Perpetual Limited - Annual Report 2008

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Experience. The difference.

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Annual Report 2008 Part One – Annual Review

Contents
Group fnancial summary	2
Key fnancial data for the 2007 fnancial year
Chairman and Chief Executive Offcer’s report	3
Overview of the year including 2007 results
and outlook for the coming year
Review of operations	9
Detailed review of Wealth Management (incorporating
Perpetual Investments and Perpetual Private Clients),
Corporate Trust and Group and Support Services and
summary of strategic initiatives
Organisationprofle	27
Organisation chart and information on Perpetual’s
business units and support functions
Board andgovernance information	28
Information on Perpetual’s board of directors (including
director biographies) and other governance information
Financial summary	31
Summary of the income statement, balance sheet,
cash fow and other fnancial and statutory information
including remuneration information
Appendix	41
Comparative fnancial performance from 2003 to 2007
Contact information	43
Contact details for Perpetual

Shareholder calendar

Shareholder calendar
Annual General Meeting 2007	30 October 2008
Final dividend payment	12 September 2008
Half year end	31 December 2008
Interim proft and dividend announcement	February 2009
Payment of interim dividend	March 2009
Full year end	30 June 2009
Final proft and dividend announcement	August 2009
Final dividend payment	September 2009
Annual General Meeting 2009	October 2009
Perpetual Shareholder Information Line	1300 732 806

Foreword

The Australian and global financial markets have changed profoundly in the past 12 months.

At the end of the 2007 financial year, investors in the Australian market were benefiting from their fourth consecutive year of 20 per cent returns per annum. In the space of one year, the markets experienced widespread and rapid deterioration, which simultaneously impacted multiple asset classes and left few safe havens for investors. The year culminated in the worst annual returns in more than two decades and many investors found their capital position returned to what it was 18 months ago.

Perpetual has not been immune to these market forces, which adversely influenced our key drivers of profitability and those of other industry participants. Overall, the wealth management industry has seen a material decline in its revenue pool.

Despite the current market conditions, our operating environment is sustained by Australia’s compulsory superannuation regime and the ongoing source of funds this generates for our industry.

Our faith in our business is resolute. We are in no doubt that it will withstand the challenges of our current operating environment without compromising our future success. Furthermore, it will enable us to take advantage of the growth opportunities now available in the market.

Most importantly, we remain focused on the creation of long-term value for our clients and shareholders.

Perpetual Limited and its controlled entities – ABN 86 000 431 827 | 1

Group financial summary

1

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Measures
Key revenue drivers as at 30 June 2008
Perpetual Investments funds under management Decreased 23 per cent to $30.3 billion
Perpetual Private Wealth funds under advice Decreased 8 per cent to $7.7 billion
Perpetual Corporate Trust funds under administration Increased 6 per cent to $222.9 billion
Profitability
Operating profit before tax Decreased 6 per cent to $193.6 million
Operating profit before tax margin Decreased to 39 per cent from 44 per cent
Operating profit after tax (OPAT) Decreased 8 per cent to $133.5 million
Net profit after tax Decreased 29 per cent to $128.8 million
Operating earnings per share – diluted Decreased 9 per cent to $3.21 per share
Cash flow
Operating earnings before interest, tax, depreciation and amortisation (EBITDA) Decreased 5 per cent to $227.1 million
Operating EBITDA margin Decreased to 46 per cent from 51 per cent
Ordinary dividend per share Decreased 8 per cent to $3.30 per share
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1 Please note all figures are stated in Australian dollars

Chairman and Chief Executive Officer’s report

Fellow shareholder

Perpetual’s ‘2008 Annual report’ is divided into two sections: ‘Part One – Annual review’ is a concise overview of key environmental, financial, operational and strategic information on our business; and ‘Part Two – statutory Financial statements’ is a detailed report on our financial performance.

A challenging operating environment

In the 2008 financial year, the Australian stock market experienced one of the largest declines in its history and Australian investors experienced their worst returns in more than 25 years. This scenario was in stark contrast to the buoyant market at the close of the 2007 financial year.

Driving the market down were a series of key factors: the us sub-prime collapse and ensuing global credit crisis, the reduction in available capital markets funding, the increase in the cost of debt, the closure of the securitisation markets, the rise in domestic interest rates and record oil prices.

Each of these factors had a negative impact on the overall performance of the Australian sharemarket, which delivered its worst performance since 1982.

similarly, the securitisation market was impacted and is now virtually shut to new issuances. New issuances in residential mortgage backed securities fell from $57 billion in the 2007 financial year to $9 billion in the 2008 financial year.

These factors caused simultaneous and rapid deterioration in our core markets; that is the equities, credit and property markets.

Traditionally, these markets have shown a low degree of correlation, which means they tend not to move in parallel with each other. The fact they have been impacted concurrently in the past 12 months is an anomaly in itself and one that has not occurred since the 1988 financial year. In that year, the decline was nowhere near the magnitude of what we are currently experiencing in our markets.

This scenario was compounded by investors moving to the defensive option of cash, which in turn further exacerbated the decline of flows into investment markets.

Asset sector performance: there was a simultaneous deterioration across multiple asset classes in the 2008 financial year

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%
100
80
60 Property
Australian shares
Global shares
Australian bonds
40
20
0
-20
-40
-60
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
source: Datastream as at 30 June 2008. As represented by Blended s&P/AsX All Property Trust Accumulation Index (Property), Blended s&P/AsX All Ordinaries
Accumulation Index (Australian shares), msCI World ex Aust. Accumulation Index A$ (Global shares), uBs Composite Bond All maturities month End Index
(Australian Bonds).
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PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 3

Our environment has a defining influence on the performance of our business and we were clearly not immune to these market forces in 2008.

Perpetual as a fund manager, wealth manager and corporate trustee, has three key drivers of profit, which are:

b the amount of funds we have under management, under advice and, in the case of our corporate trust business, under administration
b the fees we charge for managing and administering our clients’ funds, which are usually on a per funds under management basis
b the expenses we incur operating our business

We cannot escape the external forces which have impacted our business in the past 12 months but we can ensure we formulate appropriate and timely responses to their opportunities and challenges.

moving into the new financial year, we have taken measure of our business within its new operating environment and, more importantly, reaffirmed our business priorities.

Firstly, we must continue to invest in our strategic priorities

Only by taking a strategic approach to the issues can we ensure the ongoing development of our business and ultimately the creation of long-term value for our shareholders.

In 2003, we announced a new strategy for our group. The key objectives of that strategy were to build new growth engines, broaden our portfolio and engage our people. To date, we have seen a number of successes arising from the execution of our strategy. A good example is the increasing contribution of Perpetual Private Wealth to our profitability. We look forward to seeing more of these initiatives come to fruition in the future. Investment in our strategy has been funded directly from underlying cash earnings.

In a more conventional market downturn, our strategy would have better insulated the business, and in turn also our stakeholders, against the full impact of the current market.

The synchronised decline in the equities, credit and property markets has meant there are limited safe havens left for investors.

As a fund manager who now operates in all these markets, we have obviously experienced some interim setbacks as a result of the influence these events have had on our business.

The defining factor driving growth for our industry, now and even more so in the future, is Australia’s compulsory superannuation regime. retirement savings in Australia are conservatively forecast to grow at low double digit rates over the next decade and it is imperative we are properly positioned to benefit from this opportunity.

Double digit growth expected over the longer-term

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Managed
funds
$Trillion
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2009201020112012201320142015201620172018201920202021
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source: Trowbridge Deloitte super model

In september 2007, we announced a new organisation structure which created a series of end-to-end businesses and more clearly defined activities, deliverables and accountabilities for each unit in the execution of our strategy. The strategic priorities for our businesses are to:

maintain focus on good investment performance in Australian equities and continue to offer a range of new and innovative products to grow revenue margins
grow funds under management in other asset classes by strengthening asset management, sales and support capabilities
accelerate growth in Perpetual Private Wealth’s share of the high net worth and emerging high net worth investor market by expanding high quality adviser teams and improving support capabilities
leverage our capability and market position as a securitisation trustee by further expanding into the mortgage services market

We will continue to pursue the execution of our strategic priorities in 2009. more importantly, the current market is presenting more growth opportunities than we have seen in many years to potentially accelerate our future growth objectives.

Secondly, we must maintain our conviction for the way we manage money

The current market has temporarily eroded investor confidence and it has become even more important to understand what drives this sentiment. more often than not, it will be fear.

When markets decline and funds under management decrease, retail investors typically seek safe havens and higher returns in cash and other defensive assets. While these assets are traditionally more immune to market volatility, they are not as effective in delivering long-term growth which is necessary to building adequate retirement savings.

While this behavior is fundamental to the nature of the investment cycle, it is incumbent on our industry in times like these to actively engage investors and to demonstrate the value we bring to growing their long-term wealth.

Perpetual has one of the most enduring and reputable brands in the Australian financial services industry. To what do we owe the strength of our brand? Put simply, we have:

b some of the longest serving, experienced and most awarded fund management teams in Australia
b a proven track record of excellent long-term returns over multiple market cycles
b a level of professionalism and integrity which is consistent with our trustee heritage
b a clear commitment to long-term wealth creation rather than short-term speculation
b a prudent investment philosophy based on companies with conservative debt levels, sound management, quality of business and a history of recurring earnings

Our funds have an enviable reputation for performing throughout the full market cycle. In particular, our investment style typically outperforms in ‘bear’ markets and this has been reaffirmed by our performance over the past nine months.

We are committed to again ‘staying the course’ in this current market cycle and to assuring our position as a safer haven for investors in times like these.

Finally, we must respond to the overall decline in market levels by continuing to review elements of our cost base

Perpetual Corporate Trust in line with the reduction in business volumes.

While savings from this review will be realised in the 2009 financial year, they will be largely off-set by continued investment in strategic priorities and in ensuring the retention of our people.

While we must set short-term cost efficiency targets, it is important to note these objectives cannot come at the expense of our ability to grow our business or at the risk of adversely impacting the effectiveness of our key internal controls.

Group financial performance

Operating profit after tax – down 8 per cent

Operating profit after tax for the 2008 financial year was $133.5 million, a decrease of 8 per cent on the 2007 financial year result of $145.3 million. Increases in revenues were off-set by increases in expenses resulting from higher employee related costs, occupancy expenses and custody fees.

Net profit after tax – down 29 per cent Net profit after tax for the 2008 financial year was $128.8 million, a decrease of 29 per cent on the 2007 financial year result of $182.1 million. The result was due primarily to a 43 per cent decrease in gains on sale of investments after tax of $21.1 million and losses related to the Exact market Cash Fund of $25.8 million after tax.

