection is carried out by Perpetuals asset management team. All members of the Committee are independent non-executive directors.
10. Board performance

The Board undertakes ongoing self-assessment and review of the performance of the Board, its committees and individual directors annually. In 2010, the Board undertook a review of board and committee performance with the assistance of an external consultant. The Chairman also reviewed with each director their individual performance and, after obtaining feedback from the other directors, a nominated director reviewed the Chairmans performance. The board review process aims to ensure that individual directors continue to contribute effectively to the Boards performance and that the Board as a whole and its committees continue to function effectively.
11. Company secretaries

The Board has access to the services and advice of Joanne Hawkins, the Company Secretary and Glenda Charles, Deputy Company Secretary. The Company Secretary is accountable to the Board on governance matters. Details of the experience and qualifications of Joanne Hawkins and Glenda Charles are set out in the Directors Report on page 22.
People and Remuneration Committee

Members: Elizabeth Proust (Chairman), Robert Savage, Peter Scott, Paul McClintock, Paul Brasher and Philip Bullock Changes to the committee since last Report: Paul Brasher appointed February 2010 Philip Bullock appointed August 2010 The Committees role is to monitor the Perpetual Groups people and culture policies and practices, including the diversity of Perpetuals workforce, and to assist the Managing Director to implement fair, effective and market competitive remuneration and incentive programs designed to retain high calibre employees and which demonstrate a clear relationship between performance and remuneration. The Committee is authorised to directly engage external remuneration advisers and after obtaining their advice as and when appropriate, the Committee recommends remuneration for non-executive directors, the Managing Director, the Group Executives and other senior managers, to the Board. The Committee also reviews succession and career plans for key executives. All members of the Committee are independent non-executive directors. New committee composition requirements to promote greater independence are proposed for introduction into the ASX Listing Rules. Perpetuals Committee already complies with these requirements even though they have not yet formally come into effect.
12. Perpetuals subsidiary boards

The boards of Perpetuals subsidiaries are generally made up of executive directors. The exceptions are Perpetual Superannuation Limited and Garnet Superannuation Pty Limited, which carry out Perpetuals superannuation activities, and PI Investment Management Limited, which operates Perpetuals global equities business. The boards of these companies include non-executive directors. These non-executive directors are not directors of any other Perpetual Group companies. Perpetuals corporate governance policies are applied to its subsidiaries but adapted to reflect the size and nature of each subsidiarys operations and recognise that the boards of most subsidiaries do not comprise non-executive directors. The subsidiary boards are a key component of Perpetuals Risk Management Framework.
13. Ethical conduct

Perpetual has a Code of Conduct which draws from and expands on Perpetuals values. The Code of Conduct applies to all directors, executives and employees and is designed to assist them in making ethical business decisions. It is based on the following principles: acting with integrity managing conflicts of interests appropriately upholding the spirit as well as the letter of the law commitment to our clients and consistently delivering shareholder value
Nominations Committee
Members: Peter Scott (Chairman), Robert Savage, Paul McClintock, Elizabeth Proust and Philip Twyman Changes to the committee since last Report: Peter Scott appointed July 2010 The Committees role is to recommend to the Board nominees for appointment/election (including re-election of existing board members) and to review board succession plans.
respecting privacy and confidentiality maintaining a fair and safe work environment protecting those who report wrongdoing. Additional policies deal with a range of ethical issues such as the obligation to maintain client confidentiality and protect company information, the need to make full and timely disclosure of any price sensitive information and to provide a safe workplace for employees, which is free from discrimination. The Code of Conduct and associated policies are in keeping with ASX Principle 3. Perpetuals Chief Risk officer is Perpetuals Code of Conduct ombudsman and is available to all staff for a confidential discussion in relation to Code of Conduct matters. All new Perpetual employees are required to familiarise themselves with the Code of Conduct as part of their induction training requirements. Perpetual has a Whistleblowing Policy to protect employees who make good faith reports of wrongdoing, prejudice or disadvantage. As part of Perpetuals Whistleblowing Policy, a third party has been engaged to provide an independent and confidential hotline for Perpetual employees who prefer to raise their concern with an external organisation.
A vendor of an entity, acquired by Perpetual during the financial year, has been permitted to continue a margin loan over Perpetual securities. The loan was entered into prior to commencing employment with Perpetual. The Perpetual securities were part of the consideration for the acquisition and the vendor became an employee following the acquisition. Employees who may have access to sensitive information in relation to Perpetuals investment activities (such as the asset management team) are required to obtain prior approval for personal trading in any securities. Perpetuals Share Dealing Policy covers the suggested contents in ASX Principle 3.2 for a policy of its type.
15. Risk management

The Board is committed to effective risk management and all Group Executives are accountable for managing risk within their area of responsibility. They are also required to manage risk as part of their business objectives, with risk management integrated across business processes. The Chief Risk officer leads a group of risk management professionals, including lawyers, who provide the framework, tools, advice and assistance to enable management to effectively identify, assess and manage risk. Consistent with ASX Principle 7, Perpetuals Risk Management Framework is designed to manage Perpetuals material business risks. one component of the framework includes Perpetuals policies that are designed to address key areas of risk including strategic, financial and compliance risk. Perpetuals group policies are outlined in Perpetuals Risk Management Framework. Through monitoring, the Board and its committees are provided with assurance of the effectiveness of Perpetuals management of its material business risks. In addition, the Board reviews Perpetuals key risks semi-annually as part of the Key Risk Assessment process, further detailed in Perpetuals Risk Management Framework. Perpetual also has an internal audit function. The Head of Internal Audit reports to the Audit Risk and Compliance Committee as well as to the Chief Risk officer and is independent from the external auditor. Internal audit provides independent assurance over the effectiveness of Perpetuals risk management, internal control, and governance processes. The Internal Audit team do not make management decisions or engage in other activities that could be perceived as compromising their independence. Each of the Chief Risk officer, Chief Financial officer and the Head of Internal Audit have the right to and do meet with the Audit Risk and Compliance Committee in the absence of other management. Together with the Managing Director and Chief Financial officer, Perpetuals Chief Risk officer reports to the Board on the effectiveness of Perpetuals management of its material business risks in accordance with ASX Principle 7. The Board received this report in 2010 together with the statements outlined in section 16 on the following page.
14. Share dealings by directors and employees

Perpetuals overriding policy is that there should be no dealings in the companys shares by any director or employee who is in possession of price sensitive information or where the dealing is for short-term or speculative gain. Provided they do not have price sensitive information, directors and employees are permitted to deal in the companys shares only in one month periods commencing: 24 hours after announcement of the half year and full year financial results 24 hours after release of the Chairmans May Letter to Shareholders at the conclusion of the Annual General Meeting. The Share Dealing Policy requires prior approval for any share dealings from the Chairman in the case of directors, from a nominated director in the case of the Chairman and from the Managing Director in the case of senior executives. Prior approval is also required from the Managing Director or Company Secretary in the case of certain employees who are more likely to have access to potentially price sensitive information through their position in the company. Perpetuals Share Dealing Policy prohibits employees from entering into hedging arrangements in relation to Perpetual securities. Perpetual employees cannot trade in financial products issued over Perpetual securities by third parties or trade in any associated products that limit the economic risk of holding Perpetual securities. Perpetual employees and directors are prohibited from margin lending in relation to Perpetual securities.
16. Financial reporting

The Board has adopted policies designed to ensure that Perpetuals financial reports: are true and fair meet high standards of disclosure and audit integrity when read with the Perpetuals other reports to shareholders, provide all material information necessary to understand Perpetuals financial performance and position. To underpin the integrity of Perpetuals financial reporting and risk management framework, it is Perpetuals practice for the Managing Director and Chief Financial officer to report to the Board in writing that, in their respective opinions: the financial records of the Company have been properly maintained in accordance with section 286 of the Corporations Act 2001, and the financial statements and notes comply with the accounting standards and give a true and fair view of the financial position and performance of the Company and consolidated entity. It is also Perpetuals practice for the Managing Director, Chief Financial officer and Chief Risk officer to state to the Board in writing that, in their respective opinions: the statements made regarding the integrity of the financial statements are founded on a sound system of risk management and internal compliance and control systems, which implement the policies adopted by the board of directors the risk management and internal compliance and control systems, to the extent they relate to financial reporting, are operating effectively and efficiently, in all material respects, based on the risk management framework adopted by the Company the Companys material business risks (including non-financial risks) are being managed effectively. The statements referred to above are supported by written statements from senior management, detailed financial analysis and Perpetuals Risk Management Framework. As previously noted, the Chief Financial officer is present when the Board considers financial matters, as s/he attends all board meetings. The statements made by the Managing Director, Chief Financial officer and Chief Risk officer are consistent with ASX Principle 7.3. In 2010 the Board received the statements referred to above.
these meetings in the absence of management. The Committee chairman meets with the audit partner at least once every quarter, also in the absence of management. The auditor has a standing invitation to meet with the Committee, its chairman or with the Boards Chairman in the absence of management. The auditor attends the board meetings at which the annual and half yearly accounts are adopted. The current external auditor is KPMG. The lead audit partner for 2010 was Andrew Yates and the engagement partner was Brendan Twining. This is the first year that Andrew Yates supervised Perpetuals audit following the retirement of Dr Andries Terblanch after five years, in accordance with Perpetuals policy outlined below. Brendan Twining has acted as engagement partner for three years.
18. Auditor independence

The Board has policies in place relating to the quality and independence of Perpetuals external auditor. These policies include: the audit must be tendered at least every seven years and after the fifth year, the Board must make a positive decision each year on whether to retain existing arrangements the audit partners must be rotated at least every five years, with a two year gap before a partner may be reappointed former audit partners and audit firm employees involved in our audit cannot become directors or employees of Perpetual Group companies for at least two years the external audit firm is prohibited from providing non-audit services that may materially conflict with its ability to exercise objective and impartial judgment on issues that may arise within Perpetuals audit, such as: services related to mergers and acquisitions tax planning and strategy senior management recruitment significant valuations and appraisals design and implementation of financial information systems. In 2010, the greater part of fees paid to KPMG for work other than audit of Perpetual Group accounts was for audit services in relation to investment funds of which Perpetual companies are the responsible entity, manager or trustee. It is the Boards view that these services are appropriately provided by KPMG and are not services of a kind that might impair their impartial judgement in relation to the Perpetual Groups audit.
17. Audit process

The Perpetual Groups financial accounts are subject to an annual audit by an independent, professional auditor, who also reviews the Groups half yearly financial statements. The Audit Risk and Compliance Committee oversees this process on behalf of the Board, in accordance with its Terms of Reference. The external auditor attends each meeting of the Committee, and it is the Committees policy to meet with the auditor for part of
19. Market disclosure

Perpetual has a Market Disclosure Policy to ensure compliance with its continuous disclosure obligations under ASX Listing Rule 3.1 and the Corporations Act 2001. The Managing Director, Chief Financial officer, Chief Risk officer and Company Secretary are members of the Continuous Disclosure Committee responsible for deciding information that is required to be disclosed to the
ASX. Perpetual ensures that all senior management give regular sign-offs as to whether there are matters that require disclosure to the ASX. The Board considers its disclosure obligations at each scheduled board meeting. Perpetuals Market Disclosure Policy contains the matters recommended by ASX Principle 5. Perpetuals website includes copies of announcements lodged with the ASX by Perpetual. Consistent with recent amendments to the ASX Principles, advance notification of scheduled analyst briefings are provided to shareholders and the briefings are webcast. These can be found on the companys website along with media releases, briefings and annual reports for the last five years.
positively to the community. We focus on activities where we can add value while minimising our environmental impact. our activities include: having high standards of corporate governance and business probity investing responsibly and encouraging sustainable business practices contributing time and money to charities reducing the environmental impact of our operations encouraging practices that recognise the importance of our people. Some examples of how we are achieving these goals include:
20. Shareholders
The Board is committed to ensuring that shareholders are fully informed of material matters that affect Perpetuals position and prospects. It seeks to accomplish this through a strategy that includes: the half year results released in February each year the Chairmans May Letter to Shareholders each year the full year results released in August each year the Annual Report released in September each year the Chairmans and Managing Directors addresses to the Annual General Meeting the posting of market briefings and other significant information on Perpetuals website as soon as it is disclosed to the market. Perpetual holds its Annual General Meeting in october and a copy of the notice of Annual General Meeting is posted on the Perpetual website. The Board encourages shareholders to attend the Annual General Meeting or to appoint a proxy to vote on their behalf if they are unable to attend. The formal addresses at the Annual General Meeting are webcast for those shareholders who are unable to be present. In accordance with the Corporations Act 2001, a representative of the external auditor, KPMG, attends the Annual General Meeting for the purpose of answering shareholder questions about the audit report and audit process.
Governance
Perpetual has received a number of awards for corporate governance over the years. one of the more recent was the award of equal first and five stars in the 2009 WHK Horwarth Corporate Governance Report, an independent assessment of corporate governance structures and policies of Australians top 250 companies.
Investment
Long-term investment approach Perpetuals asset managers focus on quality investments for the long-term. Their initial investment criteria include: the strength of the companys balance sheet whether the company can demonstrate a recurring earnings stream the quality of the business and the soundness of management running the company. Perpetual believes this approach encourages behaviour in the long-term interests of shareholders. Signatory to the United Nations Principles for Responsible Investment In october 2009, Perpetual became a signatory to the United Nations Principles for Responsible Investment (PRI), representing a commitment to take environmental, social and governance factors into account in our investment decision-making and ownership practices. PRI encourages institutional investors to adopt sustainable business practices, a stance which is aligned to Perpetuals long-term investment approach.
21. Remuneration
Perpetual has formed a People and Remuneration Committee consistent with ASX Principle 8.1. Its role is set out on page 37 of this report. Details of board and executive remuneration are set out in the remuneration report which commences on page 34. In accordance with the ASX Principles, the structure of non-executive director remuneration is clearly distinguished from that of executive directors and senior management.
22. Stakeholders
At Perpetual we take advantage of opportunities to build our social, environmental and financial performance in ways that enhance our core values and business sustainability. We draw on our peoples experience, knowledge and expertise in investing, governance, financial advice and trusteeship to contribute
Social
Philanthropy and the Perpetual Foundation Perpetual has been managing charitable money for over 120 years. In 1998, we established the Perpetual Foundation, which brings the generosity of individuals and organisations together with our resources and expertise in managing charitable funds.
The Philanthropic team supports the not-for-profit sector via annual grant seeker workshops, quarterly newsletters to charities and facilitating a number of knowledge sharing opportunities. The Perpetual Foundation has also sponsored sector research including research at the Australian Centre for Philanthropy and Non-Profit Studies. Staff giving Perpetual supports its own employees who wish to give back to the community through its staff giving program. Through the program, Perpetual employees are able to make regular donations to a range of community organisations from their pre-tax pay. Perpetual matches employees donations through the Perpetual Foundation. Political donations In 2010, Perpetual made no political donations.
Flexible working arrangements provide employees with further opportunities to achieve work/life balance and increase employee engagement. Perpetual is currently developing a tailored flexible working program to support managers and employees in managing requests for flexibility. Diversity Perpetual has implemented a number of initiatives to support an inclusive culture for its diverse employees, including the creation of a Diversity Strategy. The Diversity Strategy is focusing on the following key areas: representation of women in senior management roles meeting the needs of the generations Baby boomer, Generation X and Generation Y flexibility for employees ethnicity and cultural diversity. To encourage greater representation of women at the most senior levels of the organisation, high performing and senior women are offered career development, mentoring and quarterly networking forums to facilitate learning and knowledge sharing opportunities. There are further initiatives in development including refining recruitment processes for leadership positions to increase female representation at the most senior levels of the organisation. In May 2010 all Perpetual employees were invited to participate in an anonymous Diversity Survey to gauge the needs of employees from different demographic groups including gender, age, religion and culture. The results of this survey will be used to establish future diversity initiatives. Perpetuals Board and People and Remuneration Committee are considering appropriate diversity targets for Perpetuals workforce and this will be publicly reported in future years. Shareholders who wish to know more about Perpetuals corporate policies are invited to review our website www.perpetual.com.au or contact us by email at info@perpetual.com.au. Comments and suggestions from shareholders are welcome.
Environmental
Carbon Disclosure Project Perpetual has responded to the last three Carbon Disclosure Project (CDP) surveys and has been included in the Climate Disclosure Leadership Index (Australia and New Zealand) on all three occasions.
Our people
Perpetual is committed to attracting, developing and engaging employees in a culture that is underpinned by Perpetuals values. Perpetuals inclusive culture is based on team work and collaboration and allows high performing employees to excel and be rewarded for their success. There is a focus on developing leaders from within Perpetual and on employee engagement. Employee engagement is assessed annually and results are used to develop future people initiatives. The wellbeing of employees is supported by financial, insurance, health, fitness and work/life balance employee benefits. Some of the policies that support employee work/life balance include: Contribution Leave policy, which provides an additional week of Contribution Leave to allow employees to make a difference to their community, family or personal well-being Purchased Leave policy, which enables employees to apply for up to three weeks of additional leave to spend more time with family, for holidays or greater work/life balance Sabbatical Leave and Leave Without Pay policies, which allow employees to take an extended period of unpaid leave where they may choose to take time out to be with their family, travel overseas or undertake further study Working From Home policy, which allows employees to work from home for greater work/life balance. Perpetual aims to meet the needs of employees at different stages of their lives and parental leave benefits are available for both men and women.
Remuneration Report
Dear Shareholder Welcome to Perpetuals Remuneration Report for 2010. We hope you find the report informative and that it provides a clear understanding of the remuneration strategy at Perpetual. While the recommendations from the Productivity Commission have yet to be legislated, we support the recommendations that seek to simplify the remuneration report and better engage shareholders. In this regard, while the detail of the pending legislation is still unknown, we have aimed to present a report that complies with the spirit of the Productivity Commissions recommendations while continuing to meet high standards of disclosure. Last year, we advised that we had conducted a major review of our executive remuneration policy and arrangements. From this we confirmed that Perpetual strikes an appropriate risk/reward balance that treats our employees, shareholders and clients fairly. During the year ending 30 June 2010, we have continued to refine our executive remuneration strategy based on feedback from our shareholders, and as the outcomes from various Australian Government initiatives have been announced and market practice has developed. We are committed to further refinement of our remuneration strategy as new legislation is finalised and market practice continues to evolve. The People and Remuneration Committee has also conducted an assessment of our practices against the APRA Prudential Standards. Although compliance with these standards is not mandatory for Perpetual, we believe they represent governance best practice and have voluntarily agreed to adopt them. on 23 June 2010, Perpetual announced that Managing Director, David Deverall, had given notice of his resignation. As a result, the changes to the remuneration structure for Group Executives from 1 July 2010 as described in this report will not apply to Mr Deverall, however they will apply to the new Managing Director when appointed. As set out in the ASX announcement, Mr Deverall has a contractual entitlement to receive a short-term incentive for the year ended 30 June 2010, and a pro-rata short-term incentive for the year ending 30 June 2011. No long-term incentives will vest as a result of Mr Deveralls resignation, and all unvested long-term incentives will be forfeited on ceasing employment. Thank you for taking the time to read this report. As always, we welcome your feedback.
Elizabeth Proust, AO Chairman, People and Remuneration Committee
Glossary for remuneration report

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

This section provides a summary of remuneration outcomes at Perpetual for the year ended 30 June 2010.
Changes to the executive remuneration framework to apply from 1 July 2010

Following the major review of our executive remuneration policy and arrangements in 2009, we have continued to refine the remuneration strategy in light of emerging market practice and the new regulatory environment. The following key changes will apply to Group Executives from 1 July 2010 and to the new Managing Director on appointment: individuals must satisfy certain risk and behaviour measures as assessed by the Board to be eligible to receive a STI payment the threshold from which STI payments must be deferred into shares has been lowered the LTI vesting schedule for the EPS performance hurdle has been amended so that vesting commences when Perpetuals EPS growth is 5% per annum re-testing of LTI performance measures has been removed accelerated vesting of LTI on termination under certain circumstances has been removed a minimum shareholding guideline has been introduced. We believe that these changes will strengthen the alignment of performance-based remuneration to Perpetuals risk management framework and be more meaningful for participants.
Fixed remuneration
There was no increase in fixed remuneration for the Managing Director or Group Executives in 2009/10. Fixed remuneration increases for employees were only granted on promotion or for significant increases in roles and responsibilities.
Short-term incentive payments

Following feedback from shareholders, we have replaced underlying profit after tax (UPAT) with net profit after tax (NPAT) for the purposes of determining the Profit Participation Pool (PPP) used to fund short-term incentive (STI) payments. This more closely aligns the funding of the PPP for employees with shareholder outcomes. The STI pool available to employees increased by 113%, reflecting the increase in NPAT for the year of 142%.
Long-term incentive vesting outcomes

Long-term incentive (LTI) grants made to the Managing Director in 2006 that were due to vest in 2010 have been forfeited as the stretch total shareholder return (TSR) and earnings per share (EPS) growth targets were not met. No LTI grants made to the Managing Director in 2007 have vested as a result of the initial test of the performance targets on 30 June 2010 and will lapse on his resignation, along with other unvested LTI. LTI grants made to Group Executives in 2006 will be re-tested on 1 october 2010 and appear unlikely to vest. Grants made to Group Executives in 2007 are also unlikely to vest.
Non-executive director fees

There were no increases in directors fees during 2009/10. A modest increase in fees of 3% for the Chairman and members of the Board, and the chairmen and members of board committees, will apply from 1 July 2010. This will be the first increase in director fees since 1 July 2007. See page 57 for further details.
The table below provides more detail on these changes:

Feature A risk and behaviours gateway on STI has been introduced Arrangements for 2009/10 A Group return on equity (RoE) performance measure must be met before any STI pool is created. Each individual has performance goals that include risk and behaviour measures. However these are not explicitly used as a gateway to determine eligibility for a STI payment. STI deferral Threshold: the threshold from which STI payments must be paid in shares rather than cash is two times target STI. Deferral period: shares are subject to a three-year trading restriction. Forfeiture: shares are only forfeited if the executive is summarily dismissed during the deferral period. Arrangements from 1 July 2010 The existing RoE performance measure will continue to apply. Individuals must also satisfy certain risk and behaviour measures as assessed by the Board to be eligible to receive an STI payment. Rationale for change Strengthens the relationship between risk management and remuneration.
Threshold: the threshold from which STI payments must be paid in shares rather than cash will be lowered to one times target STI. Deferral period: shares may vest two years from the date they are granted, and may be subsequently traded subject to the Perpetual share dealing policy. Forfeiture: leaver provisions apply such that if, during the deferral period, the executive resigns from Perpetual, or his or her employment is terminated without notice or due to poor performance, the shares shall be forfeited. Some or all shares held in deferral may be forfeited if the Board subsequently determines that the STI was awarded on unrealised profits that did not eventuate, inaccurate information (for example, that requires the financial statements to be restated), or from unacceptable risk-taking. For LTI grants made after 1 July 2010, the EPS vesting schedule will be changed so that vesting commences when Perpetuals EPS growth is 5% pa. Vesting will be scaled so that 2% vests for every 0.1% of EPS growth over 5.0% pa and increasing to 100% vesting when Perpetuals EPS growth is 10% pa. No re-testing will apply to LTI grants made after 1 July 2010.
Strengthens the relationship between risk management and remuneration.
EPS performance measure
Full vesting occurs when Perpetuals EPS growth is at least 10% pa. No vesting occurs if Perpetuals EPS growth is less than 10% pa.
Reduces the cliff-edge effect of the vesting schedule, and makes LTI more meaningful to executives. This change has been made in response to feedback from shareholders. Strengthens the alignment between the interests of executives and shareholders in the long-term performance of Perpetual, extending beyond the executives tenure. Strengthens the alignment between the interests of executives and shareholders in the long-term performance of Perpetual.
Re-testing of LTI performance measures
The EPS and TSR performance measures are tested at the end of the three-year performance period, and any unvested LTI after this test is re-tested at the end of the fourth year. LTI awards for Group Executives have the potential to accelerate vesting on termination in certain cases such as retrenchment, death or permanent disablement, or termination with notice.
Treatment of LTI on termination
For grants made after 1 July 2010, leaver provisions will be amended so that in cases where LTI is retained on termination (for example, in the case of retrenchment or termination with notice), vesting will remain subject to the original performance measures and performance period. Any LTI unvested after 24 months from termination will lapse. Executives are expected to establish and hold a minimum shareholding to the value of: Managing Director: 1.5 times fixed remuneration Group Executives: 0.5 times fixed remuneration. Under these guidelines, the value of each vested share or option held in tax deferral by the executive is treated as being equal to 50% of that share or option. A five-year transition period, commencing on 1 July 2010 for current executives, will give executives a reasonable amount of time to meet their shareholding guideline.
Introduction of minimum shareholding guidelines
No guidelines currently apply.
1. The role of the People and Remuneration Committee

The People and Remuneration Committee (PARC) is committed to assisting the Board in fulfilling its responsibilities to shareholders through a strong focus on good governance, and in particular, the principles of accountability and transparency. PARC operates under delegated authority from the Board and its activities are governed by the Terms of Reference. The Committees Terms of Reference are available on our website www.perpetual.com.au and are shown graphically below. As can be seen, the PARCs Terms of Reference are broad, with remuneration as well as executive development, talent management and succession planning being key areas of focus. This enables the PARC to spend time on ensuring there is high quality succession planning and executive development at all levels of Perpetual.
The members of the Committee for 2010 were: Elizabeth Proust (Chairman) Paul Brasher Paul McClintock Robert Savage Peter Scott. The Committee met six times during the year and attendance at these meetings is set out on page 22 of the Directors Report. At the invitation of the Committee, David Deverall (Managing Director) and Janine Stewart (Group Executive People and Culture) attended meetings except where matters associated with their own performance evaluation, development and remuneration were considered. The PARC considers advice and views from those invited to attend meetings and draws on services from a range of external sources, including remuneration consultants. Hewitt Associates were engaged by the PARC as our principal remuneration adviser during the year.
oversee hr management policy and practices, including overall remuneration policy oversee equal employment opportunity and cultural diversity policies at all levels review succession and career planning for the managing director, group executives and other critical roles establish and maintain a process for executive performance planning and review to encourage superior performance
oversee employee engagement at all levels
In conjunction with the nominations committee, propose nominations for appointment of the managing director
PARC
oversee compliance with occupational health and safety regulations
ensure remuneration disclosure requirements are met
review and recommend managing directors performance, remuneration and contractual arrangements to board
review and recommend board remuneration as well as managing director and group executive remuneration
2. Overview of remuneration for year ended 30 June 2010

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

Item Remuneration policy Summary The PARC has approved a remuneration policy for employees based on the following five key principles: Variable pay should be a feature of all employees remuneration. For the Managing Director and Group Executives variable pay forms a significant part of overall remuneration. Fixed remuneration should be competitive with comparable jobs in appropriate comparator organisations. Variable pay is linked to shareholder wealth creation and individuals are clear on performance criteria. Short-term incentives (STI) payments are based on yearly performance and uncapped to allow for recognition of performance. STI payments should be made out of the net profit of the company. Equity participation within the company should be used to encourage a sense of ownership, be appropriately tied to stretch targets and encourage retention of key individuals. At 30 June 2010 there was 8.50% of share capital in the employee share plans, 7.63% of this was held in unvested shares and 0.87% in unvested options. Unvested shares and unvested options are subject to performance hurdles. Remuneration structure The structure of our remuneration for the Managing Director and Group Executives comprises three components: A fixed remuneration component (Fixed) An STI component A component related to longer-term performance and retention (LTI). We seek to ensure that remuneration is fair, reasonable and aligned to performance. The target remuneration mix is determined in consideration of performance-based incentives, increasing with the level of responsibility and criticality of the executives role. Alignment with sound risk management Fixed remuneration The structure of our remuneration ensures that risk management is a key performance metric in determining at-risk elements of remuneration, through specific performance goals and targets. Sound risk management practices include strict governance and deferred elements of remuneration to ensure a long-term focus and alignment to shareholders. Fixed remuneration is typically set around the corresponding median of the market for each employee. By participating in relevant remuneration surveys and closely monitoring the market, we develop remuneration policies by comparing our company to other Australian-based financial institutions. In some circumstances, such as for specialist technical positions, we may compare the position to a more targeted group of comparable companies. We calculate fixed remuneration on a total cost to company basis, including the cost of employee benefits such as motor vehicles, superannuation and car parking, together with fringe benefits tax (FBT) applicable to those benefits. There are no guaranteed increases to fixed remuneration in employee contracts. Short-term incentive (STI) Short-term incentives are incentives paid for meeting annual targets aimed at delivering our longer term strategic plan. Four principles define our approach to short-term incentives: The majority of permanent employees are eligible to receive a STI payment. Incentive payments are a significant part of executives remuneration. Incentive payments for most employees are funded out of net profit after tax, linking STI to shareholder wealth creation. Incentive payments for a small number of other employees are based on achievement of specific performance targets. Individual incentive payments are uncapped to allow for recognition of performance that significantly exceeds expectations. For the majority of employees, STI is paid through the Profit Participation Pool. It is awarded based on employee performance and is available to employees immediately as cash, except where the STI payment exceeds two times the employees target STI. In these cases the excess above two times will be automatically awarded as shares. These shares vest immediately upon being granted to the employee, however they may not be traded until a period of three years has lapsed, even if this is beyond the employees termination date. Long-term incentive (LTI) A key feature of Perpetuals remuneration strategy is ensuring a level of equity participation that aligns remuneration with sustainable shareholder wealth creation. The key principles that underpin LTIs are that: we provide LTI as equity in the company so that executives feel a sense of ownership LTI grants represent an important proportion of executive remuneration we encourage sustained performance from our executives by setting challenging targets. LTI is granted in the form of shares and, in the case of the Managing Director, options. These typically vest over three years if Perpetuals TSR exceeds the median of the S&P/ASX 100 (excluding listed property trusts), and Perpetuals EPS exceeds a set target. The performance hurdles operate independently and carry an equal weighting. If the targets are met at the three-year testing point, then the LTI vests; if the targets have not been met they are retested at the four-year mark and, to the extent the targets have not been met, the LTI lapses and is forfeited.
2.1 Managing Director and Group Executives (continued)

Item Link to performance Summary A key tenet of our remuneration philosophy is that remuneration is closely aligned to Perpetuals overall performance. Throughout this report, the various measures of company performance for the year ended 30 June 2010 illustrate how these have impacted on remuneration outcomes. This is set out in more detail in section 5 of this remuneration report. Core remuneration entitlements and terms and conditions of employment, including termination arrangements, are set out in each executives employment agreement and summarised in this report. This report details the remuneration of the Managing Director and Group Executives for the year ended 30 June 2010. See tables on pages 47 to 59. Perpetuals share dealing policy prohibits employees and directors from entering into hedging arrangements in relation to Perpetual securities. Perpetual employees and directors cannot trade in financial products issued over Perpetual securities by third parties or trade in any associated products that limit the economic risk of holding Perpetual securities. Share dealing can only take place during agreed trading windows throughout the year and is subject to certain approvals (as set out on page 43 of this report).
Employment agreements Remuneration received in 2010 Hedging and share trading policy
2.2 Non-executive directors

Item Remuneration policy Summary The companys remuneration policy for non-executive directors aims to ensure Perpetual can attract and retain suitably skilled, experienced and committed individuals to serve on the Board. Total remuneration available to non-executive directors is approved by shareholders and is currently $2,250,000, as approved at the 2006 Annual General Meeting. Total fees paid to non-executive directors in 2010 were $1,780,644. Non-executive directors do not receive performance-related remuneration and are not entitled to receive performance shares or options over Perpetual shares. Fee framework Non-executive directors receive a base fee. With the exception of the Chairman, they also receive fees for participating on board committees, either as chairman or as a member of the committee. In addition to the base fee, Perpetual pays superannuation contributions of up to 9% of non-executive director fees, capped at the maximum superannuation contributions base prescribed under Superannuation Guarantee legislation. Employer superannuation contributions may be received in one of Perpetuals employee superannuation funds or a complying superannuation fund of their choice. Non-executive directors may also salary sacrifice additional superannuation contributions out of their base fee if they so choose. Alignment with shareholder interests In accordance with the companys constitution, non-executive directors are required to acquire a minimum of 500 Perpetual shares on appointment and at least 1,000 shares when they have held office for three years or more. The Non-executive Director Share Purchase Plan allows non-executive directors to sacrifice up to 50% of their directors fees to acquire shares in Perpetual. Shares acquired via fee sacrifice are not subject to performance targets as they are acquired in lieu of cash payment by the company. Following changes to taxation rules, this plan has been closed since 1 July 2009. Shares are held in the plan until the earlier of a period of ten years or until the director retires from the Board. Non-executive directors do not receive share options. Directors holdings held directly or indirectly (for example, through a superannuation fund) are shown in the table on page 59. Fees received in 2010 Retirement policy This report includes details of each non-executive directors remuneration for the year ended 30 June 2010. See page 58. Directors who have held office for three years since their last appointment must retire and seek re-election at the companys Annual General Meeting (AGM). In order to revitalise the Board, non-executive directors agree not to seek re-election after three terms of three years. However, the Board may invite a non-executive director to continue in office beyond nine years if it is advantageous to the company for reasons such as Board leadership or continuity.
2.3 Asset manager remuneration arrangements

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

Each year performance targets and other performance goals are set for all employees, in line with division and company targets. These performance objectives are classified into six categories (being Financial, Strategic, operational, People, Risk and Values). The performance objectives are assessed throughout the year as part of the performance management process in which all employees participate. At year end, an annual assessment of each employees performance is made and the PPP is then allocated based on relative divisional and employee performance. Allocations to the Managing Director and Group Executives are subject to Board approval.
3.1 How STI is funded

A Profit Participation Pool (PPP) is created each year to fund STI for the majority of employees. The size of the PPP is determined by the companys net profit after tax. Some asset managers, whose STI is linked explicitly to investment performance, are excluded from the PPP. In addition, participants in the Private Wealth and Corporate Trust Sales Incentive Plans also have a proportion of their STI funded outside of the PPP. The PPP is linked to profit performance, where increased profits create a larger pool and decreased profits result in a smaller pool. We use return on equity (RoE) and net profit after tax (NPAT) to govern the operation of the PPP. The PPP operates as follows: The profit pool begins to accumulate only when Perpetuals RoE for the current year exceeds 65% of companies listed on the S&P/ASX100 (excluding listed property trusts) measured on a rolling three-year basis. This measure was chosen to ensure that Perpetuals capital utilisation does not fall to unacceptable levels as the company seeks to grow net profits. once the RoE target is met, the profit pool accumulates based on a percentage of NPAT. Although the value of the pool is uncapped, the accumulation rate is ultimately capped at one third of incremental NPAT where year-on-year NPAT growth is in excess of 40%. This measure was chosen to encourage year-on-year growth in net profit and to ensure a high correlation exists between NPAT performance and incentive outcomes.
3.3 Delivery of STI

STI payments are delivered in cash except where the STI outcome is more than two times the target STI, in which case the excess amount must be taken as Perpetual shares subject to a three-year trading restriction. Dividends on shares are paid to employees during the restriction period. Employees may elect to sacrifice up to $1,000 of their cash STI payment into shares under the Tax Exempt Share Plan. 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 plans 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.
4. Long-term incentives
Long-term incentives within Perpetual are paid as shares and, in the case of the Managing Director, options. This section provides details of the plans in place and an overview of how they work.
4.1 Executive share program and executive options program

