Perpetual Limited — Management Reports 2012

Perpetual Limited Shareholder UPdate 2012

ABN 86 000 431 827

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Peter Scott Chairman

The investment returns created for unit holders by our asset managers continue to lead the industry, the longstanding expertise supporting our wealth advice is highly regarded, and the corporate fiduciary services we provide are the benchmark amongst our corporate clients.

chairman’S note

Enclosed with this Shareholder Update is your advice of the 2012 final dividend of 40 cents per share fully franked. This is in line with the guidance I provided to you in my letter to shareholders dated 29 June 2012 and, combined with the interim dividend of 50 cents, brings total fully franked dividends for the year to 90 cents per share.

This year, there have been a significant number of changes within Perpetual. What has not changed is the unique ability of this organisation to adapt to an environment that remains volatile and challenging, and respond in a manner that reflects our qualities and experience.

Perpetual is in a strong financial position. The investment returns created for unit holders by our asset managers continue to lead the industry, the longstanding expertise supporting our wealth advice is highly regarded, and the corporate fiduciary services we provide are the benchmark amongst our corporate clients.

We started the 2012 financial year with the implementation of a range of initiatives announced in May 2011, aimed at improved performance and focus, cost reduction, and a more active management of our capital. We made good progress towards these core objectives by exiting some businesses and by partnering in other areas. However, the market entered a period of extreme volatility that further undermined investor confidence and demand for our products and services.

The off-market share buy-back announced in the previous year was completed in

October 2011, with around 3.35 million shares bought back at $20.90 per share, returning approximately $70.0 million to participating shareholders.

In February 2012, the Board appointed Geoff Lloyd as the Company’s new Chief Executive Officer and Managing Director, following the stepping down of previous CEO Chris Ryan. The Board felt Mr Lloyd was ideally placed to take up this role, having been closely involved in Perpetual’s review of its overall business strategy, structure and cost base during the preceding year. He has demonstrated since his appointment a clear ability to identify the challenges we face, lead the necessary responses and create growth for the Company.

reMUneration review

At the 2011 Annual General Meeting, a number of shareholders cast a ‘no’ vote on the Remuneration Report. In response, the Board has undertaken a thorough review of the remuneration framework and structures.

As a result, the Board decided to reduce overall Board costs by approximately 30%, or $0.5 million, from 1 July 2012. In addition to these reductions, we are also revising our approach to the remuneration of key management personnel and staff in general to ensure that their interests are fully aligned with those of shareholders. Evidence of that alignment can be seen in the reduction in variable remuneration expenses in the 2012 financial year, which is in line with the Company’s lower financial performance during the year.

Board sUCCession

During and after the end of the 2012 financial year, the composition of your Board changed. On 20 September 2011, Meredith Brooks informed the Board that she had decided not to seek re-election as a Director at the 2011 AGM. On 8 August 2012, Paul McClintock advised he would be stepping down as a Director following this year’s AGM on 1 November 2012. I thank both Ms Brooks and Mr McClintock for their highly valued contribution to the Board. On 6 September 2012, we announced the appointment of two new Directors. Sylvia Falzon and Craig Ueland will join the Board in November and September 2012 respectively. Ms Falzon has held a number of senior executive positions in the funds management industry and Mr Ueland most recently was global President and CEO of Russell Investment Group. Both bring invaluable industry experience to our Board.

towards FUndaMental ChanGe

In my previous letter, I also wrote to you about the launch of our Transformation 2015 strategy. The implementation of this initiative has started the year on a positive note. The new leadership team and their responsive and committed staff are tackling the challenges ahead of us with vigour and determination. I am confident this will improve our performance for both shareholders and clients. You can read more about Transformation 2015 in the Chief Executive Officer’s Note.

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geoff lloyd Chief Executive Officer and Managing Director

chief execUtive officer’S note

I am honoured and feel privileged to be able to lead Perpetual’s team as Chief Executive Officer and Managing Director.

Perpetual is a company with significant capabilities and heritage. We are well positioned in an industry that is experiencing long-term structural growth, together with increased demand for quality independent advice and superior investment returns. Even though market and macro-economic conditions have significantly influenced investor sentiment and profit, the future is compelling for Perpetual. However, we have acknowledged that we did not always perform to our strengths.

We needed to conduct an honest assessment of the business, and upon my appointment as CEO, I immediately initiated a comprehensive strategic review of our operations and a careful, in-depth analysis of the issues, challenges and opportunities the Company is facing.

BUildinG MoMentUM in

another Year oF ChallenGes While the 2011 financial year saw a brief uptick in equity market fortunes and investor confidence, 2012 again faced significant challenges and investors turned increasingly defensive, weakening demand for investment products and wealth advice, our main revenue drivers.

In August, Perpetual Investments exited the smartsuper self managed superannuation fund administration services business, as this type of service is not a core activity for

Perpetual. In the same month, we appointed US-based firm Wellington Management Company, LLP to manage our international equity funds and closed our own management capability in Dublin, Ireland.

Perpetual Investments also changed the way it approaches the retail distribution of its products. To make sure investors are fully aware of the range and unrivalled performance of our funds, our focus is now on key clients and decision makers, as well as organisations influencing their product selection, such as research and ratings houses.

We expanded our product offering in the second half of the year, launching the Pure Equity Alpha fund, a long/short fund targeting absolute returns. The fund subsequently received a ‘Recommended’ rating from investment research house Zenith. In the same period, the Share Plus Fund was awarded a ‘Highly Recommended’ rating by Zenith. Perpetual Investments was also awarded its first offshore sub-advisory mandate for the Global Resources strategy.

Throughout the 2012 financial year, Perpetual Private continued to invest for future growth via a number of initiatives.