Total operating revenues – up 6 per cent

Total operating revenues rose by 6 per cent to $495.7 million in the 12 months to 30 June 2008 from $466.2 million in 2007. The result was due mainly to the growth in performance fees in Perpetual Investments for outperforming benchmarks, the development of our new structured products business and the expansion of our mortgage services business following the recent acquisition of Wignalls Lenders mortgage services (Wignalls) and National Lending solutions (NLs).

Operating earnings before interest, tax, depreciation and amortisation – down 5 per cent Operating earnings before interest, tax, depreciation and amortisation (EBITDA) for the year ended 30 June 2008 was $227.1 million. EBITDA as a percentage of revenue was 46 per cent for the period, a reduction from 51 per cent in the previous financial year. This result was due mainly to the full year impact of our lower margin mortgage services business.

In 2008, we completed an expense management review. As a result, we achieved cost reductions and greater efficiencies across the group, in particular by streamlining our workforce in

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Operating earnings per share (diluted) – down 9 per cent

Operating earnings per share fell from $3.53 for 2007 to $3.21 for the year ended 30 June 2008.

Ordinary dividend per share – down 8 per cent

The board has announced shareholders will receive a fully franked final dividend of $1.41 per share to be paid on 12 september 2008 (record date 29 August 2008) for the year ended 30 June 2008.

The total ordinary dividend paid to shareholders of $3.30 per share represents a decrease of 8 per cent over the previous financial year.

Our 2008 dividend is calculated on our operating profit after tax, which excludes losses on the Exact market Cash Fund and gains on the sale of investments.

We have provided further information on our results at an operating division level in the ‘review of operations’, starting on page 9.

Capital management

Net assets at 30 June 2008 were $314.4 million compared to $341.0 million at 30 June 2007. These included cash holdings of $183.1 million and an investment portfolio carried at market value of $77.0 million.

Corporate borrowings totalled $45.0 million and equated to 14 per cent of shareholder funds at 30 June 2008 compared to $45.0 million at 30 June 2007, which equated to 13 per cent of shareholder funds.

Our stated approach to capital management has two objectives: to retain sufficient capital to operate and expand our business; and to return any capital in excess of these requirements to shareholders.

In line with this approach, our dividend policy pays ordinary dividends of 90 per cent of underlying cash earnings after tax and our gearing policy targets an investment grade credit rating (or equivalent).

In accordance with our capital management policy guidelines, we review the capital requirements of our business every six months. A review completed in July 2008 determined our current capital base was appropriate to support current operations.

Group outlook

As fellow shareholders, we are disappointed this year’s results have not been consistent with previous results, which delivered total returns for our shareholders in excess of 30 per cent per annum in the decade up to 2007.

The significant changes in our operating environment need to be considered in the context of the previous four years in which Australian investors benefited from annual market returns of more than 20 per cent.

The current financial year to date has mirrored the ‘bear’ nature of the market in 2008 and we must caution that our operating environment remains uncertain. A continuation of the current market conditions would again impact our revenues and profitability in 2009.

Despite the short-term challenges to our operating environment, we continue to maintain a positive outlook for the medium to long-term, reflecting the robust fundamentals of our industry.

Reconciliation of operating profit after tax

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30 June 2007 30 June 2008
$M $M
Net profit after tax for the year 182.1 128.8
Less profit on sale of investments after tax (36.8) (21.1)
Add Exact market Cash Fund losses after tax – 25.8
Perpetual’s operating profit after tax 145.3 133.5
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Our faith in our business is resolute and we are in no doubt that it will withstand the challenges of our operating environment without compromising our future success. The core of our business is very robust. It is backed by a strong balance sheet and a great team of people. Perpetual is in an excellent position to take advantage of growth opportunities as they arise in the market.

We thank you, our shareholders and our clients, for your support in 2008.

Last but not least, we must also mention our colleagues at Perpetual. We applaud their dedication to the job and commitment to delivering the best outcomes for the business and for our stakeholders in what has been and may continue to be difficult times.

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robert savage Chairman

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David Deverall Chief Executive Officer and Managing Director

sydney 20 August 2008

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“At Perpetual, one of our
and longevity of our
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working together is a key
advantage.
John Sevior
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matthew Williams, senior Portfolio manager – 17 years in industry John sevior, Head of Australian Equities – 20 years in industry sean Cunningham, senior Equities Analyst – 18 years in industry

Review of operations

The ‘review of operations’ examines in detail the business operations of Perpetual Investments, Perpetual Private Wealth, Perpetual Corporate Trust and Group and support services.

The performance of our operating divisions is summarised below. With the exception of Perpetual Private Wealth, all our operating divisions reported reduced profits before tax for the 12 months to 30 June 2008.

This year, we are reporting our business performance according to the structure announced in september 2007, which comprises the operating and group divisions listed above.

We have restated the comparative results of our former Wealth management division as reported in the 2007 financial year with those of the new business model as reported in the 2008 financial year.

Consolidated financial performance

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30 June 2007 [1] 30 June 2008 Change
$M $M %
Perpetual Investments [2] 152.2 147.0 (3)
Perpetual Private Wealth 42.8 46.4 8
Perpetual Corporate Trust 35.7 29.5 (17)
~
Group and support services (23.8) (29.3)
Total operating profit before tax (PBT) [2] 206.9 193.6 (6)
PBT margin 44% 39% ~
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1 Prior year amounts have been restated to reflect the restructure in september 2007

2 Excludes significant items

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“
We do not compromise on quality.
We focus on companies that
have proven businesses with solid
balance sheets regardless of fads
or fashion. Once we identify these
companies, valuation is the key.
Emilio Gonzalez
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rory macIntyre, Head of Global Equities Business – retail – 21 years in industry Emilio Gonzalez, Group Executive Global Equities and Global Chairman of CFA® Institute – 23 years in industry

Perpetual Investments’ financial performance

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30 June 2007 [1 ] 30 June 2008 Change
$M $M %
Total revenues [2] 282.0 294.5 4
Operating expenses [2] 110.8 126.6 14
EBITDA 171.2 167.9 (2)
Depreciation and amortisation 19.0 20.9 10
Profit before tax (PBT) 152.2 147.0 (3)
PBT margin 54% 50% ~
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1 Prior year amounts have been restated to reflect the restructure in september 2007

2 Excludes structured investments income and distribution (net to nil) and losses on EmCF

Perpetual Investments

Perpetual Investments is our highly regarded funds management business offering strong investment capabilities across a broad range of asset classes. It comprises Australian Equities, Global Equities, Income and multi-sector and structured Products and Platforms, each of which have their own clearly defined activities, deliverables and accountabilities supported by common operations, distribution and infrastructure.

Business financial performance

Perpetual Investments’ operating profit before tax decreased 3 per cent to $147.0 million for the 12 months to 30 June 2008, compared to $152.2 million for the 12 months to 30 June 2007.

revenues increased 4 per cent from $282.0 million in the previous financial year to $294.5 million for the year ended 30 June 2008. This result was achieved in one of the most turbulent periods for the Australian and global equity markets. In November 2007, the Australian equities market peaked at 6,854 points and subsequently declined to 5,333 points at 30 June 2008, representing a 22 per cent decline. similar falls in value impacted the majority of other asset classes. These declines were off-set by increases in investment performance fees, which were earned by some of our funds outperforming the benchmark.

Operating expenses increased 14 per cent from $110.8 million in the previous financial year to $126.6 million over the 12 months to 30 June 2008. The increase in expenses reflects additional investment in our distribution capabilities and in incentive payments relating to investment outperformance or ‘alpha’ generation by our asset managers.

Perpetual Investments’ profit before tax margin declined from 54 per cent in the 2007 financial year to 50 per cent in the 2008 financial year.

Funds under management

Funds under management in Perpetual Investments were $30.3 billion at 30 June 2008, a decrease of $8.8 billion on the previous financial year. This result was due mostly to lower valuations of equity and debt markets and outflows from our credit and fixed interest and Australian equities institutional channels.

Industry flows into equities and fixed interest declined during the year as investors withdrew from the equity and credit markets and reallocated funds into defensive liquid asset classes such as cash and bank deposits. This trend negatively impacted our flows and those of the funds management industry over the past 12 months.

Flows in our retail channel decreased by $0.9 billion over the 12 months to 30 June 2008, a decline of 9 per cent over the previous financial year. These outflows were predominately from our Australian equities and mortgage businesses.

Despite the very challenging operating environment, flows into our intermediary channel rose by $0.2 billion, an increase of 1 per cent over the previous financial year. We continued to

Perpetual Investments’ funds under management

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$B
40 39.1
32.8
30.3
30
26.7
21.7
20
10
0
2004 2005 2006 2007 2008
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“
than 120 years, Perpetual has
been analysing the cause and
behalf of investors.
Michael Korber
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marion Kraemer, Head of mortgages – 31 years in industry michael Korber, Head of Credit – 24 years in industry

strengthen our relationships with independent financial advisers and were pleased by this year’s Wealth Insights 2007 survey (formerly AssIrT), which ranked Perpetual as second for adviser satisfaction.

Outflows of $2.8 billion from the lower margin institutional channel reflected the rebalancing of institutional investor portfolios away from Australian equities and credit and into other asset classes.

Investment performance

Perpetual’s investment philosophy of focussing on high quality companies at reasonable valuations has consistently delivered excess returns to investors over multiple market cycles.

Our conservative approach to investment has been favoured by the overall decline in the domestic and global markets and by investors reassessing their risk appetites and opting for more prudent strategies, which are better suited to building sustainable personal wealth. Our Concentrated Equities Fund, Australian share Fund and Industrial share Fund outperformed the benchmark by more than 4 per cent in the 12 months to 30 wJune 2008.

Of particular note was our long-short Australian equities investment strategy, which outperformed by almost 8 per cent in the 12 months to 30 June 2008. Overall, our quantitative funds attracted $151 million in inflows over the period.

Our International share Fund modestly outperformed the benchmark in the 12 months to 30 June 2008. The fund benefited from having limited exposure to financial stocks. However, its underweight exposure to the energy and mining sectors proved to be a detractor from performance. In the three

One-year excess performance against benchmark for key Australian equities funds (pre-fees)

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% 9
8 Outperformance
7
6
5
4
3
2
1
0
Australian Industrial Concentrated QI Long
Shares Shares Equities Short
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years to July 2008, the fund has outperformed relative to its benchmark.