This section outlines the details of the LTI plans in which the Managing Director and Group Executives participate. Executive shares The Executive Share Plan (ESP) was approved by shareholders at the 1997 AGM and amended at the 1999 AGM.
The issue price of shares under this plan is the weighted average price of Perpetuals shares traded on the ASX during the five business days preceding the issue date or announcement date for relevant individuals. Shares are either purchased on market or issued by the company and are held in trust for a maximum of ten years. They are subject to forfeiture if performance targets and tenure conditions are not met. The Managing Director and Group Executives receive dividends and have voting rights while the shares are held in trust; the only exception to this, as approved by the PARC in 2009, is that future share grants with business targets will have dividends reinvested or held as cash, with the reinvested shares and cash being subject to the same performance targets as the underlying shares. No loan is made available or consideration payable by the executives to acquire shares under the ESP. Refer to the table showing unvested and vested share holdings for the Managing Director and Group Executives on pages 52 to 54 for further details. Executive options The Executive option Plan was approved by shareholders at the 1998 Annual General Meeting. options are granted over ordinary shares. The exercise price, determined in accordance with plan rules, is based on the weighted average price of Perpetuals shares traded on the ASX during the five business days preceding the date of option grant. No consideration is payable to acquire the option and no voting or dividend rights are attached to the option or the unissued ordinary share underlying the option. When exercisable, each option is converted into one ordinary share of Perpetual Limited. options vest over three or four years, depending upon when and if performance targets are met. All vested options may be exercised on or after the vesting date. options expire at the end of the exercise period six years after the grant date. Refer to the table option holdings of Managing Director and Group Executives on page 51 for details of options granted. other than a grant in accordance with the Managing Directors contract, no options were granted in 2010. Performance targets LTI performance targets are directly linked to company performance. Each share or option grant is divided into two equal tranches, with the following performance targets being applied to each respective tranche: The first tranche vests based on Perpetuals total shareholder return (TSR), measured against companies listed on the S&P/ ASX100 (excluding listed property trusts) determined at the date the LTI is granted. TSR is measured independently by Link Market Services and reported to the PARC. The second tranche vests based on growth in Perpetuals EPS.
Shares are held in trust for a maximum of 10 years from the grant date, while vested options may be exercised up to the sixth anniversary of grant date. TSR performance target TSR is defined as share price growth plus dividends paid over the performance period from the initial TSR measurement date. 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 to ensure participants are neither advantaged nor disadvantaged by such capital events. The TSR performance target requires Perpetuals TSR over the performance period to be equal to or better than the TSR of half of the comparator group consisting of companies listed on the S&P/ASX100 (excluding listed property trusts). For TSR performance greater than median, a sliding scale applies to determine the vesting percentage: TSR vesting schedule
Perpetuals TSR ranking relative to the comparator group Less than median Median Greater than median but less than 75th percentile Greater than 75th percentile Percentage of shares and options that will vest 0% 50% 2% for every one percentile increase in Perpetuals relative position 100%
EPS performance target The EPS performance target requires Perpetuals 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% per annum, may be reviewed by the Board from time to time. If Perpetuals EPS growth is at or above the target, 100% of shares and options vest; none vest if the target is not achieved. EPS vesting schedule
Perpetuals growth in EPS EPS growth less than target EPS growth at or above target Percentage of shares and options that will vest 0% 100%
The achievement of this performance target links the individuals remuneration to the companys growth in earnings. Business performance targets Two executives (and two departed executives) have previously received LTI allocations that are linked to the achievement of stretch business targets. These targets include achievement of specific business objectives related to profit growth, funds under management, and succession planning for their respective business units. The shares may vest in accordance with a scale specific to each business target.
Dividends for unvested grants with business targets are reinvested into further Perpetual shares or are held as cash, and are also subject to the same performance targets as the original grant. No LTI with business performance targets was granted to the Managing Director or Group Executives during 2010. Performance target testing and re-testing guidelines An initial three-year performance testing period applies to TSR and EPS targets. Three-year TSR and EPS performance is calculated and tested against the respective target on the third anniversary of the grant date. If the target is not met, 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 re-test, the portion of the LTI that has not vested is forfeited. For other employees who received LTI allocations after 30 June 2006, there is no retesting of the EPS target if the target is not achieved on the third anniversary of the grant date.
Termination of employment If an executive leaves the company, any unvested shares and/or options will be forfeited at the termination date, except as noted below: If an executive dies or resigns due to total and permanent disability, all unvested shares and options vest to the employee at the date of death or on termination. If an executive is made redundant or retires, the executive will be entitled to a pro-rata portion of the grant calculated on the basis of the length of their employment (inclusive of 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 calculated based on the most recent performance targets to determine the number of shares and options that will vest.
4.2 Employee share plans

Following the changes to the legislation governing the taxation of employee share schemes, a review was conducted to assess the future viability of each plan.
A summary of the employee share plans at Perpetual follows. The following are open plans:
Open plans Executive Share Plan (ESP) 237 members Deferred Share Plan (DSP) 7 members Tax Exempt Employee Share Purchase Plan (TESP) 172 members Tax Deferred Share Purchase Plan (TDSP) 84 members Description This is the main plan used for LTI grants to eligible employees, including the Managing Director and Group Executives. This plan is used for a small number of employees as part of their incentive arrangements. No KMP participate in this plan. This plan allows all employees, including the Managing Director and Group Executives, to purchase shares using a salary-sacrifice arrangement. This plan was previously used by employees, including the Managing Director and Group Executives, to purchase shares using a salary sacrifice arrangement. The plan was closed to any new salary sacrifice purchases during 2010. The plan continues to be used for awards made under Perpetuals sales incentive plans. This plan is used for options granted as part of the LTI arrangements for the Managing Director and previously some Group Executives. other than a grant in accordance with the Managing Directors contract, no options were granted in 2010. Global Employee Share Trust (GEST) 11 members This plan is used for a small number of employees in Perpetuals Ireland and UK operation as part of their incentive arrangements. No KMP are eligible to participate in the plan.
Executive Option Plan (EOP) 1 member
The following plans are closed to new issues:

Plans closed to new issues Employee Share Purchase Plan (ESPP) 219 members Non-executive Director Share Purchase Plan (NEDSPP) 5 members Description This plan was used for granting shares under a non-recourse loan arrangement. It has been closed to new issues since 2004. This plan was used only by non-executive directors and was closed to new purchases on 1 July 2009.
LTI arrangements for asset management employees based in Australia The Deferred Share Plan (DSP) was established in 2005 to deliver LTI and retention arrangements for a number of key employees in the companys asset management team. 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. In addition to LTI, some asset management employees also receive STI in cash and shares based on investment performance targets. LTI arrangements for asset management employees based in the United Kingdom and Ireland The Global Employee Share Trust (GEST) was established in 2005 to deliver LTI and retention arrangements for key individuals located in Perpetuals offices in the United Kingdom and Ireland who are pivotal to the long-term success of Perpetuals global asset management performance. Shares held in the plan vest over a number of years subject to achievement of agreed performance targets. All shares are forfeited if the employee resigns or is terminated by Perpetual for poor performance or misconduct prior to vesting. LTI arrangements for other employees Prior to 30 June 2006, LTI performance targets for a small number of other employees were the same as the Managing Director and Group Executives. For these other employees who received LTI allocations after 30 June 2006, the performance target used is linked only to EPS growth. The TSR target was not used as EPS growth represents a measure that better aligns performance with their responsibilities. From october 2010, LTI grants made to senior employees (excluding the Managing Director and Group Executives, and asset managers with specific LTI performance hurdles) will be divided into two equal tranches, with the following performance targets being applied to each respective tranche: The first tranche shall vest subject to a three-year time-based hurdle and provided the employee continues to achieve a Good or higher individual performance rating during the measurement period The second tranche vests based on Perpetuals EPS growth. This change has been made to assist in the retention of key employees below Group Executive level. There is no retesting of the EPS growth target if the target is not achieved on the third anniversary of the grant date.
Other employee share schemes The company has two further equity-based benefit programs generally available to all Perpetual employees the Tax Exempt Employee Share Plan (TESP) and the Tax Deferred Share Plan (TDSP). These plans superseded the Employee Share Purchase Plan (ESPP), which made its final issue of shares to Perpetual employees in December 2004. In addition, eligible Private Wealth and Corporate Trust employees have the potential to receive a share allocation under the TDSP as part of an annual sales-based incentive plan. Following the introduction of the new tax rules, a review of these plans was conducted in 2010. It was decided to only offer the TESP to employees wishing to purchase shares through salary sacrifice arrangements going forward. The ESPP and another inactive plan, the Employee Reward Share Plan, are discussed in Note 26 to the Financial Statements. Non-executive Director Share Purchase Plan A share purchase plan for non-executive directors was approved by shareholders at the Annual General Meeting in october 1998. Under this plan, each non-executive director was able to sacrifice up to fifty percent of their directors fees to acquire shares in the company. These shares were purchased four times per year at market value and have a disposal restriction of ten years, or when the director ceases to be a director of the company. Shares are held in the plan until the earlier of a period of ten years or until the director retires from the Board. Following changes to taxation rules, this plan has been closed since 1 July 2009. Dilution limits for share plans Shares awarded under Perpetuals employee share plans may be purchased on market or issued subject to Board discretion and the requirements of the Corporations Act 2001 and the ASX Listing Rules. The Board will manage the issue of shares under employee incentive plans to balance remuneration needs of employees with shareholder returns, subject to the relevant regulatory requirements. Share dealing approval Any share dealings, whether these shares are held personally or were acquired as part of remuneration, require prior approval. The table below shows the approval required:
Person wishing to deal in shares Managing Director Director Chairman Group Executive An employee likely to have price-sensitive information Approval required from Chairman Chairman Nominated director Managing Director Managing Director/Company Secretary
5. Summary of company performance

The following table shows the five-year company performance. This performance determines how much STI and LTI are paid to employees.
Five-year company performance Year ended 30 June 2006 Net profit after tax reported ($000s) Underlying profit after tax reported ($000s) Ordinary dividend per share declared with respect to the year ($) Special dividend per share declared with respect to the year ($) Total dividends Basic earnings per share UPAT ($) Closing share price ($) 135,320 122,436 3.26 1.00 4.26 3.21 73.15 30 June 2007 182,108 145,336 3.60 3.60 3.76 78.51 30 June 2008 128,813 133,464 3.30 3.30 3.42 42.77 30 June 2009 37,749 65,755 1.00 1.00 1.67 28.55 30 June 2010 90,506 72,793 2.10 2.10 1.83 28.26
5.1 Profit Participation Pool payments for 2010

Five-year company performance is shown in the table above. The relationship between STI and Perpetuals performance is further demonstrated in the graph below, where the relative movement in total STI granted to all employees is shown against NPAT movements. As described earlier in the report, one of the five key principles of our remuneration policy is that variable pay is linked to shareholder wealth creation (ie growth in the share price and dividends payments). The chart below demonstrates the close alignment between the profit measure and the STI pool payable to employees. Short-term incentives and NPAT are highly correlated
NPAT ($M) 200 180 160 140 120 100 80 60 40 20 37.7 90.5 135.3 128.8 150 100 50 NPAT STI 182.1 STI Index 2010 = 100 250 200
The performance hurdles for the 2005 allocation were initially tested in 2008 and then the unvested shares and options were retested in 2009. From this allocation, the pie chart shows that 95% of shares remained unvested and consequently those unvested shares and options lapsed. Similarly, the performance hurdles for the 2006 allocation were first tested in 2009 with unvested shares and options to be retested in 2010. From this allocation, the pie chart shows that 10% of the shares and options granted in 2006 have vested. The 2007 allocation was first tested in 2010 and the unvested shares will be retested in 2011. All shares that do not then vest will be forfeited.
5%
95%
2005 grants
10%
90%
06
07
08
09
10
2006 grants
0%
5.2 Unvested LTI issued to key management personnel (KMP)

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

Key management personnel (KMP) are the individuals who have the authority and responsibility for planning, directing and controlling the companys activities directly or indirectly. This includes directors, whether executive or otherwise, of the consolidated entity. The following were KMP of Perpetual during the financial year:
Name Non-executive Directors Robert Savage Paul Brasher Meredith Brooks Philip Bullock Paul McClintock Elizabeth Proust Peter Scott Philip Twyman Managing Director David Deverall Group Executives Richard Brandweiner* Roger Burrows* Cathy Doyle* Christopher Green* Ivan Holyman* Michael Miller Matt Pancino Janine Stewart Rory MacIntyre Paul Ryan Shailendra Singh Group Executive Income and Multi Sector Chief Financial officer Group Executive Equities Group Executive Corporate Trust Chief Risk officer Group Executive Superannuation and operations4 Group Executive operations5 Group Executive People and Culture Acting Group Executive Global Equities6 Co-acting Group Executive Private Wealth7 Co-acting Group Executive Private Wealth8 Chief Executive officer and Managing Director3 Chairman and Independent Director Independent Director1 Independent Director Independent Director2 Independent Director Independent Director Independent Director Independent Director Position
KMP who departed during the year

Group Executives Emilio Gonzalez John Nesbitt Eric Wang Group Executive Global Equities9 Group Executive Private Wealth10 Group Executive Superannuation and Investment Solutions11
The five highest paid officers of the Group and Company during the year ended 30 June 2010. 1 Appointed 1 November 2009. 2 Appointed 1 June 2010. 3 on 23 June 2010, Perpetual announced that Managing Director, David Deverall, had given notice of his resignation. 4 Held the position of Chief operating officer Perpetual Investments up to 18 January 2010, at which point he was appointed to the role of Group Executive Superannuation and Investment Solutions. on 26 July 2010, he was appointed to the role of Group Executive Superannuation and operations. 5 Has given notice of his resignation effective 15 october 2010. 6 Held the position of Head of Global Equities up to 1 November 2009, at which point he was temporarily appointed to this role. 7 Held the position of General Manager Business Acquisitions up to 1 December 2009, at which point he was temporarily appointed to this role. 8 Held the position of Chief Financial officer Private Wealth up to 1 December 2009, at which point he was temporarily appointed to this role. 9 Resigned 20 January 2010. 10 Resigned 1 May 2010. 11 Resigned 30 September 2009.
Related party disclosures

For a fixed period of six months commencing on 2 November 2009 and ending on 2 May 2010, Meredith Brooks was engaged to provide advisory and consulting services to Perpetual Investments Global Equities business. In accordance with the consultancy agreement, Ms Brooks received $196,900 for providing those services. This cash payment is in addition to the fees Ms Brooks received in her capacity as a non-executive director. No other KMP have entered into material contracts with the company or members of the consolidated entity since the end of the previous financial year and there were no material contracts involving KMP interests subsisting at the year end.
7. Appendices
Index to tables
Table Remunertion of Managing Director and Group Executives Actual remuneration of Managing Director and Group Executives Remuneration components as a proportion of total remuneration Loans to Group Executives under the ESPP option holdings of the Managing Director and Group Executives Value of unvested remuneration that may vest in future years Vested shareholdings of the Managing Director and Group Executives Unvested shareholdings of the Managing Director and Group Executives Contract terms for the Managing Director Termination provisions for Group Executives Non-executive director fee schedule Contract terms of engagement and non-executive director fees and responsibilities Remuneration received by non-executive directors Shares, options, dividends and units held by non-executive directors Non-executive director holdings held directly or indirectly Page number 47 49 50 51 51 52 52 53 55 56 57 58 58 59 59
Details of Managing Director and Group Executive remuneration for 2010

Remuneration of Managing Director and Group Executives
The following table shows the remuneration amounts recorded in the financial statements in the year.
Name Total Fixed remuneration Short-term Post Total fixed employment remuneration Other 3 Pension and super Cash profit sharing and other bonuses 4 $ $ $ STI Fixed remuneration & STI LTI Share-based 6 Total LTI
Cash salary, Non-monetary fees and benefits2 short-term compensated absences1 $ Managing Director D Deverall 2010 2009 Group Executives R Brandweiner* 2010 2009 R Burrows* 2010 2009 C Doyle* 2010 2009 C Green* 2010 2009 I Holyman* 2010 2009 M Miller 2010 M Pancino 2010 2009 J Stewart 2010 2009 R MacIntyre 2010 419,819 277,539 475,568 355,103 285,539 266,589 416,644 463,981 305,054 295,987 30,485 32,558 494,401 287,720 866,781 655,053 362,500 306,571 1,983 690,528 652,800 335,539 319,682 1,129,727 1,066,376 441,950 445,522 44,596 40,733 1,004,296 825,018 512,137 489,173 14,402 13,344 680,534 434,335 310,539 322,637 1,371,412 195,925 976,539 956,043 $ $
Shares5
Options5
1,825 3,106
23,461 43,958
1,001,825 1,003,107
800,000 331,000
1,801,825 1,334,107
(189,956) (315,679)
(240,457) (822,503)
(430,413) (1,138,182)
2,149 2,116
14,461 13,745
327,149 338,498
290,000 78,000
617,149 416,498
63,385 17,837
63,385 17,837
1,825 1,825
23,461 47,745
551,825 552,087
220,000 98,000
771,825 650,087
232,471 174,931
232,471 174,931
1,825 1,825
14,461 13,745
502,833 501,825
300,000 120,000
802,833 621,825
326,894 444,551
326,894 444,551
1,825 3,200
14,461 13,745
351,825 336,627
280,000 225,000
631,825 561,627
58,703 91,173
58,703 91,173
1,825 3,083
46,710 95,945
411,035 407,582
240,000 25,000
651,035 432,582
215,746 222,471
215,746 222,471
2,126
19,050
308,895
155,000
463,895
30,506
30,506
1,825 1,510
14,461 17,116
351,825 347,171
100,000
351,825 447,171
64,819 16,810
64,819 16,810
1,825 1,370
14,461 18,745
301,825 286,704
135,000 60,000
436,825 346,704
38,743 8,399
38,743 8,399
2,447
38,461
318,447
90,000
408,447
11,372
11,372
Remuneration of Managing Director and Group Executives (continued)

Name Total Fixed remuneration Short-term Post Total fixed employment remuneration Other 3 Pension and super Cash profit sharing and other bonuses 4 $ $ $ STI Fixed remuneration & STI LTI Share-based 6 Total LTI
Cash salary, Non-monetary fees and benefits2 short-term compensated absences1 $ Group Executives (continued) P Ryan 2010 S Singh 2010 442,398 255,539 426,722 253,978 $ $
Shares5
Options5
1,825
24,122
279,925
130,000
409,925
16,797
16,797
601
14,461
270,601
155,000
425,601
16,797
16,797
Departed Group Executives E Gonzalez 2010 2009 J Nesbitt 2010 2009 E Wang 2010 2009 Total 2010 Total 2009 Total 2009 for executives disclosed in 20097 * 1 2 3 110,472 854,853 8,943,607 7,731,181 8,556,971 93,600 372,952 5,391,512 4,749,658 5,121,121 2,785 13,304 98,348 114,899 146,149 604,552 4,532 766,544 28,030 614,931 3,615 13,745 336,371 391,010 397,882 704,552 404,533 6,592,775 5,283,597 6,280,083 2,795,000 1,262,000 1,262,000 704,552 404,533 9,387,775 6,545,597 7,542,083 (260,674) 200,259 251,945 1,635,776 1,465,080 (333,406) 250,061 (696,113) (450,192) (450,192) (594,080) 450,320 (444,168) 1,185,584 1,014,888 328,912 1,067,025 425,872 488,247 6,079 12,977 601 1,825 61,270 98,776 493,822 601,825 125,000 493,822 726,825 (151,547) 326,837 (13,363) 13,363 (164,910) 340,200 85,392 1,160,712 267,469 486,255 139,467 3,638 9,454 13,745 416,390 503,638 100,000 416,390 603,638 (222,111) 448,187 (108,887) 108,887 (330,998) 557,074
4 5 6
Five highest paid officers of the group and company during the year ended 30 June 2010. Cash salary is the ordinary cash salary received in the year. Non-monetary benefits relate to the salary sacrifice component of remuneration and represents benefits such as motor vehicles and car parking. other short-term benefits relate to Salary Continuance and Death and Total and Permanent Disability insurance provided as part of the remuneration package, interest on loans arising from shares issued under the ESPP (refer to page 51 Loans to Group Executives under the ESPP) and final payments in respect of executives who departed during or since the end of the year (including any termination benefits of $138,268 paid to Gonzalez and $603,951 paid to Wang). Cash profit sharing and other bonuses equate to the best estimate of the incentive performance bonus, based on available information at year end. Share-based remuneration has been valued using the binomial method which takes into account the performance hurdles relevant to each issue of an equity instrument. The value of each equity instrument has been provided by PricewaterhouseCoopers. Share-based remuneration is the amount expensed in the financial statements for the year and includes adjustments to reflect the most current expectation of vesting of LTI grants with non-market condition hurdles. For grants with non-market conditions, including Earnings Per Share hurdles, the number of shares expected to vest is estimated at the end of each reporting period and the amount to be expensed in the financial statements is adjusted accordingly. For grants with market conditions such as Total Shareholder Return hurdles, the number of grants expected to vest is not adjusted during the life of the grant and no adjustment is made to the amount expensed in the financial statements. The accounting treatment of non-market and market conditions is in accordance with Accounting Standards. The totals shown relate to executives disclosed in the 2009 Annual Report and so do not equal the 2009 totals for executives disclosed in this table.
In addition to the above table, which shows the accounting treatment of share and option based remuneration components, the following table sets out the actual market value of shares on the date they vested and options on the date they were exercised during the year. This highlights the alignment between shareholder return and employee reward.
Actual remuneration of Managing Director and Group Executives

The table below shows the remuneration amounts received in the year.
Name Total Fixed remuneration & STI Share-based1 Shares vested $ Managing Director D Deverall 2010 2009 Group Executives R Brandweiner 2010 2009 R Burrows 2010 2009 C Doyle 2010 2009 C Green 2010 2009 I Holyman 2010 2009 M Miller 2010 M Pancino 2010 2009 J Stewart 2010 2009 R MacIntyre 2010 P Ryan 2010 409,925 409,925 408,447 408,447 436,825 346,704 436,825 346,704 351,825 447,171 351,825 447,171 463,895 463,895 651,035 432,582 651,035 432,582 704,435 644,031 631,825 561,627 72,610 82,404 72,610 82,404 802,833 621,825 802,833 621,825 771,825 650,087 771,825 650,087 617,149 416,498 617,149 416,498 1,801,825 1,334,107 1,801,825 1,334,107 $ $ Options exercised $
LTI
Total LTI
Actual remuneration of Managing Director and Group Executives (continued)

Name Total Fixed remuneration & STI Share-based1 Shares vested $ Group Executives (continued) S Singh 2010 Departed Group Executives E Gonzalez 2010 2009 J Nesbitt 2010 2009 E Wang 2010 2009 Total 2010 Total 2009 1 2 704,552 404,533 9,460,385 8,119,365 704,552 404,533 9,387,775 6,545,597 72,610 82,404 1,491,364 72,610 1,573,768 493,822 726,825 493,822 726,825 416,390 2,095,002 416,390 603,638 1,491,3642 1,491,364 425,601 425,601 $ $ Options exercised $
LTI
Total LTI
Share based remuneration represents the fair value of shares vested and options exercised during the year. Shares and options have been valued based on their market value on the date the shares vested and options were exercised. These options were granted in 2002.
Remuneration components as a proportion of total remuneration1

Name Managing Director D Deverall Group Executives R Brandweiner R Burrows C Doyle C Green I Holyman M Miller M Pancino J Stewart R MacIntyre P Ryan S Singh Departed Group Executives E Gonzalez J Nesbitt E Wang 1 100% 100% 100% 0% 0% 0% 0% 0% 0% 100% 100% 100% 48% 55% 45% 51% 47% 62% 84% 63% 76% 66% 61% 43% 22% 27% 41% 28% 31% 0% 28% 21% 30% 35% 9% 23% 28% 8% 25% 7% 16% 9% 3% 4% 4% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 56% 44% 0% 100% Fixed benefits % Performance linked benefits STI % LTI % Total %
The remuneration components are determined based on the Remuneration of Managing Director and Group Executives table on page 47.
Loans to Group Executives under the ESPP

Name Balance at the start of the year $ Group Executives R Brandweiner M Miller R MacIntyre Departed Group Executive E Gonzalez 1 8,024 (8,024) 598 8,024 3,505 3,202 6,658 (3,505) (313) (726) 2,889 5,932 324 301 622 3,505 3,202 6,658 Repayment of loan $ Interest paid and payable for the year $ Balance at the end of the year $ Interest not charged 1 $ Highest balance in period $
Interest not charged has been calculated at 9.8% on the weighted average loan balance as at 30 June 2010 and 30 June 2009, or for terminated specified executives, on the pro-rata loan balances for the period up to six months from the date of leaving employment. The terms of these loans are discussed in more detail in Note 26 of the Financial Statements. The loans were available to all executives except for the Managing Director. They were also not available to the non-executive directors. No other Group Executives have loans.
Option holdings of the Managing Director and Group Executives

Movement during the year Name Grant date Exercise period Exercise price Held at 1 July 2009 Granted Forfeited Exercised Held at 30 June 2010 Vested & exercisable at 30 June 2010 Fair value per option at grant date1 $ Proceeds received on exercise $
$ Managing Director D Deverall2 options granted prior to 1 July 20083 1 Jul 08 29 Jun 09 3 Jul 09 1 Jul 11 1 Jul 14 1 Jul 12 29 Jun 15 1 Jul 12 29 Jun 15 Aggregate Value Departed Group Executives E Gonzalez 20 Jan 09 30 Jun 13 20 Jan 15 Aggregate Value J Nesbitt 9 Jun 09 30 Jun 12 30 Jun 14 Aggregate Value E Wang 31 Mar 08 31 Mar 11 31 Mar 13 Aggregate Value 52.71 28.34 31.42 42.73 28.34 28.34
No. of options
No. of options
No. of options No. of options
295,508 57,390 47,585 -
5,911 $56,627
28,144 $1,599,986
267,364 57,390 47,585 5,911
978 8.97 9.58 9.58 -
182,215
182,215 $5,725,195 58,939 $1,670,331 75,301 $3,969,116
6.60
58,939
9.06
75,301
9.96
options granted to the Managing Director and Group Executives are granted from the Executive option Plan. No other Group Executives hold options over Perpetual shares. 1 Equity instruments issued have been valued by PricewaterhouseCoopers (PwC) using a Binomial option Pricing model at grant date. 2 Approval for the issue of options to D Deverall was obtained under ASX Listing Rule 10.14 at Perpetuals AGMs held on 19 october 2004, 17 october 2006, 30 october 2007, 28 october 2008 and 22 october 2009. 3 These options were granted on 19 october 2004 (978), 1 July 2005 (28,144), 1 July 2006 (29,950) and 1 July 2007 (236,436). on 23 June 2010, the company announced that Managing Director, David Deverall, had given notice of his resignation. As a result, no long term incentives, including the options outstanding as at 30 June 2010, will vest as a result of Mr Deveralls resignation and all unvested options will be forfeited on ceasing employment. The options outstanding as at 30 June 2010 have a carrying value of $Nil. 4 Percentage of total remuneration received as options for the Managing Director and Group Executives are: D Deverall (0%), E Gonzalez (0%), J Nesbitt (0%) and E Wang (0%).
Value of unvested remuneration that may vest in future years

Name Estimates of the maximum and minimum cost in future years relating to equity based remuneration granted by the Company 30 June 2011 Minimum Managing Director D M Deverall1 Group Executives R Brandweiner R Burrows C Doyle C Green I Holyman R MacIntyre M Miller M Pancino2 P Ryan S Singh J Stewart 1 2 105,435 323,591 413,736 98,986 212,046 24,877 99,145 44,392 44,392 64,552 113,402 255,084 305,694 103,948 191,306 34,384 122,978 58,039 58,039 63,760 28,232 61,599 35,932 25,667 46,198 9,329 33,366 15,747 15,747 15,397 Maximum Minimum 30 June 2012 Maximum Minimum 30 June 2013 Maximum
The maximum value of equity that may vest in future years for Mr Deverall has been calculated to be zero on the basis that he has given notice of his resignation. The maximum value of equity that may vest in future years for Mr Pancino has been calculated to be zero on the basis that he has given notice of his resignation.
Vested shareholdings of the Managing Director and Group Executives

Name Balance at the start of the year LTI Shares vesting in the period Other changes during the year Balance at the end of the year1 No. of shares Managing Director D Deverall Group Executives R Brandweiner R Burrows C Doyle C Green I Holyman M Miller M Pancino J Stewart R MacIntyre P Ryan S Singh Departed Group Executives E Gonzalez J Nesbitt E Wang 1 88,279 7,417 600 (69,632) 18,647 7,417 600 402 2,056 2,736 234 16,893 2,740 402 4,796 2,736 234 16,893 35,540 35,540
Date of departure for Group Executives that departed in the year.
other changes during the year represent shares acquired via bonus sacrifice, conversion of options into shares and disposal of shares. Disposals during the year include E Gonzalez (69,632).
Unvested shareholdings of the Managing Director and Group Executives

Movement during the year Name Grant date Issue price Vesting date Held at 1 July 2009 Granted Forfeited Vested Held at 30 June 2010 Fair value per share TSR hurdle17 $ Fair value per share non-TSR hurdle17 $
No. of shares Managing Director D Deverall1 Shares granted prior to 1 July 20082 1 July 2008 29 June 2009 Group Executives R Brandweiner Shares granted prior to 1 July 20083 1 october 2008 1 october 2009 R Burrows 48.63 38.15 1 october 2011 1 october 2012 2,748 4,112 7,208 $274,985 11,383 12,338 15,727 $599,985 25,531 7,197 9,174 $349,988 5,031 4,112 6,553 $249,997 16,464 9,253 11,795 $449,979 3,308 2,467 8,519 $325,000 4,159 5,140 6,553 $249,997 584 3,084 3,931 $149,968 1 october 2011 1 october 2012 1 october 2011 1 october 2012 1 october 2011 1 october 2012 1 october 2011 1 october 2012 1 october 2011 1 october 2012 1 october 2011 1 october 2012 1 october 2011 1 october 2012 42.73 28.34 1 July 2011 1 July 2012 58,532 11,993 18,083 -
No. of shares 7,036 $399,997 1,389 $96,582 4,472 $300,026 1,677 $121,348 1,865 $134,951 2,740 $ 199,938 -
No. of shares 51,496 11,993 18,083
38.97 21.30
50.80 28.01
Aggregate Value
1,359 4,112 7,208 38.97 29.02 50.80 37.93
Aggregate Value Shares granted prior to 1 July 20084 1 october 2008 1 october 2009 C Doyle 48.63 38.15
11,383 12,338 15,727 38.97 29.02 50.80 37.93
Aggregate value Shares granted prior to 1 July 20085 1 october 2008 1 october 2009 C Green 48.63 38.15
25,531 7,197 9,174 38.97 29.02 50.80 37.93
Aggregate Value Shares granted prior to 1 July 20086 1 october 2008 1 october 2009 I Holyman 48.63 38.15
2,291 4,112 6,553 38.97 29.02 50.80 37.93
Aggregate Value Shares granted prior to 1 July 20087 1 october 2008 1 october 2009 M Miller 48.63 38.15
11,992 9,253 11,795 38.97 29.02 50.80 37.93
Aggregate Value Shares granted prior to 1 July 20088 1 october 2008 1 october 2009 M Pancino 48.63 38.15
1,631 2,467 8,519 38.97 29.02 50.80 37.93
Aggregate Value Shares granted prior to 1 July 20089 1 october 2008 1 october 2009 J Stewart 48.63 38.15
2,294 5,140 6,553 38.97 29.02 50.80 37.93
Aggregate Value Shares granted prior to 1 July 200810 1 october 2008 1 october 2009 48.63 38.15
584 3,084 3,931 38.97 29.02 50.80 37.93
Aggregate Value
Unvested shareholdings of the Managing Director and Group Executives (continued)

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

Contract details Term of contract Fixed remuneration STI David Deverall, Chief Executive Officer and Managing Director Mr Deveralls appointment as Chief Executive officer and Managing Director continues from the date of the agreement (24 September 2007) until terminated in accordance with its terms. $1,000,000 per annum, reviewable in accordance with Perpetuals policies. STI of up to the maximum STI for previous year multiplied by the change in the Profit Participation Pool. 20% of the STI will be subject to the Boards assessment annually of additional performance criteria. LTI-Group Eligible to receive LTI-Group grants equivalent to $1.025 million per annum (or such greater amounts as may be determined by the Board from year to year). 50% of the LTI-Group benefits is provided by way of performance shares and 50% by way of options. Grants are divided into two portions. The first portion is subject to a TSR target. If Perpetuals growth in TSR relative to the comparator group is: less than the median, 0% vests at the median, 50% vests greater than the median but less that 75%, 50% plus 2% for every percentile increase vests 75% or above, 100% vests. The second portion is subject to an EPS target. If Perpetuals growth in EPS is: less than 10% per annum, 0% vests at 10% or more, 100% vests. The TSR and EPS targets are first tested on the third anniversary of the grant date. If any portion remains unvested, it is retested on the fourth anniversary of the grant date. After this date, any unvested portion is forfeited. LTI-Business one-off grant made on 1 July 2007 Eligible to receive LTI-Business grants up to $6,000,000. 50% of the LTI-Business benefit is provided by way of shares and 50% by way of options. LTI-Business benefit will vest on 30 June 2012 subject to compound annual growth in EPS targets and UPAT targets. A threshold compound annual growth in EPS of 11% over the five-year performance period is required before any shares or options can vest in 2012. once the threshold is achieved, vesting operates as follows: vesting of 10% of the total shares and options occurs upon achievement of compound annual growth in EPS of 11% and required UPAT target 100% of the shares and options will vest if compound annual growth in EPS is 20% and required UPAT target is achieved a sliding scale of vesting operates if compound annual growth in EPS is greater than 11% and below 20% and required UPAT targets are achieved. There is an opportunity for accelerated vesting as at 30 June 2010 of up to 67% ($4,000,000) of the original benefit. A threshold compound annual growth in EPS of 15% is required before any shares or options can vest in 2010. once the threshold is achieved, vesting operates as follows: vesting of shares and options valued at $2,000,000 occurs upon achievement of a compound annual growth in EPS of 15% and required UPAT target shares and options valued at a total of $4,000,000 will vest upon achievement of a compound annual growth in EPS of 25% and required UPAT target a sliding scale of vesting operates if compound annual growth in EPS is greater than 15% and below 25% and required UPAT targets are achieved. Mr Deverall is not permitted to transfer or exercise any shares or options that vest under these accelerated vesting provisions until after 30 June 2011. If accelerated vesting is achieved, the balance of the LTI-Business will vest on 30 June 2012 subject to the original targets. There is no provision for retesting if performance targets are not achieved as of 30 June 2012. Any shares and options that do not vest will be forfeited as at 30 June 2012.
Contract terms for the Managing Director (continued)

Contract details Termination of employment David Deverall, Chief Executive Officer and Managing Director Mr Deverall can resign by providing 12 months notice. Perpetual can terminate Mr Deveralls employment at any time by providing 12 months notice; immediately for misconduct or other circumstances justifying summary dismissal; as a result of Mr Deveralls illness by providing 12 months notice; and for poor performance by providing 6 months notice. When notice is required, the Company can make a payment in lieu of all or part of any notice period. Immediate termination without notice in certain circumstances STI no entitlement in respect of year in which termination occurs. LTI-Group shares and options not vested at termination date are forfeited. LTI-Business shares and options not vested at termination date are forfeited. Termination by Perpetual on notice or due to illness 12 months written notice (for payment in lieu) STI pro-rated, based on prior year entitlements. LTI-Group eligible to receive vesting of shares and options that have not vested at the termination date for a period of 24 months after the termination date, subject to the original performance hurdles and performance period. LTI-Business entitled to the greater of a pro-rata proportion of shares and options (subject to performance targets measured at the date of termination) and 1/10th of the LTI-Business. Termination by Perpetual due to poor performance 6 months written notice (or payment in lieu) STI no entitlement in respect of year in which termination occurs. LTI-Group shares and options not vested at the termination date are forfeited. LTI-Business entitled to the greater of a pro-rata proportion of shares and options (subject to performance targets measured at the date of termination) and 1/10th of the LTI-Business. Voluntary termination 12 months written notice (or payment in lieu) STI pro-rated, based on previous year entitlements. LTI-Group shares and options not vested at the termination date are forfeited. LTI-Business shares and options not vested at the termination date are forfeited. Death of Mr Deverall STI pro-rata entitlement based on previous years STI. LTI-Group eligible to receive vesting of shares and options that have not vested at the termination date, subject to the original performance hurdles and performance period. LTI-Business eligible to receive allocated but unvested equity at the discretion of the Board.
As previously noted, on 23 June 2010 Perpetual announced that Managing Director, David Deverall, had given notice of his resignation. As set out in the ASX Announcement, Mr Deverall has a contractual entitlement to receive a STI for the year ended 30 June 2010, and a pro-rata STI for the year ending 30 June 2011. No LTI will vest as a result of Mr Deveralls resignation, and all unvested LTI will be forfeited on ceasing employment.
Termination provisions for Group Executives