We started the build phase of the platform outsourcing agreement supporting the modernisation of Perpetual Private’s service offering, dubbed Project ICE, which stands for ‘Improving Client Experience’ as it will substantially enhance the features and capabilities of the platform. Part of the project was the ahead-of-schedule launch of Super Wrap, our new superannuation wrap offer.

Perpetual Private is also stepping up the penetration of new client sub-segments, such as trustee services for native title trusts. We continued to invest in a more diversified base of non-market related revenue streams such as investment placements, estate planning, life risk sales and financial planning. An added benefit is that these revenue streams are not as impacted by market volatility and therefore provide a stabilising effect against the uncertain financial markets we are currently encountering.

In summary, we are now developing a truly differentiated and targeted high net worth offer in Perpetual Private, built around wealth advice, in which we have strong scale and advocacy, but also incorporating new activities where we have a clear advantage.

During the year, our Corporate Trust business was able to utilise its strong market position by capturing new trusteeship business in emerging asset classes. Major trading banks started issuing covered bonds following changes in legislation in 2011 and as Corporate Trust is recognised as a leader in trustee services for corporates, it was very successful in being awarded new mandates. In fact, we were appointed as covered bond trustee for three of the four major banks, a success trend that has continued in the current financial year with two further appointments. In June, we announced our intention to exit the mortgage processing services business within Corporate Trust. On 1 August 2012, we completed the sale of this business, allowing the Corporate Trust business to focus on corporate fiduciary services.

exCess/(Under) investMent PerForManCe P.a. – Gross as at 30 JUne 2012

october 2012

aCCeleratinG oUr ProGress: transForMation 2015

While all of our businesses made good progress during the year, the comprehensive strategic review I initiated quickly determined that more needed to be done to match the difficult environment our industry continues to operate in. Our overall performance in the 2012 financial year confirmed the need for an accelerated and more fundamental change.

Over the next three years, Perpetual will embark on a strategy that will simplify your Company’s corporate structure, refocus its operational activities and capture new opportunities for growth. It is our intention to reshape Perpetual as Australia’s largest independent wealth manager of choice, able to leverage its leading position in the financial services market place.

The investment required to implement this much needed strategy and achieve its objective of delivering $50 million in annual savings in the 2015 financial year accounts for the main difference between the $67.6 million underlying profit after tax achieved in the 2012 financial year and the net profit after tax attributable to Perpetual equity holders of $26.7 million reported for the period. The level of the final dividend also reflects the impact of this necessary investment on net profit after tax for the second half of the 2012 financial year.

Progress has already been made towards the objectives of Transformation 2015 during the 2012 financial year, with a major reduction in our cost base created by some of the initiatives implemented during that period. Since then, we have made further significant progress and we are on track to meet our objectives.

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SimPlify
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Efforts to simplify the Company’s management structure and aggressively manage central costs have resulted in a significant reduction in staff roles, from 1,480 as at the end of FY11 to 1,053 as at 1 August 2012, with around 280 of this reduction as a result of the sale of our mortgage processing business. At the same time, my new and smaller executive leadership team continues to take shape.

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refocUS
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In Perpetual Private, a realignment of the advice model is underway to commit in a disciplined manner to our chosen target client segments and build services and capabilities specifically for these segments. A designated project team has also been created to oversee the alignment of Perpetual Investments’ and Perpetual Private’s investment capabilities.

On 30 August 2012, we announced the signing of an outsourcing agreement that will allow us to modernise our IT infrastructure and applications, and enable a number of service and capability improvements.

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grow
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Transformation 2015 is also about creating growth. In Perpetual Investments, we will concentrate on selected, specialised areas of asset management. If we identify a need we cannot effectively address ourselves, we will partner, as we did via the relationship with Wellington Management, first for international equity and more recently for global fixed income capabilities.

Perpetual Private is pressing on with its initiatives in the new business areas of native title trusts and the distribution of life risk products, while at the same time improving its ability to promote its core wealth advice offer.

In the refocused Corporate Trust, growth is being pursued by profitably extending the services already provided by the business. Perpetual recently launched MARQ Services, a partnership with global consulting firm Oliver Wyman and Morgij Analytics that will provide data reporting and analytics services for Australian RMBS and covered bond markets, in which Corporate Trust already has a leading share as a trustee.

We are well positioned in an industry that is experiencing long-term structural growth, together with increased demand for quality independent advice and superior investment returns. Even though market and macro-economic conditions have significantly influenced investor sentiment and profit, the future is compelling for Perpetual.

shareholder update 2012

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Transformation 2015, a major milestone in our history, is well underway and the Company is now truly operating as ‘One Perpetual’, with a renewed sense of urgency that permeates the way we work every day.

I am confident in our vision to become Australia’s largest independent wealth manager of choice. Our unrivalled asset management performance, strong client advocacy and scale in high net worth personal advice, and our significant capability in corporate fiduciary services will underpin the Company’s future successes for our clients and for you, our shareholders.

geoff lloyd

Australia’s largest independent wealth manager of choice

FinanCial Calendar

Annual General Meeting 1 November 2012

2013 Interim profit and 28 February 2013 dividend announcement

Please note that dates are subject to change

ContaCt details

Perpetual Shareholder Information Line 1300 732 806 or +61 2 8280 7620 Fax +61 2 9287 0303

Principal Registered Office Level 12 123 Pitt Street Sydney NSW 2000 Australia Phone + 61 2 9229 9000 Fax +61 2 8256 1461 www.perpetual.com.au ABN 86 000 431 827

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one PerPetUal
Personal advisory Refocused
Specialised asset
to targeted high net corporate fiduciary
management
worth segments services
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aGM details

Thursday, 1 November 2012 10:00 am AEDT The Heritage Ballroom Level 6 The Westin Sydney 1 Martin Place, Sydney

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october 2012