While our credit team manages diversified portfolios comprising high quality securities, the deterioration in global credit markets and the rapid expansion of credit spreads placed significant stress on credit portfolios in the 2008 financial year.

Perpetual’s Exact market Cash Fund (EmCF) is priced daily and incurred ‘mark-to-market’ losses arising from the revaluation of all the securities in the portfolio. These positions became material in November 2007 when credit spreads began to increase sharply. In the interests of full transparency, we committed to keep the market advised of these unrealised losses by disclosing any significant movements in the portfolio on a regular basis.

Perpetual Investments’ funds under management

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30 June 2007 Net flows Other [1] 30 June 2008
$B $B $B $B
retail [2] 9.5 (0.9) (1.4) 7.2
Intermediary (masterfund and wrap) 18.0 0.2 (3.4) 14.8
Institutional 11.6 (2.8) (0.5) 8.3
All channels 39.1 (3.5) (5.3) 30.3
Australian equities 25.5 (1.0) (4.8) 19.7
Cash and fixed interest 9.7 (2.4) 0.2 7.5
Global equities 2.1 (0.2) (0.4) 1.5
Other [2] 1.8 0.1 (0.3) 1.6
All asset classes 39.1 (3.5) (5.3) 30.3
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1 Includes reinvestments, distributions, income and asset growth

2 Includes Perpetual Protected Investments flows

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“
Perpetual’s strong relationships
with its industry colleagues are
based on a mutual desire to
collaboratively build and protect
the wealth of its investors.
Damian Crowley
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Louise mcIlwraith, National sales Performance manager – 18 years in industry Damian Crowley, General manager Adviser Distribution – 25 years in industry

Spread over bank bills

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250
ITRAXX Australian Corporate Index
200 AAA Senior RMBS
150
100
50
0
Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08
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As at 30 June 2008, the ‘mark-to-market’ position was $20 million after tax and write downs and hedging costs were $6 million after tax. This amounted to a total loss of $26 million after tax for the period to 30 June 2008. We expect to recover the majority of the ‘mark-to-market’ losses as the securities in the portfolios mature.

The current environment is significantly more favourable for Perpetual’s exposure to the EmCF given the high running yields available in the credit markets.

The capital and returns of investors in the EmCF have not been impacted by the recent market conditions. The fund has attracted strong support from the institutional market and we recently launched a retail version of the product, which has also received wide-ranging approval from this segment of the market.

Our structured investment products combine the capital protection on investments in managed funds together with a 100 per cent gearing facility. Throughout the year we launched two new series of our Perpetual Protected Investments product, which raised a total of $180 million from retail investors. Our market share increased over the past year and we are now one of the leading providers in this emerging sector of the market.

Business developments

In 2008, we made changes to strengthen the portfolio management structure across a number of our funds within the Australian equities team. The changes had a number of objectives to:

b leverage the skills and experience of our Head of Australian Equities as a guide and mentor for other investment professionals within the team. This role continues to have total strategic oversight and overall management of our Australian equities funds
b recognise the success of our Australian equities team and provide members with clear career progression and skill development plans
b ensure we have the right balance of portfolio management and analyst capabilities across the team

In 2008, we launched our Pure Value Fund, a capacity limited fund which concentrates on high ‘alpha’ generation. The fund has performed above benchmark since inception. This fund was derived from our strategy of incubating ideas of our asset management team and bringing them to market once we have established they are commercially viable.

We also invested in our global equities sales capability to ensure we properly capitalise on the improving performance of our International share Fund. In the past 12 months, we have developed a dedicated global equities sales capability and increased sales resources in sydney and London. Our global equities sales focus is on the institutional and retail market in Australia and on the institutional market in the united Kingdom and Europe.

During the course of 2008, we reviewed key strategic priorities for growing our business and closed a number of funds, specifically in the Income and multi-sector asset class. In may 2008, we exited Direct Property; there were no material funds under management in this business. We later announced the transfer of the responsible entity and management roles for our infrastructure funds to the specialist infrastructure manager, Palisade Investment Partners.

We continued to invest in our platform business, which we view as an increasingly important and profitable component of the wealth management value chain, attracting around 90 per cent of new retail fund flows across the industry.

In 2008, we escalated our strategy to become the preferred partner and provider to the independent financial adviser market by migrating and consolidating our unit registry systems. This has resulted in improved functionality and enhancements on our Wealthfocus platform and delivered efficiencies to our back office operations. We also capitalised on these technology enhancements by placing greater focus on our platform sales team.

We were again recognised for our consistent investment track record. Perpetual was recently nominated in the AFR Smart Investor Blue ribbon Awards 2008 for the funds management industry.

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“
wealth creation.
Russel Chesler
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russel Chesler, General manager structured Products – 20 years in industry Gai Ferrington, General manager Platforms – 19 years in industry matt Pancino, Deputy Chief Operating Officer – 17 years in IT industry

We were very pleased to be finalists in the following categories:

productivity. We will undoubtedly see a further rationalisation and consolidation of Australia’s wealth management industry.

b Australian mortgages
b Australian large cap shares
b multi-sector – conservative
b multi-sector – balanced
b Personal pension

Following the successful launch of our Perpetual Protected Investments product last year, our structured product’s team was also named as a finalist in the Standard & Poor’s Fund Awards in the structured Products category. The winners of the Awards will be announced in september 2008.

Business outlook

Our vision is to be Australia’s leading creator and protector of wealth. This vision carries increasing importance in the current environment and in the context of the ever increasing ‘weight of money’ flowing into managed funds from Australia’s mandated superannuation regime.

While the current credit environment remains challenging, valuations are now very attractive. As credit market volatility subsides, we are positioned with conservative portfolios and experienced teams to take advantage of the recovery in investor sentiment.

In 2009, we will continue to pursue a series of strategic priorities to grow Perpetual Investments by:

b continuing to develop innovative and profitable ways to maximise investor value using our leading Australian equities capabilities
b capitalising on our improving performance by aggressively selling our international products through our dedicated sales and marketing capabilities in global equities
b growing our capabilities in credit and alternative investments and continuing to target the retail channel in Income and multi-sector
b increasing our footprint in the high growth ‘do-it-yourself’ superannuation segment and expanding on our evolving leadership position in the structured products market with a series of major product launches in structured Products and Platforms

We are of the view that the current market turbulence will lead to the exposure of sub-optimal business models and compel financial services providers to search for scale and increased

Perpetual Private Wealth

Perpetual Private Wealth is a direct-to-client financial services business providing specialist financial services such as investment strategies, trust advice, custodial solutions, philanthropic solutions, estate planning and administration to high net worth individuals.

Business financial performance

Perpetual Private Wealth’s operating profit before tax increased 8 per cent to $46.4 million for the 12 months to 30 June 2008, compared to $42.8 million for the 12 months to 30 June 2007.

The profitability of this business continues to improve. In 2003, the business contributed approximately $8 million or 8 per cent to group profit before tax. Today, it contributes around 21 per cent (excluding Group and support services).

revenue increased 6 per cent from $98.8 million in the previous financial year to $104.9 million for the year ended 30 June 2008. Despite a reduction in funds under advice of 8 per cent at the respective year ends, revenue growth remained positive. This was the result of fees being calculated on the higher average balances of funds under advice in the period from June 2007 to December 2007, due to the Federal Government’s beneficial changes to superannuation contributions.

Perpetual Private Wealth experienced operating expense growth of 2 per cent over the period. This is despite continued investment in our strategy and a 14 per cent increase in the number of client facing employees.

Funds under advice

Perpetual Private Wealth’s funds under advice were $7.7 billion at 30 June 2008, a decrease of $0.7 billion on the previous financial year. The amount comprised $0.4 billion of net inflows, which was off-set by $1.1 billion of asset erosion (net of distributions) associated with the decline in equity markets.

Net inflows were attributed to new client growth, positive results from continued investment in our sales capabilities, increased demand for our specialised service offerings such as philanthropy and trusts, and the favourable long-term fundamentals of Australia’s superannuation regime.

Perpetual Private Wealth received positive net inflows across all products and services throughout the year.

Our Financial Advisory business represents assets that are subject to advice given by our financial planners and includes superannuation funds in our select superannuation product.

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 17

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“
At Perpetual, we are passionate
about growing the wealth of our
clients. That means always acting
in their best interests and not in
those of the adviser.
Mary Symonds
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Tim Warner, Private Clients Adviser – Fiduciary services – 19 years in industry robert Eadie, Private Clients Adviser – 15 years in industry mary symonds, Private Clients senior Financial Consultant – 20 years in industry

Perpetual Private Wealth’s financial performance

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30 June 2007 [1] 30 June 2008 Change
$M $M %
Total revenues 98.8 104.9 6
Operating expenses 54.0 55.3 2
EBITDA 44.8 49.6 11
Depreciation and amortisation 2.0 3.2 60
PBT 42.8 46.4 8
PBT margin 43% 44% ~
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1 Prior year amounts have been restated to reflect the restructure in september 2007

Financial Advisory funds under advice were $4.7 billion at 30 June 2008, a decrease of 10 per cent on the previous financial year, and included $0.3 billion of inflows, which were off-set by adverse market movements of $0.8 billion.

superannuation funds under advice were $2.7 billion at 30 June 2008, a decrease of 10 per cent on the previous financial year, and included $0.2 billion of inflows, which were also off-set by adverse market movements of $0.5 billion.

Non-superannuation funds under advice were $2.0 billion at 30 June 2008, a decrease of 10 per cent on the previous year, and included $0.1 billion of inflows, which were off-set by adverse market movements of $0.3 billion.

Our Fiduciary services business comprises advisory, trustee and executorial services, including the provision of long-term trusts and estates and philanthropic trusts.

Funds under advice in Fiduciary services were $3.0 billion at 30 June 2008, a decrease of 6 per cent on the previous financial year, and included $0.1 billion of inflows, which were off-set by adverse market movements of $0.3 billion.

Business developments

In Perpetual Private Wealth, we continued to build on our successes of 2007 and to increase our contribution to the group’s overall profitability, despite the current market conditions.