The material terms for the Group Executives are summarised below:
Term Duration of contract Notice to be provided by Group Executive to terminate the employment agreement Who All Group Executives John Nesbitt Janine Stewart Paul Ryan Shailendra Singh All other Group Executives Notice to be provided by Perpetual to terminate the employment agreement for poor performance John Nesbitt Roger Burrows Janine Stewart Paul Ryan Shailendra Singh All other Group Executives Conditions ongoing until notice is given by either party 6 months 12 weeks 2 months 2 months 3 months 12 months 6 months 12 weeks 2 months 2 months 3 months
Term Notice to be provided by Perpetual to terminate the employment agreement without cause
Who John Nesbitt Roger Burrows Ivan Holyman Janine Stewart Paul Ryan Shailendra Singh All other Group Executives
Conditions 12 months 6 months 3 months notice plus 3 weeks per completed year of service (up to 52 weeks) 12 weeks 2 months 2 months 3 months
Termination payments and/or benefits to be made on termination without cause
Payment in lieu of notice All Group Executives STI All Group Executives LTI All Group Executives Subject to the terms of the offer and LTI Plan. Subject to the terms and conditions of the STI Plan. Group Executives are entitled to payment in lieu of any unexpired part of the notice period.
Termination for cause
Payment in lieu of notice All Group Executives STI All Group Executives LTI All Group Executives Subject to the terms of the offer and LTI Plan. 6 month non-solicitation restraint. Subject to the terms and conditions of the STI Plan. None immediate termination for cause.
Post-employment restraints
All Group Executives
Non-executive director fee schedule

2010 $ Chairman Directors Audit Risk and Compliance Committee Chairman Audit Risk and Compliance Committee Member People and Remuneration Committee Chairman People and Remuneration Committee Member Investment Committee Chairman Investment Committee Member Nominations Committee Member 455,000 165,000 38,500 19,250 27,500 13,750 27,500 13,750 13,750 2011 $ 468,500 170,000 40,000 20,000 28,500 14,250 28,500 14,250 14,250
Note: In addition to the base fee, Perpetual pays superannuation contributions to non-executive directors of up to 9% of non-executive director fees, capped at the maximum superannuation contributions base prescribed under Superannuation Guarantee legislation. Employer superannuation contributions may be received in one of our employee superannuation funds or an eligible superannuation fund of their choice.
Contract terms of engagement and non-executive director fees and responsibilities*

Robert M Savage1 $ Board fees (per annum) Chairman Independent director Committee fees (per annum) Audit Risk and Compliance Committee Chairman Member People and Remuneration Committee Chairman Member Investment Committee Chairman Member Nomination Committee Member Appointed August 2001 as Director and october 2005 as Chairman November 2009 November 2004 June 2010 13,750 April 2004 13,750 January 2006 July 2005 13,750 November 2004 13,750 27,500 13,750 13,750 13,750 13,750 27,500 13,750 19,250 19,250 19,250 38,500 455,000 165,000 165,000 165,000 165,000 165,000 165,000 165,000 Paul Brasher 2 $ Meredith J Brooks $ Philip Bullock 3 $ E Paul McClintock $ Elizabeth M Proust $ Peter B Scott4 $ Philip J Twyman $
* 1 2 3 4
In addition to committee fees, directors are entitled to minimum superannuation guarantee contributions. Robert Savage retired from the Audit, Risk and Compliance Committee on 17 November 2009 and retired as Chairman of the Nominations Committee on 23 July 2010 but remains as a Member of that Committee until his retirement from the Board on 26 october 2010. Paul Brasher was appointed to the Board on 1 November 2009, as a member of the Audit Risk and Compliance Committee on 17 November 2009 and the People and Remuneration Committee on 16 February 2010. Philip Bullock was appointed to the Board on 1 June 2010, and as a member of the Investment Committee and the People and Remuneration Committee on 9 August 2010. Peter Scott became Chairman-elect and Chairman of the Nominations Committee on 23 July 2010.
Remuneration received by non-executive directors

Name Total Short-term Cash salary, fees and short-term compensated absences1 2010 $ R M Savage P Brasher M J Brooks P Bullock E P McClintock E M Proust P B Scott P J Twyman TOTAL 1 2 3 469,461 133,969 212,461 14,955 234,461 262,915 206,961 245,461 1,780,644 2009 $ 468,745 211,745 232,636 225,495 207,797 244,745 1,591,162 2010 $ 447,421 83,969 198,000 13,750 220,000 248,454 192,500 231,000 1,635,094 2009 $ 335,378 198,000 174,891 200,750 166,552 176,000 1,251,572 Post employment Pension and superannuation 2010 $ 22,040 50,000 14,461 1,205 14,461 14,461 14,461 14,461 145,550 13,745 13,745 13,745 13,745 141,424 13,745 2009 $ 72,700 Share-based Equity settled1,3 2010 $ 2009 $ 60,667 44,000 11,000 27,500 55,000 198,167
Cash salary is the ordinary cash salary. Under a share purchase plan for non-executive directors approved by shareholders on 20 october 1998, non-executive directors may sacrifice up to 50% of their fees to acquire shares in the company. Non-executive directors do not receive any non-cash benefits as part of their remuneration. Shares issued as remuneration have been valued and recorded as remuneration as at the date of issue.
Shares, options, dividends and units held by non-executive directors

Name Ordinary shares 2010 No. R M Savage P V Brasher M J Brooks P Bullock E P McClintock E M Proust P B Scott P J Twyman 1 2 3 9,609 1,000 5,753 1,000 8,768 3,245 2,140 8,107 2009 No. 9,380 5,500 8,485 3,147 2,047 8,772 Dividends received 2010 $ 15,560 1,050 9,165 14,102 5,227 3,410 13,544 2009 $ 13,417 8,345 12,596 5,005 1,979 11,013 2010 No. Options 2009 No. Registered scheme interests1 2010 $ 2,015,797 497,825 1,568,458 188,674 73,888 2,045,167 2009 $ 4,484,416 1,545,392 170,528 56,744 2,526,899
Amounts invested in Perpetuals products. Paul Brasher was appointed as a director on 1 November 2009. Philip Bullock was appointed as a director on 1 June 2010.
Non-executive director holdings held directly or indirectly

Name Balance at the start of the year, or for directors appointed in the year, the date of appointment Shares acquired via fee sacrifice during the year Other changes during the year Balance at the end of the year or, for directors who retired in the year, the date of retirement
No. of shares R M Savage P Brasher M J Brooks P Bullock E P McClintock E Proust P B Scott P J Twyman 9,380 5,500 8,485 3,147 2,047 8,772 229 1,000 253 1,000 283 98 93 (665) 9,609 1,000 5,753 1,000 8,768 3,245 2,140 8,107
Directors Report for the year ended 30 June 2010 (continued)

Chief Executive Officers and Chief Financial Officers 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 Companys financial reports for the year ended 30 June 2010 comply with accounting standards and present a true and fair view of the Companys financial condition and operational results. This statement is required annually.
Lead Auditors 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 2010 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 no contraventions of any applicable code of professional conduct in relation to the audit.
Non-audit services
During the year KPMG, the Companys auditor, did not perform other non-audit services in addition to their statutory duties (2009: Nil). The Board has a review process in relation to any non-audit services provided by the external auditor. The Board will consider any non-audit services provided by the auditor and, in accordance with written advice provided by resolution of the Audit Risk and Compliance Committee, ensure it is satisfied that the provision of these non-audit services by the auditor is compatible with, and does not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: all non-audit services are subject to the corporate governance procedures adopted by the Company and are reviewed by the Audit Risk and Compliance Committee to ensure they do not impact the integrity and objectivity of the auditor the 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 auditors 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 Auditors independence declaration for the 30 June 2010 financial year is included at the end of this report. (ii)
KPMG
Andrew J Yates Partner Sydney 24 August 2010
Rounding off
The Company is of a kind referred to in ASIC Class order 98/100 dated 10 July 1998 and in accordance with that order, amounts in the financial report and the directors report have been rounded off to the nearest thousand dollars, unless otherwise stated. This report is made in accordance with a resolution of the directors:
Robert Savage, AM Chairman Sydney 24 August 2010
David Deverall Chief Executive officer and Managing Director
managements discussion
and analysis
of financial condition and results of operations (MD&A) for the 12 months ended 30 June 2010
overview ..................................................................................................................................62
Segment results summary .......................................................................................................62 operating environment ........................................................................................................... 64 Regulatory environment .......................................................................................................... 66 Shareholder returns .................................................................................................................67 Dividends .................................................................................................................................67
review of businesses......................................................................................................68
Perpetual Investments............................................................................................................. 68 Private Wealth ..........................................................................................................................72 Corporate Trust ........................................................................................................................74 Group and Support Services ...................................................................................................76
total group expenses ...................................................................................................... 76 significant items ...................................................................................................................77 capital management ........................................................................................................ 78
Interest rate risk .......................................................................................................................79 Credit risk.................................................................................................................................79 Equity risk ................................................................................................................................79 Market risk ...............................................................................................................................79 operational risk ........................................................................................................................79 Financial strength .................................................................................................................... 80 Cash flow ................................................................................................................................ 80
summary consolidated balance sheet ................................................................ 81 appendix a: segment results .....................................................................................82 appendix b: average fum ............................................................................................85 glossary ...................................................................................................................................86
Perpetual is a diversified financial services company operating in three main markets: funds management, financial advisory and trustee services. The Group operates primarily in Australia. Market factors influencing the performance of these sectors include global economic performance, stability of financial markets and government policy. The following is a discussion and analysis of our results of operations for the 12 months ended 30 June 2010 (FY10). It also includes a discussion of our financial condition as at 30 June 2010. The following information should be read in conjunction with the Groups audited consolidated financial statements and associated notes for the financial year ended 30 June 2010. All amounts shown are stated in Australian dollars unless otherwise noted, and subject to rounding. Additional information is available on the Groups website www.perpetual.com.au A glossary of frequently used terms and abbreviations can be found at the end of the discussion.
Overview
The macro-economic conditions in the 2010 financial year improved significantly over the previous year, which underpinned stronger equity and credit markets. Perpetual was able to improve its operating leverage to the markets by preserving the benefits of the cost savings initiatives undertaken in the 2009 financial year. This ensured the more positive market environment had a beneficial impact on the Groups financial results. However, investor sentiment remained cautious throughout the year, particularly in the final quarter of the financial year, when markets were volatile. Net profit after tax (NPAT) attributable to Perpetual Limited ordinary equity holders was $90.5m for the year ended 30 June 2010 (FY10), up 140% compared to $37.7m for the year ended 30 June 2009 (FY09). The improvement in NPAT was mainly attributable to: the increase in operating revenue in line with improved equity and credit markets cost management, offset by targeted investment in business initiatives the recovery of prior period losses in relation to the Exact Market Cash Fund (EMCF) the absence of any material restructuring expenses. A final FY10 fully franked dividend of 105 cents per share was declared, payable on 28 September 2010 and bringing total fully franked dividends in respect of FY10 to 210 cents per share, up 110 cents per share or 110% on FY09. FY10 underlying profit after tax (UPAT) was $72.8m, an 11% improvement on FY09. This progress was the result of the Group maintaining much of the fixed cost saving initiatives implemented in FY09 and increased operating revenues. The Groups financial strength improved in FY10, with net tangible assets per share increasing by 13% to $3.95, compared to $3.51 at the end of FY09. At the end of FY10, the Group increased its holdings of cash, cash equivalents and liquid investments by 30% to $237.4m, compared to $182.8m at the end of FY09.
Segment results summary

For the period ended Operating revenue FY09 $m Perpetual Investments Private Wealth Corporate Trust Group & Support Services Totals before tax and significant items Income tax expense Underlying profit after tax (UPAT)2 before significant items Significant items after tax: EMCF gains/(losses) Gain/(loss) on sale/impairment of investments Restructuring costs Net profit after tax (NPAT) attributable to Perpetual Limited ordinary equity holders 1 2 (13.8) (6.1) (8.1) 37.7 20.3 (2.6) 90.5 203.0 85.7 80.3 6.1 375.1 FY10 $m 216.9 111.6 87.5 10.3 426.3 FY09 $m 84.9 33.5 39.6 (22.3) 135.7 EBITDA1 FY10 $m 102.4 37.7 35.6 (23.7) 152.0 Profit before/ after tax FY09 FY10 $m 59.0 29.1 36.1 (26.0) 98.2 (32.5) 65.7 $m 72.1 32.6 32.3 (29.3) 107.7 (34.9) 72.8
EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items. UPAT excludes certain items that are either significant by virtue of their size and impact on net profit after tax, or are one-off in nature. UPAT has been calculated in accordance with the guidelines issued by the AICD and Finsia. It reflects managements assessment of the result for the ongoing business activities of the company.
The following table presents the change in underlying profit before tax by business unit for the six months ended 30 June 2010 (2H10) compared to the six months ended 30 June 2009 (2H09), and the six months ended 31 December 2009 (1H10); and FY10 compared to FY09.
Change in Underlying Profit Before Tax Perpetual Investments Private Wealth Corporate Trust Group & Support Services Total 2H10 v 2H09 $m 11.9 6.4 (1.6) 0.9 17.6 2H10 v 2H09 % change +51% +55% -10% +6% +49% 2H10 v 1H10 $m (1.7) 3.6 (3.3) 1.1 (0.3) 2H10 v 1H10 % change -5% +25% -19% +7% -1% FY10 v FY09 $m 13.1 3.5 (3.8) (3.3) 9.5 FY10 v FY09 % change +22% +12% -11% -13% +10%
From the above table, the Groups operating leverage to Australian equity market performance is apparent. The 49% improvement in the Groups 2H10 underlying profit before tax compared to 2H09 was mainly driven by improved equity market performance. Underlying performance in FY10 improved by around 10% compared to FY09, whilst performance between 1H10 and 2H10 was broadly unchanged.
The profitability of each business unit is heavily influenced by its key revenue drivers: funds under management (FUM) for Perpetual Investments funds under advice (FUA) for Private Wealth funds under administration (FUA) for Corporate Trust. The Group earns the majority of its revenue based on a percentage of total assets under management, advice or administration. Around 27% of the Groups revenues are charged on a per transaction or time basis, however, this is expected to change over time as the Group expands its fee for service activities in Private Wealth and Corporate Trust. The table below, and on the next page, summarises the movements in each business units key revenue driver across the year. More detailed analysis is contained within the Review of Businesses section. Movements in key revenue drivers and operating environment The largest drivers of total revenue are the value of FUM within Perpetual Investments and FUA within Private Wealth, which are mainly influenced by the level of the Australian equity market. At the end of FY10, Perpetual Investments FUM and Private Wealths FUA was around 75% and 55% exposed to domestic and international equity markets, respectively. The key asset classes managed by the Group are equities and cash and fixed interest. Average Group FUM increased by 7% in FY10 due to improving equity markets in the first three quarters of the year. However, the year-on-year increase in Group FUM for FY10 was limited to 3% as a result of the sharp decline in markets in the last quarter of the year.
In FY10 there was $1.9b of net outflows in Perpetual Investments, composed as follows: The equities asset class experienced an aggregate $0.4b of net outflow a net $0.3b improvement on FY09. While aggregate flow in equities was negative, our actively managed equity strategies enjoyed net inflows of $0.6b in FY10 compared to $0.6b of net outflows in FY09. Quantitative investment strategies, which typically earn a lower fee, had net outflow of around $1.0b in FY10 compared to $0.1b of net outflow in FY09. The cash and fixed interest asset class experienced net outflows of around $1.4b, versus $100m of net inflow in FY09, as investors sought exposure to other investment strategies. A $0.1b reduction in investment assets backing Perpetual Protected Investments (PPI) in response to loan repayments by investors. Private Wealth FUA increased by 22% over FY10, driven by a combination of improved equity and credit markets and two acquisitions: Grosvenor Financial Services and Fordham Business Advisors. Corporate Trust FUA decreased by 13% over FY10 in response to the lower levels of RMBS issuance by the industry during the year when compared to levels prior to the Global Financial Crisis (GFC) and increased run-off rates, in excess of historical levels. The Group continued to grow its mortgage services business in FY10 with volumes doubling compared to FY09. The following table details the movement in each business units key revenue drivers:
At end of
FY08 $b
FY09 $b 26.2 6.8 241.4
Net flows $b (1.9) (30.9)
Other $b 2.6 1.5 -
FY10 $b 26.9 8.3 210.5
FY10 v FY08 % variance -11% +8% -6%
FY10 v FY09 % variance +3% +22% -13%
Perpetual Investments FUM (including Direct) Private Wealth FUA Corporate Trust FUA
30.3 7.7 222.9
The following chart shows the Groups average FUM and revenue margin over the last three years:
40.0 35.0 30.0 Avg FUM $b 25.0 20.0 15.0 10.0 5.0 0.80 bps 0.70 bps Revenue margin (bps) 0.60 bps 0.50 bps 0.40 bps 0.30 bps 0.20 bps 0.10 bps
1H08
2H08
Australian Equities Cash and fixed interest
1H09
Global Equities Other
2H09
1H10
2H10
Quantative Investments Margin excluding performance fees
The following table details the movements in average Group funds under management and revenue margins:
Average Group FUM Perpetual Investments Private Wealth Total average FUM Average FUM revenue margin Average FUM revenue margin excluding performance fees 1H08 $b 36.9 1.9 38.8 82 bps 80 bps 2H08 $b 31.3 1.9 33.2 82 bps 76 bps 1H09 $b 26.8 1.6 28.4 74 bps 74 bps 2H09 $b 23.2 1.4 24.6 77 bps 69 bps 1H10 $b 26.8 1.6 28.4 75 bps 75 bps 2H10 $b 26.8 1.6 28.4 78 bps 76 bps FY09 $b 25.0 1.5 26.5 75 bps 72 bps FY10 $b 26.8 1.6 28.4 76 bps 76 bps
The Group reports the majority of the above FUM-related revenue in the Perpetual Investments business segment. In addition, revenue attributable to the Groups retail customers who invest directly in Perpetual Investments range of products is reported as part of Private Wealths revenue. The Groups main source of revenue is from its funds under management. Average FUM revenue margin for FY10 was broadly in line with FY09 at 76 and 75 bps respectively. Excluding the impact of performance fees, the Groups average FUM revenue margin increased by 4 bps to 76 bps in FY10 from 72 bps in FY09. 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 FY10, a 1% movement in the market changes annualised revenue by approximately $2.0m to $2.5m. It is worth noting 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 market and non-equity market-sensitive asset classes.
During FY10 the functioning of global financial markets improved, allowing a gradual winding back of the extraordinary support from many governments and central banks around the world. In line with this, sentiment in global financial markets improved considerably in FY10. This general improvement came despite periodic setbacks leading to periods of heightened risk aversion. The most recent incident in this regard occurred in the June 2010 quarter, when investors became concerned about the fiscal position and creditworthiness of some European countries, particularly Greece. This credit threat appeared to pose a new challenge for the global economy at the precise point where its recovery is transitioning between the fading impact of rebound factors such as fiscal stimuli and a more mature phase during which GDP gains will increasingly depend on a recovery in private investment and consumption. Global equity markets fell significantly in the June 2010 quarter in response to these mounting concerns. In Australia, economic conditions were better than anticipated in the previous year. After contracting in the December quarter of 2008, the economy expanded at a reasonable pace throughout calendar 2009, with activity supported by the stimulatory settings of monetary and fiscal policy, Australias strong trade links with a rapidly recovering Asia, a relatively high rate of population growth and a sound financial system. Unemployment peaked at around 5.8% at the beginning of FY10, and was at 5.1% by the end of the period. As the risk of a serious economic contraction in Australia subsided, the Reserve Bank of Australia (RBA) in october 2009 decided to reduce the level of monetary stimulus by increasing the overnight cash rate from 3.0%, initially to 3.25%. Since then, the overnight cash rate has been raised by 0.25% five more times, most recently in May 2010, taking it to 4.5%. The S&P ASX All ordinaries Price Index (All ords) increased in value during FY10 by around 10%, closing at 4,324.8 at the end of the period, compared to 3,947.8 at the end of FY09.
Operating environment
FY10 has been characterised by a recovery in the global economy and the financial markets since the equity market low point of March 2009. After a sharp contraction in demand during the latter part of 2008 and early 2009, the global economy started to stabilise and resume growth in response to the substantial economic stimulus provided by governments around the world. Growth has been led by the emerging world, particularly China, impacting other economies in the region and commodity markets. Economic expansion in major established economies has been more modest due to a more prolonged impact of the GFC.
The following chart shows the movement in both the All ords and average index for FY09 and FY10:
Spot close All Ords 5,250 5,000 4,750 4,550 Index 4,250 4,000 3,750 3,500 3,250 FY10 Avg All Ords FY09 FY10 Avg All Ords 1st half avg All Ords 2nd half avg All Ords
FY09 Avg All Ords
10
10
10
09
09
08
09
08
09
09
08
08
09
08
09
09
09
09
l0
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ar
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Au
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ay
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S&P ASX All ordinaries Price Index 1 July 2008 - 30 June 2010
The Australian funds management industry has been experiencing a return of net inflows as investors continued to transition assets out of low yielding risk-averse bank deposit and cash management style products into a greater variety of investment strategies. Based on the most recent market data, the industry returned to a net inflow of around $6.2b in the 12 months to March 2010, compared to a net outflow of around $29.0b in the previous year. Consistent with experience in other countries, there was an increase in fund flow to index managers, away from active managers such as Perpetual. Total market quarterly net flows since June 2006
40.0
30.0
20.0
$b
10.0
(20.0)
(20.0)
07
07
07
06
06
07
08
08
09
06
08
08
09
09
09
De c
De c
Se p
M ar
De c
ar
ar
Ju
Ju
Se
Ju
De
Ju
Se
Se
Source: Plan for Life March 2010
The above chart demonstrates the recovery of inflows into the Australian funds management industry. However, investor confidence remains fragile with net inflows still well below pre-GFC levels. The improvement in credit market conditions in FY10 flowed into the residential mortgage backed securities market (RMBS), where spreads continued to narrow, increasing the confidence of both issuers and investors.
ar
10
Ju
ct
ct
ar
10
RMBS issuance quarterly

30 250 Average revaluation margin bps 2 year senior
Non AOFM AOFM Spread margin 20
200
150 $b
100 10 50
00
01
02
03
04
05
06
07
08
09
10
Year ended 30 June
Source: www.AoFM.gov.au; S&P, Macquarie Bank and Perpetual
During FY10, both issuance and pricing improved, with increased participation from real money investors amid reduced reliance on the Federal Governments AoFM support program. These trends are apparent from the above chart.
The Australian Financial Services Forum (Johnson Review) proposes changes aimed at positioning Australia as a financial services hub, including enhancing the international competitiveness of Australias funds management sector. These areas of proposed reform are at differing levels of development and have not been finalised. Significant implementation detail remains to be worked through. Therefore, the final impact of proposed changes will not be clarified until regulatory details and the exact form of legislative change is known. Perpetual is well positioned to capitalise on the opportunities and respond to the challenges presented by regulatory change. Its track record as a provider of fee-for-service financial advice, products and services to high net worth individuals, and its continued ability to generate above benchmark returns for its active management equity funds allow Perpetual to offer a sound value proposition to its target customer segments in any environment. Perpetual believes that regulatory change is most likely to create challenges for wealth management models that focus on providing basic and standardised commission-based advice for mass market investors, a segment in which Perpetual does not operate.
Regulatory environment
The past financial year has been characterised by significant regulatory review. In particular, four areas of possible regulatory reform have the potential to influence the operating environment of Perpetual: The Governments response to the Henry Review (a review of Australias taxation system, including structural settings for superannuation) had a strong focus on measures to underpin the adequacy of Australias superannuation savings. Most significantly, it expressed the intention to gradually increase compulsory superannuation contributions (the SGC) from the current 9% to 12% by 2020. The Governments Future of Financial Advice policy (which represents its response to the recommendations of the Ripoll Parliamentary Inquiry) is likely to impact directly on financial advisers and indirectly on payment structures for many participants in wealth management, including asset managers and providers of administration platforms and services. The Super System Review (Cooper Review) envisions substantial changes in the delivery of superannuation to members.
Shareholder returns
For the period ended1,2 Diluted earnings per share (EPS) on UPAT Diluted EPS on NPAT Annualised return on average equity (RoE) on UPAT Annualised RoE on NPAT 1 2 cents cents % % 1H09 99.0 33.8 29.1 9.9 2H09 56.8 55.5 17.6 17.2 1H10 85.1 115.0 22.9 30.9 2H10 84.1 95.6 20.6 23.4 FY09 155.6 89.4 21.8 12.5 FY10 169.3 210.5 22.4 27.9
EPS is calculated using the weighted average number of ordinary shares and potential ordinary shares on issue. The returns on equity quoted in the above table are an annualised rate of return based on actual results for each period. RoE is calculated using the NPAT attributable to ordinary equity holders for the period, divided by average equity attributable to the Groups ordinary equity holders, multiplied by the number of such periods in a calendar year in order to arrive at an annualised return on equity.
In FY10, EPS and RoE based on UPAT both increased: Diluted EPS of 169.3 cents per share represented an 8.8% increase on FY09, in line with the improvement in underlying profitability, and RoE increased by 60 bps to 22.4% from 21.8% in FY09. Both EPS and RoE on NPAT were substantially higher in FY10 compared to FY09, predominantly due to the recovery of prior period losses on the EMCF, compared to losses incurred in FY09 and the absence of any restructuring expenditure in FY10. During FY10, the number of shares on issue increased by 2% (+0.9m shares) to 43.4m shares due to: employee share plan related ordinary share issues
the acquisition of Grosvenor Financial Services within our Private Wealth business, which was partly financed by an issue of ordinary shares participation in the Groups dividend reinvestment plan (DRP) that accompanied the FY09 final dividend paid 30 September 2009 and the FY10 interim dividend paid 1 April 2010. Average shareholders equity for FY10 increased by 7.5% compared to FY09 due to: the final dividend for FY09 (paid 30 September 2009) and the interim dividend for FY10 (paid 1 April 2010) being lower than FY10 NPAT, which increased retained earnings the issue of ordinary shares in relation to the acquisition of Grosvenor Financial Services, which increased contributed equity participation in the DRP, which increased contributed equity.
Dividends
For the period ended Fully franked dividend per ordinary share Dividend payout ratio1 Proportion of NPAT paid/payable as dividend2 1 2 cents % % 1H09 40.0 118.3 119.6 2H09 60.0 108.1 108.5 1H10 105.0 91.3 92.3 2H10 105.0 109.8 110.42 FY09 100.0 111.9 112.7 FY10 210.0 99.8 100.52
Dividend payout ratio is calculated using dividend(s) declared for the relevant period, divided by the diluted earnings per share. Based on ordinary fully paid capital at end of FY10.
The Groups dividend policy is to pay dividends within a range of 80-100% of NPAT on an annualised basis, with a goal to maximise fully franked dividends to shareholders. The dividend policy is designed to be sustainable over the long term while providing the Group with an appropriate degree of financial flexibility. An FY10 final fully franked dividend of 105 cents per share will be payable on 28 September 2010 (ex-dividend date of 1 September 2010 and record date 7 September 2010). This brings total fully franked dividends for FY10 to 210 cents per share, compared to total fully franked dividends of 100 cents per share in FY09. The FY10 total dividend is derived from two components of profit: UPAT of $72.8m which equates to 169 cents per share
1
significant items of $17.7m after tax which equates to 41 cents per share significant items, which include EMCF recoveries, are not considered to be maintainable earnings. The DRP will be operational for the FY10 final dividend and will be met by issuing new shares to DRP participants. The issue price per share for the FY10 final dividend DRP will be the average market price, as defined in the DRP terms1, less a 2.5% discount. The pricing period for the FY10 final dividend DRP will be the 10 trading days commencing 8 September 2010 and ending 21 September 2010. The Groups franking credit balance as at the end of FY10 was $62.5m, which will enable it to fully frank $145.8m of cash dividends. After payment of the final dividend for FY10, the franking balance is capable of fully franking a further $100.2m of dividends.
The Groups DRP Rules can be found at http://shareholders.perpetual.com.au/Shareholder services/Dividend Reinvestment Plan. PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES | 67
Review of businesses
Perpetual Investments is one of Australias most highly regarded investment fund managers, offering a broad range of products for personal investment, superannuation and retirement. We offer investors strong investment capabilities across a range of asset classes, including Australian and international equities, property securities, multi-sector and multi-manager funds, mortgages, fixed interest and cash. Perpetual Investments financial summary
For the period ended Revenues operating expenses EBITDA Depreciation and amortisation Equity remuneration expense Profit before tax Average FUM revenue margin (normalised FUM based revenues/average FUM) Average FUM revenue margin excluding performance fees Average FUM (excludes Direct & AERF1) 1 1H09 $m 105.4 (56.3) 49.1 (2.3) (11.1) 35.7 70 bps 70 bps $26.8b 2H09 $m 97.6 (61.8) 35.8 (3.1) (9.4) 23.3 74 bps 66 bps $23.2b 1H10 $m 105.9 (54.4) 51.5 (2.9) (11.7) 36.9 71 bps 71 bps $26.8b 2H10 $m 111.0 (60.1) 50.9 (2.4) (13.3) 35.2 74 bps 73 bps $26.8b FY09 $m 203.0 (118.1) 84.9 (5.4) (20.5) 59.0 72 bps 68 bps $25.0b FY10 $m 216.9 (114.5) 102.4 (5.3) (25.0) 72.1 73 bps 72 bps $26.8b
Direct refers to the Groups retail customers who invest directly in Perpetual Investments range of products. This FUM and associated revenue is not included in this calculation of average FUM or Average Margin in the above table.
FY10 profit before tax of $72.1m represented a 22% increase on FY09. 2H10 profit before tax of $35.2m represented a decrease of 5% on 1H10 but a 51% increase on 2H09. Average FUM in FY10 increased 7% on FY09. 2H10 average FUM was flat on 1H10 due to the downward movement in equity markets experienced during the June 2010 quarter. 2H10 average FUM was up 15% on 2H09 as a result of a strong recovery in equity markets in 1H10, offset by a sharp decline in these same markets in 2H10. These overall movements in FUM correlate with the movements in the equity markets over these periods but have also been impacted by net outflows across all asset classes. The average FUM revenue margin in FY10 was 73 bps, slightly higher than in FY09. Margins in FY09 have been normalised for the $5.1m of negative revenue adjustments that related to prior years. Revenues used to calculate the average FUM margin exclude non-FUM related revenue such as net interest earned on PPI loans and smartsuper revenue. The margin in 2H10 improved on 1H10 as a result of the recognition of some performance fees, which aligns with the time period when performance fees are determined. Excluding the impact of performance fees, the average FUM revenue margin increased by 4 bps to 72 bps in FY10 from 68 bps in FY09. Perpetual Investments manages investments across a number of asset classes, including equities, fixed interest and cash. It also manages a number of administrative businesses such as self
managed superannuation fund (SMSF) administration and a platform business administering funds managed by Perpetual and other fund managers. Perpetual Investments asset classes are categorised across a number of functional units in the table below. Revenue from equities is earned across each functional unit of Perpetual Investments, including multi-sector funds within Income and Multi Sector, and from Perpetual funds offered via the WealthFocus platform within Superannuation and Investment Solutions. other FUM related revenue includes revenue earned on external funds hosted on the Groups platforms, smartsuper revenue and revenue generated from structured products funds under management. other non-FUM related revenue includes net interest margin on the structured products loan book and interest revenue earned on operational bank accounts across all the functional units. Revenue generally increases or decreases as FUM increases or decreases. Increases in FUM result from market appreciation, positive investment performance for customers or asset inflows from new and existing customers. Investment into our funds is generally through either institutional investors, from whom we generally receive lower margins, and from intermediary/retail investors, who typically invest small amounts but from whom we receive a higher margin.
Functional units
Asset class Equities Equities Cash and fixed interest other FUM related other non-FUM related
Income and Multi-Sector
Superannuation and Investment Solutions
We offer our investors an array of funds in which to invest. Some of these funds are tailored for both institutional and intermediary/retail investors, whilst some funds are available to intermediary/retail investors only. Funds that are offered exclusively for our intermediary/retail investors typically incur a higher fee. Decreases in FUM can result from market depreciation, negative investment performance or asset outflows due to redemptions by our customers. Performance fees will fluctuate from period to period and may not correlate with general market changes, since these fees are driven by relative performance to the respective benchmark rather than absolute performance. The following table provides an analysis of revenue by asset class:
Revenue for the period ended By asset class: Equities Cash and fixed interest other FUM related other non-FUM related Perpetual Investments total revenue 81.2 10.9 6.5 6.8 105.4 74.3 11.1 5.6 6.6 97.6 83.6 13.3 5.4 3.6 105.9 87.6 13.4 5.9 4.1 111.0 155.5 22.0 12.1 13.4 203.0 171.2 26.7 11.3 7.7 216.9 1H09 $m 2H09 $m 1H10 $m 2H10 $m FY09 $m FY10 $m
Equities FY10 revenue from equities, comprising Australian and global equities, increased by $15.7m or 10% on FY09 to $171.2m, driven by favourable market movements. 2H10 revenue increased 5% or $4.0m on 1H10 as a result of favourable market movements and net inflows into our higher revenue margin strategies. Partially offsetting this were net outflows from lower revenue margin strategies in particular our quantitative investment strategy. In addition, 2H10 revenues benefited from performance fees, albeit at a lower level than in 2H09. Cash and fixed interest FY10 revenue increased by $4.7m, or 21% on FY09 to $26.7m, primarily due to operational errors that adversely affected FY09 revenue by $3.8m. 2H10 revenues were relatively flat on 1H10, with higher fees received from EMCF2 offset by reduced revenue due to net outflows from mortgages, cash and credit funds. Other FUM related includes management fees for external funds on our WealthFocus platform and structuring fees on the PPI structured products. Revenue declined by $0.8m in FY10 to $11.3m compared to FY09, mainly due to lower PPI fees from the combination of continued run-off and the absence of new issues in the last 12 months. Other non-FUM related revenue decreased by $5.7m to $7.7m in FY10, primarily due to: reduced PPI loan interest income as the book continues to run off in FY10, responsibility for AERF and IDPS products was transferred to Private Wealth (ie no impact at Group level) to provide operational efficiency and alignment with advisers, reducing non-FUM revenue by $5.1m. Perpetual Investments manages the structured products loan book, where investors have borrowed funds to invest in a capital protected range of investments offered within the Perpetual Protected Investments (PPI) product range. In FY09, additional structured product lending was suspended as the Group determined that it will no longer use its balance sheet to finance this type of activity. The capital protection provided to investors is based on constant proportion portfolio insurance (CPPI) technology, which involves
rebalancing the customers portfolio of investments during the term of the product between equity style investments and less volatile assets. Due to the sharp declines in equity markets in FY09, all of the investors in Series 1 and 2 and some of the investors in Series 3 were entirely invested in less volatile assets and no longer had any exposure to equity markets, up or down. In FY10, the Group presented cash locked investors in Series 1, 2 and 3 with an offer that would enable their underlying investment to regain exposure to equity markets. These offers were taken up by many investors, which required them to invest additional funds. In FY10, the outstanding loan book declined by $130.8m from $319.6m at the end of FY09 to $188.8m, broadly in line with the Groups expectations, given that around $108m of repayments in 1H10 were already advised in June 2009. At the end of FY10, the Group received loan repayment and product redemption notifications from clients to the value of around $23m. Loans in arrears are actively managed and the total of the doubtful debts reserve at the end of FY10 was $2.6m (FY09: $1.0m). The Groups credit exposure is limited to a loss of 6% of the loan book for Series 1 and 2 and 7% for the Series 3 loan book, given the limited recourse terms of the borrowings used to fund these portfolios. The Groups total loss exposure to the PPI portfolios at the end of FY10 was $11.4m, versus $16.1m at the end of FY09. FY10 operating expenses of $114.5m were 3% lower than FY09 expenses of $118.1m, reflecting: the maintenance of cost saving initiatives implemented in FY09 relating to reductions of staff and discretionary expenditure a stronger AUD/EUR exchange rate (the average AUD/EUR rate was 17% stronger than in the prior year) as well as a reduction in costs, resulting in lower expenses incurred in the Groups overseas operation the transfer of the IDPS and AERF products to Private Wealth (ie no impact at Group level) FY09 included the negative impact from $3.3m of unit pricing errors.
This was partially offset by: an increase in PPI loan doubtful debt provisions and a full year of smartsuper costs against nine months of expense in FY09, as the business was acquired in September 2008 increase in registry fees from our custodian in FY10 FY10 including a higher level of variable compensation payments for staff in line with improved performance of the Group, as well as an increased likelihood of equity-based remuneration vesting.
FY10, underpinned by our long-term record of delivering market outperformance for our investors. This represented a $1.2b improvement on FY09, when we recorded $0.6b of net outflows. In FY10, we experienced net outflows of around $1.0b from our institutional quantitative investments strategies, compared to a net outflow of $0.1b in FY09 as investors redeployed funds into other strategies. This total net outflow of $0.4b of FUM from the equities asset class in FY10 did not translate into an absolute fall in revenue as the Group earns higher fees from its active funds management activities in comparison to the revenue earned from institutional quantitative strategies, which earn lower base fees. The below table shows the movement in closing FUM over the last 12 months. The move away from cash was reflected in FY10 net outflows of $1.4b in the Groups cash and fixed interest asset class, which includes the Groups mortgage funds1. Perpetuals active management investment style has generated strong relative performance against its respective benchmarks (known as alpha) in virtually all of our funds over the long term. Positive alpha benefits the Group in three primary ways: it demonstrates our expertise in actively managing our customers funds and we expect that this will be a positive factor in retaining funds and attracting future inflows it keeps FUM higher a number of institutional client mandates include performance fee incentives based on the level of alpha generated.
Funds under management (FUM)

The table below details the closing FUM for the last three fiscal years. In FY10, total FUM grew by around 3% to $26.9b. Equities FUM grew by around 9% in FY10 to $18.9b. However, growth in average FY10 equities FUM was 15% over average FY09 equities FUM (detailed in Appendix B), in line with the average All ords, which was 15% higher in FY10. For most of FY10, there were marked improvements in both equity and credit markets globally and this resulted in investors increasing their appetite for risk assets. The resulting movement away from cash triggered inflows into a variety of investment strategies. In FY10, the equities asset class experienced $0.4b of net outflows, comprising $0.6b of net inflows into our actively managed equity funds, offset by $1.0b of net outflows from our quantitative investments strategies. Whilst investors appear to have chosen to increase their domestic equity market allocations to index and multi-manager funds in preference to active single fund managers, we enjoyed net inflows of $0.6b into our actively managed equity funds in
FUM at end of Institutional Intermediary (master fund and wrap) Retail (including Direct) All channels Australian equities Global equities Equities Cash and fixed interest other All asset classes 2 Includes reinvestments, distributions, income and asset growth.
FY08 $b 8.3 14.8 7.2 30.3 19.7 1.5 21.2 7.5 1.6 30.3
FY09 $b 8.5 11.9 5.8 26.2 16.0 1.4 17.4 7.5 1.3 26.2
Net flows $b (1.2) (0.3) (0.4) (1.9) (0.4) (0.4) (1.4) (0.1) (1.9)
Other 2 $b 0.8 1.3 0.5 2.6 1.9 1.9 0.6 0.1 2.6
FY10 $b 8.1 12.9 5.9 26.9 17.5 1.4 18.9 6.7 1.3 26.9
In october 2008, the Group moved to a quarterly redemption process in response to the introduction of guarantees on bank deposits which prompted a sharp increase in redemptions from mortgage funds across the industry. Whilst some other fund managers have either frozen redemptions or are in the process of winding up their mortgage funds, the Group continues to offer investors access to their funds via a quarterly redemption process.
The table below highlights the consistent outperformance against benchmark (alpha) of our main funds over short and long-term periods.
Excess investment performance pa gross as at end June 2010 Annualised returns (ex 3 months) 3 months 1 year 3 years 5 years 7 years 10 years Industrial Share Fund +2.29% +0.07% +4.07% +2.57% +2.40% +4.46% Australian Share Fund +2.39% +5.90% +4.13% +2.53% +2.66% +4.21% Small Companies Fund +5.03% +14.64% +6.13% +4.17% +2.49% +8.28% Concentrated Equity Fund +1.80% +2.80% +5.83% +3.76% +2.68% +5.06% International Share Fund -0.07% -0.36% +2.43% +1.20% N/A N/A
Net flows of funds by distribution channel and asset class for the last 24 months are detailed in the following table:
1H09 For the period ended Institutional Intermediary (master fund and wrap) Retail (including Direct) All distribution channels Australian equities Global equities Equities Cash and fixed interest other All asset classes Net flows $b 0.5 (0.9) (0.4) (0.8) (0.4) (0.1) (0.5) (0.2) (0.1) (0.8) 2H09 Net flows $b 0.5 (0.2) (0.2) 0.1 (0.3) 0.1 (0.2) 0.3 0.1 1H10 Net flows $b (0.9) 0.1 (0.3) (1.1) (1.0) (0.1) (1.1) 2H10 Net flows $b (0.3) (0.4) (0.1) (0.8) (0.4) (0.4) (0.4) (0.8) FY09 Net flows $b 1.0 (1.1) (0.6) (0.7) (0.7) (0.7) 0.1 (0.1) (0.7) FY10 Net flows $b (1.2) (0.3) (0.4) (1.9) (0.4) (0.4) (1.4) (0.1) (1.9)
The Group sources FUM through three primary distribution channels: Institutional industry funds and clients who invest large sums. We earn our 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. In FY10, the institutional channel experienced $1.2b of net outflows, principally from our cash investment products, with net outflows from equities of $0.1b on the back of strong inflows of $0.9b into our active style funds, offset by outflows of $1.0b from our quantitative investment strategies. Intermediary this channel includes FUM from financial advisers who invest with Perpetual via external platform providers. This is our largest source of FUM. FY10 intermediary net flows improved $0.8b on FY09, with net outflows of $0.3b in FY10. In FY10, we experienced net inflows across our range of equities funds, with some of the Groups newer funds, which appeal to high net worth investors, finding good support from this channel. outflows experienced were mainly concentrated through our Industrial Share Fund and our diversified investment funds and mortgage products. This compares with FY09, where investors moved into more defensive assets, consistent with the broader industry.
Retail this channel sources FUM from advisers and clients who invest with Perpetual directly and investors who come through our own WealthFocus platform, where some FUM flows into third party products. This FUM earns the highest gross margin. However, it requires a significant support infrastructure, which makes the cost to service this channel the highest. In FY10, our retail flows improved by $0.2b on FY09. This channel experienced net outflows of $0.4b in FY10, spread across both equities and cash asset classes. Relative share of FUM and underlying revenue by each of the above channels has remained relatively stable over the last 18 months. The institutional channel also benefits from the potential to earn performance fees. The above table also compares net flows by asset class across the last 24 months. As noted previously, there has been a period-to-period improvement in net flows in equities, with net outflows reducing from $0.5b in 1H09 to neutral in 1H10. Whilst 2H10 shows $0.4b in net outflow in equities, this is not reflective of the Groups strong performance in actively managed equities. As discussed previously, these funds recorded net inflows of $0.3b in both 1H10 and 2H10, offset by net outflows of $0.3b and $0.7b in quantitative style managed funds over 1H10 and 2H10 respectively. Net flows in cash and fixed interest generally reflect the sentiment of investors as they move to and from cash style products depending on prevailing conditions in equity markets.
Private Wealth
Private Wealth is the Groups specialist financial services business, which provides holistic financial solutions for high net worth individuals. It aims to be the leading provider of wealth management services to financially successful Australians and their families. Private Wealth also services the Groups retail customers who invest directly in Perpetual Investments range of products. Financial solutions range from strategic advice, ongoing investment advice and management, DIY superannuation services, custodial solutions, estate planning, estate administration, executorial services and trustee services, including charitable trusts. Following the acquisition of Grosvenor Financial Services and Fordham Business Advisors in FY10, the Group has further increased its capabilities in specialist accounting and taxation advice. Each client receives highly individualised attention, customised to his or her needs and based on a long-term plan focused on wealth creation and protection. Private Wealth manages financial assets for over 6,800 private clients, estates, trusts and charitable trusts, with funds under advice of $8.3b at the end of FY10, up 22% from $6.8b at the end of FY09. The Group is one of the largest managers of private charitable foundations in Australia, with over $1.1b in funds under management as at the end of FY10. Perpetual is trustee to more than 450 charitable trusts, supporting cultural, medical, social, environmental, religious and educational causes. In FY10, the Group continued to execute on its growth strategy through a combination of organic and inorganic initiatives. organic initiatives undertaken during the year have increased our competency and capability in the following core activities: Investment and strategic advice investment teams have been strengthened and a new direct equities investment process has been deployed
Fiduciary improved quality and consistency of services Philanthropy increased transparency and simplified processes to make applications to the 450 philanthropic trusts we manage Customer service offerings an increase in the number of client facing staff, including senior financial consultants and continued improvements to the client management system, which now delivers more efficient processes and an increased focus on quality and risk management. The Group also continued to implement its inorganic growth strategy with the acquisition of two complementary businesses that specialise in the high net worth segment of the advice market: In September 2009, the Group acquired a 100% interest in Grosvenor Financial Services, a Sydney-based advisory firm specialising in medical, dental and legal professions. Grosvenor provides clients with strategic financial and taxation advice and investment management. Consideration was $20.1m and comprised a combination of cash and shares subject to earnouts. Acquired FUA was around $0.4b. In January 2010, the Group acquired 100% of Fordham Business Advisors, a Melbourne-based advisory firm specialising in private business owners and their families. Fordham provides clients with accounting, taxation and strategic financial advice and investment management. Consideration was $34.8m, comprising cash and deferred consideration subject to earn-outs. Acquired FUA was around $0.5b. In FY09, wealth management fees comprised 25% of Fordhams revenue.
Financial summary
Private Wealths FY10 profit before tax increased by 12% to $32.6m compared to $29.1m in FY09. This reflects the improvement in investment markets, partially offset by increased investment in the core business activities. FY10 profit before tax included acquisition and integration costs plus amortisation of identifiable intangibles associated with recent acquisitions of $3.3m before tax, versus $0.4m in FY09.
Private Wealth financial summary

For the period ended Revenues operating expenses EBITDA Depreciation and amortisation Equity remuneration expense Profit before tax Closing funds under advice (FUA) Average funds under advice (FUA) 1H09 $m 45.0 (25.3) 19.7 (1.1) (1.2) 17.4 $6.5b $7.1b 2H09 $m 40.7 (26.9) 13.8 (1.3) (0.8) 11.7 $6.8b $6.6b 1H10 $m 47.4 (30.6) 16.8 (1.4) (0.9) 14.5 $8.1b $7.8b 2H10 $m 64.2 (43.3) 20.9 (2.5) (0.3) 18.1 $8.3b $8.5b FY09 $m 85.7 (52.2) 33.5 (2.4) (2.0) 29.1 $6.8b $6.9b FY10 $m 111.6 (73.9) 37.7 (3.9) (1.2) 32.6 $8.3b $8.1b
The main source of Private Wealth revenue is FUA, which accounted for 78% of FY10 revenue, versus 81% in FY09. FY10 revenues increased by $25.9m or 30%, to $111.6m, compared to $85.7m in FY09. This increase in revenue was primarily attributable to the following: $12.4m from increased FUA, of which $5.6m related to acquired businesses $10.0m increase in fee revenue for accounting and tax services and other advisory services, mainly from the acquired businesses $5.1m from AERF and IDPS business, which was transferred from Perpetual Investments (ie nil impact at Group level), offset by a $1.6m reduction in interest income from operational cash flows. In FY10, revenue of $15.4m was earned from the following recently acquired businesses: Grosvenor Financial Services, acquired in September 2009 (nine months revenue of $4.6m in FY10 versus nil in FY09) Fordham Business Advisors, acquired in January 2010 (six months revenue of $10.8m in FY10 versus nil in FY09). Around $13.7m or 90% of the revenue from the acquired businesses was earned in 2H10, versus $1.7m or 10% in 1H10, reflecting both the timing and size of each of the acquisitions. Around $9.8m or 65% of the FY10 acquired revenue was non-FUA related. The main source for this non-FUA revenue was the Fordham Business Advisors acquisition which accounted for around 95%, predominantly accounting and tax services revenue.
operating expenses increased in FY10 by $21.7m or 42%, to $73.9m. This increase was attributable to the following: $12.9m from recently acquired businesses, predominantly personnel costs, of which around $1.1m was incurred in 1H10 and $11.8m was incurred in 2H10 $2.0m of integration and acquisition costs for the recently acquired businesses, of which around $0.9m and $1.1m were incurred in 1H10 and 2H10 respectively $6.8m relating mainly to increased personnel costs as the business continued to invest in organic growth initiatives. This included increasing the number of client facing staff and strengthening our advisory teams. In addition, the improved financial performance of the Group in FY10 compared to FY09 led to higher variable compensation. Depreciation and amortisation expense of $3.9m was incurred in FY10, compared to $2.4m in FY09. This increase of $1.5m was primarily due to $1.3m of amortisation of identifiable intangibles due to the Groups recent acquisitions. Equity remuneration expense of $1.2m was incurred in FY10 compared to $2.0m in FY09. The key driver for this decrease was the resignation of personnel whose unvested entitlements to shares and options under long-term incentive plans were forfeited, giving rise to a write-back of expense recognised in prior periods. In FY10, the Grosvenor and Fordham acquisitions both made a small positive contribution to the Groups financial performance after taking into account acquisition, integration, amortisation and depreciation charges.
Funds under advice (FUA)

FUA at end of Financial advisory: superannuation non-superannuation Fiduciary services: philanthropic trusts and estates 1.1 1.9 3.0 Total funds under advice 1 2 7.7 1.0 1.6 2.6 6.8 0.9 0.1 0.1 0.2 0.6 1.1 1.7 2.8 8.3 2.7 2.0 4.7 2.4 1.8 4.2 0.7 0.2 0.9 0.2 0.2 0.4 3.3 2.2 5.5 FY08 $b FY09 $b Net flows $b Acquired 1 $b Other 2 $b FY10 $b
Includes FUA acquired through the purchase of Grosvenor Financial Services in September 2009 and Fordham Business Advisors in January 2010. Includes reinvestments, distributions, income and asset growth.
Private Wealths FUA increased by 22% in FY10, driven by a combination of improved investment markets, FUA acquired from businesses purchased during the year and an improvement in net flows. At the end of FY10, around 55% of Private Wealths FUA was linked to equity market movements. Net flows improved in FY10, with neutral net flows compared to net outflows of around $0.2b in FY09. In FY10, there was an increase in gross inflows and a reduction in gross outflows compared to FY09. This improvement was driven by a combination of improved investor confidence and higher inflows from referrals from existing clients and leads generated through an enhanced alliance partner network. Private Wealth has continued to focus on executing initiatives to deliver on our vision of being the leading provider of wealth management services to financially successful Australians and their families. Inorganic initiatives are designed to deliver both scale and capability to Private Wealth. The businesses that we have acquired have allowed us to increase our capacity and ability to provide holistic service offerings to the high net worth client market. The Sydney-based Grosvenor acquisition in 1H10 enhanced the Groups knowledge, capability and understanding of the financial needs of the medical, dental and legal professions. The acquisition of Melbourne-based Fordham has added significant scale to our presence in Victoria and enhanced our national capability in the private business owner market, as well as our tax and accounting services. our organic initiatives aim to improve the quality of our service to clients and allow continued development of our processes and systems to increase efficiency levels and scalability. our investment in client facing staff has resulted in increased personnel costs, with limited growth in revenues in FY10. However, as new client facing staff become familiar with the Groups diverse product and service offerings as well as introduce new clients to the Group, we expect to see increased revenue. In FY10, there were a number of regulatory reviews related to the financial services industry. We believe our Private Wealth business remains especially well positioned given our holistic advisory offering, together with our focus on high net worth clients. our fiduciary duties to our clients have always been Corporate Trust financial summary
For the period ended Revenues operating expenses EBITDA Depreciation and amortisation Equity remuneration expense Profit before tax 1H09 $m 41.0 (19.3) 21.7 (1.6) (0.1) 20.0
paramount, evidenced by the delivery of impartial advice. In addition, our revenues are based on a fee for service model and not on trail commissions. We believe the organic investment in the business during FY10, together with our recent acquisitions, has improved the Groups capabilities and has enhanced the future prospects of the business.
Corporate Trust
Corporate Trust is a leading provider of corporate trustee, mortgage and transaction support services to the financial services industry. Products and services include trustee services for mortgage-backed and other securitisation programs for major banks and non-bank organisations; regulatory compliance services for fund managers; custody, unit registry and accounting services for property and mortgage funds; trusteeships for corporate debt issues, infrastructure projects and other structures; and mortgage processing services for financial institutions.
Financial summary
As detailed in the following table, Corporate Trusts profit before tax decreased 11% to $32.3m for FY10 compared to FY09. The $3.8m decrease in profit has been caused by: the $2.8m reduction of revenue within Trust and Fund Services, primarily as a result of a decline in RMBS FUA the investment to support the rapid growth of our Mortgage Services business primarily incurred in 2H10. our Mortgage Services business, which operates at a lower margin than the Trust and Fund Services business unit, has grown significantly during FY10. In order to support this revenue growth, Corporate Trust incurred significant one-off costs associated with establishing and rolling out initiatives to meet the substantial increase in demand for its service proposition. In 2H10, profit before tax decreased by 19% against 1H10 due to the aforementioned investment and client on-boarding costs associated with the Mortgage Services business unit to service the significant increase in volume. This increased investment in Mortgage Services, along with the decline in revenue of Trust and Fund Services, unfavourably impacted 2H10 earnings.
2H09 $m 39.3 (21.4) 17.9 (1.7) (0.1) 16.1
1H10 $m 41.6 (22.2) 19.4 (1.5) (0.1) 17.8
2H10 $m 45.9 (29.7) 6.2 (1.6) (0.1) 14.5
FY09 $m 80.3 (40.7) 9.6 (3.3) (0.2) 36.1
FY10 $m 87.5 (51.9) 5.6 (3.1) (0.2) 32.3
FY10 revenues increased 9% on FY09, to $87.5m, with 2H10 revenues up 17% on 2H09. Trust and Fund Services revenue declined due to the continued run-off of securitisation FUA. This was partially mitigated by new business growth within the Fund Services business and increased revenue in our Mortgage Services business as volumes increased through the year. The following table details the revenue split between Trust and Fund Services, and Mortgage Services:
Revenue for the period ended Trust and Fund Services Mortgage Services Revenues 1H09 $m 29.9 11.1 41.0 2H09 $m 28.5 10.8 39.3 1H10 $m 27.9 13.7 41.6 2H10 $m 27.7 18.2 45.9 FY09 $m 58.4 21.9 80.3 FY10 $m 55.6 31.9 87.5
FY10 operating expenses increased 28% to $51.9m from FY09 and were up 34% from 1H10 to 2H10, largely due to expansion within the Mortgage Services business to support new business volumes. Expenses also included approximately $2m in non-recurring costs as a result of taking on a number of new clients. The improved financial performance of the Group in FY10 compared to FY09 led to higher variable compensation expense. Cost savings achieved within prior years have been largely maintained through strong expense discipline. Funds under administration (FUA) As detailed in the following table, Corporate Trusts FUA at the end of FY10 decreased 13% to $210.5 billion compared to the end of FY09, with declines across all asset classes. The largest decline was seen in the CMBS and ABS markets, which still remain largely closed to new issuance.
At end of CMBS and ABS RMBS non-bank RMBS repos RMBS bank Total funds under administration 1H09 $b 52.2 71.0 29.2 70.5 222.9 FY09 $b 42.3 62.8 76.8 59.5 241.4 1H10 $b 31.8 57.7 81.2 51.7 222.4 FY10 $b 30.4 55.2 74.6 50.3 210.5
During FY10, Australian RMBS market conditions continued to improve, although they still remained subdued relative to the issuance levels experienced pre-GFC. The Australian Governments decision in November 2009 to extend its AoFM cornerstone investment programme with an additional $8.0b has had a positive influence on the market. Since the extension of the cornerstone investment programme, the AoFMs level of support via investment in new issuance has reduced in line with increased participation by other end investors. The other factor influencing the revival in the securitisation market in FY10 has been the contraction in credit spreads, particularly for RMBS, which is making RMBS a more affordable source of term funding for non-bank and regional bank lenders. This was evident by the upsizing of a number of deals, and the fact that in some cases AoFM support was not required. Run-off rates across existing RMBS still remained relatively high during FY10 as historically low interest rates have allowed borrowers to pay down more principal on their mortgages. However, with the RBA increasing the overnight cash rate from 3.0% in october 2009 to 4.5% in May 2010, there was a slowdown in run-off rates in 2H10. Mortgage Services our Mortgage Services business consists of two primary service offerings: Perpetual Lenders Mortgage Services (PLMS) and loan servicing. Revenue from Mortgage Services has increased from $10.8m and $13.7m in 2H09 and 1H10 respectively to $18.2m in 2H10, driven by the growth in business volumes within PLMS. This strong growth is evidenced by 2H10 volumes exceeding FY09 volumes, as shown in the table below.
Number of matters PLMS volumes 1H09 45,176 2H09 50,511 1H10 81,329 2H10 117,928 FY09 95,687 FY10 199,257
PLMS has continued to focus its growth strategy on the banking sector. Rapid operational expansion in PLMS has been necessary to deliver this strategy nationally, with FY10 incurring a number of expenses to allow for the expansion.
PLMS revenue split by customer Bank Non-bank 1H09 % 54 46 2H09 % 65 35 1H10 % 72 28 2H10 % 82 18 FY09 % 59 41 FY10 % 77 23
PLMS primary strategy is to continue to attract new clients, and deliver cost efficiencies and increased EBITDA margins through economies of scale. Delivering on this strategy has seen the revenue mix attributable to bank clients continue to grow as a proportion of total PLMS revenue, driven by new business. Regional and foreign banks as well as the non-bank sector remain important client bases for the PLMS business.
Group and Support Services

Group and Support Services includes the CEo and Board and covers functions that provide support to the broader Group, including Group Finance, Strategy, operations, Risk, People and Culture, Group Marketing, Media and Investor Relations, and Company Secretariat. Group and Support Services financial summary
For the period ended Revenues operating expenses EBITDA Depreciation and amortisation Equity remuneration expense Interest expense Profit/(loss) before tax 1H09 $m 3.2 (12.7) (9.5) (1.1) 1.2 (1.6) (11.0) 2H09 $m 2.9 (15.7) (12.8) (1.0) (0.3) (0.9) (15.0) 1H10 $m 5.2 (17.4) (12.2) (1.2) (0.6) (1.2) (15.2) 2H10 $m 5.1 (16.6) (11.5) (1.2) 0.2 (1.6) (14.1) FY09 $m 6.1 (28.4) (22.3) (2.1) 0.9 (2.5) (26.0) FY10 $m 10.3 (34.0) (23.7) (2.4) (0.4) (2.8) (29.3)
Revenue from the Groups cash and principal investments increased in FY10 compared to FY09, predominantly due to the tightening of credit spreads within the Groups cash enhanced credit investments and additional interest revenue associated with rising short-term rates and increased cash balances. Expenses increased in FY10 against FY09, primarily due to the current period accruing a higher level of variable compensation payments for staff in response to the improved financial performance in FY10. The FY10 expense base also includes an increase in costs to support business development in Private Wealth and Corporate Trust and the cost associated with the brand marketing campaign undertaken in FY10.
Total Group expenses

Total Group expenses increased by 15% to $318.6m in FY10 compared to FY09. The increase was led by investment in new business initiatives and acquisitions. The Group has made several acquisitions in FY09 and FY10, namely smartsuper, Financial Pursuit, Grosvenor Financial Services and Fordham Business Associates. These have increased the FY10 cost base as well as operating revenues. Business development within Corporate Trust, via its PLMS business, increased in response to higher demand for its mortgage services. Private Wealth also increased the number of client facing staff and investment specialists in addition to its acquisitions. Movement in Group expenses
For the period ended Employment occupancy Administration & general other intangibles Total expenses 1H09 $m (87.3) (8.5) (36.0) (0.7) (132.5) 2H09 $m (95.5) (8.5) (39.5) (0.9) (144.4) 1H10 $m (100.0) (8.2) (36.7) (1.2) (146.1) 2H10 $m (122.2) (10.5) (37.7) (2.1) (172.5) FY09 $m (182.8) (17.0) (75.5) (1.6) (276.9) FY10 $m (222.2) (18.7) (74.4) (3.3) (318.6)
The key drivers of this increase in Group expenses in FY10 are set out in the following table.
$m FY09 expenses Private Wealth acquisitions including $2.0m of acquisition and integration costs Increased costs associated with uplift in Mortgage Services including around $2m of one-off costs Increase in variable remuneration as a result of improved Group financial performance and increase in base remuneration Increase in organic Private Wealth initiatives Brand marketing Increase in registry fees Increase in amortisation of other identifiable intangibles Increase in various other expenses Net reduction in operational errors FY10 expenses 276.9 14.8 11.1 9.8 4.7 1.9 1.8 1.7 1.4 (5.5) 318.6
Increased employment costs in FY10 reflect the growth in employees resulting from acquisitions and business initiatives, as well as an increase in variable compensation. Increases to base remuneration were limited to approximately 1% in FY10.
Increased occupancy costs in FY10 reflect the impact of acquisitions and additional premises required to support new business initiatives. Administration and general expenses were broadly unchanged in FY10. FY09 expenses were adversely impacted by net unit pricing errors totalling $6.5m, compared to a net $1.0m in FY10. Amortisation expense related to other intangibles increased in FY10 as a result of recently completed acquisitions. This gave rise to an increase in identifiable intangible assets carried on the Groups balance sheet that are subject to amortisation.
Tax expense
Perpetuals average tax rate in FY10 was 32.4% (FY09: 33.1%), calculated from UPBT. The average tax rate is higher than the Australian corporate tax rate of 30%, mainly due to the non-deductibility of the amortisation expense of acquired intangible assets in the Australian operations and the impact of losses from overseas operations not being recognised as deferred tax assets.
Significant Items
The Group separately discloses items that were material to the financial performance of the Group, but are considered to be either non-recurring or not part of the operating result as a significant item. Significant items are excluded from UPAT.
Profit/(Loss) Before Tax For the period ended Significant items: 1. EMCF gains/(losses) 2. Gain/(loss) on sale/impairment of investments 3. Restructuring costs Total significant items (21.3) (5.9) (12.0) (39.2) 1.6 (1.8) 0.4 0.2 15.8 2.5 18.3 13.2 (6.0) 7.2 (19.7) (7.7) (11.6) (39.0) 29.0 (3.5) 25.5 1H09 $m 2H09 $m 1H10 $m 2H10 $m FY09 $m FY10 $m
Profit/(Loss) After Tax For the period ended Significant items: 1. EMCF gains/(losses) 2. Gain/(loss) on sale/impairment of investments 3. Restructuring costs Total significant items (14.9) (4.1) (8.4) (27.4) 1.1 (2.0) 0.3 (0.6) 11.1 1.7 12.8 9.2 (4.3) 4.9 (13.8) (6.1) (8.1) (28.0) 20.3 (2.6) 17.7 1H09 $m 2H09 $m 1H10 $m 2H10 $m FY09 $m FY10 $m
1. Perpetual Exact Market Cash Funds (EMCF)

The EMCF products are investment funds managed by the Group that invest in a diversified portfolio of cash and credit securities, offering investors a guaranteed return linked to the UBS Bank Bill Index. The Group delivers the guaranteed return to investors via a swap agreement.
For the 6 months ended EMCF1 impact on financial performance1: realised losses hedging gains/(losses) mark-to-market losses versus benchmark hold to maturity gains versus benchmark Profit/(loss) before tax Tax benefit/(expense) Profit/(loss) after tax 1 (3.0) 0.1 (18.4) (21.3) 6.4 (14.9) (1.0) 3.9 (9.0) 7.7 1.6 (0.5) 1.1 15.8 15.8 (4.7) 11.1 13.2 13.2 (4.0) 9.2 (4.0) 4.0 (27.4) 7.7 (19.7) 5.9 (13.8) 29.0 29.0 (8.7) 20.3 1H09 $m 2H09 $m 1H10 $m 2H10 $m FY09 $m FY10 $m
Under the swap agreement, over and underperformance against the index is cash settled on a monthly basis between the Group and the EMCF.
In March 2009, the Group announced a change to the swap agreement valuation methodology between EMCF1 and Perpetual. The underlying investments are now valued on a hold-to-maturity basis for unit pricing purposes, which is consistent with the way in which Perpetual now manages the portfolio. The underlying assets for EMCF1 were valued at their fair value at the date of change, which for many assets was at a discount to their maturity value. The discount to maturity value will be amortised over the remaining term of the assets. This change in valuation methodology has no impact on the investment returns to investors in EMCF1. As investments mature in EMCF1, proceeds are currently being reinvested in bank bills or cash, in line with the Groups decision to reduce risk on its balance sheet. As assets in the portfolio mature, the unrealised mark-to-market losses recorded in prior years are being recovered. The reduction in assets in EMCF1 has been partially offset by the increase in assets in EMCF2.
The majority of the unrealised mark-to-market losses from prior periods in the EMCF1 portfolio are expected to be recovered as the portfolio matures, particularly in the remainder of calendar 2010 and 2011, as the average maturity of the portfolio is around 1.7 years. The recovery rate is expected to decline over time based on the maturity profile.
EMCF liabilities at end of EMCF1 EMCF2 Total EMCF liabilities 1H09 $m 1,753.9 338.0 2,091.9 FY09 $m 1,089.3 409.0 1,498.3 1H10 $m 808.4 472.8 1,281.2 FY10 $m 695.1 495.2 1,190.3
Total funds invested in the EMCF products have reduced over the last 12 months by around 26% and by 43% over the last 18 months. Since the end of 1H09, the EMCF1 has reduced by over 60%, whilst the EMCF2 has experienced growth of around 47%. At the end of FY10, the carrying value of EMCF1 assets was $693.2m (compared to $1,086.0m at the end of FY09) and was a deficit to the fair value of its liabilities by $1.9m, compared to a deficit of $3.3m at the end of FY09. EMCF2 was established in July 2008. It has a similar structure to EMCF1 but, in addition, there are specific rules that govern the withdrawal of funds. EMCF2 assets are held on a hold-to-maturity basis for unit pricing purposes. There has been no change since its inception. At the end of FY10, the carrying value of EMCF2 assets was $497.8m (compared to $409.8m at the end of FY09), which exceeded their liabilities by $2.6m, compared to an excess of $0.8m at the end of FY09. The financial performance of EMCF2 is reported in the cash and fixed interest asset class in Perpetual Investments.
2. Gain/(loss) on sale/impairment of investments

For the period ended Profit/(loss) on sale of part of investment portfolio/seed funds Impairment of available for sale securities Total profit/(loss) before tax on sale/impairment of investments Income tax benefit/(expense) Total profit/(loss) after tax on sale/impairment of investments 1H09 $m (5.2) (0.7) (5.9) 1.8 (4.1) 2H09 $m (1.4) (0.4) (1.8) (0.2) (2.0) 1H10 $m 2.8 (0.3) 2.5 (0.8) 1.7 2H10 $m 0.8 (6.8) (6.0) 1.7 (4.3) FY09 $m (6.6) (1.1) (7.7) 1.6 (6.1) FY10 $m 3.6 (7.1) (3.5) 0.9 (2.6)
Loss on sale/impairment of investments in FY10 was $2.6m after tax, comparing favourably to a $6.1m loss in FY09. In FY10, certain assets classified as available for sale became impaired. This resulted in a cumulative loss of $7.1m before tax, previously recognised in the available for sale reserve to be transferred to the profit and loss statement, offset by a credit to the available for sale reserve. These losses primarily related to seed investments from discontinued businesses. Some of these assets have been subsequently disposed of post 30 June 2010 at a price equal to the FY10 mark-to-market valuation.
have sufficient capital resources to take advantage of inorganic growth opportunities as they arise. The Group uses a risk-based capital model based on the Basel II framework to assess its capital requirements. The model requires capital to be set aside for operational, credit and market risk and any known capital commitments. The amount of economic capital assessed by the model exceeds the Groups $62.6m of regulatory capital needs by more than two times. At the end of FY10, total economic capital requirements were $141m, compared to $212m of available liquid funds. The Group maintains a conservative balance sheet, which has continued to be de-risked following the difficult trading environment experienced in prior periods. During FY10, the Group has continued to execute a number of strategies to strengthen its balance sheet, including: Finalisation of the transition to a policy of paying dividends within a range of 80-100% of NPAT on an annualised basis, with a goal to maximise fully franked dividends. This policy ensures that dividends do not exceed current year earnings. The FY10 dividend payout ratio was 99.8%. Initiation of a new DRP, commencing with the payment of the final dividend of FY09 in 1H10, and satisfying of the DRP demand of around 13% of the total dividend through the issue of new shares. Satisfying of the DRP demand for the FY10 interim dividend by issuing new shares to participants.
3. Restructuring costs
No restructuring costs were incurred in FY10. In FY09, the Group responded to falling revenues and declining profitability by reducing its largely fixed cost base. In FY09, costs totalling $8.1m after tax to implement the restructure were disclosed as a significant item outside UPAT.
Capital management
The Group manages its capital and liquidity to sustain a strong and flexible balance sheet. We have adopted this conservative and prudent policy to ensure we: can efficiently support all of our businesses can hold capital to provide for uncertainty and operational risk that resides within our businesses can maintain adequate liquidity to ensure financial flexibility, such as not being reliant and restricted by capital supplied by debt financiers
Increase of the committed debt facility from our long-term banking partner from $45.0m to $70.0m in July 2009. The additional $25.0m remains undrawn as at 24 August 2010. Continued improvement of the overall credit quality and liquidity of the Groups risk assets and continued reduction of exposure to structured products on the balance sheet. Focus on ensuring strong discretionary expense discipline across each business unit and support group.
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.
Interest rate risk

Perpetuals balance sheet is subject to interest rate risk. The Group generates positive cash flows from operations from a relatively light capital structure. Cash balances are held in high quality credit and highly liquid investment funds managed by the Group. These investments generally invest in short-term assets and earn a variable interest rate. Perpetual has both corporate and operational debt facilities. The corporate facility has a variable interest rate. As at 24 August 2010, there are no interest rate hedges against the drawn portion ($45.0m) of this facility. operational debt facilities are used to finance customers into capital protected investment products. The facilities are a combination of fixed and variable rate borrowings used to finance a combination of fixed and variable structured product loans. To minimise interest rate risk between these fixed rate assets and variable rate liabilities, management uses interest rate swaps to broadly match fixed rate assets to floating rate liabilities.
Market risk
The Groups 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 FY10, a 1% movement in the market changes annualised revenue by approximately $2.0m to $2.5m. It is worth noting 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 market and non-equity market-sensitive asset classes.
Operational risk
operational risk is the risk arising from the daily functioning of the Groups businesses. operational risk is mitigated through internal controls, active management overview and regular reviews by our independent Risk Group function. Each business and support head is responsible for identifying risks within their businesses and ensuring they are appropriately managed. The Risk Group assists 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 it is within an accepted risk tolerance range, and that all organic and inorganic business initiatives are consistent with the Groups strategy and conducted ethically, responsibly and with the highest degree of integrity. The Boards oversight of risk management is assisted by the Audit Risk and Compliance Committee (ARCC). ARCCs 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. During FY09, the Group identified a number of operational errors. The Group has strengthened its operations functions to enhance its fund accounting team and created a policies and procedures team whose function is to review all existing operational processes, implement control and procedural changes as required and ensure robust controls are established for new products. In FY10, the Group continued its review of all existing operational processes and controls and it identified some further operational errors to the value of approximately $5.5m. However, this was offset by a $4.5m reduction in the FY09 errors, leaving net operational errors in FY10 of $1.0m. In addition, the review process discovered some additional revenue items of $0.8m, which further reduced the profit before tax impact to a net $0.2m. This compared to $12.8m of total errors reported in FY09.
Credit risk
Credit risk is the risk of default and change in the credit quality of issuers of securities, counterparties and intermediaries to whom the Group has exposure. The Group is subject to credit risk in the following areas of its business: All cash and cash equivalent balances are subject to credit risk as they represent deposits made by the Group with external banks and other institutions. We primarily invest our corporate cash balances in cash funds managed by the Group. The Group is exposed to the performance of assets held in the EMCF products through a swap agreement, where the Group pays a return based on the UBS Bank Bill Index and receives the return on the underlying portfolio, which contains credit and market risks. The Group is exposed to credit risk on its loan assets to PPI customers. This risk is generally limited to 6% of the outstanding loan book for Series 1 and 2, and 7% of the outstanding loan book for Series 3 as the borrowings used to fund these loans are limited recourse in nature. The Group limits the number of counterparties upon which we are willing to take credit risk. This can lead to concentrations of credit risk. We do not expect any counterparties to fail to meet their obligations beyond what has been provided for in the carrying value of those assets.
Financial strength
At end of Total equity Cash Corporate debt Net cash Corporate debt to capital ratio (corporate debt/(corporate debt + equity))1 Interest coverage calculation (EBITDA/interest expense)2 for the period ended Net tangible assets per share 1 2 $m $m $m $m % times $ 1H09 261.0 107.7 (45.0) 62.7 14.7 51x 3.15 2H09 290.0 146.1 (45.0) 101.1 13.4 61x 3.51 1H10 347.5 179.0 (45.0) 134.0 11.5 63x 4.52 2H10 361.0 187.5 (45.0) 142.5 11.1 48x 3.95 FY09 290.0 146.1 (45.0) 101.1 13.4 54x 3.51 FY10 361.0 187.5 (45.0) 142.5 11.1 54x 3.95
Excludes structured product funding, which is operational debt used to fund PPI loans. EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items.
At the end of FY10, Perpetuals gross corporate debt was $45.0m. The Groups corporate debt to capital ratio remains low at 11.1% and is well within its stated risk appetite limit of 30%. FY10 interest coverage at 54 times, unchanged from FY09, was also 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 FY10, we were in compliance with all of our debt covenants. Corporate debt of $45.0m is currently sourced solely from domestic banks and is presently limited to one provider, a long-term banking relationship.
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. The Group increased its existing committed bank corporate debt facility during July 2009 to $70.0m from $45.0m to further strengthen its liquidity position. At 24 August 2010, $25.0m remains undrawn. Net tangible assets per share increased from $3.51 at the end of FY09 to $3.95 at the end of FY10.
Cash flow
For the period ended Net cash from operating activities Net cash provided by/(used in) investing activities Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents 1H09 $m 9.4 (26.3) (58.5) (75.4) 2H09 $m 53.3 2.1 (17.0) 38.4 1H10 $m 65.6 (9.5) (23.3) 32.8 2H10 $m 87.0 (38.8) (39.6) 8.6 FY09 $m 62.7 (24.2) (75.5) (37.0) FY10 $m 152.6 (48.3) (62.9) 41.4
FY10 operating cash flows of $152.6m, versus $62.7m in FY09, represent the underlying cash flows from the operating businesses, including significant items. operating cash flows increased in FY10 in line with the overall improvement in the Groups financial performance, reflecting both the improved operating environment and the recovery of prior year losses of the EMCF. Cash flows used in investing activities include seed fund investments, capital expenditure within the Group, mainly on software, and the acquisition of new businesses such as smartsuper in 1H09, Financial Pursuit in 2H09, Grosvenor Financial Services in 1H10 and Fordham Business Advisors in 2H10. Net cash used in investing activities increased by $24.1m in FY10, primarily reflecting the additional cash resources used to fund business acquisitions in Private Wealth.
Cash used in financing activities principally relates to the payment of the Groups dividends and share transactions involving cash. Cash flow analysis captures the dividend in the reporting period in which it is paid, not the period in which the profit was earned, ie the FY08 final dividend of $59.2m was paid in 1H09, the FY09 interim dividend of $17.0m was paid in 2H09, the FY09 final net cash dividend1 of $22.2m was paid in 1H10, and the FY10 net cash interim dividend2 of $39.4m was paid in 2H10. Cash used in financing activities declined by $12.6m to $62.9m in comparison to FY09. This reduction was principally driven by a reduction in cash dividends paid during the year in response to the transition to the revised dividend policy and the Group issuing new shares to satisfy demand from DRP participants.
1 2
Total dividend paid was $25.5m; however, $3.3m was paid in the form of new shares issued to shareholders who elected to participate in the Companys Dividend Reinvestment Plan. Total dividend paid was $45.4m; however $6.0m was paid in the form of new shares issued to shareholders who elected to participate in the Companys Dividend Reinvestment Plan.
Summary Consolidated Balance Sheet