During the year, we embarked on our strategy to increase the capacity, quality and efficiency of our client service model by:

b expanding the total number of client facing employees from 105 to 119. The increase in client facing employees was achieved through a number of staff-focused initiatives, which improved the sourcing and selection of talent, defined career paths, streamlined ‘on-boarding’ processes for new staff and enhanced sales techniques. In this market, we are seeing some

Perpetual Private Wealth’s funds under advice

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30 June 2007 Net flows Other [1 ] 30 June 2008
$B $B $B $B
– superannuation 3.0 0.2 (0.5) 2.7
– Non-superannuation 2.2 0.1 (0.3) 2.0
Financial Advisory 5.2 0.3 (0.8) 4.7
– Philanthropic 1.2 0.1 (0.2) 1.1
– Trust and estates 2.0 - (0.1) 1.9
Fiduciary Services 3.2 0.1 (0.3) 3.0
All channels 8.4 0.4 (1.1) 7.7
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1 Includes reinvestments, distributions, income and asset growth, and acquired FuA

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 19

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“Trust is the cornerstone of all
market transactions. When
uncertainty is the dominant
sentiment in the market, the role
of the trustee is paramount.
Phil Vernon
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Phil Yardy, General manager Lenders mortgage services – 25 years in industry Phil Vernon, Group Executive Corporate Trust and Chairman of the Australian securitisation Forum – 26 years in industry Chris Green, General manager Trust and Fund services – 15 years in industry

excellent opportunities to recruit advisers with outstanding experience and skills

b reviewing our service delivery model to create a team-based focus for the business, which will increase quality and scalability and decrease costs by:
defining a technology investment program to upgrade existing systems
introducing new systems with the view to building a scalable infrastructure model
aligning teams around specific client groups
enhancing behavioural and change management processes
improving the direct customer experience
b expanding our operations in the south Australian market with the addition of the Adelaide-based Argosy Wealth Consultants Pty Ltd (Argosy) in January 2008. Argosy added approximately $75 million in funds under advice and more than 100 high net worth clients
b launching the Perpetual Foundation Gift Fund, an innovative fund that creates an efficient, simple and ongoing approach to fulfilling the philanthropic objectives of organisations and individuals

Business outlook

The high net worth (HNW) market in Australia is the fastest growing in the OECD and is expected to grow 10.9 per cent to $660 billion by 2012[1] . Our vision is to become the adviser of choice to this market.

We will build an offering of comprehensive advisory and fiduciary services delivered through quality professional advice models, high levels of client service and scalable infrastructure and platforms.

There is growing demand amongst the maturing and self-funded retiree and pre-retirement segments of the market for quality financial advice and services such as custody, estates, trusts, including ‘represented persons’, small APrA Funds (sAFs) and philanthropy. Our trusted brand ensures we are well-positioned to become the leading provider of this unique suite of services to this high value market segment.

Our strategic priorities for 2009 are to:

b identify opportunities to grow high net worth advisers across key regional areas in Australia, both organically and by acquisition
b continue to invest in our systems and processes with the view to having a scalable infrastructure and best practice processes
b continue to invest in our people to ensure they deliver on Perpetual’s high quality client experience proposition and have a clear career progression plan

Perpetual Corporate Trust

Perpetual Corporate Trust is Australia’s leading provider of corporate trustee and transaction support services to the financial services industry.

Business financial performance

Perpetual Corporate Trust’s operating profit before tax decreased by 17 per cent to $29.5 million for the 12 months to 30 June 2008, compared to $35.7 million for the 12 months to 30 June 2007. This result comprised revenue growth of $15 million or 22 per cent and operating expense growth of $21 million or 67 per cent. The increase in operating expenses took into account operating costs associated with Wignalls Lenders mortgage services (Wignalls) and National Lending solutions (NLs), which were acquired in February and July 2007 respectively.

The increase in revenue was driven primarily by our lower margin mortgage services business. revenue from securitisation and other businesses increased 3 per cent.

We implemented a cost management review to rationalise and reposition our mortgage services and Trust and Fund services businesses in line with the decline in securitisation and mortgage processing volumes, particularly for non-banks.

As part of the rationalisation, we focused on ways to create more efficiency within our mortgage processing area, including the closure of our Parramatta office, the adjustment of staff numbers to match business volumes, a reduction in support service costs and the consolidation of our Debt markets and Funds services business. staff numbers were reduced by 20 per cent from their peak in september 2007. We incurred approximately $3.9 million in integration and restructuring costs.

Growth in our lower margin mortgage services business reduced the overall profit before tax margin from 52 per cent in the 2007 financial year to 35 per cent in the 2008 financial year.

1 Credit suisse Asia Pacific overview - Australian HNW growth analysis: Boston Consulting Group - April 2007

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 21

Perpetual Corporate Trust’s financial performance

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30 June 2007 30 June 2008 Change
$M $M %
Total revenues 68.9 84.2 22
Operating expenses [1] 31.0 51.7 67
EBITDA 37.9 32.5 (14)
Depreciation and amortisation 2.2 3.0 36
PBT 35.7 29.5 (17)
PBT margin 52% 35% ~
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1 Includes $3.9 million of restructuring costs

Funds under administration

Funds under administration at 30 June 2008 were $222.9 billion, an increase of $12.8 billion on the previous financial year.

Approximately $29 billion of funds under administration comprised internally securitised residential mortgage backed securities, which have recently been included as eligible securities for repurchase funding (repo) with the reserve Bank of Australia (rBA). Adjusting for these repo issuances, underlying funds under administration declined 8 per cent to $194 billion.

The decrease was the result of the substantial reduction in new issuances for residential mortgage backed securities combined with the natural run-off in our securitisation book.

It is important to note our funds under administration continue to provide us with a solid annuity income stream. To date, the rate of run-off in our book has been less than originally predicted in the earlier part of the 2008 financial year.

Business developments

Our mortgage processing volumes increased 138 per cent from 40,000 in the 2007 financial year to 95,000 in the 2008 financial year. We have continued to invest in developing our capabilities in this business over the past 12 months.

The acquisition of Wignalls and NLs has provided a core platform for the business including technology, skills, a national network of settlement offices and key client relationships. Through these acquisitions, we now have the capabilities to offer our services as a key strategic outsource partner for large lending institutions. The increasing volumes of business from bank clients have off-set the decrease in volumes from the non-bank sector.

We completed the integration of these businesses in 2008 and will now focus on identifying further efficiencies throughout the coming year. Volume growth in this business was due to the acquisition of a number of new major clients.

Perpetual Corporate Trust’s funds under administration

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Residential mortgage backed securities
Commercial mortgage backed securities
Asset backed securities
RMBS RBA repo
$B
250
222.9
210.1
200
178.6
150 144.3
112.4
100
50
0
2004 2005 2006 2007 2008
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RMBS market issuance has declined significantly

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----- Start of picture text -----

Term RMBS1
$B 2
RMBS RBA repo
70
60
50
40
30
20
10
0
2002 2003 2004 2005 2006 2007 2008
1 source: standard & Poor’s Australian securitisation News June 2008
(s&P rated issuances)
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2 source: Perpetual - 2008 includes $56 billion of ‘repo’ issuances

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Perpetual Corporate Trust - number of mortgage services
transactions
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----- Start of picture text -----

Transaction volumes
100,000
95,000
80,000
60,000
40,000 40,000
20,000
11,000
0 1,500
2005 2006 2007 2008
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While there was a significant reduction in new issuances in our Trust and Fund services business, there was an increased focus on trustee activities. There was particular emphasis on preparing for situations where the trustee is required to step in and manage the run-off of a loan portfolio. This provides additional annuity based revenue such as trust management and servicing fees in addition to our trustee fee.

Business outlook

We are anticipating subdued growth in the core securitisation market in 2009, the result of increased residential mortgage backed security (rmBs) credit spreads. This situation is a direct reflection of the global credit crisis, reduced customer demand and more selective bank warehouse funding support to Australian issuers.

The competitive forces of the global credit markets will ultimately see the re-emergence of the securitisation market as an alternative and necessary source of funding. We remain positioned as the partner of choice to the industry.

Our vision is to be the premier provider of trustee and administrative services to the Australian financial services industry. We will achieve this vision by:

b retaining our leadership position as a service provider to the Australian securitisation market
b extending our mortgage services capabilities
b strengthening our position as a key service provider to the Australian funds management market

Our strategic priorities for 2009 will be to continue our focus on expanding the mortgage services business, improving margins and capturing new business opportunities.

Group and Support Services

Group and support services work with the respective businesses in the execution of their strategies by providing a range of specialised services. These include finance, tax and administration, company secretariat, legal, risk and compliance, people and culture, strategy, and public affairs and investor relations.

Group and support services’ total revenue decreased 26 per cent to $12.1 million for the 12 months to 30 June 2008, compared to $16.4 million for the 12 months to 30 June 2007. The decline in revenue is attributed to the impact of market movements on our investment portfolio.

Operating expenses increased 8 per cent to $35.0 million for the 12 months to 30 June 2008, compared to $32.4 million in the prior corresponding period. The result reflects the recent growth and increased complexity in Perpetual’s businesses and the centralisation of the People and Culture function into Group and support services.

Risk

The risk Group oversaw the implementation of new business procedures that will ensure we address our obligations under the Anti-money Laundering and Counter-terrorism Financing Act . The Act places a number of obligations on financial service providers, including customer identification procedures, customer risk assessment, transaction monitoring and the reporting of suspicious matters and transactions.

Group and Support Services’ financial performance

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----- Start of picture text -----

30 June 2007 [1] 30 June 2008 Change
$M $M %
Total revenues [2] 16.4 12.1 (26)
Operating expenses 32.4 35.0 8
Depreciation and amortisation 4.9 3.1 (37)
Interest expense 2.9 3.3 14
Net expenses (23.8) (29.3) (23)
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1 Prior year amounts have been restated to reflect the restructure in september 2007

2 Includes interest and dividends received on investments

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 23

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----- Start of picture text -----

“
Over time we are seeing strong
corporate governance becoming
the hallmark for companies which
deliver superior long-term returns
for their shareholders.
Joanne Hawkins
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Joanne Hawkins, Company secretary and 2008 Governance Professional of the Year – 10 years in industry

People and Culture

In 2008, our People and Culture team conducted an Employee Engagement survey to better understand the level and drivers of engagement within the organisation. Our people engagement score continued to increase in 2008, a result which sees Perpetual very close to entering Hewitt’s ‘best employers’ zone.

Adding to our improving employee engagement was the introduction of the Contribution Leave initiative in July 2007. This unique initiative provides eligible employees with an additional five days leave each year with the aim of encouraging personal well-being through family and community endeavour.

We recognise sustainability as a key component to maximising long-term value for our business and our stakeholders. At Perpetual, we drive business sustainability by drawing on our experience and knowledge to lead debate and foster change on issues which impact our people, our community and our environment.

Perpetual has a history of philanthropy through our own foundation, the Perpetual Foundation, and through our philanthropic business, which is part of Perpetual Private Wealth.

In 2008, our employees made regular donations to 10 community organisations from their pre-tax pay and Perpetual matched their donations dollar for dollar.