At end of Assets Cash and cash equivalents Liquid investments Structured products PPI loans to customers Goodwill and other intangibles Software intangibles other assets Total assets Liabilities Corporate loan facility Structured products PPI finance facilities other liabilities Total liabilities Net assets Shareholder funds Contributed equity Reserves Retained earnings Total shareholder funds Minority interest Total equity 1 168.8 24.6 64.6 258.0 3.0 261.0 174.2 43.3 72.4 289.9 0.1 290.0 199.0 49.6 97.8 346.4 1.1 347.5 206.0 56.9 96.5 359.4 1.6 361.0 45.0 330.7 129.8 505.5 261.0 45.0 318.7 120.9 484.6 290.0 45.0 202.7 107.7 355.4 347.5 45.0 189.6 154.9 389.5 361.0 107.7 60.5 340.6 81.3 23.2 153.2 766.5 146.1 36.7 319.7 86.2 26.5 159.4 774.6 179.0 47.6 199.4 104.4 27.4 145.1 702.9 187.5 49.9 188.8 134.9 28.6 160.8 750.5 1H091 $m FY091 $m 1H101 $m FY101 $m
Note: excludes the offsetting asset and liability for the EMCF structured product, which was $2,091.9m in 1H09. At 2H09, the EMCF asset was $1,495.8m, with the liability being $1,498.3m. At 1H10, the EMCF asset was $1,285.3m, with the liability being $1,281.2m. At 2H10, the EMCF asset was $1,191.1m, with the liability being $1,190.3m. The net liability of $2.5m at FY09 has been included above within other liabilities and $4.1m at 1H10 and $0.7m at FY10 with other assets.
Cash and cash equivalents continued to increase during FY10, with increased cash flows from operations and EMCF profits offset by the acquisitions of Grosvenor Financial Services and Fordham Business Advisors. Liquid investments increased due to the combination of the rise in equity markets and the seeding of new managed fund investments. Structured product loans to customers declined in FY10 due to loan repayments from customers. Most repayments occurred in August 2009. This, in turn, has reduced the PPI finance facility liability by a similar amount. Goodwill and other intangibles have increased during FY10 with the acquisition of Grosvenor Financial Services and Fordham Business Advisors. other intangibles are amortised over their useful life. Net tangible assets increased from $149.1m at the end of FY09 to $171.5m at the end of FY10, reflecting an increase in issued capital, total comprehensive income in excess of dividends paid and favourable movements in reserves less increases in net intangible assets that occurred through the year. Management conducted an impairment review of all non-financial assets at the end of FY10 and determined that no impairment charges were required.
The expected amortisation for FY11 and the next three financial years of existing identifiable intangible assets that have arisen in recent acquisitions is as follows:
FY11 $m Amortisation of identifiable intangibles1 1 3.7 FY12 $m 3.1 FY13 $m 2.4 FY14 $m 2.4
Based on $21.3m net book value at end FY10.
As the Group continues 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. Contributed equity increased during FY10 due to shares being issued under the DRP on the FY09 final dividend and the FY10 interim dividend, the acquisition of Grosvenor Financial Services and the issue of shares as employee share plans have vested. The minority interest comprises third party interests in consolidated funds managed by the Group.
Appendix A: Segment results

For the period ended 1H09 $m Perpetual Investments Private Wealth Corporate Trust Group and Support Services Underlying profit before tax and significant items Income tax expense Underlying profit after tax (UPAT)2 before significant items Significant items: EMCF gains/(losses) Gain/(loss) on sale/impairment of investments Restructuring costs Net profit after tax (NPAT) attributable to Perpetual Limited ordinary equity holders 1 2 EBITDA represents earnings before interest, taxation, depreciation, amortisation of intangible assets, equity remuneration expense and significant items. Underlying profit after tax (UPAT) excludes certain items that are either significant by virtue of their size and impact on net profit after tax, or are one-off in nature. UPAT has been calculated in accordance with the guidelines issued by the AICD and Finsia. 105.4 45.0 41.0 3.2 194.6 2H09 $m 97.6 40.7 39.3 2.9 180.5 Operating revenue 1H10 $m 105.9 47.4 41.6 5.2 200.1 2H10 $m 111.0 64.2 45.9 5.1 226.2 FY09 $m 203.0 85.7 80.3 6.1 375.1 FY10 $m 216.9 111.6 87.5 10.3 426.3
EBITDA1 1H09 $m 49.1 19.7 21.7 (9.5) 81.0 2H09 $m 35.8 13.8 17.9 (12.8) 54.7 1H10 $m 51.5 16.8 19.4 (12.2) 75.5 2H10 $m 50.9 20.9 16.2 (11.5) 76.5 FY09 $m 84.9 33.5 39.6 (22.3) 135.7 FY10 $m 102.4 37.7 35.6 (23.7) 152.0 1H09 $m 35.7 17.4 20.0 (11.0) 62.1 (20.5) 41.6 2H09 $m 23.3 11.7 16.1 (15.0) 36.1 (12.0) 24.1
Profit before/after tax 1H10 $m 36.9 14.5 17.8 (15.2) 54.0 (17.6) 36.4 2H10 $m 35.2 18.1 14.5 (14.1) 53.7 (17.3) 36.4 FY09 $m 59.0 29.1 36.1 (26.0) 98.2 (32.5) 65.7 FY10 $m 72.1 32.6 32.3 (29.3) 107.7 (34.9) 72.8
(14.9) (4.1) (8.4) 14.2
1.1 (2.0) 0.3 23.5
11.1 1.7 49.2
9.2 (4.3) 41.3
(13.8) (6.1) (8.1) 37.7
20.3 (2.6) 90.5
Analysis of segment results

1H10 PI $m operating revenue operating expenses EBITDA Depreciation & amortisation Equity remuneration EBIT Interest expense UPBT 105.9 (54.4) 51.5 (2.9) (11.7) 36.9 36.9 PW $m 47.4 (30.6) 16.8 (1.4) (0.9) 14.5 14.5 CT $m 41.6 (22.2) 19.4 (1.5) (0.1) 17.8 17.8 Group & SS $m 5.2 (17.4) (12.2) (1.2) (0.6) (14.0) (1.2) (15.2) Total $m 200.1 (124.6) 75.5 (7.0) (13.3) 55.2 (1.2) 54.0
1H09 PI $m operating revenue operating expenses EBITDA Depreciation & amortisation Equity remuneration EBIT Interest expense UPBT 105.4 (56.3) 49.1 (2.3) (11.1) 35.7 35.7 PW $m 45.0 (25.3) 19.7 (1.1) (1.2) 17.4 17.4 CT $m 41.0 (19.3) 21.7 (1.6) (0.1) 20.0 20.0 Group & SS $m 3.2 (12.7) (9.5) (1.1) 1.2 (9.4) (1.6) (11.0) Total $m 194.6 (113.6) 81.0 (6.1) (11.2) 63.7 (1.6) 62.1
PI = Perpetual Investments
PW = Private Wealth
CT = Corporate Trust
Group & SS = Group & Support Services
2H10 PI $m 111.0 (60.1) 50.9 (2.4) (13.3) 35.2 35.2 PW $m 64.2 (43.3) 20.9 (2.5) (0.3) 18.1 18.1 CT $m 45.9 (29.7) 16.2 (1.6) (0.1) 14.5 14.5 Group & SS $m 5.1 (16.6) (11.5) (1.2) 0.2 (12.5) (1.6) (14.1) Total $m 226.2 (149.7) 76.5 (7.7) (13.5) 55.3 (1.6) 53.7 PI $m 216.9 (114.5) 102.4 (5.3) (25.0) 72.1 72.1 PW $m 111.6 (73.9) 37.7 (3.9) (1.2) 32.6 32.6
FY10 CT $m 87.5 (51.9) 35.6 (3.1) (0.2) 32.3 32.3 Group & SS $m 10.3 (34.0) (23.7) (2.4) (0.4) (26.5) (2.8) (29.3) Total $m 426.3 (274.3) 152.0 (14.7) (26.8) 110.5 (2.8) 107.7
2H09 PI $m 97.6 (61.8) 35.8 (3.1) (9.4) 23.3 23.3 PW $m 40.7 (26.9) 13.8 (1.3) (0.8) 11.7 11.7 CT $m 39.3 (21.4) 17.9 (1.7) (0.1) 16.1 16.1 Group & SS $m 2.9 (15.7) (12.8) (1.0) (0.3) (14.1) (0.9) (15.0) Total $m 180.5 (125.8) 54.7 (7.1) (10.6) 37.0 (0.9) 36.1 PI $m 203.0 (118.1) 84.9 (5.4) (20.5) 59.0 59.0 PW $m 85.7 (52.2) 33.5 (2.4) (2.0) 29.1 29.1
FY09 CT $m 80.3 (40.7) 39.6 (3.3) (0.2) 36.1 36.1 Group & SS $m 6.1 (28.4) (22.3) (2.1) 0.9 (23.5) (2.5) (26.0) Total $m 375.1 (239.4) 135.7 (13.2) (21.8) 100.7 (2.5) 98.2
Appendix B: Average FUM

Average FUM Australian equities Global equities Quantitative investments Equities Cash and fixed interest other Total 1H08 $b 25.4 1.7 1.4 28.5 9.3 1.0 38.8 2H08 $b 21.0 1.4 1.4 23.8 8.2 1.2 33.2 1H09 $b 16.9 1.2 1.2 19.3 7.9 1.2 28.4 2H09 $b 13.8 1.1 1.0 15.9 7.6 1.1 24.6 1H10 $b 17.8 1.3 0.9 20.0 7.3 1.1 28.4 2H10 $b 18.7 1.3 0.4 20.4 6.8 1.2 28.4 FY09 $b 15.3 1.2 1.1 17.6 7.7 1.2 26.5 FY10 $b 18.3 1.3 0.6 20.2 7.0 1.2 28.4 % change 20% 8% -45% 15% -9% 0% 7%
Glossary for managements discussion and analysis

1H08 1H09 1H10 2H08 2H09 2H10 ABS ADI AERF Six months ended 31 December 2007 Six months ended 31 December 2008 Six months ended 31 December 2009 Six months ended 30 June 2008 Six months ended 30 June 2009 Six months ended 30 June 2010 Asset backed securities Approved deposit-taking institution Australian Eligible Rollover Fund, which is a superannuation fund that accepts member benefits from other superannuation funds for people who may have been lost by that fund or are no longer eligible for membership of that fund Australian Institute of Company Directors S&P ASX All ordinaries Price Index EUR Finsia FTE FUA FUM FY08 FY09 FY10 FY11 Euro currency unit Financial Services Institute of Australasia Full time equivalent Funds under advice or funds under administration Funds under management 12 months ended 30 June 2008 12 months ended 30 June 2009 12 months ended 30 June 2010 12 months ended 30 June 2011
AICD All ords
GFC Group
Global Financial Crisis Perpetual Limited and its controlled entities (the consolidated entity) and the consolidated entitys interests in associates Investor Direct Portfolio Services Long-term incentive Million Mark-to-market Net profit after tax Perpetual Lenders Mortgage Services Perpetual Protected Investments Reserve Bank of Australia Residential mortgage backed securities Return on equity Small APRA fund Self managed superannuation fund Total shareholder return
Alpha AoFM APRA ARCC ASX AUD b bps CMBS CPPI DPS DRP EBITDA
outperformance relative to benchmark Australian office of Financial Management Australian Prudential Regulation Authority Audit Risk and Compliance Committee Australian Securities Exchange Australian dollar Billion Basis point (0.01 of 1%) Commercial mortgage backed securities Constant proportion portfolio insurance Dividend(s) per share Dividend Reinvestment Plan Earnings before tax, depreciation and amortisation of intangible assets, equity remuneration expense and significant items Perpetual Exact Market Cash Fund Earnings per share
IDPS LTI m MTM NPAT PLMS PPI RBA RMBS RoE SAF SMSF TSR
EMCF EPS
UPAT
Underlying profit after tax
financial statements
Financial statements of Perpetual Limited and its controlled entities for the year ended 30 June 2010
Table of contents Page no.
statement of comprehensive Income ..........................................................................89 balance sheet ............................................................................................................................... 91 statement of changes in equity .......................................................................................92 cash flow statement ..............................................................................................................94 notes to the financial statements
Note 1. Note 2. Note 3. Note 4. Note 5. Note 6. Note 7. Note 8. Note 9. Note 10. Note 11. Note 12. Note 13. Note 14. Note 15. Note 16. Note 17. Note 18. Note 19. Note 20. Note 21. Note 22. Note 23. Note 24. Note 25. Note 26. Note 27. Note 28. Note 29. Note 30. Note 31. Note 32. Note 33. Note 34. Note 35. Note 36. Note 37. Note 38. Reporting entity .............................................................................................................. 95 Summary of significant accounting policies ................................................................... 95 Revenue ........................................................................................................................ 105 Net profit before tax ..................................................................................................... 105 Individually significant items included in profit for the year ............................................ 105 Segment information ..................................................................................................... 106 Auditors remuneration .................................................................................................. 107 Income tax expense...................................................................................................... 108 Deferred tax assets/(liabilities) ....................................................................................... 109 Dividends .......................................................................................................................111 Earnings per share .........................................................................................................112 Cash and cash equivalents ............................................................................................112 Receivables ...................................................................................................................113 other financial assets .....................................................................................................113 Interest in associates using the equity method ..............................................................114 Derivative financial instruments .....................................................................................114 Property, plant and equipment.......................................................................................115 Intangibles .....................................................................................................................115 Prepayments ..................................................................................................................116 Payables .......................................................................................................................117 Structured products - income received in advance ......................................................117 Non-current interest-bearing liabilities ............................................................................117 Provisions ......................................................................................................................117 Contributed equity .........................................................................................................118 Reserves .......................................................................................................................119 Employee benefits .........................................................................................................119 Financial arrangements ................................................................................................ 122 Financial risk management ........................................................................................... 122 Structured products assets and liabilities...................................................................... 128 Commitments .............................................................................................................. 130 Contingencies ............................................................................................................... 130 Related parties ............................................................................................................. 130 Controlled entities ........................................................................................................ 131 Parent entity disclosures ............................................................................................... 133 Notes to the Cash Flow Statement ............................................................................... 134 Business combinations ................................................................................................. 134 Subsequent events ....................................................................................................... 136 Remuneration details provided as part of the financial report ....................................... 138
directors declaration ............................................................................................................. 144 Independent auditors report to the members of Perpetual limited ................................................................................................................ 145 securities exchange and investor information ..................................................... 146
Statement of Comprehensive Income for the year ended 30 June 2010

Consolidated Note 2010 $000 Revenue from the provision of services Income from structured products Investment income 3 407,923 83,595 14,422 505,940 2009 $000 365,528 107,440 9,570 482,538
Staff related expenses excluding equity remuneration expense occupancy expenses Administrative and general expenses Distributions and expenses relating to structured products
(195,441) (18,734) (60,076)
(168,584) (17,019) (61,423)
(50,606) Earnings before interest, tax, depreciation, amortisation, equity remuneration expense, profit/(loss) on disposal of investments, impairment of available-for-sale securities and share of profit/ (loss) of equity accounted investees
(127,169)
181,083
108,343
Financing costs Equity remuneration expense Depreciation and amortisation expense 4 4
(2,772) (26,755) (14,857) (44,384)
(2,507) (25,930) (13,163) (41,600)
Proceeds from sale of investments Cost of investments disposed Profit/(loss) on disposal of investments 5
36,977 (33,064) 3,913
60,328 (67,001) (6,673)
Impairment of available-for-sale securities
(7,085)
(1,065)
Share of profit/(loss) of equity accounted investees, net of income tax
(16)
111
Net profit before tax
133,511
59,116
Income tax expense Income tax benefit on disposal of investments Income tax expense 8
(43,573) 784 (42,789)
(23,082) 1,657 (21,425)
Net profit after tax
90,722
37,691
(Profit)/loss after tax attributable to non-controlling interests
(216)
58
Net profit after tax attributable to equity holders of Perpetual Limited
90,506
37,749
The Statement of Comprehensive Income is to be read in conjunction with the Notes to the Financial Statements set out on pages 95 to 143.
Statement of Comprehensive Income for the year ended 30 June 2010 (continued)
Consolidated Note Net profit after tax other comprehensive income/(expense), net of tax Available-for-sale reserve Reclassification of available-for-sale financial assets upon impairment Reclassification of previously impaired available-for-sale financial assets upon disposal Net change in fair value of available-for-sale financial assets Cash flow hedge reserve Effective portion of changes in fair value of cash flow hedges Foreign currency reserve Foreign exchange translation differences Other comprehensive income/(expense), net of income tax Total comprehensive income Total comprehensive income is attributable to: Non-controlling interests Equity holders of Perpetual Limited Total comprehensive income Basic earnings per share attributable to ordinary equity holders cents per share Diluted earnings per share attributable to ordinary equity holders cents per share 11 216 94,838 95,054 227.1 (58) 25,424 25,366 96.0 (2,856) 4,332 95,054 197 (12,325) 25,366 301 (3,599) 5,259 (423) 2,051 1,065 (2,279) (7,709) 2010 $000 90,722 2009 $000 37,691
11
210.5
89.4
The Statement of Comprehensive Income is to be read in conjunction with the Notes to the Financial Statements set out on pages 95 to 143.
Balance Sheet as at 30 June 2010

Consolidated Note Current assets Cash and cash equivalents Receivables other financial assets Structured products EMCF assets Structured products receivable from investors Derivative financial instruments Prepayments Total current assets Non-current assets Receivables Interest in associates using the equity method Shares in other companies, investments in unlisted unit trusts and other financial assets Structured products loans receivable Property, plant and equipment Intangibles Deferred tax assets Prepayments Total non-current assets Total assets Current liabilities Payables Structured products EMCF liabilities Structured products interest-bearing liabilities Structured products income received in advance Derivative financial instruments Current tax liabilities Employee benefits Provisions Total current liabilities Non-current liabilities Payables Interest-bearing liabilities Structured products interest-bearing liabilities Deferred tax liabilities Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Retained earnings Total equity attributable to holders of Perpetual Limited Non-controlling interest Total equity 24 25 206,017 56,861 96,494 359,372 1,652 361,024 174,222 43,298 72,413 289,933 108 290,041 20 22 29 9 26 23 6,206 45,000 164,807 7,198 2,894 23,000 249,105 1,579,792 361,024 1,819 45,000 211,065 2,137 2,371 25,958 288,350 1,980,355 290,041 26 23 20 29 29 21 16 40,661 1,190,342 24,818 13,918 662 16,736 35,880 7,670 1,330,687 35,442 1,498,254 107,683 13,563 821 150 29,296 6,796 1,692,005 29 17 18 9 19 162,675 27,796 163,508 33,219 858 441,653 1,940,816 210,716 27,730 112,660 30,381 429,320 2,270,396 13 15 14 3,648 49,949 4,200 6,924 36,709 12 13 14 29 29 16 19 187,539 86,843 100 1,191,066 26,157 11 7,447 1,499,163 146,138 78,148 100 1,495,790 108,935 145 11,820 1,841,076 2010 $000 2009 $000
The Balance Sheet is to be read in conjunction with the Notes to the Financial Statements set out on pages 95 to 143.
Statement of Changes in Equity for the year ended 30 June 2010

Consolidated $000 Balance at 1 July 2009 Total comprehensive income/(expense) Issue of ordinary shares Employee Share Purchase Plan loan repayments during the year Treasury shares issued during the year Treasury shares purchased on market Treasury shares vested during the year Fair value adjustment on recycled and vested TSR shares Dividends on treasury shares used to purchase equity Dividends paid to shareholders Dividends paid on treasury shares Equity remuneration expense Non-controlling interest Balance at 30 June 2010 347,350 19,864 17,584 (5,406) 379,392 (173,128) 157 (17,584) (1,271) 13,110 5,406 (65) (173,375) 174,222 19,864 157 (1,271) 13,110 (65) 206,017 (4,016) 6,887 2,871 Gross contributed equity Treasury share reserve Total contributed equity Available-for-sale reserve
Balance at 1 July 2008 Total comprehensive income/(expense) options exercised Employee Share Purchase Plan loan repayments during the year Treasury shares issued during the year Treasury shares purchased on market Treasury shares vested during the year Fair value adjustment on recycled and vested TSR shares Dividends on treasury shares used to purchase equity Dividends paid to shareholders Dividends paid on treasury shares Equity remuneration expense Non-controlling interest Balance at 30 June 2009
324,703 2,347 26,153 (5,853) 347,350
(160,892) 394 (26,153) (410) 8,534 6,003 (604) (173,128)
163,811 2,347 394 (410) 8,534 150 (604) 174,222
4,907 (8,923) (4,016)
The Statement of Changes in Equity is to be read in conjunction with the Notes to the Financial Statements set out on pages 95 to 143.
General reserve
Foreign currency translation reserve (491) (2,856) (3,347)
Equity compensation reserve 48,457 (13,110) 65 (4,479) 26,755 57,688
Cash flow hedge reserve
Total reserves
Retained earnings
Total
Non-controlling interest
Total
103 103
(755) 301 (454)
43,298 4,332 (13,110) 65 (4,479) 26,755 56,861
72,413 90,506 (70,904) 4,479 96,494
289,933 94,838 19,864 157 (1,271) (70,904) 26,755 359,372
108 216 1,328 1,652
290,041 95,054 19,864 157 (1,271) (70,904) 26,755 1,328 361,024
103 103
(688) 197 (491)
37,114 (1,250) (8,534) (150) 604 (5,257) 25,930 48,457
2,844 (3,599) (755)
44,280 (12,325) (1,250) (8,534) (150) 604 (5,257) 25,930 43,298
105,574 37,749 (76,167) 5,257 72,413
313,665 25,424 1,097 394 (410) (76,167) 25,930 289,933
745 (58) (579) 108
314,410 25,366 1,097 394 (410) (76,167) 25,930 (579) 290,041
Cash Flow Statement for the year ended 30 June 2010

Consolidated Note Cash flows from operating activities Cash receipts in the course of operations Cash payments in the course of operations Dividends received Interest received Interest paid Income taxes paid Net cash from operating activities 35 484,067 (310,896) 838 12,386 (2,772) (31,070) 152,553 406,814 (312,969) 1,196 5,898 (2,507) (35,707) 62,725 2010 $000 2009 $000
Cash flows from investing activities Payments for property, plant, equipment and software Payments for investments Repayments of advances made under the Employee Share Purchase Plan Acquisition of businesses, net of cash acquired Proceeds from the sale of investments Tax paid on sale of investments Net cash used in investing activities (48,272) (11,816) (38,141) 157 (35,449) 36,977 (14,035) (42,933) 394 (19,173) 60,328 (8,799) (24,218)
Cash flows from financing activities Proceeds from issue of shares Payments for on market share purchase Dividends paid Net cash used in financing activities 9,295 (1,271) (70,904) (62,880) 1,097 (410) (76,167) (75,480)
Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 July
41,401 146,138
(36,973) 183,111
Cash and cash equivalents at 30 June
12
187,539
146,138
The Cash Flow Statement is to be read in conjunction with Notes to the Financial Statements set out on pages 95 to 143.
Notes to and forming part of the financial statements for the year ended 30 June 2010
Note 1. Reporting entity
Perpetual Limited (the Company) is domiciled in Australia. The consolidated financial report of the Company as at and for the year ended 30 June 2010 comprises the Company and its controlled entities (together referred to as the consolidated entity) and the consolidated entitys interests in associates. The financial report was authorised for issue by the directors on 24th August 2010. The consolidated annual report for the consolidated entity as of and for the year ended 30 June 2010 is available at www.perpetual.com.au Note 18. Intangibles Note 23. Provisions Note 26. Employee benefits Note 29. Structured products assets and liabilities Note 31. Contingencies Note 36. Business combinations. Starting as of 1 July 2009, the consolidated entity has changed its accounting policies in the following areas: Accounting for business combinations Determination and presentation of operating segments Presentation of financial statements. The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements, and have been applied consistently by the consolidated entity, except as explained in accounting policy notes 2c(i), 2e(i), 2g and 2z(a), which address changes in accounting policies. Certain comparative amounts have been reclassified to conform with the current years presentation.
Note 2. Summary of significant accounting policies

a. Statement of compliance
The financial report is a general purpose financial report prepared in accordance with Australian Accounting Standards (including Australian Interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial report of the consolidated entity also complies with International Financial Reporting Standards and interpretations (IFRS) adopted by the International Accounting Standards Board (IASB).
b. Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis, except for available-for-sale financial assets and derivative financial instruments which are measured at fair value. Non-current assets are stated at the lower of carrying amount or fair value less selling costs. The consolidated financial statements are presented in Australian dollars, which is the functional currency of the majority of the consolidated entity. Functional currency is the currency of the primary economic environment in which the company operates. The Company is of a kind referred to in ASIC Class order 98/100 dated 10 July 1998 and in accordance with that Class order, all financial information presented in Australian dollars has been rounded to the nearest thousand unless otherwise stated. The preparation of the financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the consolidated financial report is disclosed in: Note 9. Deferred tax assets/(liabilities) Note 16. Derivative financial instruments
c. Basis of consolidation
(i) Business combinations Change in accounting policy The consolidated entity has adopted revised AASB 3 Business Combinations (2008) and amended AASB 127 Consolidated and Separate Financial Statements (2008) for business combinations occurring in the financial year starting 1 July 2009. All business combinations occurring on or after 1 July 2009 are accounted for by applying the acquisition method. The change in accounting policy is applied prospectively and had no material impact on earnings per share. The consolidated entity has applied the acquisition method for the business combination disclosed in note 36. For every business combination, the consolidated entity identifies the acquirer, which is the combining entity that obtains control of the other combining entities or businesses. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the consolidated entity takes into consideration potential voting rights that currently are exercisable. The acquisition date is the date on which control is transferred to the acquirer. Judgement is applied in determining the acquisition date and determining whether control is transferred from one party to another.
Measuring goodwill The consolidated entity measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the consolidated entity to the previous owners of the acquiree, and equity interests issued by the consolidated entity. Consideration transferred also includes the fair value of any contingent consideration and share-based payment awards of the acquiree that are replaced mandatorily in the business combination (see below). If a business combination results in the termination of pre-existing relationships between the consolidated entity and the acquiree, then the lower of the termination amount, as contained in the agreement, and the value of the off-market element is deducted from the consideration transferred and recognised in other expenses. Share-based payment awards When share-based payment awards exchanged (replacement awards) for awards held by the acquirees employees (acquirees awards) relate to past services, then a part of the market-based measure of the awards replaced is included in the consideration transferred. If the replacement awards require future services, then the difference between the amount included in consideration transferred and the market based measure of the replacement awards is treated as post-combination compensation cost. Contingent liabilities A contingent liability of the acquiree is recognised in a business combination only if such a liability represents a present obligation and arises from a past event, and its fair value can be measured reliably. Non-controlling interest The consolidated entity measures any non-controlling interest at its proportionate interest in the identifiable net assets of the acquiree. Transaction costs Transaction costs that the consolidated entity incurs in connection with a business combination, such as finders fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed as incurred. (ii) Subsidiaries Subsidiaries are entities controlled by the consolidated entity. Control exists when the consolidated entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights presently exercisable are taken into account. Financial statements of subsidiaries are included in the consolidated financial statements from the date control commences until the date control ceases. (iii) Share plan entities The consolidated entity has established a number of share plan entities (SPE) in relation to the administration of employee share plans rather than for trading and investment purposes. A SPE
is consolidated if, based on an evaluation of the substance of its relationships within the consolidated entity and the SPEs risks and rewards, the consolidated entity concludes that it controls the SPE. SPEs controlled by the consolidated entity were established under terms that impose strict limitations on the decision making powers of the SPEs management and that result in the consolidated entity receiving the majority of the benefits related to the SPE operations and net assets, being exposed to risks incidental to the SPEs activities and retaining the majority of the residual or ownership risks related to the SPE or their assets. (iv) Associates Associates are those entities in which the consolidated entity has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the consolidated entity holds between 20 and 50 per cent of the voting power of another entity. Associates are accounted for using the equity method. The consolidated financial statements include the consolidated entitys share of the income and expenses of associates, after adjustments to align the accounting policies with those of the consolidated entity, from the date significant influence commences until the date significant influence ceases. When the consolidated entitys share of losses exceeds its interest in an associate, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the consolidated entity has incurred legal or constructive obligations to make payments on behalf of an associate. (v) Transactions eliminated on consolidation Intra-group balances and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the consolidated entitys interest in the associate. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Gains and losses are recognised when the contributed assets are consumed or sold by the associates or, if not consumed or sold, when the consolidated entitys interest in such entities is disposed of.
d. Foreign currency translation

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

Revenue is recognised at fair value of consideration received or receivable net of goods and services tax payable to the taxation authority. (i) Revenue from the provision of services Revenue is earned from provision of services to customers outside the consolidated entity. Revenue is recognised when services are provided. (ii) Income from structured products Refer to accounting policy (l) for details on income from structured products. (iii) Investment income Interest income is recognised as it accrues taking into account the effective yield of the financial asset.
Dividend income is recognised in profit or loss on the date the entitys right to receive payment is established which, in the case of quoted securities, is the ex-dividend date. Unit trust distributions are recognised in profit or loss as they are received. (iv) Proceeds from sale of investments Net gains or losses on disposal of non-current assets are included in profit or loss. The gain or loss arising from disposal of an item of property, plant and equipment is determined as the difference between net disposal proceeds, being the cash price equivalent where payment is deferred, and the carrying amount of the item. Profit or loss on disposal of assets is brought to account at the date an unconditional contract of sale is signed.
i. Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the net profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in other comprehensive income. Current tax is expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at reporting date and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill the initial recognition of assets or liabilities that affect neither accounting nor taxable profit differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilised. Deferred tax assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised. (i) Tax consolidation The Company and its wholly owned Australian resident entities formed a tax-consolidated group with effect from 1 July 2003 and are therefore taxed as a single entity from that date. The head entity within the tax consolidated group is Perpetual Limited. Current tax expense, deferred tax liabilities and deferred tax assets arising from temporary differences of the members of the tax consolidated group are recognised in the separate financial statements of the members of the tax consolidated group using the group allocation approach by reference to the carrying amounts of assets and liabilities in the separate financial statements of each entity and the tax values applying under tax consolidation.
g. Segment reporting
As of 1 July 2009, the consolidated entity determines and presents operating segments based on the information that internally is provided to the Chief Executive officer (CEo), who is the consolidated entitys chief operating decision maker. The change in accounting policy is due to the adoption of AASB 8 Operating Segments. Previously operating segments were determined and presented in accordance with AASB 114 Segment Reporting. The new accounting policy in respect of operating segment disclosures is presented as follows. Comparative segment information has been re-presented in conformity with the transitional requirements of AASB 8. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings per share. An operating segment is a component of the consolidated entity that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the consolidated entitys other components. All operating segments operating results are regularly reviewed by the consolidated entitys CEo to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the CEo include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, and income tax expenses, assets and liabilities.
h. Interest-bearing borrowings
Interest-bearing borrowings are initially recognised at fair value net of transaction costs incurred. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between initial carrying amount and redemption value being recognised in the profit or loss over the period of the borrowings using the effective interest method. Interest-bearing borrowings are removed from the Balance Sheet when the obligation specified in the contract is discharged, cancelled or expired.
Current tax liabilities or assets and deferred tax assets arising from unused tax losses and tax credits of subsidiaries are assumed by the Company in the tax-consolidated group and are recognised as amounts payable to or receivable from other entities in the tax-consolidated group in conjunction with any tax funding arrangement amounts (refer accounting policy i (ii)). Any difference between these amounts is recognised by the Company as an equity contribution or distribution. The Company recognises deferred tax assets arising from unused tax losses of the tax-consolidated group to the extent that it is probable that future taxable profits of the taxconsolidated group will be available against which the asset can be utilised. Any subsequent period adjustments to deferred tax assets arising from unused tax losses as a result of revised assessments of the probability of recoverability are recognised by the head entity only. (ii) Nature of tax funding arrangements and tax sharing arrangements The head entity, in conjunction with other members of the tax consolidated group, has entered into a tax funding arrangement which sets out funding obligations of members of the taxconsolidated group in respect of tax amounts. The tax funding arrangements require payments to or from the head entity equal to the current tax liability or asset assumed by the head entity and any tax loss deferred tax asset assumed by the head entity, resulting in the head entity recognising an intercompany receivable or payable equal to the tax liability or asset assumed. The inter-company receivable or payable is at call. Contributions to fund the current tax liabilities are payable as per the tax funding arrangement and reflect the timing of the head entitys obligation to make payments for tax liabilities to the relevant tax authorities. The head entity, in conjunction with other members of the tax consolidated group, has also entered into a tax sharing agreement. The tax sharing agreement provides for the determination of the allocation of income tax liabilities between the entities should the head entity default on its tax payment obligations. No amounts have been recognised in the financial statements in respect of this agreement as payment of any amounts under the tax sharing agreement is considered remote.
k. Investments
(i) Held-to-maturity investments Investments are classified as held-to-maturity if the consolidated entity has the positive intent and ability to hold to maturity. Heldto-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses. (ii) Available-for-sale financial assets The consolidated entitys investments in equity securities and unlisted unit trusts are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (see accounting policy u), are recognised in other comprehensive income. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. The fair value of financial instruments classified as available-forsale is their quoted bid price at the reporting date. (iii) Investments at fair value through profit or loss Investments are classified at fair value through profit or loss if they are held for trading or designated as such upon initial recognition. The consolidated entitys derivative instruments within asset management incubation funds are classified as held for trading financial assets. on initial recognition, attributable transaction costs are recognised in profit or loss when incurred. Financial instruments designated at fair value through profit or loss are measured at fair value and changes recognised in profit or loss.
l. Structured products
Structured products comprise products sold to investors where there is residual risk taken by the Company. Currently, structured products comprise products such as the Exact Market Cash Funds (the EMCF product) and Perpetual Protected Investments (PPI). (i) Exact Market Cash Funds The EMCF product consisting of two Funds (EMCF1 and EMCF2) is consolidated as the consolidated entity is deemed to control the EMCF Funds since it retains the residual risks and benefits through the swap agreements. The swap agreements result in the benchmark rate of return being paid to the unit holders in the Fund. The swap agreements are inter-company transactions between a subsidiary of the Company and the Funds and are eliminated on consolidation. Assets and liabilities of the EMCF product are disclosed separately on the face of the Balance Sheet as structured product assets and structured product liabilities. The benchmark return generated by the EMCF product and distributions to unit holders are shown separately on the Statement of Comprehensive Income as distributions and expenses related to structured products. The financial assets represented by the structured products assets balance are accounted for in accordance with the underlying accounting policies of the consolidated entity. These consist of investments accounted for at fair value as available-for-sale financial assets.
j. Goods and services tax