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PErPETuA L LImITED AND ITs CONTrOLLED ENTITIEs | 25

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----- Start of picture text -----

Perpetual Perpetual
Perpetual Investments Private Wealth Corporate Trust
Income and Structured Products Perpetual Trust and
Australian Equities Global Equities Multi-sector and Platforms Private Clients Fund Services
Direct Mortgage Services
Asset Management Asset Management Asset Management Product
Sales and Servicing Sales and Servicing Sales and Servicing Sales and Servicing
Strategy Strategy Strategy Strategy Advisory Services Trustee Services
Marketing Marketing Marketing Marketing Fiduciary Services Custodial Services
Finance Finance Finance Finance Sales Mortgage Servicing
Strategy Sales
Marketing Strategy
Finance Marketing
Adviser Distribution Finance
Analytics and Research
Investment Administration
Group Finance, Risk, Operations, People and Culture and Marketing
Business Services
Perpetual Investments
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Organisation profile

Perpetual Investments

Perpetual Investments has been managing funds since the 1960s and is one of Australia’s most highly regarded investment managers. We offer investors strong investment capabilities across a broad range of asset classes including Australian and global equities, mortgages, cash and fixed interest and Australian listed property.

Our reputation is synonymous with strong investment performance in turbulent markets, which is evident for the majority of our key funds over the past year. Our investment process in Australian shares has remained unchanged for many decades and focused on quality and value.

structured Products and Platforms is also part of Perpetual Investments. Through this business, we provide superannuation and investment solutions to the financial planning market.

Perpetual Investments’ Group Executive team comprises:

b mr David Deverall – Group Executive Australian Equities
b mr Emilio Gonzalez – Group Executive Global Equities
b mr richard Brandweiner – Group Executive Income and multi-sector
b mr Eric Wang – Group Executive structured Products and Platforms
b ms Cathy Doyle – Group Executive Perpetual Investments Business services

offerings. Our philanthropic services are also an important component of Perpetual Private Wealth’s service proposition.

Perpetual’s Direct business caters for clients who invest directly in Perpetual Investments’ products.

mr John Nesbitt is Group Executive Perpetual Private Wealth.

Perpetual Corporate Trust

Perpetual Corporate Trust is the leading provider of corporate trustee and transaction support services to the financial services industry.

Our products and services include trustee services for mortgage backed and other securitisation programs for major banks and non-bank financial institutions; mortgage services, including mortgage preparations, variations and discharges; post settlement servicing; regulatory compliance services for fund managers; custody, unit registry and accounting services for property and mortgage funds; and trusteeships for corporate debt issues, infrastructure projects and other structures.

mr Phillip Vernon is Group Executive Perpetual Corporate Trust.

Group and Support Services

Group and support services is responsible for the administrative and operational support to our business units.

It comprises finance, tax and administration, information technology, company secretariat, legal, risk and compliance, people and culture, group strategy, and group public affairs and investor relations.

Perpetual Private Wealth

Perpetual Private Wealth is a specialist direct-to-client financial services business providing holistic financial solutions for high net worth individuals. It comprises Perpetual Private Clients and Direct.

We provide specialist fiduciary services such as trust advice and services, custodial solutions, estate planning, estate administration and executorial services. We also provide comprehensive and, most importantly, independent financial advice services with specialist and ‘do-it-yourself’ superannuation

Group and support services’ Group Executive team comprises:

b mr roger Burrows – Chief Financial Officer
b mr Ivan Holyman – Chief risk Officer
b mr Eric Wang – Chief Operating Officer
b Pending appointment – Group Executive People and Culture

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 27

Board and governance information

Directors

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Robert M Savage

Chairman and Independent Director FASCPAS, FAICD, FAIM

Appointed as a director in 2001 and as Chairman in October 2005. mr savage 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.

David M Deverall

Chief Executive Officer and Managing Director BE (Hons), MBA (Stanford) Appointed managing Director in september 2003. 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, Analysis and Planning. Prior to joining macquarie Bank, he was a strategy consultant with Bain International and The LEK Partnership. mr Deverall is Chair of the Investment and Financial services Association (IFsA).

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Meredith J Brooks Independent Director BA, FIAA

Appointed as a director in November 2004. ms Brooks 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 and TaikOz Limited.

E Paul McClintock Independent Director BA, LLB

Appointed as a director in April 2004. mr mcClintock is a director of investment banking firm mcClintock Associates. In the period between July 2000 and march 2003, he was secretary to the Cabinet and Head of the Cabinet Policy unit in the Australian Government. mr mcClintock is Chairman of Thales Australia, medibank Private Limited and COAG reform Council.

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Elizabeth M Proust Independent Director BA (Hons), LLB, FAICD

Appointed as a director in January 2006. ms Proust 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 a director of spotless Group Limited, Insurance manufacturers of Australia Pty Ltd and sinclair Knight merz Pty Ltd. ms Proust is a member of the JP morgan Advisory Board.

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Peter B Scott

Independent Director BE (Hons), M.Eng.Sc

Appointed as a director in July 2005. mr scott was Chief Executive Officer of mLC and an Executive General manager of National Australia Bank and also held a number of senior positions with Lend Lease. He is Chairman of sinclair Knight merz management Limited and a director of stockland Corporation Limited. mr scott is a member of the advisory board of Jones Lang Lasalle Australia.

Alexander Stevens

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Independent Director MB BS (Hons), FRACS, MBA (AGSM), MAICD

Appointed director in June 2008. mr stevens was formerly Chief Executive Officer of PepsiCo Australia and New Zealand and a member of the PepsiCo Asia Executive Committee. He also held senior executive roles within PepsiCo in Australia and the united states. Prior to that, he held executive positions at Ord minnett (now JP morgan) and at DBsm (now uBs). mr stevens is Chairman of Crescent Food Group.

Philip J Twyman Independent Director BSc, MBA, FIA, FIAA

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Appointed as a director in November 2004. mr Twyman was Group Executive Director of Aviva plc and Chief Financial Officer of General Accident plc. He was also Chairman of morley Fund management and a director of the Quilter Group in the united Kingdom. mr Twyman also held senior executive positions at AmP Limited in Australia. He is a director of IAG Limited, medibank Private Limited and the swiss re group in Australia, and Chairman of ANZ Lenders mortgage Insurance Pty Ltd.

Board committees

The current members of the four standing committees of the board are set out below:

Audit Risk and Compliance Committee

members: Philip Twyman (Chairman), meredith Brooks, Elizabeth Proust and Alexander stevens

Investment Committee

members: Paul mcClintock (Chairman), meredith Brooks, Peter scott, Philip Twyman and Alexander stevens

People and Remuneration Committee

members: Elizabeth Proust (Chairman), robert savage, Peter scott and Paul mcClintock

Nominations Committee

members: robert savage (Chairman), Paul mcClintock, Philip Twyman and Elizabeth Proust

The above information is current at the published date of this report. more detailed versions of director biographies and other board and governance information are available on page 4 of the ‘2008 Annual report: Part Two – statutory Financial statements’.

PErPETuA L LImITED AND ITs CONTrOLLED ENTITIEs | 29

“ Over time we are seeing strong corporate governance becoming the hallmark for companies who deliver superior long-term returns for their shareholders. Joanne Hawkins

Financial summary

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 31

Consolidated income statement for the year ended 30 June 2008

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2008 2007
Total Total
Note $M $M
Revenue
Perpetual Investments 295 282
Perpetual Private Wealth 105 99
Perpetual Corporate Trust 84 69
Group and support services 12 16
Total revenue (a) 496 466
Operating expenses
Perpetual Investments (127) (111)
Perpetual Private Wealth (55) (54)
Perpetual Corporate Trust (52) (31)
Group and support services (35) (32)
Total operating expenses (b) (269) (228)
Structured products
Income from structured products 118 77
Distributions and expenses relating to
(118) (77)
structured products
Total structured products income (c) - -
Operating earnings before interest, tax
depreciation and amortisation (EBITDA)
Perpetual Investments 168 171
Perpetual Private Wealth 50 45
Perpetual Corporate Trust 32 38
Group and support services (23) (16)
Operating EBITDA 227 238
Depreciation and amortisation
(including equity remuneration
amortisation expense)
Perpetual Investments (21) (19)
Perpetual Private Wealth (3) (2)
Perpetual Corporate Trust (3) (2)
Group and support services (3) (5)
Total depreciation and amortisation (d) (30) (28)
Earnings before interest and tax 197 210
Interest (3) (3)
Tax (60) (62)
Operating profit after tax (e) 134 145
Significant items (after tax) (f)
Profit on disposals of investments after tax 21 37
Losses on EmCF product after tax (26) -
Total significant items (after tax) (5) 37
Profit attributable to shareholders 129 182
Key ratios
Operating earnings per share (cents) -
321 353
diluted
Dividends per share (cents) - ordinary 330 360
Dividends per share (cents) - special - -
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Selected notes to the income statement

(a) Total revenue

Total revenue represents revenue generated from continuing operations and excludes significant items of a non-recurring nature. Group and support services revenue includes interest and dividends received on investments.

(b) Total operating expenses

Total operating expenses categorised into core activities are as follows:

follows:
	2008	2007	Movement
	$M	$M	$M
Employee related expenses	187	154	33
Occupancy costs	16	12	4
Administration and general Total operatingexpenses	66 269	62 228	4 41

(c) Structured products

structured product income and distributions represent income earned and distributions made to unit holders of the Exact market Cash fund. This item is accounted for both as an income and an expense because we guarantee the benchmark.

(d) Depreciation and amortisation

Depreciation and amortisation comprise the following:

	2008	2007	Movement
	$M	$M	$M
Depreciation of assets Equity remuneration expense	10 20	8 20	2 -
Total	30	28	2

(e) Operating profit after tax (OPAT)

OPAT represents Perpetual’s underlying profit.

The financial impact of significant items of a non-recurring nature have been excluded from OPAT.

(f) Significant items (after tax)

These include significant items of a non-recurring nature relating to specific transactions or events incurred in the year. They are unlikely to occur in future years.

Detailed notes to the financial statements are included in ‘Part Two – statutory Financial statements’.

Consolidated income statement for the year ended 30 June 2008

Income statement review and discussion

Revenue

Perpetual Investments

Perpetual Investments’ revenue is generated by charging fees on funds under management (Fum). Fum represents assets held in various managed funds and mandates such as Australian equities and other asset classes. Fum is sourced via three different channels:

Retail – clients who invest via dealers/advisers and directly with Perpetual

Intermediary (masterfund and wrap) – clients who invest via financial intermediaries such as financial planners typically through masterfund and wrap products

Institutional – institutional investors who are typically large superannuation funds that invest directly with Perpetual.