Revenues, expenses and assets are recognised net of goods and services tax (GST), except where GST incurred is not recoverable from the Australian Taxation office (ATo). In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with GST included. The net amount of GST recoverable from, or payable to, the ATo is included as a current asset or liability in the Balance Sheet. Cash flows are included in the Cash Flow Statements on a gross basis. GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATo are classified as operating cash flows.
(ii) Perpetual Protected Investments Loans to investors which are held as non-current assets at amortised cost on the Balance Sheet (refer to structured products - loan receivables) are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans to investors are subject to recurring review and assessment for possible impairment. Provisions for loan losses are based on an incurred loss model, which recognises a provision where there is objective evidence of impairment at each balance sheet date, and are calculated based on the discounted values of expected future cash flows. The incurred loss model makes specific provision where specific loan impairment is identified. For individual loans not impaired, assets with similar risk profiles are pooled and collectively assessed for losses that may have been incurred but not yet identified. Bad debts are written off in the period in which they are identified. Management makes judgements whether there is any observable data indicating that there is a significant decrease in the estimated future cash flows from a portfolio of loans. This evidence may include observable data indicating that there has been an adverse change in the payment status of the borrowers in a group, or national or local economic conditions that correlate with defaults on assets in that group.
that future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs are recognised in profit or loss as an expense when incurred. (iii) Depreciation Depreciation is recognised in the Statement of Comprehensive Income on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives for the current and comparative periods are as follows: plant and equipment: 4 - 10 years leasehold improvements: 3 - 15 years. The residual value, useful life and depreciation method applied to an asset are reassessed at least annually.
n. Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method less impairment losses (see accounting policy u). Loans and receivables comprise trade and other receivables. Refer to accounting policy l (ii) for structured-products loan receivables.
m. Property, plant and equipment

(i) Recognition and measurement Property, plant and equipment are measured at cost or deemed cost less accumulated depreciation and impairment losses (see accounting policy u). Cost includes expenditures that are directly attributable to the acquisition of the asset. Cost of self-constructed assets includes cost of materials, direct labour, an appropriate proportion of overheads and where relevant, the initial estimate of the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment. When revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. (ii) Subsequent costs The consolidated entity recognises the cost of replacing part of an item of property, plant and equipment in the carrying amount of that item when the cost is incurred, it is probable
o. Expenses
(i) Operating leases operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the term of the lease. Incentives received by the consolidated entity on entering a lease agreement are recognised on a straight-line basis over the term of the lease. The difference between the cash amount paid and the amount recognised as an expense is recognised as a lease provision in the Balance Sheet (see accounting policy q). The provision is expected to be realised over the term of the underlying leases. (ii) Financing costs Financing costs comprise interest payments on borrowings and derivative financial instruments calculated using the effective interest method, and unwinding of discounts on provisions.
p. Payables
Payables are non-interest bearing and are stated at amortised cost, with the exception of contingent consideration which is recorded at fair value at the acquisition date. Contingent consideration is classified as a financial liability and is subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
q. Provisions
A provision is recognised in the Balance Sheet when the consolidated entity has a present legal or constructive obligation as a result of a past event that can be measured reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Management exercise judgement in estimating provision amounts. It may be possible, based on existing knowledge, that outcomes in the next annual reporting period differ from amounts provided and may require adjustment to the carrying amount of the liability affected. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The unwinding of the discount is recognised as a finance cost. (i) Onerous leases and make good A provision for onerous leases is recognised when the expected benefits to be derived by the consolidated entity from a lease contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the consolidated entity recognises any impairment loss on the assets associated with that contract. A provision for make good is recognised when the consolidated entity is responsible for the make good of leased premises on termination of operating leases. ii) Operational process review A provision for operational process reviews is recognised when operational errors in relation to unit pricing are identified and represents the cost that the consolidated entity expects to incur in rectification and restitution costs. (iii) Self-insurance Provision for self-insurance recognises incurred but not reported claims. These provisions are measured at the cost that the consolidated entity expects to incur in settling the claim, discounted using a government bond rate with a maturity date approximating the term of the obligation. (iv) Legal provision A provision for litigation is recognised when reported litigation claims arise and are measured at the cost that the consolidated entity expects to incur in settling the claim. (v) Lease expense A provision for lease expense represents the difference between the cash amount paid and the amount recognised as an expense. The provision is expected to be realised over the term of the underlying lease. (vi) Employee benefits Refer to accounting policy (x) for details on employee benefits provisions.
r. Financial guarantee contracts

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate. Where guarantees in relation to loans or other payables of subsidiaries are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.
s. Share capital
(i) Ordinary shares ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. (ii) Repurchase of share capital (treasury shares) When share capital recognised as equity is repurchased or held by employee share plans and subject to vesting conditions, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity. (iii) Dividends Dividends are recognised as a liability in the period in which they are declared.
t. Cash and cash equivalents

Cash and cash equivalents comprise bank balances, deposits at call and short-term deposits.
u. Impairment
(i) Financial assets (including receivables) A financial asset is assessed at each reporting date to determine whether there is any objective evidence of impairment. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the consolidated entity on terms that the consolidated entity would not consider otherwise, indications that a debtor or issuer will enter bankruptcy and the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in fair value below its cost is objective evidence of impairment. The consolidated entity considers evidence of impairment for receivables and held-to-maturity investment securities at both a specific asset and collective level. All individually significant receivables and held-to-maturity investment securities are assessed for specific impairment. All individually significant receivables and held-to-maturity investment securities found
not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables and held-to-maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together receivables and held-tomaturity investment securities with similar risk characteristics. In assessing collective impairment the consolidated entity uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for managements judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the assets original effective interest rate. Losses are recognised in profit and loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the available-for-sale reserve in equity, to profit or loss. The cumulative loss that is removed from other comprehensive income and recognised in profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. If, in a subsequent period, the fair value of an impaired availablefor-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. (ii) Non-financial assets The carrying amounts of the consolidated entitys non-financial assets, other than deferred tax assets (see accounting policy i), are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each balance sheet date. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the cashgenerating unit or CGU). Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. The consolidated entitys corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired, then the recoverable amount is determined for the CGU to which the corporate asset belongs. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Statement of Comprehensive Income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each balance sheet date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
v. Derecognition of financial assets and liabilities

The consolidated entity initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognised initially on the trade date at which the consolidated entity becomes a party to the contractual provisions of the instrument. The consolidated entity derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the consolidated entity is recognised as a separate asset or liability. Financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the consolidated entity becomes a party to the contractual provisions of the instrument. The consolidated entity derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, the consolidated entity has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
w. Derivative financial instruments

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

(i) Employee share purchase and option plans Share option and share incentive programs allow employees to acquire shares in the Company. The fair value of shares and/ or options granted under these programs 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 and/or options. The fair value of the options granted is measured using a binomial model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due to share prices not achieving their threshold for vesting. (ii) Deferred staff incentives The Company grants certain employees shares under long-term incentive and retention plans. Under these plans, shares vest to employees over relevant vesting periods. To satisfy the long-term incentives granted, the Company purchases or issues shares under the Executive Share Plan, Deferred Share Plan or the Global Employees Share Trust.
x. Employee benefits
(i) Defined contribution superannuation funds A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. obligations for contributions to defined contribution pension plans are recognised as an expense in the periods during which services are rendered by employees.
The fair value of the shares granted is measured by the share price adjusted for the terms and conditions upon which the shares were granted. This fair value is amortised on a straight-line basis over the applicable vesting period. The consolidated entity make estimates on the number of shares that are expected to vest. Where appropriate, revised estimates are reflected in profit or loss with the corresponding adjustment to the equity compensation reserve. Where shares containing a market linked hurdle do not vest, due to total shareholder return not achieving the threshold for vesting, an adjustment is made to contributed equity and equity compensation reserve.
AASB 124 Related Party Disclosures (revised December 2009) simplifies and clarifies the intended meaning of the definition of a related party and provides a partial exemption from the disclosure requirements for government related entities. The amendments, which will become mandatory for the consolidated entitys 30 June 2012 financial statements, are not expected to have any impact on the financial statements. AASB 2009-5 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process that affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the consolidated entitys 30 June 2011 financial statements, are not expected to have a significant impact on the consolidated entitys financial statements. AASB 2009-8 Amendments to Australian Accounting Standards - Group Cash-Settled Share-based Payment Transactions resolves diversity in practice regarding the attribution of cash-settled share-based payments between different entities within a group. As a result of the amendments AI 8 Scope of AASB 2 and AI 11 AASB 2 Group and Treasury Share Transactions will be withdrawn from the application date. The amendments, which become mandatory for the consolidated entitys 30 June 2011 financial statements, are not expected to have a significant impact on the consolidated entitys financial statements.
z. Earnings per share

The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the net profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for shares held by the Companys employee share plan trust. Diluted EPS is determined by dividing the net profit or loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, adjusted for shares held by Companys sponsored employee share plan trust and for the effects of all dilutive potential ordinary shares, which comprise shares and options granted to employees under long-term incentive and retention plans.
z(a). Presentation of financial statements

The consolidated entity applies revised AASB 101 Presentation of Financial Statements (2007), which became effective as of 1 July 2009. As a result, the consolidated entity presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.
z(b). New standards and interpretations not yet adopted

The following standards, amendments to standards and interpretations have been identified as those which may impact the consolidated entity in the period of initial application. They are available for early adoption at 30 June 2010, but have not been applied in preparing this financial report: AASB 9 Financial Instruments includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the project to replace AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 will become mandatory for the consolidated entitys 30 June 2014 financial statements. Retrospective application is generally required, although there are exceptions, particularly if the consolidated entity adopts the standard for the year ended 30 June 2012 or earlier. The consolidated entity has not yet determined the potential effect of the standard.
Note 3. Revenue
Consolidated 2010 $000 Revenue from the provision of services Gross revenue from fees and commissions Total revenue from the provision of services Other income Income from structured products Total other income Investment income Dividends Interest Unit trust distributions Total investment income 901 13,213 308 14,422 505,940 1,075 5,741 2,754 9,570 482,538 83,595 83,595 107,440 107,440 407,923 407,923 365,528 365,528 2009 $000
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 Plant and equipment Amortisation of intangible assets: Capitalised software other intangible assets Depreciation and amortisation expense Rental charges operating leases Net loss on sale of property, plant and equipment Net movements in provision for: Employee benefits Bad and doubtful debts Credit losses on structured products Net foreign exchange gain Total staff related expenses: Staff related expenses Equity remuneration expense 195,441 26,755 222,196 168,584 25,930 194,514 7,107 251 1,644 2,421 (7,580) 182 991 1,731 5,783 3,328 9,111 14,857 14,729 78 6,718 1,600 8,318 13,163 13,558 470 2,750 2,996 5,746 2,500 2,345 4,845
Note 5. Individually significant items included in profit for the year

Loss on disposal and impairment of investments: Profit/(loss) on sale of part of investment portfolio Impairment of available-for-sale securities Total loss on disposal of investments Income tax benefit applicable Total loss on disposal and impairment of investments after tax Exact Market Cash Fund profit/(loss) Income tax (expense)/benefit applicable 3,913 (7,085) (3,172) 784 (2,388) 29,024 (8,707) 20,317 Restructuring costs Income tax benefit applicable (6,673) (1,065) (7,738) 1,657 (6,081) (19,729) 5,919 (13,810) (11,593) 3,478 (8,115)
Note 6. Segment information

Perpetual Investments1 $000 30 June 2010 External revenues Inter-segment revenue/(expense) Interest revenue Total revenue for reportable segment Depreciation and amortisation Reportable segment net profit before tax Reportable segment assets Reportable segment liabilities Capital expenditure 30 June 2009 External revenues Inter-segment revenue/(expense) Interest revenue Total revenue for reportable segment Depreciation and amortisation Reportable segment net profit before tax Reportable segment assets Reportable segment liabilities Capital expenditure 1 299,605 10,062 758 310,425 (5,340) 39,314 1,915,684 (1,867,083) 7,301 95,808 (10,062) 85,746 (2,376) 29,136 63,079 (14,093) 4,651 79,911 354 80,265 (3,262) 36,084 43,553 (7,643) 588 475,324 1,112 476,436 (10,978) 104,534 2,022,316 (1,888,819) 12,540 284,603 11,240 759 296,602 (5,471) 101,027 1,472,485 (1,422,994) 1,006 122,807 (11,240) 6 111,573 (3,944) 32,581 128,990 (25,134) 3,702 85,628 1,840 87,468 (3,064) 32,349 48,989 (5,380) 766 493,038 2,605 495,643 (12,479) 165,957 1,650,464 (1,453,508) 5,474 Private Wealth $000 Corporate Trust $000 Total $000
Segment information for Perpetual Investments includes the Exact Market Cash Funds. Consolidated 2010 $000 2009 $000
Reconciliations of reportable segment revenues, net profit before tax, total assets and liabilities Revenues Total revenue for reportable segments Group and Support Services revenue Total group revenue Net profit before tax Total net profit before tax for reportable segments Financing costs Profit/(loss) on disposal of investments Impairment of available-for-sale securities Share of (loss)/profit of equity accounted investees Group and Support Services expenses Net profit before tax Total assets Total assets for reportable segments Group and Support Services assets Investments in equity accounted investees Total assets Total liabilities Total liabilities for reportable segments Group and Support Services liabilities Total liabilities 1,453,508 126,284 1,579,792 1,888,819 91,536 1,980,355 1,650,464 290,352 1,940,816 2,022,316 241,156 6,924 2,270,396 165,957 (2,772) 3,913 (7,085) (16) (26,486) 133,511 104,534 (2,507) (6,673) (1,065) 111 (35,284) 59,116 495,643 10,297 505,940 476,436 6,102 482,538
Note 6. Segment information (continued)

The consolidated entity has identified three operating segments based on the internal reports that are reviewed and used by the consolidated entitys CEo in assessing performance and in determining the allocation of resources. For each of the reportable segments, the consolidated entitys CEo reviews internal management reports on a monthly basis. The following summary describes the operations in each of the reportable segments:
a. Services provided
The consolidated entity operates in the financial services industry in Australia and provides wealth management and corporate trust services. The major services from which the reportable segments derive revenue are: Perpetual Investments Manufacturer of financial products, management and investment of monies on behalf of private, corporate, superannuation and institutional clients. Private Wealth provides a wide range of investment and non-investment products and services. These include a comprehensive advisory service, portfolio management, philanthropic, executorial and trustee services to high net worth and emerging high net worth Australians. Private Wealth also provides many of these services to charities, not for profit and other philanthropic organisations. The Corporate Trust division provides fiduciary services incorporating safe-keeping and recording of assets and transactions as custodian, trustee, registrar or agent for corporate and financial services clients and mortgage processing services.
Private Wealth
Corporate Trust
Comparative segment information has been prepared in conformity with the requirement of AASB 8 operating Segments.
b. Geographical segments
The consolidated entity operates predominantly in Australia. More than 90 per cent of revenue and non-current assets relate to operations in Australia.
c. Major customers
The consolidated entity does not rely on any major customer.
Note 7. Auditors remuneration

Consolidated 2010 $ Audit Services Auditors of the Company KPMG Australia: Audit and review of the consolidated and subsidiary financial statements Audit and review of managed funds and superannuation funds for which the consolidated entity acts as responsible entity1 Audit services in accordance with regulatory requirements other assurance services 2,777,303 298,680 20,000 2,307,136 241,000 20,000 595,568 549,500 2009 $
Overseas KPMG firms: Audit and review of financial statements other assurance services 63,800 2,400 3,757,751 1 50,000 2,000 3,169,636
These fees were paid for the audit of 145 managed funds (2009: 138 managed funds) and 1,171 (2009: 1,114) DIY superannuation funds and which contained assets totalling $26.9 billion (2009: $26.2 billion).
other assurance services paid to KPMG are in accordance with the Companys auditor independence policy as outlined in Perpetuals Corporate Responsibility Statement.
Note 8. Income tax expense

a. Income tax expense
Consolidated 2010 $000 Current tax expense Deferred tax expense over provided in prior years Total Deferred tax included in income tax expense comprises: Increase/(decrease) in deferred tax assets Increase in deferred tax liabilities Total 5,316 (518) 4,798 (651) (1,367) (2,018) 48,022 (4,798) (435) 42,789 2009 $000 20,058 2,018 (651) 21,425
The above movements in deferred tax assets and deferred tax liabilities are net of movements in these balances recognised directly in other comprehensive income.
b. Reconciliation of income tax expense to prima facie income tax payable

Consolidated 2010 $000 Prima facie income tax expense calculated at 30% (2009: 30%) on profit for the year Increase in income tax expense due to: Taxable profit on disposal of investments Accounting write down on available-for-sale assets Accounting loss on credit funds Accounting loss on disposal of investments Imputation gross-up on dividends received Foreign source loss effect of lower tax rate Foreign source loss not recognised as a deferred tax asset other expenditure Decrease in income tax expense due to: Franking credits on dividends received Accounting profit on disposal of investments Realised net capital losses Unrealised net capital losses on available-for-sale assets Write back deferred tax liability arising from business combinations Sundry items Income tax expense attributable to profit for the year before tax Less: Income tax over provided in prior years Income tax expense attributable to profit for the year (199) (1,174) (1,895) (361) (498) (4,127) 43,224 (435) 42,789 (461) (1,734) (645) (228) (3,068) 22,076 (651) 21,425 1,117 2,125 60 1,338 956 1,702 7,298 723 2,321 138 2,007 1,433 787 7,409 40,053 2009 $000 17,735
The realisation of the deferred tax assets relating to the realised and unrealised capital losses is dependent on future capital gains being in excess of the losses shown in note 9 on the following page.
c. Current tax liabilities

The current tax liability for the consolidated entity represents income taxes payable in respect of the current and prior financial year. In accordance with tax consolidation legislation, the Company, as head entity of the Australian tax-consolidated group, has assumed the current tax liability recognised by members in the tax consolidated group.
d. Income tax recognised in other comprehensive income

Consolidated 2010 $000 Cash flow hedges Available-for-sale financial assets (227) 2,705 2,478 2009 $000 (3,311) (3,311)
Note 9. Deferred tax assets / (liabilities)

Consolidated 2010 $000 The balance comprises temporary differences attributable to: Property, plant and equipment Intangible assets Employee benefits Provisions and accruals Structured products-interest received in advance Realised net capital losses Unrealised net capital losses other items Total deferred tax assets Intangible assets Structured products-interest paid in advance other items Total deferred tax liabilities Net deferred tax assets 1,819 10,970 11,589 4,175 1,433 2,636 597 33,219 (6,845) (353) (7,198) 26,021 4,181 (3,685) 8,102 10,288 4,281 1,734 5,157 323 30,381 (1,575) (562) (2,137) 28,244 2009 $000
At 30 June 2010, the consolidated entity had carried forward realised net capital losses of $4,778,000 (30 June 2009: $5,781,000) which had a tax benefit of $1,433,000 (30 June 2009: $1,734,000); the tax benefit of these capital losses has been recognised in deferred tax assets. As at 30 June 2010, the consolidated entity had carried forward unrealised net capital losses of $8,787,000 (30 June 2009: $17,190,000) which had a tax benefit of $2,636,000 (30 June 2009: $5,157,000). of this amount $8,732,000 (30 June 2009: $8,876,000) which had a tax benefit of $2,620,000 (30 June 2009: $2,663,000) has been recognised in profit and loss in the current and prior periods, and $55,000 (30 June 2009: $8,314,000) which had a tax benefit of $16,000 (30 June 2009: $2,494,000) has been recognised in other comprehensive income in the current and prior periods. The tax benefit of these capital losses has been recognised in deferred tax assets.
The consolidated entity had unrealised net capital gains recognised in profit or loss for the year ended 30 June 2010 of $144,000 (2009: loss of $8,876,000) which had a tax expense of $43,000 (2009: tax benefit of $2,663,000). The tax expense has reduced the tax benefit attributable to the unrealised net capital losses in deferred tax assets. At 30 June 2010, the consolidated entity has carried forward foreign tax losses of $58,311,000 (30 June 2009: $50,666,000) which had a tax benefit of $7,289,000 (30 June 2009: $6,333,000) at 12.5 per cent that was not recognised in the Balance Sheet.
Note 9. Deferred tax assets/(liabilities) (continued)

Balance 1 July 2009 $000 Movement in temporary differences during the year Consolidated Deferred tax assets Property, plant and equipment Intangible assets Employee benefits Provisions and accruals Structured products-interest received in advance Realised net capital losses Unrealised net capital losses other items Deferred tax liabilities Intangible assets Structured products-interest paid in advance other items (1,575) (562) (2,137) 28,244 Balance 1 July 2008 $000 Movement in temporary differences during the year Consolidated Deferred tax assets Property, plant and equipment Intangible assets Employee benefits Provisions and accruals Structured products-interest received in advance Realised net capital losses Unrealised net capital losses other items 1,737 (1,696) 11,682 9,519 6,354 942 28,538 Deferred tax liabilities Structured products-interest paid in advance Shares in other companies, investments in unlisted unit trusts and other financial assets other items (817) (1,575) 817 (1,575) 2,444 (1,989) (3,580) 769 (2,073) 1,734 2,663 (619) (651) 2,494 2,494 4,181 (3,685) 8,102 10,288 4,281 1,734 5,157 323 30,381 (2,302) 1,575 209 (518) 4,798 Recognised in profit or loss $000 (2,478) Recognised in other comprehensive income $000 (4,543) (4,543) (4,543) Acquired in business combinations $000 (6,845) (353) (7,198) 26,021 Balance 30 June 2009 $000 4,181 (3,685) 8,102 10,288 4,281 1,734 5,157 323 30,381 (2,362) 3,685 2,868 1,301 (106) (301) (43) 274 5,316 (2,478) (2,478) 1,819 10,970 11,589 4,175 1,433 2,636 597 33,219 Recognised in profit or loss $000 Recognised in other comprehensive income $000 Acquired in business combinations $000 Balance 30 June 2010 $000
(770) (1,587) 26,951
208 (1,367) (2,018)
817 3,311
(562) (2,137) 28,244
Note 10. Dividends

a. Dividends paid
Dividends paid or provided for in the current and comparative year are as follows:
Cents per share 2010 Final 2009 ordinary Interim 2010 ordinary Total amount 2009 Final 2008 ordinary Interim 2009 ordinary Total amount 1 141 40 181 59,181 16,986 76,167 Franked Franked 12 Sep 2008 13 Mar 2009 60 105 165 25,506 45,398 70,904 Franked Franked 30 Sep 2009 1 Apr 2010 Total amount $000 Franked1 / Unfranked Date of payment
All franked dividends declared or paid during the year were franked at a tax rate of 30 per cent and paid out of retained earnings.
The Company introduced a Dividend Reinvestment Plan (DRP) in May 2009. The DRP is optional and offers ordinary shareholders in Australia and New Zealand the opportunity to acquire fully paid ordinary shares, without transaction costs. The shares may also be issued at a discount to the market price, which the directors may determine from time to time. The discount applied to the DRP for the interim and proposed final 2010 dividend is 2.5%. A shareholder can elect to participate in or terminate their involvement in the DRP at any time.
b. Subsequent events
Since the end of the financial year, the directors declared the following dividend. The dividends have not been provided for and there are no tax consequences.
Cents per share Final 2010 ordinary 1 2 105 Total amount 2 $000 45,588 Franked1 / Unfranked Franked Date of payment 28 Sep 2010
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. Calculation based on the ordinary shares on issue as at 30 June 2010.
The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 June 2010 and will be recognised in subsequent financial reports.
c. Dividend franking account

2010 $000 30% franking credits available to shareholders for subsequent financial years 62,474 2009 $000 44,876
The above available amounts are based on the balance of the dividend franking account at 30 June 2010 adjusted for franking credits that will arise from the payment of the current tax liabilities, and franking credits that will arise from the receipt of dividends recognised as receivables by the tax consolidated group at the year-end. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of dividends proposed after the balance sheet date, but not recognised as a liability, is to reduce it to $42,936,000 (2009: $33,945,000).
Note 11. Earnings per share

Consolidated 2010 Cents per share Basic earnings per share Diluted earnings per share The following reflects the income and share information used in calculating the basic and diluted earnings per share: 227.1 210.5 96.0 89.4 2009
$000 90,506 Number of shares
$000 37,749
Net profit after tax attributable to equity holders of Perpetual Limited
Weighted average number of ordinary shares used in the calculation of basic earnings per share Effect of dilutive securities: Share options Weighted average number of treasury shares on issue Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share
39,855,523 27,893 3,115,243 42,998,659
39,312,579 7,206 2,912,403 42,232,188
Subsequent to the reporting date, no options were exercised by employees who have left the Company (2009: nil).
Note 12. Cash and cash equivalents

Consolidated 2010 $000 Bank balances Deposits at call Short-term deposits 54,345 79,462 53,732 187,539 2009 $000 67,270 29,415 49,453 146,138
Bank balances include cash held by employee share trusts of $664,000 (2009: $230,000) which are not available for general operating use and are offset by a liability to employees in current payables. Deposits at call are invested in a cash management trust operated by the consolidated entity. Short-term deposits represent investments in the Perpetual Credit Income Fund and Perpetual Credit Enhanced Cash Fund. These funds have a Standard & Poors fund credit quality rating of Af and invest in high grade credit products with the intention of generating a return in excess of the UBS Bank Bill Index and are generally available at seven days notice.
Note 13. Receivables

Consolidated 2010 $000 Current Trade debtors Less: Provision for doubtful debts 70,699 (522) 70,177 other debtors Non-current other debtors 3,648 3,648 Movements in the provision for bad and doubtful debts are as follows : Balance as at 1 July 2009 Provision for impairment recognised during the year Receivables written off during the year as uncollectible Unused amount reversed Balance as at 30 June 2010 271 770 (214) (305) 522 89 375 (94) (99) 271 4,200 4,200 16,666 86,843 65,312 (271) 65,041 13,107 78,148 2009 $000
The creation and release of the provision for bad and doubtful debts has been included in administrative and general expenses in the Statement of Comprehensive Income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. This note should be read in conjunction with Note 28(a) (iii).
Note 14. Other financial assets

Consolidated 2010 $000 Current Government, municipal and other public securities held to maturity Non-current Listed equity securities available-for-sale at fair value Unlisted unit trusts available-for-sale at fair value Government, municipal and other public securities held-to-maturity Secured loans 36,030 13,538 122 259 49,949 22,060 14,295 122 232 36,709 100 100 2009 $000
Note 15. Interest in associates using the equity method

Consolidated 2010 $000 Investment in associate 2009 $000 6,924
Name of Entity Perpetual Wholesale Geared International Share Fund (PIWGIF) Perpetual Pure Value Share Fund (PIBIAS)
Country of Incorporation Australia Australia
Reporting Date 2010 30 June 30 June 92% -
Ownership Interest 2009 46% 11%
PIWGIF was previously accounted for in the consolidated financial statements using the equity method of accounting until redemption of units by external unit holders increased the consolidated entitys interests above 50%. It is now consolidated in the financial statements. PIBIAS was accounted for in the consolidated financial statements using the equity method of accounting and was fully disposed in August 2009.
Note 16. Derivative financial instruments

Consolidated 2010 $000 Assets Current Forward foreign exchange contracts Interest rate swap contracts Liabilities Current Interest rate swap contracts 662 821 11 11 21 124 145 2009 $000
This note should be read in conjunction with Note 29 (b). Instruments used by incubation funds As part of the consolidated entitys asset management incubation fund strategy and to diversify its investment portfolio, seed capital was invested in various incubation funds. These funds may be party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates, interest rates, equity indices and to trade from their movements in accordance with the funds financial risk management policy. Forward foreign exchange contracts The consolidated entity has entered into forward exchange contracts which are economic hedges but do not satisfy the requirements for hedge accounting. These contracts are subject to the same risk management policies as other derivative contracts outlined. Accordingly, they are accounted for as held for trading financial instruments. These contracts are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. Any changes in fair values are recorded in profit or loss. Interest rate swap contracts Interest rate swap contracts held for hedging purposes associated with the PPI structured product are disclosed in Note 29 (b).
Note 17. Property, plant and equipment

Consolidated 2010 $000 Plant and equipment at cost Accumulated depreciation Leasehold improvements at cost Accumulated depreciation 19,276 (12,653) 6,623 30,820 (10,186) 20,634 Project work in progress at cost 539 27,796 2009 $000 17,678 (10,464) 7,214 27,955 (7,439) 20,516 27,730
Reconciliations of the carrying amounts for each class of property, plant and equipment are set out below:
Plant and equipment $000 Consolidated Balance as at 1 July 2009 Acquisitions through business combinations Additions Transfers from work in progress Depreciation and amortisation Disposals Balance as at 30 June 2010 Consolidated Balance as at 1 July 2008 Additions Transfers from work in progress Depreciation and amortisation Disposals Balance as at 30 June 2009 7,861 772 936 (2,345) (10) 7,214 22,289 29 836 (2,500) (138) 20,516 504 1,268 (1,772) 30,654 2,069 (4,845) (148) 27,730 7,214 289 2,223 289 (2,996) (396) 6,623 20,516 2,271 214 383 (2,750) 20,634 1,211 (672) 539 27,730 2,560 3,648 (5,746) (396) 27,796 Leasehold improvements $000 Project work in progress $000 Total $000
Note 18. Intangibles

Consolidated 2010 $000 Goodwill at cost 113,539 113,539 other intangibles at cost Accumulated amortisation 27,618 (6,276) 21,342 Capitalised software at cost Accumulated amortisation 76,749 (53,704) 23,045 Project work in progress at cost 5,582 163,508 2009 $000 76,639 76,639 12,478 (2,949) 9,529 68,683 (47,918) 20,765 5,727 112,660
Note 18. Intangibles (continued)

Reconciliations of the carrying amounts for each class of intangibles are set out below:
Goodwill $000 Consolidated Balance as at 1 July 2009 Acquisitions through business combinations Additions Transfers from work in progress Amortisation for the year Disposals Balance as at 30 June 2010 Balance as at 1 July 2008 Acquisitions through business combinations Additions Transfers from work in progress Amortisation for the year Disposals Balance as at 30 June 2009 76,639 36,900 113,539 62,124 14,515 76,639 9,529 15,141 (3,328) 21,342 4,266 6,863 (1,600) 9,529 20,765 70 518 7,586 (5,783) (111) 23,045 12,137 1,979 13,689 (6,718) (322) 20,765 5,727 7,650 (7,586) (209) 5,582 9,429 9,987 (13,689) 5,727 Consolidated 2010 $000 Amortisation Amortisation is recognised in the following line items in the Statement of comprehensive income: Amortisation expense Impairment tests for cash generating units containing goodwill The following cash generating units have significant carrying amounts of goodwill: Private Wealth Securitisation1 Perpetual Lenders Mortgage Services1 smartsuper Australian Equities 1 In 2009, combined as Corporate Trust division CGU. 77,159 16,653 5,648 10,583 3,496 113,539 40,260 16,653 5,648 10,583 3,495 76,639 9,111 8,318 2009 $000 112,660 52,111 8,168 (9,111) (320) 163,508 87,956 21,378 11,966 (8,318) (322) 112,660 Other intangibles $000 Capitalised software $000 Project work in progress $000 Total $000
Impairment testing of these goodwill balances is based on each cash generating units value in use, calculated as the present value of forecast future cash flows from those cash generating units using discount rates of between 12.5% and 15% (2009: discount rates of between 12% and 17%). The forecast future cash flows used in the impairment testing are based on assumptions as to the level of profitability for each business over a forecast period. Forecast future cash flows have been projected for 5 years based on the 2011-2013 Annual operating Plan and the 5 year Strategic Plan which have been approved by the board and then projected for an indefinite period by including a terminal value with a growth rate in perpetuity of 2.5%.
Note 19. Prepayments

Consolidated 2010 $000 Current Prepayments Non-current Prepayments 858 7,447 11,820 2009 $000
Note 20. Payables

Consolidated 2010 Current Trade creditors other creditors and accruals Non-current other creditors and accruals 6,206 1,819 $000 29,024 11,637 40,661 2009 $000 31,202 4,240 35,442
This note should be read in conjunction with Note 28 (b).
Note 21. Structured products income received in advance

Current Interest income 13,918 13,563
Income received in advance consists of deferred interest income received associated with the PPI structured product. The PPI structured product is disclosed in Note 29 (b).
Note 22. Non-current interest-bearing liabilities

Consolidated 2010 $000 Floating rate bill facility 45,000 2009 $000 45,000
See Notes 27 and 28(c)(ii) for additional information. Bank facility associated with the PPI structured product is disclosed in Note 29(b).
Note 23. Provisions

Consolidated 2010 $000 Current Internal insurance and legal provision1 onerous leases and make good operational process review provision Lease expense provision Non-current Internal insurance and legal provision1 Lease expense provision 800 22,200 23,000 1 5,089 20,869 25,958 5,404 75 1,667 524 7,670 880 172 5,469 275 6,796 2009 $000
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.
Note 23. Provisions (continued)

Consolidated 2010 $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 Additional provision made during the year Payments made during the year Unused amounts reversed during the year Carrying amount at end of year Onerous leases and make good Carrying amount at beginning of year Additional provision made during the year Payments made during the year Carrying amount at end of year Operational process review provision Carrying amount at beginning of year Amount transferred from other debtors Additional provision made during the year Unused amounts reversed during the year Payments made during the year Amounts paid, recognised as receivable Carrying amount at end of year Lease expense provision Carrying amount at beginning of year Additional provision made during the year Payments made during the year Unused amounts reversed during the year Unwinding of provisions Carrying amount at end of year 21,144 12,475 (11,310) (133) 548 22,724 18,410 13,831 (11,097) 21,144 5,469 1,406 5,520 (3,207) (6,259) (1,262) 1,667 5,469 5,469 172 25 (122) 75 400 113 (341) 172 5,969 1,180 (895) (50) 6,204 6,165 5,005 (4,065) (1,136) 5,969 2009 $000
Note 24. Contributed equity

Share capital 43,417,478 (2009: 42,509,430) ordinary shares, fully paid 2010 $000 206,017 2009 $000 174,222
Number of shares Movements in share capital Balance at beginning of year Shares issued: Issued in business combination Dividend reinvestment Exercise of staff options Executive share plans (vested during the year) Employee equity allocation purchased on market Employee share plans (vested during the year) Balance at end of year ordinary shares fully paid (excluding unvested shares from share plans) Unvested shares from share plans ordinary shares fully paid 283,950 255,682 225,580 (29,465) 40,094,528 40,094,528 3,322,950 43,417,478 39,358,781
Number of shares 39,197,876 33,779 146,629 (19,503) 39,358,781 39,358,781 3,150,649 42,509,430
174,222 10,569 9,295 13,110 (1,336) 157 206,017 206,017 173,375 379,392
163,811 2,347 8,684 (1,014) 394 174,222 174,222 173,128 347,350
Note 26 provides details of shares issued on exercise of options. The Company does not have authorised capital or par value in respect of its issued shares. Shares issued under the executive and employee share plans were issued at market value.
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.
Note 25. Reserves