Perpetual Investments’ FUM totalled $30.3 billion at 30 June 2008

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$B
39.1
40
32.8 30.3
30 26.7
21.7
20
10
0
2004 2005 2006 2007 2008
----- End of picture text -----

Perpetual Investments also generates revenue by providing externally advised ‘do-it-yourself’ superannuation, administration and trustee services to clients of intermediaries and by providing wholesale administration services via Investor Directed Portfolio services.

In addition, these products are offered to Perpetual clients operating self-managed superannuation funds and clients investing directly via our wrap product.

Perpetual Private Wealth

Perpetual Private Wealth comprises two businesses, Perpetual Private Clients and Direct.

Perpetual Private Clients’ revenue comprises fees charged on funds under advice (FuA) and services provided. FuA comprises two parts:

Financial advisory – financial advisory assets are subject to advice given by Perpetual’s financial planning capability

Fiduciary services – fiduciary services assets represent assets held within philanthropic foundations and trusts and deceased estates where we act as advisers, executors and trustees.

Perpetual Private Wealth’s FUA totalled $7.7 billion at 30 June 2008

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$B
9 8.4
7.7
7 6.6
5.8
5.1
5
3
1
2004 2005 2006 2007 2008
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The Direct business derives revenue from Fum flowing from the ‘direct-to-customer’ discount broker channels.

Perpetual Corporate Trust

Perpetual Corporate Trust’s revenue is generated by providing specialist independent services, including:

b trustee, custodial, reporting and related services to the securitisation industry
b administration, registry and accounting services for property, mortgage funds and other special purpose entities
b outsourced responsible entity services to managed investment schemes
b trustee services for unregistered and pooled superannuation trusts (PsT)
b mortgage services including mortgage preparations and variations, post settlement servicing and document custody

Perpetual Corporate Trust derives a large part of its revenue from fees charged on funds under administration (FuA). securitisation FuA at 30 June 2008 totalled $222.9 billion, representing assets held by trusts and special purpose entities.

Perpetual Corporate Trust’s securitisation FUA totalled $222.9 billion at 30 June 2008

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$B Residential mortgage backed securities
250 Commercial mortgage backed securitiesAsset backed securities 222.9
200 RMBS RBA repo 178.6 210.1
150 144.3
112.4
100
50
0
2004 2005 2006 2007 2008
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Group and Support Services

Group and support services covers functions providing support to all business units including the corporate function. Operating expenses increased by $3 million to $35 million in 2008. The increase was due mainly to the transition of group executives and the centralisation of certain functions within support services.

Expense base composition

Perpetual is a people business and gains competitive advantage by utilising the skills of its workforce. This is reflected in the cost base composition with nearly 70 per cent attributable to people costs (including non-cash equity remuneration expense).

The graph below shows revenue against total expenses, which comprise operating expenses, depreciation and amortisation including equity remuneration and interest.

Revenue and expenses

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$M
500 Total expenses before tax
400 Revenue
302
300 259
215 225
200 178
100
0
2004 2005 2006 2007 2008
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PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 33

Consolidated balance sheet as at 30 June 2008

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2008 2007
Corporate Product Total Corporate Product Total
Note $M $M $M $M $M $M
Assets
Cash and cash equivalents (a) 183 - 183 215 - 215
shares in other companies, (b) 77 - 77 123 - 123
investments in unit trusts
Other financial assets - - - - - -
-
structured product assets (c) 1,507 1,507 - 1,431 1,431
Loans receivable – structured (c) 5 339 344 - 161 161
products
receivables and other assets 96 - 96 88 - 88
Property, plant and equipment 31 - 31 27 - 27
Intangibles (d) 88 - 88 77 - 77
Derivative financial instruments (e) 16 - 16 11 - 11
Deferred tax assets 28 - 28 21 - 21
Total assets 524 1,846 2,370 562 1,592 2,154
Liabilities
Payables 52 - 52 51 - 51
Provision for taxation 25 - 25 42 - 42
Employee benefits 39 - 39 37 - 37
Other provisions 26 - 26 17 - 17
Derivative financial instruments (e) - - - 3 - 3
structured products - payable (c) - 123 123 - - -
to investors
Income received in advance (f) 21 - 21 12 - 12
Deferred tax liabilities 2 - 2 14 - 14
Total liabilities 165 123 288 176 - 176
Debt
Interest bearing liabilities 45 - 45 45 - 45
structured product liabilities (c) - 1,507 1,507 - 1,431 1,431
Interest bearing liabilities – (c) - 216 216 - 161 161
structured products
Total debt 45 1,723 1,768 45 1,592 1,637
Total liabilities 210 1,846 2,056 221 1,592 1,813
Net assets 314 - 314 341 - 341
Shareholders funds
Contributed equity 164 - 164 153 - 153
reserves 44 - 44 64 - 64
retained earnings 105 - 105 124 - 124
Total shareholder funds 313 - 313 341 - 341
minority interest 1 - 1 - - -
Total equity 314 - 314 341 - 341
Total number of shares on 42.0 41.2
issue (million)
Weighted average number 41.6 41.2
of diluted shares for EPS
calculation (million)
Key ratios
Debt equity 13% 12%
Debt to total assets 9% 8%
Net tangible assets per share 472 591
(cents)
Franking credits ($m) 57 57
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Selected notes to the balance sheet

(a) Cash

Cash comprises cash at bank, cash held by employee share trusts, cash on overnight deposit and cash on call. Cash held by employee share trusts are not available for general operating use. Cash on call is generally available at call with maximum liquidity of seven days.

(b) Shares in other companies, investments in unit trusts and other financial assets

This balance represents market value of investments in Perpetual’s listed and unlisted unit trusts. These assets are liquid in nature and are used primarily to provide seed money to incubation funds for new product development.

The reduction in investments in 2008 primarily relates to the sale of Perpetual’s equity portfolio and a number of seed investments in managed funds.

A complete list of these investments is included on page 39 of this review.

(c) Structured products

structured products are products where Perpetual takes some residual risk.

	2008	2007
	$M	$M
Assets
Exact market Cash Fund	1,507	1,431
Perpetual Protected Investments	339	161
Total assets	1,846	1,592
Liabilities
Exact market Cash Fund	1,507	1,431
Perpetual Protected Investments	339	161
Total liabilities	1,846	1,592

Exact Market Cash Fund

The Exact market Cash product was established in 2005 with the purpose of providing a guaranteed return to investors.

Perpetual Protected Investments

Perpetual Protected Investments was established in 2007 with the purpose of providing investors the ability to select investments from a menu of managed funds while providing capital protection at maturity.

(d) Intangibles

Intangibles comprised:

(d) Intangibles Intangibles comprised:
	2008	2007
	$M	$M
Goodwill	62	58
Capitalised software	22	16
Other intangibles	4	3
Total intangibles	88	77

Goodwill represents the difference between amounts Perpetual paid for various businesses and the fair value of the assets acquired.

Capitalised software costs are amortised over periods between 2.5 and five years. The increase in 2008 is due primarily to the development of our new registry system.

Other intangibles include funds under management and customer contracts acquired and are amortised over a period of five to ten years. The increase in intangibles relates to the purchase of the business operations of National Lending solutions Pty Limited and Argosy Wealth Consultants Pty Limited.

(e) Derivative financial instruments

Derivative financial instruments comprise credit default swap contracts, index futures, forward foreign exchange and interest rate swap contracts held by structured products and Perpetual’s incubation funds.

(f) Income received in advance

Income received in advance represents interest income received relating to the Perpetual Protected Investments series 1, 2 and 3.

Balance sheet review and discussion

Balance sheet structure

Perpetual’s balance sheet comprises two categories: corporate and product. This categorisation differentiates between the nature of these assets and liabilities.

Perpetual is exposed to potential losses from lending to investors. This loss or value at risk has been priced by independent actuaries under a number of scenarios. similar to the EmCF, VAr for PPI is held as capital.

Capital management and dividends

Perpetual’s capital management policy was established in 2004 and was developed with an overarching philosophy of ensuring a level of financial conservatism that is appropriate for its businesses including as a custodian and manager of clients’ assets and operation as a trustee company. The policy aims to provide business stability and accommodate Perpetual’s growth needs. The policy comprises three parts:

Dividend policy – dividends paid to shareholders represent 90 per cent of Perpetual’s underlying cash earnings. This is derived by applying 90 per cent to the consolidated operating profit after tax excluding equity remuneration amortisation expense, EmCF losses and net profit on sale of investments.

Gearing policy – Perpetual seeks to maintain a conservative financial management profile.

Review of capital and distribution of excess capital – Perpetual undertakes a review of its capital base every six months. Excess capital identified is typically distributed to shareholders.

An overview of Perpetual’s capital requirements are set out below:

Corporate assets and liabilities

Corporate assets and liabilities represent assets and liabilities used by Perpetual for current business operations, regulatory requirements and capital retained to enable growth prospects and provide a capital base to support new product development.

Product assets and liabilities

Product assets and liabilities are assets and liabilities of Perpetual funds or products sold to investors where there is residual risk assumed by Perpetual. At 30 June 2008, product assets and liabilities comprise the Exact market Cash Fund product and Perpetual Protected Investments product.

Exact Market Cash Fund (EMCF)

The EmCF provides a guaranteed return of the uBs Bank Bill Index or variant thereof (benchmark) to fund investors. If the fund’s investment returns underperform the benchmark, then Perpetual will ‘top up’ the returns so that it will deliver the benchmark to investors. Conversely, any outperformance by the fund is retained as income by Perpetual. Potential underperformance is called residual risk and the value of this risk is assumed by Perpetual.

Perpetual has priced this risk using independent actuarial advice to derive value at risk (VAr). VAr is held as capital.

Regulatory requirements – Perpetual is regulated in Australia and in Ireland by various bodies such as AsIC, APrA and state trustee acts which require capital to be held. We also monitor international developments in regulatory regimes that impact capital requirements for asset managers and trustee companies. The most notable developments are occurring in Europe where a Basel II approach is being applied to asset managers. An assessment of international developments and their potential impact on Perpetual’s capital base are reflected in our target capital base calculations.

Structured products, incubation and seeding requirements – capital is required to support our structured products, namely the Exact market Cash Fund and the Perpetual Protected Investments product. Perpetual also has an incubation strategy where our asset management teams test new products in order to establish a track record prior to the product being released to investors. Incubation and seed money investments are recycled on an ongoing basis.