Consolidated 2010 $'000 General Available-for-sale-reserve1 Equity compensation reserve2 Cash flow hedge reserve3 Foreign currency translation reserve4 103 2,871 57,688 (454) (3,347) 56,861 1 2 2009 $'000 103 (4,016) 48,457 (755) (491) 43,298
3 4
The Available-for-sale-reserve represents adjustments to changes in the carrying value of shares and unit trusts to fair values. When these assets are sold or considered impaired, the cumulative gain / loss that had been recognised directly in equity is recycled to profit and loss. The Equity compensation reserve represents the value of the Companys own shares held by an equity compensation plan that the consolidated entity is required to include in the consolidated financial statements. This reserve will be reversed against share capital when the underlying shares vest to the employee. No gain or loss is recognised in profit and loss on the purchase, sale, issue or cancellation of the consolidated entitys 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(w)(i). Amounts are recognised in the Statement of comprehensive income when the associated hedged transaction affects profit and loss. The Foreign currency translation reserve records the foreign currency differences arising from the translation of self-sustaining foreign operations, the translation of transactions that hedge the companys net investment in a foreign operation or the translation of foreign currency monetary items forming part of the net investment in a self-sustaining operation. Refer to accounting policy Note 2(d).
Note 26. Employee benefits

a. Aggregate liability for employee benefits, including on-costs
Consolidated 2010 $'000 Current Liability for annual leave Liability for long service leave other employee benefits Restructuring provision 6,705 3,283 25,852 40 35,880 Non-current Liability for long service leave 2,894 2,371 5,916 2,887 19,689 804 29,296 2009 $'000
The non-current portion of the long service leave provision has been discounted using a rate of 5.3 per cent (2009: 5.5 per cent). The number of full time equivalent employees at 30 June 2010 was 1,550 (2009: 1,139).
b. Equity based plans

(i) Option plans The Company has an executive option plan which was approved at the 1998 Annual General Meeting. Each option is convertible to one ordinary share. The exercise price of the options, determined in accordance with the rules of the plan, is based on the weighted average price of the companys shares traded during the five business days preceding the date of granting the option. All options are to be settled by physical delivery of shares. options generally expire on the earlier of the expiry date or termination of the employees employment. There are no voting or dividend rights attached to the option nor the unissued ordinary share underlying the option.
Note 26. Employee benefits (continued)

b. Equity based plans (continued)
(i) Option plans (continued) A summary of options over unissued ordinary shares is set out below:
Weighted average exercise price $47.08 $56.85 $71.88 $79.17 $52.71 $42.73 $31.42 $29.74 $28.34 $28.34 Movement in number of options on issue 1 July 2009 978 28,144 29,950 236,436 75,301 57,390 182,215 58,939 47,585 716,938 Weighted average exercise price $32.46 $47.08 $56.85 $71.88 $79.17 $52.71 $42.73 $31.42 $29.74 $28.34 Issued 5,911 5,911 Forfeited (28,144) (75,301) (182,215) (58,939) (344,599) Exercised1 Outstanding at 30 June 2010 978 29,950 236,436 57,390 47,585 5,911 378,250 Number of options exercisable 978 978 Number of options exercisable 978 978
Grant date Jul 2004 Jul 2005 Jul 2006 Jul 2007 Mar 2008 Jul 2008 Jan 2009 Jun 2009 Jun 2009 Jul 2009
Exercise date Jun 2007

4
Expiry date Jul 2010 Jul 2011 Jul 2012 Jul 2013 Mar 2013 Jul 2014 Jan 2015 Jun 2014 Jun 2015 Jun 2015
Jun 2008 Jun 20094 Jun 20104 Mar 2011 Jun 20114 Jun 2013 Jun 2012 Jun 20124 Jul 20124
Movement in number of options on issue 1 July 2008 34,625 7,818 28,144 29,950 236,436 75,301 412,274 Issued 57,390 182,215 58,939 47,585 346,129 Forfeited (846) (6,840) (7,686) Exercised1 (33,779) (33,779) Outstanding at 30 June 2009 978 28,144 29,950 236,436 75,301 57,390 182,215 58,939 47,585 716,938
Grant date oct 2002 Jul 2004 Jul 2005 Jul 2006 Jul 2007 Mar 2008 Jul 2008 Jan 2009 Jun 2009 Jun 2009
Exercise date oct 20052 Jun 20074 Jun 20084 Jun 20094 Jun 20104 Mar 20114 Jun 20114 Jun 20133 Jun 20124 Jun 20124
Expiry date oct 2008 Jul 2010 Jul 2011 Jul 2012 Jul 2013 Mar 2013 Jul 2014 Jan 2015 Jun 2014 Jun 2015
1 2 3 4
In certain circumstances, at the discretion of the People and Remuneration Committee, options can be exercised prior to their earliest exercise date. one third of this class of option can be exercised on this date with a further third, one year from this date and the last third, two years from this date. This option class will vest on the fourth anniversary of the date of grant subject to the achievement of performance hurdles. This option class will vest on the third anniversary of the date of grant subject to the achievement of performance hurdles. on 23 June 2010, the company announced that Managing Director, David Deverall, had given notice of his resignation. As a result, no long term incentives, including the options outstanding as at 30 June 2010, will vest as a result of Mr Deveralls resignation and all unvested options will be forfeited on ceasing employment. The options outstanding as at 30 June 2010 have a carrying value of $Nil.
The options outstanding at 30 June 2010 have an exercise price in the range of $28.34 to $79.17 (2009: $28.34 to $79.17) and a weighted average contractual life of 3 (2009: 3.3) years. The weighted average share price at the date of exercise for share options exercised during the year ended 30 June 2010 was nil (2009: $38.96). The fair value of services received in return for share options granted is based on the fair value of share options granted, measured using a binomial lattice model, with the following inputs (weighted average):
2010 Fair value at grant date ($) Share price ($) Exercise price ($) Expected volatility (%) option life (years) Expected dividends (%) Risk free interest rate (%) 8.25 28.54 28.34 45 5 5.6 5.18 2009 8.12 32.15 32.59 35 5 5.57 4.38
(ii) Executive Share Plan (ESP) The ESP was approved by shareholders at the companys Annual General Meeting in 1997 and was amended at the 1999 AGM. The ESP forms part of the structure for short and long term variable remuneration components paid to employees. Grants under the plan for short-term performance are made on achievement of specific performance goals. Long-term grants vest after periods of between three to five years, and may include the achievement of specific performance hurdles. The issue price of grants of shares is the weighted average of the prices at which shares were traded on the ASX for the five days up to the date of issue. Shares are either purchased on market or issued by the Company to satisfy the grants made to eligible employees. While shares are held by the ESP, employees receive dividends and have voting rights.
(iii) Employee Share Purchase Plan (ESPP) This plan was discontinued on 10 December 2004 and no further issues have been made under this plan. The ESPP provided eligible employees with a non-recourse interest free loan, for a period not exceeding 10 years, to purchase shares under the plan. The invitation was open to employees who commenced permanent employment with Perpetual prior to 1 June 2004 with an offer to purchase a minimum number of shares equivalent in value to $1,000 and a maximum number of shares equivalent in value to $4,000. The issue price under the plan was the weighted average of the prices at which shares were traded on the ASX for the five days up to the date of issue. The shares vest when the loan is fully repaid. (iv) Tax Exempt Share Plan (TESP) Under the TESP, eligible employees will be able to salary sacrifice up to $1,000 of short term incentive to acquire an equivalent value of Perpetual shares. These shares cannot be sold or transferred until the earlier of three years after the date of allocation or the time the participant ceases to be an employee of Perpetual. Shares will be acquired in ordinary trading on the Australian Securities Exchange or issued by Perpetual. Executive directors and executives are not able to participate in this plan. (v) The Tax Deferred Share Plan (TDSP) Under the TDSP, eligible employees are able to salary sacrifice all or part of their short term incentive to acquire an equivalent value of Perpetual shares. Shares are acquired in the ordinary course of trading on the Australian Securities Exchange. Executive directors and executives have the opportunity to participate in this plan. Shares acquired under this plan by executive directors and executives are not subject to performance hurdles because they are acquired on a salary or bonus sacrifice basis. (vi) Deferred Share Plan (DSP) The DSP forms part of the structure for short-term and long-term variable remuneration components paid to eligible employees of the Australian business. Grants under the plan vest subject to the achievement of specific performance hurdles and service. The issue price of grants is the weighted average of the prices at which shares traded on the Australian Securities Exchange for the five days up to the date of issue. Shares are either purchased on market or issued by the company to satisfy grants made to eligible employees. While shares are held by the DSP, eligible employees have voting rights and receive dividends directly or reinvest dividends into Perpetual shares. (vii) Global Employee Share Trust (GEST) The GEST forms part of the structure for long-term variable remuneration components paid to eligible employees of the Perpetual Investments Global Equities business. The issue price of grants is the weighted average of the prices at which shares traded on the Australian Securities Exchange for the five days prior to the date of grant of shares. Shares are either
purchased on market or issued by the company to satisfy grants made to eligible employees. Dividends paid on shares held by the GEST are retained in the GEST for the benefit of the employee until performance hurdles are tested, at which time the dividend accumulated may be distributed to the employee. Voting rights attached to unvested shares that are held in the GEST are exercisable by the trustee of the GEST. Grants under the plan vest subject to the achievement of specific performance hurdles. (viii) Details of the movement in employee shares of share grants under the ESP, DSP and GEST in the 2010 financial year, 368,416 shares were issued at market price and 264,449 shares were re-issued from the forfeited share pool at market price. Certain share plans stipulate that dividends received on unvested long-term incentive shares (39,572 shares at last dividend payment) are to be reinvested into Perpetual shares. During the period 1,943 shares were purchased on market at an average price of $34.92 to satisfy this requirement. As a result of changes in the employee share scheme rules enacted in 2009, dividends that were being reinvested in Perpetual shares on long term incentive schemes are either now being received directly by the employees or held in the share plan bank account depending on the likelihood of the shares vesting. The amounts recognised in the financial statements of the consolidated entity in relation to the share plans referred to above during the year were amortisation of performance shares totalling $26,755,000 (2009: $25,930,000) recognised as an expense with the corresponding entry directly in equity. (ix) Non-executive Director 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 directors 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. During this financial year there were no directors that purchased shares on market in the Non-executive directors share purchase plan. During the prior financial year the following directors participated in this plan:
Shares purchased on market Directors E P McClintock E M Proust R M Savage P B Scott P J Twyman Number 1,675 419 2,134 1,047 2,095 7,370 $ 49,486 12,378 60,659 30,935 61,891 215,349
Note 27. Financial arrangements

Consolidated 2010 $'000 The consolidated entity has access to the following line of credit: Facilities utilised Floating rate bank facility Facilities not utilised Floating rate bank facility 25,000 45,000 45,000 2009 $'000
Note 28. 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 Committee. 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 have 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 entitys accounting policies and practices, the integrity of financial statements and reports, the scope, quality and independence of our external audit arrangements, the monitoring of the internal audit function, the effectiveness of risk management policies and the adequacy of our 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 29. The following discussion relates to financial risks exposure to the consolidated entity in its own right.
Bill facilities The floating rate bank bill facility is unsecured and has a floating interest rate of 5.07 per cent at 30 June 2010 (30 June 2009: 3.58 per cent). Repayment of the existing facility is due on 31 July 2011. 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, a maximum amount of structured product liabilities and a maximum provision for PPI credit losses as a specified percentage of PPI investor loans. The consolidated entity is in compliance with the covenants at 30 June 2010. 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 29 (b). This note should be read in conjunction with Note 28 (c) (ii).
a) Credit risk
Credit risk is the risk of financial loss from a counterparty failing to meet their contractual commitments. The consolidated entity is predominantly exposed to credit risk on its Perpetual Protected Investments (PPI) loans which are issued only in Australia to retail customers, derivative financial instruments and deposits with banks and financial institutions, outstanding receivables and committed transactions. The maximum exposure of the consolidated entity to credit risk on financial assets which have been recognised on the balance sheet is the carrying amount, net of any provision for doubtful debts. The table on the following page outlines the consolidated entitys maximum exposure to credit risk as at reporting date.
Consolidated 2010 $'000 Cash and cash equivalents Trade debtors Structured products - loans receivable (PPI) other loan receivables Available-for-sale listed equity securities and unlisted unit trusts Held-to-maturity securities Derivative financial instruments used for hedging: assets 187,539 70,177 188,832 20,573 49,568 222 11 2009 $'000 146,138 65,041 319,651 17,539 36,355 222 145
For amounts greater than $1 million, approval from both the CRo 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 29. (ii) Investments 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 Perpetuals investors. Exposure to credit risk arises on the consolidated entitys 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. (iii) Other financial assets The consolidated entitys 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 entitys regulatory reporting. Credit risk arising from cash investments is mitigated by ensuring they have a Standard & Poors 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. The table below provides an aged analysis of the financial assets which were past due but not impaired as at the reporting date.
30 June 2009
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 $1,199 million (2009: $1,513 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 29. (i) 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 dedicated Credit office who report to the General Manager, Structured Products. 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 Chief Risk officer (CRo) to ensure its continued compliance with the Groups Risk Management Framework. All loans are secured by the investors 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 2010, loans for which Perpetual holds additional collateral amounted to $3.5 million (30 June 2009: $3.5 million). 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.
30 June 2010 Less than 30 days $000 Consolidated Trade debtors other receivables 1,696 697 2,393 803 10 813 607 607 664 95 759 30 to 60 days $000 60 to 90 days $000 More than 90 days $000
Total $000
Less than 30 days $000
30 to 60 days $000
60 to 90 days $000
More than 90 days $000
Total $000
3,770 802 4,572
1,252 554 1,806
401 401
140 140
516 64 580
2,309 618 2,927
Note 28. Financial risk management (continued)

a) Credit risk (continued)
(iii) Other financial assets (continued) 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. A loan of $7.2 million (2009: $6.6 million) is included in other debtors Current as at 30 June 2010. The loan, which was originally due for repayment on 2 June 2010, was extended to 2 August 2010. The loan was repaid in full on 31 July 2010. The nominal values of financial assets which were impaired are as follows:
Consolidated 2010 $'000 Trade debtors Structured products loans receivable 522 2,635 3,157 2009 $'000 271 991 1,262
Management Review (refer to capital management disclosed below in Note 28 (d) 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 balance sheet is reviewed by the Board on a semi-annual basis as part of the Capital Management Review to ensure there is sufficient liquidity within the Group. The repayment of the existing facility of $45 million (refer to Note 27) is due on 31 July 2011. The $25 million unutilised bank facility may be drawn at any time at the discretion of the consolidated entity. The consolidated entitys 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.
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 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 28 (a)(i) above. For details of the provisions for impairment refer to Notes 13 and 29. b) 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 entitys 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
c) Market risk
The consolidated entity is subject to the following market risks: (i) 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
30 June 2010 Less than 1 year $000 Consolidated Liabilities Trade and other payables Interest bearing liabilities Structured products interest bearing liabilities 40,661 24,818 65,479 Derivatives Net settled interest rate swaps Gross settled other derivatives outflow (inflow) 663 (663) 227 812 663 (663) 1,039 2,469 (2,469) 337 227 812 1,039 337 6,206 45,000 164,807 216,013 46,867 45,000 189,625 281,492 35,442 107,683 143,125 1 to 5 years $000 More than 5 years $000 Total $000 Less than 1 year $000
30 June 2009 1 to 5 years $000 More than 5 years $000 Total $000
1,819 45,000 84,590 131,409
126,475 126,475
37,261 45,000 318,748 401,009
1,347 1,347
259 259
1,943 2,469 (2,469) 1,943
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. (ii) 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 entitys 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 (7 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 (b) maturity or duration mismatches. In order to manage the interest rate risk relating to PPI structured products, it is the consolidated entitys 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. The consolidated entitys exposure to interest rate risk for the financial assets and liabilities is set out as follows:
Floating interest rate Note At 30 June 2010 Financial assets Cash assets Receivables other financial assets Structured products loans receivable current Structured products loans receivable non-current 12 13 14 29 29 187,239 7,165 60 26,157 20,489 241,110 Financial liabilities Payables Interest-bearing liabilities Structured products interest-bearing liabilities current Structured products interest-bearing liabilities non-current Effect of interest rate swaps 20 22 29 29 45,000 24,818 80,729 (50,815) 99,732 At 30 June 2009 Financial assets Cash assets Receivables other financial assets Structured products loans receivable current Structured products loans receivable non-current 12 13 14 29 29 146,138 6,575 60 108,935 13,400 275,108 Financial liabilities Payables Interest-bearing liabilities Structured products payable to investors Structured products interest-bearing liabilities Effect of interest rate swaps 20 22 29 29 45,000 107,683 107,691 (61,915) 198,459 $000
Fixed interest rate maturing in 6 months or less $000 6-12 months $000 4-7 years $000
Non-interest bearing $000
Total
$000
250 162 412
50 65,457 65,507
76,729 76,729
83,326 49,827 133,153
187,539 90,491 50,049 26,157 162,675 516,911
17,150 43,600 60,750
66,928 7,215 74,143
46,867 46,867
46,867 45,000 24,818 164,807 281,492
40 40
101,417 101,417
95,899 95,899
75,773 36,709 112,482
146,138 82,348 36,809 108,935 210,716 584,946
29,650 54,500 84,150
73,724 7,415 81,139
37,261 37,261
37,261 45,000 107,683 211,065 401,009
Note 28. Financial risk management (continued)

c) Market risk (continued)
(ii) 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 2010 Impact on profit after tax $000 Consolidated Change in variable + 1 per cent - 1 per cent 1,016 (1,016) 1,758 (1,768) 784 (784) 1,689 (1,698) Impact on equity $000 30 June 2009 Impact on profit after tax $000 Impact on equity $000
These funds may be party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in foreign exchange rates, interest rates and equity indices in accordance with the funds investment guidelines. The impact on the consolidated profit after tax of a potential change in the returns of the funds in which the consolidated entity invested at year end is not material. The potential change has been determined using historical analysis and managements assessment of an appropriate rate of return. The analysis is based on the assumption that the returns on asset classes have moved, with all other variables held constant and that the relevant change occurred as at the reporting date. However, actual movements in the risk may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of economies, markets and securities in which the funds invest. As a result, historic variations in risk variables are not a definitive indicator of future variations in the risk variables. The incubation funds may be exposed to currency risk and interest rate risk. Their investment managers may enter into derivative contracts (such as forwards, swaps, options and futures) through approved counterparties to minimise risk. However, the use of these contracts must be consistent with the investment strategy and restrictions of each incubation fund, and agreed acceptable level of risk. These funds are also exposed to interest rate risk on cash holdings. Interest income from cash holdings is earned at variable interest rates and investments in cash holdings are at call. (v) Market risks arising from the Exact Market Cash Funds The consolidated entity is further subject to market risks through the establishment of the Exact Market Cash Fund (EMCF). The fund was established with the purpose of providing an exact return utilising the UBS Bank Bill Index (the benchmark index) to investors. The impact of the EMCF on the consolidated entitys financial results is dependent on the performance of the fund relative to the benchmark. The risk management approach to and exposures arising from the EMCF are disclosed in Note 29.
The impact on profit after tax for the year would be mainly as a result of an increase/(decrease) in interest revenue earned on cash and cash equivalents. The impact on equity would be mainly the result of an increase/(decrease) in the fair value of the cash flow hedges associated with variable interest rate borrowings. (iii) Market risks arising from Funds Under Management and Funds Under Advice The consolidated entitys revenue is significantly dependent on Funds Under Management and Funds Under Advice which are influenced by equity market movements. Management calculates the expected impact on revenue for each 1 per cent movement in the All ords. Based on the level of the All ords at the end of 30 June 2010 (4,325), a 1 per cent movement in the market changes annualised revenue by approximately $2.0m to $2.5m. It is worth noting 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 per cent 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. (iv) Market risks arising from incubation funds The consolidated entity is exposed to equity price risk on investments held by its incubation funds. The funds may also be exposed, to a small extent, to the other risks which influence the value of those shares or units (including foreign exchange rates and interest rates). Market risk in the incubation funds is limited by a predetermined seed capital funding pool which has been allocated based on the consolidated entitys balance sheet. The Investment Committee is responsible for determining the size of the pool and approving new incubation fund strategies. They also ensure management has appropriate processes and systems in place for managing investment risk for each fund. The funds specialist asset managers aim to manage the impact of price risks through the use of consistent and carefully considered investment guidelines. Risk management techniques are used in the selection of investments, including derivatives, which are only acquired if they meet specified investment criteria. Daily monitoring of trade restrictions and derivative exposure against limits is undertaken with any breach of these restrictions reported to the Chief Risk officer.
d) Capital management
A Capital Management Review is carried out on a semi-annual basis and is submitted to the Board for review and approval. The capital management policy ensures that the level of financial conservatism is appropriate for the Companys businesses including acting as custodian and manager of clients assets and operation as a trustee company. This policy also aims to provide business stability and accommodate the growth needs of the consolidated entity. This policy comprises three parts: (i) Dividend Policy Dividends paid to shareholders are to be in the range of 80-100 per cent of the consolidated entitys net profit after tax attributable to members of the Company, which is in line with the historical dividend range paid to shareholders.
(ii) Review of capital and distribution of excess capital A review of the consolidated entitys capital base is performed at least semi-annually and excess capital that is surplus to the Groups current requirements is potentially returned to shareholders in the absence of a strategically aligned, value accretive investment opportunity. (iii) Gearing Policy The consolidated entity seeks to maintain a conservative financial management profile. Its gearing policy includes a maximum debt /debt and total equity ratio of 30 per cent and EBITDA interest cover of more than 10 times. Corporate debt (excluding product debt) has been maintained at $45 million throughout the year (2009: $45 million), and the consolidated entity is within its stated gearing policy at year end. The gearing ratio for the consolidated entity as at 30 June 2010 is 11 per cent (2009: 13 per cent) and an EBITDA interest cover ratio of 54 times (2009: 54 times) was achieved.
2010 Deferred acquisition consideration $'000 Consolidated opening balance Acquisitions through business combinations Accrual of interest Closing balance 2,440 8,583 796 11,819
e) Fair value
As of 1 July 2009, Perpetual has adopted the amendment to AASB 7 Financial Instruments: Disclosures which requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: (i) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) (ii) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (level 2) (iii) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). The following tables present the consolidated entitys assets and liabilities measured and recognised at fair value at 30 June 2010. Comparative information has not been provided as permitted by the transitional provisions of the new standard.
Consolidated Level 1 $000 At 30 June 2010 Financial assets Available-for-sale listed equity securities Available-for-sale unlisted unit trusts Derivative financial instruments Structured products EMCF assets1 Financial liabilities Derivative financial instruments Deferred acquisition consideration 1 662 662 11,819 11,819 662 11,819 12,481 36,030 36,030 13,538 11 1,154,517 1,168,066 36,030 13,538 11 1,154,517 1,204,096 Level 2 $000 Level 3 $000 Total $000
The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-forsale 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 entitys financial assets and liabilities included in current assets and liabilities in the balance sheet are carried at amounts in accordance with Notes 12, 13, 14, 20 and 29. The carrying amount of financial assets and financial liabilities, less any impairment, approximates their fair value, except for those outlined in the table below.
2010 Carrying amount $000 Structured products loans receivable (non-current) Structured products interest bearing liabilities (non-current) Fair value $000 Carrying amount $000 2009 Fair value $000
162,675
159,318
210,716
200,452
164,807
154,309
211,065
202,473
The EMCF liability is not included as it is accounted for at amortised cost.
Note 29. Structured products assets and liabilities

a. Exact Market Cash Funds
Consolidated 2010 $'000 Current assets Exact Market Cash Fund 1 Exact Market Cash Fund 2 Current liabilities Exact Market Cash Fund 1 Exact Market Cash Fund 2 695,129 495,213 1,190,342 1,089,263 408,991 1,498,254 693,243 497,823 1,191,066 1,086,011 409,779 1,495,790 2009 $'000
guarantee to the value of $6 million (2009: $5 million) to be called upon in the event that Perpetual does not meet its obligations to the fund under the swap agreement The EMCF1 product has been assigned a AAf fund credit quality rating by Standard & Poors and invests predominantly in Perpetuals Credit Enhanced Cash Fund (AA) and Cash Alpha Pool Fund of the consolidated entity. These funds cannot invest in securities which have a Standard & Poors 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. The EMCF2 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 & Poors or equivalent rating agency at the time of purchase. EMCF1 and EMCF2 (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 reasonable expectation of investor redemptions, distributions or other of the funds 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 & Poors rating categories, in accordance with the investment mandate of the EMCF. The EMCFs 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 & Poors AAf fund credit quality rating criteria.
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 entitys obligation to the funds investors under the swap agreements and reflect the net assets of the funds for unit pricing purposes. The Exact Market Cash Fund 1 (EMCF1) 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 funds ability to pay the benchmark return to the investors is guaranteed by the consolidated entity. The National Australia Bank has provided the EMCF1 product with a guarantee to the value of $20 million in 2010 (2009: $22.5 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 EMCF1 differs from that of the benchmark. The return of the EMCF1 is affected by risks to the underlying investments in the EMCF1 portfolio, which are market, liquidity, and credit risks. In March 2009, the consolidated entity changed the swap agreement valuation methodology between the fund and the consolidated entity. The underlying investments are now valued on a hold to maturity basis for unit pricing purposes, which is consistent with the way in which Perpetual now manages the portfolio. The underlying assets were valued at their fair value at the date of change, which for many assets was at a discount to their maturity value. The discount to maturity value will be amortised over the remaining term of the assets. The change in valuation methodology will not affect the investment returns to investors in the EMCF1. The Exact Market Cash Fund 2 (EMCF2) 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 EMCF1, but in addition, there are specific rules that govern the withdrawal of funds. EMCF2 invests in debt securities issued by parties or securities with a minimum credit rating of BBB- by Standard & Poors or equivalent rating agency at the time of purchase. The investments held by EMCF2 are recorded at fair value within the fund, and in the consolidated entitys financial statements. National Australia Bank has provided the fund with a
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 to AA$000 30 June 2010 Corporate bonds Mortgage and asset backed securities Cash 234,236 537,385 167,492 5,011 61,990 9,831 463,718 552,227 A+ to A$000 BBB+ to BBB$000 Total
Structured products loans receivable at reporting date consists of the following:

Consolidated 2010 $'000 Current Structured products receivable from investors Non-current 26,157 26,157 Structured products loans receivable Less: loan establishment fees 165,690 (380) 165,310 Less: provision for credit losses (2,635) 162,675 Movements in the provision for credit losses are as follows: Balance as at 1 July Provision for credit losses recognised during the year Unused amounts reversed Balance as at 30 June 991 2,376 (732) 2,635 991 991 108,935 108,935 212,247 (540) 211,707 (991) 210,716 2009 $'000
$000
183,375 954,996
172,503
71,821
183,375 1,199,320
30 June 2009 Corporate bonds Mortgage and asset backed securities Cash 225,389 595,969 472,545 1,293,903 143,858 9,217 153,075 50,666 15,562 66,228 419,913 620,748 472,545 1,513,206
The impact of the EMCF on the consolidated profit after 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. If the funds 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 funds performance is higher than the benchmark, then the fund will make payments to the consolidated entity. The table below demonstrates the impact of a 1 per cent deviation of the fund from the benchmark return on the consolidated profit before tax.
2010 $'000 EMCF performance 1 per cent higher than benchmark EMCF performance 1 per cent lower than benchmark 11,993 (11,993) 2009 $'000 15,132 (15,132)
In June 2010, 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 2010 were $189.6 million (2009: $318.7 million). It is the consolidated entitys 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 entitys exposure to risks arising from Perpetual Protected Investments are set out in Note 28. 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. Interest rate swap contracts entered into cover approximately 97 per cent (2009: 94 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 4.74 per cent to 7.37 per cent (2009: 3.12 per cent to 7.37 per cent) and the banking facilities variable interest rates range from 5.89 per cent to 6.1 per cent (2009: 4.42 per cent to 4.5 per cent).
b. 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 years interest if the interest is pre-paid), subject to a minimum loan of $50,000.
The interest rates under the fixed interest banking facilities range from 5.24 per cent to 7.77 per cent (2009: 3.53 per cent to 7.77 per cent). There were $84.1 million fixed interest banking facilities at 30 June 2010. Interest rate swaps have been both terminated and entered into in accordance with the Groups 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:
2010 Fair value $000 Less than 1 year 4-7 years (11) (651) (662) Notional amount $000 43,600 7,215 50,815 Fair value $000 124 (821) (697) 2009 Notional amount $000 54,500 7,415 61,915
Note 31. Contingencies

The directors are of the opinion that the recognition of liabilities is not required in respect of these matters, as it is not probable that future sacrifice of economic benefits will be required and the amount is not capable of reliable measurement.
Consolidated 2010 $'000 Contingent liabilities A controlled entity has bank guarantees to the favour of the Australian Securities and Investments Commission in respect of dealer's licence arrangements. Bank guarantees of a controlled entity in favour of the ASX Settlement and Transfer Corporation Pty Limited with respect to normal trading activities. Bank guarantees of a controlled entity in favour of various lessors for rental bonds on leased premises. 20 20 2009 $'000
1,000
1,000
The gain or loss from re-measuring 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 re-classified into net profit and loss when the hedged interest expense is recognised. The ineffective portion is recognised in net profit and loss immediately. As at 30 June 2010, an unrealised loss of $0.4 million (2009: loss of $0.7 million) was deferred in equity in the cash flow hedge reserve.
340
124
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 30. Commitments

Consolidated 2010 $'000 Capital expenditure commitments Contracted but not provided for and payable within one year 1,207 940 2009 $'000
Note 32. Related parties

Controlled entities and associates The consolidated entity has a related party relationship with its Key Management Personnel (see Note 38). Business transactions with related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. For a fixed term from 2 November 2009 to 2 May 2010, Meredith Brooks provided advisory and consulting services to Perpetual Investments Global Equities business. In accordance with the consultancy agreement, Ms Brooks received $197,000 for providing those services. This cash payment is in addition to the fees Ms Brooks received in her capacity as a non-executive director.
Capital expenditure contracted but not provided for and payable within one year relates primarily to costs associated with the fit out of Angel Place, Sydney and the costs associated with software development.
Consolidated 2010 $'000 Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years 15,761 62,100 73,581 151,442 13,405 63,935 67,481 144,821 2009 $'000
Note 33. Controlled entities

Beneficial interest 2010 Name of company % 2009 % Country of incorporation
Perpetual Limited Controlled Entities1 Australian Trustees Limited Commonwealth Trustees Pty Limited2 Financial Pursuit Pty Limited Fordham Business Advisors Pty Limited Grosvener Financial Services Pty Limited Investor Marketplace Limited Perpetual Assets Pty Limited2 Perpetual Australia Pty Limited Perpetual Investment Management Limited Perpetual Loan Company Limited Perpetual Loan Company No. 2 Limited Perpetual Mortgage Services Pty Limited Perpetual Nominees Limited Perpetual Services Pty Limited2 Perpetual Trust Services Limited Perpetual Trustee Company (Canberra) Limited Perpetual Trustee Company Limited Perpetual Trustees Consolidated Limited Perpetual Trustees Queensland Limited Perpetual Trustees SA Limited Perpetual Trustees Victoria Limited Perpetual Trustees WA Limited PI Investment Management Limited Queensland Trustees Pty Limited smartsuper Pty Limited Perpetual Legal Services Pty Limited Perpetual Concentrated International Share Fund Perpetual Resource Fund Perpetual Wholesale Geared International Share Fund Perpetual Asia Pool Fund Perpetual Equity Imputation Portfolio Perpetual Capital Accumulation Portfolio Global equities UCITS Fund Perpetual Pure Value 2 Fund Exact Market Cash Fund 1 Exact Market Cash Fund 2 Entities under the control of Australian Trustees Limited Wilson Dilworth Partnership Pty Limited2 Entities under the control of Fordham Business Advisors Pty Limited Fordham Investment Management Pty Limited Garnet Investment Management Pty Limited Garnet Superannuation Pty Limited Transcript Pty Limited2 Entities under the control of Grosvenor Financial Services Pty Limited Grosvenor Tax and Accounting Pty Limited Entities under the control of Perpetual Assets Pty Limited Perpetual Asset Management Limited 100 100 Australia 100 Australia 100 100 100 100 Australia Australia Australia Australia 100 100 Australia 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 92 92 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 99 46 100 100 100 100 100 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ireland Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia
Note 33. Controlled entities (continued)

Beneficial interest 2010 Name of company Entities under the control of Perpetual Asset Management Limited1 Perpetual Superannuation Limited Entities under the control of Perpetual Trustee Company Limited Perpetual Corporate Trust Limited Perpetual Custodians Limited Perpetual Service Network Pty Limited2 PT Limited 100 100 100 100 100 100 100 100 Australia Australia Australia Australia 100 100 Australia % 2009 % Country of incorporation
Entities under the control of Perpetual Trustees Consolidated Limited Perpetual Nominees (Canberra) Limited Perpetual Custodian Nominees Pty Limited2 100 100 100 100 Australia Australia
Entities under the control of Perpetual Trustees Victoria Limited Perpetual Executors Nominees Limited AXA GESP Exempt (Aust) Pty Limited
3
100 -
100 51 51
Australia Australia Australia
AXA GESP Deferred (Aust) Pty Limited3
Entities under the control of Perpetual Trustees WA Limited Terrace Guardians Limited 100 100 Australia
Entities under the control of PT Limited1 Perpetrust Nominees Pty Limited2 100 100 Australia
Entities under the control of Wilson Dilworth Partnership Pty Limited1 Wilson Dilworth Limited 1 2 3 100 100 Australia
Entities in bold are directly owned by Perpetual Limited with the exception of Perpetual Asset Management Limited, P.T. Limited and Wilson Dilworth Partnership Pty Limited which are owned by Perpetual subsidiaries. A small proprietary company as defined by the Corporations Act 2001 and is not required to be audited for statutory purposes. AXA GESP Exempt (Aust) Pty Limited and AXA GESP Deferred (Aust) Pty Limited were sold by Perpetual Trustees Victoria Limited on 26 March 2010.
Note 34. Parent entity disclosures

Company 2010 $'000 As at, and throughout, the financial year ending 30 June 2010 the parent entity of the Group was Perpetual Limited. Result of the parent entity Profit for the period other comprehensive income/(expense) Total comprehensive income for the period Financial position of the parent entity at year end Current assets1 Total assets Current liabilities1 Total liabilities Total equity of the parent entity comprising Share capital Reserves Retained earnings Total equity 1 236,724 50,509 99,170 386,403 204,520 39,447 109,300 353,267 154,815 576,524 155,157 190,121 132,193 481,877 103,376 128,610 56,296 4,478 60,774 80,748 (8,279) 72,469 2009 $'000
Current liabilities exceed current assets by $342,000 as at 30 June 2010 which is primarily due to a net intercompany payable to controlled entities of $29,605,000. This will not affect the parent entitys ability to pay its debts as and when they become due and payable. Total assets of the parent entity exceed total liabilities by $386,403,000. Company 2010 $'000 2009 $'000
Parent entity contingencies The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Uncalled capital of the controlled entities In the ordinary course of business, contingent liabilities exist in respect of claims and potential claims against the parent entity. The parent entity does not consider that the outcome of any such claims known to exist at the date of this report, either individually or in aggregate, are likely to have a material effect on its operations or financial position. Capital expenditure commitments Contracted but not provided for and payable within one year Capital expenditure contracted but not provided for and payable within one year relates primarily to costs associated with the fit out of Angel Place, Sydney and the costs associated with software development. Operating lease commitments Future operating lease rentals not provided for in the financial statements and payable: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years operating leases are predominantly related to premises. 10,817 55,340 53,946 120,103 10,324 55,075 66,897 132,296 1,207 940 9,893 10,903
Parent entity guarantees The Companys policy is to provide financial guarantees only to wholly-owned subsidiaries and has provided financial guarantees in respect of: Guarantee to secure a $70,000,000 bank facility ($45,000,000 is utilised) of a controlled entity amounting to $70,000,000 (2009: $45,000,000). Guarantees to secure lending associated with structured products amounting to $11,371,000 (2009: $16,122,000). No liability was recognised by the Company in relation to these guarantees as the fair value of these guarantees is considered to be immaterial. The Company does not expect the financial guarantees to be called upon.
Note 35. Notes to the Cash Flow Statement