Working capital, contingency and growth capital – capital is held to support the ongoing operations of the business, allow for unforeseen events and provide growth capital for small acquisitions.

Final dividends – Perpetual pays 90 per cent of underlying cash earnings to shareholders via ordinary dividends. Cash is retained within the capital base to fund these dividends.

Perpetual Protected Investments (PPI)

The PPI product provides investors the ability to invest in a selection of managed funds while providing capital protection at maturity via a constant proportion portfolio insurance structure. Perpetual will also provide up to 100 per cent finance to approved investors who wish to fund their investment via borrowing. Investors can choose from one of three interest rate options including prepaying interest annually at a rate that is fixed for the full term, fixing each year or paying interest monthly in arrears at a variable rate.

Investment loans provided to investors are funded by variable interest rate banking facilities. As Perpetual’s aim is to pursue a conservative risk free strategy in its products, it has entered into interest rate swap contracts in order to hedge these facilities from exposure to fluctuating interest rates. At 30 June 2008, approximately 96 per cent of fixed interest rate loans were hedged against exposure to interest rate movements.

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 35

Consolidated cash flow statement for the year ended 30 June 2008

Note	2008 2007 $M $M 197 210 30 28 227 238 (3) (3) (73) (53) (5) 6 146 188 (37) (6) (18) (18) (103) (46) 1 1 (5) (6) 152 85 (6) - (10) (16) 11 5 9 (157) (179) (152) (170) (32) 12 215 203 183 215 69 82 -	Cash flow review and discussion (a) Net operating cash flows represents cash generated from Perpetual’s core business. These have been decreased by 22 per cent from prior year compared to an EBITDA decrease of 5 per cent over the same period. This difference results from an increase in income tax payments for 2008. (b) Cash flows applicable to items outside of operating profit Current year payments represent the EmCF losses which are paid out under a total return swap. Prior year payments are associated with the administration review (including unit pricing) in the prior year. No payments have been made in the current year. (c) Payments for property, plant and equipment Predominantly for acquisition of software and hardware. (d) Payments for investments Payments for investments relate to the establishment of new in-house funds and investments made by Perpetual’s incubator funds. (e) Proceeds from sale of investments Proceeds from sale of investments relate to: 2008 2007 $M $M sale of investment portfolio 41 58 sale of investments held by 100% owned incubator funds 92 27 Proceeds received from sale of rinker Group Limited 8 - sale of unlisted investment funds 11 -


Cash flows from operations
Earnings before interest and taxation
Depreciation and amortisation
Operating EBITDA
Interest paid
Income taxes paid
Net movements in working capital
Net operating cash flows (a)

Cash flows applicable to items outside of operating profit (b)

Capital expenditure and investment cash flows
Payments for property, plant and equipment (c)
Payments for investments (d)
repayments of loans
Acquisition of business operations
Proceeds from sale of investments (e)
Loan to Perpetual Diversified Infrastructure Fund
Tax paid on the sale of investments
Total capital expenditure and investment cash flows
		Cash proceeds from sale of investments 152 85 Proceeds due from sale of rinker Group Limited - 8 Other non-cash movements - 2

Financing cash flows
Proceeds from issue of shares
		Proceeds from sale of investments1 152 95
Dividends paid (f)
		1 Per income statement in ‘Part Two – statutory Financial statements’ (f) Dividends paid Dividends paid in 2008 represents payment of 2007 final and 2008 interim dividends. Perpetual’s dividend policy is to pay out 90 per cent of operating profit after tax excluding equity remuneration amortisation expense, EmCF losses and net profit on sale of investments. (g) Interest cover (times)
Total financing cash flows

Total net cash flow
Cash at beginning of period
Cash at end of period

Key ratios
Operating EBITDA interest cover (times) (g)

represents cash generated from Perpetual’s core business. These have been decreased by 22 per cent from prior year compared to an EBITDA decrease of 5 per cent over the same period. This difference results from an increase in income tax payments for 2008.

This is calculated as statutory operating EBITDA divided by interest expense. It shows the number of times the company can service it’s cost of borrowings out of cash earnings generated by the business.

Directors’ and executives’ remuneration

Perpetual’s overarching philosophy and objectives when designing our remuneration policy is to encourage a sense of ownership in the company by our employees. As a result, 8.5 per cent of Perpetual’s shares were held in trust for employees by employee share plans as at 30 June 2008.

Remuneration policy

Our remuneration policy aims to unlock the entrepreneurial spirit of our people and harmonise incentives for shareholder wealth creation.

Our remuneration policy is based on the following five key principles:

b variable pay should be a feature of all employees’ remuneration. For senior employees variable pay forms a significant part of overall remuneration. Fixed remuneration should be competitive

Remuneration linked to performance

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Fixed remuneration STI LTI
%
100
5
16
90 22 12
46
80
25
70
60 35
50 31
40 83
30 59
20 43
23
10
0
Executive Group Senior Other
Director executives leadership team
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Notes:

b variable pay is linked to shareholder wealth creation and individuals are clear on performance criteria
b short-term incentives (sTI) are based on yearly performance and uncapped to allow for recognition of performance
b sTI should be paid out of the operating profits of the organisation
b equity participation within the organisation should be increased to encourage a sense of ownership, be appropriately tied to stretch hurdles and encourage retention of key individuals

Accordingly, total remuneration comprised fixed and variable components which link employees’ performance and rewards in a tangible manner.

Remuneration linked to performance

remuneration is linked to performance and aligns short-term incentives (sTI), such as bonuses, and long-term incentives (LTI) with key business outcomes such as investment returns, company profit growth and total shareholder return.

Target remuneration and its composition between fixed, sTI and LTI is shown in the chart at the top of the next column titled ‘remuneration linked to performance’.

Short-term incentives

sTI paid to employees are funded from a profit participation pool (PPP) that accumulates based on the company’s operating profit after tax (OPAT). For the 2008 financial year, OPAT was reduced by the realised and unrealised Exact market Cash Fund losses prior to calculating PPP. The PPP increases if the company’s profit increases; conversely, the PPP decreases if profit decreases.

some employees are excluded from the PPP including our key asset managers, where sTI are explicitly linked to investment performance; and some of our Perpetual Private Wealth’s employees, as a proportion of their sTI is linked to sales performance.

1 The chart excludes remuneration for asset managers as their remuneration consists of a large portion of LTI compared to other employees. refer to the full remuneration report included in ‘Part Two – statutory Financial statements’ for more details of asset managers’ remuneration
2 Actual remuneration and its composition may differ from target

The relationship between company five year financial performance and rewards for employees whose sTI are funded from the PPP is shown in the chart below.

STI and OPAT are highly correlated

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OPAT STI Index
$M 2008 = 100
160 OPAT 145.3 180
140 Index of STI paid 133.5 160
122.4 140
120
100 92.5 95.8 120
100
80
80
60 60
40 40
20 20
0 0
2004 2005 2006 2007 2008
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Notes:

1 2005 and 2006 balances have been restated to include the results of our global equities business
2 Index of sTI paid represents sTI paid as a proportion of 2008. sTI 2008 is 100

Long-term incentives

LTI are incentives paid to executives which are linked to future performance over a three year plus time horizon. They are directly aligned with shareholder wealth creation. We provide LTI as equity in the company so that executives feel a sense of ownership. We encourage sustained performance from our employees by ensuring LTI are only paid out when challenging performance hurdles are met.

LTI are granted in the form of shares and, in selected cases, options.

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 37

Remuneration of key management personnel

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Managing Director, Cash Cash Non- Pension Share Total Total
group executives and salary profit monetary and and 2008 2007
other officers and sharing and super option
fees and other other based
bonuses benefits [1] remuner-
ation
$’000 $’000 $’000 $’000 $’000 $’000 $’000
D Deverall managing Director, Chief Executive Officer and
Group Executive of Australian Equities 950 535 5 50 1,607 3,147 2,817
r Brandweiner Acting Group Executive Income and multi-sector 209 203 3 10 (19) 406 -
r Burrows Chief Financial Officer [2] 133 100 4 3 36 276 -
C Doyle Group Executive Perpetual Investments 397 199 40 13 206 855 422
Business services and Group Executive People
and Culture
E Gonzalez Group Executive Global Equities 490 273 6 13 (19) 763 1,272
I Holyman Chief risk Officer 304 121 4 60 (1) 488 880
J Nesbitt Group Executive Private Wealth [3] 552 233 13 42 22 862 1,375
P Vernon Group Executive Corporate Trust 323 116 67 13 11 530 843
E Wang Group Executive structured Products and 280 258 11 11 78 638 -
Platforms and Chief Operating Officer
Other executives
r macIntyre Former managing Director PI Investment - - - - - - 975
management Limited [4]
Departed executives
G Doherty Former Group Executive Wealth management 376 - 2 7 (279) 106 1,424
s rowe Former Group Executive Human resources - - - - - - 72
Total 4,014 2,038 155 222 1,642 8,071 10,080
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1 Non-monetary and other benefits include salary sacrifice components of remuneration, salary continuance insurance, relocation benefits, cost of living adjustments and final payments in respect of departed executives
2 mr r Burrows joined Perpetual on 31 march 2008
3 mr J Nesbitt resigned as Chief Financial Officer and was appointed as Group Executive Private Wealth on 31 march 2008
4 mr macIntyre transferred back to Australia in June 2007 to take on other responsibilities in the Australian arm of Wealth management. As a result, mr macIntyre resigned as a director of PI Investment management Limited on 18 June 2007

Remuneration of non-executive directors

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|||||||||
|---|---|---|---|---|---|---|---|
|Non-executive|Cash|Pension|Share|Total|Total|
|directors|salary|and|and|2008|2007|
|and|super|option|
|fees|based|
|remuner-|
|ation|
|$’000|$’000|$’000|$’000|$’000|
|r m savage|Chairman|428|40|-|468|425|
|m J Brooks|Director|198|13|-|211|193|
|E P mcClintock|Director|141|13|66|220|199|
|E m Proust|Director|174|13|33|220|187|
|P B scott|Director|203|13|4|220|190|
|A stevens|[1]|Director|3|-|-|3|-|
|P J Twyman|Director|149|13|82|244|223|
|Directors who retired during the year|
|s V mcPhee|[2]|Former Director|69|5|-|74|200|
|Total|1,365|110|185|1,660|1,617|

----- End of picture text -----

1 mr A stevens joined Perpetual on 24 June 2008

2 ms s V mcPhee resigned on 30 October 2007

Notes to the financial statements

Auditor’s remuneration

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Listed company 2008 2007
$’000 $’000
Assurance services
Audit and review of the consolidated financial statements 385 353
Audit and review of managed funds for which the group acts as responsible entity and/or trustee [1] 1,640 1,392
Audit services in accordance with regulatory requirements 35 187
Other assurance services 188 115
Total assurance services 2,248 2,047
Taxation services – managed funds and corporate entities - 1
superannuation services - 3
Total fees paid to the audit firm 2,248 2,051
----- End of picture text -----

1 This fee relates to the audit of approximately 158 managed funds and 1,200 ‘do-it-yourself’ superannuation funds with asset values of $30.3 billion at 30 June 2008

Perpetual holds investments on its own account. These investments are detailed below.