Consolidated 2010 $'000 Cash flows from operating activities Profit for the year Add/(less) items classified as investing/financing activities: (Profit)/loss on sale of investments Reinvestment of dividends and unit distributions Working capital acquired from business combinations Leave liabilities acquired from business combinations Deferred acquisition consideration Deferred tax recognised on intangibles acquired Share of loss/(profit) of equity accounted investees, net of income tax Tax paid on the sale of investments Add/(less) non-cash items: Loss on sale of property, plant and equipment Transfer from cash flow hedge reserve to profit and loss Depreciation and amortisation expense Equity remuneration expense Transfer to foreign currency translation reserve Transfer to available-for-sale reserve Profit after tax attributable to non-controlling interests Impairment of available-for-sale securities Net cash provided by operating activities before change in assets and liabilities Change in assets and liabilities during the financial year: (Increase)/decrease in receivables Decrease/(increase) in net structured products assets Decrease in derivative assets (Decrease)/increase in derivative liabilities Increase/(decrease) in payables Decrease/(increase) in prepayments Increase/(decrease) in employee benefits (Decrease)/increase in provisions Increase/(decrease) in current tax liabilities Increase in deferred tax assets Increase in deferred tax liabilities (Decrease)/increase in cash flow hedge reserve Net cash provided by operating activities (8,143) 2,051 134 (159) 9,606 3,515 7,107 (2,084) 16,586 (2,838) 5,061 (301) 152,553 6,155 (812) 15,358 586 (12,255) (4,039) (7,580) 7,354 (25,258) (1,517) 2,817 3,599 62,725 78 14,857 26,755 (2,856) (1,125) 216 7,085 122,018 470 (14) 13,163 25,930 197 (1,725) 58 1,065 78,317 (3,913) (512) 5,724 (903) (8,583) (4,543) 16 (784) 6,673 (1,962) 1,000 (80) (2,439) (111) (1,657) 90,506 37,749 2009 $'000
Note 36. Business combinations

(i) Grosvenor Financial Services Pty Ltd
on 24 September 2009 the Company acquired 100 per cent of the issued share capital of Grosvenor Financial Services Pty Ltd, which specialises in providing financial advice and services to medical, dental and legal professionals. The acquired entity is based in the Sydney CBD. The acquisition of Grosvenor is part of the consolidated entitys strategy to expand its private wealth business by acquiring complementary businesses specialising in the high net worth segment of the market. The acquired business contributed revenue of $4.6 million and net loss after tax of $0.8 million to the consolidated entity for the period from 24 September 2009 to 30 June 2010. If this acquisition had occurred on 1 July 2009, the revenue and net loss would have been $5.8 million and $1.0 million respectively. The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities assumed at the acquisition date: Consideration transferred
$'000 Cash consideration Equity consideration Contingent consideration Total consideration 8,875 10,569 682 20,126
The fair value of the ordinary shares issued (283,950) was based on the listed share price of the Company at 24 September 2009 of $37.22 per share.
Contingent consideration The Company has agreed to pay the selling stakeholder additional cash consideration if the acquiree exceeds certain pre-determined revenue hurdles. The Company has included $0.7 million as contingent consideration related to the additional consideration, which represents its fair value at the acquisition date. The fair value of the contingent consideration was calculated by applying the income approach using the expected contingent consideration and a discount rate of 15 per cent. Subsequent to the date of acquisition, the balance of contingent consideration has increased by $0.1 million, representing the unwinding of the discount in the period since acquisition. Identifiable assets acquired and liabilities assumed
$'000 Intangible assets Receivables Cash and cash equivalents Current tax assets other current assets Trade and other payables Financial liabilities Current tax liabilities Deferred tax liabilities Provisions Total identifiable net assets 6,041 1,117 48 172 418 (103) (100) (497) (1,813) (336) 4,947
The acquisition of Fordham is part of the consolidated entitys strategy to expand its private wealth business by acquiring complementary businesses specialising in the high net worth segment of the market. The acquired business contributed revenue of $10.8 million and net profit after tax of $0.2 million to the consolidated entity for the period from 5 January 2010 to 30 June 2010. If this acquisition had occurred on 1 July 2009, the revenue and net profit would have been $21.6 million and $2.0 million respectively. The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities assumed at the acquisition date: Consideration transferred
$'000 Cash consideration Cash consideration held in escrow Contingent consideration Total consideration 16,900 10,022 7,901 34,823
Contingent consideration The Company has agreed to pay the selling stakeholder additional cash consideration if the acquiree exceeds certain pre-determined gross profit and synergy hurdles. The Company has included $7.9 million as contingent consideration related to the additional consideration, which represents its fair value at the acquisition date. The fair value of the contingent consideration was calculated by applying the income approach using the expected contingent consideration and a discount rate of 7.2 per cent. Subsequent to the date of acquisition, the balance of contingent consideration has increased by $0.2 million, representing the unwinding of the discount in the period since acquisition. Identifiable assets acquired and liabilities assumed
$'000 Intangible assets Receivables 9,100 4,688 300 290 2,630 (424) (2,730) (752) 13,102
All trade receivables are expected to be collectible at the acquisition date. Goodwill
$'000 Goodwill was recognised as a result of the acquisition as follows: Total consideration transferred Less value of identifiable net assets Goodwill 20,126 (4,947) 15,179
The goodwill is attributable mainly to the skills and technical talent of the acquirees work force, and the synergies expected to be achieved from integrating the company into the consolidated entity. None of the goodwill recognised is expected to be deductible for income tax purposes. Transactions separate from the acquisition The consolidated entity incurred acquisition-related costs of $0.3 million relating to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in administrative and general expenses in the consolidated entitys Statement of comprehensive income.
Cash and cash equivalents other current assets Property, plant & equipment Trade and other payables Deferred tax liabilities Provisions Total identifiable net assets
All trade receivables are expected to be collectible at the acquisition date. Goodwill
$'000 Goodwill was recognised as a result of the acquisition as follows: Total consideration transferred Less value of identifiable net assets Goodwill 34,823 (13,102) 21,721
(ii) Fordham Business Advisors Pty Ltd

on 5 January 2010 the Company acquired 100 per cent of the issued share capital of Fordham Business Advisors Pty Ltd, which specialises in providing financial, investment and related tax and accounting services for private business owners. The acquired entity is based in the Melbourne CBD.
The goodwill is attributable mainly to the skills and technical talent of the acquirees work force, and the synergies expected to be achieved from integrating the company into the consolidated entity. None of the goodwill recognised is expected to be deductible for income tax purposes. Transactions separate from the acquisition The consolidated entity incurred acquisition-related costs of $0.6 million relating to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in administrative and general expenses in the consolidated entitys Statement of comprehensive income.
Note 38. Remuneration details provided as part of the financial report

The following disclosures required under AASB 124 are required to be included in the Financial Report: Para 16 Total Compensation of Key Management Personnel Para 25.7.3 options and Rights holdings Para 25.7.4 Equity Holdings and Transactions Para 25.9 Disclosure of other Transactions. Total compensation of key management personnel
Consolidated 2010 $'000 Short-Term Post-Employment Termination benefits Share-Based Total 8,309,185 336,371 742,219 (444,168) 8,943,607 2009 $'000 6,559,201 397,882 585,000 1,014,888 8,556,971
Note 37. Subsequent events

The directors are not aware of any other event or circumstance since the end of the financial period 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.
Negative balances are a result of adjustments made in the year to reflect the most current expectations of vesting of LTI grants with non-market conditions hurdles. Related party disclosures Executives have not entered into material contracts with the Company or a member of the consolidated entity since the end of the previous financial year and there were no material contracts involving KMPs interests existing at year end.
Option holdings of Executive Director and group executives

Name Grant date Exercise period Movement during the year Exercise price $ Managing Director D Deverall2 options granted prior to 1 July 20083 1 Jul 08 29 Jun 09 3 Jul 09 1 Jul 11 1 Jul 14 1 Jul 12 29 Jun 15 1 Jul 12 29 Jun 15 Aggregate value Departed Group Executives E Gonzalez 20 Jan 09 30 Jun 13 20 Jan 15 Aggregate value J Nesbitt 9 Jun 09 30 Jun 12 30 Jun 14 Aggregate value E Wang 31 Mar 08 31 Mar 11 31 Mar 13 Aggregate value 52.71 75,301 28.34 58,939 31.42 182,215 182,215 $5,725,195 58,939 $1,670,331 75,301 $3,969,116 9.96 9.06 6.60 42.73 28.34 28.34 295,508 57,390 47,585 5,911 $56,627 28,144 $1,599,986 267,364 57,390 47,585 5,911 978 8.97 9.58 9.58 Held at 1 July 2009 No. of options Granted Forfeited No. of options Exercised Held at 30 June 2010 Vested and exercisable at 30 June 2010 Fair value per option at grant date1 $ Proceeds received on exercise $
options granted to the Managing Director and group executives are granted from the Executive option Plan. R Brandweiner, R Burrows, C Doyle, C Green, I Holyman, R MacIntyre, M Miller, M Pancino, P Ryan, S Singh and J Stewart do not hold options over Perpetual shares. 1 Equity instruments issued have been valued by PricewaterhouseCoopers (PwC) using a Binomial option Pricing model at grant date. 2 Approval for the issue of options to D Deverall was obtained under ASX Listing Rule 10.14 at Perpetuals AGMs held on 19 october 2004, 17 october 2006, 30 october 2007, 28 october 2008 and 22 october 2009. 3 These options were granted on 19 october 2004 (978), 1 July 2005 (28,144), 1 July 2006 (29,950) and 1 July 2007 (236,436). on 23 June 2010, the company announced that Managing Director, David Deverall, had given notice of his resignation. As a result, no long term incentives, including the options outstanding as at 30 June 2010, will vest as a result of Mr Deveralls resignation and all unvested options will be forfeited on ceasing employment. The options outstanding as at 30 June 2010 have a carrying value of $Nil. 4 Percentage of total remuneration received as options for the Managing Director and Group Executives are: D Deverall (0%), E Gonzalez (0%), J Nesbitt (0%) and E Wang (0%). Name Grant date Exercise period Movement during the year Exercise price $ Managing Director D Deverall2 options granted prior to 1 July 20073 1 Jul 07 1 Jul 07 1 Jul 07 1 Jul 08 29 Jun 09 30 Jun 10 1 Jul 13 30 Jun 12 1 Jul 13 1 Jul 10 1 Jul 17 1 Jul 11 1 Jul 14 1 Jul 12 29 Jun 19 Aggregate value Group Executives E Gonzalez options granted prior to 1 July 20074 20 Jan 09 30 Jun 13 20 Jan 15 Aggregate value J Nesbitt 9 Jun 09 30 Jun 12 9 Jun 19 Aggregate value E Wang 31 Mar 08 31 Mar 11 31 Mar 13 Aggregate value 52.71 75,301 28.34 31.42 33,334 182,215 $1,202,619 58,939 $533,987 33,334 $409,342 75,301 9.96 58,939 9.06 182,215 6.60 $1,082,022 79.17 79.17 79.17 42.73 28.34 65,912 134,625 67,313 34,498 57,390 47,585 $970,653 6,840 $322,027 59,072 134,625 67,313 34,498 57,390 47,585 978 11.92 11.92 11.92 8.97 9.58 Held at 1 July 2008 No. of options Granted Forfeited No. of options Exercised Held at 30 June 2009 Vested and exercisable at 30 June 2009 Fair value per option at grant date1 $ Proceeds received on exercise $
options granted to the Managing Director and group executives are granted from the Executive option Plan. R Brandweiner, C Doyle, C Green, I Holyman, M Pancino, and J Stewart do not hold options over Perpetual shares. 1 Equity instruments issued have been valued by PricewaterhouseCoopers using a Binomial option Pricing model at grant date. 2 Approval for the issue of options to D Deverall was obtained under ASX Listing Rule 10.14 at Perpetuals AGMs held on 19 october 2004, 17 october 2006, 30 october 2007 and 28 october 2008. 3 These options were granted on 1 July 2004 (6,840; 100% forfeited in the current year), 19 october 2004 (978), 1 July 2005 (28,144) and 1 July 2006 (29,950). 4 These options were granted on 28 october 2002 (33,334).
Note 38. Remuneration details provided as part of the financial report (continued)
Unvested share holdings of Executive Director, group and other executives
Name Grant date Issue price Vesting date Held at 1 July 2009 No. of shares Executive Director D Deverall1 Shares granted prior to 1 July 20082 1 July 2008 29 June 2009 Aggregate value Group Executives R Brandweiner Shares granted prior to 1 July 20083 1 october 2008 1 october 2009 Aggregate value R Burrows Shares granted prior to 1 July 20084 1 october 2008 1 october 2009 Aggregate value C Doyle Shares granted prior to 1 July 20085 1 october 2008 1 october 2009 Aggregate value C Green Shares granted prior to 1 July 20086 1 october 2008 1 october 2009 Aggregate value I Holyman Shares granted prior to 1 July 20087 1 october 2008 1 october 2009 Aggregate value M Miller Shares granted prior to 1 July 20088 1 october 2008 1 october 2009 Aggregate value M Pancino Shares granted prior to 1 July 20089 1 october 2008 1 october 2009 Aggregate value J Stewart Shares granted prior to 1 July 200810 1 october 2008 1 october 2009 Aggregate value P Ryan Shares granted prior to 1 July 200811 1 october 2008 1 october 2009 Aggregate value 48.63 38.15 1 october 2011 1 october 2012 2,946 2,287 48.63 38.15 1 october 2011 1 october 2012 584 3,084 48.63 38.15 1 october 2011 1 october 2012 4,159 5,140 48.63 38.15 1 october 2011 1 october 2012 3,308 2,467 48.63 38.15 1 october 2011 1 october 2012 16,464 9,253 48.63 38.15 1 october 2011 1 october 2012 5,031 4,112 48.63 38.15 1 october 2011 1 october 2012 25,531 7,197 48.63 38.15 1 october 2011 1 october 2012 11,383 12,338 48.63 38.15 1 october 2011 1 october 2012 2748 4,112 7,208 $274,985 15,727 $599,985 9,174 $349,988 6,553 $249,997 11,795 $449,979 8,519 $325,000 6,553 $249,997 3,931 $149,968 3,538 $134,975 1,389 $96,582 4,472 $300,026 1,677 $121,348 1,865 $134,951 1,451 $104,994 2,740 $199,938 1,495 2,287 3,538 38.97 29.02 50.80 37.93 584 3,084 3,931 38.97 29.02 50.80 37.93 2,294 5,140 6,553 38.97 29.02 50.80 37.93 1,631 2,467 8,519 38.97 29.02 50.80 37.93 11,992 9,253 11,795 38.97 29.02 50.80 37.93 2,291 4,112 6,553 38.97 29.02 50.80 37.93 25,531 7,197 9,174 38.97 29.02 50.80 37.93 11,383 12,338 15,727 38.97 29.02 50.80 37.93 1,359 4,112 7,208 38.97 29.02 50.80 37.93 42.73 28.34 1 July 2011 29 June 2012 58,532 11,993 18,083 7,036 $399,997 51,496 11,993 18,083 38.97 21.30 50.80 28.01 Movement during the year Granted Forfeited No. of shares Vested Fair value per Fair value per Held at share ($) TSR share ($) non30 June 2010 hurdle TSR hurdle No. of shares
Unvested share holdings of Executive Director, group and other executives (continued)
Name Grant date Issue price Vesting date Held at 1 July 2009 No. of shares S Singh Shares granted prior to 1 July 200812 1 october 2008 1 october 2009 Aggregate value R MacIntyre Shares granted prior to 1 July 200813 1 october 2008 1 october 2009 Aggregate value Departed Executives E Gonzalez Shares granted prior to 1 July 200814 1 october 2008 20 January 2009 Aggregate value J Nesbitt Shares granted prior to 1 July 200815 1 october 2008 9 June 2009 1 october 2009 Aggregate value E Wang Shares granted prior to 1 July 200816 1 october 2008 Aggregate value 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 48.63 1 october 2011 21,832 6,169 48.63 29.74 38.15 1 october 2011 30 June 2012 1 october 2012 23,004 16,450 20,174 48.63 31.42 1 october 2011 30 June 2013 26,622 16,450 39,783 20,696 $799,967 26,622 16,450 39,783 $3,949,872 23,004 16,450 20,174 20,696 $3,849,818 21,832 6,169 $1,595,883 38.97 50.80 38.97 N/A 29.02 50.80 29.74 37.93 38.97 N/A 50.80 31.42 48.63 38.15 1 october 2011 1 october 2012 9,498 1,028 48.63 38.15 1 october 2011 1 october 2012 1,931 2,261 3,538 $134,975 2,096 $79,962 Movement during the year Granted Forfeited No. of shares 566 $40,956 2.257 $158,700 7,241 1,028 2,096 38.97 29.02 50.80 37.93 Vested Fair value per Fair value per Held at share ($) TSR share ($) non30 June 2010 hurdle TSR hurdle No. of shares 1,365 2,261 3,538 38.97 29.02 50.80 37.93
Approval for the issue of shares to David Deverall was obtained under ASX Listing Rule 10.14 at Perpetuals AGM held on 19 october 2004, 17 october 2006, 30 october 2007, 28 october 2008 and 22 october 2009. These shares were granted on 1 July 2005 (7,036; 100% forfeited in the current year), 1 July 2006 (7,130) and 1 July 2007 (44,366). These shares were granted on 30 September 2005 (745; 100% forfeited in the current year), 2 october 2006 (644; 100% forfeited in the current year) and 1 october 2007 (1,359). These shares were granted on 31 March 2008 (11,383). These shares were granted on 4 December 2006 (1,645), 1 october 2010 (4,759) and 20 February 2008 (19,127). These shares were granted on 1 october 2007 (2,291) and 17 July 2006 (2,740; 100% vested in the current year). These shares were granted on 30 September 2005 (4,472; 100% forfeited in the current year), 2 october 2006 (5,873) and 1 october 2007 (6,119). These shares were granted on 30 September 2005 (641; 100% forfeited in the current year), 2 october 2006 (1,036; 100% forfeited in the current year) and 1 october 2007 (1,631). These shares were granted on 14 August 2006 (255), 2 october 2006 (1,865; 100% forfeited in the current year) and 1 october 2007 (2,039). These shares were granted on 10 September 2007 (584). These shares were granted on 2 october 2006 (1,451; 100% forfeited in the current year) and 1 october 2007 (1,495). These shares were granted on 3 July 2006 (139), 2 october 2006 (566; 100% forfeited in the current year) and 1 october 2007 (1,226). These shares were granted on 30 September 2005 (876: 100% forfeited in the current year), 2 october 2006 (1,381; 100% forfeited in the current year), 1 october 2007 (1,359) and 3 December 2007 (5,882). These shares were granted on 30 September 2005 (7,453; 100% forfeited in the current year), 2 october 2006 (8,291; 100% forfeited in the current year) and 1 october 2007 (10,878; 100% forfeited in the current year). These shares were granted on 30 September 2005 (5,217; 100% forfeited in the current year), 2 october 2006 (6,909; 100% forfeited in the current year) and 1 october 2007 (10,878; 100% forfeited in the current year). These shares were granted on 30 September 2005 (1,729; 100% forfeited in the current year), 2 october 2006 (1,796; 100% forfeited in the current year), 1 october 2007 (4,079; 100% forfeited in the current year) and 31 March 2008 (14,228; 100% forfeited in the current year).
Grants of performance shares after 30 June 2003 contain 50% of the shares with a performance hurdle linked to TSR and 50% of the shares granted with a performance hurdle linked to EPS. Where applicable, the fair value of shares with a TSR performance hurdle are disclosed. The fair value of TSR-linked shares is calculated by PwC using valuation techniques which take into account the probability of vesting as reflected in the fair value at grant.
Unvested share holdings of Managing Director, group and other executives (continued)
Name Grant date Issue price Vesting date Held at 1 July 2008 No. of shares Managing Director D Deverall1 Shares granted prior to 1 July 20072 1 July 2007 1 July 2007 1 July 2008 29 June 2009 Aggregate value Group Executives R Brandweiner Shares granted prior to 1 July 20073 1 october 2007 1 october 2008 Aggregate value R Burrows 31 March 2008 1 october 2008 Aggregate value C Doyle 4 December 2006 1 october 2007 20 February 2008 1 october 2008 Aggregate value E Gonzalez Shares granted prior to 1 July 20074 1 october 2007 1 october 2008 20 January 2009 Aggregate value C Green Shares granted prior to 1 July 20075 1 october 2007 1 october 2008 Aggregate value I Holyman Shares granted prior to 1 July 20076 1 october 2007 1 october 2008 Aggregate value 73.54 48.63 1 october 2010 1 october 2011 11,162 6,119 73.54 48.63 1 october 2010 1 october 2011 4,796 2,291 73.54 48.63 31.42 1 october 2010 1 october 2011 30 June 2013 15,744 10,878 72.92 73.54 52.28 48.63 4 December 2009 1 october 2010 1 January 2011 1 october 2011 1,645 4,759 19,127 52.71 48.63 31 March 2011 1 october 2011 11,383 73.54 48.63 1 october 2010 1 october 2011 1,500 1,359 4,112 $199,967 12,338 $599,997 7,197 $349,990 16,450 39,783 $2,049,945 4,112 $199,967 9,253 $449,973 111 $5,513 817 $40,580 2,056 $150,026 10,345 6,119 9,253 57.22 38.97 80.08 50.80 2,740 2,291 4,112 57.22 38.97 80.08 50.80 15,744 10,878 16,450 39,783 57.22 38.97 N/A 80.08 50.80 31.42 1,645 4,759 19,127 7,197 52.13 57.22 N/A 38.97 72.92 80.08 52.28 50.80 11,383 12,338 57.22 38.97 52.71 50.80 1,389 1,359 4,112 57.22 38.97 80.08 50.80 79.17 79.17 42.73 28.34 1 July 2010 30 June 2012 1 July 2011 1 July 2012 16,121 31,735 12,631 11,993 18,083 $1,024,933 1,955 $92,041 14,166 31,735 12,631 11,993 18,083 57.22 N/A 38.97 21.30 80.08 73.76 50.80 28.01 Movement during the year Granted Forfeited No. of shares Vested Fair value per Fair value Held at share ($) TSR per share ($) 30 June 2009 hurdle non-TSR hurdle No. of shares
Unvested share holdings of Managing Director, group and other executives (continued)
Name Grant date Issue price Vesting date Held at 1 July 2008 No. of shares J Nesbitt Shares granted prior to 1 July 2007 1 october 2007 1 october 2008 9 June 2009 Aggregate value M Pancino Shares granted prior to 1 July 2007 1 october 2007 1 october 2008 Aggregate value J Stewart 10 September 2007 1 october 2008 Aggregate value E Wang Shares granted prior to 1 July 20079 1 october 2007 31 March 2008 1 october 2008 Aggregate value Departed Group Executive P Vernon Shares granted prior to 1 July 200710 1 october 2007 Aggregate value 1 73.54 1 october 2010 8,557 5,439 8,557 5,439 $992,953 57.22 80.08 73.54 52.71 48.63 1 october 2010 31 March 2011 1 october 2011 4,006 4,079 14,228 75.24 10 September 2010 1 october 2011 584 73.54 48.63
8 7
Movement during the year Granted Forfeited No. of shares 16,450 20,174 $1,399,938 817 $40,580 Vested
Fair value per Fair value Held at share ($) TSR per share ($) 30 June 2009 hurdle non-TSR hurdle No. of shares 12,126 10,878 16,450 20,174 57.22 38.97 N/A 80.08 50.80 29.74
12,943 10,878 -
73.54 48.63 29.74
1 october 2010 1 october 2011 30 June 2012
2,120 2,039 -
5,140 $249,958 -
2,120 2,039 5,140 57.22 38.97 80.08 50.80
1 october 2010 1 october 2011
584
N/A
75.24
48.63
3,084 $149,975 6,169 $299,998
481 $23,891
3,084
38.97
50.80
3,525 4,079 14,228 6,169 57.22 N/A 38.97 80.08 52.71 50.80
Approval for the issue of shares to D Deverall was obtained under ASX Listing Rule 10.14 at Perpetuals AGM held on 19 october 2004, 17 october 2006, 30 october 2007 and 28 october 2008. 2 These shares were granted on 1 July 2004 (1,710; 100% forfeited in the current year), 19 october 2004 (245; 100% forfeited in the current year), 1 July 2005 (7,036) and 1 July 2006 (7,130). 3 These shares were granted on 1 october 2004 (111; 100% forfeited in the current year), 30 September 2005 (745) and 2 october 2006 (644). 4 These shares were granted on 30 September 2005 (7,453) and 2 october 2006 (8,291). 5 These shares were granted on 17 July 2006 (4,796; 43% vested in the current year). 6 These shares were granted on 1 october 2004 (817; 100% forfeited in the current year), 30 September 2005 (4,472) and 2 october 2006 (5,873). 7 These shares were granted on 1 october 2004 (817; 100% forfeited in the current year), 30 September 2005 (5,217) and 2 october 2006 (6,909). 8 These shares were granted on 14 August 2006 (255) and 2 october 2006 (1,865). 9 These shares were granted on 1 october 2004 (481; 100% forfeited in the current year), 30 September 2005 (1,729) and 2 october 2006 (1,796). 10 These shares were granted on 1 october 2004 (463; 100% forfeited in the current year), 30 September 2005 (2,981; 100% forfeited in the current year). and 2 october 2006 (5,113; 100% forfeited in the current year). Shares granted to the Managing Director and Group Executives are granted from the Executive Share Plan. Grants of performance shares after 30 June 2003 contain 50% of the shares with a performance hurdle linked to TSR and 50% of the shares granted with a performance hurdle linked to EPS. Where applicable, the fair value of shares with a TSR performance hurdle are disclosed. The fair value of TSR-linked shares is calculated by PwC using valuation techniques which take into account the probability of vesting as reflected in the fair value at grant.
Vested shareholdings of Managing Director, group and other executives
Balance at 1 July 2009 Name No. of shares Managing Director D Deverall Group Executives R Brandweiner R Burrows C Doyle C Green I Holyman M Miller M Pancino J Stewart R MacIntyre P Ryan S Singh Departed Group Executives E Gonzalez J Nesbitt E Wang 88,279 7,417 600 (69,632) 18,647 7,417 600 402 2,056 2,736 234 16,893 2,740 402 4,796 2,736 234 16,893 35,540 35,540 LTI Shares vesting in the period Other changes during the year Balance at 30 June 2010*
*or date of departure for Group Executives who departed in the year. other changes during the year represent shares acquired via bonus sacrifice, conversion of options into shares and disposal of shares. Disposals during the year include E Gonzalez (69,632). Balance at 1 July 2008 Name No. of shares Managing Director D Deverall Group Executives R Brandweiner E Gonzalez C Green I Holyman J Nesbitt E Wang Departed Group Executive P Vernon 1,580 1,580 402 69,134 2,736 7,527 600 2,056 19,145 (110) 402 88,279 2,056 2,736 7,417 600 35,540 35,540 LTI Shares vesting in the period Other changes during the year Balance at 30 June 2009*
*or date of departure for Group Executives who departed in the year. other changes during the year represent shares acquired via bonus sacrifice, conversion of options into shares and disposal of shares. Disposals during the year include E Gonzalez (14,189) and J Nesbitt (110).
Remuneration of Non-executive Directors

Directors individual shareholdings Balance at the start of the year, or for directors appointed in the year, the date of appointment Balance at the end of the year or, for directors who retired in the year, the date of retirement
Name
Shares acquired via fee sacrifice during the year
Other changes during the year
Directors R M Savage P V Brasher1 M J Brooks P Bullock 2 E P McClintock E Proust P B Scott P J Twyman 1 2 9,380 5,500 8,485 3,147 2,047 8,772 229 1,000 253 1,000 283 98 93 (655) 9,609 1,000 5,753 1,000 8,768 3,245 2,140 8,107
Paul Brasher was appointed as a director on 1 November 2009. Philip Bullock was appointed as a director on 1 June 2010.
Prior year directors individual shareholdings Balance at the start of the year, or for directors appointed in the year, the date of appointment Balance at the end of the year or, for directors who retired in the year, the date of retirement
Name
Shares acquired via fee sacrifice during the year1
Other changes during the year
Directors R M Savage M J Brooks E P McClintock E Proust P B Scott A Stevens2 P J Twyman 1 2 7,246 4,500 6,810 2,728 1,000 1,500 5,677 2,134 1,675 419 1,047 2,095 1,000 1,000 9,380 5,500 8,485 3,147 2,047 1,500 8,772
Shares acquired or issued four times throughout the year. Mr A Stevens joined Perpetual on 24 June 2008 and resigned on 3 February 2009.
Directors Declaration
1 In the opinion of the directors of Perpetual Limited (the Company): a. the consolidated financial statements and notes, and the Remuneration report in the Directors report, set out on pages 34 to 59, are in accordance with the Corporations Regulations 2001, including: (i) giving a true and fair view of the Consolidated Entitys financial position as at 30 June 2010 and of its performance, for the financial year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; b. the financial report also complies with International Financial Reporting Standards as disclosed in Note 2(a); c. there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2 The directors have been given the declarations required by Section 295A of the Corporations Regulations 2001 from the Chief Executive officer and the Chief Financial officer for the financial year ended 30 June 2010.
Signed in accordance with a resolution of the directors: Dated at Sydney this 24th day of August 2010.
Robert Savage, AM Director
David Deverall Director
Independent auditors report to the members of Perpetual Limited

Report on the financial report We have audited the accompanying financial report of the Group comprising Perpetual Limited (the Company) and the entities it controlled at the years end or from time to time during the financial year, which comprises the balance sheet as at 30 June 2010, and statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies and other explanatory notes 1 to 38 and the directors declaration. Directors responsibility for the financial report The directors of the Company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In note 2, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards. Auditors 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 auditors 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 entitys preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys 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 (including the Australian Accounting Interpretations), a view which is consistent with our understanding of the Groups 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. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditors opinion In our opinion: (a) the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Groups financial position as at 30 June 2010 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2. Report on the remuneration report We have audited the Remuneration Report included in pages 34 to 59 of the directors report for the year ended 30 June 2010. 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. Auditors opinion In our opinion, the remuneration report of Perpetual Limited for the year ended 30 June 2010, complies with Section 300A of the Corporations Act 2001.
KPMG
Andrew Yates Partner Sydney 24th August 2010
securities exchange and

2010 Annual General Meeting
The 2010 Annual General Meeting of the Company will be held in the Heritage Ballroom, Level 6, The Westin Sydney, 1 Martin Place, Sydney on Tuesday 26 october 2010 commencing at 10:00 am.
investor information
Substantial shareholders
Queensland Trustees Pty Limited is a substantial shareholder of Perpetual Limited as at 31 July 2010. Distribution schedule of holdings as at 31 July 2010 1 - 1,000 shares 1,001 - 5,000 shares 5,001 - 10,000 shares 10,001 - 100,000 shares 100,001 and over shares Total Number of shareholders with less than a marketable parcel: Number of holders 23,115 4,771 451 287 32 28,656 Number of shares 8,483,188 9,974,422 3,236,002 6,004,866 15,719,000 43,417,478
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.
472
4,270
20 largest shareholders as at 31 July 2010 Number of Name Queensland Trustees Pty Limited HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited National Nominees Limited Australian Foundation Investment Company Limited Citicorp Nominees Pty Limited Perpetual Trustee Company Limited Milton Corporation Limited RBC CEES Trustee Limited Washington H Soul Pattinson & Co Ltd UBS Wealth Management Australia Nominees Pty Ltd Bond Street Custodians Limited Argo Investments Limited Cogent Nominees Pty Limited1 ANZ Nominees Limited Enbeear Pty Ltd RBC Dexia Investor Services Australia Nominees Pty Ltd T Eustace Invia Custodian Pty Limited Australian United Investment Co. Limited Total
1 Held in capacity as executor, trustee or agent.
Percentage of issued capital 6.48% 5.09% 3.65% 2.92% 1.94% 1.76% 1.52% 1.49% 1.46% 1.22% 1.04% 0.82% 0.81% 0.76% 0.72% 0.72% 0.65% 0.65% 0.61% 0.58% 34.89%
ordinary shares 2,814,201 2,211,749 1,583,903 1,268,387 843,726 763,166 658,184 646,588 632,977 529,598 450,160 355,428 350,880 328,519 311,806 310,678 284,366 283,950 264,660 250,000 15,142,926
Other information
Perpetual Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
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 Companys share registry office below, or visit their website at www.linkmarketservices. com.au or email registrars@linkmarketservices.com.au Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Australia Locked Bag A14 Sydney South NSW 1235 Australia Perpetual Shareholder Information Line 1300 732 806 or + 61 2 8280 7620 Fax + 61 2 9287 0303 Any other enquiries which you may have about the Company, can be directed to the Companys registered office or visit the Companys website.
Voting rights
Under the Companys Constitution, each member present at a general meeting (whether in person, by proxy, attorney or corporate representative) is entitled: on a show of hands to one vote; and 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 2010 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.
Principal registered office

Level 12 123 Pitt Street Sydney NSW 2000 Australia Phone +61 2 9229 9000 Fax +61 2 8256 1461
Final dividend
The final dividend of 105 cents per share will be paid on 28 September 2010 to shareholders entitled to receive dividends and registered on 7 September 2010 being the record date.
Company Secretary
Joanne Hawkins www.perpetual.com.au
contact
addresses of share registry and registered office
Shareholder enquiries
If you have any questions about your shareholding or matters such as dividend payments, tax file numbers or change of address please contact the Companys share registry office or visit their website www.linkmarketservices.com.au or email registrars@linkmarketservices.com.au Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Australia Locked Bag A14 Sydney South NSW 1235 Australia Perpetual Shareholder Information Line Phone 1300 732 806 or +61 2 8280 7620 Fax +61 2 9287 0303 For any other enquiries about the Company please contact the Companys registered office or visit our website.
Principal registered office

Level 12 123 Pitt Street Sydney NSW 2000 Australia Phone +61 2 9229 9000 Fax +61 2 8256 1461 www.perpetual.com.au ABN 86 000 431 827
Perpetuals 2010 Annual Report is printed on Splendorgel (cover and review) and Precision (financials) supplied by Spicers Paper. Splendorgel is an FSC Mixed Sources Certified paper, which ensures that all pulp is derived from well-managed forests and controlled sources. It is elemental chlorine free and is manufactured by an ISo 14001 certified mill. Precision is PEFC Certified and made from elemental chlorine free bleached pulp sourced from sustainably managed forests and non-controversial sources. It is manufactured by an ISo 14001 certified mill using renewable energy sources.
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28069_LKAREP2_0910

2010 Perpetual Annual Report

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2010 Perpetual Annual Report

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P e r p e t u a l

28 September 2010 26 October 2010 23 February 2011

Underlying profit before tax

Earnings per share UPAT

cents cents % % cents cents $m $m $m m m $ $ low $ high

Earnings per share NPAT

five year results

128.8 90.5 37.7

Underlying profit after tax for year ended 30 June

Net profit after tax for year ended 30 June

cents per share

54.2 45.1 39.3 27.9 12.5

Earnings per share Dividends

309 330 89 100 211 210

Return on equity NPAT for year ended 30 June

Earnings per share NPAT v dividends for year ended 30 June

PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES | 3

and ceo report

Improved operating environment

Spot close All Ords

Avg All Ords

FY10 Avg All Ords

PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES | 5

Investing in future growth

Message from the Chairman-elect

Investing for generations

Robert Savage, AM Chairman

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Contribution to 2010 underlying profit before tax

24% 52% 24%

Results for the year ended 30 June

2009 $m 203.0 (144.0) 59.0

change change Perpetual % $m

Profit before tax

Perpetual Investments funds outperformance

Gross outperformance per annum against benchmarks to end June 2010.

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Perpetual Private Wealth funds under advice as at 30 June

Acquired1 $b 0.7 0.2 0.9 0.9

Market2 $b 0.2 0.2 0.4 0.1 0.1 0.2 0.6

2010 $b 3.3 2.2 5.5 1.1 1.7 2.8 8.3

2.4 1.8 4.2 1.0 1.6 2.6 6.8

PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES | 11

Mortgage transactions for the year ended 30 June

199, 257 95, 687

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20 | PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES

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Audit Risk and Compliance Committee Eligible to attend 3 4 7 7 7 Attended 2 4 7 7 7 -

Investment Committee Eligible to attend 7 7 7 7 Attended 7 7 7 7 -

Nominations Committee Eligible to attend 2 2 2 2 Attended 2 2 2 2 -

People & Remuneration Committee Eligible to attend 6 3 6 6 6 Attended 6 3 6 6 6 -

22 | PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES

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Indemnification of directors and officers

Events subsequent to reporting date

24 | PERPETUAL LIMITED AND ITS CoNTRoLLED ENTITIES

Corporate Responsibility Statement

ASX Corporate Governance Councils Corporate Governance Principles and Recommendations

Yes Yes Yes

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