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Listed companies $M Unlisted investments $M
Perpetual Incubation Funds [1] 39.5 Investor marketplace Pty Ltd 0.1
39.5 Perpetual Capital Accumulation Portfolio 1.0
Perpetual Diversified Infrastructure Fund 7.2
Perpetual Equity Imputation Portfolio 1.0
Perpetual Incubation Funds 1.5
Perpetual Wealthfocus Funds 0.7
Perpetual Wholesale Property Income Fund 4.5
Perpetual Wholesale Quantitative Investments Alpha 9.1
TE2 Fund
Perpetual Wholesale sHArE-PLus Fund 12.0
37.1
----- End of picture text -----

1 These incubation funds invest in listed Australian and global companies. These have not been separately disclosed due to the number of securities held by the funds

Post balance sheet events

subsequent to year end, the consolidated entity completed the sale of its infrastructure funds business to Palisade Investment Partners on 21 July 2008. The sale has not been brought to account at 30 June 2008.

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 39

Directors’ declaration

The directors declare that the summarised financial statements and notes set out under the ‘Financial summary’ from pages 31 to 42 are consistent with the annual ‘Part Two – statutory Financial statements’ including the ‘Directors’ report’ from which they are derived. The directors also declare that the summarised financials give a true and fair view of the financial position of Perpetual Limited (the Company), its consolidated entities as at 30 June 2008 and its performance as represented by the results of its operations and its cash flows for the financial year ended on that date.

In the directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the directors.

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robert savage David Deverall Chairman managing Director and Chief Executive Officer

Auditor’s responsibility

Our responsibility is to express a conclusion on the summarised financial report based on our review, which was conducted in accordance with Australian Auditing standards applicable to review engagements. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Review approach

We have reviewed the principles applied in determining the basis upon which disclosures in the summarised financial statements have been measured and recognised. We have also performed an independent audit of the statutory financial report (refer ‘Part Two – statutory Financial statements’ including ‘Directors’ report’) and the remuneration disclosures of the Company and its controlled entities for the year ended 30 June 2008.

Our audit report on report on the statutory financial report and the remuneration disclosures was signed 20 August 2008, and was not subject to any qualification.

Independence

In conducting our review, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

sydney 20 August 2008

Conclusion

Independent auditor’s review statement on the summarised financial statements to the members of Perpetual Limited

Scope

We have reviewed the accompanying summarised financial report of Perpetual Limited (the Company) comprising the summary ‘Consolidated income statement’ on page 32, the summary ‘Consolidated balance sheet’ as at 30 June 2008 on page 34, the ‘Consolidated cash flow statement’ on page 36, the ‘Directors and executives’ remuneration’ on page 37 and the ‘Notes to the financial statements’ on page 39, which was derived from the financial report of Perpetual Limited for the year ended 30 June 2008. We expressed an unmodified auditor’s opinion on that financial report in our auditor’s report dated 20 August 2008.

The responsibility of directors’ for the summarised financial report

The directors are responsible for the preparation and presentation of the summarised financial report. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the summarised financial statements.

Based on our review, which is not an audit, the summarised financial statements, including the summary ‘Consolidated income statement’ on page 32, the summary ‘Consolidated balance sheet’ as at 30 June 2008 on page 34, the ‘Consolidated cash flow statement’ on page 36, the ‘Directors and executives’ remuneration’ on page 37 and the ‘Notes to the financial statements’ on page 39 for the year ended 30 June 2008, have been prepared on a basis consistent with the audited statutory financial report.

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KPmG

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Dr Andries B Terblanché Partner

sydney 20 August 2008

Appendix

Perpetual Limited comparative financial performance – 2004 financial year to 2008 financial year

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Performance measures Units 2004 2005 2006 2007 2008 Growth
rate % [1]
Operating revenue [2] $m 295.2 342.1 385.2 445.0 476.3 13
Investment income $m 10.8 11.4 17.6 21.2 19.4 15
Total revenue $m 306.0 353.5 402.8 466.2 495.7 13
EBITDA [3] $m 150.3 158.0 206.6 238.0 227.1 11
Operating profit before tax [3] $m 130.3 141.4 178.0 206.9 193.6 10
Operating profit after tax (OPAT) [3] $m 92.5 95.8 122.4 145.3 133.5 10
Net profit after tax $m 94.6 119.1 135.3 182.1 128.8 8
Earnings per share (OPAT) - diluted [4] cents 242 246 300 353 321 7
Earnings per share (NPAT) - diluted [4] cents 247 306 332 442 309 6
return on average shareholders’ equity [5] % 33.2 34.3 40.8 43.2 40.7 ~
Dividend per share – ordinary [6] cents 150 260 326 360 330 22
Dividend per share – special [6] cents 250 100 100 - - ~
Total shareholders’ equity $m 289.5 269.3 331.0 341.0 314.4 2
Capital expenditure $m 5.7 9.3 26.4 17.9 17.7 ~
market capitalisation $m 1,795 2,303 2,977 3,234 1,794 -
Number of shares on issue – weighted average [7] m 38.3 38.9 40.8 41.2 41.6 2
Number of shares on issue at 30 June [7] m 38.2 40.1 40.7 41.2 42.0 2
share price at 30 June $ 46.99 57.43 73.15 78.51 42.77 (2)
share price range for year $low 29.90 44.80 57.60 67.80 40.95
$high 48.20 68.50 74.00 84.20 83.27
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1 Compound annual growth rate over four years to 30 June 2008

2 Excludes income from structured investments

3 Excludes gains on sale of investments, EmCF losses, sale of building and costs of major strategic initiatives

4 Diluted earnings per share calculated using the weighted average number of ordinary shares and potential ordinary shares on issue

5 Calculated using operating profit after tax

6 Dividends declared with respect to the financial year

7 Includes ordinary shares and potential ordinary shares on issue

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 41

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Contact information

AUSTRALIA

Perth

Sydney

Angel Place Level 12, 123 Pitt street sydney NsW 2000 Phone +61 2 9229 9000

Adelaide

Level 11, 101 Grenfell street Adelaide sA 5000 Phone +61 8 8418 5656

5 Percy Court Adelaide sA 5000 Phone +61 8 8414 7500

Brisbane

Level 6, 260 Queen street Brisbane QLD 4000 Phone +61 7 3834 5656

Level 8, 288 Edward street Brisbane QLD 4000 Phone +61 7 3229 6599

Canberra

Level 4, 10 rudd street Canberra ACT 2601 Phone +61 2 6243 6500

Exchange Plaza Level 29, 2 The Esplanade Perth WA 6000 Phone +61 8 9224 4400

Level 3, 40 st George’s Terrace Perth WA 6000 Phone +61 8 9225 5015

Overseas offices

IRELAND

Alexandra House Level 5, The sweepstakes Ballsbridge Dublin 4 Phone +353 1 669 9200

UNITED KINGDOM

CityPoint Level 9, 1 ropemaker street London EC2Y 9HT Phone +44 207 153 1557

www.perpetual.com.au

ABN 86 000 431 827

Melbourne

Level 28, 360 Collins street melbourne VIC 3000 Phone +61 3 8628 0400

Perpetual’s 2008 Annual report is printed on 9Lives 80 paper stock 150gsm (cover 300gsm) supplied by spicers Paper. It is manufactured to the highest environmental certification standards.

PErPETuAL LImITED AND ITs CONTrOLLED ENTITIEs | 43

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Experience. The difference.

AI assistant

Perpetual Limited — Annual Report 2008

10538_rns_2008-08-19_6618ca15-40c5-4ceb-a9a1-09e86e84bd6a.pdf

Contents

Shareholder calendar

Foreword

Group financial summary

1

Chairman and Chief Executive Officer’s report

Fellow shareholder

A challenging operating environment

Firstly, we must continue to invest in our strategic priorities

Double digit growth expected over the longer-term

Secondly, we must maintain our conviction for the way we manage money

Finally, we must respond to the overall decline in market levels by continuing to review elements of our cost base

Group financial performance

Operating profit after tax – down 8 per cent

Operating earnings per share (diluted) – down 9 per cent

Ordinary dividend per share – down 8 per cent

Capital management

Group outlook

Reconciliation of operating profit after tax

Review of operations

Consolidated financial performance

Perpetual Investments’ financial performance

Perpetual Investments

Business financial performance

Funds under management

Perpetual Investments’ funds under management

Investment performance

Perpetual Investments’ funds under management

Spread over bank bills

Business developments

Business outlook

Perpetual Private Wealth

Business financial performance

Funds under advice

Perpetual Private Wealth’s financial performance

Business developments

Perpetual Private Wealth’s funds under advice

Business outlook

Perpetual Corporate Trust

Business financial performance

Perpetual Corporate Trust’s financial performance

Funds under administration

Business developments

Perpetual Corporate Trust’s funds under administration

RMBS market issuance has declined significantly

Business outlook

Group and Support Services

Risk

Group and Support Services’ financial performance

People and Culture

Organisation profile

Perpetual Investments

Perpetual Corporate Trust

Group and Support Services

Perpetual Private Wealth

Board and governance information

Robert M Savage

David M Deverall

Meredith J Brooks Independent Director BA, FIAA

E Paul McClintock Independent Director BA, LLB

Elizabeth M Proust Independent Director BA (Hons), LLB, FAICD

Peter B Scott

Independent Director BE (Hons), M.Eng.Sc

Alexander Stevens

Independent Director MB BS (Hons), FRACS, MBA (AGSM), MAICD

Philip J Twyman Independent Director BSc, MBA, FIA, FIAA

Board committees

Audit Risk and Compliance Committee

Investment Committee

People and Remuneration Committee

Nominations Committee

Financial summary

Consolidated income statement for the year ended 30 June 2008

Selected notes to the income statement

(a) Total revenue

(b) Total operating expenses

(c) Structured products

Perpetual Limited Annual Report 2008